ANNUAL REPORT
FOR THE YEAR ENDED DECEMBER 31, 2018
LETTER FROM THE PRESIDENT
Fellow shareholders,
The past year saw the election of a new provincial government, advancement of the all-season access road permitting, continued
exploration success at McFaulds Lake and the narrowing down of the potential sites for our planned Ferrochrome Production
Facility (FPF).
The Company has been working with the new provincial government since the election in mid- 2018. Typically, it takes a long
time for new administrations to get staff in place and get up to speed on the various files. Noront was fortunate that former federal
Minister of Natural Resources and former Noront Board Member, Greg Rickford, was appointed as Minister of Energy, Northern
Development and Mines and Minister of Indigenous Affairs. Noront Board member J.P. Gladu and I were also appointed to the
Minister’s Mining Working Group, which is a collection of high-profile mining, finance and First Nations leaders who have been
tasked to provide input regarding the reduction of red tape and the attraction of major new investments.
We have been supporting the permitting process for the all-season access road with the communities of Marten Falls and Webequie
First Nation along with the province. In late 2018, both communities hired environmental/engineering firms to lead their permitting
work and early this year, filed their notice of commencement of the provincial terms of reference for their road projects under the
requirements of the Environmental Assessment (EA) process. We expect the permitting process to conclude with an approved EA
review by the end of next year.
We continued to get positive drill results as the exploration team chased the McFaulds #8 copper-zinc discovery down dip. Drill
hole number 18-98 intersected 26.4 metres of massive sulphide ore grading 2.1% Cu, 3.4% Zn and 5.5 gpt Ag. This is the thickest
intersection of this mineralized body to date and we are excited to continue our work as we attempt to outline a significant resource.
Again, this year, 60% of our exploration workforce comes from local First Nation communities filling roles such as geophysical
surveyor, camp support staff, line-cutter, drill helper and cook/medic. It is important for the Company to work closely with the
communities to demonstrate the tangible benefits and opportunities that can accrue from resource development.
On the Chromite front, we narrowed down the selection process for the site of the Ferrochrome Production Facility (FPF) to two
northern Ontario cities; Sault Ste. Marie and Timmins. Both cities have excellent proposals in front of Noront and we will be
targeting a decision on this file by mid-year. Important selection criteria include a high level of community support, a skilled
workforce, and adequate power infrastructure along with attractive capital and operating costs.
We were saddened to note the recent passing of Richard (Dick) Nemis, founder of Noront Resources. Dick was the CEO of Noront
when the Company discovered the Eagle’s Nest deposit and the rest is history. Many long-time shareholders will remember his
passion for exploration and his love of the junior mining sector.
Finally, I’d like to thank you, our shareholders, for your ongoing support and confidence as Noront strives to become a Canadian
mining champion based on the tremendous resources we have acquired in the emerging Ring of Fire district. The past year saw
tangible progress and exciting outcomes that we intend to build upon in the upcoming year.
Sincerely,
Alan Coutts, P. Geo
President & CEO
Noront Resources
1 2 Table of Contents
Management Discussion and Analysis…………………………………………………………. 4
Management’s Responsibility for Financial Reporting………………………………………... 33
Independent Auditors Report…………………………………………………………………... 34
Consolidated Statements of Financial Position……………………………………….............
37
Consolidated Statements of Loss and Other Comprehensive Loss……………………………. 38
Consolidated Statements of Changes in Equity…………………………................................... 39
Consolidated Statements of Cash Flows……………………………………………………...
40
Notes to Consolidated Financial Statements…………………………………………………… 41
3 MANAGEMENT’S DISCUSSION AND ANALYSIS
(Expressed in Canadian Dollars)
The following is Management’s Discussion and Analysis (“MD&A”) of the consolidated financial condition and results of operations
of Noront Resources Ltd. (“Noront” or the “Company”) for the year ended December 31, 2018, which have been prepared in
accordance with International Financial Reporting Standards (“IFRS”), including International Accounting Standard (“IAS”) 34,
Interim Financial Reporting. This discussion should be read in conjunction with the consolidated financial statements and the notes
thereto for the same period as noted above (collectively, the “Financial Statements”). Additional Company information, including the
Company’s most recent Financial Statements, can be accessed through the System for Electronic Document Analysis and Retrieval
(“SEDAR”) website at www.sedar.com and the Company’s website at www.norontresources.com. Information contained on the
Company’s website is not incorporated herein and does not form part of this MD&A.
All financial measures are expressed in Canadian dollars unless otherwise indicated.
Ryan Weston M.Sc., MBA, P.Geo., Vice-President Exploration of Noront and a Qualified Person as defined by National Instrument 43-
101 - Standards of Disclosure for Mineral Projects (“NI 43-101”), has reviewed and is responsible for the technical information
contained in this MD&A. For further information on the McFaulds Lake Project, please refer to Noront’s technical report titled
“Feasibility Study, McFaulds Lake Property, Eagle’s Nest Project, James Bay Lowlands, Ontario, Canada” dated October 19, 2012
(effective date September 4, 2012) (the “Feasibility Study”), prepared in accordance with the requirements of NI 43-101 and available
on SEDAR and the Company’s website. For further information on the Black Thor, Black Label and Big Daddy chromite deposits,
please refer to Noront’s technical report titled “National Instrument 43-101 Technical Report – Black Thor, Black Label and Big
Daddy chromite deposits, McFaulds Lake Area, Ontario, Canada, Porcupine Mining Division, NTS 43D16 Mineral Resource
Estimation (the “Acquired Properties Report”), prepared in accordance with the requirements for NI 43-101 and available on SEDAR
and the Company’s website.
This information is current as of April 10, 2019.
CAUTIONARY NOTE REGARDING FORWARD-LOOKING INFORMATION
This MD&A includes certain “forward-looking information” within the meaning of applicable Canadian securities legislation. Forward-
looking information is provided as of the information currency date referred to above or, in the case of documents incorporated by
reference herein, as of the date of such documents.
Generally, forward-looking information can be identified by the use of forward-looking terminology such as “plans”, “expects” or
“does not expect”, “is expected”, “budget”, “scheduled”, “estimates”, “forecasts”, “intends”, “anticipates” or “does not anticipate”, or
“believes”, or variations of such words and phrases or statements that certain actions, events or results “may”, “could”, “would”,
“might” or “will be taken”, “occur” or “be achieved”. Examples of such forward-looking information include information regarding
financial results and expectations for fiscal year 2018, such as, but not limited to, availability of financing, interpretation of drill results,
the geology, grade and continuity of mineral deposits and conclusions of economic evaluations (including those contained in the
Feasibility Study), metal prices, demand for metals, currency exchange rates, cash operating margins, expenditures on property, plant
and equipment, increases and decreases in exploration activity, changes in project parameters, joint venture operations, mineral
resources and anticipated grades and recovery rates, information regarding planned infrastructure for the Ring of Fire Region required
for the development of the Eagle’s Nest Project (as hereinafter defined) and information regarding government support for such plan,
approval of the Company’s EA and EIS (as hereinafter defined) application for the Eagle’s Nest Project and are, or may be, based on
assumptions and/or estimates related to future economic, market and other factors and conditions. All statements, other than statements
of historical facts, included in this MD&A that address activities, events or developments that the Company expects or anticipates will
or may occur in the future, including such things as future business strategy, competitive strengths, goals, expansion and growth of the
Company’s businesses, operations, plans and other such matters are forward-looking information.
Forward-looking information is based on reasonable assumptions that have been made by the Company as at the date of such
information and is 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-
42018 Management's Discussion and Analysis looking information, including but not limited to: the impact of general business and economic conditions; risks related to government
and environmental regulation, actual results of current exploration activities, conclusions of economic evaluations (including those
contained in the Feasibility Study) and changes in project parameters as plans continue to be refined; problems inherent to the
marketability of base and precious metals; industry conditions, including fluctuations in the price of base and precious metals,
fluctuations in interest rates; government entities interpreting existing tax legislation or enacting new tax legislation in a way which
adversely affects the Company; stock market volatility; competition; risk factors disclosed under the heading “Risks and
Uncertainties”; risk factors disclosed under the heading “Risk Factors” in the Company’s most recent Annual Information Form
(“AIF”) dated April 8, 2019, available electronically on SEDAR; and such other factors described or referred to elsewhere herein,
including unanticipated and/or unusual events. Many of such factors are beyond Noront’s ability to control or predict.
Although the Company has attempted to identify important factors that could cause actual results to differ materially, there may be
other factors that cause results not to be as anticipated, estimated or intended. There can be no assurance that forward-looking
information will prove to be accurate as actual results and future events could differ materially from those reliant on forward-looking
information.
All of the forward-looking information given in this MD&A is qualified by these cautionary statements and readers of this MD&A are
cautioned not to put undue reliance on forward-looking information due to its inherent uncertainty. Noront disclaims any intent or
obligation to update any forward-looking information, whether as a result of new information, future events or results or otherwise,
except as required by law. This forward-looking information should not be relied upon as representing the Company’s views as of any
date subsequent to the date of this MD&A.
NOTE TO U.S. INVESTORS REGARDING MINERAL RESOURCE ESTIMATES
All mineral resource estimates contained in this MD&A have been prepared in accordance with NI 43-101 and the Canadian Institute
of Mining, Metallurgy and Petroleum Classification System in compliance with Canadian securities laws, which differ from the
requirements of United States securities laws. Without limiting the foregoing, this report uses the terms “measured mineral resources”,
“indicated mineral resources” and “inferred mineral resources”. Any U.S. Investors are advised that, while such terms are recognized
and required by Canadian securities laws, the U.S. Securities and Exchange Commission (“SEC”) does not recognize them. Under U.S.
standards, mineralization may not be classified as a “mineral reserve” unless the determination has been made that the mineralization
could be economically and legally produced or extracted at the time the mineral reserve determination is made. Any U.S. investors are
cautioned not to assume that all or any part of measured or indicated mineral resources will ever be converted into mineral reserves.
Mineral resources which are not mineral reserves do not have demonstrated economic viability. Further, inferred mineral resources
have a great amount of uncertainty as to their existence and as to whether they can be mined legally or economically. It cannot be
assumed that all or any part of the inferred mineral resources will ever be upgraded to a higher category. Under Canadian rules,
estimates of inferred mineral resources may not form the basis of an economic analysis, except in rare cases. Any U.S. investors are
cautioned not to assume that all or any part of the inferred mineral resources exists, or that they can be mined legally or economically.
Information concerning descriptions of mineralization and mineral resources contained in this MD&A has been prepared in accordance
with Canadian requirements and may not be comparable to information made public by U.S. companies subject to the reporting and
disclosure requirements of the SEC.
52018 Management's Discussion and Analysis COMPANY OVERVIEW
Noront is engaged in the development, exploration and acquisition of properties prospective in base and precious metals, including:
nickel, copper, zinc, platinum group elements (“PGE’s”), chromite, iron, titanium, vanadium, gold and silver. The Company is
currently focused on the development of its 100% owned Eagle’s Nest deposit, a high-grade nickel, copper, platinum and palladium
deposit located in the James Bay Lowlands of Ontario (the “Eagle’s Nest Project”), within a geological feature (intrusion) commonly
referred to as the “Ring of Fire”. On September 5th, 2012, the Company released the Feasibility Study on the Eagle’s Nest project
demonstrating positive economic returns.
The Company has 100% ownership of the most significant chromite resources in the Ring of Fire including the Black Thor chromite
deposit and the Blackbird chromite deposit as well as a 100% interest in the Black Label chromite deposit and a 70% interest in the Big
Daddy chromite deposit. The Company has extensive copper-zinc holdings including an 85% interest in the McFauld’s Lake copper-
zinc deposits/occurrences and a 100% interest in the Butler properties copper-zinc occurrences. As well the company has a 100%
interest in two nickel-copper-platinum group metal discoveries known as “Eagle Two” and “Blue Jay”; an iron-vanadium-titanium
discovery known as “Thunderbird”; a shear-hosted gold occurrence called “Triple J”, the very prospective Sanderson nickel properties
and other diamond exploration properties.
Noront now holds interest, mineral, and exploration rights to approximately 157,941 hectares of ground in Ontario and 4,149 hectares
in New Brunswick.
In New Brunswick, Noront holds a 49% interest in the Burnt Hill tin-tungsten-molybdenum property.
OBJECTIVES
The Company’s primary objectives for fiscal 2019 are:
•
•
•
•
•
Support the First Nation proponents of the north-south all-season access road to the Ring of Fire project and obtain public
commitments to infrastructure funding from the provincial and federal governments;
Finalize the Ferrochrome Production Facility (FPF) site selection and initiate a preliminary economic assessment (PEA) on the first
chromite project;
Continue to advance discussions with the primary First Nation communities in the Company’s project area to conclude and sign a
pre-development agreement in support of the Eagle’s Nest Project while maximizing training and employment opportunities for
their community members;
Conduct an ongoing systematic exploration program in the Ring of Fire, funded internally or through partnerships, focused on the
copper / zinc, nickel and gold potential in the Ring of Fire;
Pursue and acquire production / development stage properties and businesses that leverage the skill set of management and are
complementary to the Company’s current asset base.
STRATEGY
Ring of Fire Regional Development
The critical enabler of the development of the Ring of Fire is the construction of an all-season access road to the region and the
provincial government has indicated its willingness to fund this road construction to support the development of this emerging mining
district and to provide access to the local First Nation communities. In mid-2017, the Company and the provincial government agreed
that Noront would not advance the permitting of the 300km access road under its existing terms of reference for the environmental
assessment of the Eagle’s Nest project. Instead, the communities of Marten Falls (MFFN) and Webequie First Nation (WFN) would
act as project proponents for this development. The rationale for this decision lays in the fact that the First Nation communities that
would be impacted by the project and that had the traditional land use in the area wanted to have enhanced participation in the
environmental assessment process and contribute traditional knowledge of the region to the assessment. The government approached
62018 Management's Discussion and Analysis the First Nation communities who indicated their willingness to act as proponents of the road development subject to the financing of
the process and the provision of technical support from the government. Noront indicated its willingness to support the First Nation
proponents by providing access to its body of environmental and engineering studies that had been completed along the road corridor
thus shortening the timeframes for the study and reducing the cost of the effort. The two First Nation-led infrastructure proposals to
provide industrial access to the Ring of Fire, as well as road access to their communities were originally approved for funding by the
province of Ontario on August 21, 2017 and have entered the Environmental Assessment (EA) stage of approval.
Ring of Fire Nickel and Chromite Projects
The Company’s first planned project is its 100% owned Eagle’s Nest nickel, copper, platinum and palladium deposit. A three thousand
tonne per day underground operation is planned that will produce a mineral concentrate to be processed in a smelter in Sudbury,
Ontario. In order to advance this project to a construction ready state, the Company will need to update its 2012 Feasibility study and
reinitiate the EA process. Management anticipates, once started, this pre-construction permitting, and technical evaluation will take
approximately two years. Once the EA is initiated on all sections of the all-season access road, the Company plans to carry out its pre-
development work.
The Company has a controlling interest in 96% of the known Chromite resources in the Ring of Fire that have NI 43-101 measured and
indicated resources. The Company’s believes its chromite resources are of sufficient size to support mining in the region over multiple
generations. The Company’s chromite strategy is to initially develop its Blackbird chromite deposit which is proximal to the Eagle’s
Nest deposit and can therefore share the same surface infrastructure thus reducing the capital cost of this development.
The Company is planning on mining high grade chrome ore and direct shipping the material to a yet to be constructed Ferrochrome
Production Facility (FPF) built by Noront in northern Ontario. The upgrading of chrome ore to ferrochrome is required to serve the
North American market since there are no existing ferrochrome producers in North America. The Ferrochrome smelter is planned to be
constructed at a brown-fields site in either Sault Ste. Marie or Timmins, Ontario. Management is currently finalizing its site selection
with the objective of making a final decision, starting preliminary site layout work and community engagement in mid-2019.
Exploration
The Company firmly believes in the continued exploration prospectivity of the Ring of Fire and to this end has added considerably to
its project portfolio over the past three years with the addition of Cliffs’ chromite and VMS properties, MacDonald Mines’ Butler VMS
and Sanderson nickel-copper-PGE properties, and most recently through staking of an additional 150 claims covering geological
structures believed to be prospective for gold. Through advancing a quality pipeline of multi-commodity projects at various stages of
exploration and development the company will be well positioned to remain a leader in the Ring of Fire with a sustainable future of
quality development assets.
Given the success of our VMS programs in 2018, exploration efforts in 2019 will focus heavily on the VMS potential at the McFaulds
Lake property, where the company believes there is excellent potential to expand the McFaulds No. 8 deposit and for discovery of
additional copper-zinc rich sulfide bodies. At McFaulds Lake, exploration programs will focus on following up recent drill
intersections on the McFaulds No.8, No. 9 and No. 10 discoveries as well as testing targets generated through the recently completed
ground gravity survey at McFaulds.
The Company remains committed to advancing our nickel-copper-PGE targets and will complete a thorough compilation of existing
and new targets with a view to ranking and prioritizing planned nickel-copper-PGE work programs.
The Company continues to view the gold potential in the Ring of Fire to be exceptional and remains committed to searching for the
right partner to help advance the recently staked gold targets through a three-year strategic alliance, with the goal being discovery of
one or more multi-million-ounce high-grade gold deposits. Potential gold partners must be well financed, technically strong in gold
exploration, and have an appreciation of Noront’s long standing relationships with the surrounding First Nation communities in the
Ring of Fire.
An added benefit of our exploration programs is the ability of the Company to engage and train a local First Nation work force in
advance of development of the Eagle’s Nest project. Throughout 2018, 60% of the field program staff was hired from the local
communities in the region providing much needed employment and a glimpse of the future benefits and opportunities afforded by the
development of the Ring of Fire.
72018 Management's Discussion and Analysis Business Development
The Company’s objective is to be an owner, operator of high quality mining projects within and outside of the Ring of Fire. The
Company’s management team has significant experience successfully building and operating large scale base metal mines and smelters,
which the Company views as a competitive advantage. Management will therefore look for opportunities to acquire high quality
advanced development or production assets outside the Ring of Fire that leverage the skill set of management and complement the
existing Noront properties.
SIGNIFICANT EVENTS
Ring of Fire Development
On May 3, 2018, Marten Falls First Nation and Webequie First Nation signed voluntary agreements with the Ontario Minister of
Environment and Climate Change to act as proponents for proposed roads in the Ring of Fire area. The Marten Falls First Nation
(MFFN) road project has been split between two phases. Phase one is planned to extend from an existing forestry road, which starts
from the provincial highway network at Nakina, Ontario and ends at Painter Lake, Ontario, north to the community of MFFN (see
figure below). Phase two of the road project would extend north from the community of MFFN to the Ring of Fire. The Webequie
First Nation (WFN) supply road is planned to extend from the Ring of Fire to the community of Webequie First Nation. The intent of
the WFN road project is for community members to have access to the Ring of Fire and an all season highway network once phase two
of the MFFN road running north-south connects to the Ring of Fire.
Two First Nation communities are acting as proponents on the North-South road network: MFFN for the section of road from the
existing provincial road at Painter Lake across the Albany River and into their community; and WFN from the Ring of Fire to their
community. Currently the section of road from the community of MFFN to the Ring of Fire does not have an established proponent,
however, in anticipation of the proponent being established, MFFN has included baseline EA work on this section of the road within
their EA process.
Figure 1: Ring of Fire Regional Infrastructure Map
82018 Management's Discussion and Analysis Both WFN and MFFN are in discussions with the province of Ontario to establish the proponent of the proposed section of road north
of the Albany River to the Ring of Fire. The Company anticipates that the proponent for this critical section of the road will be
established in the second quarter of 2019.
During 2018, the forestry road which runs from Nakina, Ontario to Painter Lake, Ontario, which is intended to serve as the southern
section of the North-South road to the Ring of Fire and Marten Falls First Nation, was upgraded as part of Ontario’s Northern
Highway’s program.
Marten Falls First Nation announced in a press release dated November 22, 2018 that they have selected Aecom to complete their
section of the Environmental Assessment and Webequie First Nation hired SNC Lavalin to lead their permitting work. The Company
was pleased to see progress on Marten Falls First Nation and Webequie First Nations’ road projects.
