ANNUAL REPORT
FOR THE YEAR ENDED DECEMBER 31, 2019
LETTER FROM THE PRESIDENT
Fellow shareholders,
The past year was a busy one at your Company with several important agreements signed, milestones reached and continued success
from our exploration efforts. The COVID-19 global pandemic has made recent progress difficult, but we are taking measures to
protect our employees and our communities and will be prepared to resume activities when it is safe to do so. Noront celebrated a
major safety milestone by completing a full year without a recordable incident and has now completed over 700 days without an
incident.
Our focus has been on working with the provincial government and local First Nation communities to advance the all-season road
network into the Ring of Fire region. We were very pleased to see the province, represented by Premier Ford and Minister Rickford,
sign an agreement with the communities of Marten Falls and Webequie First Nation to advance the Northern Link Road which will
connect the communities and the mining projects to railroad and paved highway infrastructure. Twenty kilometres of road was
upgraded last year and a further 70 kilometres was scheduled for 2020 prior to the pandemic outbreak.
Noront signed an MOU with Aroland First Nation which is located at the southern terminus of the all-season road project. This is
the proposed site of a transload facility that will see the ores and concentrates moved from trucks to rail cars for transport to market.
The MOU resulted in Aroland becoming a shareholder of the Company and ensures on-going dialogue as we determine the
economic development opportunities from the mining developments.
On the Chromite front, Noront selected Sault Ste. Marie to be the site of the proposed Ferrochrome Production Facility (FPF) due
to its skilled workforce, access to markets and excellent infrastructure. Subsequent agreements were concluded with Algoma Steel
Inc. and Hatch Ltd. to provide industrial land in the brownfields area west of the steel mill for the site infrastructure and to provide
engineering and project support services.
The Company recently issued a NI43-101 compliant resource estimate for the recently discovered Nikka copper-zinc deposit in the
McFaulds volcanogenic massive sulphide (VMS) field of the Ring of Fire. The Inferred resource totals 4.0 million tonnes grading
2.7% copper equivalent and the Indicated resource contains 0.85 million tonnes grading 3.71% copper equivalent with the copper
stringer zone remaining open downdip. Additional targets on the property have been identified through numerous ground and
airborne geophysical surveys and we believe there is much more to be found at McFaulds.
We made the difficult decision to close our Esker Site once the scale and potential impact of the global pandemic became
obvious. This was a necessary precaution to help protect the health and well-being of our employees and the communities
surrounding our operations. The logistics of flying in and out of Esker Site would make it difficult to contain a virus outbreak.
We also recognize there are vulnerable people living in the remote communities our workers return to at the end of their rotation
and closing Esker would help keep those community members safe.
With Esker Site demobilized, our focus has shifted to completing the metallurgical testing on the core we procured during our
recent Eagle’s Nest drill program. This is an element of the update to our 2012 feasibility study and will determine whether
separate nickel and copper concentrates can be produced. In addition, work in support of our First Nations partners who are
developing critical road infrastructure will also continue.
Finally, I would like to thank you, our shareholders, for your ongoing support and confidence as we strive to advance one of the
great economic and social development opportunities that our country possesses. The past year saw tangible progress and
exciting outcomes that we intend to build upon and help all Canadians participate in the development of a sustainable, prosperous
future.
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………………………………………... 32
Independent Auditors Report…………………………………………………………………... 33
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, 2019, 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 9, 2020.
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 2019, 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-
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
42019 Management's Discussion and Analysis 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, 2020, 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.
52019 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 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 McFaulds Lake copper-
zinc deposits/occurrences and a 75% 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 prospective Sanderson nickel property, gold
exploration targets and other diamond exploration properties.
Noront now holds interest, mineral, and exploration rights to approximately 156,249 hectares of ground in Ontario and 3,395 hectares
in New Brunswick.
In New Brunswick, Noront holds a 42% interest in the Burnt Hill tin-tungsten-molybdenum property.
OBJECTIVES
The Company’s primary objectives for fiscal 2020 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. Develop a monitoring and facilitation plan so
that clear schedules and milestones are established and managed;
Advance the Eagle’s Nest project towards a construction decision. Initiate the update to the Eagle’s Nest Feasibility Study focusing
on revised metallurgical test work and the restructure of the Environmental Assessment to remove the road from the project terms
of reference;
Initiate a preliminary economic assessment (PEA) on the first chromite project including the Blackbird Mine and Sault Ste. Marie
Ferrochrome Production Facility. Work with government to advance the status of Noront’s project as a strategic ferrochrome supply
chain;
Continue to advance discussions with the primary First Nation communities in the Company’s project area to conclude and sign a
project advancement agreement in support of the Eagle’s Nest Project, which would ultimately lead to an impact benefit agreement.
while providing training and future employment opportunities;
Actively pursue pre-development financing to fund development activities. 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 to develop the Ring of Fire is the construction of an all-season access road to the region. The Company’s strategy
is to work with the both the federal and provincial governments and local First Nations to align the needs of both social and industrial
infrastructure. In this regard, the Company fully supports the Environmental Assessments (EA) driven by First Nation Proponents for
the access roads in the region.
