NGEX MINERALS LTD.
2019 YEAR END REPORT
Management’s Discussion and Analysis
and
Consolidated Financial Statements
For the year ended December 31, 2019
(Audited)
NGEX MINERALS LTD.
MANAGEMENT’S DISCUSSION AND ANALYSIS
YEAR ENDED DECEMBER 31, 2019
(Amounts in Canadian Dollars unless otherwise indicated)
The following management’s discussion and analysis (“MD&A”) of NGEx Minerals Ltd. (“NGEx Minerals” or the
“Company”) should be read in conjunction with the consolidated financial statements for the year ended December
31, 2019 and related notes therein, which have been prepared under the continuity of interest basis of accounting
as described in the section below. The financial information in this MD&A is reported in Canadian dollars unless
otherwise indicated and is partly derived from the Company’s consolidated financial statements prepared in
accordance with International Financial Reporting Standards (“IFRS”) as issued by the International Accounting
Standards Board. The effective date of this MD&A is April 16, 2020. Additional information about the Company and
its business activities is available on SEDAR at www.sedar.com and the Company’s website www.ngexminerals.com.
Some of the statements in this MD&A are forward-looking statements that are subject to risk factors set out in the
cautionary note contained herein.
PLAN OF ARRANGEMENT AND CONTINUITY OF INTEREST
NGEx Minerals was incorporated on February 21, 2019 under the Canada Business Corporations Act as a wholly owned
subsidiary of Josemaria Resources Inc. (“Josemaria”), for the purposes of completing a plan of arrangement (the
“Josemaria Arrangement”) under the Canada Business Corporations Act whereby Josemaria transferred to NGEx
Minerals:
cash of $7,300,000 million;
its wholly owned subsidiaries that directly or indirectly hold the Los Helados project in Chile (the
“Los Helados Project”), the Nacimientos properties in Argentina (“Nacimientos”) and the La Rioja
properties in Argentina (“La Rioja”), including an additional $238,929 in cash held by these
subsidiaries; and
$322,355 in liabilities, comprised primarily of a contractual obligation to fund an exploration
partners’ share of future exploration activities at La Rioja.
In exchange, NGEx Minerals issued to Josemaria 124,793,652 common shares of the Company.
Under the terms of the Josemaria Arrangement, which closed on July 17, 2019, Josemaria distributed 100% of
the NGEx Minerals common shares it received under the Josemaria Arrangement to holders ("Josemaria
Shareholders") of common shares of Josemaria (the "Josemaria Common Shares") on a pro rata basis, such that
Josemaria Shareholders received one (1) common share of NGEx Minerals for every two (2) Josemaria Common
Shares held as of July 24, 2019, for Josemaria Shareholders whose common shares were listed in Canada, or July
26, 2019 for those whose common shares were listed in Sweden.
As Josemaria Shareholders received the NGEx Minerals common shares in their respective, pre-arrangement
proportionate interests, no change of control resulted in either the Company, or the underlying assets or business
acquired. As such, the Josemaria Arrangement is considered a capital reorganization and is excluded from the
scope of IFRS 3, Business Combinations. Accordingly, the results up to July 17, 2019 have been presented in this
MD&A, and in the consolidated financial statements for the year ended December 31, 2019, on a continuity of
interest basis of accounting with financial positions prior to the Josemaria Arrangement based on amounts related
to the Los Helados Project, Nacimientos and La Rioja previously recorded by Josemaria. In addition, the information
contained in the consolidated statements of comprehensive loss and consolidated statements of changes in equity
have been derived from certain allocations from Josemaria’s financial statements, and management cautions
readers of this MD&A that the allocation of expenses may not necessarily reflect, or be otherwise indicative of,
the future financial performance of the Company.
1
CORE BUSINESS
NGEx Minerals is a mineral exploration company with exploration projects in Argentina and Chile. The Company’s main
objectives are the acquisition of projects with district scale exploration potential to add to its existing portfolio and
also the advancement and development of its large copper-gold deposit, the Los Helados Project, located in Chile’s
Region III. The Company is the majority partner and operator of the Los Helados project, which is subject to a Joint
Exploration Agreement with its partner, Pan Pacific Copper Co. Ltd. (“PPC”). The Company’s current focus is copper-
gold and gold projects, but going forward it may also consider other commodities with an emphasis on the quality
and value-creation potential of each opportunity rather than a strict commodity focus.
The Company’s strategy is to create value for its shareholders through prudent management and deployment of its
capital resources, by expanding and increasing the quality of its mineral resources through successful exploration and
acquisitions and by advancing the engineering and other studies that are required to prepare its projects for eventual
development by the Company and its partners or by third parties. The overall objective is to position the Company
as a top tier mineral exploration-development investment.
The Company has a strong management team and board with extensive experience in the resource sector, particularly
in Chile and Argentina. The board and management team have an appropriate mix of geological, engineering, financial,
and business skills to advance the Company’s projects and to generate value for its shareholders.
The Company’s most recent Mineral Resource estimate for the Los Helados Project, effective as of April 26, 2019, is
comprised of 2.1 billion tonnes at 0.38% copper, 0.15 g/t gold and 1.37 g/t silver, containing 17.6 billion pounds of
copper, 10.1 million ounces of gold and 92.5 million ounces of silver in the Indicated category, and an Inferred Mineral
Resource estimate of 827 million tonnes at 0.32% copper, 0.10 g/t gold and 1.32 g/t silver for 5.8 billion pounds of
copper, 2.7 million ounces of gold and 35.1 million ounces of silver.
The Company’s common shares are listed on the TSX Venture Exchange under the symbol “NGEX”.
2019 OPERATING HIGHLIGHTS
Addition of Valle Ancho to Exploration Portfolio and Successful Completion of Initial Field Program
On August 29, 2019, the Company entered into an option agreement with the Province of Catamarca, Argentina to
earn a 100% interest in the Valle Ancho, Interceptor and Filo de las Vicuñas properties (collectively, the “Valle Ancho
Project”). Pursuant to the option agreement, the Company may earn a 100% interest in the Valle Ancho Project by
making US$8.2 million in expenditures on the project over a two-year period.
The Valle Ancho Project is a significant land package held by the Province of Catamarca that covers approximately
1,000 km2 of underexplored and highly prospective ground on the Argentine side of Chile’s Maricunga Gold Belt. Initial
exploration work done in the 1990’s resulted in the identification of several interesting gold and copper-gold targets.
While not verified by the Company, historical drill intercepts include 62 metres at 1.0 g/t gold, and 108 metres at 1.0
g/t gold.
The Company planned and successfully executed an initial field program at the Valle Ancho Project during the
2019/2020 field season, which ran from October 2019 to March 2020, at which point it was curtailed amid growing
concerns surrounding the novel coronavirus outbreak worldwide, as discussed in the “Outlook and Statement on
Readiness and Response to COVID-19” section below. The foregoing notwithstanding, the Company remains on track
to successfully achieve the main objectives of its initial field program at Valle Ancho, which are to review historical
data, perform mapping and surface sampling, and conduct an airborne geophysical survey over the project area to
identify, develop and prioritize targets for further evaluation. Processing and interpretation of the results from the
surface sampling and airborne geophysical surveys undertaken at the Valle Ancho Project are currently in progress.
2
OUTLOOK AND STATEMENT ON READINESS AND RESPONSE TO COVID-19
A key focus of the Company’s 2019/2020 field program was the undertaking of an initial exploration program on the
recently optioned Valle Ancho Project, located in the Province of Catamarca, Argentina. Past exploration of the large
land package, situated along a major northwest trending structural corridor on the Argentine side of the prolific
Maricunga Gold Belt, had yielded some interesting results, including two copper-gold porphyry prospects and one gold
prospect, however no significant work has been undertaken in the area for almost 20 years.
The Company’s exploration program at the Valle Ancho Project focused on review and compilation of historical data,
analysis of satellite imagery, field examination, surface sampling and mapping of existing prospects, and the
undertaking of an airborne geophysical survey over the project area to identify, develop and prioritize targets for
further evaluation and potential drill testing.
As a result of the intensification of the COVID-19 pandemic, and its arrival in Argentina, the Company’s 2019/2020
field program was curtailed, with demobilization of personnel and equipment by the end of March 2020. The Company
is responding to COVID-19 within the framework of internal protocols, and local and national health authority
requirements and recommendations. The health and safety of the Company’s employees, contractors, visitors, and
stakeholders has been, and remains, NGEx Minerals’ top priority. The Company’s project facilities and offices have
implemented travel restrictions, surveillance, monitoring and response plans to reduce the risk of COVID-19 exposure
and outbreak, including health screening of personnel when appropriate. All non-critical business travel has also been
curtailed. The Company will continue to monitor the situation and is prepared to implement additional changes to
minimize any potential impacts of the global outbreak that might emerge at the Company’s project site or offices, as
necessary. As part of its response to the COVID-19 epidemic and the attendant economic turmoil, the Company has
implemented immediate cost savings measures including cuts to discretionary expenditures and reductions to senior
management salaries for the duration of the crisis.
The foregoing notwithstanding, the Company remains on track to achieve its operating objectives for the 2019/2020
field season, as the majority of planned exploration initiatives were successfully completed prior to the curtailment of
the season. Results from the sampling and airborne surveys undertaken during the 2019/2020 field season are
currently being analyzed and interpreted.
Following completion of the Arrangement, the Company increased its business development efforts, which are directed
towards identifying new projects for potential acquisition. This is expected to be a significant focus for the Company
going forward and the Company anticipates that the ongoing COVID-19-related economic turmoil may create
opportunities.
RESULTS FROM OPERATIONS
Year Ended
Net loss ($000’s)
Loss per share, basic and diluted ($)
Dec-191
Dec-181
Dec-171
5,307
0.04
6,337
0.05
5,259
0.04
Total assets ($000’s)
4,513
1 Amounts presented in the table contain amounts carved out from figures previously reported by Josemaria in
accordance with the continuity of interest basis of accounting, as discussed in the Plan of Arrangement and
Continuity of Interest section above.
10,840
5,003
NGEx Minerals is a junior exploration company and, as such, its net losses are largely driven by its exploration
and project investigation activities and there is no expectation of generating operating profits until it identifies and
develops a commercially viable mineral deposit.
Key financial results for the last eight quarters are provided in the table below.
3
Three Months Ended
Dec-19
Sep-191
Jun-191 Mar-191 Dec-181
Sep-181
Jun-181 Mar-181
Exploration costs ($000's)
1,092
604
801
1,353
Operating loss ($000’s)
1,533
1,085
1,027
1,656
Net loss ($000’s)
1,549
1,074
1,034
1,650
533
856
960
443
1,713
2,067
693
2,029
2,665
706
2,029
2,643
Net loss per share, basic and
diluted ($)
0.01
0.01
0.01
0.01
0.01
0.01
0.02
0.02
1 Amounts presented in the table contain amounts carved out from figures previously reported by Josemaria in accordance with the continuity
of interest basis of accounting, as discussed in the Plan of Arrangement and Continuity of Interest section above.
Due to the geographic location of the Company’s mineral properties, the Company’s business activities fluctuate
with the seasons, through increased exploration activities during the summer months in South America. As a
result, a general recurring trend is the increase in exploration expenditures, and therefore net losses, for the
fourth quarter and first quarter of a fiscal year, relative to the second and third quarters. In addition, other relevant
factors, such as the financial position of the Company, other corporate initiatives, as well as the type and scope
of planned exploration/project work, could affect the level of exploration activities and net loss in a particular
period.
NGEx Minerals incurred a net loss of $5.3 million for the year ended December 31, 2019 (2018: $6.3 million).
Exploration and project investigation costs are the most significant expenditures of the Company and account for
approximately 73% of the net loss for the year ended December 31, 2019 (2018: 75%). This is reflective of the
Company’s accounting policy to expense its exploration costs through the consolidated statement of
comprehensive loss, except for mineral property option payments and mineral property acquisition costs, which
are capitalized.
Exploration and project investigation costs for the year ended December 31, 2019 were $3.9 million (2018: $4.8
million). The decrease in exploration and project investigation costs is the result of a significantly smaller
2018/2019 field program, which carried into the first quarter of 2019, compared to the 2017/2018 field program,
which carried into the first quarter of 2018. Namely, the 2018/2019 field program focused primarily on continuation
of environmental baseline studies at the Los Helados Project, whereas the 2017/2018 field program undertook a
three-hole drill campaign to test Nacimientos.
Excluding share-based compensation, administration costs for the year ended December 31, 2019 totaled $1.0
million (2018: $1.1 million). Share-based compensation, a non-cash cost, reflects the amortization of the
estimated fair value of options over their vesting period and is based to a large degree on the Company’s share
price and its volatility. The actual future value to the option holders may differ materially from these estimates as
it depends on the trading price of the Company’s shares if and when the options are exercised. In addition, as the
granting of options and their vesting is at the discretion of the Board, the related expense is unlikely to be uniform
across quarters or financial years. In addition, share-based compensation relating to periods prior to the
completion of the Josemaria Arrangement on July 17, 2019, were allocated from amounts previously reported by
Josemaria, and such allocations may not necessarily reflect, or be otherwise indicative of, the future financial
performance of the Company.
Administration costs for the year ended December 31, 2019 were lower compared to 2018 due primarily to lower
promotion and public relation costs. During the year ended December 31, 2018, the Company hosted a site visit
for investors and analysts, participated in a number of industry conferences and undertook several marketing
roadshows, resulting in higher costs. Another contributing factor to the lower administration costs for the year
ended December 31, 2019 is that a smaller portion of common expenses were allocated from Josemaria in the
current period, as a result of lower relative levels of exploration expenditures incurred on the mineral properties
subject to the Josemaria Arrangement, compared to those retained by Josemaria.
4
Also, during the year ended December 31, 2019, the Company recognized a monetary loss of $32,000 (2018:
$39,000) in relation to the application of hyper-inflationary accounting for the Company’s Argentine subsidiaries,
which began July 1, 2018. The monetary losses recognized are the results of changes in the Argentine price
indices and changes to the Company’s net monetary position during the period. Further discussion regarding the
application of hyper-inflationary accounting has been provided in the notes to the consolidated financial
statements.
