MURCHISON MINERALS LTD.
CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2019 AND 2018
(Expressed in Canadian Dollars)
Independent Auditor’s Report
To the Shareholders of Murchison Minerals Ltd.
Opinion
We have audited the consolidated financial statements of Murchison Minerals Ltd. and its
subsidiaries (the “Company”), which comprise the consolidated statements of financial position as
at December 31, 2019 and 2018, and the consolidated statements of loss and comprehensive
loss, consolidated statements of equity and consolidated statements of cash flows for the years
then ended, and notes to the consolidated financial statements, including a summary of
significant accounting policies.
In our opinion, the accompanying consolidated financial statements present fairly, in all material
respects, the consolidated financial position of the Company as at December 31, 2019 and 2018,
and its consolidated financial performance and its consolidated cash flows for the years then
ended in accordance with International Financial Reporting Standards (“IFRS”).
Basis for opinion
We conducted our audit in accordance with Canadian generally accepted auditing standards. Our
responsibilities under those standards are further described in the Auditor’s responsibilities for the
audit of the consolidated financial statements section of our report. We are independent of the
Company in accordance with the ethical requirements that are relevant to our audit of the
consolidated financial statements in Canada. We have fulfilled our other ethical responsibilities in
accordance with these requirements. We believe that the audit evidence we have obtained is
sufficient and appropriate to provide a basis for our opinion.
Material uncertainty related to going concern
We draw attention to Note 1 in the consolidated financial statements, which indicates that the
Company has incurred continuing losses and is not generating positive cash flows from
operations. As at December 31, 2019, the Company had an accumulated deficit of $29,434,152.
As stated in Note 1, these events or conditions, along with other matters as set forth in Note 1,
indicate that material uncertainties exist that cast significant doubt on the Company’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. The other information comprises
Management’s Discussion and Analysis
Our opinion on the consolidated financial statements does not cover the other information and we
do not express any form of assurance conclusion thereon.
Page 1
In connection with our audit of the consolidated financial statements, our responsibility is to read
the other information and, in doing so, consider whether the other information is materially
inconsistent with the consolidated financial statements or our knowledge obtained in the audit or
otherwise appears to be materially misstated.
We obtained Management’s Discussion and Analysis prior to the date of this auditor’s report. If,
based on the work we have performed, we conclude that there is a material misstatement of this
other information, we are required to report that fact. We have nothing to report in this regard.
Responsibilities of management and those charged with governance for the consolidated
financial statements
Management is responsible for the preparation and fair presentation of the consolidated financial
statements in accordance with IFRS, and for such internal control as management determines is
necessary to enable the preparation of consolidated financial statements that are free from
material misstatement, whether due to fraud or error.
In preparing the consolidated financial statements, management is responsible for assessing the
Company’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 Company or cease operations, or has no realistic alternative but to do so.
Those charged with governance are responsible for overseeing the Company’s financial reporting
process.
Auditor’s responsibilities for the audit of the consolidated financial statements
Our objectives are to obtain reasonable assurance about whether the consolidated financial
statements as a whole are free from material misstatement, whether due to fraud or error, and to
issue an auditor’s 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
aggregate, they could reasonably be expected to influence the economic decisions of users taken
on the basis of these consolidated financial statements.
As part of an audit in accordance with Canadian generally accepted auditing standards, we
exercise professional judgement and maintain professional skepticism throughout the audit. We
also:
Identify and assess the risks of material misstatement of the consolidated 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 risks 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 Company’s internal control.
Evaluate the appropriateness of accounting policies used and the reasonableness of
accounting estimates and related disclosures made by management.
Page 2
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 Company’s
ability to continue as a going concern. If we conclude that a material uncertainty exists,
we are required to draw attention in our auditor’s report to the related disclosures in the
consolidated 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
auditor’s report. However, future events or conditions may cause the Company to cease
to continue as a going concern.
Evaluate the overall presentation, structure and content of the consolidated financial
statements, including the disclosures, and whether the consolidated financial statements
represent the underlying transactions and events in a manner that achieves fair
presentation.
We 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.
We also provide those charged with governance with a statement that we have complied with
relevant ethical requirements regarding independence, and to 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 of the audit resulting in this independent auditor’s report is Koko
Yamamoto.
McGovern Hurley LLP
Chartered Professional Accountants
Licensed Public Accountants
Toronto, Ontario
March 4, 2020
Page 3
MURCHISON MINERALS LTD.
CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
(Expressed in Canadian Dollars)
As at
ASSETS
Current Assets
Cash
Amounts receivable and prepaid expenses (Note 6)
Total current assets
Investment (Note 7)
Property and equipment (Note 8)
Total assets
LIABILITIES
Current Liabilities
Accounts payable and accrued liabilities (Note 14)
Flow-through share premium liability (Notes 10 and 15)
Total liabilities
EQUITY
Share capital (Note 10)
Reserves (Notes 11 and 12)
Deficit
Total equity
Total equity and liabilities
Nature and Continuance of Operations (Note 1)
Commitments and Contingencies (Note 15)
Approved on Behalf of the Board:
December 31, December 31,
2019
2018
$
1,434,347 $
164,187
1,176,697
160,659
1,598,534
1,337,356
2,196
11,056
2,110
-
$
1,611,786 $
1,339,466
$
35,769 $
330,349
138,199
41,667
366,118
179,866
29,934,685
745,135
(29,434,152)
28,895,886
1,266,467
(29,002,753)
1,245,668
1,159,600
$
1,611,786 $
1,339,466
"signed"
"signed"
Jean-Charles Potvin
Director
Denis Arsenault
Director
The accompanying notes are an integral part of these consolidated financial statements
- 1 -
MURCHISON MINERALS LTD.
CONSOLIDATED STATEMENTS OF LOSS AND COMPREHENSIVE LOSS
(Expressed in Canadian Dollars)
For the years ended December 31,
EXPENSES
Exploration expenses (Note 9)
Professional fees
Management fees and salaries (Note 14)
Office and general
Regulatory and transfer agent
Investor relations
Share-based payments (Notes 12 and 14)
Loss before the under noted
Interest income
Foreign exchange gain
Flow-through shares premium
Unrealized (gain) loss on marketable securities (Note 7)
2019
2018
$
894,935 $
34,589
194,359
55,804
15,753
145,561
305,380
2,371,300
100,091
509,738
37,628
49,639
213,992
245,385
1,646,381
3,527,773
(7,732)
-
(167,977)
(86)
(25,070)
(9,846)
(905,490)
3,229
Loss for the year
$
1,470,586
$
2,590,596
Loss per share - basic and diluted
$
0.03 $
0.06
Weighted average number of common shares
outstanding - basic and diluted
47,443,350
42,561,479
The accompanying notes are an integral part of these consolidated financial statements
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MURCHISON MINERALS LTD.
CONSOLIDATED STATEMENTS OF EQUITY
(Expressed in Canadian Dollars)
Balance, December 31, 2017
Net loss for the year
Issuance of common shares (net of issue costs)
Issuance of stock options
Expiry of stock options
Expiry of warrants
Balance, December 31, 2018
Balance, December 31, 2018
Net loss for the year
Issuance of common shares (net of issue costs)
Issuance of stock options
Expiry of stock options
Issuance of warrants
Expiry of warrants
Balance, December 31, 2019
Reserves
Equity settled
share-based
payments
reserve
Share
Capital
Warrants
reserve
Deficit
Total
$ 28,802,248
-
93,638
-
-
-
$ 598,266
-
-
245,385
(35,640)
-
$ 1,241,802 $ (27,231,143) $
-
-
-
-
(783,346)
(2,590,596)
-
-
35,640
783,346
3,411,173
(2,590,596)
93,638
245,385
-
-
$ 28,895,886
$ 808,011
$
458,456 $ (29,002,753) $
1,159,600
$ 28,895,886
-
1,038,799
-
-
-
-
$ 808,011
-
-
305,380
(580,731)
-
-
$
458,456 $ (29,002,753) $
-
-
-
-
212,475
(458,456)
(1,470,586)
-
-
580,731
-
458,456
1,159,600
(1,470,586)
1,038,799
305,380
-
212,475
-
$ 29,934,685
$ 532,660
$
212,475 $ (29,434,152) $
1,245,668
The accompanying notes are an integral part of these consolidated financial statements
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MURCHISON MINERALS LTD.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Expressed in Canadian Dollars)
For the years ended December 31,
CASH (USED IN) PROVIDED BY:
OPERATING ACTIVITIES
Loss for the year
Share-based payments
Flow-through shares premium
Unrealized (gain) loss on marketable securities
Amortization
Common shares issued for mineral property
Net change in non-cash working capital items:
Amounts receivable and prepaid expenses
Accounts payable and accrued liabilities
2019
2018
$ (1,470,586) $ (2,590,596)
245,385
(905,490)
3,229
-
-
305,380
(167,977)
(86)
3,160
65,000
(1,265,109)
(3,247,472)
(3,528)
(102,430)
(121,413)
15,337
Net cash flows used by operating activities
(1,371,067)
(3,353,548)
INVESTING ACTIVITIES
Purchase of property and equipment
Net cash flows used by investing activities
FINANCING ACTIVITIES
Issuance of securities
Issue costs
Net cash flows provided by financing activities
NET CHANGE IN CASH
CASH, BEGINNING OF THE YEAR
CASH, END OF THE YEAR
(14,216)
(14,216)
-
-
1,711,070
(68,137)
150,000
(14,695)
1,642,933
135,305
257,650
1,176,697
(3,218,243)
4,394,940
$ 1,434,347
$1,176,697
The accompanying notes are an integral part of these consolidated financial statements
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MURCHISON MINERALS LTD.
Notes to the Consolidated Financial Statements
December 31, 2019 and 2018
(Expressed in Canadian Dollars)
1.
NATURE AND CONTINUANCE OF OPERATIONS
Murchison Minerals Ltd. (the "Company" or “Murchison”) was incorporated under the Canada Business Corporations Act on
July 25, 2001. The principal business of the Company is the acquisition, exploration and evaluation of mineral property
interests. The primary office is located at 120 Adelaide Street West, Suite 2500, Toronto, Ontario, Canada, M5H 1T1.
The consolidated financial statements were approved by the Board of Directors on March 4, 2020.
The business of mining and exploring for minerals involves a high degree of risk and there can be no assurance that planned
exploration and evaluation programs will result in profitable mining operations. The continuance of the Company is dependent
upon completion of the acquisition of the exploration and evaluation properties, the discovery of economically recoverable
reserves, confirmation of the Company's interest in the underlying mineral claims, the ability of the Company to obtain
necessary financing to complete the development and future profitable production or, alternatively, upon disposition of such
property at a profit. Changes in future conditions could require material write downs of the carrying values of the Company's
assets.
Although the Company has taken steps to verify title to its exploration and evaluation properties, in accordance with industry
standards for the current stage of exploration of such property, these procedures do not guarantee the Company's title. Property
title may be subject to unregistered prior agreements and noncompliance with regulatory and environmental requirements. The
Company's assets may also be subject to increases in taxes and royalties, renegotiation of contracts, currency exchange
fluctuations and restrictions and political uncertainty.
As at December 31, 2019, the Company has a cumulative deficit of $29,434,152 (December 31, 2018 - $29,002,753),
continuing losses and is not yet generating positive cash flows from operations. These factors indicate the existence of a
material uncertainty that may cast significant doubt about the Company’s ability to continue its operations as a going concern.
These consolidated financial statements were prepared on a going-concern basis in accordance with International Financial
Reporting Standards ("IFRS"). Funding for operations has been obtained primarily through private share offerings. Future
operations are dependent upon the Company's ability to finance expenditure requirements and upon the achievement of
profitable operations. Management believes it will be successful in raising the necessary funding to continue operations in the
normal course of operations; however, there is no assurance that these funds will be available on terms acceptable to the
Company or at all. These consolidated financial statements do not include adjustments to the amounts and classification of
assets and liabilities that might be necessary should the Company be unable to continue operations. Such adjustments could be
material.
