CONSOLIDATED FINANCIAL STATEMENTS
Years ended June 30, 2022 and 2021
In US dollars
KPMG LLP
600 de Maisonneuve Blvd. West
Suite 1500, Tour KPMG
Montréal (Québec) H3A 0A3
Canada
Telephone
Fax
Internet
(514) 840-2100
(514) 840-2187
www.kpmg.ca
INDEPENDENT AUDITORS’ REPORT
To the Shareholders of Highland Copper Company Inc.
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, 2022 and June 30, 2021;
the consolidated statements of (loss) income and comprehensive (loss) income for the years then
ended;
the consolidated statements of changes in shareholders’ equity for the years then ended;
the consolidated statements of cash flows for the years then ended;
• as well as the notes to the consolidated financial statements, including a summary of significant
accounting policies;
(hereinafter referred to as the "financial statements").
In our opinion, the accompanying financial statements present fairly, in all material respects,
the consolidated financial position of the Entity as at June 30, 2022 and June 30, 2021 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.
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
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,
that the Entity has an accumulated deficit as at June 30, 2022, and that its operations are dependent
on obtaining additional funds to pursue its operations and meet its obligations related to the
development of the Copperwood and White Pine North projects beyond the current fiscal year.
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 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.
3
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.
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 from error, as fraud may involve collusion, forgery, intentional omissions,
misrepresentations, or the override of internal control.
• Obtain an understanding of internal control relevant to the audit in order to design audit procedures
that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the
effectiveness of the 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.
4
• 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.
• 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 Marc-André Fontaine.
Montréal, Canada
October 25, 2022
*CPA auditor, public accountancy permit No. A131804
5
Highland Copper Company Inc.
Consolidated Statements of Financial Position
(in US dollars)
ASSETS
Current
Cash
Sales taxes receivable
Prepaid expenses and other
Non-current
Environmental bond (Note 5 b)
Capital assets (Note 4)
Exploration and evaluation assets (Note 5)
TOTAL ASSETS
LIABILITIES
Current
Accounts payable and accrued liabilities
Credit facility (Note 6)
Promissory note (Note 7)
Non-current
Environmental liability (Note 8)
TOTAL LIABILITIES
SHAREHOLDERS' EQUITY
Share capital (Note 9)
Contributed surplus
Deficit
Cumulative translation adjustment
TOTAL EQUITY
TOTAL LIABILITIES AND EQUITY
Going Concern (Note 2)
Event after the reporting date (Note 20)
June 30,
June 30,
2022
$
2021
$
12,929,815
2,982,600
51,041
70,924
6,822
32,048
13,051,780
3,021,470
1,676,149
-
29,672
29,446
22,856,259
38,740,479
37,613,860
41,791,395
1,257,830
2,236,842
-
-
6,218,415
17,754,189
1,257,830
26,209,446
2,097,425
274,275
3,335,255
26,483,721
83,948,586
66,137,274
15,220,385
11,961,512
(66,026,815)
(63,970,379)
1,116,449
1,179,267
34,258,605
15,307,674
37,613,860
41,791,395
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/ Caroline Donally
Caroline Donally, Director
6
Highland Copper Company Inc.
Consolidated Statements of (loss) Income and Comprehensive (loss) Income
(in US dollars)
Expenses and other items
Exploration and evaluation (Note 11)
Management and administration (Note 12)
Share-based compensation
Depreciation and amortization (Note 4)
Reversal of write-down of exploration and evaluation assets (Note 5 e)
Write-down of exploration and evaluation assets (Note 5 f)
Accretion on environmental liability (Note 8)
Finance expense (Note 13)
Gain on disposal of exploration and evaluation assets (Note 5 e)
Finance income
Gain on foreign exchange
Years ended June 30,
2021
$
2022
$
1,998,129
2,327,434
405,109
7,418
-
-
10,500
321,147
590,117
1,005,129
-
21,824
(18,010,077)
197,904
8,124
2,031,082
(2,946,908)
(2,996,550)
(48,982)
(17,411)
(19)
(527,315)
Net (loss) income for the year
(2,056,436)
17,679,781
Other comprehensive loss
Item that may be subsequently reclassified to income
Foreign currency translation adjustment
(62,818)
(561,689)
Comprehensive (loss) income for the year
(2,119,254)
17,118,092
Basic and diluted (loss) earnings per common share (Note 15)
(0.00)
0.04
Weighted average number of common shares - basic and diluted
736,363,619
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
(in US dollars)
Number of issued
and outstanding
common shares
Share
capital
$
Contributed
surplus
$
Cumulative
translation
adjustment
$
Total
shareholders'
equity (deficit)
$
Deficit
$
Balance at June 30, 2021
472,933,689
66,137,274
11,961,512
(63,970,379)
1,179,267
15,307,674
Private placement (note 9)
Share issue expenses
Share-based compensation
Net income for the year
Foreign currency translation adjustment
263,429,930
-
-
-
-
17,971,063
(159,751)
-
-
-
2,853,764
-
405,109
-
-
-
-
-
(2,056,436)
-
-
-
-
-
(62,818)
20,824,827
(159,751)
405,109
(2,056,436)
(62,818)
Balance at June 30, 2022
736,363,619
83,948,586
15,220,385
(66,026,815)
1,116,449
34,258,605
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
Net loss 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
The accompanying notes form an integral part of these consolidated financial statements.
8
Highland Copper Company Inc.