No tax recovery is recognized as a result of the nature of the Company’s activities and the lack of reasonably
expected taxable profits in the near term.
In other comprehensive income, the Company reported a foreign exchange translation loss of $508,000 for the
year ended December 31, 2019 (2018: $444,000) on translation of subsidiary company accounts from their
functional currency to the Canadian dollar presentation currency. For the year ended December 31, 2019, the
foreign exchange translation loss is primarily the result of fluctuations of the Canadian dollar relative to the Chilean
peso. In 2018, the foreign exchange translation loss also incorporated the impacts of fluctuations of the Canadian
dollar exchange rate relative to the Argentine peso, however this ceased on July 1, 2018, with the Company’s
application of hyper-inflation accounting for the Company’s Argentine subsidiaries. As a result, beginning July 1,
2018, the Company began recognizing the impact of hyperinflation within other comprehensive income. For the
year ended December 31, 2019, the impact of hyperinflation was a loss of $49,000 (2018: gain of $61,000) and
consists of adjustments recognized on the continuing inflation of opening non-monetary balances during the
respective periods and the ongoing translation of the Company’s Argentine subsidiaries into the Canadian dollar
presentation currency following July 1, 2018, as mentioned above.
LIQUIDITY AND CAPITAL RESOURCES
As at December 31, 2019, the Company had cash of $5.6 million and net working capital of $5.3 million, compared to
cash of $0.3 million and net working capital of $0.1 million, as at December 31, 2018. The increase in the Company’s
cash and net working capital is due primarily to the receipt of $7.3 million in cash from Josemaria pursuant to the
Josemaria Arrangement (see Plan of Arrangement and Continuity of Interest section above).
The Company plans to use the majority of its cash towards its key exploration projects in South America and general
corporate activities.
As an exploration company with no sources of revenue, the economic viability of the Company’s long-term business
plan is impacted by its ability to obtain financing, and global economic conditions impact the general availability of
financing through public and private debt and equity markets, as well as through other avenues. Accordingly, the
Company is cognisant of the current deterioration of global financial markets coinciding with the COVID-19 pandemic
and will be reducing discretionary expenditures and senior management salaries and exercising additional caution and
prudence in the management and deployment of its current working capital. In this regard, the Company will continue
to evaluate and adjust its planned exploration and administrative activities to ensure that adequate levels of working
capital are maintained.
Based on NGEx Minerals’ financial position at December 31, 2019, and taking into consideration its actual expenditures
subsequent to year-end to date, the Company anticipates that its current cash and working capital will be sufficient to
fund ongoing operations in the normal course of business for at least twelve months from December 31, 2019,
including meeting its existing obligation and commitments. The foregoing notwithstanding, the Company anticipates
the need for further funding shortly thereafter to support its ongoing South American operations, and for general
corporate and working capital purposes. The Company is currently evaluating potential additional sources of financing.
Historically, including the period prior to the completion of the Josemaria Arrangement, capital requirements have
been primarily funded through equity financing, joint ventures, disposition of mineral properties and investments, and
the use of short-term credit facilities.
5
While management is confident that its current working capital balance is sufficient, or that additional sources of
funding will be secured, to fund planned expenditures for at least twelve months from December 31, 2019, factors
that could affect the availability of financing include the progress and results of ongoing exploration at the Company’s
mineral properties, the state of international debt and equity markets, and investor perceptions and expectations of
the global copper, gold, and/or silver markets. There can be no assurance that such financing will be available in the
amount required at any time or for any period or, if available, that it can be obtained on terms satisfactory to the
Company. If necessary, the Company may explore opportunities to revise the due dates of its liabilities, negotiate
deferrals on upcoming lump sum payments with respect to the Company’s mineral properties, and/or settle its liabilities
through the issuance of the common shares and other equity instruments. Based on the actual deployment of the
Company’s current working capital and/or the amount of funding raised, if any, the Company’s planned initiatives and
other work programs may be postponed, or otherwise revised, as necessary.
RELATED PARTY TRANSACTIONS
Under the normal course of operations, the Company may undertake transactions or hold balances with related parties.
Namely, the Company engages with Josemaria and Filo Mining Corp. (“Filo Mining”), related parties by way of directors,
officers and shareholders in common, and MOAR Consulting Inc. (“MOAR”), an exploration consulting firm, of which a
director of the Company is the sole proprietor.
Related party services
The Company has a cost sharing arrangement with Josemaria and Filo Mining. Under the terms of this arrangement,
the Company provides management, technical, administrative and/or financial services (collectively, “Management
Services”) to Josemaria and Filo Mining, and vice versa. In addition, the Company engages MOAR, to provide
exploration consultation. These transactions were incurred in the normal course of operations, and are summarized
as follows:
Management Services to Josemaria
Management Services to Filo Mining
Management Services from Josemaria
Management Services from Filo Mining
Exploration Consultation from MOAR
Related party balances
Year ended
December 31,
2018
-
405,462
-
(376,039)
-
2019
84,051
363,373
(72,485)
(238,003)
(15,625)
The amounts due from (to) related parties, and the components of the consolidated statement of financial position in
which they are included, are as follows:
Related Party
December 31,
2019
December 31,
2018
Receivables and other assets
Receivables and other assets
Accounts payable and accrued liabilities
Accounts payable and accrued liabilities
Accounts payable and accrued liabilities
Josemaria
Filo Mining
Josemaria
Filo Mining
MOAR
16,848
57,490
(102,675)
(64,222)
(17,656)
28,289
32,614
(4,009)
(98,428)
-
6
Key management compensation
The Company’s key management personnel have the authority and responsibility for overseeing, planning, directing
and controlling its activities and consist of the Board of Directors and members of the executive management team.
Total compensation expense for key management personnel, and the composition thereof, is as follows:
Salaries and wages
Short-term employee benefits
Directors fees
Stock-based compensation
Year ended
December 31,
2018
391,354
12,764
68,937
308,586
781,641
2019
304,824
6,351
60,538
404,852
776,565
SIGNIFICANT ACCOUNTING POLICIES
The Company’s significant accounting policies are provided in Note 4 to the consolidated financial statements for
the year ended December 31, 2019, as on SEDAR at www.sedar.com.
New Accounting Pronouncements
The IASB and the IFRS Interpretations Committee (previously the International Financial Reporting Interpretations
Committee, IFRIC) have issued standards and amendments, or interpretations to existing standards, that were
not yet effective and not applied by the Company as at December 31, 2019. These new standards and
interpretations are not expected to be applicable for the Company for the annual period beginning on or after
January 1, 2020.
CRITICAL ACCOUNTING ESTIMATES AND ASSUMPTIONS
The preparation of the consolidated financial statements in accordance with IFRS, such as the underlying
consolidated financial statements for the year ended December 31, 2019, requires management to make estimates
and assumptions that affect the reported amounts of assets, liabilities and expenditures. These estimates and
assumptions are based on management’s best knowledge of the relevant facts and circumstances taking into
account previous experience. Actual results could differ from those estimates and such differences could be
material. Estimates are reviewed on an ongoing basis and are based on historical experience and other facts and
circumstances. Revisions to estimates and the resulting effects on the carrying amounts of the Company’s assets
and liabilities are accounted for prospectively. Information about estimates, assumptions and other sources of
estimation uncertainty as at December 31, 2019 that have a risk of resulting in a material adjustment to the
carrying amounts of assets and liabilities within the next year are provided below:
Valuation of mineral properties – The Company carries the acquisition costs of its mineral properties at cost less
any provision for impairment. The Company undertakes periodic reviews of its mineral properties for indicators of
impairment, and if any are identified, it would further review the carrying values of the applicable mineral properties
to determine if their carrying values may exceed their recoverable amount. In undertaking the initial review for
indicators of impairment, and also any subsequent review of a mineral property’s carrying value, management of the
Company is required to make significant judgements and estimates. These judgments and estimates are subject to
various risks and uncertainties, which may ultimately have an effect on the expected recoverability of the carrying
values of the mineral properties.
7
FINANCIAL INSTRUMENTS
The Company’s financial instruments consist of cash, receivables and other assets, trade payables and accrued
liabilities, and the amounts due to its exploration partner. Other than for the amounts due to its exploration
partner, the carrying values of the Company’s financial instruments are considered to be reasonable
approximations of fair value due to their short term nature. For amounts due to its exploration partner, the
Company revalued the liability at December 31, 2019 based on revisions to the timing and amounts of expected
future settlement, which the Company believes is a reasonable approximation of fair value.
As at December 31, 2019, the Company’s financial instruments are exposed to the following financial risks,
including credit, liquidity and currency risks:
(i) Credit risks associated with cash is mitigated by the Company’s practice of holding of the majority of
its cash with a large Canadian financial institution that has been accorded a strong investment grade
rating by a primary rating agency.
(ii) Liquidity risks associated with the inability to meet obligations as they become due, as further
discussed under the “Liquidity and Capital Resources” section above, is minimized through the
management of its capital structure and by maintaining good relationships with significant
shareholders and creditors. The Company also closely monitors and reviews its costs to date and
actual cash flows on a monthly basis.
The maturities of the Company’s financial liabilities as at December 31, 2019, are as follows:
Total
Less than
1 year
1-5 years
More than
5 years
Accounts payable and
accrued liabilities
Due to exploration partner
Total
718,066
4,457,867
718,066
-
5,175,933
718,066
-
-
-
-
4,457,867
4,457,867
Pursuant to the Josemaria Arrangement, the Company assumed from Josemaria an obligation to fund
a partner’s share of exploration expenditures related to La Rioja (the “Obligation”). In accordance
with the terms of a Joint Exploration Agreement (“JEA”) between the Company and the partner, PPC,
the Company has elected to settle the Obligation through funding PPC’s share of exploration
expenditures, which remained US$3.4 million as at December 31, 2019, and has no defined timeline
for settlement. The Obligation has been discounted and recorded at its present value at an annual
effective rate of 8%.
(iii) Foreign currency risk can arise when the Company or its subsidiaries transact or have net financial
assets or liabilities which are denominated in currencies other than their respective functional
currencies.
At December 31, 2019, the Company’s largest foreign currency risk exposure existed at the level of
its Canadian headquarters, where the Company held a net financial asset position denominated in US
dollars having a Canadian dollar equivalent of approximately $1.4 million. A 10% change in the foreign
exchange rate between the US dollar, and the Canadian dollar, NGEx Minerals’ functional currency,
would give rise to increases/decreases of approximately $140,000 in financial position/comprehensive
loss.
8
OUTSTANDING SHARE DATA
As at April 16, 2019, the Company had 124,793,652 common shares outstanding and 5,800,000 share options
outstanding under its share-based incentive plan.
RISKS AND UNCERTAINTIES
The operations of the Company are speculative due to the high-risk nature of its business, which includes the
acquisition, financing, exploration, development and operation of mineral and mining properties. There are a
number of factors that could negatively affect the Company’s business and the value of its common shares,
including the more significant risk factors identified by the Company and listed below. The following information
pertains to the outlook and conditions currently known to the Company that could have a material impact on the
financial condition of the Company. Other factors may arise that are not currently foreseen by management of the
Company that may present additional risks in the future. Current and prospective security holders of the Company
should carefully consider these risk factors, as they could materially affect the Company’s future operations and
could cause actual events to differ materially from those described in forward-looking statements relating to the
Company.
COVID-19
The COVID-19 pandemic has negatively impacted global financial markets, and may continue to do so. As
discussed in further detail below, the economic viability of the Company’s business plan is impacted by its ability
to obtain financing, and global economic conditions impact the general availability of financing through public
and private debt and equity markets, as well as through other avenues.
In addition, as the health and safety of the Company’s employees, contractors, visitors, and stakeholders
(collectively, the “Stakeholders”) are the Company’s top priority, the Company will monitor developments with
respect to COVID-19, both globally and within its operating jurisdictions, and will implement any such changes
to its business as may be deemed appropriate to mitigate any potential impacts to its business and the
Stakeholders. Such changes, may include, but are not limited to, temporary closures of the Company’s project
site or offices, and deviations from the timing and nature of previous operating plans.
Exploration and Development Risk
Mining exploration, development and operations generally involve a high degree of risk that cannot be eliminated
and which can adversely impact the Company’s success and financial performance. Exploration for and
development of mineral deposits involves a high degree of risk and few properties that are explored are ultimately
developed into producing mines.
Major expenses are typically required to locate and establish Mineral Reserves, to develop metallurgical processes
and to construct mining and processing facilities at a particular site. Whether a mineral deposit will be
commercially viable depends on a number of factors, which include, among other things, the following:
•
•
•
the interpretation of geological data obtained from drill holes and other sampling techniques;
feasibility studies (which include estimates of cash operating costs based upon anticipated tonnage and
grades of ore to be mined and processed);
the particular attributes of the deposit, such as size, grade and metallurgy; expected recovery rates of
metals from the ore;
• proximity to infrastructure and labour; the ability to acquire and access land; the availability and cost of
water and power; anticipated climatic conditions;
cyclical metal prices; fluctuations in inflation and currency exchange rates;
•
• higher input commodity and labour costs; and
9
• government regulations, including regulations relating to prices, taxes, royalties, land tenure, land use,
importing and exporting of minerals and environmental protection.