2.
SIGNIFICANT ACCOUNTING POLICIES
Statement of compliance
These consolidated financial statements, including comparatives, have been prepared in accordance with IFRS.
Basis of presentation
These consolidated financial statements have been prepared on a historical cost basis except for investment which has been
presented at fair value. In addition, these consolidated financial statements have been prepared using the accrual basis of
accounting except for cash flow information.
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MURCHISON MINERALS LTD.
Notes to the Consolidated Financial Statements
December 31, 2019 and 2018
(Expressed in Canadian Dollars)
2.
SIGNIFICANT ACCOUNTING POLICIES (Continued)
Basis of consolidation
Subsidiaries are entities over which the Company has control, where control is defined to exist when the Company is exposed
to variable returns from its involvement with the investee and has the ability to affect those returns through its power over the
investee. Subsidiaries are fully consolidated from the date control is transferred to the Company, and are de-consolidated from
the date control ceases.
The consolidated financial statements incorporate the financial statements of the Company and its subsidiaries. All
intercompany transactions, balances, income and expenses are eliminated upon consolidation. Pearl Mining (U) Ltd. (Uganda)
and Flemish Investments Ltd. (Uganda), both subsidiaries of the Company, have been dissolved effective June 29, 2018 and as
at December 31, 2019, Flemish Investments Burundi SA (Burundi) was inactive.
The following companies have been consolidated within these consolidated financial statements:
Company
Registered
Principal activity
Murchison Minerals Ltd.
Flemish Gold Corp.
Pearl Mining (U) Ltd. (1)
Flemish Investments Ltd. (Uganda)(1)
Flemish Investments Burundi SA(1)
(1) 100% owned by Flemish Gold Corp.
Foreign currencies
Ontario, Canada
Ontario, Canada
Uganda, Africa
Uganda, Africa
Burundi, Africa
Parent company
Exploration company
Exploration company
Exploration company
Exploration company
The functional currency, as determined by management of the Company and each of its subsidiaries is the Canadian Dollar.
For the purposes of the consolidated financial statements, the results and financial position are expressed in Canadian Dollars.
Transactions in currencies other than the functional currency are translated into the functional currency using the exchange
rates prevailing at the dates of the transactions. Foreign exchange gains and losses resulting from the settlement of such
transactions and from the translation of monetary assets and liabilities denominated in foreign currencies at the period-end
exchange rates are recognized in profit or loss. Non-monetary items that are measured in terms of historical cost in a foreign
currency are not re-translated.
Financial instruments
Loans and receivables are financial assets with fixed or determinable payments that are not quoted in an active market. Such
assets are initially recognized at fair value plus any directly attributable transaction costs. Subsequent to initial recognition,
loans and receivables are measured at amortized cost using the effective interest method, less any impairment losses.
A financial asset is classified as fair value through profit and loss (“FVPL”) if it is classified as held for trading or is designated
as such upon initial recognition. Financial assets are designated as FVPL if the Company manages such investments and makes
purchases and sale decisions based on their fair value in accordance with the Company’s documented risk management or
investment strategy. Realized and unrealized gains and losses are reflected in the consolidated statement of loss. Transaction
costs associated with FVPL financial assets are expensed as incurred, while transaction costs associated with all other financial
assets are included in the initial carrying amount of the asset. The Company has designated its investments in marketable
securities as FVPL.
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MURCHISON MINERALS LTD.
Notes to the Consolidated Financial Statements
December 31, 2019 and 2018
(Expressed in Canadian Dollars)
2.
SIGNIFICANT ACCOUNTING POLICIES (Continued)
Financial instruments (continued)
Other financial liabilities are recognized initially at fair value net of any directly attributable transaction costs. Subsequent to
initial recognition, these financial liabilities are measured at amortized cost using the effective interest method. The effective
interest method is a method of calculating the amortized cost of a financial liability and of allocating interest and any transaction
costs over the relevant period. The effective interest rate is the rate that exactly discounts estimated future cash payments
through the expected life of the financial liability or (where appropriate) to the net carrying amount on initial recognition. Other
financial liabilities are de-recognized when the obligations are discharged, cancelled or expired.
Impairment of financial assets:
Financial assets are assessed for indicators of impairment at the end of each reporting period. Financial assets are impaired
when there is objective evidence that, as a result of one or more events that occurred after the initial recognition of the financial
assets, the estimated future cash flows of the financial assets have been negatively impacted. Evidence of impairment could
include:
significant financial difficulty of the issuer or counterparty; or
default or delinquency in interest or principal payments; or
the likelihood that the borrower will enter bankruptcy or financial re-organization.
The carrying amount of financial assets is reduced by any impairment loss directly for all financial assets with the exception of
amounts receivable, where the carrying amount is reduced through the use of an allowance account. When an account receivable
is considered uncollectible, it is written off against the allowance account. Subsequent recoveries of amounts previously written
off are credited against the allowance account. Changes in the carrying amount of the allowance account are recognized in
profit or loss.
If, in a subsequent period, the amount of the impairment loss decreases and the decrease can be related objectively to an event
occurring after the impairment was recognized, the previously recognized impairment loss is reversed through the consolidated
statement of loss to the extent that the carrying amount of the financial asset at the date the impairment is reversed does not
exceed what the amortized cost would have been had the impairment not been recognized.
Financial instruments recorded at fair value:
Financial instruments recorded at fair value on the consolidated statements of financial position are classified using a fair value
hierarchy that reflects the significance of the inputs used in making the measurements. The fair value hierarchy has the
following levels:
Level 1 - valuation based on quoted prices (unadjusted) in active markets for identical assets or liabilities;
Level 2 - valuation techniques based on inputs other than quoted prices included in Level 1 that are observable for the
asset or liability, either directly (i.e. as prices) or indirectly (i.e. derived from prices); and
Level 3 - valuation techniques using inputs for the asset or liability that are not based on observable market data
(unobservable inputs).
As at December 31, 2019, the Company’s Investment on the consolidated statement of financial position was recorded at Level
1 with a fair value of $2,196 (December 31, 2018 - $2,110).
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MURCHISON MINERALS LTD.
Notes to the Consolidated Financial Statements
December 31, 2019 and 2018
(Expressed in Canadian Dollars)
2.
SIGNIFICANT ACCOUNTING POLICIES (Continued)
Impairment of non-financial assets
At the end of each reporting period, 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. The recoverable amount
is the higher of an asset’s fair value less cost to sell or its value in use. In addition, long-lived assets that are not amortized are
subject to a periodic impairment assessment. The Company evaluates impairment losses for potential reversals when events
or circumstances warrant such consideration.
Exploration and evaluation properties
The acquisition costs of exploration and evaluation properties are expensed the consolidated statements of loss in the period
incurred, as permitted under IFRS 6, Exploration for and Evaluation of Mineral Resources.
The acquisition costs of exploration and evaluation properties include the cash consideration and the estimated fair market
value of share-based payments issued for such property interests.
Exploration costs are expensed in the period incurred. Option payments which are solely at the Company’s discretion are
recorded as acquisition costs as they are made. Administrative expenditures are expensed in the period incurred.
Cash and cash equivalents
Cash and cash equivalents in the statement of financial position comprise cash at banks, on hand and short-term money market
investments with original maturities of 90 days or less which are readily convertible into a known amount of cash. The
Company’s cash and cash equivalents are invested with major financial institutions in business accounts and are available on
demand by the Company. When cash and cash equivalents include an amount to be incurred in relation to a flow-through
commitment, an amount equal to the minimum commitment is kept in a separate bank account. As at December 31, 2019 and
2018, the Company had no cash equivalents.
Provisions
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. If the effect is material, provisions are determined by discounting the expected future cash flows at a pre-tax
rate that reflects current market assessments of the time value of money and, where appropriate, the risks specific to the liability.
A provision for onerous contracts is recognized when the expected benefits to be derived by the Company from a contract are
lower than the unavoidable cost of meeting its obligations under the contract.
The Company had no material provisions at December 31, 2019 and December 31, 2018.
Property and equipment
Property and equipment are carried at cost, less accumulated amortization and accumulated impairment losses.
The cost of an item of property and equipment consists of the purchase price, any costs directly attributable to bringing the
asset to the location and condition necessary for its intended use and an initial estimate of the costs of dismantling and removing
the item and restoring the site on which it is located. Repairs and maintenance costs are charged to profit or loss during the
period in which they are incurred.
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MURCHISON MINERALS LTD.
Notes to the Consolidated Financial Statements
December 31, 2019 and 2018
(Expressed in Canadian Dollars)
2.
SIGNIFICANT ACCOUNTING POLICIES (Continued)
Property and equipment (continued)
An asset's residual value, useful life and amortization method are reviewed, and adjusted if appropriate, on an annual basis.
An item of property and equipment is derecognized upon disposal or when no future economic benefits are expected to arise
from the continued use of the asset. Any gain or loss arising on disposal of the asset, determined as the difference between the
net disposal proceeds and the carrying amount of the asset, is recognized in profit or loss.
Where an item of property and equipment consists of major components with different useful lives, the components are
accounted for as separate items of property and equipment. Expenditures incurred to replace a component of an item of property
and equipment that is accounted for separately, including major inspection and overhaul expenditures, are capitalized.
Amortization is recognized based on the cost of an item of property and equipment, less its estimated residual value, over its
estimated useful life at the following rates:
Detail
Exploration equipment
Computer equipment
Office equipment
Share-based payment transactions
Rate
3 years
3 years
5 years
Method
Straight-line
Straight-line
Straight -line
The fair value of stock options granted to employees is recognized as an expense over the vesting period with a corresponding
increase in equity. An individual is classified as an employee when the individual is an employee for legal or tax purposes
(direct employee) or provides services similar to those performed by a direct employee, including directors of the Company.
The fair value 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, taking into account 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 stock options that are expected to vest.
Where the terms of an equity-settled award are modified, the minimum expense recognized is the expense as if the terms had
not been modified. An additional expense is recognized for any modification which increases the total fair value of the
share-based payment arrangement, or is otherwise beneficial to the employee as measured at the date of modification.
Unexercised expired and modified stock option values are transferred to deficit.
Where equity instruments are granted to non-employees, they are recorded at the fair value of the goods or services received
in the statement of comprehensive loss. When the value of goods or services received in exchange for the share-based payment
cannot be reliably estimated, the transaction is measured at the fair value of the equity instrument granted.
Income taxes
Income tax on the profit or loss for the periods presented comprises current and deferred tax. Income tax is recognized in profit
or loss except to the extent that it relates to items recognized directly in equity, in which case it is recognized in equity.
Current tax expense is the expected tax payable on the taxable income for the period, using tax rates enacted or substantively
enacted at period end, adjusted for amendments to tax payable with regards to previous years.
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MURCHISON MINERALS LTD.
Notes to the Consolidated Financial Statements
December 31, 2019 and 2018
(Expressed in Canadian Dollars)
2.
SIGNIFICANT ACCOUNTING POLICIES (Continued)
Deferred tax is provided using the statement of financial position 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. The
following temporary differences are not provided for: goodwill not deductible for tax purposes and the initial recognition of
assets or liabilities that affect neither accounting nor taxable profit. 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.
A deferred tax asset is recognized only to the extent that it is probable that future taxable profits will be available against which
the asset can be utilized.
Equity
Share capital, stock options, warrants and broker units are classified as equity. Incremental costs directly attributable to the
issuance of shares, warrants and broker units are recognized as a deduction from equity and allocated between share capital
and warrants. Expired stock options and warrants are transferred to deficit.
Flow-through shares
The Company finances some exploration expenditures through the issuance of flow-through shares. The resource expenditure
deductions for income tax purposes are renounced to investors in accordance with the appropriate income tax legislation. When
the common shares are offered, the difference (“premium”) between the amount recognized in common shares and the amount
the investors pay for the shares is recognized as a flow-through share related liability which is reversed into the consolidated
statement of loss when the eligible expenditures are incurred. The amount recognized as a flow-through share related liability
represents the difference between the quoted price of the common shares and the amount the investor pays for the flow-through
shares. The Company indemnifies the subscribers of flow-through shares for additional taxes payable by the subscribers if the
Company does not meet its expenditure requirements.