62019 Management's Discussion and Analysis Figure 1: Ring of Fire Road Map
All sections of the Ring of Fire access road are progressing through the Provincial Environmental Assessment (EA) process. The
southernmost road section from Nakina to Aroland First Nation has been upgraded; the road section from Aroland to Painter Lake is an
upgrade of an existing forestry road, which is planned to be advanced under an expedited Class EA; the EA commenced on the section
from Painter Lake to Marten Falls First Nation (MFFN) and on the section from Webequie First Nation (WFN) to the Ring of Fire on
May 3, 2018. The Government of Ontario, MFFN and WFN signed an agreement to advance the development of the road section from
Marten Falls First Nation to the Ring of Fire and announced the signing at a joint news conference on March 2, 2020. Where federal
participation is required cooperation, agreements between the provincial and federal governments have been signed.
Ring of Fire Nickel Project
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 most likely 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. The Company is currently evaluating options to raise funds for this predevelopment work.
Ring of Fire Chromite Projects
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 believes its chromite resources are of sufficient size to support mining in the region over several
decades. 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.
72019 Management's Discussion and Analysis The Company selected Sault Ste. Marie for the site of its Ferrochrome Processing Facility and signed an agreement with Algoma Steel
Inc. (Algoma) to secure the site adjacent to their property. The Company has a five-year option to enter into a 99-year lease with
Algoma.
The Company plans to initiate work on a preliminary economic assessment in 2020
First Nation Relations
The Company is working with the primary First Nation communities on the Environmental Assessments on the road projects and has
entered a project advancement and a memorandum of understanding with Marten Falls First Nation and Aroland First Nation respectively.
Both communities are Noront shareholders. The Company will be initiating a dialogue to negotiate pre-development agreements once
the Company raises the funds required to advance the Environmental Assessment for the Eagle’s Nest project.
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 September 20, 2019, the Company announced agreements with Algoma Steel Inc. (“Algoma”) and Hatch Ltd. (Hatch) to facilitate
chromite development in the Ring of Fire and secure the site for its planned Ferrochrome Processing Facility in Sault Ste. Marie,
Ontario once the Company’s chromite project is established. The agreement with Algoma provides the Company with a 5-year option
to enter into a 99-year ground lease on a parcel of land owned by Algoma, west of its steel mill. It is the Company’s intent to design,
permit, construct and operate a Ferrochrome Production Facility on the property. On September 26, 2019 as consideration for the
agreement, the Company issued 750,000 common shares and 750,000 warrants to purchase common shares to Algoma. The Company
also entered into a Master Services Agreement with Hatch to perform engineering and project support services for the Eagle’s Nest and
Ring of Fire Chrome Projects. Hatch will participate as an equity partner with the Company and form an integrated project
management and engineering team to manage, develop, and execute the projects in the Ring of Fire.
On August 27, 2019, the Government of Ontario, at a joint announcement with Noront Resources in Sault Ste. Marie, Ontario
announced that they are committed to opening up the Ring of Fire and are working directly with willing First Nations partners to
develop the necessary infrastructure. The Company and Marten Falls First Nation (MFFN) released a joint statement supporting the
government’s approach to expedite the development of the all-season access road to the Ring of Fire.
Subsequent to year-end on March 2, 2020, the Government of Ontario, MFFN and Webequie First Nation (WFN) announced a
Memorandum of Agreement between the parties to advance the last section of the all-season access road, which will connect the Ring
of Fire to Webequie First Nation to the West and to the Marten Falls First Nation access road to the south. Once complete the access
road will connect the Ring of Fire to the provincial highway network.
Exploration
McFaulds Property
During the year the Company drilled five holes (3,005m) on the property, testing the down-dip continuity of the McFaulds No.8
copper-zinc rich VMS deposit. Results of this drilling have identified a new copper-rich stockwork zone at depth below the deposit
which returned 20.0 meters grading 2.0 % copper in MCF-19-102, and 10.1 meters grading 3.3 % copper in MCF-19-103 (figure 2). To
date, eight drill holes totaling 5,300 meters have intersected the McFaulds No. 8 VMS deposit over a dip extent of roughly 600 meters
(table 1). The deposit remains open along strike and at depth.
Regional targeting on the property was advanced with inversion modeling of the ground gravity survey completed in 2018. Results of
the inversion model match closely the drilled extent of the McFaulds No.8 deposit at over 800 meters depth, suggesting ground gravity
82019 Management's Discussion and Analysis as a viable tool for identifying deep targets on the property. Based on this several additional gravity targets have been identified for
follow-up testing.