Consolidated Statements of Cash Flows
(in US dollars)
Operating activities
Net (loss) income for the year
Adjustments
Share-based compensation
Depreciation and amortization (note 4)
Reversal of write-down of exploration and evaluation assets (note 5 e)
Write-down of exploration and evaluation assets (note 5 f)
Accretion on environmental liability (note 8)
Unrealized gain on foreign exchange
Finance expense
Gain on disposal of exploration and evaluation assets (note 5 e)
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
Environmental bond (Note 5 b)
Proceeds on sale of capital assets
Additions to exploration and evaluation assets (Note 5)
Proceeds on disposal of exploration and evaluation assets (Note 5)
Financing activities
Issue of share capital and warrants (Note 9)
Share issue expenses (Note 9)
Repayment of lease liabilities
Proceeds from credit facility
Reimbursement of note payable
Effect of exchange rate changes on cash held in foreign currency
Net change in cash
Cash, beginning of year
Cash, end of year
Supplemental cash flow information
Years ended June 30,
2022
$
2021
$
(2,056,436)
17,679,781
405,109
7,418
-
-
10,500
-
21,824
(18,010,077)
197,904
8,124
(92,132)
(527,315)
321,147
2,029,372
(2,946,908)
(2,996,550)
-
-
(44,571)
(39,722)
(19)
19
1,145
-
(939,270)
1,209,450
(5,377,865)
(386,342)
(1,676,149)
(5,441)
-
-
(296,025)
(257,275)
3,000,000
3,000,000
1,022,385
2,742,725
14,487,061
(159,751)
-
-
-
14,327,310
-
-
(12,537)
500,000
(55,000)
432,463
(24,615)
29,427
9,947,215
2,818,273
2,982,600
164,327
12,929,815
2,982,600
Reimbursement of credit facility through issuance of share capital and warrants (note 6)
(6,337,766)
-
Below-market element of credit facility in contributed surplus
-
89,404
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, 2022 and 2021 (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 Copperwood copper
project (the “Copperwood Project”) and the White Pine North copper project (the “White Pine North Project”).
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 25, 2022.
Basis of measurement
These consolidated financial statements were prepared on the historical cost basis, less any impairment, except for
the following material items:
• Equity-classified share-based payment arrangements are measured at fair value at grant date pursuant to
IFRS 2, Share-based payment.
•
asset retirement obligations that are measured at the present value of the expected expenditures to settle
the obligation.
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, 2022 and 2021 (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 several 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.
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 $66,026,815 at June 30, 2022 (a deficit of $63,970,379 at June
30, 2021). The Company has relied upon external financings, primarily through the issuance of equity, as well as
proceeds from the disposal of exploration and evaluation assets, to fund its operations in the past. Since the Company
does not generate revenues, the Company will need to obtain additional funds through the issuance of shares, the
exercise of warrants and share options or from other sources to pursue its operations and meet its obligations related
to the development of the Copperwood and White Pine North projects beyond the current fiscal year. Despite the fact
that it has been able to raise fund in the past, there is no guarantee of success for the future. If management is unable
to obtain new funding, the Company may be unable to continue its operations, and amounts realized for assets may
be less than amounts reflected in these financial statements.
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, 2022 and 2021 (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 three (3) 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”), acquired in June 2014 and incorporated 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, 2022 and 2021 (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
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 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, 2022 and 2021 (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, 2022 and 2021 (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, 2022 and 2021 (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, 2022 and 2021 (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, 2022 and 2021 (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, 2022 and 2021 (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, 2022 and 2021 (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, 2022 and 2021 (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, 2022 and 2021 (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, 2022, 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, 2022.
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, 2022 and 2021 (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).
Environmental liabilities
Environmental liabilities are determined using management's best estimates of the probable amounts of future cash
outflows, the expected timing of payments and discount rates.
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, 2022. These updates are not expected to have a
significant impact on the Company and are therefore not discussed herein.
23
Highland Copper Company Inc.
Notes to Consolidated Financial Statements
Years ended June 30, 2022 and 2021 (in US dollars)
4. CAPITAL ASSETS
Cost
Balance at June 30, 2020
Disposals
Effect of foreign exchange
Balance at June 30, 2021
Additions
Disposals
Effect of foreign exchange
Balance at June 30, 2022
Depreciation and amortization
Balance at June 30, 2020
Depreciation and amortization
Disposals
Effect of foreign exchange
Balance at June 30, 2021
Depreciation and amortization
Disposals
Effect of foreign exchange
Balance at June 30, 2022
Carrying amounts
Balance at June 30, 2021
Balance at June 30, 2022
Computer
equipment
and furniture
Exploration
equipment
Right-of-use
assets and
leasehold
improvements
$
$
$
Vehicles
$
Total
$
.
25,538
53,495
180,870
93,183
353,086
-
-
(93,183)
(118,721)
(25,538)
-
1,717
3,066
-
55,212
183,936
11,467
5,430
-
-
-
(1,886)
(2,361)
11,467
58,756
181,575
-
-
22,555
37,969
159,986
81,362
301,872
2,983
(25,538)
-
6,427
-
593
-
11,821
21,824
(93,183)
(118,721)
2,800
1,927
-
47,196
162,506
1,871
3,676
1,871
-
-
-
-
1,590
3,416
1,871
52,462
167,793
-
9,596
8,016
6,294
21,430
13,782
-
-
-
-
-
-
4,783
239,148
16,897
-
(4,247)
251,798
-
-
-
-
-
-
-
-
4,727
209,702
7,418
-
5,006
222,126
29,446
29,672
24
Highland Copper Company Inc.