Restoration, rehabilitation and environmental obligations
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 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 asset, as soon as the obligation to incur such costs arises. Discount
rates using a pretax rate that reflects the time value of money are used to calculate the net present value. These costs are charged
against profit or loss over the economic life of the related asset, through amortization using either a unit-of-production or the
straight-line method as appropriate. The related liability is adjusted for each period for the unwinding of the discount rate and
for changes to the current market-based discount rate, amount or timing of the underlying cash flows needed to settle the
obligation. Costs for restoration of subsequent site damage that is created on an ongoing basis during production are provided
for at their net present values and charged against profits as extraction progresses.
The Company has no material restoration, rehabilitation and environmental costs as at December 31, 2019 and December 31,
2018 as the disturbance to date is minimal.
- 10 -
MURCHISON MINERALS LTD.
Notes to the Consolidated Financial Statements
December 31, 2019 and 2018
(Expressed in Canadian Dollars)
2.
SIGNIFICANT ACCOUNTING POLICIES (Continued)
Loss per share
The Company presents basic and diluted loss per share data for its common shares, calculated by dividing the loss attributable
to common shareholders of the Company by the weighted average number of common shares outstanding during the period.
The diluted loss per share is determined by adjusting the loss attributable to common shareholders and the weighted average
number of common shares outstanding for the effects of all warrants, finders’ warrants and stock options outstanding that may
add to the total number of common shares. Diluted loss per share does not include the effect of stock options, warrants and
finders’ warrants as they are anti-dilutive. See Notes 11 and 12.
Warrants
Warrants are recognized at fair value on the date of grant and are measured using the Black-Scholes option pricing model.
Unexercised expired warrants are transferred to deficit.
Significant accounting judgments and estimates
The preparation of financial statements in conformity with IFRS requires the Company’s management to make judgments,
estimates and assumptions about future events that affect the amounts reported in the consolidated financial statements and
related notes to the financial statements. Although these estimates are based on management’s best knowledge of the amounts,
events or actions, actual results may differ from those estimates.
The areas which require management to make significant judgments, estimates and assumptions in determining carrying values
include, but are not limited to:
- Assets’ carrying values and impairment charges
In the determination of carrying values and impairment charges, management looks at the recoverable amount, being the
higher of value in use and fair value less costs to sell in the case of non-financial assets and at objective evidence, significant
or prolonged decline of fair value on financial assets indicating impairment. These determinations and their individual
assumptions require that management make a decision based on the best available information at each reporting period.
- Income and other taxes
The Company is subject to income, value added, withholding and other taxes. Significant judgment is required in determining
the Company's provisions for taxes. There are many transactions and calculations for which the ultimate tax determination
is uncertain during the ordinary course of business. The Company recognizes liabilities for anticipated tax audit issues based
on estimates of whether additional taxes will be due. The determination of the Company's income, value added, withholding
and other tax liabilities requires interpretation of complex laws and regulations. The Company's interpretation of taxation
law as applied to transactions and activities may not coincide with the interpretation of the tax authorities. All tax related
filings are subject to government audit and potential reassessment subsequent to the financial statement reporting period.
Where the final tax outcome of these matters is different from the amounts that were initially recorded, such differences will
impact the tax related accruals and deferred income tax provisions in the period in which such determination is made.
- Share-based payments
Management determines costs for share-based payments using market-based valuation techniques. The fair value of the
market-based and performance-based non-vested share awards are determined at the date of grant using generally accepted
valuation techniques. Assumptions are made and judgment is used in applying valuation techniques. These assumptions and
judgments include estimating the future volatility of the stock price, expected dividend yield, future employee turnover rates
and future employee stock option exercise behaviors and corporate performance. Such judgments and assumptions are
inherently uncertain. Changes in these assumptions affect the fair value estimates. The Company currently estimates the
expected volatility of its common shares based on historical volatility taking into consideration the expected life of the options
and warrants.
- 11 -
MURCHISON MINERALS LTD.
Notes to the Consolidated Financial Statements
December 31, 2019 and 2018
(Expressed in Canadian Dollars)
2.
SIGNIFICANT ACCOUNTING POLICIES (Continued)
New accounting policies
On January 1, 2019, the Company adopted IFRS 16 – Leases (“IFRS 16”). This standard has no material impact on the
Company’s consolidated financial statements. IFRS 16 was issued in January 2016 and replaced IAS 17 – Leases as well as
some lease related interpretations. With certain exceptions for leases under twelve months in length or for assets of low value,
IFRS 16 states that upon lease commencement a lessee recognizes a right-of-use asset and a lease liability. The right-of-use
asset is initially measured at the amount of the liability plus any initial direct costs. After lease commencement, the lessee
shall measure the right-of-use asset at cost less accumulated depreciation and accumulated impairment. A lessee shall either
apply IFRS 16 with full retrospective effect or alternatively not restate comparative information but recognize the cumulative
effect of initially applying IFRS 16 as an adjustment to opening equity at the date of initial application. IFRS 16 requires that
lessors classify each lease as an operating lease or a finance lease. A lease is classified as a finance lease if it transfers
substantially all the risks and rewards incidental to ownership of an underlying asset. Otherwise it is an operating lease.
3. CAPITAL MANAGEMENT
The Company manages its capital with the following objectives:
to ensure sufficient financial flexibility to achieve the ongoing business objectives including funding of future growth
opportunities, and pursuit of accretive acquisitions; and
to maximize shareholder return through enhancing the share value.
The Company monitors its capital structure and makes adjustments according to market conditions in an effort to meet its
objectives given the current outlook of the business and industry in general. The Company may manage its capital structure by
issuing new shares, repurchasing outstanding shares, adjusting capital spending, or disposing of assets. The capital structure is
reviewed by management and the Board of Directors on an ongoing basis.
The Company considers its capital to consist of equity, comprising share capital, reserves and deficit which at December 31,
2019 totalled $1,245,668 (December 31, 2018 - $1,159,600). The Company manages capital through its financial and
operational forecasting processes. The Company reviews its working capital and forecasts its future cash flows based on
operating expenditures, and other investing and financing activities. The forecast is regularly updated based on its exploration
and development activities. Selected information is regularly provided to the Board of Directors of the Company. The
Company’s capital management objectives, policies and processes have remained unchanged during the years ended December
31, 2019 and 2018. The Company is not subject to any capital requirements imposed by a regulator or lending institution.
4.
FINANCIAL RISK FACTORS
The Company's activities expose it to a variety of financial risks: credit risk, liquidity risk and market risk (including interest
rate, foreign exchange rate and commodity price risk).
Risk management is carried out by the Company's management team under policies approved by the Board of Directors. The
Board of Directors also provides regular guidance for overall risk management. There have been no changes in the risks,
objectives, policies and procedures during the years ended December 31, 2019 and 2018.
Credit risk
Credit risk is the risk of loss associated with a counterparty’s inability to fulfill its payment obligations. The Company's credit
risk is primarily attributable to cash balances and amounts receivable. Cash is held with reputable banks, from which
management believes the risk of loss to be remote. Financial instruments included in amounts receivable consist of sales tax
receivable and refundable tax credits from government authorities in Canada. Management believes that the credit risk
concentration with respect to financial instruments included in amounts receivable is remote.
- 12 -
MURCHISON MINERALS LTD.
Notes to the Consolidated Financial Statements
December 31, 2019 and 2018
(Expressed in Canadian Dollars)
4.
FINANCIAL RISK FACTORS (Continued)
Liquidity risk
The Company's approach to managing liquidity risk is to ensure that it will have sufficient liquidity to meet liabilities when
due. As at December 31, 2019, the Company had a cash balance of $1,434,347 (December 31, 2018 - $1,176,697) to settle
accounts payable and accrued liabilities of $35,769 (December 31, 2018 - $138,199). All of the Company's financial liabilities
generally have contractual maturities of less than 30 days and are subject to normal trade terms.
Market risk
Market risk is the risk of loss that may arise from changes in market factors such as interest rates, foreign exchange rates, and
commodity prices.
Interest rate risk
The Company has cash balances and no interest-bearing debt. The Company's current policy is to invest excess cash in
certificates of deposit or interest bearing accounts at major Canadian chartered banks. The Company periodically monitors the
investments it makes and is satisfied with the creditworthiness of its Canadian chartered banks. Management believes that
interest rate risk is minimal as cash and cash equivalents investments have maturities of three months or less.
Foreign currency risk
The Company's functional and presentation currency is the Canadian dollar. Limited expenditures are transacted in foreign
currencies. As a result, the Company purchases these foreign currencies as needed.
Commodity price risk
Commodity price risk could adversely affect the Company. In particular, the Company’s future profitability and viability of
development depends upon the world market price of commodities. Commodity prices have fluctuated widely in recent years.
There is no assurance that, even as commercial quantities of base and/or precious metals may be produced in the future, a
profitable market will exist for them. A decline in the market price of commodities may also require the Company to reduce
its mineral resources, which could have a material and adverse effect on the Company’s value. As at December 31, 2019, the
Company is not a commodities producer. As a result, commodity price risk may affect the completion of future equity
transactions such as equity offerings and the exercise of stock options and warrants. This may also affect the Company's
liquidity and its ability to meet its ongoing obligations.
Sensitivity analysis
Based on management's knowledge and experience, the Company believes the following movements are “reasonably possible”
over a one-year period:
(i)
Based on cash balances earning interest at December 31, 2019, a 1% change in interest rates would result in a
corresponding interest income change of approximately $13,750 for the one-year period.
- 13 -
MURCHISON MINERALS LTD.
Notes to the Consolidated Financial Statements
December 31, 2019 and 2018
(Expressed in Canadian Dollars)
5.
CATEGORIES OF FINANCIAL INSTRUMENTS
Financial assets:
Amortized cost
Cash
Amounts receivable
FVPL
Investment
Financial liabilities:
Amortized cost
Accounts payable and accrued liabilities
December
2019
December
2018
$
1,434,347 $
-
1,176,697
816
2,196
2,110
$
35,769 $
138,199
As of December 31, 2019 and December 31, 2018, the fair value of all the Company's current financial instruments
approximates the carrying value, due to their short-term nature.
6.
AMOUNTS RECEIVABLE AND PREPAID EXPENSES
Sales tax receivable
Other receivable
Prepaid expenses and advances
7.
INVESTMENT
December
2019
December
2018
$
20,478 $
-
143,709
75,493
816
84,350
$
164,187 $
160,659
The Company's investment is classified as fair value through profit and loss (“FVPL”) and is carried at fair value. The balance
is comprised of the following:
Number
of shares
December
2019
December
2018
First Mining Gold Corp.
8,612
$
2,196 $
2,110
The Company holds 8,612 (2018 – 8,612) common shares of First Mining Gold Corp. The unrealized gain of $86 for the year
ended December 31, 2019 (2018 – loss of $3,229) was recognized on the consolidated statement of loss.
8.
PROPERTY AND EQUIPMENT
Balance December 31, 2018 and 2017
Acquisition
Amortization for the year
Balance December 31, 2019
- 14 -
Exploration
Equipment
Total
$
$
-
14,216
(3,160)
-
14,216
(3,160)
$
11,056
$
11,056
MURCHISON MINERALS LTD.
Notes to the Consolidated Financial Statements
December 31, 2019 and 2018
(Expressed in Canadian Dollars)
9.
EXPLORATION AND EVALUATION PROPERTIES
Canada
Brabant Lake Property – Saskatchewan
As at December 31, 2019, the Company holds a 100% interest in certain claims forming the Brabant Lake property in
Saskatchewan.
Pickle Lake Properties - Ontario
The Company held a 51% interest in the Dorothy-Dobie Lake property and the Kasagiminnis property, both located in the
Pickle Lake Greenstone Belt. The Company also held a 100% interest in the Pickle Lake Gold property.