The risks and uncertainties inherent in exploration activities include but are not limited to: legal and political risk
arising from operating in certain developing countries; civil unrest; general economic; market and business
conditions; the regulatory process and actions; failure to obtain necessary permits and approvals; technical
issues; new legislation; competitive and general economic factors and conditions; the uncertainties resulting from
potential delays or changes in plans; the occurrence of unexpected events; and management’s capacity to
execute and implement its future plans. Discovery of mineral deposits is dependent upon a number of factors,
not the least of which are the technical skills of the exploration personnel involved and the capital required for
the programs. The cost of conducting programs may be substantial and the likelihood of success is difficult to
assess. There is no assurance that the Company’s mineral exploration activities will result in any discoveries of
new bodies of commercial ore. There is also no assurance that even if commercial quantities of ore are discovered
that a new ore body would be developed and brought into commercial production. The commercial viability of a
mineral deposit once discovered is also dependent upon a number of factors, some of which are the particular
attributes of the deposit (such as size, grade, metallurgy and proximity to infrastructure and labour), the
interpretation of geological data obtained from drilling and sampling, feasibility studies, the cost of water and
power; anticipated climatic conditions; cyclical metal prices; fluctuations in inflation and currency exchange rates;
higher input commodity and labour costs, commodity prices, government regulations, including regulations
relating to prices, taxes, royalties, land tenure and use, allowable production, importing and exporting of minerals,
and environmental protection. Most of the above factors are beyond the control of the Company. Development
projects will also be subject to the successful completion of final feasibility studies, issuance of necessary permits
and other governmental approvals and receipt of adequate financing. The exact effect of these factors cannot be
accurately predicted, but the combination of any of these factors may adversely affect the Company’s business.
The Company’s operations are subject to all of the hazards and risks normally encountered in the exploration and
development of copper and gold projects and properties, including unusual and unexpected geologic formations,
seismic activity, rock slides, ground instabilities or failures, mechanical failures, flooding and other conditions
involved in the drilling and removal of material, any of which could result in damage to, or destruction of facilities,
damage to life or property, environmental damage and possible legal liability.
NGEx Minerals is concentrated in the copper/gold mining industry, and as such, its success will be sensitive to
changes in, and its performance will depend to a greater extent on, the overall condition of the copper/gold
mining industry. The Company’s business may be negatively impacted by fluctuations in the copper/gold mining
industry generally. NGEx Minerals may be susceptible to an increased risk of loss, including losses due to adverse
occurrences affecting it more than the market as a whole, as a result of the fact that its projects and properties
are concentrated in the copper/gold mining sector.
Mineral Resources Estimates
The Company’s reported Mineral Resources are estimations only. No assurance can be given that the estimated
Mineral Resources will be recovered. By their nature, Mineral Resource estimations are imprecise and depend, to
a certain extent, upon statistical inferences, which may ultimately prove unreliable because, among other factors,
they are based on limited sampling, and, consequently, are uncertain because the samples may not be
representative. Mineral Resource estimations may require revision (either up or down). There are numerous
uncertainties inherent in estimating Mineral Resources, including many factors beyond the Company’s control.
Such estimation is a subjective process, and the accuracy of any Mineral Resource estimate is a function of the
quantity and quality of available data and of the assumptions made and judgments used in engineering and
geological interpretation. There can be no assurance that recoveries in small scale laboratory tests will be
duplicated in larger scale tests under on-site conditions. In particular, factors that may affect Mineral Resource
estimates include:
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changes in interpretations of mineralization geometry and continuity of mineralization zones;
input parameters used in the Whittle shell that constrains the Mineral Resources amenable to open
pit mining methods;
metallurgical and mining recoveries;
operating and capital cost assumptions;
metal price and exchange rate assumptions;
confidence in modifying factors, including assumptions that surface rights to allow infrastructure to
be constructed will be forthcoming;
delays or other issues in reaching agreements with local or regulatory authorities and stakeholders;
changes in land tenure requirements or permitting requirements from those discussed in the report;
and
changes in the environmental regulations or laws governing the property.
Changes in key assumptions and parameters could result in a restatement of Mineral Resource estimates. Mineral
Resources that are not Mineral Reserves do not have demonstrated economic viability and there is no assurance
that they will ever be mined or processed profitably. Due to the uncertainty which may attach to Mineral
Resources, there is no assurance that all or any part of Measured or Indicated Mineral Resources will ever be
converted into Mineral Reserves. Any material reductions in estimates of Mineral Resources could have a material
adverse effect on the Company’s results of operations and financial condition.
Negative Operating Cash Flow
The Company is an exploration stage company and has not generated cash flow from operations. The Company
is devoting significant resources to the development and acquisition of its properties, however there can be no
assurance that it will generate positive cash flow from operations in the future. The Company expects to continue
to incur negative consolidated operating cash flow and losses until such time as it achieves commercial production
at a particular project. The Company currently has negative cash flow from operating activities.
Metal Price Risk
The Company’s portfolios of properties and investments have exposure to predominantly copper and gold.
Commodity prices fluctuate widely and are affected by numerous factors beyond the Company’s control, such as
the sale or purchase of metals by various central banks and financial institutions, interest rates, exchange rates,
inflation or deflation, fluctuation in the value of the US dollar and foreign currencies, global and regional supply
and demand, and the political and economic conditions of major metals-producing and metals-consuming
countries throughout the world. The prices of these metals greatly affect the value of the Company, the price of
the common shares of the Company and the potential value of its properties and investments. This, in turn,
greatly affects its ability to form joint ventures, option agreements and the structure of any joint ventures formed.
This is due, at least in part, to the underlying value of the Company’s assets at different metals prices.
Current Global Financial Conditions
Market events and conditions can cause significant volatility to commodity prices. Notwithstanding various actions
by governments, concerns about the general condition of the capital markets, financial instruments, banks,
investment banks, insurers and other financial institutions can increase the levels of volatility in the global stock
markets, which can adversely affect the Company’s operations and the value and price of the Company’s Common
shares. The Company is dependent on the equity markets as its main source of operating working capital and
the Company’s capital resources are largely determined by the strength of the resource markets and by the status
of the Company’s projects in relation to these markets, and its ability to compete for the investor support of its
projects. Access to public financing has been negatively impacted by concerns over global growth rates and
conditions. Consequently, equity financing may not be available to the Company in the amount required at any
time or for any period or, if available, it may not be obtained on terms satisfactory to the Company.
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Foreign Operations Risk
The Company conducts exploration activities in Argentina and Chile, which exposes the Company to risks that
may not otherwise be experienced if all operations were located in Canada. The risks vary from country to
country and can include, but are not limited to, civil unrest or war, terrorism, illegal mining, changing political
conditions, fluctuations in currency exchange rates, expropriation or nationalization without adequate
compensation, changes to royalty and tax regimes, high rates of inflation, labour unrest and difficulty in
understanding and complying with the regulatory and legal framework respecting ownership and maintenance of
mineral properties. Changes in mining or investment policies or shifts in political attitudes may also adversely
affect the Company’s existing assets and operations. Real and perceived political risk may also affect the
Company’s ability to finance exploration programs and attract joint venture or option partners, and future mine
development opportunities.
Numerous countries have introduced changes to mining regimes that reflect increased government control or
participation in the mining sector, including, but not limited to, changes of law affecting foreign ownership,
mandatory government participation, taxation and royalties, exploration licensing, export duties, and repatriation
of income or return of capital. There can be no assurance that industries, which are deemed of national or
strategic importance in countries in which the Company has assets, including mineral exploration, will not be
nationalized. There is a risk that further government limitations, restrictions or requirements, not presently
foreseen, will be implemented. Changes in policy that alter laws regulating the mining industry could have a
material adverse effect on the Company. There can be no assurance that the Company’s assets in these countries
will not be subject to nationalization, requisition or confiscation, whether legitimate or not, by an authority or
body.
In addition, in the event of a dispute arising from foreign operations, the Company may be subject to the exclusive
jurisdiction of foreign courts or may not be successful in subjecting foreign persons to the jurisdiction of courts
in Canada. The Company also may be hindered or prevented from enforcing its rights with respect to a
governmental instrumentality because of the doctrine of sovereign immunity. It is not possible for the Company
to accurately predict such developments or changes in laws or policy or to what extent any such developments
or changes may have a material adverse effect on the Company.
Economic and Political Instability in Argentina
Some of the Company’s mineral properties, such as Nacimientos and Valle Ancho, are located in Argentina. There
are risks relating to an uncertain or unpredictable political and economic environment in Argentina, especially as
there is social opposition to mining operations in certain parts of the country. During an economic crisis in 2001
to 2003 and again in 2014, Argentina defaulted on foreign debt repayments and on the repayment on a number
of official loans to multinational organizations. In addition, the government has renegotiated or defaulted on
contractual arrangements. The recently elected government, which took office in December 2019, has reinstated
currency controls previously lifted by the opposition government, which, among other impacts, restricts the ability
of companies and its citizens to obtain United States dollars, in each case requiring Central Bank approval
(resulting in, at times, a limitation on the ability of multi-national companies to distribute dividends abroad in
United States dollars). While the political environment in Argentina continues to develop, and the status of
currency controls and restrictions remains fluid, past actions indicate that the Argentinean government may from
time to time alter or impose additional requirements or policies that may adversely affect the Company’s activities
in Argentina or in its ability to attract joint venture partners or obtain financing for its projects in the future.
Currency Risk
The Company will transact business in a number of currencies including but not limited to the US dollar, the
Argentine Peso and the Chilean Peso. The Argentine Peso in particular has had significant fluctuations in value
relative to the US and Canadian dollars. Ongoing economic uncertainty in Argentina, including inflationary
pressures, as well as unpredictable changes to foreign exchange rules may result in fluctuations in the value of
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the Argentine Peso that are greater than those experienced in the recent past. Fluctuations in exchange rates
may have a significant effect on the cash flows of the Company. Future changes in exchange rates could materially
affect the Company’s results in either a positive or a negative direction. The Company does not currently engage
in foreign currency hedging activities.
Title Risk
The Company has investigated its right to explore and exploit its properties and, to the best of its knowledge,
those rights are in good standing. The results of the Company’s investigations should not be construed as a
guarantee of title. Other parties may dispute the title to a property, or the property may be subject to prior
unregistered agreements or liens and transfers or land claims by aboriginal, native, or indigenous peoples. The
title may be affected by undetected encumbrances or defects or governmental actions. The Company has not
conducted surveys of all of its properties, and the precise area and location of claims or the properties may be
challenged and no assurances can be given that there are no title defects affecting such properties. The rules
governing mining concessions in Chile and Argentina are complex and any failure by the Company to meet
requirements would have a material adverse effect on the Company. Any defects in the title to the Company’s
properties could have a material and adverse effect on the Company.
No assurance can be given that applicable governments will not revoke or significantly alter the conditions of the
applicable exploration and mining authorizations nor that such exploration and mining authorizations will not be
challenged or impugned by third parties. Although the Company has not had any problem renewing its licenses
in the past there is no guarantee that it will always be able to do so. Inability to renew a license could result in
the loss of any project located within that license.
The Company is earning an interest in the certain properties through option agreements requiring property
payments and acquisition of title to the properties is completed only when the option conditions have been met.
These conditions include making property payments, incurring exploration expenditures on the properties, and
satisfactory completion of certain third-party agreements. If the Company does not satisfactorily complete these
option conditions in the period laid out in the option agreements, the Company’s title to the related property will
not vest and the Company will have to write down its previously capitalized costs related to that property.
Uncertainty of Funding
The exploration and development of mineral properties requires a substantial amount of capital and may depend
on the Company’s ability to obtain financing through joint ventures, debt financing, equity financing or other
means. General market conditions, volatile metals prices, a claim against the Company, a significant disruption
to the Company’s business, or other factors may make it difficult to secure the necessary financing. There is no
assurance that the Company will be successful in obtaining required financing as and when needed on acceptable
terms. Failure to obtain any necessary additional financing may result in delaying or indefinite postponement of
exploration or development or even a loss of property interest. If the Company needs to raise additional funds,
such financing may substantially dilute the interests of shareholders of the Company and reduce the value of
their investment.
Control of NGEx Minerals
As at the date of this MD&A, Zebra Holdings and Investments S.à.r.l. (“Zebra”) and Lorito Holdings S.à.r.l.
(“Lorito”), who report their security holdings as joint actors, together own 44,550,967 common shares of the
Company, representing 35.7% of the issued and outstanding common shares. Accordingly, they are considered
to be control persons of NGEx Minerals. As long as Zebra and Lorito maintain their current interests in the
Company, they will have the ability to exercise certain influence with respect to the affairs of the Company and
significantly affect the outcome of the votes of shareholders. There is a risk that the interests of Zebra and Lorito
differ from those of other shareholders.
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As a result of the current shareholdings of Zebra and Lorito, there is a risk that the Company’s securities are less
liquid and trade at a relative discount compared to circumstances where these persons did not have the ability
to influence or determine matters affecting NGEx Minerals. Additionally, there is a risk that their current ownership
interests in NGEx Minerals discourages transactions involving a change of control of NGEx Minerals, including
transactions in which an investor, as a holder of the Company’s securities, would otherwise receive a premium
for its Company’s securities over the then-current market price.
Future offerings of debt or equity securities
The Company may require additional funds to finance further exploration, development and production activities,
or to take advantage of unanticipated opportunities. If the Company raises additional funds by issuing additional
equity securities, such financing would dilute the economic and voting rights of the Company’s shareholders.
Since the Company’s capital needs depend on market conditions and other factors beyond its control, it cannot
predict or estimate the amount, timing or nature of any such future offering of securities. Thus, holders of
common shares of the Company bear the risk of any future offerings reducing the market price of the common
shares and diluting their shareholdings in the Company.
Corruption and Bribery
The Company is required to comply with anti-corruption and anti-bribery laws, including the Extractive Sector
Transparency Measures Act, the Canadian Corruption of Foreign Public Officials Act and the U.S. Foreign Corrupt
Practices Act, as well as similar laws in the countries in which the Company conducts its business. If the Company
finds itself subject to an enforcement action or is found to be in violation of such laws, this may result in significant
penalties, fines and/or sanctions imposed on the Company resulting in a material adverse effect on the Company.