Notes to Consolidated Financial Statements
Years ended June 30, 2022 and 2021 (in US dollars)
5. EXPLORATION AND EVALUATION ASSETS
Copperwood
White Pine
UPX
Other
Project North Project
Property
properties
$
$
$
$
Total
$
Balance at June 30, 2020
17,312,259
3,157,246
-
167,482
20,636,987
Acquisition
227,275
Sale of a silver royalty to Osisko (Note 5 d)
(1,500)
Reversal of write-down (Note 5 e)
-
Write-down (Note 5 f)
-
Effect of foreign exchange
-
-
-
-
-
-
257,275
(3,450)
18,010,077
-
18,010,077
-
-
(197,904)
(197,904)
30,422
37,494
30,000
(1,950)
-
-
7,072
Balance at June 30, 2021
17,538,034
3,192,368
18,010,077
-
38,740,479
Acquisition
266,025
30,000
Addition to environmental liability
-
1,812,650
-
-
-
-
-
296,025
1,812,650
Disposition (Note 5 e)
-
-
(18,010,077)
-
(18,010,077)
Effect of foreign exchange
-
17,182
-
-
17,182
Balance at June 30, 2022
17,804,059
5,052,200
-
-
22,856,259
25
Highland Copper Company Inc.
Notes to Consolidated Financial Statements
Years ended June 30, 2022 and 2021 (in US dollars)
5. 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, 2022 and 2021 (in US dollars)
5. 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, 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, 2022, 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. The lease agreement includes 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.
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
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”).
27
Highland Copper Company Inc.
Notes to Consolidated Financial Statements
Years ended June 30, 2022 and 2021 (in US dollars)
5. EXPLORATION AND EVALUATION ASSETS (continued)
d) Royalty agreements (continued)
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, 2022 and 2021 (in US dollars)
5. EXPLORATION AND EVALUATION ASSETS (continued)
e) UPX Property
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 for a total cash proceeds of $3,000,000 and the assumption of
the promissory note. As a result of the transaction, the Company recorded a gain on disposal of $2,946,908 in the
year ended June 30, 2022. During the year ended June 30, 2021, the Company reversed the previous write-down of
exploration and evaluation assets in the amount of $18,010,077.
Sale of the UPX Project
Cash received
Assumption of the promissory note in favor of RTX by the acquirer (Note 7)
Net assets sold
Gain on disposal of the UPX property
f) Write-down
$
3,000,000
17,956,985
20,956,985
(18,010,077)
2,946,908
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.
29
Highland Copper Company Inc.
Notes to Consolidated Financial Statements
Years ended June 30, 2022 and 2021 (in US dollars)
6. CREDIT FACILITY
On May 20, 2019, the Company entered into a loan agreement with Osisko and Greenstone Resources II LP
(collectively, the "Lenders"), under which the Lenders agreed to provide the Company with a loan of up to $4,500,000.
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 bore interest at a rate of 12% per annum. On closing of the non-brokered private placement
described in Note 9, the Company settled all amounts due to Osisko and Greenstone for a total amount of $6,337,766.
The balance of the loan is determined as follows:
Balance, beginning of year
Modification adjustment
Accrued interest
Reimbursement of loan, including accrued interest
Balance, end of year
On August 27, 2021, the Company settled all amounts due under the Credit Facility.
Years ended June 30,
2022
$
2021
$
6,218,415
5,006,142
-
(89,404)
119,351
1,301,677
(6,337,766)
-
-
6,218,415
30
Highland Copper Company Inc.
Notes to Consolidated Financial Statements
Years ended June 30, 2022 and 2021 (in US dollars)
7. 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. Since May 30, 2019, following an event of
default, the Note bore interest at an annual rate of Libor plus 8% (a rate of 8.1% at June 30, 2021). The Note was
secured by a mortgage over the acquired property and a general security agreement over all the assets of UPX
Minerals Inc (“UPX”).
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.
The balance of the Note is determined as follows:
Balance, beginning of year
Accrued interest
Assumption of promissory note by Sweetwater (note 5 e)
Balance, end of year
Years ended June 30,
2022
$
2021
$
17,754,189
16,535,251
202,796
1,218,938
(17,956,985)
-
-
17,754,189
31
Highland Copper Company Inc.
Notes to Consolidated Financial Statements
Years ended June 30, 2022 and 2021 (in US dollars)
8. ENVIRONMENTAL LIABILITY
The environmental liability consists of a provision for reclamation costs related to the White Pine North Project (Note
5 b). The undiscounted cash flow amount of the liability is estimated at $2,048,600 at July 27, 2021. The present value
of the liability was calculated using a discount rate of 3.12% and is reflecting payments to be made
until 2030, inclusively, while taking into consideration an inflation of 2.3%.
Balance, beginning of year
Addition
Accretion expense
Balance, end of year
9. SHARE CAPITAL
Authorized and issued
Years ended June 30,
2022
$
274,275
1,812,650
10,500
2021
$
266,151
-
8,124
2,097,425
274,275
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, 2022, the Company had 736,363,619 issued and outstanding common shares (472,933,689 at June 30,
2021).