History of Pickle Lake Properties
In June 2016 (with amendment on February 2, 2017), the Company entered into an agreement with White Metal Resources
Corp. (“White Metal”) whereby White Metal could acquire all of the Company’s interest (“Earned Interest”) in its above Pickle
Lake Gold properties. White Metal could exercise the option and acquire the Earned Interest by completing all of the following
expenditures and cash payments:
(i) pay $10,000 at the signing of the agreement (received);
(ii) pay $15,000 on or before the date which is 12 months from the date of the agreement (received);
(iii) pay $20,000 on or before the date which is 24 months from the date of the agreement. (received)
(iv) spend $1,200,000 over three years beginning on the date of the agreement as follows:
i. complete a work commitment of $900,000 on or before the date which is twenty-four (24) months from the date
of the agreement (with at least $250,000 on drilling) (completed);
ii. complete a cumulative work commitment of $1,200,000 on or before the date which is thirty-six (36) months from
the date of the agreement (with at least $700,000 on drilling) (completed)
(v) once the Earned Interest was completed, Murchison would be entitled to a 1% net smelter return (the “NSR”) of
which fifty percent (50%) can be purchased by White Metal for $1,000,000 and the balance of the other fifty percent
(50%) of the said NSR can be purchased for $1,500,000.
On July 27, 2017, White Metal assigned its option and right to acquire the Earned Interest to Ardiden Ltd., an Australian
exploration company. On June 24, 2019, Ardiden Ltd. notified the Company of the completion of the option payments and
expenditures (see below) by delivering a notice to the Company setting out that it has exercised the option, subject to
Murchison’s NSR.
In August 2014, the Company entered into an agreement with Frontline Gold Corporation ("FGC") and White Metal whereby
FGC acquired 100% of the Company's 51% interest and the 49% interest held by White Metal in two claims known as the
Pickle Lake East property. The claims will be subject to a 2% NSR (1% for the Company and 1% to White Metal for which
0.5% can be purchased for $500,000 from each of White Metal and the Company).
HPM Property - Quebec
As at December 31, 2018, the property consisted of 51 claims on which Pure Nickel Inc. has a 50% interest.
On February 28, 2019, the Company announced the acquisition of the other 50% interest held by joint venture partner Pure
Nickel Inc. in the nickel-copper-cobalt HPM property. On March 5, 2019, as per the agreement and following the TSX
Venture Exchange approval, the Company paid $50,000 and issued 500,000 common shares of the Company valued at $65,000
to Pure Nickel Inc. See Note 10. The Company now owns 100% of the HPM property in Québec.
- 15 -
MURCHISON MINERALS LTD.
Notes to the Consolidated Financial Statements
December 31, 2019 and 2018
(Expressed in Canadian Dollars)
10.
SHARE CAPITAL
(a) Authorized Share Capital
The Company’s authorized share capital consists of an unlimited number of common shares.
(b) Issued
Balance - December 31, 2017
Issuance of flow-through common shares (i)
Issue costs (i)
Flow-through premium (i)
Balance – December 31, 2018
Balance - December 31, 2018
Issuance of common shares for mineral property(ii)
Issuance of flow-through shares (iii) (iv)
Flow-through premium (iii) (iv)
Issuance of common shares (iv)
Warrants (iv)
Issue costs (iii) (iv)
Balance – December 31, 2019
Number
42,543,214
1,666,667
-
-
44,209,881
44,209,881
500,000
15,811,901
-
4,166,667
-
-
64,688,449
$
$
$
$
Amount
28,802,248
150,000
(14,695)
(41,667)
28,895,886
28,895,886
65,000
1,461,070
(456,659)
250,000
(225,150)
(55,462)
29,934,685
(i) On December 27, 2018, Murchison completed a non-brokered flow-through private placement and issued 1,666,667 flow-
through common shares priced at $0.09 per share for gross proceeds of $150,000 of which, $41,667 was allocated to the flow-
through premium. Finders’ fees of $9,000 were also paid.
(ii) On March 5, 2019, the Company completed the acquisition of the remainder 50% interest in the nickel-copper-cobalt HPM
property held by joint venture partner Pure Nickel Inc. by making a cash payment of $50,000 and issued 500,000 common
shares of the Company valued at $65,000 to Pure Nickel Inc. based on the quoted market price of the Company’s shares on the
date of issuance. See Note 9.
(iii) On June 19 and 27, 2019, the Company completed a non-brokered flow-through private placement and issued 3,714,545
flow-through common shares priced at $0.11 per share for gross proceeds of $408,600 of which $130,009 was allocated to the
flow-through premium. Finders’ fees of $3,000 were also paid. Officers of the Company acquired 260,000 flow-through
common shares for gross proceeds of $28,600. See Note 14.
(iv) On December 12, 2019, Murchison completed a non-brokered private placement and issued 4,166,667 common share units
(the “Units”) at a price of $0.06 per Unit and 12,097,356 flow-through units (the “FT Units”) at a price of $0.087 per FT Unit
for aggregate gross proceeds of $1,302,470 of which $326,650 was allocated to the flow-through premium. Each Unit consisted
of one common share of the Company and one full common share purchase warrant. Each warrant entitles the holder to
acquire one additional common share until December 12, 2020 at an exercise price of $0.10 per Share. Each FT Unit consisted
of one flow-through common share of the Company and one full non flow-through common share purchase warrant having the
terms as the warrant issued as part of the Unit. All securities issued pursuant to the private placement are subject to a four
month hold period from the date of issue.
The fair value of the warrants was estimated at $225,150 using the Black-Scholes option model pricing with the following
assumptions: expected dividend yield of 0%, expected volatility of 131%, risk-free interest rate of 1.70%, expected life of 1
year and share price of $0.05. Issue costs of $12,675 were allocated to the warrants.
Finder’s fees totaling $36,770 were paid under the private placement. A director of the Company participated in the private
placement for a total of $237,760. See Note 14.
- 16 -
MURCHISON MINERALS LTD.
Notes to the Consolidated Financial Statements
December 31, 2019 and 2018
(Expressed in Canadian Dollars)
11. WARRANTS AND FINDERS’ WARRANTS
The following summarizes the warrants and finders’ warrants activity for the years ended December 31, 2019 and 2018:
Balance - December 31, 2017
Expired
Balance – December 31, 2018
Balance - December 31, 2018
Expired
Issued
Balance – December 31, 2019
Number of
Warrants
Grant Date Weighted Average
Fair Value
Exercise Price
12,662,970
(7,818,000)
4,844,970
4,844,970
(4,844,970)
16,264,023
16,264,023
$
$
$
$
1,241,802
(783,346)
458,456
458,456
(458,456)
212,475
212,475
$
$
$
$
0.28
0.30
0.24
0.24
0.24
0.10
0.10
As at December 31, 2019, the Company had warrants and finders’ warrants outstanding as follows:
Date of Grant
Number of
Warrants
Exercise Grant Date
Fair Value
Price
($)
($)
Expiry Date
December 12, 2019
16,264,023
0.10
212,475
December 12, 2020
16,264,023
212,475
12.
STOCK OPTIONS
Weighted Average
Remaining
Contractual Life
(years)
0.95
0.95
The Company maintains a stock option plan whereby certain key employees, officers, directors and consultants may be granted
stock options for common shares of the Company. The maximum number of common shares that is issuable under the plan
was fixed at 10% of the number of common shares issued and outstanding (a maximum of 5% of the number of common shares
issued and outstanding may be held by any one person). Options expire after a maximum period of five years following the
date of grant. Vesting provisions are determined at the time of each grant.
The following summarizes the stock option activity for the years ended December 31, 2019 and 2018:
Balance - December 31, 2017
Granted (i)
Expired
Balance – December 31, 2018
Balance - December 31, 2018
Granted (ii) (iii)
Expired
Balance – December 31, 2019
Number of
Stock Options
Weighted Average
Exercise Price
$
$
2,133,800
1,435,000
(66,000)
3,502,800
3,502,800
3,965,000
(2,312,800)
5,155,000
0.39
0.19
0.70
0.30
0.30
0.09
0.35
0.12
- 17 -
MURCHISON MINERALS LTD.
Notes to the Consolidated Financial Statements
December 31, 2019 and 2018
(Expressed in Canadian Dollars)
12.
STOCK OPTIONS (Continued)
(i) On January 10, 2018, the Company granted 1,435,000 stock options exercisable at $0.19 for 5 years to directors, officers
and consultants of the Company. The grant date fair value of the these options of $245,385 was estimated using the Black
Scholes valuation model with the following weighted average assumptions: risk free interest rate – 1.95%, expected volatility
– 145%, expected dividend yield – 0%, expected forfeiture rate of – 0% and expected life – 5 years. The options vested
immediately and the $245,385 fair value was recorded as share-based payment on the consolidated statement of loss for the
year ended December 31, 2018.
(ii) On March 6, 2019, the Company granted 665,000 stock options exercisable at $0.095 for 5 years to directors, officers and
consultants of the Company. The grant date fair value of the these options of $61,180 was estimated using the Black Scholes
valuation model with the following weighted average assumptions: risk free interest rate – 1.69%, expected volatility – 186%,
expected dividend yield – 0%, expected forfeiture rate of – 0% and expected life – 5 years. The options vested immediately
and the $61,180 fair value was recorded as share-based payment on the consolidated statement of loss for the year ended
December 31, 2019.
(iii) On December 23, 2019, the Company granted 3,300,000 stock options exercisable at $0.085 for 5 years to directors and
officers of the Company. The grant date fair value of the these options of $244,200 was estimated using the Black Scholes
valuation model with the following weighted average assumptions: risk free interest rate – 1.65%, expected volatility – 132%,
expected dividend yield – 0%, expected forfeiture rate of – 0% and expected life – 5 years. The options vested immediately
and the $244,200 fair value was recorded as share-based payment on the consolidated statement of loss for the year ended
December 31, 2019.
As at December 31, 2019, the Company had incentive stock options issued to directors, officers, employees and key consultants
of the Company outstanding as follows:
Date of Grant
September 27, 2016
January 10, 2018
March 6, 2019
December 23, 2019
Options
Outstanding(1)
Exercise
Price ($)
Grant Date
Fair Value ($)
Expiry Date
Weighted Average
Remaining
Contractual Life
(years)
305,000
885,000
665,000
3,300,000
5,155,000
0.30
0.19
0.095
0.085
0.12
75,945
151,335
61,180
244,200
532,660
September 27, 2021
January 10, 2023
March 6, 2024
December 23, 2024
1.74
3.03
4.18
4.98
4.35
(1) All options are exercisable.
- 18 -
MURCHISON MINERALS LTD.
Notes to the Consolidated Financial Statements
December 31, 2019 and 2018
(Expressed in Canadian Dollars)
13.
INCOME TAXES
(a) Provision for income taxes
Major items causing the Company’s income tax to differ from the combined Canadian federal and provincial statutory rate of
27% (2018 - 27%) were as follows:
Combined Canadian statutory income tax rate
Loss before income taxes
Expected income tax recovery based on the statutory rate
Adjustment to expected income tax benefit:
Differences in tax rates and foreign exchange
Permanent differences and other
Deferred tax assets not recognized
Deferred income tax recovery
(b) Deferred income tax
2019
$
2018
$
27%
(1,470,586)
27%
(2,590,596)
(394,000)
(694,000)
2,000
329,000
63,000
-
(40,000)
205,000
529,000
-
Deferred income tax assets have not been recognized in respect of the following deductible temporary differences:
Capital losses
Non-capital losses
Resource properties
Share issue costs - Canada
Other
2019
$
1,852,000
16,956,000
4,580,000
201,000
431,000
2018
$
1,852,000
16,400,000
4,787,000
236,000
741,000
Total
24,020,000
24,016,000
(c) As at December 31, 2019, the Company had approximately $4,580,000 (2018 - $4,787,000) of Canadian development and
exploration expenses and foreign exploration and development expenses, which, under certain circumstances, may be utilized
to reduce taxable income of future years.