During the third quarter, the Company commissioned a survey program of historic holes intersecting the McFaulds No. 3 deposit where
collar and/or survey data quality was questionable. This revised data will be incorporated into an updated NI 43-101 resource estimate
for the property, incorporating estimates for the McFaulds No.1, No.3 and No.8 copper-zinc deposits.
Ring of Fire Nickel Targeting
During the year the Company completed an extensive nickel-copper-PGE targeting initiative throughout the RoF to better characterize
its inventory of nickel targets. The final report documents 79 individual targets which have been reviewed, catalogued and prioritized
for future follow-up. The Company firmly believes in the continued nickel prospectivity of the region and as a result of this targeting
initiative, in January 2020, staked 176 claims over a new nickel target, the Victory property, southeast of the McFaulds property.
Blackbird Geological Modelling
Review of existing drill core in the first quarter of 2020 was performed to revise and improve the geological model for the Blackbird
chromite deposit. The revised geologic model will help inform the mine plan that will be established in the Blackbird PEA during
2020.
Eagle’s Nest Metallurgical & Exploratory Drilling
Drilling at Eagle’s Nest in the first and second quarters of 2020 will be performed to collect additional samples for future metallurgical
testing which will inform the viability and process required for separate nickel and copper concentrates. In addition, drilling in areas
around the deposit will test for near-mine footwall mineralization.
92019 Management's Discussion and Analysis Figure 2: Cross-section (left) looking southwest, and long-section (right) looking southeast of modelled McFaulds No.8 deposit
showing current interpretation of the massive sulfide domain (red) and the copper stockwork domain (yellow) with location of
MCF-19-103 and MCF-18-98
102019 Management's Discussion and Analysis Discovery
Table 1: Recent Drilling Highlights - McFaulds Property
Zn
To
(%)
(m)
Width
(m)
From
(m)
Cu
(%)
Hole
Ag
(g/t)
Au
(g/t)
MCF-17-88
557.3
566.3
9.0
2.0
3.6
7.8
MCF-17-89
486.3
497.2
10.9
1.1
1.7
10.9
0.4
MCF-18-92
447.9
454.6
6.7
1.3
5.9
10.3
0.5
MCF-18-95
388.1
391.1
3.0
0.2
5.3
1.7
-
MCF-18-96
614.0
622.5
8.5
1.9
2.0
6.2
0.3
MCF-18-97
Hole abandoned at 186m due to excessive hole deviation
MCF No.8
MCF-18-98
707.3
733.8
26.4
2.1
3.4
5.5
0.2
MCF-19-99
Hole abandoned at 35m due to excessive hole deviation
MCF-19-100
NSV
MCF-19-101
Hole abandoned at 217m due to excessive hole deviation
MCF-19-102
660.0
680.0
20.0
2.0
0.1
4.8
0.1
MCF-19-103
866.0
876.1
10.1
3.3
NSV
6.5
0.2
MCF-18-90
267.6
276.0
8.4
0.2
0.1
2.0
nsv
MCF No.9
MCF-18-91
253.0
259.0
6.0
0.3
0.5
3.1
0.1
MCF-18-92
401.0
401.5
0.5
nsv
25.7
3.0
MCF No.10
MCF-18-93
349.0
362.4
13.4
MCF-18-94
387.0
409.0
22.0
-
-
2.1
6.6
1.6
8.1
-
-
-
Other Significant Events
On December 23, 2019, the Company extended the terms of its current debt facilities with Franco-Nevada Corporation ("Franco-Nevada")
and Resource Capital Fund V L.P. ("RCF V"). The Company’s loan with Franco-Nevada has been extended to September 30, 2022 and
the maturity of its convertible debenture with RCF V has been extended to September 30, 2021. In addition, Noront has granted a 1%
gross revenue royalty on the Eagle’s Nest Nickel-Copper-PGM deposit for C$5.0 million to Franco-Nevada.
On November 20, 2019, the Company closed a non-brokered private placement for gross proceeds of $2.06 million from the issuance of
flow-through shares (the “FT Shares”) and units (the “Units”). The Company issued 7,900,000 FT Shares at a price of $0.25 per FT
Share for gross proceeds of $1,975,000 and 425,000 Units at a price of $0.20 per Unit for gross proceeds of $85,000 (the “Private
Placement”). Each Unit consists of one common share of the Company and one common share purchase warrant (each, a “Warrant”).
Each Warrant entitles the holder to acquire one common share of the Company at a price of $0.30 until November 20, 2021.
On September 3, 2019, Noront issued 300,000 shares to Marten Falls First Nation and 150,000 shares to Aroland First Nation. The
share issuance was under the terms of a project advancement agreement with Marten Falls First Nation originally entered into by the
112019 Management's Discussion and Analysis Company on April 12th, 2017 and as amended on July 9th, 2019 and under the terms of a Memorandum of Understanding with Aroland
First Nation entered into by the Company on June 6, 2019.