Dependence on Key Personnel
The Company’s success will largely depend on the efforts and abilities of certain senior officers and key
employees. Certain of these individuals have significant experience in the mining industry and, in particular the
mining industry in South America. While the Company does not foresee any reason why such officers and key
employees will not remain with the Company, if for any reason they do not, the Company could be adversely
affected. In addition, certain of these individuals are also senior officers and key employees of Josemaria and
Filo Mining and, pursuant to the terms of a services agreement between the Company, Josemaria and Filo Mining
dated September 16, 2019 (the “Services Agreement”), the employment costs associated with these individuals
are shared between the Company, Josemaria and Filo Mining on a percentage allocation basis. If such officers
and key employees do not remain employed with Josemaria and/or Filo Mining for the purposes of the cost-
sharing basis under the Services Agreement, the Company could be adversely affected. The Company has not
purchased key man life insurance for any of these individuals.
Conflicts of Interest
Some of the directors and employees/officers of the Company are also directors and employees/officers of other
companies that are similarly engaged in the business of acquiring, exploring and developing natural resource
properties. In addition, certain individuals also serve as officers of Josemaria and/or Filo Mining and are subject
to the Services Agreement. Such associations may give rise to conflicts of interest from time to time. In particular,
one of the consequences will be that corporate opportunities presented to a director or employee/officer of the
Company may be offered to another corporation, or companies with which the director or employee/officer is
associated, and may not be presented or made available to the Company. The directors and employees/officers
of the Company are required by law to act honestly and in good faith with a view to the best interests of the
Company, to disclose any interest that they may have in any project or opportunity of the Company, and to
abstain from voting on such matter. Conflicts of interest that arise will be subject to and governed by the
procedures prescribed by the Company’s Code of Business Conduct and Ethics and the CBCA.
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Internal Controls
Internal controls over financial reporting are procedures designed to provide reasonable assurance that
transactions are properly authorized, assets are safeguarded against unauthorized or improper use, and
transactions are properly recorded and reported. A control system, no matter how well designed and operated,
can provide only reasonable, not absolute, assurance with respect to the reliability of financial reporting and
financial statement preparation.
Information Systems and Cyber Security
The Company's operations depend on information technology (“IT”) systems. These IT systems could be subject
to network disruptions caused by a variety of sources, including computer viruses, security breaches and cyber-
attacks, as well as disruptions resulting from incidents such as cable cuts, damage to physical plants, natural
disasters, terrorism, fire, power loss, vandalism and theft. The Company's operations also depend on the timely
maintenance, upgrade and replacement of networks, equipment, IT systems and software, as well as pre-emptive
expenses to mitigate the risks of failures. Any of these and other events could result in information system
failures, delays and/or increase in capital expenses. The failure of information systems or a component of
information systems could, depending on the nature of any such failure, adversely impact the Company's
reputation and results of operations.
Although to date the Company has not experienced any material losses relating to cyber attacks or other
information security breaches, there can be no assurance that the Company will not incur such losses in the
future. The Company's risk and exposure to these matters cannot be fully mitigated because of, among other
things, the evolving nature of these threats. As a result, cyber security and the continued development and
enhancement of controls, processes and practices designed to protect systems, computers, software, data and
networks from attack, damage or unauthorized access remain a priority. As cyber threats continue to evolve, the
Company may be required to expend additional resources to continue to modify or enhance protective measures
or to investigate and remediate any security vulnerabilities.
Competition
There is aggressive competition within the mining industry for the discovery and acquisition of properties
considered to have commercial potential, as well as the necessary labour and supplies required to develop such
properties. The Company competes with other exploration and mining companies, many of which have greater
financial resources, operational experience and technical capabilities than the Company, for the acquisition of
mineral claims, leases and other mineral interests as well as for the recruitment and retention of qualified
employees and other personnel. The Company may not be able to maintain or acquire attractive mining properties
on terms it considers acceptable, or at all. Consequently, its financial condition could be materially adversely
affected.
Uninsurable Risks
Exploration, development and production operations on mineral properties involve numerous risks, including
unexpected or unusual geological operating conditions, rock bursts, cave-ins, fires, floods, earthquakes and other
environmental occurrences, as well as political and social instability. It is not always possible to obtain insurance
against all such risks and the Company may decide not to insure against certain risks because of high premiums
or other reasons. Should such liabilities arise, they could reduce or eliminate any further profitability and result
in increasing costs and a decline in the value of the securities of the Company. The Company does not maintain
insurance against political risks.
15
Infrastructure
Development and exploration activities depend on adequate infrastructure. Reliable roads, bridges, power and
water supplies are important determinants that affect costs. The Company’s ability to obtain a secure supply of
power and water at a reasonable cost depends on many factors, including: global and regional supply and
demand; political and economic conditions; problems that can affect local supplies; delivery; and relevant
regulatory regimes. Power and water are currently in short supply throughout Northern Chile and this may
adversely affect the ability of the Company to explore and develop its Chilean projects. Unusual or infrequent
weather phenomena, sabotage or government, and other interference in the maintenance or provision of such
infrastructure could adversely affect the activities and profitability of the Company.
Establishing such infrastructure will require significant resources, identification of adequate sources of raw
materials and supplies and necessary cooperation from national and regional governments, none of which can
be assured. There is no guarantee that the Company will secure these power, water and access rights going
forward or on reasonable terms.
Tax
The Company runs its business in different countries and strives to run its business in as tax efficient a manner
as possible. The tax systems in certain of these countries are complicated and subject to changes. For this reason,
future negative effects on the result of the Company due to changes in tax regulations cannot be excluded.
Repatriation of earnings to Canada from other countries may be subject to withholding taxes. The Company has
no control over withholding tax rates.
QUALIFIED PERSON AND TECHNICAL INFORMATION
The scientific and technical disclosure included in this MD&A have been reviewed and approved by Bob Carmichael, P.
Eng. (BC). Mr. Carmichael is the Company's Vice-President of Exploration and a Qualified Person under National
Instrument 43-101 Standards of Disclosure for Mineral Projects. (“NI 43-101”).
Mineral Resource estimates for the Los Helados Project have an effective date of April 26, 2019. The key assumptions,
parameters, and methods used to estimate the mineral resources are contained in the 43-101 technical report for the
project, entitled “Technical Report on the Los Helados Porphyry Copper-Gold Deposit, Chile”, dated August 6, 2019
and authored by F. Devine, P.Geo., G. Zandonai, RMCMC, and G. Di Prisco, P.Geo. This report is available on the
Company’s website at www.ngexresources.com or under the Company’s profile at www.sedar.com.
The Company’s Mineral Resource estimates as reported in this MD&A have been prepared in accordance with the CIM
Definition Standards that are incorporated by reference in NI 43-101. The following definitions are reproduced from
the CIM Definition Standards:
A “Mineral Resource” is a concentration or occurrence of solid material of economic interest in or on the Earth’s
crust in such form, grade or quality and quantity that there are reasonable prospects for eventual economic
extraction. The location, quantity, grade or quality, continuity and other geological characteristics of a Mineral
Resource are known, estimated or interpreted from specific geological evidence and knowledge, including
sampling. Mineral Resources are sub-divided, in order of increasing geological confidence, into Inferred, Indicated
and Measured categories.
An “Inferred Mineral Resource” is that part of a Mineral Resource for which quantity and grade or quality are
estimated on the basis of limited geological evidence and sampling. Geological evidence is sufficient to imply but
not verify geological and grade or quality continuity. An Inferred Mineral Resource has a lower level of confidence
than that applying to an Indicated Mineral Resource and must not be converted to a Mineral Reserve. It is
16
reasonably expected that the majority of Inferred Mineral Resources could be upgraded to Indicated Mineral
Resources with continued exploration.
An “Indicated Mineral Resource” is that part of a Mineral Resource for which quantity, grade or quality, densities,
shape and physical characteristics are estimated with sufficient confidence to allow the application of Modifying
Factors (as defined below) in sufficient detail to support mine planning and evaluation of the economic viability
of the deposit. Geological evidence is derived from adequately detailed and reliable exploration, sampling and
testing and is sufficient to assume geological and grade or quality continuity between points of observation. An
Indicated Mineral Resource has a lower level of confidence than that applying to a Measured Mineral Resource
and may only be converted to a Probable Mineral Reserve.
Reverse circulation drilling at the Valle Ancho Project was completed by Eldorado Gold Corporation during the
1995/1996 season. NGEx Minerals has reviewed the original annual exploration report detailing the drilling and
sampling methodology as well as the original assay certificates. Samples were collected every two metres, and were
split twice resulting in 1/8 of the original sample being retained for analysis. Field duplicates were included in the
sample batches, however no assay standards or blanks were included. Analyses were completed by Bondar Clegg
Inchcape Testing Services in North Vancouver, Canada. Bondar Clegg Inchape was an accredited assay lab which was
independent of Eldorado Gold Corporation. Gold analyses were by fire assay fusion with AAS finish on a 30g sample.
In addition, NGEx Minerals has reviewed chips from the sample intervals. Drilling, sampling and assaying was done
to industry standards at the time, and NGEx Minerals has no reason to believe that the analytical data reported here
is inaccurate, however the Company has not completed its own sampling to independently verify the assay results.
CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
Certain statements made and information contained herein in the MD&A constitutes “forward-looking information” and
forward-looking statements” within the meaning of applicable securities legislation (collectively, “forward-looking
information” or “forward-looking statements”) concerning the business, operations, financial performance and
condition of NGEx Minerals. The forward-looking information contained in this MD&A is based on information available
to the Company as of the date of this MD&A. Except as required under applicable securities legislation, the Company
does not intend, and does not assume any obligation, to update this forward-looking information. Generally, any
statements that express or involve discussions with respect to predictions, expectations, beliefs, plans, projections,
objectives, assumptions or future events or performance, (often, but not always, identified by words or phrases such
as "plans", "expects" or "does not expect", "is expected", "budget", "scheduled", "estimates", "forecasts", "intends",
“projects” , “estimates”, “budgets”, “scheduled”, “forecasts”, “assumes”, “intends”, “strategy”, “goals”, “objectives”,
“potential”, “possible”, "anticipates" or "does not anticipate", or "believes", or variations of such words and phrases or
statements that certain actions, events, conditions or results “will”, "may", "could", "would", “should”, "might" or "will
be taken", "will occur" or "will be achieved" or the negative connotations thereof and similar expressions) are not
statements of historical fact and may be forward-looking statements.
All statements other than statements of historical fact may be forward-looking statements. Forward-looking information
is necessarily based on estimates and assumptions that are inherently subject to known and unknown risks,
uncertainties and other factors that may cause the actual results, level of activity, performance or achievements of
the Company to be materially different from those expressed or implied by such forward-looking information, including
but not limited to: risks and uncertainties relating to, among other things, the inherent uncertainties regarding Mineral
Resource estimates, cost estimates, changes in commodity prices, currency fluctuation, financings, unanticipated
resource grades, infrastructure, results of exploration activities, cost overruns, availability of materials and equipment,
timeliness of government approvals, taxation, political risk and related economic risk and unanticipated environmental
impact on operations as well as other risks, and uncertainties and other factors, including, without limitation, those
referred to in the “Risks and Uncertainties” section of the MD&A, and elsewhere, which may cause the actual results,
level of activity, performance or achievements of the Company to be materially different from those expressed or
implied by such forward-looking information.
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The Company believes that the expectations reflected in the forward-looking statements and information included in
this MD&A are reasonable but no assurance can be given that these expectations will prove to be correct and such
forward-looking statements and information should not be unduly relied upon. This statement and information is as
of the date of the MD&A. In particular, this MD&A contains forward-looking statements or information pertaining to:
the assumptions used in the Mineral Resources estimates for the Los Helados Project, including, but not limited to,
geological interpretation and grades; assumptions made in the interpretation of drill results, geology, grade and
continuity of mineral deposits; expectations regarding access and demand for equipment, skilled labour and services
needed for exploration and development of mineral properties; and that activities will not be adversely disrupted or
impeded by exploration, development, operating, regulatory, political, community, economic and/or environmental
risks. In addition, this MD&A may contain forward-looking statements or information pertaining to: the Company’s
ability to respond to or navigate, and/or methods by which it responds to or navigates, the COVID-19 pandemic; the
expected timing of results related to the Company’s recently completed field season; potential of identifying prospective
targets at the Valle Ancho Project that warrant further evaluation and potential drill testing; the results and impact of
future exploration at the Valle Ancho Project; assumptions and interpretations around historical exploration results
obtained in regards to the Valle Ancho Project; the exploration potential of the Valle Ancho Property; assumptions and
interpretations around the Valle Ancho Project’s location relative to the Maricunga Gold Belt and the potential
correlation with respect to prospectivity; the timing, amount and duration of reductions to discretionary expenditures
and salaries; the materialization of opportunities for the Company to make acquisition of strategic assets; the ability of
the Company to secure additional financing and/or the quantum and terms thereof; exploration and development
plans and expenditures; the timing and nature of work undertaken to advance the Los Helados Project; the success
of future exploration activities; potential for the discovery of new mineral deposits; ability to build shareholder value;
expectations with regard to adding to Mineral Resources through exploration; expectations with respect to the
conversion of inferred resources to an indicated resources classification; ability to execute the planned work programs;
estimation of commodity prices, Mineral Resources, estimations of costs, and permitting time lines; ability to obtain
surface rights and property interests; currency exchange rate fluctuations; requirements for additional capital;
government regulation of mining activities; environmental risks; unanticipated reclamation expenses; title disputes or
claims; limitations on insurance coverage; and other risks and uncertainties.
Forward-looking information is based on certain assumptions that the Company believes are reasonable, including that
the current price of and demand for commodities will be sustained or will improve, the supply of commodities will
remain stable, that the general business and economic conditions will not change in a material adverse manner, that
financing will be available if and when needed on reasonable terms and that the Company will not experience any
material labour dispute, accident, or failure of plant or equipment. These factors are not, and should not be construed
as being, exhaustive. Although the Company has attempted to identify important factors that would cause actual
results to differ materially from those contained in forward-looking information, there may be other factors that cause
results not to be as anticipated, estimated, or intended. There can be no assurance that such statements will prove
to be accurate, as the Company’s actual results and future events could differ materially from those anticipated in
such statements, as a result of the factors discussed in the “Risk and Uncertainties” section of this MD&A, and
elsewhere. All of the forward-looking information contained in this document is qualified by these cautionary
statements. Readers are cautioned not to place undue reliance on forward-looking information due to the inherent
uncertainty thereof.