(d) Tax loss carry-forwards
As at December 31, 2019, the Company had approximately $16,960,000 of non-capital losses in Canada, which may be used
to reduce taxable income in future years. These losses expire from 2025 to 2039.
- 19 -
MURCHISON MINERALS LTD.
Notes to the Consolidated Financial Statements
December 31, 2019 and 2018
(Expressed in Canadian Dollars)
14. RELATED PARTY TRANSACTIONS
a) Remuneration of directors and officers was as follows:
Salaries and benefits
Share-based payments
2019
2018
$ 194,359
278,700
$
509,738
211,185
$ 473,059
$
720,923
For the year ended December 31, 2019, the salaries and benefits amount above includes $91,407 (2018 - $111,250) for fees
invoiced by a corporation controlled by the CFO of the Company for his services and $102,952 (2018 - $5,988) for fees invoiced
by the CEO of the Company for his services as CEO. In 2018, the Company paid $392,500 including $225,000 as termination
payment to a corporation controlled by the former CEO of the Company. Included in accounts payable and accrued liabilities
at December 31, 2019 is $nil (2018 - $10,374) owed to corporation controlled by the CFO and $15,013 (2018 - $6,247) owed
to the CEO.
b) Private Placement
As part of the private placement completed in June 2019, officers of the Company acquired 260,000 flow-through common
shares for gross proceeds of $28,600. As part of the private placement completed in December 2019, a director of the Company
subscribed for 3,962,667 common share units for gross proceeds of $237,760. See Note 10.
15. COMMITMENTS AND CONTINGENCIES
Flow-Through Obligation
As at December 31, 2019, the Company has to incur $1,064,097 in qualifying exploration expenditures by December 31, 2020
to meet its flow-through commitments. The Company keeps a separate bank account for the flow-through expenses to be
incurred in a minimum amount equal to the flow-through obligation. At this time, management anticipates meeting that
obligation and as a result, no additional provisions are required.
The flow-through agreements require the Company to renounce certain tax deductions for Canadian exploration expenditures
incurred on the Company’s mineral properties to flow-through participants. The Company indemnified the subscribers for any
related tax amounts that become payable by the subscribers as a result of the Company not meeting its expenditure
commitments.
Environmental
The Company's mining and exploration activities are subject to various laws and regulations governing the protection of the
environment. These laws and regulations are continually changing and generally becoming more restrictive. The Company
believes its operations are materially in compliance with all applicable laws and regulations. The Company has made, and
expects to make in the future, expenditures to comply with such laws and regulations.
End of Notes to Financial Statements
- 20 -
MURCHISON MINERALS LTD.
MANAGEMENT’S DISCUSSION AND ANALYSIS
FOR THE YEAR ENDED DECEMBER 31, 2019
This Management’s Discussion and Analysis (“MD&A”) is intended to supplement the consolidated
financial statements and notes of Murchison Minerals Ltd. (the “Company” or “Murchison”) for the year
ended December 31, 2019 with comparatives for the same period a year earlier. The consolidated financial
statements including comparative figures have been prepared by the Company in accordance with
International Financial Reporting Standards (“IFRS”) applicable to preparation of financial statements. This
MD&A should be read in conjunction with the Company’s audited consolidated financial statements and
accompanying notes for the year ended December 31, 2019, which are available on the Company’s
website (www.murchisonminerals.com). This MD&A covers the most recently completed financial year end
and the subsequent period up to March 4, 2020. The information is presented in Canadian dollars unless
stated otherwise.
OVERALL PERFORMANCE
Description of Business
Murchison is a Canadian based exploration company with a focus on its Brabant Lake property which
includes the high-grade Brabant-McKenzie VMS zinc-copper-silver deposit (the “Deposit”) in north-central
Saskatchewan. The Company also owns 100% of the HPM nickel-copper-cobalt project in Quebec. The
Company expects to acquire additional properties as attractive opportunities are identified. The Company
does not have any projects that generate revenue at this time. The Company’s ability to carry out its
business plan in the future rests entirely on its ability to secure equity and other financings or realize cash
from the sale of assets.
Trends
The financing, exploration and development of any properties the Company holds or may acquire in the
future will be subject to a number of factors including the commodity prices for minerals, applicable laws
and regulations, political conditions, currency fluctuations, the hiring of qualified people, and obtaining
necessary services in jurisdictions where the Company operates. The current trends relating to these
factors could change at any time and negatively affect the Company’s operations and business. Apart
from these, the risk factors noted under the heading “Uncertainties and Risk Factors” and “Forward Looking
Statement” included in this MD&A, management is not aware of any other trends, commitments, events or
uncertainties that would have a material effect on the Company’s business, financial condition or results
of operations.
OUTLOOK
The Company completed a systematic follow up field prospecting program at its Brabant Lake project (the
“Property”) during this past summer where several highly prospective exploration targets have been
identified for drill testing. In January 2020, the Company initiated a drill program and drilled 11 holes in 5
of the prospective targets. The drill program was completed on March 3, 2020 and assays results will be
announced when all data have been received and collated by Murchison.
The Company also acquired new claims at the Property in November, December and early February which
are mostly contiguous to the existing property holdings, increasing its land position in the Brabant Lake
area by 231 km2 to 565 km2. The Company is planning a 900-line kilometre helicopter-borne versatile time-
domain electromagnetic (VTEM™ Max) geophysical survey with the purpose of investigating the mineral
potential over its newly acquired claims which is scheduled to start in the latter part of March 2020.
MURCHISON MINERALS LTD.
MANAGEMENT’S DISCUSSION AND ANALYSIS – DECEMBER 2019
There are no known legal, political, environmental or other risks that could materially affect the potential
development of Company’s exploration projects. Management is of the opinion that it will be able to
maintain the status of its current exploration obligations and to keep its properties in good standing.
Advancing exploration at the mineral properties will require substantially more financial resources. In the
past, the Corporation has been able to rely on its ability to raise financing via equity private placements.
Management’s main objective is to advance its current projects and maximize their potential via the use of
different exploration techniques available. The long-term goal remains to develop the Company’s
properties and achieve commercial production. The Company may enter into partnerships in order to fully
exploit the production potential of its exploration assets.
MINERAL PROPERTIES – EXPLORATION ACTIVITIES
Brabant Property – Saskatchewan
The Property is owned 100% by Murchison, has no royalties and is strategically located along Highway
102 approximately 175 kilometres northeast of the town of La Ronge and near major infrastructure,
including grid power. The Property consists of the Brabant-McKenzie VMS Deposit and multiple known
mineralized showings and identified geophysical conductors over approximately 57 kilometre strike length
of favourable geological horizon, all of which remain under-explored and mostly untested. The 565 km2
Property shares geological characteristics, including similar age, with the Flin Flon and Lynn Lake
volcanogenic massive sulphide (VMS) mining camps in Manitoba.
GEOPHYSICAL INTERPRETATION AND MODELLING
In January 2019, the Company completed a VTEM-Max and magnetic airborne survey over the Property
which identified some 30 EM conductors with coincident magnetic signatures. These conductors were
subjected to additional ground prospecting, and geophysical follow-up during the summer 2019 field
exploration program.
SUMMER 2019 FIELD PROGRAM
The Company started a field prospecting program at the end of May 2019. The goal of this program was
to locate any surface expression of sulphide mineralization spatially linked to the electromagnetic (“EM”)
conductors and magnetic (“Mag”) high responses identified during the January 2019 VTEM-Max and Mag
airborne survey. The whole district is covered by a moderate to shallow glacial till cover masking the
underlying rock formation creating a challenge to prospecting and geological mapping. The field teams
relied heavily on GDD Instrumentation Inc.’s “Beep Mat” technology in order to detect magnetic and/or
electromagnetic mineralization either in bedrock or boulders down to a depth of several metres.
The Company discovered the Main Lake West zone which consists of a massive sulphide-type copper
mineralization spatially related to seven EM conductors located approximately 700 metres west of the
historic Main Lake showing. Multiple zones of sulfide mineralization were identified at the Main Lake West
zone. These zones were exposed and sampled using a channel saw and a small backpack drill. The
mineralization consists of semi-massive to massive pyrrhotite and disseminated chalcopyrite with assay
values up to 0.42% Cu over 1.7 metres and 0.69% Cu over 0.7 metre in backpack drill core, and sampling
of nine trenches with assay values up to 0.58% Cu. The mineralization correlates well with the geophysical
modelling that indicates several bodies. At this time the full extent of the mineralization remains to be
defined.
2
MURCHISON MINERALS LTD.
MANAGEMENT’S DISCUSSION AND ANALYSIS – DECEMBER 2019
The prospecting team also collected a 0.89 metre backpack drill core sample from the rock face of the
Main Lake showing which assayed 6.17% Cu, 8.31% Zn, 140 g/t Ag and 0.2 g/t Au. The historic Main
Lake showing received limited near surface drilling in 1964, reporting an intercept of 0.7 metre at 5% Zn.
This showing correlates well with a 530 metre long modelled conductive unit from the January 2019 VTEM-
Max and Mag airborne survey. Limited historic exploration paired with the high-grade nature of the showing
makes this area a high-priority exploration target for Murchison, as it has strong potential for hosting
economic VMS type mineralization.
The Main Lake showing and the Main Lake West zone are located ten kilometres southwest of Murchison’s
Brabant-McKenzie Deposit.
The Company also discovered a surface showing of massive sulphide-type zinc mineralization on strike
and about 300 metres south of the Deposit.
The Company also confirmed anomalous zinc, silver and gold mineralization at the historic MIN showing
during the summer prospecting program. The MIN showing is located south of the large Min Showing North
conductive body measuring 1,080 by 888 metres, and approximately four and a half kilometres southwest
of, and on strike with, the Brabant-McKenzie VMS deposit and the recently discovered Brabant-McKenzie
South mineralization. Multiple channels were cut perpendicular to strike on the exposed mineralization
using a diamond saw on the shore of Brabant Lake, with notable assays of 0.32% Zn and 5.3 g/t Ag over
1.2 metres, and 0.39% Zn and 7.8 g/t Ag over 0.35 metre. Anomalous gold-silver values were also noted
in a sample with 0.449 g/t Au, 11.4 g/t Ag and 0.15% Zn over 0.50 metre. The mineralization is relatively
low grade, however its proximity to nearby conductive bodies is encouraging.
Table 2 – MIN Showing 2019 Channel Sample Results
Channel ID
MIN001
MIN002
MIN002
MIN006
MIN006
From (m)
To (m)
Zn (%)
Ag (g/t)
Au (g/t)
0.00
0.00
1.20
0.00
0.35
0.50
1.20
1.45
0.35
0.95
0.15
0.32
0.30
0.39
0.12
11.4
5.3
6.6
7.8
13.2
0.449
0.026
0.023
0.029
0.028
The MIN Showing was first located in 1959 during regional geologic mapping and was followed up by
prospecting in 1983 and 1991 with the most notable assay returned from a grab sample completed in 1983
of 0.17% Zn and 14.4 g/t Ag. This zinc-silver mineralization further indicates the strong VMS potential of
the Brabant-McKenzie host geologic unit elsewhere in the project area. Recent geophysical modelling of
Murchison’s surface TDEM (Time Domain Electromagnetic), ground Mag data, VTEM (Versatile Time
Domain Electromagnetic) airborne data shows the presence of a conductor with moderate conductivity
and coincident high magnetic susceptibility that is located under and immediately to the west of the channel
samples, suggesting that semi-massive to massive mineralization may be present.
A second conductive unit called Min Showing North which southern boundary lies approximately 350
metres to the north of the Min Showing has been modelled as a large low to moderate conductivity plate
measuring 1,080 by 888 metres. Historical drill hole BL-12-04 which is located a short distance east of the
plate intersected anomalous silver grading 1.5 g/t Ag over 0.5 metre. Min Showing North represents an
encouraging high priority exploration target along the interpreted Brabant-McKenzie VMS trend.