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 fiscal 2019
by delivery of the following common shares of the Company (the “Interest Shares”):
a)
1,448,061 Interest Shares to RCF on April 10, 2019, at an effective price of $0.3104 per Interest Share.
b)
1,649,938 Interest Shares to RCF on July 10, 2019 at an effective price of $0.2378 per Interest Share.
c)
1,640,744 Interest Shares to RCF on October 10, 2019, at an effective price of $0.2418 per Interest Share.
d)
2,598,991 Interest Shares to RCF on January 10, 2020, at an effective price of $0.1507 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 in 2020 and complete project permitting once the 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;
a separate 1% NSR held by RCF; and
a 1% Gross Revenue Royalty (GSR) held by Franco-Nevada
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.
122019 Management's Discussion and Analysis CHROMITE PROJECTS
The Company has the following chromite resources2:
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
Deposit
Blackbird
Black Thor
Black Label
Big Daddy
Notes:
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
(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 on the Algoma Steel (Algoma) site adjacent to
their operations in Sault Ste. Marie.
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).
The Black Thor Chromite deposit has a 3% Gross Smelter Royalty (GSR) which can be reduced to 2% if the Company grants royalties
on certain claims in the Ring of Fire. The Blackbird and Black Label Chromite deposits have a 2% GSR.
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.
132019 Management's Discussion and Analysis In addition, the Black Thor and Big Daddy Chromite Deposits have a 2% NSR half of which can be bought back any time prior to
production for $1 million.
MCFAULDS LAKE VMS DEPOSITS
The two McFaulds deposits are volcanogenic massive sulphide (VMS) type occurrences and are the centerpiece of a 1,043 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
3.75
2.13
1.1
0.58
Notes:
(i) Mineral resources were estimated using a cut-off grade of 1.5% Cu
In August 2017, Noront discovered an additional VMS deposit on the property, McFaulds No.8. Drilling to date at McFaulds No.8 has
defined a copper and zinc-rich massive sulfide body with a dip extent of over 600 metres. Future drilling will continue to test the down-
dip and along-strike continuity of the mineralization along with other targets on the property.
The Company believes there is significant opportunity for discovery of additional VMS mineralization along this favorable 10 km
horizon.
There is a 1.5% NSR on the McFaulds Lake VMS claims which include the above deposits.
OTHER PROPERTIES
Other Ring of Fire Properties
Sanderson
The Sanderson property comprises 1,039 claim cells (19,203 ha) in the northeastern portion of the RoF. Noront acquired a 75% interest
in the property from MacDonald Mines in 2016. The property covers a regionally extensive ferrogabbro sill complex known as the Big
Mac intrusion, as well as numerous discrete magnetic anomalies in the structural footwall to Big Mac. One of these magnetic
anomalies, the Pinay Ni-Cu-PGE target, was believed to represent a large ultramafic intrusion similar in nature to the Black Thor
intrusive complex. In 2019 the company executed a four-hole (1,351m) drill program on Pinay target. Drilling intersected ferrogabbroic
lithologies with limited Ni-Cu-PGE potential. Further work on the Sanderson property will target other possible ultramafic feeders and
dykes in the footwall to the Big Mac intrusion.
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;
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.
142019 Management's Discussion and Analysis Butler
The Butler property hosts four known zinc-copper VMS occurrences within a 12km long belt of highly prospective felsic to
intermediate volcanic rocks located in the southwestern portion of the RoF. Noront acquired a 75% interest in the property from
MacDonald Mines in 2016. Highlights of past drilling on the property are shown in Table 2. Recent work by the Company has been
limited to soil sampling, core re-logging and geological mapping to improve the base geological map and understanding of the controls
and styles of VMS mineralization on the property with a goal of refining targets for future ground geophysical surveying and drilling.
Table 2: Butler Mineralization Drill Intersections
Area
Hole
Width
(m)
Zinc
(%)
Copper
(%)
Lead
(%)
Silver
(g/t)
Butler 1
MN06-20
3.6 m
7.5
Butler 1
MN06-21
5.7 m
0.2
Butler 2
MN10-102
15.0 m
0.5
0.2
1.2
1.1
30.7
16.2
6.7
Butler 3
MN10-104
9.0 m
3.3
Butler 3
MN10-131
7.0 m
6.2
Butler 3
BP12-CU14
12.5 m
8.5
6.2
Butler 4
MN07-47
3.0 m
10.6
0.4
3.7
115
Butler 4
BP13-CU22
3.0 m
7.5
There is a 2% NSR over 107 claims which comprise part of the Butler Property half of which can be bought back for $1 million.
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.
Gold Targeting
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) covering 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 and which displays evidence of tight folding of banded iron formation. 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.
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;
152019 Management's Discussion and Analysis 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
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.
Figure 3: Noront Ring of Fire Claim Map
Other Royalties
There is a 2% NSR on the claims the Company held at the time of the transaction in which the Company acquired the Black Thor, Big
Daddy and Black Label chromite deposits excluding Eagle’s Nest and McFaulds Lake VMS deposits.