Subsequent to the year-end both WFN and MFFN filed their respective notice of commencement of the terms of reference for their
road projects in accordance with Ontario requirements under the Environmental Assessment (EA) process. The terms of reference are
a work plan that outlines how the environmental assessment will be completed including studies and consultation plans.
Noront Management is supporting both proponents by providing input and access to existing EA and engineering work that was
previously completed by Noront or acquired in the Cliffs transaction of 2015. Noront estimates the completion of the EA process to be
in late 2020 at which time construction activities could commence.
The Company is also advancing a pre-development agreement (the “PDA”) with MFFN. The PDA will include reference to project
advancement approaches and milestones and define the scope of the Impact Benefit Agreement (IBA). The Company plans to
negotiate the IBA once road construction commences.
Ferrochrome Production Site
In 2017, the Company invited certain Northern Ontario Communities to participate in a process to select the site of the Company’s
planned Ferrochrome Production Site. The Ferrochrome Production Site will upgrade chromite from the Company’s chromite deposits
in the Ring of Fire to sell initially into the North American Market. The Company envisions that the site will be expandable to allow
for increased production to expand into the seaborne market once it has established itself in the North American Market.
On February 2, 2018 the Company received site proposals from Sault Ste. Marie, Sudbury, Thunder Bay and Timmins. The Company
engaged Hatch, a Mississauga, Ontario-based engineering and consulting company to assist in adjudicating the bids.
On July 13, 2018 the Company reduced the choice of prospective locations for its proposed ferrochrome production facility to two
Northern Ontario cities: Timmins and Sault Ste. Marie. Four communities participated in the bidding process which began in February
2018. The submissions were evaluated based on a comprehensive set of criteria determined by Noront and the engineering firm Hatch.
Critical factors included environmental and site suitability, capital costs, operating costs and an assessment of community acceptance
of hosting the facility.
The Company has met with the owners of both sites to begin discussions on the commercial terms of use. The Company has also
further refined its evaluation and anticipates making a final decision in 2019.
Exploration
McFaulds Property
Throughout 2018 the Company continued its exploration focus on the McFaulds VMS property, completing nine diamond drill holes
totaling 4,167m, 52 line-km of ground EM surveys and 30 line-km of ground gravity surveys (figure 2). Drilling focused on testing the
up and down-dip continuity of the McFaulds No.8 deposit and testing the McFaulds No.9 and No.10 targets.
The most significant results of this work was a 26.4m intersection of massive sulfide grading 2.1% Cu, 3.4 % Zn, 5.5 g/t Ag and
0.2 g/t Au from 707.3m depth downhole in hole MCF-18-98. The estimated true width of this intersection is approximately 20m and is
located approximately 120m down-dip from the nearest intersection in MCF-18-96 which returned 8.5m of massive sulfide grading
1.9% Cu, 2.0% Zn, 6.2g/t Ag, 0.3g/t Au. The intersection in MCF-18-98 remains open at depth and represents the thickest
accumulation of massive sulfides to date at McFaulds No.8, which has been intersected by six drill holes over a dip extent of 370m
(figure 2). A summary of recent drill intersections is presented in Table 1.
92018 Management's Discussion and Analysis
Figure 2: McFaulds 2018 Work Areas
Table 1: Recent Drilling Highlights - McFaulds Property
Zn
To
(%)
(m)
3.6
566.3
Width
(m)
9.0
From
(m)
557.3
Cu
(%)
2.0
MCF-17-88
Hole
Discovery
MCF No.8
MCF-17-89
486.3
497.2
10.9
MCF-18-92
447.9
454.6
MCF-18-95
388.1
391.1
MCF-18-96
614.0
622.5
6.7
3.0
8.5
MCF-18-98
707.3
733.8
26.4
MCF No.9
MCF-18-90
267.6
276.0
MCF-18-91
253.0
259.0
MCF-18-92
401.0
401.5
MCF No.10
MCF-18-93
349.0
362.4
MCF-18-94
387.0
409.0
8.4
6.0
0.5
13.4
22.0
Ag
(g/t)
7.8
10.9
10.3
1.7
6.2
5.5
2.0
3.1
3.0
6.6
8.1
Au
(g/t)
0.4
0.5
-
0.3
0.2
nsv
0.1
-
-
-
1.1
1.3
0.2
1.9
2.1
0.2
0.3
1.7
5.9
5.3
2.0
3.4
0.1
0.5
nsv
25.7
-
-
2.1
1.6
The significant results of MCF-18-98, drilling on the McFaulds property in 2018 resulted in discovery of two additional VMS
occurrences, McFaulds No. 9 and No.10.
McFaulds No. 9 was initially identified as a VTEM anomaly which was drilled by previous operators but failed to intersect the
conductor. Borehole EM surveying of this hole by Noront in 2017 identified a significant off-hole conductor which was drilled in early
2018 with two shallow holes (MCF-18-90, 91). Both holes intersected narrow zones of pyrrhotite-rich massive to stringer sulfide
mineralization with low grade copper-zinc values within intensely chlorite altered intermediate volcanic tuffs. While mineralization
intersected to date at McFaulds No.9 is sub-economic, the presence of another VMS occurrence between McFaulds No.3 and No.1
attests to the fertility of this VMS horizon and warrants further work.
102018 Management's Discussion and Analysis
The McFaulds No.10 occurrence was discovered serendipitously while drilling the McFaulds No.8 deposit. Mineralization at McFaulds
No.10 lies 50m stratigraphically above along the northeast edge of McFaulds No.8. Three holes to date have intersected wide zones of
low grade zinc-silver mineralization within a broad package of chlorite-garnet altered intermediate to felsic volcanic tuffs. Highlights
include 22.0m grading 1.6% Zn and 8.1 g/t Ag from 387m downhole in MCF-18-94. The zone consists of disseminations and thin
bands of massive sphalerite. Copper mineralization is noticeably absent in these zones suggesting this is a more distal VMS signature
relative to mineralization at McFaulds No. 8. Future exploration at McFaulds No. 10 will attempt to vector towards the heat source, and
copper-rich portion of the hydrothermal system.
Ground EM surveying on the property in 2018 totaled 52 line-km covering the McFaulds No. 4, 3-south, 6, 8, and 9 VMS occurrences.
The purpose of the surveys was to test for deep (>200m depth) sulfide mineralization along trend and in the footwall to known VMS
mineralization which would be blind to past airborne EM surveys. Results of this work include a significant new conductor in the
McFaulds No.4 grid measuring 125m wide x 300m deep with a conductance of 1,200 siemens which remains to be drill tested and a
shallower weak (220 siemens) conductor measuring 100m x 100m identified in the footwall to McFaulds No.6. The ground EM
surveys detected McFaulds No. 9, however, the McFaulds No. 8 deposit produced only a weak EM signal due to the vertical depth to
its top (~350m) and the overwhelming signal of the nearby McFaulds No. 3 deposit which lies at surface and sits 175m in the hanging
wall to McFaulds No.8.
Due to the challenges of defining McFaulds No.8 with surface EM, a ground gravity survey was performed in December 2018. The
survey, spaced at 100m lines, covered 30 line-km over the McFaulds No. 8, 9 and 10 occurrences as well as over a large airborne
gravity anomaly defined in the regional government survey. Preliminary results are encouraging and outline the McFaulds No. 3, 8 and
9 occurrences as well as numerous other gravity anomalies which remain to be tested.
Prioritization of these and other targets on the property is ongoing.
112018 Management's Discussion and Analysis Figure 3: Cross-section of McFaulds No.8 & No.10 VMS discoveries (looking northeast)
Sanderson Property
The company executed a four-hole (1,351m) drill program on the Sanderson property over the Pinay Ni-Cu-PGE target in fall 2018.
The objective of the program was to test the 4.5km long by 800m wide Pinay magnetic anomaly (figure 4) for the presence of
ultramafic rocks which could host nickel-copper-PGE mineralization as at Eagle’s Nest and the Black Thor Intrusive Complex. Drilling
targeted the northern and southern limbs of the magnetic anomaly, believed to be possible feeder dykes, as well as the main body of the
target. All four holes intersected intervals of strongly magnetic ferrogabbro to gabbro and locally pyroxenite, cut by numerous granitic
dykes. Little to no sulfides were observed within ferrogabbroic rocks despite evidence of fractionation pulses in the main body. Iron-
rich sulfides (pyrite-pyrrhotite) were observed in hole PN-18-03 within highly metamorphosed volcanic units at the base of the hole
near the contact with the main intrusion but did not return any significant nickel-copper-PGE values. The magnetic signature of the
Pinay target is explained as a layered ferrogabroic body lacking in any significant primitive ultramafic rocks (i.e. dunite and peridotite)
122018 Management's Discussion and Analysis as at Eagles Nest and Black Thor, and as such the Company has downgraded the nickel-copper prospectivity with no further work
planned on the Pinay target.
Figure 4: Pinay magnetic target with 2018 drill holes, Sanderson property
Ring of Fire Regional Exploration
In addition to the recent exploration success on the McFaulds VMS property and drilling of the Pinay target on the Sanderson property,
Noront continues to advance its other properties in the RoF.
Ground work on the Butler property was initiated in summer 2018 to follow-up on the promising MMI soil sampling results of fall
2017. During the year one week was spent re-logging key drill holes throughout the property to better understand the volcanic
stratigraphy, alteration and associated mineralization of the many VMS occurrences throughout the property followed up by one week
of field mapping resulting in one-hundred and twenty-three documented outcrops on the property. Collectively, this data will be
synthesized to update and improve our base geological map and understanding of the controls and styles of VMS mineralization on the
property to better refine targets for future ground geophysical surveys and drilling. Noront believes the Butler mineralization, in
conjunction with its McFaulds copper-zinc resources, represents a compelling district-wide exploration opportunity for VMS deposits.
Previous work on the Butler property identified four zinc-copper VMS occurrences (Butler No. 1, 2, 3 and 4) along a 12-kilometer
trend of felsic volcanic rocks. Some of the more promising drill intersections to date include:
132018 Management's Discussion and Analysis
Table 2: Butler Mineralization Drill Intersections
Area
Hole
Butler 1
Butler 1
Butler 2
Butler 3
Butler 3
Butler 3
Butler 4
Butler 4
MN06-20
MN06-21
MN10-102
MN10-104
MN10-131
BP12-CU14
MN07-47
BP13-CU22
Width
(m)
3.6 m
5.7 m
15.0 m
9.0 m
7.0 m
12.5 m
3.0 m
3.0 m
Zinc
(%)
Copper
(%)
Lead
(%)
7.5
0.2
0.5
3.3
6.2
8.5
10.6
7.5
0.2
1.2
1.1
0.4
3.7
Silver
(g/t)
30.7
16.2
6.7
6.2
115
In the fall of 2017, the Company added significantly to its stable of exploration properties through staking of 150 claims (equivalent to
2,119 claim cells) bringing Noront’s Ring of Fire land holdings to 8,332 claim cells totaling 155,764 hectares (figure 5). These
properties cover geological structures in three principle target zones believed to be highly prospective for gold mineralization. Target
Zone 1 covers a significant portion of the Webequie fault, a major shear zone which transects and dextrally displaces the northern
margin of the Butler property and which shows early signs of gold endowment in lake sediment samples. Target Zone 2 covers a
significant portion of the South Kenyan fault zone, a regional shear zone with significant displacement and attenuation of mixed
sedimentary and volcanic lithologies, akin to major structural breaks observed in the Abitibi gold camp. Target Zone 4, which covers a
younger sedimentary basin, the Tappan geological assemblage, which is presumed to lie in unconformable contact with older volcanic
units of the Attawapiskat assemblage. The Tappan sedimentary assemblage displays evidence of tight folding of banded iron formation
as interpreted by the Ontario Geological Survey in the airborne magnetic map of the area. The Company has outlined a staged regional
exploration program to advance all three target zones for gold exploration and is actively searching for the right partner to advance
these properties. To date, several interested parties have signed confidentiality agreements and made site visits to review data
pertaining to Noront’s gold targets.
142018 Management's Discussion and Analysis
Figure 5: Noront Ring of Fire Claim Map
There is a 2% GSR on any chromite production, except on the Black Thor deposit for which there is a 3% GSR and a 2% NSR on all
other mineral production from the Company’s Ring of Fire Regional Exploration properties, excluding the Company’s Eagle’s Nest
deposit, its McFauld’s Lake VMS deposit and the newly acquired Butler and Sanderson Properties.
There is a 2% NSR over six claims which comprise part of the Butler Property.
Other Significant Events
On April 9, 2018, the Company announced the closing of a private placement of 10,000,000 flow-through common shares at a price of
$0.42 per flow-through share for gross proceeds of $4.2 million.
On November 23, 2018, the Company announced the closing of the final tranche of a private placement for combined gross proceeds of
$4.15 million. The offering was made up of 5,349,288 units at a price of $0.295 per unit, for gross proceeds of $1,578,040 and
7,688,433 flow-through common shares at a price of $0.335 per flow-through common share for gross proceeds of $2,575,625. Each
unit was comprised of one common share in the capital of the Company and one-half of one common share purchase warrant, with each
whole warrant entitling the holder to purchase one common share at a price of $0.35 per share on or before November 5, 2020.
The proceeds from the flow-through offerings are being used to advance the Company’s exploration program in the Ring of Fire.
152018 Management's Discussion and Analysis Pursuant to the loan agreement entered into between Noront and RCF (a major shareholder and related party with a 20.5% ownership
position in the Company), dated February 26, 2013, the Company has satisfied the payment of interest for each quarter of calendar
2018 by delivery of the following common shares of the Company (the “Interest Shares”):
a) 1,214,981 Interest Shares to RCF on January 22, 2018, at an effective price of $0.3104 per Interest Share.
b) 1,022,457 Interest Shares to RCF on April 9, 2018 at an effective price of $0.3785 per Interest Share.
c) 1,071,207 Interest Shares to RCF on July 13, 2018, at an effective price of $0.3678 per Interest Share.
d) 1,250,775 Interest Shares to RCF on October 13, 2018, at an effective price of $0.3096 per Interest Share.
EAGLE’S NEST
The Company completed a Feasibility Study in accordance with the requirements of NI 43-101, with an effective date of September 4,
2012, by Independent Consultants1 under the supervision of Micon International. In accordance with NI 43-101 the Company
classifies the Eagle’s Nest Deposit as a reserve and resource. The feasibility study entitled “NI 43-101 Technical Report – Feasibility
Study – McFaulds Lake Property, Eagle’s Nest Project, James Bay Lowlands, Ontario, Canada” is available on www.sedar.com.
The Feasibility Study is based on annual production of approximately 150,000 tonnes of high grade nickel-copper concentrate
containing approximately 34 million pounds (15 thousand tonnes) of nickel, 19 million pounds (8.5 thousand tonnes) of copper, 23
thousand ounces of platinum and 89 thousand ounces of palladium with estimated operating costs (including road access fees) of $97
per tonne. The mineral reserves support a mine life of 11 years mining one million tonnes of ore per annum. Given the high-grade
nature of the Eagle’s Nest deposit and significant by-products of copper, platinum and palladium, the Company anticipates that Eagle’s
Nest, once in production, will be one of the lowest cost nickel sulphide mines in the world.
The Company plans to update its Feasibility Study and complete project permitting once the environmental assessment for the shared
transportation corridor to the Ring of Fire formally commences with an approved terms of reference from the Provincial Government of
Ontario and necessary financing is arranged. Management has identified certain opportunities to reduce the capital cost related to the
mine and mill project including putting the process plant on surface as opposed to underground and simplifications to the mine design.
Eagle’s Nest has the following royalty obligations:
•
a 1% Net Smelter Royalty (NSR) which may be purchased by the Company at any time upon payment of the sum of
$500,000 and/or at the Company’s option, issuance of an equivalent number of commons shares of the Company; and
•
a 1% NSR.
1 The feasibility study was completed by Micon International and included technical input from: Tetra Tech WEI, Cementation Canada Ltd., Knight Piesold
Ltd., Penguin ASI, SGS Canada Inc., Outotec, Ausenco, Nuna Logistics, and Golder Associates.
162018 Management's Discussion and Analysis
CHROMITE PROJECTS
The Company has the following chromite resources2:
Deposit
Blackbird
Black Thor
Black Label
Big Daddy
Classification
M easured Resources
Indicated Resources
M eas. + Ind. Resources
Inferred Resources
M easured Resources
Indicated Resources
M eas. + Ind. Resources
Inferred Resources
M easured Resources
Indicated Resources
M eas. + Ind. Resources
Inferred Resources
M easured Resources
Indicated Resources
M eas. + Ind. Resources
Inferred Resources
Tonnes (Millions) Cr2O3 %
9.30
11.20
20.50
23.50
107.60
30.20
137.70
26.80
---
5.40
5.40
0.90
23.30
5.80
29.10
3.40
37.44
34.36
35.76
33.14
32.20
28.90
31.50
29.30
---
25.30
25.30
22.80
32.10
30.10
31.70
28.10
Notes:
(i)
A cut-off grade of 20% Cr2O3 was used in the above tables except for the Blackbird Resource which was estimated using a 30% cut-off grade.
(ii) The Company has a 70% interest in the Big Daddy Chromite deposit with the other 30% held by Canada Chrome Mining Corporation, a wholly
owned subsidiary of KWG Resources Inc.
The Blackbird deposit is less than 1 km from the Company’s Eagle’s Nest project and is conducive to bulk underground mining. The
Company anticipates that the Blackbird deposit will be developed once Eagle’s Nest is in production and will share the same surface
infrastructure. The Company is planning for the mine to produce approximately 550 – 750 thousand tonnes of ore which would
produce approximately 200 – 280 thousand tonnes of Ferrochrome which represents approximately 40% - 50% of the North American
Market.
The upgrading of chrome ore to ferrochrome is required to serve the North American market since there are no existing ferrochrome
producers in North America. The Ferrochrome smelter is planned to be constructed at a brown-fields site in either Sault Ste. Marie or
Timmins, Ontario. Management is currently finalizing its site selection with the objective of making a final decision, starting
preliminary site layout work and community engagement in 2019.
The Company can increase chromite production by developing its Black Thor chromite project. This expansion would supply the sea
borne market primarily in China and Europe and would be undertaken if market conditions are favourable. An analysis to expand the
existing FPF would be completed at this time.
The Black Thor, Black Label and Big Daddy Chromite deposits are 5 to 8 km away from Eagle’s Nest. These deposits come to surface
and are conducive for bulk mining with chromite lenses averaging between 40 and 80 metres in true width (with maximum widths at
Black Thor reaching up to 130 metres).
A larger scale chromite development supported by the Black Thor and Big Daddy Deposits will follow the Blackbird Development
with a timeline that is dependent upon the seaborne ferrochrome market. The larger scale project has the potential to produce up to 1.5
million tonnes of concentrate and 600,000 tonnes of ferrochrome.
2 Resource estimates for Blackbird from “National Instrument 43-101 Technical Report Feasibility Study McFaulds Lake Property, Eagle’s Nest Project,
James Bay Lowlands, Ontario, Canada” dated September 4, 2012, (page 96) completed by Micon International. Resource estimates for Black Thor, Black
Label and Big Daddy from “National Instrument 43-101 Technical Report, Black Thor, Black Label and Big Daddy Chromite Deposits, McFaulds Lake
Area, Ontario, Canada, Porcupine Mining Division, NTS 43D16, Mineral Resource Estimation Technical Report” dated July 27th, 2015, prepared by
Alan Aubut, P.Geo., of the Sibley Basin Group.
172018 Management's Discussion and Analysis The Black Thor Chromite deposit has a 3% Gross Smelter Royalty (GSR) and the Blackbird and Black Label Chromite deposits have a
2% GSR. There is no royalty on the Company’s interest in the Big Daddy Chromite deposit.
McFAULD’S LAKE VMS DEPOSITS
The two McFauld’s deposits are volcanogenic massive sulphide (VMS) type occurrences and are the centerpiece of a 71 claim property
held 85% by the Company and 15% held by KWG Resources. In August 2008, a NI-43-101 report was filed by Spider Resources Inc.
and UC Resources Limited, former Joint Venture partners with KWG Resources Inc., with the following resources3:
Deposit
M cFaulds 3
M cFaulds 1
Classification
Indicated Resource
Inferred Resource
Tonnes Grade (% Cu) Grade (% Zn)
802,000
279,000
1.1
0.58
3.75
2.13
Notes:
(i) Mineral resources were estimated using a cut-off grade of 1.5% Cu
The Company believes there is significant opportunity for discovery of additional VMS mineralization along this favorable 10 km
horizon.