For the year ended December 31, 2019, the Company incurred $768,740 (2018 - $2,389,764) in
exploration expenses at the Property.
3
MURCHISON MINERALS LTD.
MANAGEMENT’S DISCUSSION AND ANALYSIS – DECEMBER 2019
MINERAL RESOURCE ESTIMATE
In September, 2018, the Company provided the results of a new mineral resource estimate (the “2018
Mineral Resource Estimate”). The 2018 Mineral Resource Estimate included the addition of 19 diamond
drill holes totaling 9,004 metres which were completed during the 2018 winter drilling program as well as
a comprehensive re-interpretation of the geology of the Deposit using current and historical drilling data
and reports. Please refer to the press release dated September 13, 2018 for full details.
The 2018 Mineral Resource Estimate has been prepared by independent qualified person (“QP”) Finley
Bakker, P.Geo., and was calculated using Minesight/Hexagon 3D modeling software to define the
mineralized limits of the Deposit.
The 2018 Mineral Resource Estimate for the Deposit is as follows:
Category
Tonnes
Zn%
Cu%
Pb%
Ag (g/t)
Zn Eq%
Indicated
2,100,000
Inferred
7,600,000
7.08
4.45
0.69
0.57
0.49
0.19
39.6
18.4
9.98
6.29
The 2018 Mineral Resource Estimate for the Deposit was determined on the basis of:
• Drilling results to March 24, 2018 and including historical diamond drilling used in the previous NI-
43-101 resource estimate completed in 2008 and 2018;
• US$ metal prices of $1.20/lb Zn, $2.50/lb Cu, $1.00/lb Pb, $16.00/oz Ag and $1,200/oz Au;
• CDN$:US$ exchange rate of $1.20;
• An NSR cut-off of $90/tonne or 3.5% zinc equivalent (“Zn Eq”) based on above metal prices;
• Average metallurgical and payable recovery of 75% for all metals;
•
Indicated Resource was calculated using a two-hole minimum and a maximum distance of
60 metres from a diamond drill hole;
•
Inferred Resource was calculated using a no-hole minimum and a maximum distance of 200
metres from a diamond drill hole;
• As much as possible, a 2 metre intercept minimum was used but not strictly adhere to;
• The resources were also manually reviewed and adjusted to take into consideration drill intercepts
from previous operators in the areas of drilling carried out by the Company, and;
• 138 drill holes were used in the calculation and were used to model 2 mineral lenses.
HPM Property – Quebec (100%)
During the first quarter of 2019, the Company announced that it had increased its interest in the HPM
property to 100%. As part of the transaction to acquire the remainder 50% interest in the HPM property
held by joint venture partner Pure Nickel Inc., the Company paid $50,000 and issued 500,000 common
shares valued at $65,000.
For the year ended December 31, 2019, the Company incurred $116,857 (2018 - $1,536) at the HPM
property which includes the $115,000 compensation paid to Pure Nickel Inc.
4
MURCHISON MINERALS LTD.
MANAGEMENT’S DISCUSSION AND ANALYSIS – DECEMBER 2019
Pickle Lake Properties – Ontario
In June 2016 (with amendment on February 2, 2017), the Company entered into an agreement with White
Metal Resources Corp. (“White Metal”) whereby White Metal could acquire all of the Company’s interest
(“Earned Interest”) in its Pickle Lake Gold properties. On July 27, 2017, White Metal assigned its option
and right to acquire the Earned Interest to Ardiden Ltd. (“Ardiden”), an Australian exploration company.
Under the agreement, Ardiden had to incur $1,200,000 in expenditures and make $45,000 in cash
payments within 3 years of the agreement in order to exercise the option and acquire the Earned Interest.
Once the Earned Interest was completed, Murchison will be entitled to a 1% net smelter return (the “NSR”)
of which fifty percent (50%) can be purchased by Ardiden for $1,000,000 and the balance of the other fifty
percent (50%) of the said NSR can be purchased for $1,500,000.
On June 24, 2019, Ardiden Ltd. notified the Company of the completion of the option payments and
expenditures by delivering a notice to the Company setting out that it has exercised the option, subject to
Murchison’s NSR.
Qualified Persons
The scientific and technical disclosures included in this MD&A have been reviewed and confirmed by John
Shmyr, P. Geo. and Martin St-Pierre, P. Geoph., qualified persons as defined by National Instrument 43-
101. Mr. Shmyr and Mr. St-Pierre are independent consultants to Murchison and the Brabant Lake project.
Access to Properties
The Company’s access to its Canadian properties is dependent on climate and weather conditions. The
Brabant property in Saskatchewan is accessible all year round. All projects in Québec can be accessed
from January to September as weather limits the activities during other times of the year.
RESULTS OF OPERATIONS
For the year ended December 31, 2019, the Company incurred a loss of $1,470,586 (2018 - $2,590,596).
The decrease of $1,120,010 is mainly related to the following factors: 1. lower exploration expenses of
$1,476,365 (2019 - $894,935 vs 2018 - $2,371,300) as the Company completed a 12,431 metre drill
program in 2018 and geophysical surveys and field exploration in 2019 at the Brabant Lake project. Also
in 2019, the Company increased its interest in the HPM property to 100% at a cost of $115,000; 2. lower
management fees and salaries of $315,379 (2019 - $194,359 vs 2018 - $509,738) related to lower fees
paid to the CEO in 2019 compared to the former CEO in 2018 which included a $225,000 termination
payment in December 2018 as well as $50,000 paid in bonuses in Q1/18; 3. lower investor relations
expense of $68,431 (2019 - $145,561 vs 2018 - $213,992) due to the reduction of conferences attended
and the related travel expenses; 4. lower professional fees of $65,502 (2019 - $34,589 vs 2018 -
$100,091) directly related to the court case involving a former director in 2018, offset by; 5. higher non-
cash flow-through shares premium of $737,513 (2019 - $167,977 vs 2018 - $905,490) as the Company
recognized the income based on increased exploration activities in Canada funded by flow-through
financing.
For the year ended December 31, 2019, exploration expenses totaled $894,935 (2018 - $1,476,365) with
$768,740 (2018 - $2,389,764) at the Brabant project in Saskatchewan, $116,857 (2018 - $1,536) at HPM
in Quebec and $9,338 in general exploration (2018 – recovery of $20,000).
5
MURCHISON MINERALS LTD.
MANAGEMENT’S DISCUSSION AND ANALYSIS – DECEMBER 2019
SELECTED ANNUAL INFORMATION
The following table sets out financial performance highlights for the last three years and was prepared in
accordance with IFRS.
December 31, 2019
December 31, 2018
December 31, 2017
Interest Income
Operating Expenses (1)
Loss
Basic and Diluted loss
per share
Total Assets
Exploration Expenses
$7,732
$1,341,001
$1,470,586
$0.03
$1,611,786
$894,935
$25,070
$3,282,388
$2,590,596
$0.06
$1,339,466
$2,371,300
$10,601
$1,592,447
$1,179,806
$0.05
$4,439,525
$1,156,265
(1) The exploration expenses are included in operating expenses and share-based payments are excluded from operating
expenses.
The interest income fluctuation from year to year is the direct result of the cash balance and short-term
investments available in each of the years. The timing of equity financing and ensuing exploration and
operating expenses are the main factors affecting the level of funds invested from time to time. The
variation in the interest rates also has an impact on the interest income but such variation has been minimal
for the years 2017 to 2019. The higher loss in 2018 was mostly related to the exploration activities and
expenses at Brabant in Saskatchewan compared to 2017 and 2019. The total assets in 2019 included
$1.43 million in cash compared to $1.18 million in 2018 and $4.39 million in 2017.
SUMMARY OF QUARTERLY RESULTS
Total Assets
Current Assets
Non-current Assets
Total Liabilities
Interest Income
Loss
Loss Per Share (1)
Fourth
Quarter 2019
$
1,611,786
1,598,534
13,252
366,118
1,370
387,681
0.01
Total Assets
Current Assets
Non-current Assets
Total Liabilities
Interest Income
Loss
Loss Per Share (1)
(i) Loss per share remains the same on a diluted basis
Fourth
Quarter 2018
$
1,339,466
1,337,356
2,110
179,866
4,607
516,683
0.01
Third
Quarter 2019
$
563,941
549,590
14,351
95,674
1,761
243,306
0.00
Third
Quarter 2018
$
1,830,107
1,827,179
2,928
247,462
5,475
156,809
0.00
Second
Quarter 2019
$
944,323
928,212
16,111
116,988
1,973
322,458
0.01
Second
Quarter 2018
$
2,023,442
2,019,567
3,875
283,988
5,335
286,004
0.01
First
Quarter 2019
$
948,668
945,740
2,928
180,029
2,628
517,141
0.01
First
Quarter 2018
$
2,972,594
2,968,676
3,918
947,136
9,653
1,631,100
0.04
Due to the nature of the business, the cash balance and short-term investments generating interest income
are subject to fluctuations from quarter to quarter. The timing of equity financing and ensuing exploration
and operating expenses are the main factors affecting the level of funds invested from time to time. The
variation in interest rates also has an impact on the interest income.
6
MURCHISON MINERALS LTD.
MANAGEMENT’S DISCUSSION AND ANALYSIS – DECEMBER 2019
In Q4/2019, the loss includes a $244,200 non-cash share-based payment expense related to stock option
granted in December 2019. In Q3-Q2/2019, the Company completed its summer field exploration program
at the Brabant Lake project and in Q2-2019, the Company completed a $408,600 non-brokered flow-
through private placement. In Q1-2019, the Company completed an extensive airborne geophysical survey
at the Brabant Lake property and on the newly acquired claims. It also acquired joint venture partner Pure
Nickel’s 50% interest in the HPM project in Québec at a cost of $115,000. In Q4-2018, the Company made
a $225,000 termination payment in December 2018 to end the contract with the former President and CEO
of the Company. In Q1-2018, the Company completed a 12,431 metre drill program and a geophysical
survey at the Brabant Lake project in Saskatchewan at a total cost of $1.9 million. This amount was offset
by $744,494 of non-cash flow-through shares premium.
LIQUIDITY AND CAPITAL RESOURCES
As at December 31, 2019, the Company had no debt, cash of $1,434,347 and working capital (excluding
flow-through share premium liability) of $1,562,765 (December 31, 2018 – $1,176,697 and $1,199,157,
respectively). The Company’s excess cash, when available, is deposited into interest-bearing accounts or
invested in redeemable GICs with major Canadian chartered banks.
As at December 31, 2019, the Company had amounts receivable and prepaid expenses totaling $164,187
which included sales tax receivable of $20,478, prepaid expenses of $22,584 and $121,125 of advances
to suppliers related to the winter 2020 drill program.
The December 31, 2019, consolidated financial statements were prepared in accordance with accounting
principles applicable to a going concern, which assumes that the Company will be able to realize its assets
and discharge liabilities in the normal course of business. The Company’s ability to continue as a going
concern is always dependent on its ability to raise new funds to meet its obligations and continue its
exploration activities.
Equity Financing
The Company’s exploration projects are at an early stage and it has not yet been determined whether any
of its properties contain economically recoverable ore. As a result, the Company has no current sources
of revenue and has relied on the issuance of shares to generate the funds required to further its projects.
Private Placement
On June 19 and 27, 2019, the Company completed a non-brokered flow-through private placement and
issued 3,714,545 flow-through common shares priced at $0.11 per share for gross proceeds of $408,600
of which, $130,009 was allocated to the flow-through premium. Finders’ fees of $3,000 were also paid.
Officers of the Company acquired 260,000 flow-through common shares for gross proceeds of $28,600.