On other claims which do not currently have known deposits there is a 2% NSR of which half can be bought back for $1 million and on
other certain claims there is a 0.7522% NSR.
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
162019 Management's Discussion and Analysis properties contain tungsten, molybdenum and tin mineralization. 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, 2019, December
31, 2018 and December 31,2017 which have been prepared in accordance with IFRS:
(expressed in $ thousands except per share amounts)
Development and exploration expenditures
Office and general
Amortization
Share-based compensation
Interest income
Finance expense
Gain on loan modification
Gain on loan extinguishment
Gain on sale of mineral property
Gain on sale of royalty
Accretion expense
Re-measurement of repayment option
Net loss
Other comprehensive loss
Cash flow used in operations
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
2017
6,802
3,285
337
1,002
48
(4,199)
-
-
100
-
(4,674)
98
(15,722)
-
(9,467)
6,722
34,108
33,474
(12,372)
2019
5,745
2,879
357
1,128
34
(4,772)
802
7,241
-
4,972
(6,033)
(1,489)
(5,067)
(113)
(6,983)
7,332
34,846
55,361
6,547
Year Ended
December 31,
2018
7,123
3,195
300
1,153
50
(4,432)
3,648
-
150
-
(5,595)
1,621
(19,886)
-
(9,467)
5,569
32,967
41,939
(13,269)
(See Non-IFRS Financial Performance Measures).
Year Ended December 31, 2019 Compared to Year Ended December 31, 2018
Development and Exploration Expenditures
(expressed in $ thousands)
Owner's cost
Exploration expenditure
Community engagement & permitting
Engineering, staking & other
Total
Year Ended
December 31,
2019
2018
$
$
146
5,340
245
13
5,745
300
6,288
313
222
7,123
$
$
Owner’s Costs
Owner’s costs consist of the Company’s project personnel and consultants. In 2019, these costs were lower due to exploration personnel
being included in exploration expenditure.
Exploration Expenditure
During the year ended December 31, 2019, exploration spend was focused on the McFaulds Lake copper, zinc volcanic massive
sulphide targets, see exploration section above. In 2018, exploration focused on the McFaulds VMS property as well executed drill
programs on the Sanderson property and other regional exploration in the Ring of Fire. The Company’s spending on exploration
fluctuates based on the availability of flow-through financing during the year.
172019 Management's Discussion and Analysis
Community Engagement & Permitting
Community engagement and permitting expenses consists of costs related to environmental base line field work and First Nation
community engagement. In 2019, $70 thousand in shares were issued to Marten Falls First Nation under the terms of a Project
Advancement Agreement and $35 thousand in shares were issued to Aroland First Nation under the terms of a Memorandum of
Understanding. In the prior year, the Company had incurred increased costs for pre-development negotiations with our First Nation
Partners and other community engagement activities.
Engineering, Staking & Other
In 2019, these costs primarily consisted of staking activities. In 2018, these costs primarily consisted of costs associated with technical
engineering related to the selecting a site for its ferrochrome processing facility, environmental baseline field work and gold staking
activities.
Office and General
(expressed in $ thousands)
General administration
Professional fees
Communications and travel
Total
Year Ended
December 31,
2019
$ 2,079
478
322
2018
$ 2,315
503
377
$ 2,879
$ 3,195
General Administration
General administration expenses were lower than the prior year comparable periods due to lower IT and office costs.
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, 2019, professional fees were lower than prior year comparable period due to a decrease in services
related to business development initiatives.
Communications and travel
For the year-ended December 30, 2019 communications and travel costs were lower than the prior year comparable period due to
decreased business development activities.
Finance Expense
Finance expense consists of quarterly interest payments on the Company’s loan facilities and other transaction costs. During the year
ended December 31,2019, the Company satisfied the payment of interest of $1.6 million on the RCF convertible loan by issuing
6,499,242 common shares of the Company. Subsequent to the year end, the Company satisfied the payment of interest of $0.4 million
on the RCF convertible loan by issuing 2,598,991 common shares of the Company.
During the year ended December 31,2019, the Company accrued $3.1 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 September 30, 2022.
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 31,2019 compared to
the prior year comparable period 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, 2019, accretion expense consists primarily of accretion for the amended RCF loan of $3.0 million and the Franco-Nevada loan of
$3.0 million.
182019 Management's Discussion and Analysis Share-Based Compensation
For the year ended December 31, 2019, the Company incurred share-based compensation expense of $1.13 million compared to $1.15
million in the prior year.
Gain on Extinguishment of Loan
In December 2019, the loan with Franco-Nevada was extended under substantially the same terms and conditions until September 30,
2022. However, as the term to maturity is substantially different from the existing loan, the amendment is considered to be an
extinguishment of the original loan. As a result, a gain on debt extinguishment of $7.2 million was recorded.