OTHER PROPERTIES
Other Ring of Fire Properties
Eagle Two
Eagle Two is a second nickel, copper sulphide occurrence located 2 kilometres southwest of Eagle’s Nest. The mineralization occurs in
a series of pyrrhotite – magnetite – chalcopyrite – pentlandite-bearing massive sulphide veins. No resource estimate or technical report
has been released on this property;
Blue Jay (AT12)
Blue Jay is a third nickel, copper sulphide occurrence located 9.5 kilometres northeast of Eagle’s Nest and is a potential feeder zone to
Black Thor. This deposit contains pervasive, low grade nickel and copper occurring as finely disseminated pyrrhotite, chalcopyrite and
pentlandite constrained within an ultramafic dike measuring on average 1,400 metres in length by 200 metres in width by 600 metres in
breadth and plunging to the south-southwest at 65 to 70 degrees. No resource estimate or technical report has been released on this
property;
Triple J Gold Zone
The Triple J Gold Zone is a zone of gold mineralization related to the sheared contact between the talc-altered peridotite hosting the
Blackbird and Eagle Two discoveries and the hanging wall granodiorite. Triple J ranges in thickness from several centimetres to tens of
metres with a strike length currently defined at 1 kilometre and to a depth of 300 metres. The zone is interpreted as a large, low grade
gold occurrence flanking the Blackbird and Eagle Two deposits. No resource estimate or technical report has been released on this
property.
Thunderbird
Thunderbird is a potential large tonnage iron-vanadium-titanium deposit, currently classified as an occurrence. The zone is located 12
kilometres northeast of the Eagle’s Nest deposit, and 2 kilometres east of the Blue Jay occurrence. It is demarcated by a magnetic high
which trends north-south as part of a magnetic anomaly that is 7 kilometres long, and 3 kilometres wide. No resource estimate or
technical report has been released on this property;
Kyle Kimberlite
Kyle Kimberlite is a kimberlitic body that was discovered in 1993 and was acquired by Noront in 2015 through the purchase of Cliffs
Natural Resources assets in the Ring of Fire. It is located approximately 70 km east of Eagle’s Nest and is a joint venture between
3 Resource estimates from “Updated Technical Report on the McFaulds Lake Project, Porcupine Mining Division, James Bay Lowland, Ontario,
Canada” dated August 30th, 2008, prepared by Deep Search Exploration Technologies Inc.
182018 Management's Discussion and Analysis
Noront (50%) and Debut Diamonds (50%). It has been tested for diamonds and was found to contain promising contents of micro- and
macro-diamonds of varying carats. No resource estimate or technical report has been released on this property; and
Other Non-Ring of Fire Properties
MacFadyen Kimberlites
The MacFadyen Kimberlites are four kimberlitic bodies that were discovered between 1995 and 1996 and were acquired by Noront in
2015 through the purchase of Cliffs Natural Resources assets in the Ring of Fire. They are not located within the Ring of Fire itself,
rather, they are located approximately 7 km north of the De Beers Victor Diamond Mine and are a joint venture between Noront (30%)
and Debut Diamonds (70%). All kimberlites have been tested for diamonds and were found to contain promising contents of micro-
and macro-diamonds of varying carats. No resource estimate or technical report has been released on this property.
Burnt Hill, New Brunswick
The Burnt Hill Tungsten properties straddle the Southwest Miramachi River some 70 km NW of Fredericton, New Brunswick. The
properties contain tungsten, molybdenum and tin mineralization mainly in quartz veins that cut argillic sediments on the periphery of
granitoid plutons. The Company signed an amended option agreement with Cadillac Ventures Inc. during the year. Cadillac now has a
58% earned interest in the property.
SELECTED FINANCIAL INFORMATION
The following financial data are derived from the Company’s financial statements for the years ended December 31, 2018, December
31, 2017 and December 31, 2016 which have been prepared in accordance with IFRS:
Year Ended
December 31,
2017
6,802
3,285
337
1,002
48
(4,199)
100
-
-
(expressed in $ thousands except per share amounts)
Development and exploration expenditures
Office and general
Amortization
Share-based compensation
Interest income
Finance expense
Gain on sale of mineral property
Gain on loan modification
Loss on loan extinguishment
Re-measurement of Repayment Options
Gain on sale of royalty
Accretion expense
Net loss
Cash and cash equivalents
Assets
Non-Current Liabilities
Working Capital (1)
(1) Working capital includes all current assets and current liabilities, excluding non-cash repayment options and flow-through share liability (See Non-IFRS Financial
Performance Measures).
-
(4,674)
(15,722)
6,722
34,108
33,474
(12,372)
2018
7,123
3,195
300
1,153
50
(4,432)
150
3,648
-
1,621
-
(5,595)
(19,886)
5,569
32,967
41,939
(13,269)
2016
6,133
2,852
391
814
35
(4,257)
-
-
(3,339)
6,952
2,057
(3,314)
(9,980)
11,480
39,215
30,413
(6,631)
98
192018 Management's Discussion and Analysis
Year Ended December 31, 2018 Compared to Year Ended December 31, 2017
Development and Exploration Expenditures
(expressed in $ thousands)
Owner's cost
Camp operations and exploration expense
Community engagement & permitting
Engineering, staking & other
Total
Year Ended
December 31,
2018
2017
$
$
300
6,288
313
222
7,123
352
5,756
233
461
6,802
$
$
Owner’s Costs
Owner’s costs consist of the Company’s project personnel and consultants. In 2018, these costs were in line with the prior comparable year.
Camp Operations & Exploration Expenditure
During the year ended December 31, 2018, $2.7 million was spent on camp operations in support of exploration activities and $3.6
million was spent on direct exploration. This compared to $2.4 million spent on camp operations and $3.4 spent on exploration in the
prior year. The Company’s spending on direct exploration fluctuates based on the availability of flow-through financing during the
year. The higher camp costs in the current year compared to the prior year reflect greater level of exploration activity and higher fuel
costs.
Permitting and Community Engagement
Permitting expenses consists of costs related to environmental base line field work and First Nation community engagement. In 2018,
costs were higher than the comparable year as the Company incurred costs for pre-development negotiations with our First Nation
Partners and increased community engagement activities.
Engineering, Staking & Other
Engineering expenses in 2018 primarily consisted of costs associated with technical engineering, environmental baseline field work
and gold staking activities. Engineering work was predominantly related to the Company’s process to select a site for its ferrochrome
processing facility.
Office and General
(expressed in $ thousands)
General administration
Professional fees
Communications and travel
Total
Year Ended
December 31,
2018
$ 2,315
503
377
2017
$ 2,531
456
298
$ 3,195
$ 3,285
General Administration
General administration expenses were lower than the prior year due to lower rent, insurance and contractor expenses.
Professional fees
Professional fees include legal and audit costs related to compliance, government relations, personnel and communications consultants as
well as other legal costs related to business development initiatives.
For the year ended December 31, 2018, professional fees were higher due to increased services related to business development
initiatives.
Communications and travel
For the year ended December 31, 2018, communications and travel costs were higher than the prior year due to increased business
development activities.
202018 Management's Discussion and Analysis
Finance Expense
Finance expense consists of quarterly interest payments on the Company’s loan facilities and other transaction costs. During year ended
December 31, 2018, the Company satisfied the payment of interest of $1.5 million on the RCF convertible loan by issuing 4,559,420
common shares of the Company. Subsequent to year end, the Company satisfied the payment of interest to RCF of $0.4 million through
issuance of 1,760,499 common shares of the Company.
During year ended December 31, 2017, the Company satisfied the payment of interest of $1.6 million on the RCF convertible loan, the
RCF bridge loan and the loan extension fee by issuing of 5,583,228 common shares of the Company.
For the year ended December 31, 2018 the company accrued $3.0 million in interest for the Long-Term Loan to Franco-Nevada in
accordance with the loan agreement. Interest on the Franco-Nevada loan is accrued and not payable until the end of the loan term being
April 15, 2020.
Flow-Through Share Premium
The flow-through share premium represents the premium on the flow-through shares paid by the investor which is recorded as income
as the flow-through funds are spent. The change in the flow-through share premium for the year ended December 31, 2018 compared to
the prior year is consistent with the exploration spend in the respective periods.
Accretion Expense
Accretion expense includes accretion of loan facilities and the provision for environmental obligations. For the year ended December
31, 2018, accretion expense consists primarily of accretion for the amended RCF loan of $3.0 million and the Franco-Nevada loan of
$2.6 million.
Share-Based Compensation
For the year ended December 31, 2018, the Company incurred share-based compensation expense of $1.2 million compared to $1
million in the prior year. The increase in share-based compensation expense during the year is due to stock options granted to directors
and employees which had a higher valuation than the prior year as a result of a higher company share price.
Repayment Options
During the year ended December 31, 2018, the increase in the re-measurement of the repayment options of the Convertible Loan was
$1.6 million, compared to an increase of $0.1 million in the prior year. The value assigned to the Repayment Options fluctuates based
on the Company’s share price at the end of the year, the Company’s underlying stock price volatility and the term to maturity of the
underlying convertible debenture.
Foreign Exchange Loss/Gain
During the year ended December 31, 2018, the Company recorded an unrealized foreign exchange loss of $4.5 million compared to a
$3.2 million unrealized foreign exchange gain in the prior year The unrealized foreign exchange gain relates to the translation of the
Company’s loan facilities from a US dollar denominated currency to the Company’s functional currency, the Canadian dollar. During
the fourth quarter of 2018, the Canadian dollar weakened against the US dollar, resulting in the unrealized foreign exchange loss.
212018 Management's Discussion and Analysis SUMMARY OF CASH FLOWS
(expressed in $ thousands)
Cash used in operating activities
Cash provided by (used in) investing activities
Cash provided by financing activities
Operating Activities
Year Ended
December 31,
$
$
2018
(9,426)
(11)
8,274
(1,162)
2017
(9,467)
50
4,660
(4,757)
$
$
For the year ended December 31, 2018, the Company had a cash outflow from operations of $9.4 million compared to a cash outflow
of $9.5 million in the prior year.
Investing Activities
For the year ended December 31, 2018, the Company had cash outflows of $0.01 million resulting from proceeds from the sale of
mineral properties related to the Burnt Hill Project. The Company entered into an amended option agreement with Cadillac Ventures
Inc. which included staged property payments to earn their interest. This was offset by a cash outflow for the purchase of camp
equipment. For the year ended December 31, 2017, the Company had cash inflows of $0.05 million due to the proceeds from the sale
of mineral properties related to the Burnt Hill Project Amended Option Agreement with Cadillac Ventures Inc.
Financing Activities
For the year ended December 31, 2018, cash was provided by the issuance of flow-through shares and a private placement offering in
the amount of $8.4 million, net of transaction costs. $0.9 million of the net financing proceeds is related to the sale of tax benefits
associated with the issuance of flow-through shares and is presented in operating activities. Cash was also provided from the exercise
of stock options and warrants in the amount of $1.4 million.
For the year ended December 31, 2017, cash was provided by the issuance of flow-through shares and a private placement offering in
the amount of $4.8 million, net of transaction costs. $0.7 million of the net financing proceeds was related to the sale of tax benefits
associated with the issuance of flow-through shares and was presented in operating activities. Cash was also provided from the exercise
of stock options in the amount of $0.6 million.
SUMMARY OF QUARTERLY RESULTS AND REVIEW OF THREE MONTHS ENDED DECEMBER 31, 2018
(expressed in $ thousands except per share amounts)
Expenses
Gain on sale of mineral property
Gain on loan modification
Re-measurement of repayment options
Foreign exchange gain (loss)
Net income (loss)
Net earnings (loss) per share – basic
Net earnings (loss) per share – diluted
Cash and cash equivalents
Working Capital(1)
Assets
Long-term Liabilities
-
(26)
2017
2017
2017
2018
100
-
-
2,140
2018
2018
2018
Oct-Dec
Jul-Sept Apr-Jun
5,049 5,663
5,008
- - 2
1,866
677
2017
Jul-Sep Apr-Jun Jan-Mar
Jan-Mar Oct-Dec
6,078 4,842 5,046 4,610 5,801
-
150
- -
3,112 (3,012) 948
1,872 1,186 411
287 (6,283) (4,005)
(0.02) (0.01)
(0.02) (0.01)
6,689 8,684
(10,027)
36,255
31,329
1,783 - -
(950)
(1,170)
(227)
(2,899) 922 (1,157) (1,387)
(4,237) (8,081) (5,721)
(0.02) (0.01) (0.01) (0.02) (0.01)
(0.02) (0.01) (0.01) (0.02) (0.01)
6,350
5,569 3,987
(12,095)
(15,372)
4,477 6,722 8,345
(10,545)
(12,372)
(15,200)
32,967 31,531 34,015 32,405 34,108 35,646
41,939 38,435 37,706 35,623 33,474 31,851
(11,959)
34,067
31,851
(13,269)
(5,239)
(2,329)
-
-
(1) Working capital includes all current assets and current liabilities, excluding non-cash repayment options and flow-through share liability (See Non-IFRS Financial
Performance Measures).
222018 Management's Discussion and Analysis
The quarterly variation in expenses is mainly attributable to timing of technical studies, exploration drill programs, and stock option
expense which is recognized in accordance with the vesting provisions. The working capital is negative due to the presentation of the
convertible loan facility (the “Convertible Loan”) with RCF as a current liability. During the second and third quarters of 2016, the
RCF loan was classified as a non-current liability when the terms of the Convertible Loan were extended to December 31, 2017. On
October 4, 2017 the Convertible Loan was extended to June 30, 2018, on June 25, 2018, the Convertible Loan was extended to January
31, 2019 and prior to December 31, 2018, the Convertible Loan was further extended to September 30, 2019.
LIQUIDITY AND CAPITAL RESOURCES
The Company’s cash position (cash and cash equivalents) at December 31, 2018 was $5.6 million compared to $6.7 million as at
December 31, 2017.
At December 31, 2018, the Company had not yet achieved profitable operations, had an accumulated deficit of $279.8 million since
inception (December 31, 2017 – $260.9 million), expects to incur further losses in the development of its business, and has net working
capital deficit of $13.3 million (December 31, 2017 – negative net working capital of $12.4 million). Net working capital includes all
current assets and current liabilities, excluding the non-cash repayment option and the flow-through share liability. At December 31, 2018
and December 31, 2017, the Company had negative working capital as a result of the RCF loan being classified as current.
On June 25, 2018 the Company entered into a fourth amending agreement with RCF to extend the terms of its existing US$15.0 million
loan. The maturity date of the loan was extended to January 31, 2019. By December 31, 2018, the Company had agreed the material
terms of a loan extension to September 30, 2019. The fifth amending agreement with RCF to extend the terms of its existing US$15.0
million loan was finalized on January 31, 2019. The maturity date of the loan has been extended to September 30, 2019. All other terms
and conditions of the Convertible Loan remain the same. The Company’s expectation is that RCF will either convert the debt to equity
or extend the term of the convertible debenture prior to September 30, 2019.
On April 9, 2018, the Company completed a private placement of 10 million flow-through shares for gross proceeds of $4.2 million
which funded the Company’s exploration program in the Ring of Fire.
On November 6th, 2018 and November 23rd, 2018, the Company completed private placement financings for gross proceeds of $4.15
million of which $1.58 million was for working capital purposes and $2.57 million was raised through the issuance of flow-through
shares to fund the Company’s exploration program in the Ring of Fire.
Noront’s financial instruments consist of cash and cash equivalents, investments, accounts payable, accrued liabilities, repayment
options and long-term debt. Noront estimates that the fair value of its’ financial instruments (in the case of long-term debt, excluding
transaction costs) approximate its carrying values.
The Company will need to raise sufficient capital to further develop its properties and projects and to repay or refinance its long-term
debt. The timing and ability to do so will depend on, among others, the state of the financial markets as well as the acceptance of
investors to finance resource based junior companies, in addition to the results of the Company’s exploration programs and
development activities and the acquisition of additional projects. At this time, the Company will rely on its ability to obtain equity or
debt financing for the foreseeable future. Although the Company has been successful in the past in obtaining financing or restructuring
its debt, there is no assurance that it will be able to obtain adequate financing or refinance its debt in the future or that such financing
will be on terms advantageous to the Company. See also the discussion under the heading “Risks and Uncertainties” in this MD&A.
These material uncertainties cast significant doubt upon the Company’s ability to realize its assets and discharge its liabilities in the
normal course of business and, accordingly, the appropriateness of the use of accounting principles applicable to a going concern. The
Company’s ability to continue as a going concern is dependent upon its ability to obtain the necessary financing to meet its ongoing
corporate overhead expenditures, discharge its liabilities as they come due and advance the development of its projects in the Ring of
Fire.
232018 Management's Discussion and Analysis CONTRACTUAL OBLIGATIONS AND CONTINGENCIES
The contractual obligations for the ensuing five-year period can be summarized as follows:
Contractual Obligations
(expressed in $ thousands)
Contractual Obligations
Operating Leases
Provision for Environmental Expenditure
Debt Agreements with Related Party
Long Term Debt
Total Contractual Obligations
Total
Less than 1
year
1,210 246
2,257 -
20,463 20,463
47,993 -
71,923 20,709
After
5 years
2 -3 years
4 - 5 years
353 123
488
- - 2,257
- - -
47,993 - -
353 2,380
48,481
Operating lease obligations represent future minimum annual rentals under non-cancellable operating leases for Noront’s mining lease,
office space, vehicles and equipment.
Contingencies
The Company has an obligation as at December 31, 2018 to spend $2.6 million on flow-through eligible exploration expenditures by
December 31, 2019.
The Company currently has agreements with some contractors that include provisions where the contractors provide up-front work
with the understanding that if the Eagle’s Nest Project proceeds into the construction stage, they will be granted a contract for the
agreed scope of services. In some cases, the contractor may be reimbursed for the time incurred, or an amount agreed up front, if the
Project does not go ahead. As at December 31, 2018, the amount of this contingent liability is approximately $250,000.
DISCLOSURE CONTROLS AND PROCEDURES
Management has established processes, which are in place to provide them with sufficient knowledge to support management
representations that they have exercised reasonable diligence that:
(i)
(ii)
the annual filings do not contain any untrue statement of material fact or omit to state a material fact required to be
stated or that is necessary to make a statement not misleading in light of the circumstances under which it is made, with
respect to the periods covered by the annual filings; and
the annual financial statements together with the other financial information included in the annual filings of the
Company fairly present in all material respects the financial condition, results of operations and cash flows of the
Company, as of the date of and for the periods presented by the annual filings.
In contrast to the certificate required of non-venture issuers under National Instrument 52-109 Certification of Disclosure in Issuers’
Annual and Interim Filings (“NI 52-109”), the Company utilizes the Venture Issuer Basic Certificate which does not include
representations relating to the establishment and maintenance of disclosure controls and procedures (“DC&P”) and internal control
over financial reporting (“ICFR”), as defined in NI 52-109. In particular, the certifying officers filing the Certificate are not making any
representations relating to the establishment and maintenance of:
(i)
(ii)
controls and other procedures designed to provide reasonable assurance that information required to be disclosed by the
issuer in its annual filings, interim filings or other reports filed or submitted under securities legislation is recorded,
processed, summarized and reported within the time periods specified in securities legislation; and
a process to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial
statements for external purposes in accordance with the issuer’s GAAP.
242018 Management's Discussion and Analysis
The certifying officers are responsible for ensuring that processes are in place to provide them with sufficient knowledge to support the
representations they are making. Investors should be aware that inherent limitations on the ability of certifying officers of a venture
issuer, such as the Company, to design and implement on a cost effective basis DC&P and ICFR as defined in NI 52-109 may result in
additional risks to the quality, reliability, transparency and timeliness of interim and annual filings and other reports provided under
securities legislation.