On December 12, 2019, Murchison completed a non-brokered private placement and issued 4,166,667
common share units (the “Units”) at a price of $0.06 per Unit and 12,097,356 flow-through units (the “FT
Units”) at a price of $0.087 per FT Unit for aggregate gross proceeds of $1,302,470 of which $326,650
was allocated to the flow-through premium. Each Unit consisted of one common share of the Company
and one full common share purchase warrant. Each warrant entitles the holder to acquire one additional
common share until December 12, 2020 at an exercise price of $0.10 per share. Each FT Unit consisted
of one flow-through common share of the Company and one full non flow-through common share purchase
warrant having the terms as the warrant issued as part of the Unit. All securities issued pursuant to the
private placement are subject to a four month hold period from the date of issue. Finder’s fees totaling
$36,770 were paid under the December 12, 2019 private placement. A director of the Company
participated in the private placement for a total of $237,760.
7
MURCHISON MINERALS LTD.
MANAGEMENT’S DISCUSSION AND ANALYSIS – DECEMBER 2019
Warrants
In December 2019, 4,844,970 warrants exercisable at $0.24 expired unexercised.
As part of the December 12, 2019 private placement, Murchison issued 16,264,023 warrants exercisable
at $0.10 until December 12, 2020.
Stock Options
In March 2019, the Company granted 665,000 stock options exercisable at $0.095 to its officers, directors
and key consultants. The options were for a period of 5 years and vested immediately.
In December 2019, Murchison granted 3,300,000 stock options exercisable at $0.085 to its officers and
directors. The options were for a period of 5 years and vested immediately.
During the year ended December 31, 2019, 2,312,800 stock options expired.
General
The Company’s ability to successfully acquire mineral projects or recover amounts expended on mineral
properties is conditional on its ability to secure financing when required. The Company expects to meet
additional financing requirements through equity financing. The Company may seek other alternatives for
financing in the future depending on market conditions and exploration results; however, there can be no
assurance that such financing attempts will be successful. The impact on our business and the cost and
availability of financing remain uncertain and could affect our overall liquidity.
Commitments and Obligations
As at December 31, 2019, the Company has to incur $1,064,097 in qualifying exploration expenditures by
December 31, 2020 to meet its flow-through commitments. At this time, management anticipates meeting
that obligation and as a result, no additional provisions are required.
The Company's mining and exploration activities are subject to various laws and regulations governing the
protection of the environment. These laws and regulations are continually changing and generally
becoming more restrictive. The Company believes its operations are materially in compliance with all
applicable laws and regulations. The Company has made, and expects to make in the future, expenditures
to comply with such laws and regulations.
The Company has no long-term contractual obligations.
OFF-BALANCE SHEET ARRANGEMENTS
The Company has no off-balance sheet arrangements.
TRANSACTIONS WITH RELATED PARTIES
a)
Remuneration of directors and the officers was as follows:
Salaries and benefits
Share-based payments
2019
2018
$ 194,359
278,700
$ 509,738
211,185
$ 473,059
$ 720,923
8
MURCHISON MINERALS LTD.
MANAGEMENT’S DISCUSSION AND ANALYSIS – DECEMBER 2019
For the year ended December 31, 2019, the salaries and benefits amount above includes $91,407 (2018
- $111,250) for fees invoiced by a corporation controlled by the CFO of the Company for his services and
$102,952 (2018 - $5,988) for fees invoiced by the CEO of the Company for his services as CEO. In 2018,
the Company paid $392,500 including $225,000 as termination payment to a corporation controlled by the
former CEO of the Company $225,000 for termination payment to a corporation controlled by the former
CEO of the Company. Included in accounts payable and accrued liabilities at December 31, 2019 is $nil
(2018 - $10,374) owed to corporation controlled by the CFO and $15,013 (2018 - $6,247) owed to the
CEO.
Private Placement
b)
As part of the private placement completed in June 2019, officers of the Company acquired 260,000 flow-
through common shares for gross proceeds of $28,600. As part of the private placement completed in
December 2019, a director of the Company subscribed for common share units for gross proceeds of
$237,760.
PROPOSED TRANSACTIONS
The Company continues to evaluate quality exploration projects and financing opportunities. There are no
transactions currently pending.
CHANGES IN ACCOUNTING POLICIES
IFRS 16 – Leases (“IFRS 16”) was issued in January 2016 and replaces IAS 17 – Leases as well as some
lease related interpretations. With certain exceptions for leases under twelve months in length or for assets
of low value, IFRS 16 states that upon lease commencement a lessee recognizes a right-of-use asset and
a lease liability. The right-of-use asset is initially measured at the amount of the liability plus any initial
direct costs. After lease commencement, the lessee shall measure the right-of-use asset at cost less
accumulated depreciation and accumulated impairment. A lessee shall either apply IFRS 16 with full
retrospective effect or alternatively not restate comparative information but recognize the cumulative effect
of initially applying IFRS 16 as an adjustment to opening equity at the date of initial application. IFRS 16
requires that lessors classify each lease as an operating lease or a finance lease. A lease is classified as
a finance lease if it transfers substantially all the risks and rewards incidental to ownership of an underlying
asset. Otherwise it is an operating lease. IFRS 16 is effective for annual periods beginning on or after
January 1, 2019. At January 1, 2019, the Company adopted this standard and there was no material impact
on the Company’s condensed interim consolidated financial statement.
FINANCIAL INSTRUMENTS
Financial assets:
Amortized cost
Cash and cash equivalents
Amounts receivable
FVPL
Investments
Financial liabilities:
Amortized cost
Accounts payable and accrued liabilities
2019
2018
$ 1,434,347
-
$ 1,176,697
816
2,196
2,110
$
35,769
$
138,199
9
MURCHISON MINERALS LTD.
MANAGEMENT’S DISCUSSION AND ANALYSIS – DECEMBER 2019
As of December 31, 2019 and December 31, 2018, the fair value of all the Company's financial instruments
approximates the carrying value, due to their short-term nature, except as for the investment which is
presented at fair value.
As at December 31, 2019, the Company’s Investment on the consolidated statements of financial position
was recorded at level 1 with a fair value of $2,196 (2018 - $2,110).
Significant accounting judgments and estimates:
The preparation of consolidated financial statements in conformity with IFRS requires the Company’s
management to make judgments, estimates and assumptions about future events that affect the amounts
reported in the consolidated financial statements and related notes to the financial statements. Although
these estimates are based on management’s best knowledge of the amount, event or actions, actual
results may differ from those estimates.
The areas that require management to make significant judgments, estimates and assumptions in
determining carrying values include, but are not limited to the following:
•
•
•
Assets’ carrying values and impairment charges
In the determination of carrying values and impairment charges, management looks at the higher of
recoverable amount or fair value less costs to sell in the case of assets and at objective evidence,
significant or prolonged decline of fair value on financial assets indicating impairment. These
determinations and their individual assumptions require that management make a decision based
on the best available information at each reporting period.
Income and other taxes
Income tax on the profit or loss for the periods presented comprises current and deferred tax. Income
tax is recognized in profit or loss except to the extent that it relates to items recognized directly in
equity, in which case it is recognized in equity.
Current tax expense is the expected tax payable on the taxable income for the period, using tax
rates enacted or substantively enacted at period end, adjusted for amendments to tax payable with
regards to previous years.
Deferred tax is provided using the statement of financial position 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. The following temporary differences are not
provided for: goodwill not deductible for tax purposes and the initial recognition of assets or liabilities
that affect neither accounting nor taxable profit. 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.
A deferred tax asset is recognized only to the extent that it is probable that future taxable profits will
be available against which the asset can be utilized.
Share-based payments
Management determines costs
for share-based payments using market-based valuation
techniques. The fair value of the market-based and performance-based non-vested share awards
are determined at the date of grant using generally accepted valuation techniques. Assumptions
are made and judgments used in applying valuation techniques. These assumptions and judgments
include estimating the future volatility of the stock price, expected dividend yield, future employee
turnover rates and future employee stock option exercise behaviors and corporate performance.
Such judgments and assumptions are inherently uncertain. Changes in these assumptions affect
the fair value estimates. The Company currently estimates the expected volatility of its common
10
MURCHISON MINERALS LTD.
MANAGEMENT’S DISCUSSION AND ANALYSIS – DECEMBER 2019
shares based on historical volatility taking into consideration the expected life of the options and
warrants.
Capital Management:
The Company manages its capital with the following objectives:
•
•
to ensure sufficient financial flexibility to achieve the ongoing business objectives including funding
of future growth opportunities, and pursuit of accretive acquisitions and
to maximize shareholder return through enhancing the share value.
The Company monitors its capital structure and makes adjustments according to market conditions in an
effort to meet its objectives given the current outlook of the business and industry in general. The Company
may manage its capital structure by issuing new shares, repurchasing outstanding shares, adjusting capital
spending, or disposing of assets. The capital structure is reviewed by Management and the Board of
Directors on an ongoing basis.
The Company considers its capital to consist of equity, comprising share capital, reserves and deficit. The
Company manages capital through its financial and operational forecasting processes. The Company
reviews its working capital and forecasts its future cash flows based on operating expenditures, and other
investing and financing activities. The forecast is regularly updated based on its exploration and
development activities. Selected information is regularly provided to the Board of Directors of the
Company. The Company’s capital management objectives, policies and processes have remained
unchanged during the years ended December 31, 2019 and 2018. The Company is not subject to any
capital requirements imposed by a regulator or lending institution.
ADDITIONAL INFORMATION
Outstanding Shareholders’ Equity Data
As of March 4, 2020, the following are outstanding:
•
•
•
Common Shares
Stock Options
Warrants
64,688,449
5,155,000
16,264,023
Uncertainties and Risk Factors
An investment in the securities of the Company is highly speculative and involves numerous and significant
risks. Such investment should be undertaken only by investors whose financial resources are sufficient to
enable them to assume these risks and who have no need for immediate liquidity in their investment.
Prospective investors should carefully consider the risk factors that have affected, and which in the future
are reasonably expected to affect, the Company and its financial position.
In addition to the risks outlined below, Murchison has identified the extreme volatility occurring in the
financial markets as a significant risk for the Company. As a result of the market turmoil, investors are
moving away from assets they perceive as risky to those they perceive as less so. Companies like
Murchison are considered risk assets and as mentioned above are highly speculative. The volatility in the
markets and investor sentiment may make it difficult for the Company to access the capital markets to
raise the funds required for its future expenditures.
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MURCHISON MINERALS LTD.
MANAGEMENT’S DISCUSSION AND ANALYSIS – DECEMBER 2019
Exploration, Development and Operating Risks
Mining operations generally involve a high degree of risk. The Company’s operations are subject to all the
hazards and risks normally encountered in the exploration, development and production of gold, precious
metals and other minerals, including unusual and unexpected geologic formations, seismic activity, rock
bursts, cave-ins, flooding and other conditions involved in the drilling and removal of material, any of which
could result in damage to, or destruction of, mines and other producing facilities, damage to life or property,
environmental damage and possible legal liability. Although adequate precautions to minimize risk will be
taken, milling operations are subject to hazards such as equipment failure or failure of retaining dams
around tailings disposal areas which may result in environmental pollution and consequent liability.
The exploration for and development of mineral deposits involves significant risks which even a
combination of careful evaluation, experience and knowledge may not eliminate. While the discovery of a
mineral-bearing structure may result in substantial rewards, few properties which are explored are
ultimately developed into producing mines.
Major expenses may be required to locate and establish mineral reserves, to develop metallurgical
processes and to construct mining and processing facilities at a particular site. It is impossible to ensure
that the exploration or development programs planned by The Company will result in a profitable
commercial mining operation. Whether a gold or other mineral deposit will be commercially viable depends
on a number of factors, some of which are: the particular attributes of the deposit, such as quantity and
quality of mineralization and proximity to infrastructure; mineral prices which are highly cyclical; and
government regulations, including regulations relating to prices, taxes, royalties, land tenure, land use,
importing and exporting of minerals and environmental protection. The exact effect of these factors cannot
be accurately predicted, but the combination of these factors may result in The Company not receiving an
adequate return on invested capital.
There is no certainty that the expenditures made by the Company towards the search and evaluation of
gold or other minerals will result in discoveries of commercial quantities of gold or other minerals.