Repayment Options
During the year ended December 31, 2019, the increase in the re-measurement of the repayment options of the Convertible Loan was
$1.5 million compared to a decrease of $1.6 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. The extension of the Convertible Loan to a maturity date of September 30, 2021 resulted in a
significant increase of the valuation of the repayment option.
Foreign Exchange Loss/Gain
During the year ended December 31, 2019, the Company recorded an unrealized foreign exchange gain of $3.4 million compared to a
$4.5 million unrealized foreign exchange loss 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 year ended December 31, 2019, the Canadian dollar strengthened against the US dollar, resulting in the unrealized foreign exchange
gain.
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,
$
$
2019
(6,983)
4,899
3,847
1,762
2018
(9,426)
(11)
8,274
(1,162)
$
$
For the year ended December 31, 2019, the Company had a cash outflow from operations of $6.9 million compared to a cash outflow
of $9.4 million in the prior year. Significant differences compared to prior year include the gain loan modifications, gain on loan
extinguishment, gain on sale of royalty and foreign exchange gains in 2019.
Investing Activities
For the year ended December 31,2019 the Company had cash inflow of $4.9 million resulting from the sale of a 1% gross revenue
royalty, offset by cash outflow for the purchase of equipment. During the prior year, the Company had net cash inflows of $0.01
million from proceeds related to the sale of an interest in the Burnt Hill Project, offset by cash outflows for the purchase of equipment.
Financing Activities
For the year ended December 31,2019 cash was provided by the issuance of flow-through and a private placement offering in the
amount of $5.2 million, net of transaction costs. $1.4 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. $0.1 million in cash was used for lease
payments related to the Company’s right-of-use assets and $0.05 was received in cash as a lease inducement.
192019 Management's Discussion and Analysis
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 by the exercise of
employee stock options and warrants in the amount of $1.4 million.
SUMMARY OF QUARTERLY RESULTS AND REVIEW OF THREE MONTHS ENDED DECEMBER 31, 2019
(expressed in $ thousands except per share amounts)
Expenses
Gain on sale of mineral property
Gain on loan modification
Gain on loan extinguishment
Gain on sale of royalty
Re-measurement of repayment options
Foreign exchange gain (loss)
Net income (loss)
Other comprehensive loss
Net earnings (loss) per share – basic
Net earnings (loss) per share – diluted
Cash and cash equivalents
Working Capital(1)
Assets
Long-term Liabilities
-
2018
2018
2019
2019
2019
5,663
-
-
-
(452)
1,866
-
-
677
2018
2018
2019
Jul-Sep Apr-Jun Jan-Mar
Oct-Dec Jul-Sept Apr-Jun
Jan-Mar Oct-Dec
5,008 6,078
5,102 4,549 4,969 6,294 5,049
- - - - - - 2 150
537 265
1,783 -
7,241 - -
4,972 - -
614
259
(752)
(4,815)
-
-
-
(1,170)
1,228 1,158 (2,899) 922 (1,157) (1,387)
(2,329) (4,237) (8,081)
(2,986)
-
- -
-
(0.01) (0.01) (0.02) (0.01) (0.01) (0.02)
0.02 (0.01)
(0.01) (0.01) (0.02) (0.01) (0.01) (0.02)
0.02 (0.01)
6,350 4,477
4,082 3,147 5,569
7,332 2,415
6,547 (61,454) (56,807)
(15,200)
(13,269)
(16,563)
34,846 30,211 31,712 31,145 32,967 31,531 34,015 32,405
59,982 2,258 2,255 42,916 41,939 38,435 37,706 35,623
(1,910)
1,717
7,956
(113)
-
-
(26)
3,987
(15,372)
(5,222)
-
(5,239)
-
2,140
(12,095)
-
-
-
(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)
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. During certain quarters in 2019, the working capital is negative
due to the presentation of the convertible loan facility (the “Convertible Loan”) with RCF and the loan with Franco-Nevada as current
liabilities. In December 2019, the Company finalized extensions to both the RCF and Franco loan facilities with both loans being
classified as non-current liabilities as of December 31, 2019.
The Company’s long-term liabilities include the US$15 million convertible debenture with Resource Capital Funds V L.P. (RCF) The
loan is due September 30, 2021 and as such, the principal portion of the loan has been classified as a long-term liability. The
repayment option allows RCF to convert the principal portion of the loan into common shares at a price of $0.20 per common share.
The Company has classified the repayment option as a current liability since the option can be exercised at any point during the term of
the loan by RCF.
LIQUIDITY AND CAPITAL RESOURCES
The Company’s cash position (cash and cash equivalents) at December 31, 2019 was $7.3 million compared to $5.6 million as at
December 31, 2018.
At December 31, 2019, the Company had not yet achieved profitable operations, had an accumulated deficit of $284.8 million since
inception (December 31, 2018 – $279.8 million), expects to incur further losses in the development of its business, and has net working
capital of $6.5 million (December 31, 2018 – negative net working capital of $13.3 million). Net working capital includes all current assets
and current liabilities and excludes the flow-through share liability. At December 31, 2018, the Company had negative working capital as
a result of the RCF loan being classified as current.