CRITICAL ACCOUNTING ESTIMATES
Deferred Mining Property Acquisition
Noront capitalizes mining property acquisition costs which are to be amortized when production is attained or the balance thereof written
off should the property be disproven through exploration or abandoned. On an ongoing basis, the Company evaluates deferred
expenditures relating to each property to assess whether there has been impairment in value. The Company recognizes write-downs for
impairment where the carrying value of the mining property exceeds its estimated long term net recoverable value. Recoverable value is
estimated based upon current exploration results and upon the Company's assessment of the future probability of positive cash flows
from the property or from the sale of the property.
Future Site Restoration Costs
The Company has an obligation for future site restoration costs. The Company records the fair value of an asset retirement obligation as
a liability in the period in which it incurs a legal obligation associated with the retirement of tangible long-lived assets that result from
the acquisition, construction, development and/or normal use of the assets. The fair value of the liability is added to the carrying amount
of the associated asset and this additional carrying amount is depreciated over the life of the asset. Subsequent to the initial measurement
of the asset retirement of the asset retirement obligation, the obligation is adjusted at the end of each period to reflect the passage of time
and changes in the estimated future cash flows underlying the obligation. If the obligation is settled for other than the carrying amount
of the liability, the Company will recognize a gain or loss on settlement.
Stock Options and Warrants
The Black-Scholes option valuation model used by the Company to determine fair values for stock-based compensation was developed
for use in estimating the fair value of freely traded options. This model requires input of highly subjective assumptions including future
stock volatility and expected time until exercise. Changes in the subjective input assumptions can materially affect the fair value estimate.
Repayment Options
The Company’s convertible debt agreement with RCF contains embedded derivatives related to the Company’s prepayment option
(expired in February 2014) and the lender’s convertible feature (“Repayment Options”). The fair value assigned to the Repayment Options
uses level 2 assumptions with the main inputs to the valuation being credit spreads of the Company, historical prices of the underlying
stock, USD discount curve and CAD/USD foreign exchange rates. The most significant assumption is the probability of the loan being
repaid prior to reaching the conversion date, which was estimated by obtaining credit spreads for an index of comparable companies
residing in the same industry.
CHANGES IN ACCOUNTING POLICIES
IFRS 9, Financial Instruments ("IFRS 9") addresses the classification, measurement and de-recognition of financial assets and financial
liabilities, introduces new rules for hedge accounting and introduces a new impairment model for financial assets. The complete
version of IFRS 9 was issued in July 2014. It replaces the guidance in IAS 39, Financial Instruments: Recognition and Measurement
("IAS 39").
The adoption of IFRS 9 on January 1, 2018 resulted in changes in the accounting policies and adjustments to the amounts recognized in
the financial statements. The reclassifications and adjustments are recognized in the opening balance sheet as at January 1, 2018 as
summarized below.
IFRS 9 introduces a change in the accounting for amendments of financial liabilities and this resulted in an adjustment to the carrying
value of the Company’s Loan Facility – due to Resource Capital Funds V L.P. (“RCF”). The amendment of this loan facility in October
2017 was a non-substantial modification under both IAS 39 and IFRS 9. Under IAS 39, there was no amount recorded in the statement
of loss and comprehensive loss on the date of the amendment; however, under IFRS 9, when a financial liability at amortized cost is
modified and such modification does not result in de-recognition, the carrying value of the financial liability is adjusted to reflect the
amended cash flows discounted at the original effective interest rate. On adoption of IFRS 9, the Company recorded an adjustment to
reduce the carrying value of the Loan Facility – due to RCF by $0.9 million, with a corresponding reduction in Deficit.
252018 Management's Discussion and Analysis
The Company has made an irrevocable election available under IFRS 9 to continue to classify its long-term investments in equity
securities at fair value through other comprehensive income (“FVOCI”) because these investments are held as strategic investments
that are not expected to be sold in the short term. This election is available on an instrument-by-instrument basis. Previously these
investments were classified as available-for-sale under IAS 39. Changes in the fair value of these investments are recognized in other
comprehensive income (loss). No adjustments were required on adoption of IFRS 9 and there was no impact on net and comprehensive
loss for the three-month and nine-month periods ended September 30,2018.
IFRS 9 applies an expected credit loss model to evaluate financial assets for impairment, rather than an incurred loss model previously
applied under IAS 39. The Company’s financial assets which are subject to credit risk are cash and cash equivalents. Application of the
expected credit loss model at the date of adoption did not have a significant impact on the Company’s financial assets because the
Company determined that the expected credit losses on its financial assets were nominal. There were no impairment losses recorded on
financial assets during the nine months ended September 30, 2018.
Except as noted above, the adoption of IFRS 9 did not result in changes in the carrying values of the Company’s financial instruments
on January 1, 2018.
Financial assets and financial liabilities are recognized on the Company’s statement of financial position when the Company has
become a party to the contractual provisions of the instrument. Financial assets are derecognized when the rights to receive cash flows
from the assets have expired or have been transferred and the Company has transferred substantially all risks and rewards of ownership.
The Company’s financial instruments consist of cash and cash equivalents, investments, accounts payables and accrued liabilities, and
loan facilities and the related repayment option. Financial instruments are recognized initially at fair value.
IFRS 16, Leases (“IFRS 16”) was issued in January 2016. It will result in almost all leases being recognized on the balance sheet, as
the distinction between operating and finance leases is removed. Under the new standard, an asset (the right to use the leased item) and
a financial liability to pay lease amounts are recognized by the lessee. The only exceptions are short-term and low-value leases. The
accounting for lessors will not significantly change.
The standard will affect the accounting for the Company’s operating leases. The Company’s non-cancellable operating lease
commitments as at December 31, 2018 are disclosed in Note 15. The Company is currently identifying and collecting data relating to
existing agreements that will extend beyond January 1, 2019, that may contain right-of-use assets and is evaluating the effect the
standard will have on its consolidated financial statements.
Some of the commitments may be covered by the exception for short-term and low-value leases and some commitments may relate to
arrangements that will not qualify as leases under IFRS 16.
RISKS AND UNCERTAINTIES
Noront’s business of exploring mineral resources involves a variety of operational, financial and regulatory risks that are typical in the
natural resource industry. The risk factors include risks summarized below, risk factors referenced at page 1 herein, and risk factors
disclosed under the heading “Risk Factors” in the Company’s most recent AIF, available electronically on SEDAR at www.sedar.com.
The Company attempts to mitigate these risks and minimize their effect on its financial performance, but there is no guarantee that the
Company will be profitable in the future, and an investment in Noront common shares should be considered speculative. The risks
described herein, or in documents incorporated herein by reference, are not the only risks facing the Company. Additional risks and
uncertainties not currently known to the Company, or that the Company currently considers immaterial, may also materially and adversely
affect its operating results, properties, business and condition (financial or otherwise).
Mineral Exploration
The business of exploration for minerals and mining involves a high degree of risk. A relatively small proportion of properties that are
explored are ultimately developed into producing mines. At present, there are no known bodies of commercial ore on any of the mineral
properties in which the Company holds interest or intends to acquire an interest and the proposed exploration program is an exploratory
search for ore. Unusual or unexpected formations, formation pressures, fires, power outages, labour disruptions, flooding, cave-ins,
landslides and the inability to obtain suitable or adequate machinery, equipment or labour are other risks involved in the conduct of
exploration programs. The Company has limited experience in the development and operation of mines and has relied on and may
continue to rely upon consultants and others for exploration and operating expertise. The economics of developing gold, base metal and
other mineral properties is affected by many factors including the cost of operations, variation of the grade of ore mined, and fluctuations
in the price of any minerals produced.
Additional Funding Requirements and Potential Dilution
Noront has no current or foreseeable prospect of generating significant revenues. Accordingly, the success of the Company is dependent,
among other things, on obtaining sufficient funding to enable the Company to explore and develop its properties. There can be no
assurance that the Company will be able to obtain adequate financing in the future or that the terms of such financing will be favourable.
262018 Management's Discussion and Analysis
Failure to obtain such additional financing could result in delay or indefinite postponement of further exploration and development of its
projects with the possible loss of such properties.
The Company will require new capital to continue to operate its business and to continue with exploration on its mineral properties, and
there is no assurance that capital will be available when needed, if at all. It is likely such additional capital will be raised through the
issuance of additional equity, which will result in dilution, possibly substantial, to the Company’s present and prospective shareholders.
The Company cannot predict the size of future issues of common shares or securities convertible into common shares.
As of April 10, 2018, the Company had 380,137,261 common shares outstanding, 20,428,722 stock options outstanding with a weighted
average exercise price of $0.31 expiring between 2017 and 2024, 3,000,000 Performance Share Units with an expected life between 2
and 5 years and 665,483 Restricted Share Units with an expected life of 1 year. In addition, RCF has certain conversion rights under the
terms of the Convertible Loan. The issuance of common shares of the Company upon the exercise of options, Performance Share,
Restricted Share Units or on conversion of the Convertible Loan will dilute the ownership of the Company’s current shareholders. Noront
may also issue additional securities convertible into common shares of Noront in the future, the conversion of which would result in
further dilution to the shareholders of the Company.
Debt and Liquidity
The Company's ability to make scheduled payments of the principal of, to pay interest on or to refinance its existing indebtedness
(including without limitation the Facility) depends on the Company's future performance, which is subject to economic, financial,
competitive and other factors many of which are not under the control of the Company. Liquidity risk is the risk that the Company will
not be able to meet its financial obligations as they become due, including, among others, debt repayments, interest payments and
contractual commitments.
The Company may not generate cash flow (if any) from operations in the future sufficient to service its existing or future debt and make
necessary capital expenditures. If the Company is unable to generate such cash flow, it may be required to adopt one or more alternatives,
such as selling assets, restructuring debt or obtaining additional equity capital on terms that may be onerous or highly dilutive. The
Company's ability to refinance its indebtedness will depend on the capital markets and its financial condition at such time. The Company
may not be able to engage in any of these activities or engage in these activities on desirable terms, which could result in a default on its
debt obligations.
The terms of the Facility and the terms of the Loan Agreement require the Company to satisfy various affirmative and negative covenants.
These covenants limit, among other things, the Company's ability to incur further indebtedness, create certain liens on assets or engage
in certain types of transactions. There are no assurances that, in the future, the Company will not, as a result of these covenants, be limited
in its ability to respond to changes in its business or competitive activities or be restricted in its ability to engage in mergers, acquisitions
or dispositions of assets. Furthermore, a failure to comply with these covenants would result in an event of default that may allow a lender
to accelerate the repayment obligations or enforce its security.
Continuation of Operating Losses
The Company does not have a long historical track record of operating upon which investors may rely. Consequently, investors will have
to rely on the expertise of the Company’s management. Further, the Company’s properties are in the exploration stage and are not
commercially viable at this time. The Company has not commenced commercial production on any of its mineral projects. There can be
no assurance that significant losses will not occur in the near future or that the Company will be profitable in the future. The Company
does not have a history of earnings or the provision of return on investment, and there is no assurance that it will produce revenue, operate
profitably or provide a return on investment in the future. The Company expects to continue to incur losses unless and until such time as
it enters into commercial production and generates sufficient revenues to fund its continuing operations. The development of any of the
Company’s mineral properties will require the commitment of substantial resources to conduct time-consuming development. There can
be no assurance that the Company will generate any revenues or achieve profitability.
Title to Mineral Properties (Ownership Rights)
Although title to the properties has been reviewed by or on behalf of Noront, no assurances can be given that there are no title defects
affecting the properties. Title insurance generally is not available for mining claims in Canada and Noront’s ability to ensure that it has
obtained secure claim to individual mineral properties or mining concessions may be limited. Noront has not conducted surveys of the
claims in which it holds direct or indirect interests; therefore, the precise area and location of such claims may be in doubt. It is possible
that the properties may be subject to prior unregistered liens, agreements, transfers or claims, including native land claims and title may
be affected by, among other things, undetected defects. In addition, Noront may be unable to operate the properties as permitted or to
enforce its rights with respect to its properties.
Mineral Resource and Mineral Reserve Estimates
The mineral resources and mineral reserves presented in this document are estimates and no assurance can be given that the anticipated
tonnages and grades will be achieved or that the expected level of recovery will be realized. Such figures have been determined based
272018 Management's Discussion and Analysis
upon assumed metal prices. Future production, if any, could differ dramatically from estimates due to mineralization or formations
different from those predicted by drilling, sampling and similar examinations or declines in the market price of the metals may render
the mining of some or all of the mineral resources as uneconomic.
The estimation of mineralization is a subjective process and the accuracy of estimates is a function of quantity and quality of available
data, the accuracy of statistical computations, and the assumptions and judgments made in interpreting engineering and geological
information. No assurance can be given that any particular level of recovery of gold or other minerals from resources will in fact be
realized or that an identified mineral deposit will ever qualify as a commercially mineable (or viable) ore body which can be economically
exploited. In particular, the inferred mineral resources included in this AIF are considered too speculative geologically to have the
economic considerations applied to them that would enable them to be categorized as mineral reserves, and, due to the uncertainty that
may be attached to inferred mineral resources, it cannot be assumed that all or any part of an inferred mineral resource will be upgraded
to an indicated or measured mineral resource as a result of continued exploration.
Adequate Infrastructure
Mining, processing, development and exploration activities depend, to a substantial degree, on adequate infrastructure. Reliable roads,
bridges, power sources and water supply are important determinants affecting capital and operating costs. Unusual or infrequent weather
phenomena, sabotage, government or other interference in the maintenance or provision of such infrastructure could adversely affect the
operations, financial condition and results of operations of the Company.
Economic
Factors beyond the control of the Company may affect the marketability of any mineral products discovered or produced. The prices of
mineral products have historically fluctuated widely, are sometimes subject to rapid short-term changes and are affected by numerous
factors beyond the Company’s control, including international, economic and political trends, expectations for inflation, currency
exchange fluctuations, interest rates, global or regional consumption patterns, speculative activities and worldwide production levels.
The effect of these factors cannot accurately be predicted, but any one of, or any combination of, these factors may result in the Company
not receiving an adequate return on invested capital and a loss of all or part of an investment in securities of the Company may result.
Commodity Price Risk
The ability of the Company to develop its mining properties and the future profitability of the Company is directly related to the market
price of base and precious metals. Historically, commodity prices have fluctuated widely and are affected by numerous external factors
beyond the Company's control, including industrial and retail demand, central bank lending, sales and purchases of gold, forward sales
of gold by producers and speculators, production and cost levels in major producing regions, short-term changes in supply and demand
because of speculative hedging activities, confidence in the global monetary system, expectations of the future rate of inflation, the
strength of the United States dollar (the currency in which the price of gold is generally quoted), interest rates, terrorism and war, and
other global or regional political or economic events. Resource prices have fluctuated widely and are sometimes subject to rapid short-
term changes because of speculative activities. The exact effect of these factors cannot be accurately predicted, but any one of, or any
combination of, these factors may result in the Company not receiving an adequate return on invested capital and a loss of all or part of
an investment in securities of the Company may result.
Competition
The mining industry is intensely competitive in all its phases. The Company competes with many companies possessing greater financial
resources and technical facilities than itself for the acquisition of mineral interests as well as for the recruitment and retention of qualified
employees, contractors and consultants. The ability of the Company to acquire properties in the future will depend not only on its ability
to develop its present properties, but also on its ability to select and acquire suitable properties or prospects for mineral exploration. There
is no assurance that the Company will be able to compete successfully with its competitors in acquiring such properties or prospects.
Environmental
The Company’s operations are subject to environmental regulations promulgated by local, provincial and federal government agencies
from time to time. Environmental legislation provides for restrictions and prohibitions of spills, releases or emissions of various
substances produced in association with certain mining industry operations, such as seepage from tailing disposal areas, which could
result in environmental pollution. A breach of such legislation may result in the imposition of fines and penalties. In addition, certain
types of operations require submissions to and approval of environmental impact assessments. Environmental legislation is evolving in
a manner, which means stricter standards and enforcement, and fines and penalties for non-compliance are more stringent. Environmental
assessments of proposed projects carry a heightened degree of responsibility for companies and directors, officers and employees. The
cost of compliance with changes in governmental regulations has a potential to reduce the profitability of operations. The Company
intends to fully comply with all environmental regulations.
Failure to comply with applicable laws, regulations, and permitting requirements may result in enforcement actions, including orders
issued by regulatory or judicial authorities causing operations to cease or be curtailed, and may include corrective measures requiring
282018 Management's Discussion and Analysis
capital expenditures, installation of additional equipment, or remedial actions. Parties engaged in mining operations may be required to
compensate those suffering loss or damage by reason of the mining activities and may have civil or criminal fines or penalties imposed
for violations of applicable laws or regulations and, in particular, environmental laws. In addition, environmental legislation is evolving
in a manner requiring stricter standards, and enforcement, fines and penalties for non-compliance are more stringent. The cost of
compliance with changes in governmental regulations has the potential to reduce the profitability of operations.
Although variable, depending on location and the governing authority, land rehabilitation requirements are generally imposed on mineral
exploration companies, as well as companies with mining operations, in order to minimize long term effects of land disturbance.
Rehabilitation may include requirements to control dispersion of potentially deleterious effluents and to reasonably re-establish pre-
disturbance land forms and vegetation. In order to carry out rehabilitation obligations imposed on the Company in connection with its
mineral exploration, the Company must allocate financial resources that might otherwise be spent on further exploration and/or
development programs.
First Nations
Noront is committed to working in partnership with our local communities and First Nations in a manner which fosters active participation
and mutual respect. Noront works towards minimizing negative project impacts, encouraging certain joint consultation processes,
addressing certain decision making processes and towards maintaining meaningful ongoing dialogue not only for the Company but for
all participants in the Ring of Fire region.
Many of Noront’s contractors and suppliers live and work in the local communities. The Company regularly consults with communities
proximal to the Company’s exploration activities to advise them of plans and answer any questions they may have about current and
future activities. The objective is to operate to the benefit of the shareholders and the local communities using the resources and the
environment today without compromising the long-term capacity to support post exploration and ultimately post mining land uses.
First Nations in Ontario are increasingly making lands and rights claims in respect of existing and prospective resource projects on lands
asserted to be First Nation traditional or treaty lands. Should a First Nation make such a claim in respect of the Properties and should
such claim be resolved by government or the courts in favour of the First Nation, it could materially adversely affect the business of
Noront. In addition, consultation issues relating to First Nation interests and rights may impact the Company's ability to pursue
exploration, development and mining at its projects and could results in costs and delays or materially restrict Noront's activities.
Government Regulations
The Company’s mineral exploration and planned development activities are subject to various federal, provincial and local government
laws and regulations governing, among other things, acquisition of mining interests, maintenance of claims, tenure, expropriation,
prospecting, development, mining, production, price controls, taxes, labour standards, occupational health, waste disposal, toxic
substances, water use, land use, treatment of indigenous peoples, environmental protection and remediation, endangered and protected
species, mine safety and other matters. Although the Company’s exploration and planned development activities are currently believed
by the Company to be carried out in accordance with all applicable rules and regulations, no assurance can be given that new rules and
regulations will not be enacted or that existing rules and regulations will not be applied or amended in a manner that could have a material
adverse effect on the business, financial condition and results of operations of Noront, including changes to government mining laws and
regulations or changes in taxation rates.
The operations of the Company may require licenses and permits from various local, provincial and federal governmental authorities.
The costs and delays associated with obtaining and complying with necessary licences and permits as well as applicable laws and
regulations could stop or materially delay or restrict Noront from proceeding with the development of an exploration project. In addition,
such licenses and permits are subject to change in regulations and in various operating circumstances. Any failure to comply with
applicable laws, regulations or licencing and permitting requirements, even if inadvertent, may result in enforcement actions thereunder,
including orders issued by regulatory or judicial authorities causing interruption or closure of exploration, development or mining
operations or material fines, penalties or other liabilities. There can be no assurance that the Company will be able to obtain all necessary
licenses and permits that may be required to carry out exploration, development, or mining operations, at its projects and there is no
assurance that the Company will be able to comply with any such necessary license and permit requirements in an economically viable
manner.
The Company attempts to mitigate these risks and minimize their effect on its financial performance, but there is no guarantee that the
Company will be profitable in the future, and Noront common shares should be considered speculative.