Issuance of securities
On August 27, 2021 and on September 9, 2021, the Company completed, in two tranches, a non-brokered private
placement through the issuance of 263,429,930 units (the “Units”) at a price of Can $0.10 per Unit for total proceeds
of Can $26,342,993 ($20,824,827). 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 a price of Can $0.18 per share until August 27, 2023 and September 9, 2023. The
fair value of the common shares was calculated by using the TSXV share price on the date of the issuance and the
fair value of the warrants was estimated at Can $0.03 per warrant by applying the Black-Scholes option pricing model,
using an expected time-period of 2 years, a weighted average risk-free interest rate of 0.9%, a weighted average
volatility rate of 88% and a 0% dividend factor. An amount of $2,853,764 was allocated to the share purchase warrants
and presented as part of contributed surplus. Share issue expenses related to this private placement amounted to
$159,751, including finders’ fees of $82,600.
32
Highland Copper Company Inc.
Notes to Consolidated Financial Statements
Years ended June 30, 2022 and 2021 (in US dollars)
The underlying expected volatility described above was determined by reference to historical data of the Company’s
share price over the expected life of the warrants.
Share purchase warrants
The following table reflects the number of issued and outstanding share purchase warrants at June 30, 2022:
Grant date
June 30, 2021
Granted
June 30, 2022
share
Number of
warrants
Number of
Price
warrants
per
Expiry
date
August 27, 2021
September 9, 2021
$
-
-
-
126,464,965
126,464,965
0.18
Aug 27, 2023
5,250,000
5,250,000
0.18
Sep 9, 2023
131,714,965
131,714,965
0.18
33
Highland Copper Company Inc.
Notes to Consolidated Financial Statements
Years ended June 30, 2022 and 2021 (in US dollars)
10. SHARE OPTIONS
The following table sets out the activity in share options:
2022
Average
exercise price
(C$)
0.12
0.11
-
0.12
Number
7,525,000
10,000,000
-
17,525,000
Number
8,675,000
-
(1,150,000)
7,525,000
Years ended June 30,
2021
Average exercise
price (C$)
0.17
-
(0.20)
0.12
Options, beginning of year
Granted
Expired
Options, end of year
The following table reflects the stock options issued and outstanding at June 30, 2022:
Issue date
August 28, 2017
October 26, 2017
December 16, 2021
February 24, 2022
Remaining
Number of
Exercise
price of
Number of
Exercise
contractual
exercisable exercisable
options
6,775,000
750,000
3,500,000
6,500,000
price
C$
0.11
0.17
0.11
0.15
life
(years)
0.2
0.3
4.5
4.7
options
options
6,775,000
750,000
1,166,667
2,166,667
C$
0.11
0.17
0.11
0.15
17,525,000
0.13
2.7
10,858,334
0.12
11. EXPLORATION AND EVALUATION EXPENSES
Labour
Studies
Contractors
Office, overhead and other administrative costs
Years ended June 30,
2022
$
643,500
968,262
-
386,367
1,998,129
2021
$
90,168
91,725
207,176
201,048
590,117
34
Highland Copper Company Inc.
Notes to Consolidated Financial Statements
Years ended June 30, 2022 and 2021 (in US dollars)
12. MANAGEMENT AND ADMINISTRATION EXPENSES
Administrative and general
Professional fees
Office
Investor relations and travel
Reporting issuer costs
13. FINANCE EXPENSE
Interest on credit facility (Note 6)
Interest on note payable
Interest on promissory note (Note 7)
Accretion on lease liabilities
Other
Years ended June 30,
2022
$
1,537,116
481,350
140,345
121,351
47,272
2021
$
687,727
184,333
102,730
2,111
28,228
2,327,434
1,005,129
Years ended June 30,
2022
$
119,351
-
2021
$
807,007
1,650
202,796
1,218,938
-
-
3,091
396
321,147
2,031,082
35
Highland Copper Company Inc.
Notes to Consolidated Financial Statements
Years ended June 30, 2022 and 2021 (in US dollars)
14. INCOME TAXES
The reconciliation of the effective tax rate is as follows:
2022
$
Years ended June 30,
2021
$
Net income (loss) before income tax
(2,056,436)
17,679,781
Tax using the Company’s domestic tax rate
26.50%
(544,956)
26.50%
4,685,142
Share-based compensation
Non-deductible expenses and non-taxable revenues
Effect of tax rate in foreign jurisdictions
Unrecognized tax assets
Recognition of previously unrecognized deferred tax
assets
Foreign exchange and others
Deferred income tax
(5.24%)
(0.02%)
0.27%
61.45%
(66.74%)
(16.22%)
-
107,742
398
(5,544)
-
-
(0.82%)
(145,064)
(1,263,637)
(23.57%)
(4,167,355)
1,372,507
333,491
-
(2.11%)
(372,723)
-
-
-
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
$
-
416,635
416,635
(416,635)
-
June 30, 2022
Net
Liabilities
$
$
(416,635)
(416,635)
-
416,635
(416,635)
416,635
-
-
-
-
Assets
Liabilities
June 30, 2021
Net
$
$
(201,703)
(201,703)
-
201,703
(201,703)
201,703
-
-
-
-
36
$
-
201,703
201,703
(201,703)
-
Highland Copper Company Inc.