On December 23, 2019, the Company entered into a ninth amending agreement with RCF to extend the terms of its existing US$15.0
million loan. The maturity date was extended to September 30, 2021 with the conversion price set at $0.20 cents per common share
(previously $0.34 cents per common share). All other terms and conditions of the Convertible Loan remain the same.
On November 27, 2019, the Company entered into an eighth amending agreement with RCF to extend the terms of its existing US$15.0
million loan. The maturity date was extended to December 31, 2019. All other terms and conditions of the Convertible Loan remain the
202019 Management's Discussion and Analysis
same.
On October 31, 2019, the Company entered into a seventh amending agreement with RCF to extend the terms of its existing US$15.0
million loan. The maturity date was extended to November 30, 2019. All other terms and conditions of the Convertible Loan remain the
same.
On September 26, 2019, the Company entered into a sixth amending agreement with RCF to extend the terms of its existing US$15.0
million loan. The maturity date was extended to October 31, 2019. All other terms and conditions of the Convertible Loan remained the
same.
On January 31, 2019 the Company entered into a fifth 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 September 30, 2019. All other terms and conditions of the Convertible
Loan remained the same.
The Company has a USD $34.6 million loan facility, including interest with Franco-Nevada Corporation (“Franco”) that was originally
due on April 28, 2020. The Franco loan is held within a subsidiary company and is secured against certain chromite assets acquired in
2015 with limited recourse to the parent Company. On December 23, 2019, the Company finalized an extension to the Franco loan
facility to September 30, 2022 with all other terms and conditions remaining the same. In addition, the Company sold a 1% gross
revenue royalty on the Eagle’s Nest Nickel-Copper-PGM deposit for CAD $5 million to Franco. The proceeds from the sale of the
royalty will be used to advance the Eagle’s Nest Project, the Chromite Projects and for general working capital purposes.
On April 12, 2019, the Company closed a private placement of 11,130,807 Flow-Through Units at a price of $0.31 Flow-Through Unit
for gross proceeds of $3,450,550. The proceeds of the Flow-Through Unit Offering will be used to advance the Company’s exploration
program in the Ring of Fire.
On November 20, 2019, the Company closed a non-brokered private placement for gross proceeds of $2.06 million from the issuance
of flow-through shares (the “FT Shares”) and units (the “Units”). The Company issued 7,900,000 FT Shares at a price of $0.25 per FT
Share for gross proceeds of $1,975,000 and 425,000 Units at a price of $0.20 per Unit for gross proceeds of $85,000 (the “Private
Placement.
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 pay for corporate overhead, 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.
212019 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
Lease Obligations
Low-value and short term leases
M ining leases
Other contracts
Provision for Environmental Expenditure
Debt Agreements with Related Party
Long Term Debt
Total Contractual Obligations
Total
Less than 1
year
118
43
15
75
-
19,482
45,692
65,425
419
105
243
75
2,270
19,482
45,692
68,286
2 -3 years
4 - 5 years
After
5 years
267
62
31
-
-
34
-
- -
166
-
2,270
-
-
2,436
31
-
-
- -
- -
65
359
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, 2019 to spend $2.8 million on flow-through eligible exploration expenditures by
December 31, 2020.
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 30, 2019, 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)
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
222019 Management's Discussion and Analysis (ii)
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.
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 16 Leases
The Company adopted the requirements of IFRS 16 as of January 1, 2019 using the modified retrospective approach, whereby the
Company is not required to restate comparative amounts, and there is no impact on opening deficit.
In applying IFRs 16 for the first time, the Company has used the following practical expedients permitted by the standard:
-
-
the exclusion of low value leases;
the accounting for operating leases with a remaining lease term of less than 12 months as at January 1, 2019 as short-term leases;
232019 Management's Discussion and Analysis -
-
the exclusion of initial direct costs for the measurement of the right-of-use asset at the date of initial application; and
the use of hindsight in determining the lease term where the contract contains options to extend or terminate the lease.
When measuring initial lease obligations as at January 1, 2019, the Company discounted lease payments using a discount rate of 7.5%.
(expressed in $ thousands)
Operating lease commitments disclosed as at December 31, 2018
$
1,210
Application of IFRS 16 and practical expedients
M ining lease
Application of discount rate
Lease obligation recognized using 7.5% discount rate
(508)
(185)
(171)
$
346
Starting from January 1, 2019, leases are recognized as a right-of-use asset and a corresponding liability at the date at which the leased
asset is available for use by the Company. The lease obligation is measured at the net present value of the future periodic lease
payments, discounted using the interest rate implicit in the lease, if that rate can be determined, or the Company’s incremental
borrowing rate.