Joint Ventures and Option Agreements
Noront enters into option agreements and joint ventures as a means of gaining property interests and raising funds. Any failure of any
partner to meet its obligations to Noront or other third parties, or any disputes with respect to third parties’ respective rights and
obligations could have a material adverse effect on such agreements. In addition, Noront may be unable to exert direct influence over
strategic decisions made in respect to properties that are subject to the terms of these agreements.
292018 Management's Discussion and Analysis
Litigation
The Company is subject to litigation risks. All industries, including the mining industry, are subject to legal claims, with and without
merit. Defence and settlement costs of legal claims can be substantial, even with respect to claims that have no merit. Due to the inherent
uncertainty of the litigation process, the resolution of any particular legal proceeding to which the Company is or may become subject
could have a material effect on its financial position, results of operations or the Company’s mining and project development operations.
Legal
Amendments to current laws, regulations and permits governing operations and activities of mining companies, or more stringent
implementation thereof, could have a material adverse impact on Noront and cause increases in expenditures or exploration or
development costs or reduction in levels of activities on our exploration or development projects, or require abandonment or delays in
the development of new exploration or development properties.
Uninsurable Risks
The mining industry is subject to significant risks that could result in damage to, or destruction of, mineral properties, personal injury or
death, environmental damage, delays in exploration, and monetary losses and possible legal liability. Where Noront considers it practical
to do so, it maintains insurance in amounts believed to be reasonable, including coverage for directors’ and officers’ liability and fiduciary
liability and others.
Such insurance, however, contains exclusions and limitations on coverage. Accordingly, Noront’s insurance policies may not provide
coverage for all losses related to Noront’s activities (and specifically do not cover environmental liabilities and losses). The occurrence
of losses, liabilities or damage not covered by such insurance policies could have a material and adverse effect on Noront’s results of
operations and financial condition. Noront cannot be certain that insurance will be available to the Company, or that appropriate insurance
will be available on terms and conditions acceptable to the Company. In some cases, coverage is not available or considered too expensive
relative to the perceived risk.
Dependence on Key Employees, Contractors and Management
Noront is dependent on a number of key personnel, including the services of certain key employees and contractors, and certain critical
resources such as industry consultants, engineering firms and technical experts. Noront does not maintain key person life insurance.
Accordingly, the loss of the services of one or more of such key management personnel could have a material adverse effect on the
Company.
The mining industry has been impacted by increased worldwide demand for critical resources including industry consultants, engineering
firms and technical experts. These shortages have caused increased costs and delays in planned activities. Noront is also dependent upon
a number of key personnel, including the services of certain key employees and contractors. Noront’s ability to manage its activities, and
hence its success, will depend in large part on the efforts of these individuals. Noront faces intense competition for qualified personnel,
and there can be no assurance that Company will be able to attract and retain such personnel. If the Company is unable to attract or retain
qualified personnel as required, it may not be able to adequately manage and implement its business plan. As the Company’s business
grows, it will require additional key financial, administrative, mining, marketing and public relations personnel as well as additional staff
for operations.
Labour and Employment
Relations between the Company and its employees may be affected by changes in the scheme of labour relations that may be introduced
by the relevant governmental authorities in whose jurisdictions the Company carries on business. Changes in such legislation or in the
relationship between the Company and its employees may have a material adverse effect on the Company’s business, results of operations
and financial condition.
Conflict of Interest
Certain directors or proposed directors of the Company are also directors, officers or shareholders of other companies that are similarly
engaged in the business of acquiring, developing and exploiting natural resource properties. Such associations may give rise to conflicts
of interest from time to time. The directors of the Company are required by law to act honestly and in good faith with a view to the best
interests of the Company and to disclose any interest, which they may have in any project opportunity of the Company. If a conflict of
interest arises at a meeting of the board of directors, any director in a conflict will disclose his interest and abstain from voting on such
matter. In determining whether or not the Company will participate in any project or opportunity, the directors will primarily consider
the degree of risk to which the Company may be exposed and its financial position at that time.
302018 Management's Discussion and Analysis Share Price
The market price of a publicly traded stock is affected by many variables not directly related to the success of the Company. In recent
years, the securities markets have experienced a high level of price and volume volatility, and the market price of securities of many
companies, particularly those considered to be exploration or development stage companies, has experienced wide fluctuations which
have not necessarily been related to the operating performance, underlying asset values or prospects of such companies. There can be no
assurance that such fluctuations will not affect the price of the Company’s securities, which may result in losses to investors. In addition,
there can be no assurance that an active market for the Company's securities will be sustained.
Securities class action litigation often has been brought against companies following periods of volatility in the market price of their
securities. The Company may in the future be the target of similar litigation. Securities litigation could result in substantial costs and
damages and divert management’s attention and resources.
Current Global Financial Conditions
Current global financial conditions have been subject to increased volatility, and access to public financing, particularly for junior
resource companies, has been negatively impacted. These factors may impact the ability of the Company to obtain equity or debt financing
in the future and, if obtained, such financing may not be on terms favourable to the Company. If increased levels of volatility and market
turmoil continue, the Company's operations could be adversely impacted, and the value and price of the Company's securities could be
adversely affected.
No Guarantee of Positive Return on Investment
There is no guarantee that an investment in the securities of Noront will earn any positive return in the short term or long term. The
mineral exploration business is subject to numerous inherent risks and uncertainties, and any investment in the securities of Noront should
be considered a speculative investment. Past successful performance provides no assurance of any future success. The purchase of
securities of Noront involves a high degree of risk and should be undertaken only by investors whose financial resources are sufficient
to enable them to assume such risks. An investment in the securities of Noront is appropriate only for investors who have the capacity to
absorb a loss of some or all of their investment.
Cyber Security
The Company and its operations rely heavily on various operating financial systems and data. A breach of the Company’s information
or operational technology systems may result in disruption of business activities, loss of confidential or proprietary data, failure of internal
controls over financial reporting failure to meet obligations and reputational damage. Such a breach may also expose the Company to
legal and regulatory action. Policies and procedures are maintained to ensure the security of its information technology systems, and data
and system security controls are regularly tested and audited. The Company also relies on third-party service providers for the storage
and processing of various data. There can be no assurance, however that the Company will not suffer a business disruption or loss or
corruption of proprietary data, whether inadvertent or otherwise.
Growth Strategy
We evaluate growth opportunities and continue to consider the acquisition and disposition of exploration and development properties
and mineral assets to achieve our strategy. We, from time to time, engage in discussions in respect of both acquisitions and dispositions,
and other business opportunities, but there can be no assurance that any such discussions will result in a successfully completed
transaction.
NON-IFRS FINANCIAL PERFORMANCE MEASURES
This MD&A contains references to “Working Capital” which is a non-IFRS financial performance measure. The Working Capital is
calculated as the value of total current assets less the value of total current liabilities, excluding repayment options and flow-through
share liability. The term Working Capital does not have any standardized meaning according to IFRS and therefore many not be
comparable to similar measures presented by other companies. The Company believes that this measure of Working Capital provides
information useful to its shareholders in the understanding the Company’s performance and may assist in the evaluation of the Company’s
business relative to that of its peers.
312018 Management's Discussion and Analysis
OUTSTANDING SHARE INFORMATION
As at April 10, 2019
Authorized
Issued and outstanding shares
Options outstanding
Warrants
Performance Share Units outstanding
Restricted Share Units outstanding
Convertible Debt
Fully diluted
ADDITIONAL INFORMATION
Unlimited
381,585,322
20,428,722
27,612,966
3,000,000
665,483
60,185,294
493,477,787
Additional information relating to Noront is available on the Internet at the SEDAR website www.sedar.com, and is available on the
Company’s website located at www.norontresources.com.
322018 Management's Discussion and Analysis
MANAGEMENT'S RESPONSIBILITY FOR FINANCIAL REPORTING
The accompanying consolidated financial statements of Noront Resources Ltd. (the "Company") were prepared by management in
accordance with International Financial Reporting Standards. Management acknowledges responsibility for the preparation and
presentation of the consolidated financial statements, including responsibility for significant accounting judgments and estimates and
the choice of accounting principles and methods that are appropriate to the Company’s circumstances. The significant accounting
policies of the Company are summarized in Note 3 to these consolidated financial statements.
Management has established processes, which are in place to provide them sufficient knowledge to support management
representations that they have exercised reasonable diligence that (i) the consolidated financial statements do not contain any untrue
statement of material fact or omit to state a material fact required to be stated or that is necessary to make a statement not misleading
in light of the circumstances under which it is made, as of the date of and for the periods presented by the consolidated financial
statements and (ii) the consolidated financial statements fairly present in all material respects the financial condition, results of
operations and cash flows of the Company, as of the date of and for the periods presented in the consolidated financial statements.
The Board of Directors is responsible for ensuring that management fulfills its financial reporting responsibilities and for reviewing and
approving the consolidated financial statements together with other financial information. An Audit Committee assists the Board of
Directors in fulfilling this responsibility. The Audit Committee meets with management to review the internal controls over the financial
reporting process and the consolidated financial statements together with other financial information of the Company. The Audit
Committee reports its findings to the Board of Directors for its consideration in approving the consolidated financial statements
together with other financial information of the Company for issuance to the shareholders.
Management recognizes its responsibility for conducting the Company’s affairs in compliance with established financial standards, and
applicable laws and regulations, and for maintaining proper standards of conduct for its activities.
(Signed) "Alan Coutts"
Alan Coutts
President & Chief Executive Officer
(Signed) "Greg Rieveley"
Greg Rieveley, CPA, CA
Chief Financial Officer
332018 Consolidated Financial Statements Independent auditor’s report
To the Shareholders of Noront Resources Ltd.
Our opinion
In our opinion, the accompanying consolidated financial statements present fairly, in all material respects,
the financial position of Noront Resources Ltd. and its subsidiaries (together, the Company) as at
December 31, 2018 and 2017, and its financial performance and its cash flows for the years then ended in
accordance with International Financial Reporting Standards (IFRS).
What we have audited
The Company’s consolidated financial statements comprise:
the consolidated statements of financial position as at December 31, 2018 and 2017;
the consolidated statements of loss and other comprehensive loss for the years then ended;
the consolidated statements of changes in equity for the years then ended;
the consolidated statements of cash flows 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.
Material uncertainty related to going concern
We draw attention to Note 1 in the consolidated financial statements, which describes matters and
conditions that indicate the existence of a material uncertainty that may cast significant doubt about the
Company’s ability to continue as a going concern. Our opinion is not modified in respect of this matter.
PricewaterhouseCoopers LLP
PwC Tower, 18 York Street, Suite 2600, Toronto, Ontario, Canada M5J 0B2
T: +1 416 863 1133, F: +1 416 365 8215
“PwC” refers to PricewaterhouseCoopers LLP, an Ontario limited liability partnership.
342018 Consolidated Financial Statements 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:
352018 Consolidated Financial Statements
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 Marelize Barber.
(Signed) “PricewaterhouseCoopers LLP”
Chartered Professional Accountants, Licensed Public Accountants
Toronto, Ontario
April 10, 2019
362018 Consolidated Financial Statements Noront Resources Ltd.
Consolidated Statements of Financial Position
(Expressed in Canadian dollars)
Assets
Current Assets
Cash and cash equivalents
Taxes and other receivables
Supplies inventory
Prepaid expenses
Total Current Assets
Non-Current Assets
Equipment
Mineral properties
Investments
Total Non-Current Assets
Total Assets
Note
6
7
8
Liabilities and Shareholders' Equity
Current Liabilities
Accounts payable and accrued liabilities
Loan Facilities - due to Resource Capital Funds V L.P.
Repayment option
Flow-through share liability
9
10a
10c
Total Current Liabilities
Non-Current Liabilities
Provision for environmental obligations
Loan Facilities - due to Franco-Nevada Corporation
11
10b
As at
December 31,
2018
As at
December 31,
2017
$
5,569,465
99,806
223,558
101,776
$
6,721,808
60,993
82,679
106,556
$
5,994,605
$
6,972,036
1,189,086
25,418,065
365,600
26,972,751
32,967,356
1,128,832
18,135,019
424,920
423,514
$
$
$
1,427,783
25,418,065
290,600
27,136,448
34,108,484
1,051,455
18,292,595
2,046,359
463,426
$
$
$
$
20,112,285
$
21,853,835
1,867,054
40,071,502
41,938,556
62,050,841
$
$
1,852,310
31,622,186
33,474,496
55,328,331
$
$
Total Non-Current Liabilities
Total Liabilities
Shareholders' Deficit
Capital stock
Warrants
Contributed surplus
Deficit
12b
12d
$ 211,671,420
2,402,290
36,669,673
(279,826,868)
$ 201,181,223
2,205,734
36,279,458
(260,886,262)
Total Shareholders' Deficit
$ (29,083,485)
$ (21,219,847)
Total Shareholders' Deficit and Liabilities
$
32,967,356
$
34,108,484
Nature of Business and Going Concern (Note 1)
Commitments and Contingencies (Note 15)
Subsequent Events (Note 18)
Approved on behalf of the Board of Directors:
(Signed) "Paul Parisotto"
Director
(Signed) "John Pollesel"
Director
The accompanying notes are an integral part of these consolidated financial statements.
372018 Consolidated Financial Statements Noront Resources Ltd.
Consolidated Statements of Loss and Other Comprehensive Loss
(Expressed in Canadian dollars)
Note
Expenses
Development and exploration expenditures 17a
Office and general
17b
Amortization
Share-based compensation
12c, e
Loss before finance items and other gains
Interest income and other income
Finance expense
Flow-through share premium
Gain on loan modification
Gain on sale of mineral property
Accretion expense
Re-measurement of repayment option
Foreign exchange gain (loss)
Net loss and Other Comprehensive Loss
10a(i)
10c
Year Ended
December 31,
2018
December 31,
2017
$
7,123,248
3,195,109
300,359
1,152,547
$
6,801,721
3,285,004
336,957
1,002,145
$ (11,771,263)
50,411
(4,431,708)
962,777
3,648,477
150,000
(5,595,478)
1,621,439
(4,520,821)
$ (11,425,827)
48,430
(4,198,792)
1,088,961
-
100,000
(4,674,342)
98,012
3,241,557
$ (19,886,166)
$ (15,722,001)
Loss per share - basic and diluted
14
$
(0.06) $
(0.05)
The accompanying notes are an integral part of these consolidated financial statements.
382018 Consolidated Financial Statements Noront Resources Ltd.
Consolidated Statements of Changes in Equity
(Expressed in Canadian dollars, unless otherwise indicated)
Balance, December 31, 2016
Issuance of interest shares
Issue of shares
Share-based compensation
Exercise of options
Exercise of warrants
Expiry of warrants
Net loss for the period
Balance, December 31, 2017
Capital Stock
Common
Shares
324,392,693 $ 194,758,699 $
5,583,228
12,856,381
1,567,740
4,084,106
Warrants
2,334,489 $
Contributed
Surplus
35,343,243 $ (245,164,261) $
Deficit
1,500,000
729,359
497,000
273,678 $
$
1,002,145
(172,000)
$
(22,685)
(106,070) $
106,070
Total
(12,727,830)
1,567,740
4,084,106
1,002,145
325,000
250,993
-
345,061,661 $
201,181,223 $
2,205,734
$
(15,722,001)
(15,722,001)
36,279,458 $ (260,886,262) $ (21,219,847)
Balance, December 31, 2017
IFRS 9 adjustment (Note 3a)
Restated balance, January 1, 2018
Issuance of interest shares (Note 10,12b)
Issuance of shares
Issuance of warrants
Share-based compensation (Note 12c,e)
Exercise of RSU
Exercise of options
Exercise of warrants
Issuance of Flow Through Shares
Net loss for the period
Balance, December 31, 2018
Common
Shares
345,061,661 $
Capital Stock
Warrants
201,181,223 $
2,205,734
$
4,559,420
5,771,510
1,545,360
1,683,040
334,517
4,103,334
500
18,545,820
83,629
1,393,017
230
5,784,921
196,586
(30)
378,376,762 $
211,671,420 $
2,402,290
$
Total
Deficit
Contributed
Surplus
36,279,458 $ (260,886,262) $ (21,219,847)
945,560
(20,274,287)
1,545,360
1,683,040
$ (259,940,702) $
945,560
(196,586)
1,152,547
(83,629)
(482,117)
1,152,547
-
910,900
200
5,784,921
(19,886,166)
(19,886,166)
36,669,673 $ (279,826,868) $ (29,083,485)
The accompanying notes are an integral part of these consolidated financial statements.
392018 Consolidated Financial Statements Noront Resources Ltd.
Consolidated Statements of Cash Flows
(Expressed in Canadian dollars)
Operating activities
Net loss for the year
Amortization
Share-based compensation
Accretion expense
Flow-through share premium
Issuance of interest shares
Re-measurement of repayment option
Issuance of shares (non-cash)
Accrued interest on long term debt
Gain on loan modification
Gain on sale of mineral property
Unrealized foreign exchange (gain) loss
Net change in non-cash working capital:
Taxes and other receivables
Supplies inventory
Prepaid expenses
Accounts payable and accrued liabilities
Flow-through share proceeds on sale of tax benefits
Note
12c, e
10b
10a(i)
Year Ended
December 31,
2018
December 31,
2017
$ (19,886,166)
300,359
1,152,547
5,595,478
(962,777)
1,545,360
(1,621,439)
105,000
2,803,114
(3,648,477)
(150,000)
4,516,065
$ (15,722,001)
336,957
1,002,145
4,674,342
(1,088,961)
1,567,740
(98,012)
-
2,617,618
-
(100,000)
(3,244,729)
(38,813)
(140,879)
4,780
77,377
922,864
68,767
144,199
(1,922)
(362,389)
739,120
Net cash used in operating activities
$ (9,425,607)
$ (9,467,126)
Investing activities
Acquisition of equipment
Proceeds on sale of mineral properties
(85,859)
75,000
-
50,000
Net cash provided by (used in) investing activities
$
(10,859)
$
50,000
Financing activities
Private placement, net of costs and sale of tax benefits
Proceeds from exercise of options
Proceeds from exercise of warrants
Net cash provided by financing activities
Change in cash and cash equivalents
Effect of foreign exchange rates on cash and cash equivalents
Cash and cash equivalents, beginning of period
7,362,961
910,900
200
4,084,106
325,000
250,993
$
8,274,061
$
4,660,099
$ (1,162,405)
10,062
6,721,808
$ (4,757,027)
(1,242)
11,480,077
Cash and cash equivalents, end of period
$
5,569,465
$
6,721,808
The accompanying notes are an integral part of these consolidated financial statements.
402018 Consolidated Financial Statements Noront Resources Ltd.
Notes to the Consolidated Financial Statements
(Expressed in Canadian dollars, unless otherwise noted)
For the year ended December 31, 2018
1.
Nature of Business and Going Concern
Noront Resources Ltd. (the "Company" or "Noront") is a resource Company listed on tier 1 of the TSX Venture Exchange
(“TSX-V”) involved in the exploration, development and acquisition of properties prospective in base and precious metals,
including: nickel, copper, platinum group metals, precious metals, chromite, and vanadium. The Company's assets consist of
its flagship Eagle's Nest nickel-copper-platinum-palladium deposit, deposits of high grade chromite and copper-zinc volcanic
massive sulphide (VMS) deposits which are part of the Company's McFauld's Lake Project. The assets are located primarily
in the area known as the Ring of Fire (“ROF”) in the James Bay Lowlands, Ontario. Eagle's Nest is the Company's most
advanced mining project in the ROF and is the first of several mineral discoveries that have been made since 2007. The
address of Noront's head office is 212 King Street West, Suite 501, Toronto, ON, Canada, M5H 1K5.
The Company is a development stage entity that does not generate operating revenues and has limited financial resources.
The Company is subject to risks and challenges similar to companies in a comparable stage of development. These risks
include the availability of capital and risks inherent in the mining industry related to development, exploration and operations
as well as global economic and commodity price volatility. The underlying value of the Company’s mineral properties and the
recoverability of the related capitalized costs are entirely dependent on the Company’s ability either to obtain the necessary
permits to operate and secure the required financing to complete development of and establish future profitable production
from its mineral assets, or the proceeds from the disposition of its mineral properties.