Statements relating to "Mineral Resources" are deemed to be forward-looking information, as they involve the implied
assessment, based on certain estimates and assumptions, that the Mineral Resources described can be profitably
produced in the future.
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Independent auditor’s report
To the Shareholders of NGEx Minerals Ltd.
Our opinion
In our opinion, the accompanying consolidated financial statements present fairly, in all material respects,
the financial position of NGEx Minerals Ltd. and its subsidiaries (together, the Company) as at December
31, 2019 and 2018, and its financial performance and its cash flows for the years then ended in accordance
with International Financial Reporting Standards as issued by the International Accounting Standards
Board (IFRS).
What we have audited
The Company’s consolidated financial statements comprise:
the consolidated statements of financial position as at December 31, 2019 and 2018;
the consolidated statements of comprehensive loss for the years then ended;
the consolidated statements of cash flows for the years then ended;
the consolidated statements of changes in equity for the years then ended; and
the notes to the consolidated financial statements, which include a summary of significant
accounting policies.
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 believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our
opinion.
Independence
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.
PricewaterhouseCoopers LLP
PricewaterhouseCoopers Place, 250 Howe Street, Suite 1400, Vancouver, British Columbia, Canada V6C 3S7
T: +1 604 806 7000, F: +1 604 806 7806
“PwC” refers to PricewaterhouseCoopers LLP, an Ontario limited liability partnership.
Emphasis of matter
We draw attention to the fact that, as described in note 3 to the consolidated financial statements, NGEx
Minerals Ltd. did not operate as a separate entity prior to the reorganization on July 17, 2019. The carve-
out financial information as at and for the year ended December 31, 2018 and for the period from January
1, 2019 to July 17, 2019 included in these consolidated financial statements is, therefore, not necessarily
indicative of results that would have occurred in NGEx Minerals Ltd. had it been a separate stand-alone
entity during the years presented or of future results of NGEx Minerals Ltd. Our opinion is not modified in
respect of this matter.
Other information
Management is responsible for the other information. The other information comprises the 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.
In connection with our audit of the consolidated financial statements, our responsibility is to read the
other information identified above and, in doing so, consider whether the other information is materially
inconsistent with the consolidated financial statements or our knowledge obtained in the audit, or
otherwise appears to be materially misstated.
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 to 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 the 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 judgment 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 risk
of not detecting a material misstatement resulting from fraud is higher than for one resulting from
error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the
override of internal control.
Obtain an understanding of internal control relevant to the audit in order to design audit
procedures that are appropriate in the circumstances, but not for the purpose of expressing an
opinion on the effectiveness of the Company’s internal control.
Evaluate the appropriateness of accounting policies used and the reasonableness of accounting
estimates and related disclosures made by management.
Conclude on the appropriateness of management’s use of the going concern basis of accounting and,
based on the audit evidence obtained, whether a material uncertainty exists related to events or
conditions that may cast significant doubt on the 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.
Obtain sufficient appropriate audit evidence regarding the financial information of the entities or
business activities within the Company to express an opinion on the consolidated financial
statements. We are responsible for the direction, supervision and performance of the group audit.
We remain solely responsible for our audit opinion.
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 on the audit resulting in this independent auditor’s report is Lana Kirk.
(signed) PricewaterhouseCoopers LLP
Chartered Professional Accountants
Vancouver, British Columbia
April 16, 2020
NGEx Minerals Ltd.
Consolidated Statements of Financial Position
(Expressed in Canadian Dollars)
Note
December 31,
2019
December 31,
2018
ASSETS
Current assets:
Cash
Receivables and other assets
Non-current assets:
Equipment
Mineral properties
TOTAL ASSETS
LIABILITIES
Current liabilities:
Trade payables and accrued liabilities
Non-current liabilities:
Due to exploration partner
TOTAL LIABILITIES
SHAREHOLDERS’ EQUITY
Share capital
Other capital reserves
Contributed surplus
Deficit
Accumulated other comprehensive loss
TOTAL SHAREHOLDERS’ EQUITY
TOTAL LIABILITIES AND
SHAREHOLDERS’ EQUITY
Nature of Operations and Liquidity Risk (Note 1)
Commitments (Note 16)
Subsequent Events (Note 17)
6
7
8
$ 5,559,454
479,886
6,039,340
$ 255,759
212,238
467,997
35,106
4,765,205
4,800,311
-
4,534,990
4,534,990
10,839,651
5,002,987
718,065
389,125
309,481
-
1,027,546
389,125
43,053,810
-
419,228
(31,893,537)
(1,767,396)
9,812,105
-
114,010,099
-
(108,186,386)
(1,209,851)
4,613,862
$ 10,839,651
$ 5,002,987
The accompanying notes are an integral part of these consolidated financial statements.
On behalf of the Board:
/s/William A. Rand
Director
/s/Wojtek A. Wodzicki
Director
NGEx Minerals Ltd.
Consolidated Statements of Comprehensive Loss
(Expressed in Canadian Dollars)
Note
2019
Year ended
December 31,
2018
Expenses
Exploration and project investigation
General and administration:
Salaries and benefits
Share-based compensation
Management fees
Professional fees
Travel
Promotion and public relations
Office and general
Operating loss
Other expenses
Financing costs
Foreign exchange gain
Net monetary loss
Other gains
Write-down of mineral property
Net loss
Other comprehensive loss
Items that may be reclassified
subsequently to net loss:
Foreign currency translation
adjustment
Impact of hyperinflation
Comprehensive loss
10
9c
5
7
5
$ 3,850,337
$ 4,756,058
508,147
430,840
54,173
219,621
31,281
37,335
169,204
5,300,938
13,292
(22,633)
31,882
(16,560)
-
5,306,919
538,706
360,259
106,359
140,275
27,779
161,460
151,980
6,242,876
-
-
39,199
-
54,861
6,336,936
508,120
49,427
$ 5,864,466
444,169
(61,227)
$ 6,719,878
Basic and diluted loss per common share
$ 0.04
$ 0.05
Weighted average common shares
outstanding
8
124,793,652
124,793,652
The accompanying notes are an integral part of these consolidated financial statements.
2
NGEx Minerals Ltd.
Consolidated Statements of Cash Flows
(Expressed in Canadian Dollars)
Cash flows used in operating activities
Net loss for the period
Items not involving cash:
Depreciation
Share-based compensation
Finance costs
Foreign exchange loss
Net monetary loss
Other gains
Write-down of mineral property
Net changes in working capital items:
Receivables and other
Trade payables and accrued liabilities
Cash flows from financing activities
Cash received pursuant to the Josemaria
Arrangement
Funding received from Josemaria for operations
Payments made on behalf of exploration partner
Cash flows used in investing activities
Acquisition of equipment
Mineral properties and related expenditures
Note
Year ended
December 31,
2018
2019
$
(5,306,919)
$
(6,336,936)
2,943
535,464
13,292
8,437
101,231
(16,560)
-
8,982
485,858
-
43
39,199
-
54,861
(335,960)
453,451
(4,544,621)
(73,966)
(356,032)
(6,177,991)
7,300,000
3,547,819
(13,292)
10,834,527
(35,578)
(735,664)
(771,242)
-
7,069,548
-
7,069,548
-
(670,078)
(670,078)
9c
7
2
2
6
Effect of exchange rate change on cash
(214,969)
(104,829)
Increase in cash during the year
5,303,695
116,650
Cash, beginning of year
Cash, end of year
$
255,759
$ 5,559,454
$
$
139,109
255,759
The accompanying notes are an integral part of these consolidated financial statements.
3
NGEx Minerals Ltd.
Consolidated Statements of Changes in Equity
(Expressed in Canadian Dollars)
Balance, January 1, 2018
Funding and expenses paid by
Josemaria
Share-based compensation
Net loss and other comprehensive loss
Balance, December 31, 2018
Balance, January 1, 2019
Funding and expenses paid by
Josemaria
Share-based compensation
Net cash received and liabilities
assumed pursuant to the Josemaria
Arrangement
Shares issued pursuant to the
Josemaria Arrangement
Adjustment for shares issued pursuant
to the Josemaria Arrangement
Net loss and other comprehensive loss
Balance, December 31, 2019
Note
Number of
Shares
Share Capital
Contributed
Surplus
Other Capital
Reserves
Deficit
$
Accumulated
Other
Comprehensive
Loss
Total
Shareholders’
Equity
- $ - $ -
106,454,691
$ (101,849,450)
$ (826,907)
$ 3,778,334
7,069,548
-
485,858
-
-
-
- $ - $ - $ 114,010,097
-
-
-
-
-
-
-
-
(6,336,936)
-
-
(382,942)
$(108,186,386) $ (1,209,849)
7,069,548
485,858
(6,719,878)
$ 4,613,862
- $ - $ - $ 114,010,097
$ (108,186,386)
$ (1,209,849)
$ 4,613,862
9c
2
-
-
-
-
-
-
2 & 8 124,793,652
43,053,810
2
-
-
-
-
-
419,228
3,549,600
116,236
6,977,645
(43,053,810)
(81,599,768)
-
-
-
-
124,793,652 $ 43,053,810 $ 419,228 $ -
-
-
-
-
-
-
-
-
3,549,600
535,464
6,977,645
-
81,599,768
(5,306,919)
-
(557,547)
$ (31,893,537) $ (1,767,396)
-
(5,864,466)
$ 9,812,105
The accompanying notes are an integral part of these consolidated financial statements.
4
NGEx Minerals Ltd.
Notes to Consolidated Financial Statements
For the year ended December 31, 2019 and 2018
(Expressed in Canadian Dollars, unless otherwise stated)
1. NATURE OF OPERATIONS AND LIQUIDITY RISK
NGEx Minerals Ltd. (the “Company” or “NGEx Minerals”) was incorporated on February 21, 2019 under
the laws of the Canada Business Corporations Act in connection with a plan of arrangement to
reorganize Josemaria Resources Inc. (“Josemaria”), which was completed on July 17, 2019 (see Note
2). The Company’s principal business activities are the acquisition, exploration and development of
mineral properties located in South America.
The Company’s registered office is located at Suite 2000, 885 West Georgia Street, Vancouver, British
Columbia, V6C 3E8, Canada. The Company’s common shares commenced trading on the TSX Venture
Exchange (the "TSXV") under the symbol "NGEX" on August 20, 2019.
These consolidated financial statements have been prepared on the basis that the Company will
continue as a going concern, which assumes that it will be able to meet its existing obligations and
commitments and fund ongoing operations in the normal course of business for at least twelve months
from December 31, 2019. The foregoing notwithstanding, the Company anticipates the need for further
funding shortly thereafter to support its ongoing South American operations, and for general corporate
and working capital purposes. The Company is currently evaluating potential additional sources of
financing. Historically, including the period prior to the completion of the plan of arrangement with
Josemaria (see Note 2), capital requirements have been primarily funded through equity financing,
joint ventures, disposition of mineral properties and investments, and the use of short-term credit
facilities.
While management is confident that its current working capital balance is sufficient, or that additional
sources of funding will be secured, to fund planned expenditures for at least twelve months from
December 31, 2019, factors that could affect the availability of financing include the progress and
results of ongoing exploration at the Company’s mineral properties, the state of international debt and
equity markets (see Note 17), and investor perceptions and expectations of the global copper, gold,
and/or silver markets. There can be no assurance that such financing will be available in the amount
required at any time or for any period or, if available, that it can be obtained on terms satisfactory to
the Company. If necessary, the Company may explore opportunities to revise the due dates of its
liabilities, negotiate deferrals on upcoming lump sum payments with respect to the Company’s mineral
properties, and/or settle its liabilities through the issuance of the common shares and other equity
instruments. Based on the actual deployment of the Company’s current working capital and/or the
amount of funding raised, if any, the Company’s planned initiatives and other work programs may be
postponed, or otherwise revised, as necessary.
2. PLAN OF ARRANGEMENT
On July 17, 2019, Josemaria completed a plan of arrangement (the “Josemaria Arrangement”) pursuant
to which Josemaria transferred to the Company:
cash of $7,300,000 million;
its wholly owned subsidiaries that directly or indirectly hold the Los Helados Properties in Chile
(the “Los Helados Properties”), the Nacimientos properties in Argentina (the “Nacimientos
Properties”) and the La Rioja properties in Argentina (the “La Rioja Properties”), including an
additional $238,929 in cash; and
$322,355 in liabilities, comprised primarily of a contractual obligation to fund an exploration
partners’ share of future exploration activities at the La Rioja Properties.
5
NGEx Minerals Ltd.
Notes to Consolidated Financial Statements
For the year ended December 31, 2019 and 2018
(Expressed in Canadian Dollars, unless otherwise stated)
In exchange, the Company issued to Josemaria 124,793,652 common shares of the Company, which
Josemaria subsequently distributed to the shareholders of Josemaria as a return of capital.
As the shareholders of Josemaria continued to hold their respective interests in NGEx Minerals, there
was no resultant change of control in either the Company, or the underlying assets and business
acquired. As such, the Josemaria Arrangement is considered a capital reorganization and is excluded
from the scope of IFRS 3, Business Combinations.
Under the continuity of interest basis of accounting, the assets and liabilities transferred are recorded
at their pre-arrangement carrying values. The statements of comprehensive loss include the allocated
expenditures from the business acquired for the period up to July 17, 2019. Accordingly, the exploration
expenditures related to the Los Helados Properties, the Nacimientos Properties and La Rioja Properties
have been allocated directly from Josemaria and all remaining expenses have been allocated on a pro-
rata basis based on the level of investment made in the subsidiaries that directly or indirectly hold the
Los Helados Properties, the Nacimientos Properties, and the La Rioja Properties relative to those
retained by Josemaria following the Josemaria Arrangement. The carve-out entity did not operate as a
separate legal entity prior to the Josemaria Arrangement and as such, the financial statements do not
necessarily reflect what its results of operations, financial position and cash flows would have been had
the carve-out entity operated as an independent entity during the periods presented.