Notes to Consolidated Financial Statements
Years ended June 30, 2022 and 2021 (in US dollars)
14. INCOME TAXES (continued)
Deductible temporary differences for which no deferred tax assets have been recognized are as follows:
Non-capital loss carry-forwards
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
Financing expenses and others
Canada
$
USA
$
June 30, 2022
Total
$
16,023,983
28,140,902
44,164,885
990,033
247,833
1,669,887
161,202
19,092,938
Canada
$
70,696
1,141,796
877,923
30,231,317
990,033
318,529
2,811,683
1,039,125
49,324,256
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
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, 2022 and 2021 (in US dollars)
14. 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
2042
USA
Canada
$
-
-
-
-
-
$
80 107
93 381
235 573
417 734
577 677
42,591
737 927
841,758
1 063 391
-
74 640
2,525,524
881 653
-
-
1 913 378
802 465
3,058,948
1 667 508
8,638,707
1 826 283
-
-
-
-
1 515 350
1 701 021
1 572 284
2 435 818
15,107,528
17,596,191
The Company also has non-capital losses available in the USA amounting to $13,033,374 with no expiry date. A deferred income
tax on non-capital losses has been recognized for an amount of $1,572,208 ($761,143 in 2021). The Company has capital losses of
$990,033 available in Canada to use against future capital gains. Capital losses have no expiry date in Canada.
15. LOSS (EARNINGS) PER SHARE
The calculation of basic and diluted (loss) earnings per share for the year ended June 30, 2022 was based on net loss
attributable to common shareholders of $2,056,436 (a net income of $17,679,781 in 2021) and the weighted average
number of common shares outstanding of 736,363,619 (472,933,689 in 2021). Excluded from the calculation of the
diluted loss per share for the year ended June 30, 2022 are 131,714,965 share purchase warrants and 17,525,000
share options (7,525,000 share options in 2021) 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, 2022 and 2021 (in US dollars)
16. RELATED PARTY TRANSACTIONS
In addition to the credit facility described in Note 6 and the sale of the UPX Property described in note 5 e) and note
7, the detail of transactions between the Company and its related parties is as follows:
During the year ended June 30, 2022, the Company incurred administration expenses of $615,312 from Reunion Gold
Corporation, a related party by virtue of common management and directors ($64,287 in 2021). Reunion Gold
Corporation was a related party only for the period covering July 2021 to February 2022.
At June 30, 2022, the Company had an amount payable of $3,041 to Reunion Gold Corporation, included in accounts
payable and accrued liabilities on the consolidated statements of financial position ($126,051 at June 30, 2021).
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 CFO, is as follows:
Wages and consulting fees, included in management and administration expenses
Share-based compensation
Years ended June 30,
2022
$
615,312
405,109
2021
$
560,233
-
1,020,421
560,233
39
Highland Copper Company Inc.
Notes to Consolidated Financial Statements
Years ended June 30, 2022 and 2021 (in US dollars)
17. 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, 2022, managed
capital was $34,258,605 ($39,280,278 at June 30, 2021).
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, 2022.
The Company is not subject to any externally imposed capital requirements as at June 30, 2022.
18. 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, 2022.
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. The Company generates cash flow only from its financing activities.
40
Highland Copper Company Inc.
Notes to Consolidated Financial Statements
Years ended June 30, 2022 and 2021 (in US dollars)
18. FINANCIAL RISK MANAGEMENT (continued)
Liquidity risk (continued)
The following table summarizes the contractual maturities of the Company’s financial liabilities as at June 30, 2022:
Carrying
Settlement
Within
amount
amount
$
$
1 year
$
Over
2
year
s
2 years
$
$
Accounts payable and accrued liabilities
1,257,830
1,257,830
1,257,830
1,257,830
1,257,830
1,257,830
-
-
-
-
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 promissory note. As at June 2022, the Company no longer
has any loans to be paid.
41
Highland Copper Company Inc.
Notes to Consolidated Financial Statements
Years ended June 30, 2022 and 2021 (in US dollars)
18. 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, 2022, financial assets and liabilities denominated in a foreign currency consisted of cash of $2,083,256,
as well as accounts payable and accrued liabilities of $121,654. The impact on profit or loss of a 10% increase or
decrease in the US dollar against the Canadian dollar would be approximately $200,000.
Fair value of financial instruments
The carrying value of cash and accounts payable and accrued liabilities is considered to be a reasonable
approximation of their fair value due to their immediate or short-term maturity.
42
Highland Copper Company Inc.
Notes to Consolidated Financial Statements
Years ended June 30, 2022 and 2021 (in US dollars)
19. 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
Environmental bond
Capital assets
Exploration and evaluation assets
Total assets
Current assets
Capital assets
Exploration and evaluation assets
Total assets
Canada
$
June 30, 2022
USA
$
Total
$
10,494,771
2,557,009
13,051,780
-
1,676,149
1,676,149
3,941
25,731
29,672
377,029
21,259,727
21,636,757
10,875,741
25,518,616
36,394,358
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
20. EVENT AFTER THE REPORTING DATE
On July 29, 2022, the Company granted 13,300,000 stock options to directors and executive officers of the Company.
The options are exercisable at an exercise price of $0.095 per share for a period of up to seven years and will vest as
to one third immediately and one third on each of the first and second anniversary of the grant.
43
HIGHLAND COPPER COMPANY INC.
MANAGEMENT’S DISCUSSION & ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS FOR THE
YEAR ENDED JUNE 30, 2022
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 25, 2022, covers the years ended June 30, 2022 and
2021 and should be read in conjunction with the audited consolidated financial statements and related notes at June 30, 2022
and 2021 (the “June 30, 2022 and 2021 consolidated financial statements”). The June 30, 2022 and 2021 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 25, 2022, 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.