These consolidated financial statements have been prepared using International Financial Reporting Standards ("IFRS"), as
issued by the International Accounting Standards Board ("IASB") on a going concern basis, which assumes the Company will
be able to meet its obligations and continue its operations for the next twelve months from December 31, 2018. At December
31, 2018, the Company had not yet achieved profitable operations, had an accumulated deficit of $279.8 million since
inception (December 31, 2017, – $260.9 million), expects to incur further losses in the development of its business, and had a
net working capital deficit of $13.3 million as a result of the $18.1 million convertible loan facility (US$13.3 million). Net
working capital includes all current assets and current liabilities, excluding the non-cash repayment option of $0.4 million and
the flow-through share liability of $0.4 million. Included in accounts payable and accrued liabilities is $0.7 million of current
liabilities which will be settled in cash.
By December 31, 2018, the Company negotiated an extension on the terms of its convertible loan facility. The maturity date
has been extended to September 30, 2019 with all other terms and conditions remaining the same. The Company will need
to raise funds, negotiate an extension on the terms of its convertible loan facility or the holder has to convert the loan to equity
as the Company does not have the cash nor cash flow to repay the facility. At December 31, 2018 the Company also has a
flow-through commitment to spend $2.6 million on Canadian Exploration Expenditures by December 31, 2019.
The Company’s ability to continue as a going concern is dependent upon its ability to repay or refinance its short term and
long term debt facilities and obtain the necessary financing to meet its ongoing corporate overhead expenditures as well as
advance the exploration of its claims and development of its projects in the ROF. Although the Company has been
successful in the past in refinancing its debt and obtaining equity financing, there is no assurance that it will be able to do so
in the future or that such arrangements will be on terms advantageous to the Company. These material uncertainties cast
significant doubt upon the Company’s ability to realize its assets and discharge its liabilities in the normal course of business
and, accordingly, the appropriateness of the use of accounting principles applicable to a going concern.
These consolidated financial statements do not reflect the adjustments to the carrying values of assets and liabilities and the
reported expenses and balance sheet classifications that would be necessary if the Company were unable to realize its
assets and settle its liabilities as a going concern in the normal course of operations. Such adjustments could be material.
2.
Basis of Preparation
These consolidated financial statements are prepared in accordance with International Financial Reporting Standards (IFRS),
as issued by the International Accounting Standards Board (IASB).
These consolidated financial statements have been prepared on a going concern basis, under historical cost convention,
except for certain financial instruments that have been measured at fair value. The principal accounting policies and critical
estimate and judgments, used when compiling these consolidated financial statements are set out below. These consolidated
financial statements were approved by the Board of Directors on April 10, 2019.
412018 Consolidated Financial Statements Noront Resources Ltd.
Notes to the Consolidated Financial Statements
(Expressed in Canadian dollars, unless otherwise noted)
For the year ended December 31, 2018
3.
a)
Significant Accounting Policies
Principles of Consolidation
These consolidated financial statements include the accounts of Noront Resources Ltd. and its wholly-owned subsidiaries,
Noront Resources 2008 Ltd., Noront Mexico S.A de C.V. and Noront Muketei Minerals Ltd. (NMM). NMM was formed as
result of the acquisition of chromite assets. All intercompany balances and transactions have been eliminated upon
consolidation.
b)
Functional and Presentation Currency
Items included in the consolidated financial statements are measured using the currency of the primary economic
environment in which the Company operates (the "functional currency"), which was determined to be Canadian dollars for all
entities. The consolidated financial statements are presented in Canadian dollars, which is the Company's presentation
currency. Transactions in currencies other than the Canadian dollar are translated at rates of exchange at the time of the
transactions as follows:
i)
ii)
iii)
Monetary assets and liabilities are translated at current rates of exchange with the resulting gains or losses recorded in
foreign exchange gain/loss in the statement of loss and comprehensive loss;
Non-monetary items are translated at historical exchange rates;
Expense items are translated at the average rates of exchange with any gains or losses recognized within foreign
exchange gain/loss in the statements of loss and comprehensive loss.
c)
d)
Cash and Cash Equivalents
Cash and cash equivalents have original maturities of less than 90 days.
Financial Instruments
The Company's financial instruments consist of cash and cash equivalents, investments, embedded derivatives, accounts
payable and accrued liabilities, loan facilities and related repayment option.
The Company has measured its cash and cash equivalents at amortized cost. The carrying value of these instruments
approximates their fair values due to their short-term nature.
Investments in publicly traded companies, which do not trade in an active market, are designated as financial assets at fair
value through other comprehensive income ("FVOCI") and are measured at fair value. Fair value is based on the market
values of comparable companies, if such information is readily available, or by reference to recent transactions involving
assets held by a comparable Company with adjustments for differences in mineral resources for the assets.
The three levels of fair value hierarchy are:
Level 1 -
Level 2 -
Level 3 -
Unadjusted quoted prices in active markets for identical assets or liabilities;
Inputs other than quoted prices that are observable for assets or liabilities, either directly
or indirectly; and
Inputs for assets or liabilities that are not based on observable market data
The repayment option is measured at fair value and classified as Level 2 (Note 11c).
Investments are classified as Level 3.
Financial liabilities classified as other financial liabilities are initially recognized at fair value net of transaction costs and are
subsequently measured at amortized cost using the effective interest rate method. Accounts payable and accrued liabilities
and the loan facilities are classified as other financial liabilities. Other financial liabilities are classified as current liabilities
unless the Company has an unconditional right to defer settlement of the liability for at least twelve months after the
statement of financial position date. The carrying value of the Company's accounts payable and accrued liabilities and loan
facilities with Resource Capital Funds V L.P ("RCF") approximates the fair values of those financial instruments, due to the
short-term maturity of such instruments. The carrying values of the Company's loan facility with Franco-Nevada Corporation,
exclusive of transaction costs, approximate fair value as there has not been a significant change in circumstances since this
facility was recorded at fair value on initial recognition.
422018 Consolidated Financial Statements Noront Resources Ltd.
Notes to the Consolidated Financial Statements
(Expressed in Canadian dollars, unless otherwise noted)
For the year ended December 31, 2018
3.
e)
Significant Accounting Policies (Continued)
Taxes and Other Receivables
Taxes and other receivables consists primarily of HST receivable from government authorities in Canada in respect of the
Company's expenses and cost reimbursement from third parties.
f)
Supplies Inventory
Supplies inventory is comprised of diesel fuel and jet fuel and is valued at the lower of cost and net realizable value. Cost
includes the cost of fuel and transportation to ship the supplies inventory to the site and is determined using the first-in, first-
out method. Net realizable value is the estimated selling price to a third party in the event the Company would need to
dispose of the fuel.
g)
Intangible Assets
Intangible assets are recorded at cost less accumulated amortization and accumulated impairment loss. Amortization is
provided over the related assets' estimated useful life using the declining balance method of amortization at a rate of 50%.
g)
Equipment
Equipment is recorded at cost less accumulated amortization and accumulated impairment loss. Amortization is provided
over the related assets' estimated useful lives using the following methods and annual rates:
Equipment
Furniture and fixtures
Leasehold improvements
20% - 30% declining balance
20% declining balance
20% declining balance
h)
Mineral Properties, Development and Exploration Expenditures
Mineral property acquisition costs are capitalized and the balance is written off should the property be disproven by
exploration or abandoned. These assets are recorded at cost. The carrying value of these assets is dependent, among other
things upon: the existence of economically recoverable reserves, the ability of the Company to obtain the necessary financing
to complete exploration and development, and upon future profitable production or proceeds from disposition of such
properties. The assets are evaluated each quarter for indications of impairment or when events occur that would require
assessment.
Where the Company considers that there is an impairment indicator such as significant decrease in resource and reserve
estimates, expiration or permanent cancellation of rights, impairment is assessed and if necessary, recognised for the
amount by which the carrying amount of the asset exceeds its recoverable amount, which is the higher of fair value less cost
to dispose or value in use. An impairment loss is recognized whenever the carrying amount of these assets or its cash
generating unit (which is the property) exceeds its recoverable amount. Impairment losses are recorded in the consolidated
statement of net loss.
Development and exploration expenditures are the costs incurred in the initial search for mineral deposits with economic
potential. Exploration expenditures typically include costs associated with prospecting, sampling, mapping, diamond drilling
and other work involved in searching for ore. Development expenditures are the costs related to the technical, environmental,
permitting and consultation in support of the Company's pre-development work.
All development and exploration expenditures are expensed as incurred. Development and exploration expenditures will be
capitalized when management determines that future economic benefits will be generated as a result of the expenditures.
432018 Consolidated Financial Statements Noront Resources Ltd.
Notes to the Consolidated Financial Statements
(Expressed in Canadian dollars, unless otherwise noted)
For the year ended December 31, 2018
3.
i)
Significant Accounting Policies (Continued)
Sale of Royalties on a Mineral Property
The sale of royalties on a mineral property are recorded as a reduction in the carrying value of the mineral property. Any
excess proceeds on the sale of royalties over the carrying value of the mineral property are recorded as a gain on sale of
royalties and reflected on the statement of loss and comprehensive loss. The reduction in the carrying value of the mineral
property or the gain on sale of royalties is recorded net of transaction costs.
j)
Leases
Leases of property, plant and equipment are classified as finance leases when the lessee retains substantially all of the risks
and rewards of ownership. Leases in which a significant portion of the risks and rewards of ownership are retained by the
lessor are classified as operating leases.
Finance leases are capitalized at the lower of the fair value of the leased property and the present value of the minimum
lease payments. The corresponding lease obligations, net of finance charges, are recorded as interest-bearing liabilities.
Each lease payment is allocated between liability and finance cost when paid.
k)
Provision for Environmental Obligations
Both legal and constructive obligations associated with the retirement of long-lived assets are recorded as a provision for
environmental expenditure when there is a probability of an outflow of resources embodying economic benefits to settle the
obligation. The amount of the provision is measured at the best estimate of the expenditure needed to settle the present
obligation. It is possible that the Company's estimates of its provision for environmental expenditure could change as a result
of changes in regulations, the extent of environmental remediation required and the means of reclamation or cost estimates.
Changes in estimates are accounted for prospectively from the period these estimates are revised.
Significant judgments and estimates are involved in forming expectations of future activities and the amount and timing of the
associated cash flows. Those expectations are formed based on existing environmental and regulatory requirements or, if
more stringent, the Company's environmental policies which give rise to constructive obligations. The cash flows are
discounted using the current real risk-free pre-tax discount rate.
l)
Joint Ventures
A joint venture is a contractual arrangement whereby two or more parties undertake an economic activity that is subject to
joint control. Joint control is the contractually agreed sharing of control such that significant operating and financial decisions
require the unanimous consent of the parties sharing control. The Company's joint ventures consist of jointly controlled
assets ("JCAs"). The balances related to JCA's are not material.
A JCA is a joint venture in which the venturers have joint control and ownership over the assets contributed to or acquired for
the purposes of the joint venture. JCAs do not involve the establishment of a corporation, partnership or other entity. The
participants in a JCA derive benefit from the joint activity through a share of production and bears an agreed share of
expenses incurred as opposed to receiving a share of the net operating results. The Company's proportionate interest in the
assets, liabilities, expenses, and cash flows of the JCAs are incorporated into the consolidated financial statements under the
appropriate headings.
m)
Loss per Common Share
The basic loss per share is calculated based upon the weighted-average number of common shares outstanding during the
period. Stock options and warrants outstanding are not included in the computation of diluted loss per share if their inclusion
would be anti-dilutive.
The accompanying notes are an integral part of these consolidated financial statements.
442018 Consolidated Financial Statements Noront Resources Ltd.
Notes to the Consolidated Financial Statements
(Expressed in Canadian dollars, unless otherwise noted)
For the year ended December 31, 2018
3.
n)
Significant Accounting Policies (Continued)
Share-based Compensation
The Company grants stock options, performance share units and restricted share units to certain employees and non-
employees under the terms of the Company's Stock Option Plan or Share Awards Plan.
Stock options: Each tranche in an option award is considered a separate award with its own vesting period and grant date fair
value. The fair value of each tranche is measured at the date of grant using the Black-Scholes option pricing model. The
Black-Scholes option pricing model requires estimates for the expected life of options and stock price volatility which can
materially affect the fair value estimate. Volatility and expected life of option is estimated based on an analysis of factors such
as the Company's historical price trends, history of option holder activity, and peer and industry benchmarks for similar
transactions.
Performance share units: The fair value of each tranche is measured at the date of grant using a method incorporating the
current market value of the underlying common shares, the performance conditions and the vesting provisions.
Restricted share units: The fair value of restricted share units are based on the terms of the individual tranche incorporating
the market price of the underlying common shares and vesting terms.
Share-based compensation expense is recognized over the vesting period of the grant by increasing contributed surplus
based on the number of awards expected to vest. This number is reviewed at least annually, with any change in estimate
recognized immediately in share-based compensation expense with a corresponding adjustment to contributed surplus.
o)
Income Taxes
Deferred tax assets and liabilities are determined based on the differences between the financial statement carrying values of
assets and liabilities and their respective income tax bases (temporary differences), and losses carried forward.
Deferred income tax is determined on a non-discounted basis using tax rates and laws that have been enacted or
substantively enacted at the balance sheet date and are expected to apply when the deferred tax asset is realized or liability
is settled. Deferred tax assets are recognized to the extent that it is probable that future taxable profit will be available against
which the deductible temporary differences can be used.
The determination of the ability of the Company to use tax loss carry-forwards to offset deferred tax payable involves
judgment and certain assumptions about the future performance of the Company. Assessment is required about whether it is
"probable" that the Company will benefit from the prior losses and other deferred tax assets. Changes in economic conditions,
metal prices and other factors could result in revisions to the estimates of the benefits to be realized or the timing of using the
losses.
p)
Flow-through Shares
The Company has adopted a policy whereby flow-through proceeds are allocated between the offering of the common shares
and the sale of tax benefits when the flow-through common shares are offered. The allocation is made based on the
difference ("premium") between the quoted price of the common shares and the amount the investor pays for the flow-
through shares. A liability is recognized for the premium paid by the investors and is then derecognized in the period the
eligible expenditures are incurred, which is recorded in the consolidated statement of loss.
q)
Segment Disclosure
The Company's chief operating decision maker is responsible for allocating resources and assessing performance of the
operations according to strategic decisions. The Company's operations comprise of a reporting segment engaged in the
exploration and development of minerals in Canada.
The accompanying notes are an integral part of these consolidated financial statements.
452018 Consolidated Financial Statements Noront Resources Ltd.
Notes to the Consolidated Financial Statements
(Expressed in Canadian dollars, unless otherwise noted)
For the year ended December 31, 2018
3.
r)
Significant Accounting Policies (Continued)
New and Amended Standards Adopted by the Company
The following accounting standard was adopted by the Company as of January 1, 2018. The Company adopted the standard
on a retrospective basis; however, in accordance with the transitional provisions in IFRS 9, comparative periods were not
restated. The impact of the adoption of the new standard and the new accounting policies are disclosed below.
IFRS 9 Financial Instruments
IFRS 9, Financial Instruments ("IFRS 9") addresses the classification, measurement and de-recognition of financial assets
and financial liabilities, introduces new rules for hedge accounting and introduces a new impairment model for financial
assets. The complete version of IFRS 9 was issued in July 2014. It replaces the guidance in IAS 39, Financial Instruments:
Recognition and Measurement ("IAS 39").
The adoption of IFRS 9 on January 1, 2018 resulted in changes in the accounting policies and adjustments to the amounts
recognized in the financial statements. The reclassifications and adjustments are recognized in the opening balance sheet as
at January 1, 2018 as summarized below.
IFRS 9 introduces a change in the accounting for amendments of financial liabilities and this resulted in an adjustment
to the carrying value of the Company’s Loan Facility – due to Resource Capital Funds V L.P. (“RCF”). The
amendment of this loan facility in October 2017 was a non-substantial modification under both IAS 39 and IFRS 9.
Under IAS 39, there was no amount recorded in the statement of loss and comprehensive loss on the date of the
amendment; however, under IFRS 9, when a financial liability at amortized cost is modified and such modification
does not result in de-recognition, the carrying value of the financial liability is adjusted to reflect the amended cash
flows discounted at the original effective interest rate. On adoption of IFRS 9, the Company recorded an adjustment to
reduce the carrying value of the Loan Facility – due to RCF by $0.9 million, with a corresponding reduction in Deficit.
The Company has made an irrevocable election available under IFRS 9 to continue to classify its long-term
investments in equity securities at fair value through other comprehensive income (“FVOCI”) because these
investments are held as strategic investments that are not expected to be sold in the short term. This election is
available on an instrument-by-instrument basis. Previously these investments were classified as available-for-sale
under IAS 39. Changes in the fair value of these investments are recognized in other comprehensive income (loss).
No adjustments were required on adoption of IFRS 9 and there was no impact on net and comprehensive loss for the
three-month and nine-month periods ended September 30,2018.
IFRS 9 applies an expected credit loss model to evaluate financial assets for impairment, rather than an incurred loss
model previously applied under IAS 39. The Company’s financial assets which are subject to credit risk are cash and
cash equivalents. Application of the expected credit loss model at the date of adoption did not have a significant
impact on the Company’s financial assets because the Company determined that the expected credit losses on its
financial assets were nominal. There were no impairment losses recorded on financial assets during the nine months
ended September 30, 2018.
Except as noted above, the adoption of IFRS 9 did not result in changes in the carrying values of the Company’s financial
instruments on January 1, 2018.
Financial assets and financial liabilities are recognized on the Company’s statement of financial position when the Company
has become a party to the contractual provisions of the instrument. Financial assets are derecognized when the rights to
receive cash flows from the assets have expired or have been transferred and the Company has transferred substantially all
risks and rewards of ownership. The Company’s financial instruments consist of cash and cash equivalents, investments,
accounts payables and accrued liabilities, and loan facilities and the related repayment option. Financial instruments are
recognized initially at fair value.
The accompanying notes are an integral part of these consolidated financial statements.
462018 Consolidated Financial Statements Noront Resources Ltd.
Notes to the Consolidated Financial Statements
(Expressed in Canadian dollars, unless otherwise noted)
For the year ended December 31, 2018
3.
r)
Significant Accounting Policies (Continued)
New and Amended Standards Adopted by the Company (Continued)
IFRS 9 Financial Instruments
IFRS 9 includes a revised model for classifying financial assets, which results in classification according to a financial
instrument’s contractual cash flow characteristics and the business models under which they are held. Under the IFRS 9
model for classification the Company has classified its financial assets as described below.
(i) Cash and cash equivalents
Cash and cash equivalents comprise cash on hand, deposits held with banks and other short-term highly liquid investments
with original maturities of three months or less. Cash and cash equivalents are recorded at amortized cost using the effective
interest method. The carrying value of these instruments approximates their fair values due to their short-term nature.
(ii) Investments
Investments comprise equity interests in publicly-traded entities.
The Company’s equity investments are held for strategic purposes and not for trading. Upon adoption of IFRS 9, the
Company made an irrevocable election to designate these investments in common shares at FVOCI. FVOCI investments are
recognized initially at fair value. Subsequent to initial recognition, FVOCI investments are measured at fair value and changes
in the fair value are recognized directly in other comprehensive income (loss). When an equity investment at FVOCI is sold,
the accumulated gains or losses are reclassified from accumulated other comprehensive income (loss) directly to deficit.
Previously under IAS 39, these equity investments were classified as available-for-sale financial assets.
The fair value of certain of the Company’s investments do not trade in an active market. Fair value for these investments is
based on the market values of comparable companies, if such information is readily available, or by reference to recent
transactions involving assets held by a comparable company with adjustments for differences in mineral resources for the
assets.
The three levels of the fair value hierarchy are:
Level 1 -
Level 2 -
Level 3 -
Unadjusted quoted prices in active markets for identical assets or liabilities;
Inputs other than quoted prices that are observable for assets or liabilities, either directly
or indirectly; and
Inputs for assets or liabilities that are not based on observable market data
Investments are classified as Level 1 and Level 3.
(iii) Financial liabilities
Except for the Repayment option on the Loan Facility due to RCF, financial liabilities are classified as financial liabilities to be
subsequently measured at amortized cost using the effective interest method.
The Repayment option is an embedded derivative that has been separated from the host Loan Facility – due to RCF and
recorded as a derivative liability measured at fair value through profit or loss. The fair value of the Repayment option is a
Level 2 fair value measurement. Refer to further details in Note 8(c).