Country Risk
The Company may conduct business in jurisdictions and some countries in which the title to its properties
may be uncertain or where access to infrastructure, or political stability, or security, among other things,
may be unknown, or known, and prevent, or severely compromise, the Company from carrying out
business. It may be that the Company accepts some or all of these risks, to the extent that they can be
determined at all, in favour of acquiring properties with exceptional exploration and development potential,
and may ultimately be prevented from exploring and developing those properties for any number of
reasons which may, or may not, be predictable, foreseeable, or manageable.
Current Economic Conditions
There are significant uncertainties regarding the price of precious metals and other minerals and the
availability of equity financing for the purposes of mineral exploration and development. The prices of
precious metals and other minerals have fluctuated substantially over the past several years. The
Company’s future performance is largely tied to the development of its current mineral properties and the
overall financial markets. Current financial markets are likely to be volatile for the remainder of the calendar
year, reflecting ongoing concerns about the stability of the global economy and global growth prospects.
As well, concern about global growth has led to sustained drops in the commodity markets for commodities
other than gold. As a result, the Company may have difficulties raising equity financing for the purposes
of mineral exploration and development, particularly without excessively diluting present shareholders of
the Company. These economic trends may limit the Company’s ability to develop and/or further explore
its mineral property interests.
12
MURCHISON MINERALS LTD.
MANAGEMENT’S DISCUSSION AND ANALYSIS – DECEMBER 2019
Limited Operating History
The Company has a limited history of operations, is in the early stage of exploration and must be
considered a start-up company. As such, the Company is subject to many risks common to such
enterprises, including under-capitalization, cash shortages, limitations with respect to personnel, financial
and other resources and lack of revenues. It is common in new mining operations to experience
unexpected problems and delays. In addition, delays in the commencement of mineral production often
occur. There is no assurance that the Company will be successful in achieving a return on shareholders’
investment or successfully establish mining operations and the likelihood of success must be considered
in light of its early stage of operations.
Reliability of Resource Estimates
There is no certainty that any mineral resources identified in the future on any of the Company’s properties
will be realized. Until a deposit is actually mined and processed the quantity of mineral resources and
grades must be considered as estimates only. In addition, the quantity of mineral resources may vary
depending on, among other things, metal prices. Any material change in quantity of mineral resources,
grade or stripping ratio may affect the economic viability of any project undertaken by the Company. In
addition, there can be no assurance that gold recoveries or other metal recoveries in small-scale laboratory
tests will be duplicated in a larger scale test under on-site conditions or during production.
Fluctuations in gold and other base or precious metals prices, results of drilling, metallurgical testing and
production and the evaluation of studies, reports and plans subsequent to the date of any estimate may
require revision of such estimate. Any material reductions in estimates of mineral resources could have a
material adverse effect on the Company’s results of operations and financial condition from time to time.
Insurance and Uninsured Risks
The Company’s business is subject to a number of risks and hazards generally, including adverse
environmental conditions, industrial accidents, labour disputes, unusual or unexpected geological
conditions, ground or slope failures, cave-ins, changes in the regulatory environment and natural
phenomena such as inclement weather conditions, floods and earthquakes. Such occurrences could result
in damage to mineral properties or production facilities, personal injury or death, environmental damage
to The Company’s properties or the properties of others, delays in mining, monetary losses and possible
legal liability.
Although the Company may in the future maintain insurance to protect against certain risks in such
amounts as it considers to be reasonable, its insurance will not cover all the potential risks associated with
a mining company’s operations. The Company may also be unable to maintain insurance to cover these
risks at economically feasible premiums. Insurance coverage may not continue to be available or may not
be adequate to cover any resulting liability. Moreover, insurance against risks such as environmental
pollution or other hazards as a result of exploration and production is not generally available to the
Company or to other companies in the mining industry on acceptable terms. The Company might also
become subject to liability for pollution or other hazards which may not be insured against or which the
Company may elect not to insure against because of premium costs or other reasons. Losses from these
events may cause the Company to incur significant costs that could have a material adverse effect upon
its financial performance and results of operations.
Environmental Risks and Hazards
All phases of the Company’s operations are subject to environmental regulation in the jurisdictions in which
it operates. These regulations mandate, among other things, the maintenance of air and water quality
standards and land reclamation. They also set forth limitations on the generation, transportation, storage
and disposal of solid and hazardous waste. Environmental legislation is evolving in a manner which will
require stricter standards and enforcement, increased fines and penalties for non-compliance, more
stringent environmental assessments of proposed projects and a heightened degree of responsibility for
companies and their officers, directors and employees. There is no assurance that future changes in
environmental regulation, if any, will not adversely affect the Company’s operations. Environmental
hazards may exist on the properties on which the Company holds interests which are unknown to the
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MURCHISON MINERALS LTD.
MANAGEMENT’S DISCUSSION AND ANALYSIS – DECEMBER 2019
Company at present and which have been caused by previous or existing owners or operators of the
properties.
Government approvals and permits are currently and may in the future be required in connection with the
Company’s operations. To the extent such approvals are required and not obtained, the Company may be
curtailed or prohibited from continuing its exploration or mining operations or from proceeding with planned
exploration or development of mineral properties.
Failure to comply with applicable laws, regulations and permitting requirements may result in enforcement
actions thereunder, including orders issued by regulatory or judicial authorities causing operations to cease
or be curtailed, and may include corrective measures requiring capital expenditures, installation of
additional equipment, or remedial actions. Parties engaged in mining operations or in the exploration or
development of mineral properties may be required to compensate those suffering loss or damage by
reason of the mining activities and may have civil or criminal fines or penalties imposed for violations of
applicable laws or regulations.
Amendments to current laws, regulations and permits governing operations and activities of mining and
exploration companies, or more stringent implementation thereof, could have a material adverse impact
on the Company and cause increases in exploration expenses, capital expenditures or production costs
or reduction in levels of production at producing properties or require abandonment or delays in
development of new mining properties.
Infrastructure
Mining, processing, development and exploration activities depend, to one degree or another, on adequate
infrastructure. Reliable roads, bridges, power sources and water supply are important determinants, which
affect capital and operating costs. Unusual or infrequent weather phenomena, sabotage, government or
other interference in the maintenance or provision of such infrastructure could adversely affect the
Company’s operations, financial condition and results of operations.
Land Title
No assurances can be given that there are no title defects affecting property or any other property interests
of the Company. Title insurance generally is not available, and the Company’s ability to ensure that it has
obtained secure claim to individual mineral properties or mining concessions may be severely constrained.
Furthermore, the Company has not conducted surveys of the claims in which it holds an interest and,
therefore, the precise area and location of such claims may be in doubt. Accordingly, the Company’s
mineral properties may be subject to prior unregistered liens, agreements, transfers or claims, including
native land claims, and title may be affected by, among other things, undetected defects. In addition, the
Company may be unable to operate its properties as permitted or to enforce its rights with respect to its
properties.
Competition
The mining industry is competitive in all of its phases. The Company faces strong competition from other
mining companies in connection with the acquisition of properties producing, or capable of producing,
precious and base metals. Many of these companies have greater financial resources, operational
experience and technical capabilities than the Company. As a result of this competition, the Company may
be unable to maintain or acquire additional attractive mining properties on terms it considers acceptable
or at all. Consequently, the Company’s revenues, operations and financial condition could be materially
adversely affected.
14
MURCHISON MINERALS LTD.
MANAGEMENT’S DISCUSSION AND ANALYSIS – DECEMBER 2019
Additional Capital
The development and exploration of the Company’s properties will require substantial additional financing.
Failure to obtain sufficient financing may result in the delay or indefinite postponement of exploration,
development or production on any or all of the Company’s properties or even a loss of property interest.
The primary source of funding available to the Company consists of equity financing. There can be no
assurance that additional capital or other types of financing will be available if needed or that, if available,
the terms of such financing will be favourable to the Company.
Commodity Prices
The price of the Company’s common shares, the Company’s financial results and exploration,
development and mineral development activities may in the future be significantly adversely affected by
declines in the price of precious metals or other minerals. The price of precious metals and other minerals
fluctuates widely and is affected by numerous factors beyond the Company’s control such as the sale or
purchase of commodities by various central banks and financial institutions, interest rates, exchange rates,
inflation or deflation, fluctuation in the value of the United States dollar and foreign currencies, global and
regional supply and demand, the political and economic conditions of major mineral-producing countries
throughout the world, and the cost of substitutes, inventory levels and carrying charges. Future serious
price declines in the market value of precious metals or other minerals could cause continued development
of and commercial production from the Company’s properties to be impracticable. Depending on the price
of precious metals and other minerals, cash flow from mining operations may not be sufficient and the
Company could be forced to discontinue production and may lose its interest in, or may be forced to sell,
some of its properties. Future production from the Company’s mineral exploration properties is dependent
upon the prices of precious metals and other minerals being adequate to make these properties economic.
In addition to adversely affecting the Company’s future resource or reserve estimates, if any, and its
financial condition, declining commodity prices can impact operations by requiring a reassessment of the
feasibility of a particular project. Such a reassessment may be the result of a management decision or may
be required under financing arrangements related to a particular project. Even if the project is ultimately
determined to be economically viable, the need to conduct such a reassessment may cause substantial
delays or may interrupt operations until the reassessment can be completed.
Government Regulation
The development and mineral exploration activities of the Company are subject to various laws governing
prospecting, development, production, taxes, labour standards and occupational health, mine safety, toxic
substances, land use, water use, land claims of local people and other matters. In addition, no assurance
can be given that new rules and regulations will not be enacted or that existing rules and regulations will
not otherwise be applied in a manner which could limit or curtail production or development in any of the
jurisdictions in which the Company operates. Amendments to other current laws and regulations governing
mineral exploration and development or more stringent implementation thereof could also have a
substantial adverse impact on the Company.
Dividend Policy
No dividends on the common shares have been paid by the Company to date. Payment of any future
dividends will be at the discretion of the Company’s board of directors after taking into account many
factors, including the Company’s operating results, financial condition and current and anticipated cash
needs.
Dilution to the Company Common Shares
As of March 4, 2020, the Company had 64,688,449 common shares and 21,419,023 convertible securities
issued and outstanding. The increase in the number of securities issued and outstanding and the
possibility of sales of such shares may have a depressive effect on the price of the common shares. In
addition, as a result of such additional securities, the voting power of the existing shareholders in the
Company will be diluted.
15
MURCHISON MINERALS LTD.
MANAGEMENT’S DISCUSSION AND ANALYSIS – DECEMBER 2019
Key Executives
The Company is dependent on the services of key executives, including the directors of Murchison and a
small number of highly skilled and experienced executives and personnel. Due to the relatively small size
of the Company, the loss of these persons or the Company’s inability to attract and retain additional highly
skilled employees may adversely affect its business and future operations.
Conflicts of Interest
Certain directors and officers of the Company also serve as directors and/or officers of other companies
involved in natural resource exploration and development and consequently there exists the possibility for
such directors and officers to be in a position of conflict. Any decision made by any of such directors and
officers involving Murchison should be made in accordance with their duties and obligations to deal fairly
and in good faith with a view to the best interests of Murchison and its shareholders. In addition, each of
the directors is required to declare and refrain from voting on any matter in which such directors may have
a conflict of interest in accordance with the procedures set forth in the Canada Business Corporations Act
and other applicable laws.
FORWARD-LOOKING STATEMENTS
This document contains forward-looking statements based on the Company’s current expectations.
Forward-looking information can often be identified by forward looking words such as “anticipate”,
“believe”, “expect”, “goal”, “plan”, “intend”, “estimate” or similar words suggesting future outcomes, or other
expectations, beliefs, plans, objectives, assumptions, intentions or statements about future events or
performance.
These forward-looking statements are subject to risks, uncertainties and other factors that could cause
actual results to differ materially from those presented in this document. Accordingly, the Company
undertakes no obligation to update forward-looking statements if circumstances or management’s
estimates or opinions should change, unless required by law. Readers are cautioned not to place undue
reliance on forward-looking information.
16