Fiscal 2022 was a transformational year for Highland Copper. The Company revamped its Board, sold its UPX exploration
properties, released CRC from its environmental obligations with the Michigan Department of Environmental Quality, by
transferring an agreed amount of $1,676,149 with the Michigan Department of Environment, Great Lakes, and Energy (“EGLE”),
completed an equity raise and subsequently paid off all corporate debt. The Company is set up well to execute development of
its two key Michigan assets, Copperwood and White Pine North.
HIGHLIGHTS
Subsequent to the June 30, 2022 year-end
• On July 29, 2022, Highland Copper announced that, subject to regulatory approval, it has approved the grant of
13,300,000 incentive stock options to directors and executive officers of the Company. The options are exercisable at
an exercise price of $0.095 per share for a period of up to seven years and will vest as to one third immediately and
one third on each of the first and second anniversary of the grant.
44
During the financial year ended June 30, 2022
Corporate activities
Management’s Discussion and Analysis
Year ended June 30, 2022
•
The Company increased the size of the Board from five to eight directors during the financial year, after proposed
changes on November 18, 2021. In addition to Denis Miville-Deschênes (current director, President and CEO) and Jo
Mark Zurel (current director and chair of the audit committee), the Board of directors is now composed of Jonathan
Cherry, Caroline Donally, Iain Farmer, Stephen J. Hicks, Melanie R. Miller and David B. Tennant. David Fennell,
stepped down in his executive role at the end of August 2021, Jean Desrosiers and John Johnson did not stand for re-
election.
• 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 ($20,824,827). 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 and September
9, 2023. In connection with the completion of the Offering, the Company paid finder’s fees in the aggregate amount of
$82,600. 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.
• On August 27, 2021, the Company settled an amount of $6,337,766 (including accrued interest) due to Osisko Gold
Royalties Ltd (“Osisko”) and Greenstone pursuant to a May 2019 secured loan agreement, as amended (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 of $18.0 million under a promissory note
(the ”Note”) in favor of RTX. Highland was also released from its guarantee to repay amounts owing under the Note.
• On July 27, 2021, 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.
•
The Company realized net loss of $2.1 million in 2022 compared to a net income of $17.7 million in 2021. Net income
in 2022 includes a gain of sale of the UPX Property of $3.0 million. 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 $3.0 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.
45
Management’s Discussion and Analysis
Year ended June 30, 2022
• As at June 30 2022, the Company is debt free and has a working capital (total current assets less total current liabilities)
of $11.8 million.
•
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 $66,026,815 at June 30, 2022 (a deficit of $63,970,379 at June
30, 2021). The Company has relied upon external financings, primarily through the issuance of equity, as well as
proceeds from the disposal of exploration and evaluation assets, to fund its operations in the past. Since the Company
does not generate revenues, the Company will need to obtain additional funds through the issuance of shares, the
exercise of warrants and share options or from other sources to pursue its operations and meet its obligations related
to the development of the Copperwood and White Pine North projects beyond the current fiscal year. Despite the fact
that it has been able to raise fund in the past, there is no guarantee of success for the future. If management is unable
to obtain new funding, the Company may be unable to continue its operations, and amounts realized for assets may
be less than amounts reflected in these financial statements.
Copperwood Project
● 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 December 2022.
White Pine North Project
● The Company plans to initiate baseline environmental studies over the coming months.
● Subsequent to year-end, the Company also announced plans to complete an infill drilling program during fiscal year
2023 with the intention of progressing to a Feasibility Study on White Pine North.
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 (total current assets less total current liabilities) of approximately $11.8 million as at June 30, 2022.
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 December 2022. The updated feasibility study will also consider
optimizations, particularly the impact of using continuous miners.
At the White Pine North Project, the Company plans to initiate baseline environmental studies over the coming months and
complete an infill drilling program during fiscal year 2023 with the intention of progressing to a Feasibility Study on White Pine
North.
46
Management’s Discussion and Analysis
Year ended June 30, 2022
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 and September 9, 2021. In connection with the completion of the Offering, the Company paid finder’s fees
in the aggregate amount of $82,600.
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.
ACQUISITION OF THE WHITE PINE NORTH PROJECT
On May 13, 2014, the Company acquired from CRC all rights, title and interest in the White Pine North Project. On July 27,
2021, 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, 2022, 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.
SALE OF THE UPX PROPERTY
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 for a total cash proceeds of $3,000,000 and the assumption of the promissory note. As
a result of the transaction, the Company recorded a gain on disposal of $2,946,908 in the year ended June 30, 2022. During the
year ended June 30, 2021, the Company reversed the previous write-down of exploration and evaluation assets in the amount
of $18,010,077.
ROYALTY AGREEMENTS WITH OSISKO
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 provided that upon final closing
47
Management’s Discussion and Analysis
Year ended June 30, 2022
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 23/26 th
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.
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;
48
Management’s Discussion and Analysis
Year ended June 30, 2022
• 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.
Updated Feasibility Study
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 December 2022.
The updated feasibility study will also consider optimizations, particularly the impact of using continuous miners.
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.
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.
49
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
Management’s Discussion and Analysis
Year ended June 30, 2022
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.
2019 PEA Highlights
• 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.
50
Management’s Discussion and Analysis
Year ended June 30, 2022
MINERAL LEASE AGREEMENT, WHITE PINE, MICHIGAN
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. The lease agreement includes 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.
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.
51
Management’s Discussion and Analysis
Year ended June 30, 2022
CORPORATE ACTIVITIES
Restructuring of the Board and Management
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. Jo Mark Zurel took over the Chair of Board position.