The carrying value of the net assets received pursuant to the Josemaria Arrangement, as at July 17,
2019 are as follows:
Assets:
Cash
Receivables and other assets
Mineral properties
Total assets
Liabilities:
Trade payables and accrued liabilities
Due to exploration partner
Carrying value of net assets
Accumulated losses
Subtotal
Shares issued pursuant to the Josemaria Arrangement
Adjustment for shares issued in connection with
the Josemaria Arrangement
$ 7,538,929
204,857
5,227,730
12,971,516
(447,141)
(317,605)
12,206,770
112,446,808
124,653,578
43,053,810
$ 81,599,768
An adjustment of $81,599,768 was made through accumulated deficit to reconcile the carrying values
of the net assets contributed and recorded under the continuity of interest basis of accounting, to the
fair value of the common shares issued upon closing of the Josemaria Arrangement and the allocated
Josemaria accumulated losses, which amounted to $112,446,808 up to the close of the Josemaria
Arrangement.
6
NGEx Minerals Ltd.
Notes to Consolidated Financial Statements
For the year ended December 31, 2019 and 2018
(Expressed in Canadian Dollars, unless otherwise stated)
The consolidated statement of changes in equity includes $7,300,000 of cash, $4,750 in accounts
payable and accrued liabilities, and $317,605 in amounts due to an exploration partner, that were
transferred by Josemaria to the Company pursuant to the Josemaria Arrangement. Other assets have
been reflected in these consolidated financial statements at earlier dates in accordance with the
continuity of interest basis of accounting.
3. BASIS OF PRESENTATION
These consolidated financial statements have been prepared in accordance with International Financial
Reporting Standards (“IFRS”), as issued by the International Accounting Standards Board (“IASB”), on
a going concern basis, which contemplates the realization of assets and settlement of liabilities in the
normal course of business. These consolidated financial statements are prepared on a historical cost
basis except for certain financial assets, which are measured at fair value.
In addition, these consolidated financial statements have been prepared on a continuity of interest
basis of accounting following the Josemaria Arrangement, which requires that prior to the July 17, 2019
effective date thereof, the assets, liabilities, results of operations and cash flows of NGEx Minerals be
on a ‘carve-out’ basis from the consolidated financial statements and accounting records of Josemaria,
in accordance with the financial reporting framework specified in subsection 3.11(6) of National
Instrument 52-107, Acceptable Accounting Principles and Auditing Standards, for carve-out financial
statements.
The preparation of these consolidated financial statements pursuant to the carve-out basis of
accounting requires the identification and allocation of pre-arrangement assets, liabilities, results from
operations and cash flows of Josemaria, which are deemed to be attributable to the Company. In
performing such allocations, management was required to make certain judgments, including that the
use of relative levels of investments during any given period is a reasonable basis to allocate common
expenses.
These consolidated financial statements were authorized for issuance by the Board of Directors of the
Company on April 16, 2020.
7
NGEx Minerals Ltd.
Notes to Consolidated Financial Statements
For the year ended December 31, 2019 and 2018
(Expressed in Canadian Dollars, unless otherwise stated)
4. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
a) Consolidation
These consolidated financial statements of the Company include the following subsidiaries:
Subsidiaries
Suramina Resources Inc.
NGEx Argentina Holdings Inc.
NGEx RioEx Holdings Inc.
Frontera Holdings (Bermuda) I Ltd.
Frontera Holdings (Bermuda) II Ltd.
Frontera Holdings (Bermuda) III Ltd.
Urupampa S.A.
RioEx Uruguay S.A.
Minera Frontera del Oro SPA.
Desarrollo de Prospectos Mineros Peruanos S.A.C.
Pampa Exploracion S.A.
RioEx S.A.
Jurisdiction
Canada
Canada
Canada
Bermuda
Bermuda
Bermuda
Uruguay
Uruguay
Chile
Peru
Argentina
Argentina
Nature of operations
Holding company
Holding company
Holding company
Holding company
Holding company
Holding company
Holding company
Holding company
Exploration company
Exploration Company
Exploration company
Exploration company
The Company consolidates an entity when it has power over that entity, is exposed, or has rights, to
variable returns from its involvement with that entity and has the ability to affect those returns through
its power over that entity.
All the Company’s subsidiaries are wholly-owned and all intercompany balances, transactions, including
income and expenses arising from inter-company transactions, are eliminated in preparing the
consolidated financial statements.
b) Critical accounting estimates and assumptions
The preparation of the consolidated financial statements in accordance with IFRS requires management
to make estimates and assumptions that affect the reported amounts of assets, liabilities and
expenditures on the financial statements. These estimates and assumptions are based on management’s
best knowledge of the relevant facts and circumstances taking into account previous experience. Actual
results could differ from those estimates and such differences could be material. Estimates are reviewed
on an ongoing basis and are based on historical experience and other facts and circumstances. Revisions
to estimates and the resulting effects on the carrying amounts of the Company’s assets and liabilities
are accounted for prospectively. Information about estimates, assumptions and other sources of
estimation uncertainty as at December 31, 2019 that have a risk of resulting in a material adjustment
to the carrying amounts of assets and liabilities within the next year are provided below:
Valuation of mineral properties – The Company carries the acquisition costs of its mineral properties
at cost less any provision for impairment. The Company undertakes periodic reviews of its mineral
properties for indicators of impairment, and if any are identified, it would further review the carrying
values of the applicable mineral properties to determine if their carrying values may exceed their
recoverable amount. In undertaking the initial review for indicators of impairment, and also any
subsequent review of a mineral property’s carrying value, management of the Company is required to
make significant judgements and estimates. These judgments and estimates are subject to various risks
and uncertainties, which may ultimately have an effect on the expected recoverability of the carrying
values of the mineral properties.
8
NGEx Minerals Ltd.
Notes to Consolidated Financial Statements
For the year ended December 31, 2019 and 2018
(Expressed in Canadian Dollars, unless otherwise stated)
c) Foreign currency translation
These consolidated financial statements are presented in Canadian dollars, which is the Company’s
functional and presentation currency. The functional currencies of its material subsidiaries, which have
operations in Chile and Argentina, are the Chilean peso and the Argentine peso, respectively.
For the Company’s Argentine subsidiaries, which are affected by hyper-inflationary accounting as
described in Note 5 below, and use the Argentine peso as their functional currency, the results and
financial position of this subsidiary are translated into the presentation currency using the exchange rate
prevailing at the date of the statement of financial position.
The results and financial position of all other subsidiaries that have a functional currency different from
the presentation currency are translated into the presentation currency as follows:
Assets and liabilities for each statement of financial position presented are translated using the
exchange rate prevailing at the date of that statement of financial position.
Income, expenses, and other comprehensive income for each statement of comprehensive income
are translated at average exchange rates (unless this average is not a reasonable approximation
of the cumulative effect of the rates prevailing on the transaction dates, in which case income and
expenses are translated at the rate on the dates of the transactions).
All resulting exchange differences are recognized as a separate component of equity and in other
comprehensive income.
d) Mineral properties and exploration expenditure
The Company capitalizes acquisition costs for property rights, including payments for exploration rights
and estimated fair value of exploration properties acquired as part of a business acquisition.
Mineral exploration costs and maintenance payments in relation to a mineral property are expensed
prior to the establishment that the mineral property is sufficiently advanced towards the development
stage and that economic viability has been demonstrated. Once established, all further expenditures of
the current year and subsequent years are capitalized as incurred and subsequently amortized on a
units of production based on proven and probable reserves of the assets to which they relate.
e) Impairment of non-financial assets
Non-financial assets are reviewed for impairment whenever events or changes in circumstances indicate
that the carrying amount may not be recoverable, which may include indicators of impairment as they
relate to mineral properties. An impairment loss is recognised for the amount by which the asset’s
carrying amount exceeds its recoverable amount. The recoverable amount is the higher of an asset’s
fair value less costs to sell and value in use. For the purposes of assessing impairment, assets are
grouped at the lowest levels for which there are separately identifiable cash inflows (cash-generating
units, or “CGU’s”). Value in use is determined as the present value of future cash inflows expected to
be derived from a CGU using a pre-tax discount rate that reflects the current time value of money and
the risks specific to that CGU.
Non-financial assets that suffered impairment are reviewed for possible reversal of the impairment at
each reporting date.
9
NGEx Minerals Ltd.
Notes to Consolidated Financial Statements
For the year ended December 31, 2019 and 2018
(Expressed in Canadian Dollars, unless otherwise stated)
f) Cash and cash equivalents
Cash and cash equivalents include cash on hand, and deposits held with financial institutions with a
fixed deposit term of three months or less, net of bank overdrafts.
g) Equipment
Equipment is carried at cost less accumulated depreciation and impairment losses. The cost of an asset
consists of its purchase price, any directly attributable costs of bringing the asset to the working
condition and location of 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.
Subsequent costs are included in the asset’s carrying amount or recognized as a separate asset, as
appropriate, only when it is probable that future economic benefits associated with the item will flow to
the Company and the cost of the item can be measured reliably.
Depreciation of each asset is calculated using the straight line method to allocate its cost less its residual
value over its estimated useful life. The depreciation rates and methods for the Company’s equipment
are as follows:
Vehicles/Mobile Equipment
Straight line over 5 years
The assets’ residual values, depreciation methods, and useful lives are reviewed, and adjusted if
appropriate, at each statement of financial position date.
An asset’s carrying amount is written down immediately to its recoverable amount if the asset’s carrying
amount is greater than its estimated recoverable amount.
When an asset is disposed of, the difference between the net sale proceeds and its carrying amount is
recognized as a gain or loss within net loss on the consolidated statement of comprehensive loss.
h) Current and deferred income tax
The Company follows the liability method of accounting for income taxes. Under the liability method,
deferred income tax assets and liabilities are recognized for the future tax consequences attributable to
differences between the financial statement carrying amounts of existing assets and liabilities and their
respective tax bases, unused tax losses and other income tax deductions. Deferred income tax assets
are recognized for deductible temporary differences, unused tax losses and other income tax deductions
to the extent that it is probable the Company will have taxable income against which those deductible
temporary differences, unused tax losses and other income tax deductions can be utilized.
Deferred income tax assets and liabilities are measured using enacted or substantively enacted tax rates
expected to apply when the related assets are realized or the liabilities are settled. The measurement
of deferred income tax assets and liabilities reflects the tax consequences that would follow from the
manner in which the Company expects, at the reporting date, to recover and settle the carrying amounts
of its assets and liabilities, respectively. The effect on deferred income tax assets and liabilities of a
change in tax rates is recognized in the period in which the change is substantively enacted.
10
NGEx Minerals Ltd.
Notes to Consolidated Financial Statements
For the year ended December 31, 2019 and 2018
(Expressed in Canadian Dollars, unless otherwise stated)
i) Share capital
Common shares are classified as equity. Incremental costs directly attributable to the issuance of new
ordinary shares or options are shown in equity as a deduction, net of tax, from the proceeds.
j) Share-based compensation
The Company has a share-based compensation plan, whereby it is authorized to grant share options to
officers, employees, directors, and other eligible persons. The fair value of the options is measured at
the date the options are granted, using the Black-Scholes option-pricing model with assumptions for
risk-free interest rates, dividend yields, volatility of the expected market price of the common shares
and an expected life of the options. The fair value less estimated forfeitures is charged over the vesting
period of the related options as an expense on its financial statements.
k) Provisions
Provisions for restructuring costs and legal claims are recognized when: the Company has a present
legal or constructive obligation as a result of past events; it is probable that an outflow of resources
will be required to settle the obligation; and the amount can be reliably estimated.
Provisions are measured at the present value of the expenditures expected to be required to settle the
obligations using the pre-tax rate that reflects current market assessments of the time value of money
and the risks specific to the obligation. The increase in the provision due to the passage of time is
recognized as interest expense.
l) Segment reporting
As the Company primarily focuses its activity on the exploration and development of mineral properties,
its operating and reportable segments are the Los Helados Project, the Company’s exploration projects
in Argentina, other exploration projects, and the Company’s corporate administration function.
Operating segments are components of an entity that engage in business activities from which they
incur expenses and whose operating results are regularly reviewed by a chief operating decision maker
to make resource allocation decisions and to assess performance. The Chief Executive Officer, the chief
operating decision-maker for the Company, obtains and reviews operating results of each operating
segment on a monthly basis.
11
NGEx Minerals Ltd.
Notes to Consolidated Financial Statements
For the year ended December 31, 2019 and 2018
(Expressed in Canadian Dollars, unless otherwise stated)
m) Hyperinflation
On July 1, 2018, the Company adopted IAS 29, Financial Reporting in Hyper-Inflationary Economies,
which outlines the use of the hyper-inflationary accounting to consolidate and report its Argentine
operating subsidiaries.
The application of hyper-inflationary accounting requires restatement of the Argentine subsidiaries’
non-monetary assets and liabilities, shareholders’ equity and comprehensive loss items from the
transaction date when they were first recognized into the current purchasing power which reflects a
price index current at the end of the reporting period before being included in the consolidated financial
statements. To measure the impact of inflation on its financial position and results, the Company has
elected to use the Wholesale Price Index (Indice de Precios Mayoristas or ”IPIM”) for periods up to
December 31, 2016, and the Retail Price Index (Indice de Precios al Consumidor or “IPC”) thereafter.
These price indices have been recommended by the Government Board of the Argentine Federation of
Professional Councils of Economic Sciences (“FACPCE”).