The accompanying notes are an integral part of these consolidated financial statements.
472018 Consolidated Financial Statements Noront Resources Ltd.
Notes to the Consolidated Financial Statements
(Expressed in Canadian dollars, unless otherwise noted)
For the year ended December 31, 2018
3.
s)
Significant Accounting Policies (Continued)
New Accounting Standards Issued But Not Yet Applied
IFRS 16 Leases
IFRS 16 was issued in January 2016. It will result in almost all leases being recognized on the balance sheet, as the
distinction between operating and finance leases is removed. Under the new standard, an asset (the right to use the leased
item) and a financial liability to pay lease amounts are recognized by the lessee. The only exceptions are short-term and low-
value leases. The accounting for lessors will not significantly change.
The standard will affect the accounting for the Company’s operating leases. The Company’s non-cancellable operating lease
commitments as at December 31, 2018 are disclosed in Note 15. The Company is currently identifying and collecting data
relating to existing agreements that will extend beyond January 1, 2019, that may contain right-of-use assets and is
evaluating the effect the standard will have on its consolidated financial statements.
Some of the commitments may be covered by the exception for short-term and low-value leases and some commitments may
relate to arrangements that will not qualify as leases under IFRS 16.
t)
Critical Accounting Estimates and Judgments
The preparation of these consolidated financial statements requires management to make certain estimates, judgments and
assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and reported
amounts of expenses during the reporting period. Actual outcomes could differ from these estimates.
These consolidated financial statements include estimates that, by their nature, are uncertain. The impacts of such estimates
are pervasive throughout the consolidated financial statements, and may require accounting adjustments based on future
occurrences. Revisions to accounting estimates are recognized in the period in which the estimate is revised and future
periods if the revision affects both current and future periods. These estimates are based on historical experience, current
and future economic conditions and other factors, including expectations of future events that are believed to be reasonable
under the circumstances.
Significant assumptions about the future that management has made that could result in a material adjustment to the carrying
amounts of assets and liabilities, in the event that actual results differ from assumptions made, relate, but are not limited to,
the following:
Mineral Properties
Noront capitalizes mining property acquisition costs which are to be amortized when production is attained or the balance
thereof written off should the property be disproven through exploration or abandoned. On an ongoing basis, the Company
evaluates deferred expenditures relating to each property to assess whether there has been impairment in value. The
Company recognizes write-downs for impairment where the carrying value of the mining property exceeds its estimated long
term net recoverable value. Recoverable value is estimated based upon the Company's assessment of the future probability
of positive cash flows from the property, current exploration results for properties without a defined resource or estimated
proceeds from a potential sale of the property.
Provision for Environmental Obligations
The Company has a provision for future environmental obligations. The Company records the fair value of this provision as a
liability in the period in which it incurs a legal obligation associated with the retirement of tangible long-lived assets that result
from the acquisition, construction, development and/or normal use of the assets. The fair value of the provision is added to
the carrying amount of the associated asset and this additional carrying amount is depreciated over the life of the asset.
Subsequent to the initial measurement of the provision for environmental obligation, the provision is adjusted at the end of
each period to reflect the passage of time and changes in the estimated future cash flows underlying the provision. If the
provision is settled for other than its carrying amount, the Company will recognize a gain or loss on settlement.
The accompanying notes are an integral part of these consolidated financial statements.
482018 Consolidated Financial Statements Noront Resources Ltd.
Notes to the Consolidated Financial Statements
(Expressed in Canadian dollars, unless otherwise noted)
For the year ended December 31, 2018
3.
t)
Significant Accounting Policies (Continued)
Critical Accounting Estimates and Judgments
Stock Options, Warrants
The Black-Scholes option valuation model used by the Company to determine fair values for stock-based compensation was
developed for use in estimating the fair value of freely traded options. This model requires input of highly subjective
assumptions including future stock volatility and expected time until exercise. Changes in the subjective input assumptions
can materially affect the fair value estimate.
Repayment Option
The Company's convertible debt agreement contains an embedded derivative related to the Lender's convertible feature
("Repayment Option"). The fair value assigned to the Repayment Option uses level 2 assumptions with the main inputs to the
valuation being credit spread of the Company, historical prices of the underlying stock, USD discount curve and CAD/USD
foreign exchange rates. The most significant assumption regarding the lender's convertible feature is the probability of the
loan being repaid prior to reaching the conversion date. This was estimated by obtaining credit spreads for an index of
comparable companies residing in the same industry, which has an impact on the probability that the bridge loan will be
repaid at maturity. Refer to Note 10c for further information on the Repayment Option.
Loan Facility and Royalty Interests
The Company granted royalty interests on the mineral claims it acquired through the acquisition of certain subsidiary
companies of Cliffs Natural Resources (the “Royalty Interests”). These Royalty Interests are over potential future projects
which have not yet been defined. As a result, the Company has determined the fair value of the Royalty Interests by
estimating the fair value of the consideration received. The Company received what management considers to be a below
market loan as consideration for the royalty interests. Management estimated the fair value of the Royalty Interests by
calculating the difference between the present value of the future payment stream using management's estimate of a market
interest rate of approximately 15% and the face value of the loan being USD$25 million and the stated interest rate of the loan
(7%). The loan was also initially recorded at its fair value as determined by the above fair value calculation. See note 10(b).
Asset Acquisition
The assessment of whether an acquisition meets the definition of a business, or whether assets are acquired is an area of
key judgment. If deemed to be a business combination, applying the acquisition method to business combinations requires
each identifiable asset and liability to be measured at its acquisition-date fair value. Any excess of the fair value of
consideration over the fair value of the net identifiable assets acquired is recognized as goodwill. The acquisition of a
business generally has three elements:
Input – an economic resource that creates outputs when one or more processes are applied to it;
Process – a system, standard, protocol, convention or rule that when applied to an input or inputs, creates outputs;
Output – the result of inputs and processes applied to those inputs.
The acquisition of chromite assets in 2015 is accounted for in these consolidated financial statements as an asset acquisition
since the process and output elements of a business combination were not present at the acquisition date. The acquired
assets are recorded at fair value on the acquisition date.
4.
Capital Management
The Company manages its capital structure and makes adjustments to it, based on the funds available to the Company, in
order to support the acquisition, exploration and development of mineral properties. The Board of Directors does not establish
quantitative return on capital criteria for management, but rather relies on the expertise of the Company's management to
sustain future development of the business. The Company defines capital to include its capital stock, warrant, and option
components of its shareholders' equity.
The properties in which the Company currently has an interest are in the early development and early exploration stage; as
such the Company is dependent on external financing to fund its activities. In order to carry out the planned development
activity and pay for administrative costs, the Company will spend its existing working capital and raise additional amounts as
needed. The Company will continue to assess new properties and seek to acquire an interest in additional properties if it feels
The accompanying notes are an integral part of these consolidated financial statements.
492018 Consolidated Financial Statements Noront Resources Ltd.
Notes to the Consolidated Financial Statements
(Expressed in Canadian dollars, unless otherwise noted)
For the year ended December 31, 2018
there is sufficient geologic or economic potential and if it has adequate financial resources to do so.
Management has chosen to mitigate the risk and uncertainty associated with raising additional capital within current
economic conditions by:
i)
ii)
iii)
minimizing discretionary disbursements;
reducing or eliminating expenditures which are of limited strategic value; and
exploring alternative sources of liquidity.
Management reviews its capital management approach on an ongoing basis and believes that this approach, given the
relative size of the Company, is reasonable. There were no changes in the Company's approach to capital management
during the year ended December 31, 2018. The Company is not subject to externally imposed capital requirements.
5.
a)
Property and Financial Risk Factors
Property Risk
The Company's major mineral property is the McFauld's Lake Property in the "Ring of Fire" (Note 8). Unless the Company
acquires or develops additional material properties, the Company will be mainly dependent upon its existing property. Any
adverse development affecting the Company's major mineral property would have a materially adverse effect on the
Company's financial condition and results of operations.
b)
Financial Risk
The Company’s activities expose it to a variety of financial risks: credit risk, liquidity risk and market risk (including interest
rate, foreign exchange rate, and commodity price risk).
Risk management is carried out by the Company's management team with guidance from the Audit Committee under policies
approved by the Board of Directors. The Board of Directors also provides regular guidance for overall risk management.
Credit Risk
Credit risk is the risk of loss associated with a counterparty's inability to fulfil its payment obligations. The Company's credit
risk is primarily attributable to cash and cash equivalents. Cash and cash equivalents consist of cash on hand, term deposits
and savings accounts with reputable financial institutions with strong credit ratings which are closely monitored by
management.
Liquidity Risk
The Company's approach to managing liquidity risk is to ensure that it will have sufficient liquidity to meet liabilities when due.
As at December 31, 2018, the Company had cash and cash equivalents and taxes receivable balances of $5,669,271
(December 31, 2017 - $6,782,801) to settle current liabilities of $20,112,285 (December 31, 2017 - $21,853,835) which
includes a loan facility of $18,135,019 and a repayment option of $424,920. The Company also has a flow-through
commitment to spend $2.6 million on Canadian Exploration Expenditures by December 31, 2019 which will be fulfilled using
existing cash.
The loan facility is convertible into equity with a conversion price of $0.34 per share at the option of RCF anytime prior to
September 30, 2019. All of the Company's accounts payable and accrued liabilities have contractual maturities of less than
30 days and are subject to normal trade terms. The Company remains dependent upon financing from capital markets, RCF
converting its loan facility to equity or the Company's ability to repay or refinance the convertible loan (see Note 1).
Market Risk
Market risk is the risk of loss that might arise from changes in market factors such as interest rates, foreign exchange rates,
and commodity and equity prices.
i)
Interest Rate Risk
The Company has cash balances and a loan facility with a fixed interest rate. The Company's current policy is to invest
excess cash in investment-grade short-term deposit certificates and deposit accounts managed by its banking institutions.
The Company periodically monitors the investments it makes and is satisfied with the credit ratings of its banks.
The accompanying notes are an integral part of these consolidated financial statements.
502018 Consolidated Financial Statements Noront Resources Ltd.
Notes to the Consolidated Financial Statements
(Expressed in Canadian dollars, unless otherwise noted)
For the year ended December 31, 2018
ii)
Foreign Currency Risk
The Company is exposed to foreign currency risk as a result of its loan facilities held in a currency other than its functional
currency, the Canadian dollar. The majority of the Company's expenses are denominated in Canadian dollars. The Company
does not currently have any plans for exploration or development activities in foreign jurisdictions.
ii)
Foreign Currency Risk (Continued)
At December 31, 2018, the Company had monetary assets and liabilities denominated in U.S. dollars as follows:
Cash
Loan Facilities
iii)
Price Risk
December 31, 2018
December 31, 2017
US $
US
91,719
(42,667,146)
$
14,072
(39,789,961)
US $ (42,575,427)
$ (39,775,889)
The Company is exposed to price risk with respect to commodity and equity prices. The Company closely monitors
commodity prices as it relates to the value and the future outlook of the Company's mineral properties and equity prices to
determine the appropriate course of action to be taken for current and future projects.
c)
Sensitivity Analysis
Based on management's knowledge and experience of the financial markets, the Company believes the following movements
are "reasonably possible" over a twelve month period.
i)
The Company has cash balances and a loan facility in foreign currencies that give rise to exposure to foreign exchange
risk. Sensitivity to a 1% change in the foreign currency exchange rate would have affected the net loss by approximately
$0.6 million for the year ended December 31, 2018 (December 31, 2017 - $0.5 million).
ii) Commodity price risk could adversely affect the Company. In particular, the Company's future profitability and viability
from mineral exploration depends upon the world market price of valuable minerals. Commodity prices have fluctuated
significantly in recent years. There is no assurance that, even as commercial quantities of minerals may be produced in
the future, a profitable market will exist for them. As of December 31, 2018, the Company is not a producer of valuable
minerals. As a result, commodity price risk may affect the completion of future equity transactions such as equity
offerings. This may also affect the Company's liquidity and its ability to meet its ongoing obligations.
The accompanying notes are an integral part of these consolidated financial statements.
512018 Consolidated Financial Statements Noront Resources Ltd.
Notes to the Consolidated Financial Statements
(Expressed in Canadian dollars, unless otherwise noted)
For the year ended December 31, 2018
6.
Cash and Cash Equivalents
Cash and cash equivalents consist of:
December 31, 2018
December 31, 2017
Cash deposits and restricted cash
Guaranteed investment certificate
$
$
5,467,526
101,939
5,569,465
$
$
6,621,299
100,509
6,721,808
Restricted cash consists of $20,594, which is money held in trust for third party donations to First Nation communities
(December 31, 2017 - $51,435).
7.
Equipment
December 31, 2018
Cost
Accumulated Amortization
Closing Net Book Value
Opening Net Book Value
Additions
Re-measurement of provision1
Amortization
Equipment
$ 4,865,605
(3,698,457)
$ 1,167,148
$ 1,400,921
85,859
(24,197)
(295,435)
Furniture &
Fixtures
Leasehold
Improvements
Total
$
$
$
$
$
$
115,027
(104,254)
10,773
13,191
-
-
(2,418)
200,287
(189,122)
$ 5,180,919
(3,991,833)
11,165
$ 1,189,086
13,671
-
-
(2,506)
$ 1,427,783
85,859
(24,197)
(300,359)
Closing Net Book Value
$ 1,167,148
$
10,773
$
11,165
$ 1,189,086
December 31, 2017
Cost
Accumulated Amortization
Closing Net Book Value
Opening Net Book Value
Re-measurement of provision
Amortization
Equipment
Furniture &
Fixtures
Leasehold
Improvements
Total
$ 4,825,892
(3,424,971)
$ 115,027
(101,836)
$ 200,287
(186,616)
$ 5,141,206
(3,713,423)
$ 1,400,921
$ 1,581,115
150,048
(330,242)
$
$
$
$
13,191
16,489
-
(3,298)
13,671
$ 1,427,783
17,088
-
(3,417)
$ 1,614,692
150,048
(336,957)
Closing Net Book Value
$ 1,400,921
$
13,191
$
13,671
$ 1,427,783
1A re-measurement of the McFauld's Lake and Butler Lake property asset retirement obligations was recognized due
to changes in the estimated future cash flows and discount rate used to calculate the obligation as further described
in Note 11.
The accompanying notes are an integral part of these consolidated financial statements.
522018 Consolidated Financial Statements Noront Resources Ltd.
Notes to the Consolidated Financial Statements
(Expressed in Canadian dollars, unless otherwise noted)
For the year ended December 31, 2018
8.
Mineral Properties
(i) McFauld's Lake Property - "Ring of Fire",
James Bay Lowlands, Northeastern Ontario
(ii) Butler and Sanderson Properties - "Ring of Fire",
James Bay Lowlands, Northeastern Ontario
McFauld's Lake
Eagle's Nest, Nickel, Copper, PGM Deposit
December 31, 2018
December 31, 2017
$
24,654,708
$
24,654,708
763,357
763,357
$
25,418,065
$
25,418,065
Condor/Greenstone retains a 1% Net Smelter Royalty (NSR) on the Eagle's Nest nickel, copper, PGM deposit which may
be purchased by the Company at any time upon payment of the sum of $500,000 and/or at the Company's option,
issuance of an equivalent number of common shares of the Company.
RCF holds a separate 1% NSR over the Eagle's Nest deposit. The royalty contained a buy back provision, which expired
during the year.
Big Daddy, Black Thor, Black Label and Other Properties
These properties are subject to the following royalties granted to Franco Nevada Corporation ("Franco Nevada"):
a)
2% Gross Smelter Royalty (GSR) on all of the Company's chromite properties, except for Black Thor for which there is a
3% GSR and the Big Daddy deposit which is not subject to a royalty.
2% NSR over all other minerals of the Company's properties, excluding the Company's Eagle's Nest deposit and its
McFauld's Lake VMS deposit.
b)
Butler and Sanderson Properties
The Company has a 75% interest in the Butler and Sanderson Properties located in the ROF. MacDonald Mines Ltd.
("MacDonald") will have a 25% carried interest until the issuance of a NI 43-101 compliant resource on one of the
properties, at which time MacDonald will have the option to convert the carried interest into a 1% NSR (the "Conversion
Right"). If MacDonald does not elect to exercise its conversion right, the Company can elect to buy MacDonalds 25%
interest for $3.0 million (the "Buy-back Right"), payable in cash or shares at the option of the Company. If neither the
Conversion Right nor Buy-back Right are exercised, a Joint Venture arrangement will be formed between the parties to
develop the properties. There is a 2% NSR over 107 cell claims converted from six legacy claims, which comprise part of
the Butler Property.
The accompanying notes are an integral part of these consolidated financial statements.
532018 Consolidated Financial Statements Noront Resources Ltd.
Notes to the Consolidated Financial Statements
(Expressed in Canadian dollars, unless otherwise noted)
For the year ended December 31, 2018
9.
Accounts Payable and Accrued Liabilities
Accounts payable
Accrued liabilities
Accrued interest payable
Payable - Other
10(a)(ii)
10.
Loan Facilities
December 31, 2018
December 31, 2017
$
98,439
600,659
409,140
20,594
$
97,646
525,244
377,130
51,435
$
1,128,832
$
1,051,455
December 31, 2018 December 31, 2017
Current portion of loan facilities
Debt agreement with related party - February 26, 2013 (a)(i)
Repayment option (c)
$
18,135,019
424,920
$
18,292,595
2,046,359
Long term portion of loan facilities
Long term loan (b)
18,559,939
40,071,502
20,338,954
31,622,186
Total Loan Facilities
$
58,631,441
$
51,961,140
a)
(i)
Loan Facilities with Related Party - Resource Capital Funds V L.P.
On February 26, 2013, the Company entered into a loan facility with Resource Capital Funds V L.P. ("RCF" or "the Lender"),
which as of December 31, 2018 owns approximately 20.5% of the Company's common shares, in the aggregate principal
amount of US$15.0 million (the “Facility”). The Facility matured on February 25, 2014. Since the Facility was not repaid prior
to the maturity date, it automatically rolled into a convertible loan (the “Convertible Loan”) with a maturity date of December
31, 2015 which was then extended to June 30, 2016.
On June 30, 2016 the Company entered into an amending agreement with the Lender to extend the terms of the Convertible
Loan. The Convertible Loan was extended to December 31, 2017. The Convertible Loan may be converted into common
shares of the Company at the option of RCF at a price of $0.34 cents per share (previously $0.45 cents per share) at any time
prior to maturity (the “Conversion Rights”). All other terms and conditions of the Convertible Loan remained the same.
On October 4, 2017 the Company entered into a third amending agreement with the Lender to extend the terms of the
Convertible Loan to June 30, 2018. All other terms and conditions of the Convertible Loan remained the same.
The Company adopted the new IFRS 9 standard on January 1, 2018 retrospectively, with transitional provisions allowing for
comparative periods not to be restated. In order to transition from IAS 39 to IFRS 9, the Company recorded an adjustment as
at January 1, 2018 of $0.9 million to reduce the carrying value of the Loan Facility with RCF, with a corresponding reduction in
Deficit (see note 3r).
On June 25, 2018 the Company entered into a fourth amending agreement with the Lender to extend the terms of the
Convertible Loan to January 31, 2019. All other terms and conditions of the Convertible Loan remain the same.
By December 31, 2018, the Company had agreed the material terms of a loan extension with RCF and as such, recorded the
effect of a loan extension to September 30, 2019. The fifth amending agreement extending the loan was finalized on January
31, 2019. All other terms and conditions of the Convertible Loan remain the same.
The accompanying notes are an integral part of these consolidated financial statements.
542018 Consolidated Financial Statements Noront Resources Ltd.
Notes to the Consolidated Financial Statements
(Expressed in Canadian dollars, unless otherwise noted)
For the year ended December 31, 2018
10.
Loan Facilities with Related Party - Resource Capital Funds V L.P. (Continued)
The Company has determined that the fourth and fifth extensions of the Convertible Loan represented non-substantial
modifications of the existing loan facility and therefore the amendments are treated as loan modifications. As specified under
IFRS 9, on the date of amendment, the Company reduced the carrying value of the Loan Facility with RCF by $1.8 million and
$1.9 million respectively, to reflect the amended cash flows discounted at the original effective interest rate, with a
corresponding gain on loan modifications recognized in the consolidated statement of loss and comprehensive loss.