Osisko exercised its right to nominate one individual to stand for election as director. The Company initiated a search for
additional directors to strengthen and diversify the Company's Board of Directors, and successfully added Jonathan Cherry,
Caroline Donally, Iain Farmer, Stephen Hicks, David Tennant and Melanie Miller.
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.
52
SELECTED CONSOLIDATED FINANCIAL INFORMATION (1)
The following selected financial information should be read in conjunction with the Company’s June 30, 2022 and 2021
consolidated financial statements.
Management’s Discussion and Analysis
Year ended June 30, 2022
Financial Position
Cash
Exploration and evaluation assets
Total assets
Credit Facility
Promissory Note
Shareholders' equity
Comprehensive Income (Loss)
Net (loss) income for the year
Basic and diluted earnings (loss) per share
Cash Flows
Operating activities
Investing activities
Financing activities
June 30,
June 30,
2022
$
2021
$
12,929,815
2,982,600
22,856,259
38,740,479
37,613,860
41,791,395
-
-
6,218,415
17,754,189
34,258,605
15,307,674
Year ended
Year ended
June 30,
June 30,
Year ended
June 30,
2022
$
2021
$
2020
$
(2,056,436)
17,679,781
(4,371,338)
0.00
0.04
(0.01)
(5,377,865)
(386,342)
(1,809,294)
1,022,385
2,742,725
(172,744)
14,327,310
432,463
1,578,448
1) The Selected Consolidated Financial Information was derived from the Company’s June 30, 2022 and 2021 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, 2022 and 2021.
53
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, 2022
Balance at June 30, 2020
Acquisition
Sale of a silver royalty to Osisko
Reversal of write-down
Write-down
Effect of foreign exchange
Balance at June 30, 2021
Acquisition
Addition to environmental liability
Disposition
Effect of foreign exchange
Balance at June 30, 2022
Copperwood
White Pine
UPX
Other
Project
North Project
Property
properties
$
$
17,312,259
3,157,246
227,275
(1,500)
-
-
-
30,000
(1,950)
-
-
7,072
$
-
-
-
18,010,077
17,538,034
3,192,368
18,010,077
266,025
30,000
-
-
-
1,812,650
17,182
17,804,059
5,052,200
-
(18,010,077)
-
-
-
-
Total
$
$
167,482
20,636,987
-
-
-
257,275
(3,450)
18,010,077
-
-
(197,904)
(197,904)
30,422
37,494
-
-
-
-
-
-
38,740,479
296,025
1,812,650
(18,010,077)
17,182
22,856,259
The amounts capitalized during the year ended June 30, 2022 consisted of lease payments of $266,025 related to the
Copperwood Project and $30,000 related to the White Pine North Project. 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, 2021 consisted mostly 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.
54
Exploration and evaluation expenses charged to the statements of comprehensive loss during the years ended June 30, 2022
and 2021 are detailed below.
Management’s Discussion and Analysis
Year ended June 30, 2022
Labour
Studies
Contractors
Year ended
Year ended
Copperwood
Project
White Pine June 30, 2022 June 30, 2021
North Project
Total
Total
$
$
$
554,100
89,400
643,500
850,070
118,192
968,262
$
90,168
91,725
-
-
-
207,176
Office, overhead and other administrative costs
142,156
181,914
324,070
201,048
1,546,326
389,506
1,935,832
590,117
Results for the year ended June 30, 2022 compared to year ended June 30, 2021
The Company realized net loss of $2,056,436 ($0.00 per share) during the year ended June 30, 2022 (“FY 2022”) compared to
a net income of $17,679,781 ($0.0 per share) during the year ended June 30, 2021 (“FY 2021”). Net income in FY 2022 includes
a gain of $2,946,908 on the sale of UPX Minerals to Sweetwater, taking into account the cash proceeds of $3,000,000, the
assumption by Sweetwater of the Note (including accrued interest) of $17,956,985 owing to RTX and the carrying value of the
UPX Property of $18,010,077. As part of net income during FY 2022, the Company recorded finance expense of $321,147
($2,031,082 in FY 2021) composed mostly of interest due on promissory note. Other significant items included exploration and
evaluation expenses of $1,998,129 ($590,117 in FY 2021), management and administration expenses of $2,327,434
($1,005,129 in FY 2021) and a gain on foreign exchange of $17,411 ($527,135 in FY 2021) mostly due to the conversion of the
loan due to Osisko and Greenstone to Canadian dollars.
The Company incurred exploration and evaluation expenses of $1,998,129 in FY 2022 compared to $590,117 in FY 2021. In FY
2022, the expenses consisted mainly of labor fees and studies from various consultants for both Copperwood and White Pine
projects. 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.
Management and administration expenses of $2,327,434 in FY 2022 compared to $1,005,129 in FY 2021 reflect mostly
additional fees to senior key management, which are the former Chairman, current CEO, previous CFO and current CFO (wages
and fees of $1,537,116 in FY 2022 compared to $687,727 in FY 2021), 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 White Pine North Project and the sale of UPX ($481,350 in FY 2022 compared to $184,333 in FY 2021), higher office
costs ($140,345 during FY 2022 compared to $102,730 in 2021), higher investor relations and travel expenses ($121,351 in FY
2022 compared to $2,111 in FY 2021) and higher reporting issuer costs ($47,271 in FY 2022 compared to $28,228 in FY 2021).