As the consolidated financial statements of the Company have been previously presented in Canadian
dollars, a stable currency, the comparative period amounts do not require restatement.
n) Adoption of new accounting policy: leases
On January 1, 2019, the Company adopted IFRS 16, Leases, which specifies how leases should be
recognized, measured, presented and disclosed, and replaces IAS 17. The standard provides a single
lessee accounting model, requiring lessees to recognize assets and liabilities for almost all leases, unless
the lease term is 12 months or less or the underlying asset has a low value, in which case, lease
payments are recognized as an expense on a straight-line basis over the lease term or another
systematic basis, if deemed more representative.
The Company has adopted IFRS 16 retroactively from January 1, 2019, but has not restated the 2018
comparative periods presented, as permitted under the specific transitional provision in the standard.
Under this transitional provision, any adjustments arising from the new lease accounting rules would
have been recognized in the opening balance sheet on January 1, 2019, however as at that date, the
Company’s only leases had terms less than 12 months, and accordingly, the adoption of IFRS 16 has
resulted in no impact to the Company.
On January 1, 2019, the Company did not have any leases which were previously classified as finance
leases under IAS 17.
In applying IFRS 16 for the first time, the Company used a practical expedient permitted by the
standard, which allowed the Company to not reassess whether its contracts are, or contain, any leases
at the date of initial application. Instead, pursuant to this practical expedient, for contracts entered into
before the transition date, the Company was permitted to rely on its previous assessments made under
IAS 17 and IFRIC 4, Determining Whether an Arrangement Contains a Lease.
o) New accounting pronouncements
The IASB and the IFRS Interpretations Committee (previously the International Financial Reporting
Interpretations Committee, IFRIC) have issued standards and amendments, or interpretations to
existing standards, that were not yet effective and not applied by the Company as at December 31,
2019. These new standards and interpretations are not expected to be applicable for the Company for
the annual period beginning on or after January 1, 2020.
12
NGEx Minerals Ltd.
Notes to Consolidated Financial Statements
For the year ended December 31, 2019 and 2018
(Expressed in Canadian Dollars, unless otherwise stated)
5. HYPERINFLATION
Argentina was designated a hyper-inflationary economy as of July 1, 2018 for accounting purposes.
The Company recognized a loss of $49,427 for the year ended December 31, 2019 (2018: gain of
$61,227) in relation to the impact of hyperinflation within other comprehensive income, which is
primarily the result of devaluation of the Argentine Peso relative to the Canadian dollar during the
period.
As a result of changes in the IPC and changes to the Company’s net monetary position during the
year ended December 31, 2019, the Company recognized a net monetary loss of $31,882 during
the year ended December 31, 2019 (2018: $39,199) to adjust transactions recorded during the
respective periods into a measuring unit current as of December 31, 2019.
The level of the IPC at December 31, 2019 was 283.4 (December 31, 2018: 184.2), which represents
an increase of approximately 54% over the IPC at December 31, 2018, and an approximate 22%
increase over the average level of the IPC during the year ended December 31, 2019.
6. MINERAL PROPERTIES
Los Helados
Project
Nacimientos
Properties
Acay
Properties
Total
January 1, 2018
$ 3,909,134
$ 217,374
$ 94,331
$ 4,220,839
Additions
312,382
357,696
-
-
-
(54,861)
670,078
(54,861)
Write-off of mineral properties
Effect of foreign currency
translation
Adjustments for impacts of
hyperinflation
(181,352)
(142,445)
(39,470)
(363,267)
-
62,201
-
62,201
December 31, 2018
$ 4,040,164
$ 494,826
$ -
$ 4,534,990
Additions
Effect of foreign currency
translation
Adjustments for impacts of
hyperinflation
December 31, 2019
328,774
406,890
(444,564)
-
-
-
735,664
(444,564)
-
$ 3,924,374
(60,885)
$ 840,831
-
$ -
(60,885)
$ 4,765,205
The Company’s primary mineral property assets are the Los Helados Properties and the La Rioja
Properties (together, the “Los Helados Project”), which are comprised of adjacent mineral titles in
Region III, Chile, and the San Juan Province in Argentina. The Company also holds mineral property
interests in the Nacimientos Properties, located in the San Juan Province, Argentina.
13
NGEx Minerals Ltd.
Notes to Consolidated Financial Statements
For the year ended December 31, 2019 and 2018
(Expressed in Canadian Dollars, unless otherwise stated)
Los Helados Project
The Company is the majority partner and operator of the Los Helados Project, which is subject to a
Joint Exploration Agreement (“JEA”) with its exploration partner, Pan Pacific Copper Co. (“PPC”). The
Company holds an approximate 63% interest in the underlying Los Helados Properties, which are
located in Region III, Chile, and a 60% interest in the La Rioja Properties, located in the adjacent San
Juan Province in Argentina.
The Company has been funding and accounting for 100% of the expenditures related to the Los
Helados Project following the election by PPC pursuant to the JEA not to fund its share of expenditures
since September 1, 2015. The sole funding of expenditures at the Los Helados Project has resulted in
dilution of PPC’s interest, and corresponding increases to the Company’s interest, resulting in the
amounts noted in the preceding paragraph.
Nacimientos Properties
On May 3, 2017, the Company signed an option agreement whereby it can acquire a 100% interest in
the Nacimientos Properties located in the San Juan Province, Argentina by making option payments
totaling US$1.65 million in cash over a four-year period ending May 15, 2021 (the “Earn-in Date”). In
order to acquire a 100% interest, the Company must also fund at least US$2.5 million in expenditures
on the Nacimientos Properties on or before the Earn-in Date.
As at December 31, 2019, the Company has paid US$0.6 million in option payments and has satisfied
the minimum exploration expenditure requirement. The next option payment is US$0.4 million, payable
in May 2020.
Valle Ancho Properties
On August 29, 2019, the Company entered into an option agreement with the Province of Catamarca,
Argentina to earn a 100% interest in the Valle Ancho, Interceptor, Filo del las Vicunas properties
(collectively, the “Valle Ancho Properties”), located in Catamarca , Argentina, by making US$8.2 million
in expenditures on the Valle Ancho Properties over a two-year period.
7. DUE TO EXPLORATION PARTNER
Pursuant to the Josemaria Arrangement, the Company assumed from Josemaria an obligation to fund
a partner’s share of exploration expenditures related to the La Rioja Properties (the “Obligation”). In
accordance with the terms of the JEA between the Company and the partner, PPC, the Company has
elected to settle the Obligation through funding PPC’s share of exploration expenditures, which
remained US$3.4 million as at December 31, 2019, and has no defined timeline for settlement.
The Company considered the estimated timeframe required to expend the remaining US$3.4 million on
behalf of PPC at the La Rioja Properties and has presented the remaining obligation as a non-current
liability, discounted to its present value at an annual effective rate of 8%.
14
NGEx Minerals Ltd.
Notes to Consolidated Financial Statements
For the year ended December 31, 2019 and 2018
(Expressed in Canadian Dollars, unless otherwise stated)
As at December 31, 2019, the Company reviewed the nature and timing of future expenditures at the
La Rioja Properties and lowered its expected annual funding of PPC’s share of future exploration
expenditures from US$20,000 to US$19,600 based on its best estimate of exploration activities to be
conducted on the project. This revision extends the estimated timeframe for the settlement of the
Obligation. The effect of this change in future estimated expenditures at the La Rioja Properties is a
reduction in the amount due to exploration partner by $16,560, with a corresponding amount
recognized within other gains on the consolidated statement of comprehensive loss for the year ended
December 31, 2019.
8. SHARE CAPITAL AND OTHER CAPITAL RESERVES
The Company has authorized an unlimited number of voting common shares without par value.
Pursuant to the Josemaria Arrangement, the Company issued 124,793,652 shares in exchange for
certain net assets received from Josemaria (see Note 2). The balance of share capital immediately
following the close of the Josemaria Arrangement was $43,053,810. This amount was determined to
be the fair value attributed to the net assets received from Josemaria pursuant the Josemaria
Arrangement.
Loss per share information in these consolidated financial statements has been presented as if the
common shares issued in connection with the closing of the Josemaria Arrangement had been issued
and outstanding from the start of all periods presented.
9. SHARE OPTIONS
a) Share option plan
The Company has a share option plan adopted by the Board of Directors on May 7, 2019, which
reserves an aggregate of 10% of the issued and outstanding shares of the Company for issuance upon
the exercise of options granted. The granting, vesting and terms of the share options are at the
discretion of the Board of Directors.
b) Share option outstanding
Movements in the number of share options outstanding and their related weighted average exercise
prices are as follows:
Balance at January 1, 2019
Options pursuant to Josemaria Arrangement
Options granted
Expired
Number of
shares issuable
pursuant to
share options
Weighted
average
exercise price
per share
-
$ -
3,305,000
3,445,000
(92,500)
0.81
0.48
0.86
Balance at December 31, 2019
6,657,500
$ 0.64
15
NGEx Minerals Ltd.
Notes to Consolidated Financial Statements
For the year ended December 31, 2019 and 2018
(Expressed in Canadian Dollars, unless otherwise stated)
Pursuant to the Josemaria Arrangement, 3,305,000 share options were issued to individuals which held
issued and outstanding Josemaria share options at closing. In exchange for each Josemaria share
option, the holder was issued one fully vested Josemaria replacement option and half of a fully vested
option of NGEx Minerals (the “NGEx Options”). The exercise prices assigned to the NGEx Options reflect
the allocation of the original exercise price of the original Josemaria share option between the
replacement options issued, based on the relative market value of the Company and Josemaria
following completion of the Josemaria Arrangement. The exercise prices assigned to the NGEx Options
vary between $0.68 and $0.93.
On September 26, 2019, the Company granted a total of 3,445,000 share options to officers,
employees, directors and other eligible persons at an exercise price of $0.475 per share.
The Company uses the Black-Scholes option pricing model to estimate the fair value for all options
granted and the resulting stock-based compensation. The weighted average assumptions used in this
pricing model, and the resulting fair values per option, for the 3,445,000 share options granted during
the year ended December 31, 2019, are as follows:
(i)
(ii)
(iii)
(iv)
(v)
Risk-free interest rate:
Expected life:
Expected volatility:
Expected dividends:
Fair value per option:
1.23%
5 years
59.88%
nil
$0.24
The following table details the share options outstanding and exercisable as at December 31, 2019:
Exercisable options
Weighted
average
remaining
contractual
life
(Years)
4.74
3.78
1.10
0.19
2.61
Weighted
average
exercise
price
$0.475
$0.68
$0.85
$0.93
$0.72
Options
exercisable
1,148,334
1,215,000
1,052,500
945,000
4,360,834
Outstanding options
Weighted
average
remaining
contractual
life
(Years)
4.74
3.78
1.10
0.19
3.35
Weighted
average
exercise
price
$0.475
$0.68
$0.85
$0.93
$0.64
Options
outstanding
3,445,000
1,215,000
1,052,500
945,000
6,657,500
Exercise
prices
$0.475
$0.68
$0.85
$0.93
16
NGEx Minerals Ltd.
Notes to Consolidated Financial Statements
For the year ended December 31, 2019 and 2018
(Expressed in Canadian Dollars, unless otherwise stated)
c) Share-based compensation
Exploration and project investigation
General and administration
Year ended
December 31,
2018
125,599
360,259
485,858
2019
104,624
430,840
535,464
For the year ended December 31, 2019, share-based compensation as presented in the consolidated
statement of comprehensive loss includes $116,236 (2018: $485,858) recognized pursuant to the
continuity of interest accounting, relating to the share options previously granted and vested under
Josemaria prior to the Josemaria Arrangement.
10. EXPLORATION AND PROJECT INVESTIGATION
Due to the geographic location of the Company’s main mineral property interests, the Company’s
business activities generally fluctuate with the seasons, with increased exploration activities during the
summer months in South America. As a result, a general recurring trend is the increase in exploration
expenditures, and therefore net losses, for the fourth quarter and first quarter of a fiscal year, relative
to the second and third quarters.
The Company expensed the following exploration and project investigation costs for the years ended
December 31, 2019 and 2018:
17
NGEx Minerals Ltd.
Notes to Consolidated Financial Statements
For the year ended December 31, 2019 and 2018
(Expressed in Canadian Dollars, unless otherwise stated)
Year ended
December 31,
2019
Los Helados
Project
Nacimientos
Properties
Valle
Ancho
Other
Total
Land holding and access costs
Fuel, camp costs and field supplies
Roadwork, travel and transport
Consultants, geochemistry and geophysics
Environmental and community relations
VAT and other taxes
Office, field and administrative salaries,
overhead and other administrative costs
Share-based compensation
Total
862,184
59,241
65,889
-
515,527
58,778
10,193
42,380
76,540
3,893
2,232
51,057
21,996
110,783
122,622
307,554
23,429
34,929
40,284
81
17
18,570
-
8,819
934,657
212,485
265,068
330,017
541,188
153,583
657,455
65,448
2,284,522
170,553
11,238
439,050
24,953
368,086 1,085,316
41,657
2,985
112,413
1,308,715
104,624
3,850,337
2018
Land holding and access costs
Fuel, camp costs and field supplies
Roadwork, travel and transport
Consultants, geochemistry and geophysics
Environmental and community relations
VAT and other taxes
802,920
79,094
30,170
28,461
300,600
21,174
25,279
956,481
342,107
325,577
68,956
376,889
-
-
-
-
-
-
31,984
24,215
123,386
33,626
10,238
132,932
860,183
1,059,790
495,663
387,664
379,794
530,995
Office, field and administrative salaries,
overhead and other administrative costs
Share-based compensation
Total
916,370
125,599
4,756,058
Note: Costs incurred prior to the completion of the Josemaria Arrangement on July 17, 2019 were carved out from figures previously reported by
Josemaria as described in Notes 2 and 3.
231,190
40,514
1,534,123
286,713
79,536
2,461,538
398,467
5,549
760,397
-
-
-
18
NGEx Minerals Ltd.