Amended loan facility
Beginning balance
Adjustment - Adoption of IFRS 9
Balance, January 1, 2018
Foreign exchange (gain) loss
Transaction costs - cash
Accretion of loan facility
Gain on loan modification
Balance, end of period
December 31, 2018 December 31, 2017
18,292,595
(945,560)
$
17,174,433
-
$
17,347,035
$
17,174,433
1,478,176
-
2,958,285
(3,648,477)
(1,195,260)
(16,388)
2,329,810
-
$
18,135,019
$
18,292,595
On January 25, 2018, the Company satisfied the payment of interest of $377,130 for the fourth quarter of 2017 through
issuance of 1,214,981 common shares of the Company. The interest shares were subject to a four month hold period, which
expired on May 26, 2018.
On April 10, 2018, the Company satisfied the payment of interest of $387,000 for the first quarter of 2018 through issuance of
1,022,457 common shares of the Company. The interest shares are subject to a four month hold period, which expired on
August 11, 2018.
On July 12, 2018, the Company satisfied the payment of interest of $393,990 for the second quarter of 2018 through issuance
of 1,071,207 common shares of the Company. The interest shares are subject to a four month hold period, which expires on
November 13, 2018.
On October 12, 2018, the Company satisfied the payment of interest of $387,240 for the third quarter of 2018 through
issuance of 1,250,775 common shares of the Company. The interest shares are subject to a four month hold period, which
expires on February 13, 2018.
As at December 31, 2018, the Company had accrued interest in the amount of $409,140 for the fourth quarter of 2018. On
January 10, 2019, the Company satisfied the payment of interest of $409,140 through issuance of 1,760,499 common shares
of the Company. The interest shares are subject to a four month hold period, which expires on May 11, 2019.
The accompanying notes are an integral part of these consolidated financial statements.
552018 Consolidated Financial Statements Noront Resources Ltd.
Notes to the Consolidated Financial Statements
(Expressed in Canadian dollars, unless otherwise noted)
For the year ended December 31, 2018
10.
b)
Loan Facilities (Continued)
Loan Facilities - Due to Franco-Nevada Corporation
On April 28, 2015, Noront Muketei Minerals Ltd, a 100% owned subsidiary of the Company, entered into a Loan Agreement
with Franco-Nevada in order to fund the acquisition of a subsidiary of Cliffs Natural Resources which held chromite deposits
and other mining interests in the Ring of Fire (the “Cliffs Transaction”). The Franco-Nevada Loan is a US$25 million five year
loan with interest compounding quarterly at an annual interest rate of 7%. Interest is accrued on a quarterly basis and
presented as part of the long-term loan. Payment of both principal and accrued interest is due at the end of the five year term.
The loan is secured against the assets acquired in the Cliffs Transaction with limited recourse to the Company. At initial
recognition, the long-term loan was recorded at fair value less transaction costs at a value of $19.7 million. Subsequent to
initial recognition, the long-term loan is carried at amortized cost.
In connection with the Long Term Loan, the Company granted Franco-Nevada certain royalties over the mineral properties
acquired through the Cliffs Transaction (see Note 8 - Mineral Properties).
Balance, beginning of period
Foreign exchange (gain) loss
Accrued loan interest
Accretion of loan facility
Balance, end of period
c)
Repayment Option
December 31, 2018 December 31, 2017
$
31,622,186
3,047,950
2,803,114
2,598,252
$
28,750,976
(2,050,710)
2,617,618
2,304,302
$
40,071,502
$
31,622,186
The Convertible Loan contains an embedded derivative related to the Lender's option to convert the loan into common shares
of the Company ("Repayment Option"). The fair value assigned to the convertible feature is valued with the main inputs to the
valuation being the USD discount curve, the credit spread of the Company, the historical prices of the Company's underlying
stock in order to calculate the volatility, and the forward CAD/USD foreign exchange rates.
At December 31, 2018, the fair value attributed to the convertible feature was $424,920 (December 31, 2017 - $2,046,359).
11.
Provision for Environmental Obligations
McFauld's Lake and Butler Lake
The Company has established a provision of $1,665,396 and $201,658 representing the estimated present value of its future
environmental expenditure for McFauld's Lake and Butler Lake respectively. These costs are not expected to be incurred
within the next twelve months.
The provision is based upon the following estimates and assumptions:
a) Total undiscounted future demobilization cost is $1,945,233 for McFaulds Lake (December 31, 2017 - $2,013,258) and
$235,550 for Butler Lake (December 31, 2017 - $243,788).
b) Nominal risk-free pre-tax discount rate of 2.13% (December 31, 2017 - 2.22%)
c) Demobilization cost expected to be incurred in 10 years (December 31, 2017 - 10 years)
A summary of the changes in the site remediation provision is set out below:
Balance, beginning of period
Accretion expense for the period
Re-measurement of provision
December 31, 2018 December 31, 2017
$
1,852,310
38,941
(24,197)
$
1,662,031
40,231
150,048
Balance, December 31, 2018
$
1,867,054
$
1,852,310
The accompanying notes are an integral part of these consolidated financial statements.
562018 Consolidated Financial Statements Noront Resources Ltd.
Notes to the Consolidated Financial Statements
(Expressed in Canadian dollars, unless otherwise noted)
For the year ended December 31, 2018
12.
(a)
(b)
(i)
(ii)
(iii)
(iv)
Capital Stock
Authorized - Unlimited common shares without par value.
Issued
Number of Shares
Value
Balance, January 1, 2017
Private placement, net of costs
Issue of flow-through shares, net of costs
Flow through share premium
Issue of interest shares
Exercise of options
Exercise of warrants
Balance, December 31, 2017
Issue of flow-through shares, net of costs (i), (iv), (v)
Flow through share premium
Exercise of RSU
Issue of shares (ii), (iii), (iv)
Issue of interest shares (Note 10(a))
Exercise of options
Exercise of warrants
324,392,693
3,400,000
9,456,381
-
5,583,228
1,500,000
729,359
345,061,661
18,545,820
-
334,517
5,771,510
4,559,420
4,103,334
500
$
$
194,758,699
1,246,029
3,577,197
(739,120)
1,567,740
497,000
273,678
201,181,223
6,707,785
(922,864)
83,629
1,683,040
1,545,360
1,393,017
230
Balance, December 31, 2018
378,376,762
$
211,671,420
On April 8, 2018 the Company closed a private placement of 10,000,000 flow-through common shares at a price of $0.42 per
flow-through share for gross proceeds of $4.2 million. In connection with the private placement, the Company issued 414,081
common shares at a price of $0.37 per common share in satisfaction of the share component of their finder's fee.The flow-
through shares are subject to a statutory hold period of four months plus one day which expired August 10, 2018.
On April 8, 2018, the Company issued 311,111 common shares to Marten Falls First Nation. These shares are part of an
exploration and pre-development agreement with Marten Falls First Nation announced on April 13, 2017. The common shares
are subject to a statutory hold period of four months plus one day which expired August 10, 2018.
On June 4, 2018, the Company issued 111,111 common shares to Marten Falls First Nation. These shares are part of an
exploration and pre-development agreement with Marten Falls First Nation announced on April 13, 2017. The common shares
are subject to a statutory hold period of four months plus one day which expired on October 5, 2018.
On November 5, 2018, the Company closed a private placement of (a) 5,349,288 units at a price of $0.295 per unit, for gross
proceeds of $1,578,040 ("Unit Offering") and (b) 6,491,433 flow-through common shares at a price of $0.335 per flow-through
common share for gross proceeds of $2.2 million (the "Flow-Through Offering"). Each unit is comprised of one common share
in the capital of the Company and one-half of one common share purchase warrant, with each whole warrant entitling the
holder to purchase one common share at a price of $0.35 per share on or before November 5, 2020. In connection with the
Flow-Through Offering, the Company issued 443,306 at a price of $0.335 per common share in satisfaction of the payment of
finder's fees. The securities issuable pursuant to both the Unit Offering and the Flow-Through Offering are subject to a
statutory hold period of four months plus one day which expired on March 6, 2019.
(v)
On November 23, 2018, the Company closed a private placement of 1,197,000 flow-through common shares at a price of
$0.335 per flow-through common share for gross proceeds of $0.4 million. The flow-through shares are subject to a statutory
hold period of four months plus one day which expired on March 24, 2019.
The accompanying notes are an integral part of these consolidated financial statements.
572018 Consolidated Financial Statements Noront Resources Ltd.
Notes to the Consolidated Financial Statements
(Expressed in Canadian dollars, unless otherwise noted)
For the year ended December 31, 2018
12.
(c)
Capital Stock (Continued)
Stock Options
Under the provisions of the Company's 2007 Incentive Stock Option Plan, an aggregate maximum of 10% of the issued and
outstanding common shares may be issued for granting of options to directors, senior officers, full time employees of the
Company, affiliates or subsidiaries, or any consultants to the Company. The terms of the awards under the Plan are
determined by the Board of Directors.
For the year ended December 31, 2018, share-based compensation of $1,114,419 was charged to net income (December
31, 2017 - $810,224) related to stock options.
(i)
On February 22, 2018, the Company granted 5,331,532 incentive stock options to directors and employees of the
Company at an exercise price of $0.35. The share price on February 22, 2018 was $0.35.
The fair value assigned was estimated using the following assumptions:
Dividend yield
Expected volatility
Risk free interest rate
Expected life
Forfeiture rate
0%
71.94%
1.75%
5 years
3%
The stock options were assigned a value of $1,114,290.
The weighted-average remaining contractual life and weighted average exercise price of options outstanding and options
exercisable as at December 31, 2018 are as follows:
Number of
Stock Options
Outstanding
Black-Scholes
Value
Exercise
Price
Remaining
Contractual
Life (Years)
Number of
Stock Options
Exercisable
725,000
1,500,000
300,000
1,275,000
400,000
416,253
4,103,417
300,000
600,000
400,000
4,131,532
1,000,000
224,025
367,500
59,100
248,625
76,000
74,509
582,685
39,000
121,200
63,600
863,490
209,000
15,151,202
$
2,928,734
$
$
$
$
$
$
$
$
$
$
$
$
$
0.55
0.44
0.35
0.34
0.33
0.31
0.25
0.23
0.35
0.28
0.35
0.35
0.33
1.25
1.47
1.65
2.23
2.29
2.52
3.16
3.27
3.44
3.88
4.15
4.15
3.12
725,000
1,500,000
300,000
1,275,000
400,000
416,253
3,314,853
200,000
400,000
266,667
2,811,587
333,333
11,942,693
Expiry Date
March 2020
June 2020
August 2020
March 2021
April 2021
July 2021
February 2022
April 2022
June 2022
November 2022
February 2023
February 2023
The accompanying notes are an integral part of these consolidated financial statements.
582018 Consolidated Financial Statements Noront Resources Ltd.
Notes to the Consolidated Financial Statements
(Expressed in Canadian dollars, unless otherwise noted)
For the year ended December 31, 2018
12.
(c)
Capital Stock (Continued)
Stock Options
The following table summarizes the stock option transactions for the year ended December 31, 2018.
December 31, 2017
Granted
Exercised
Expired
Forfeited
Balance, December 31, 2018
Number
of Options
Weighted-Average
Exercise Price
18,241,337
5,331,532
(4,103,334)
(4,085,000)
(233,333)
15,151,202
$0.30
$0.35
$0.22
$0.31
$0.31
$0.33
(d)
Warrants
The following table lists the Company's warrants as at December 31, 2018.
At December 31, 2017
Prospectus and Private Placement Warrants
Compensation Warrants
Balance, December 31, 2017
Exercise of Warrants
Private Placement Warrants
Balance, December 31, 2018
Number
of Warrants
Weighted-Average
Exercise Price
41,204,162
808,116
42,012,278
(500)
2,674,644
44,686,422
$
$
$
$
$
0.45
0.44
0.45
0.40
0.35
$
0.44
On November 5, 2018, 2,674,644 warrants were issued as a result of the private placement (Note 12 (b)(iv)). The fair
value of the warrants were calculated using the following assumptions:
Expected volatility
Risk Free interest rate
Expected life
58.47%
2.32%
2 years
The accompanying notes are an integral part of these consolidated financial statements.
592018 Consolidated Financial Statements Noront Resources Ltd.
Notes to the Consolidated Financial Statements
(Expressed in Canadian dollars, unless otherwise noted)
For the year ended December 31, 2018
12.
(e)
Capital Stock (Continued)
Performance Share Units (PSUs) and Restricted Share Units (RSUs)
For the year ended December 31, 2018, share-based compensation of $38,128 was charged to net income for PSUs and
RSUs (year ended December 31, 2017 - $191,921).
The following tables list the Company's PSUs and RSUs as at December 31, 2018. During the year ended December 31,
2018, no PSUs or RSUs expired.
Performance Share Units
Number of
PSUs
Value at grant
At December 31, 2018 and December 31, 2017
3,000,000
$
455,095
Restricted Share Units
At December 31, 2017
Exercise of RSUs
At December 31, 2018
13.
Income Taxes
Number of
RSUs
1,000,000
(334,517)
665,483
Value at grant
$
$
243,300
(83,629)
159,671
A reconciliation between the tax expense and the product of accounting loss multiplied by the Company's domestic tax rate is
as follows:
Statutory tax rate
Year Ended
December 31,
2018
Year Ended
December 31,
2017
26.50 %
26.50 %
Loss before recovery of income taxes
$ (19,886,166)
$ (15,722,001)
Expected income tax recovery
Permanent differences
True-ups and other
Renounced expenditures
Share issuance costs booked through equity
Benefits of tax attributes not recognized
(5,269,834)
50,289
-
1,795,541
(44,713)
3,468,717
(4,166,330)
(23,006)
330,991
1,518,229
(36,099)
2,376,215
Total tax recovery
$
-
$
-
The accompanying notes are an integral part of these consolidated financial statements.
602018 Consolidated Financial Statements Noront Resources Ltd.
Notes to the Consolidated Financial Statements
(Expressed in Canadian dollars, unless otherwise noted)
For the year ended December 31, 2018
13.
Income Taxes (Continued)
The Company offsets tax assets and liabilities if and only if it has a legally enforceable right to set off the current tax assets
and current tax liabilities or deferred tax assets and liabilities and they relate to taxes levied by the same tax authority.
The tax benefit of the following unused tax losses and deductible temporary differences have not been recognized in the
consolidated financial statements due to the unpredictability of future earnings.
Deductible Temporary Differences
Mineral properties and capital assets
Provision for environmental expenditure
Capital losses
Loss-carryforwards
Share issue costs
Loan facility and unaccreted amounts
ITC's
Year Ended
December 31,
2018
Year Ended
December 31,
2017
$ 272,664,545
1,867,054
4,484,598
88,384,596
1,393,041
16,274,482
25,417,902
$ 271,905,757
1,852,310
4,473,000
81,683,767
1,556,273
11,461,735
25,417,902
$ 410,486,218
$ 398,350,744
At December 31, 2018, the Company had unclaimed non-capital income tax losses that expire as follows:
2021
2022
2023
2024
2025
2026
2027
2028
2029
2030
2031
2032
2033
2034
2035
2036
2037
2038
$
395,894
1,003,520
1,105,611
1,352,175
5,817,488
3,634,907
1,179,805
7,160,174
9,157,409
6,804,658
8,385,059
7,238,483
6,248,292
5,524,743
2,295,957
5,196,635
7,102,516
8,781,270
$
88,384,596
The accompanying notes are an integral part of these consolidated financial statements.
612018 Consolidated Financial Statements Noront Resources Ltd.
Notes to the Consolidated Financial Statements
(Expressed in Canadian dollars, unless otherwise noted)
For the year ended December 31, 2018
14.
Loss Per Share
Loss attributable to common
Shareholders
Weighted average shares
outstanding - basic
Loss per share - basic
Year Ended
December 31,
2018
December 31,
2017
$ (19,886,166)
$ (15,722,001)
360,381,331
332,530,579
$
(0.06)
$
(0.05)
As a result of the net loss for the year ended December 31, 2018, the potential effects of the exercise of stock options and the
conversion of the RCF loan facility were anti-dilutive. Thus, basic loss per share and diluted loss per share are equal for these
periods.
15.
Commitments and Contingencies
a) Pursuant to the terms of flow-through share agreements, the Company is in the process of complying with its flow-
through contractual obligations with subscribers with respect to the Income Tax Act (Canada) requirements for flow-
through shares. As at December 31, 2018, the Company is committed to incurring $2.6 million in Canadian Exploration
Expenditures by December 31, 2019.
b) Under the terms of leases including Noront's mining lease and leases for office space, vehicles and equipment, the
Company is obligated to minimum annual rent and lease payments as follows:
2019
2020
2021
2022
2023
2024 to 2033
$
246,042
215,361
272,916
276,537
76,329
12,301
c)
As at December 31, 2018, the Company currently has agreements with several contractors that include provisions where
the contractors provide up-front time with the understanding that if the Eagle's Nest Project proceeds into the
construction stage, they will be granted a contract for the agreed scope of services. In some cases, the constructor may
be reimbursed for the time incurred, or an amount agreed up front, if the project does not go ahead. As at December 31,
2018, the amount of this contingent liability is approximately $250,000.
16.
Compensation of Key Management
Salaries, benefits and directors' fees
Share-based compensation
Year Ended
December 31,
2018
December 31,
2017
$
$
1,582,537
1,067,016
2,649,553
$
$
1,689,968
957,411
2,647,379
Key management includes the 5 directors and 6 members of the executive management team (year ended December 31,
2017 - 7 directors and 6 members of the executive management team). Two members of key management are allocated to
Development and Exploration Expenditures under Owner's Costs and four members of key management and the directors
are included in Office and General.
The accompanying notes are an integral part of these consolidated financial statements.
622018 Consolidated Financial Statements Noront Resources Ltd.
Notes to the Consolidated Financial Statements
(Expressed in Canadian dollars, unless otherwise noted)
For the year ended December 31, 2018
17.
Supplementary Expense Information
a)
Development and Exploration Expenditures
Owner's costs
Camp operations & exploration expense
Community engagement & permitting
Engineering, road geotechnical & other
Year Ended
December 31,
2018
December 31,
2017
$
300,336
6,287,869
312,655
222,388
$
351,828
5,756,254
232,536
461,103
$
7,123,248
$
6,801,721
Included in development and exploration expenditures expenses for the year ended December 31, 2018 is $2,534,276
of salaries and benefits (year ended December 31, 2017 - $2,487,464) and $795,030 of fuel expenses (year ended
December 31, 2017 - $707,940).
b)
Office and General:
Salaries, benefits and directors' fees
Employee severance
Donations & sponsorships
Administrative and other expenses
Professional fees
Communications & travel
18.
Subsequent Events
Year Ended
December 31,
2018
December 31,
2017
$
1,715,275
$
-
15,774
583,629
503,433
376,998
1,831,124
21,417
11,145
667,453
455,627
298,238
$
3,195,109
$
3,285,004
On January 10, 2019, the Company satisfied the payment of interest of $409,140 for the fourth quarter of 2018 through
issuance of 1,760,499 common shares (the "Interest Shares) at an effective price of $0.2324 per Interest Share. The Interest
Shares are subject to a four month hold period, expiring on May 11, 2019.
On January 31, 2019, the Company announced the finalization of the fifth amending agreement (the "Amending Agreement")
with its largest shareholder, RCF, to extend the term of its existing US$15 million convertible debenture (the "Convertible
Debenture").
The maturity date of the Convertible Debenture has been extended until September 30, 2019 (previously January 31, 2019).
The Amending Agreement includes a provision whereby the Company will require RCF approval to issue equity below $0.306
per share. All other material terms and conditions remain the same. Since the terms of the Amending Agreement were
substantially agreed upon by December 31, 2018, these financial statements reflect the extension of the Convertible
Debenture as if the Amending Agreement was in place at that date.
On April 10, 2019, the Company satisfied the payment of interest of $400,968 for the first quarter of 2019 through issuance of
1,448,061 common shares (the "Interest Shares) at an effective price of $0.2769 per Interest Share. The Interest Shares are
subject to a four month hold period, expiring on August 11, 2019.
The accompanying notes are an integral part of these consolidated financial statements.
632018 Consolidated Financial Statements