Share-based compensation of $405,109 in FY 2022 ($0 in FY 2021) as the Company has granted 10,000,000 options during
the year, in comparison to none in the prior year.
55
Management’s Discussion and Analysis
Year ended June 30, 2022
4th quarter ended June 30, 2022 compared to the 4th quarter ended June 30, 2021
During the 4th quarter ended June 30, 2022, the Company realized net loss of $1,185,937 (nil per share) compared to a net
income of $20,160,998 ($0.04 per share) during the 4th quarter ended June 30, 2021. Net loss during the 4th quarter ended June
30, 2022 was strictly related to expenses incurred, while the net income during the 4th quarter of 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.
During the 4th quarter ended June 30, 2022, the Company also recorded finance expenses of nil ($375,518 during the
comparative period in 2021) on the Note due to RTX and the loan due to Greenstone and Osisko. Other significant items included
exploration and evaluation expenses of $521,732 ($92,130 in 2021), management and administration expenses of $785,520
($265,585 in 2021) and a gain on foreign exchange of $207,596 ($91,582 in FY 2021) mostly due to the conversion of the
Canadian entity in USD.
Selected Quarterly Financial Information
The following is a summary of the Company’s financial results for the past eight quarters:
Net income
diluted earnings
Basic and
Revenues
(loss)
(loss) per share
$
-
-
-
-
-
-
-
-
$
(1,185,937)
(1,755,228)
(884,001)
1,768,728
20,160,998
(844,542)
(717,757)
(918,918)
$
(0.00)
(0.00)
(0.00)
0.00
0.01
(0.00)
(0.00)
(0.00)
Period ended
June 30, 2022 (a)
March 31, 2022 (b)
December 31, 2021 (c)
September 30, 2021 (d)
June 30, 2021 (e)
March 31, 2021 (f)
December 31, 2020 (g)
September 30, 2020 (h)
(a) Includes exploration expenses of $521,732
(b) Includes exploration expenses of $936,468
(c) Includes exploration expenses of $335,021
(d) Includes exploration expenses of $204,908
(e) 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.
(f) Includes exploration expenses of $115,376 and finance expenses of $534,094
(g) Includes exploration expen ses of $201,298 and finance expenses of $571,046
(h) Includes exploration expenses of $181,31 and finance expenses of $550,425
56
Management’s Discussion and Analysis
Year ended June 30, 2022
Liquidity and Capital Resources
At June 30, 2022, the Company had a working capital (total current assets less total current liabilities) of $11,793,950 compared
to a working capital deficiency of $23,187,976 at June 30, 2021. The increase in the working capital during the year ended June
30, 2022 is mainly attributable to the extinction of the Company’s debts, which was translated into the reimbursement of the loan
facility as well as the reimbursement of the promissory note. This was possible because of the private placement.
The Company completed a non-brokered private placement for total gross proceeds of $20.8 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 $11.8 million as of June 30,
2022.
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, 2022, managed capital was $34,258,605 ($39,280,278 at June 30, 2021).
There were no changes in the Company’s approach to capital management during the year ended June 30, 2022. The Company
is not subject to any externally imposed capital requirements as at June 30, 2022.
Off-Balance Sheet Arrangements
As at June 30, 2022, the Company has no off-balance sheet arrangements.
Transactions with Related Parties
During the year ended June 30, 2022, the Company incurred administration expenses of $615,312 from Reunion Gold
Corporation, a related party by virtue of common management and directors ($64,287 in 2021). Reunion Gold Corporation was
a related party only for the period covering July 2021 to February 2022.
At June 30, 2022, the Company had an amount payable of $3,041 to Reunion Gold Corporation, included in accounts payable
and accrued liabilities on the consolidated statements of financial position ($126,051 at June 30, 2021).
Remuneration to directors and key management of the Company, including the former CFO, totaled $615,312 during the year
ended June 30, 2022 ($560,233 in 2021).
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, as well as the credit facility, are related
party transactions that occurred during the year.
57
Management’s Discussion and Analysis
Year ended June 30, 2022
Outstanding Share Data
As at October 25, 2022, 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 September 9, 2023, the Company has
30,825,000 stock options outstanding with an average exercise price of Can $0.12, expiring at various dates until February 2027.
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, 2022 and 2021 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
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, going concern and
environmental liabilities. Details of the significant accounting judgments and estimates are presented in Note 3 to the June 30,
2022 and 2021 consolidated financial statements filed on SEDAR.
58
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
Management’s Discussion and Analysis
Year ended June 30, 2022
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, 2022:
Accounts payable and accrued liabilities
Credit risk
Carrying
Settlement
amount
amount
$
$
Within
1 year
$
1,257,830
1,257,830
1,257,830
1,257,830
1,257,830
1,257,830
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. As at June 2022, the Company no longer has any
loans to be paid.
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, 2022, financial assets and liabilities denominated in a foreign currency consisted of cash of $2,083,256, as well as
accounts payable and accrued liabilities of $121,654. The impact on profit or loss of a 10% increase or decrease in the US dollar
against the Canadian dollar would be approximately $200,000.
59
Management’s Discussion and Analysis
Year ended June 30, 2022
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
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.
60
Management’s Discussion and Analysis
Year ended June 30, 2022
•
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
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
61
Management’s Discussion and Analysis
Year ended June 30, 2022
• 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
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
62
Management’s Discussion and Analysis
Year ended June 30, 2022
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.
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 25, 2022. 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).
63