Notes to Consolidated Financial Statements
For the year ended December 31, 2019 and 2018
(Expressed in Canadian Dollars, unless otherwise stated)
11. RELATED PARTY TRANSACTIONS
Under the normal course of operations, the Company may undertake transactions or hold balances
with related parties. Namely, the Company engages with Josemaria and Filo Mining Corp. (“Filo
Mining”), related parties by way of directors, officers and shareholders in common, and MOAR
Consulting Inc. (“MOAR”), an exploration consulting firm, of which a director of the Company is the
sole proprietor.
a) Related party services
The Company has a cost sharing arrangement with Josemaria and Filo Mining. Under the terms of this
arrangement, the Company provides management, technical, administrative and/or financial services
(collectively, “Management Services”) to Josemaria and Filo Mining, and vice versa. In addition, the
Company engages MOAR, to provide exploration consultation. These transactions were incurred in the
normal course of operations, and are summarized as follows:
Management Services to Josemaria
Management Services to Filo Mining
Management Services from Josemaria
Management Services from Filo Mining
Exploration Consultation from MOAR
b) Related party balances
Year ended
December 31,
2018
-
405,462
-
(376,039)
-
2019
84,051
363,373
(72,485)
(238,003)
(15,625)
The amounts due from (to) related parties, and the components of the consolidated statements of
financial position in which they are included, are as follows:
Related Party
December 31,
2019
December 31,
2018
Receivables and other assets
Receivables and other assets
Accounts payable and accrued liabilities
Accounts payable and accrued liabilities
Accounts payable and accrued liabilities
Josemaria
Filo Mining
Josemaria
Filo Mining
MOAR
16,848
57,490
(102,675)
(64,222)
(17,656)
28,289
32,614
(4,009)
(98,428)
-
19
NGEx Minerals Ltd.
Notes to Consolidated Financial Statements
For the year ended December 31, 2019 and 2018
(Expressed in Canadian Dollars, unless otherwise stated)
c) Key management compensation
The Company’s key management personnel have the authority and responsibility for overseeing,
planning, directing and controlling its activities and consist of the Board of Directors and members of
the executive management team. Total compensation expense for key management personnel, and
the composition thereof, is as follows:
Salaries and wages
Short-term employee benefits
Directors fees
Stock-based compensation
12. INCOME TAXES
Year ended
December 31,
2018
391,354
12,764
68,937
308,586
781,641
2019
304,824
6,351
60,538
404,852
776,565
Income tax expense differs from the amount that would result from applying the Canadian federal and
provincial income tax rates to the loss for the year. These differences result from the following items:
Loss before taxes
Combined Canadian federal and provincial statutory
income tax rates
Income tax recovery based on the above rate
Income tax benefits that have not been recognized
and other items
Impacts of changes and differences in foreign tax and
currency rates
Non-deductible expenses and permanent differences
Total income tax recovery
Year ended
December 31,
2018
2019
5,306,919
6,336,936
27.00%
1,432,868
27.00%
1,710,972
1,643,886
(1,181,966)
(2,872,459)
(204,295)
-
(291,789)
(237,217)
-
20
NGEx Minerals Ltd.
Notes to Consolidated Financial Statements
For the year ended December 31, 2019 and 2018
(Expressed in Canadian Dollars, unless otherwise stated)
The Company’s unrecognized deductible temporary differences and unused tax losses for which no
deferred tax asset has been recognized consist of the following:
Non-capital losses carried forward
Mineral properties and related expenditures
Year ended
December 31,
2018
1,708,992
24,539,517
19,838,016 26,248,509
2019
891,741
18,946,275
As at December 31, 2019, the non-capital loss carry-forwards and their respective expiration dates are
as follows:
Year
2020
2021
2022
2023
2024 and onwards
Canada
-
-
-
-
2,505,467
2,505,467
Argentina
128,242
29,333
29,157
520,360
30,448
737,540
Other
14,225
30,172
20,354
23,165
31,357
119,273
Total
142,467
59,505
49,511
543,525
2,567,272
3,362,280
21
NGEx Minerals Ltd.
Notes to Consolidated Financial Statements
For the year ended December 31, 2019 and 2018
(Expressed in Canadian Dollars, unless otherwise stated)
13. SEGMENTED INFORMATION
The Company is principally engaged in the acquisition, exploration and development of mineral properties in South America. The information
regarding mineral properties and exploration and project investigation costs presented in Notes 6 and 10, respectively, represent the manner in
which management reviews its business performance. Materially all of the Company’s mineral properties and exploration and project investigation
costs relate to South America, particularly Chile and Argentina. Materially all of the Company’s administrative costs are incurred by the Canadian
parent, where materially all of the Company’s cash is held in the normal course of business until it is required to be deployed to the Company’s
South American subsidiaries in support of ongoing and planned work programs.
The following are summaries of the Company’s current and non-current assets, current liabilities, and net losses by segment:
Los Helados
Nacimientos
& Valle Ancho
Corporate
Total
December 31, Current assets
2019
Equipment
Mineral properties
Total assets
Current liabilities
Due to exploration
partner
Total liabilities
December 31, Current assets
2018
Mineral properties
Total assets
219,069
-
3,924,374
4,143,443
112,396
-
112,396
210,211
4,040,164
4,250,375
663,209
35,106
840,831
1,539,146
5,157,062
-
-
5,157,062
6,039,340
35,106
4,765,205
10,839,651
359,599
246,070
718,065
-
359,599
257,786
494,826
752,612
309,481
555,551
309,481
1,027,546
-
-
-
467,997
4,534,990
5,002,987
389,125
389,125
Note: Balances prior to the completion of the Josemaria Arrangement on July 17, 2019 were carved out from figures previously reported
by Josemaria as described in Notes 2 and 3.
Current liabilities
Total liabilities
167,343
167,343
221,782
221,782
-
-
22
NGEx Minerals Ltd.
Notes to Consolidated Financial Statements
For the year ended December 31, 2019 and 2018
(Expressed in Canadian Dollars, unless otherwise stated)
Year ended
December 31,
2019
2018
Los Helados
Nacimientos
& Valle Ancho
Corporate
Other
Total
Exploration and
project
investigation
General and
administration
and other items
Net loss
2,284,522
1,453,402
-
112,413
3,850,337
71,770
2,356,292
53,604
1,507,006
1,331,208
1,331,208
-
112,413
1,456,582
5,306,919
1,534,123
2,461,538
-
760,397
4,756,058
1,580,878
6,336,936
Note: Costs incurred prior to the completion of the Josemaria Arrangement on July 17, 2019 were carved out from figures previously reported by Josemaria as
described in Notes 2 and 3.
1,400,579
1,400,579
72,140
1,606,263
108,159
2,569,697
-
760,397
Exploration and
project
investigation
General and
administration
and other items
Net loss
23
NGEx Minerals Ltd.
Notes to Consolidated Financial Statements
For the year ended December 31, 2019 and 2018
(Expressed in Canadian Dollars, unless otherwise stated)
14. CAPITAL MANAGEMENT
The Company’s objectives when managing capital are to safeguard its ability to continue as a going
concern in order to pursue the development of its mineral properties and to maintain a flexible
capital structure which optimizes the costs of capital at an acceptable risk. In the management and
definition of capital, the Company considers the items included in shareholders’ equity to be capital.
The Company manages the capital structure and makes adjustments, as necessary, in light of
changes in economic conditions and the risk characteristics of its assets. In order to maintain or
adjust the capital structure, the Company may attempt to issue new shares or debt instruments,
acquire or dispose of assets, or to bring in joint venture partners.
To facilitate the management of its capital requirements, the Company prepares annual expenditure
budgets that are updated as necessary depending on various factors, including, but not limited to,
successful capital deployment and general industry conditions. The annual and updated budgets
are approved by the Board of Directors.
15. FINANCIAL INSTRUMENTS AND MANAGEMENT OF FINANCIAL RISKS
The Company has estimated the fair values of its financial instruments based on appropriate
valuation methodologies. These values are not materially different from their carrying value.
The Company classifies the fair value of its financial instruments according to the following hierarchy
based on the amount and significance of observable inputs used to value the instrument:
Level 1 – quoted prices (unadjusted) in active markets for identical assets or liabilities
Level 2 – inputs other than quoted prices included in Level 1 that are observable for the
assets or liability, either directly (i.e. as prices) or indirectly (i.e. derived from prices); and
Level 3 – inputs for the asset or liability that are not based on observable market data
(unobservable inputs).
The Company’s financial instruments consist of cash, receivables and other assets, trade payables
and accrued liabilities, and the amounts due to its exploration partner. Other than for the amounts
due to its exploration partner, the carrying values of the Company’s financial instruments are
considered to be reasonable approximations of fair value due to their short term nature. For
amounts due to its exploration partner, the Company revalued the liability at December 31, 2019
based on revisions to the timing and amounts of expected future settlement (Note 7), which the
Company believes is a reasonable approximation of fair value.
As at December 31, 2019, the Company’s financial instruments are exposed to the following financial
risks, including credit, liquidity and currency risks:
(i)
Credit risks associated with cash is mitigated through the Company’s practice of holding the
majority of its cash with a large Canadian financial institution that has been accorded a
strong investment grade rating by a primary rating agency.
24
NGEx Minerals Ltd.
Notes to Consolidated Financial Statements
For the year ended December 31, 2019 and 2018
(Expressed in Canadian Dollars, unless otherwise stated)
(ii)
Liquidity risks associated with the inability to meet obligations as they become due, as further
discussed in Note 1, is minimized through the management of its capital structure as
explained in Note 14 and by maintaining good relationships with significant shareholders and
creditors. The Company also closely monitors and reviews its costs to date and actual cash
flows on a monthly basis.
The maturities of the Company’s financial liabilities as at December 31, 2019 are as follows:
Total
Less than
1 year
1-5
years
More than
5 years
Accounts payable and
accrued liabilities
Due to exploration partner
Total
718,066
4,457,867
718,066
-
5,175,933
718,066
-
-
-
-
4,457,867
4,457,867
Pursuant to the Josemaria Arrangement, the Company assumed the Obligation from
Josemaria (Notes 2 and 7). In accordance with the terms of a JEA between the Company
and the partner, PPC, the Company has elected to settle the Obligation through funding
PPC’s share of exploration expenditures, which remained US$3.4 million as at December 31,
2019, and has no defined timeline for settlement. The Obligation has been discounted and
recorded at its present value at an annual effective rate of 8%.
(iii)
Foreign currency risk can arise when the Company or its subsidiaries transact or have net
financial assets or liabilities which are denominated in currencies other than their respective
functional currencies.
At December 31, 2019, the Company’s largest foreign currency risk exposure existed at the
level of its Canadian headquarters, where the Company held a net financial asset position
denominated in US dollars having a Canadian dollar equivalent of approximately $1.4 million. A
10% change in the foreign exchange rate between the US dollar and the Canadian dollar, the
functional currency of the Company’s Canadian headquarters, would give rise to
increases/decreases of approximately $140,000 in financial position/comprehensive loss.
25
NGEx Minerals Ltd.
Notes to Consolidated Financial Statements
For the year ended December 31, 2019 and 2018
(Expressed in Canadian Dollars, unless otherwise stated)
16. COMMITMENTS
The Company has a contractual agreement with the owners of the surface rights covering the Los
Helados Properties, which give the Company access over these surface rights for exploration,
development, and mining through to closure of any mining operation, in exchange for certain
payments which are linked to project activities and certain development milestones. The Agreement
provides for minimum annual payments of US$0.5 million which cover basic access to the property
and minimal surface disturbance such as road maintenance. The annual payments would be
adjusted up to US$0.8 million if activities include increased surface disturbance such as construction
of new drill pads or new roads. The payments will increase to US$1.0 million in 2023 and 2024 and
to US$1.5 million from 2025 onwards. The Company may terminate the agreement at any time. If
such termination occurs after January 1, 2021, the Company will be obliged to make a one-time
termination payment equal to the amount of the most recent annual payment, which is currently
US$0.5 million.
17. SUBSEQUENT EVENTS
COVID-19 Pandemic
On March 11, 2020, the World Health Organization officially declared the global outbreak of the
novel coronavirus, COVID-19, a pandemic. The impacts of COVID-19 on global commerce and
financial markets to date have been broad and significant.
In response to COVID-19, many governments of varying levels around the world have issued certain
public health orders and travel restrictions, including the respective jurisdictions in which Company’s
headquarters and operating subsidiaries operate. Among other effects, such restrictions impact the
Company’s movement of people, its access to properties and facilities, and its general ability to
conduct business in the normal course. The impacts to the Company to date have not been material,
however going forward, they may result in changes to the timing and nature of the Company’s
operating plans.
The Company cannot yet determine the impact of the COVID-19 pandemic on its financial position,
results of operations and cash flows for the year ending December 31, 2020 and beyond. The
foregoing notwithstanding, as the Company’s business plan is impacted by its ability to obtain
financing through global financial markets, it is anticipated that should the COVID-19 pandemic
and/or the general depression of financial markets persist, the Company’s ability to access financing
on favourable terms may be negatively impacted.
26
NGEX Minerals Corporate Directory
Company Head Office
Registered and Records Office
Suite 2000 - 885 West Georgia Street
Vancouver, BC
V6C 3E8 Canada
Phone: +1 604 689 7842
Fax: +1 604 689 4250
2200-885 West Georgia Street
Vancouver, BC
V6C 3E8 Canada
Auditors
Registrar and Transfer Agent
Pricewaterhouse Coopers LLP
Vancouver, BC
Canada
Computershare Trust Company of Canada
Vancouver, BC
Canada
Phone: +1 604 661 9400
Officers
Company Information
Wojtek Wodzicki - President and CEO
Jeff Yip - CFO
Bob Carmichael - Vice President
Exploration
Brenda Nowak - Corporate Secretary
Amanda Strong
Investor Relations
Email: info@ngexminerals.com
Phone: +1 604 689 7842
Solicitors
Cassels Brock
Vancouver, BC
Canada
Directors
William Rand (Chairman)
Adam I. Lundin
Wojtek Wodzicki
David Mullen
Cheri Pedersen
Neil O’Brien
Share Listing
TSX-Venture - NGEX
CUSIP number 65343P103