The right-of-use asset is measured at cost comprising the amount of the initial measurement of the lease obligation, plus any lease
payments made at or before the commencement date and any initial direct costs incurred, less any lease incentives received. The right-
of-use asset is depreciated over the lesser of the right-of-use asset's useful life and the lease term on a straight-line basis. Interest
accretion expense of the discount on the lease obligation is charged to the consolidated statements of loss and other comprehensive loss
using the effective interest method as finance expense. Cash payments for the principle lease payments relating to the lease obligation
are classified as financing activities in the consolidated statements of cash flows.
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.
242019 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 8, 2020, the Company had 409,658,791 common shares outstanding, 28,751,796 stock options outstanding with a weighted
average exercise price of $0.32 expiring between 2020 and 2024, 2,000,000 Performance Share Units with an expected life between 2
and 5 years and 1,019,131 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
252019 Management's Discussion and Analysis 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
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
262019 Management's Discussion and Analysis 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
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
272019 Management's Discussion and Analysis 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.
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.
282019 Management's Discussion and Analysis 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.
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.
292019 Management's Discussion and Analysis 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.
COVID-19
The global outbreak of the COVID-19 coronavirus continues to rapidly evolve. The extent to which the COVID-19 corona virus may
impact the Company’s business and development will depend on future developments, which are highly uncertain and cannot be predicted
with confidence, such as the ultimate geographic spread of the disease, the duration of the outbreak, travel restrictions and social
distancing in Canada, the United States and other countries, business closures or business disruption, and the effectiveness of actions
taken by governments around the globe to contain and treat the disease. It may also have an impact on capital markets and the ability of
the Company to complete an equity raise.
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.
OUTSTANDING SHARE INFORMATION
As at April 9, 2020
Authorized
Issued and outstanding shares
Options outstanding
Warrants
Performance Share Units outstanding
Restricted Share Units outstanding
Convertible Debt
Fully diluted
Unlimited
409,658,719
28,751,796
33,900,882
2,000,000
1,019,131
97,410,000
572,740,528
302019 Management's Discussion and Analysis
ADDITIONAL INFORMATION
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.
312019 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
322019 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 subsidiary (together, the Company) as at
December 31, 2019 and 2018, and its financial performance and its cash flows for the years then ended in
accordance with International Financial Reporting Standards as issued by the International Accounting
Standards Board (IFRS).
What we have audited
The Company’s consolidated financial statements comprise:
•
•
•
•
•
the consolidated statements of financial position as at December 31, 2019 and 2018;
the consolidated statements of loss and 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 to 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.
332019 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.
342019 Consolidated Financial Statements As part of an audit in accordance with Canadian generally accepted auditing standards, we exercise
professional judgment and maintain professional skepticism throughout the audit. We also:
•
•
•
•
•
•
Identify and assess the risks of material misstatement of the consolidated financial statements,
whether due to fraud or error, design and perform audit procedures responsive to those risks, and
obtain audit evidence that is sufficient and appropriate to provide a basis for our opinion. The risk
of not detecting a material misstatement resulting from fraud is higher than for one resulting from
error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the
override of internal control.
Obtain an understanding of internal control relevant to the audit in order to design audit
procedures that are appropriate in the circumstances, but not for the purpose of expressing an
opinion on the effectiveness of the Company’s internal control.
Evaluate the appropriateness of accounting policies used and the reasonableness of accounting
estimates and related disclosures made by management.
Conclude on the appropriateness of management’s use of the going concern basis of accounting and,
based on the audit evidence obtained, whether a material uncertainty exists related to events or
conditions that may cast significant doubt on the Company’s ability to continue as a going concern.
If we conclude that a material uncertainty exists, we are required to draw attention in our auditor’s
report to the related disclosures in the consolidated financial statements or, if such disclosures are
inadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained up to
the date of our auditor’s report. However, future events or conditions may cause the Company to
cease to continue as a going concern.
Evaluate the overall presentation, structure and content of the consolidated financial statements,
including the disclosures, and whether the consolidated financial statements represent the
underlying transactions and events in a manner that achieves fair presentation.
Obtain sufficient appropriate audit evidence regarding the financial information of the entities or
business activities within the Company to express an opinion on the consolidated financial
statements. We are responsible for the direction, supervision and performance of the group audit.
We remain solely responsible for our audit opinion.
We communicate with those charged with governance regarding, among other matters, the planned scope
and timing of the audit and significant audit findings, including any significant deficiencies in internal
control that we identify during our audit.
We also provide those charged with governance with a statement that we have complied with relevant
ethical requirements regarding independence, and to communicate with them all relationships and other
matters that may reasonably be thought to bear on our independence, and where applicable, related
safeguards.
352019 Consolidated Financial Statements The engagement partner on the audit resulting in this independent auditor’s report is Michael Hawtin.
Chartered Professional Accountants, Licensed Public Accountants
Toronto, Ontario
April 9, 2020
362019 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
Right-of-use asset
Option to lease
Total Non-Current Assets
Total Assets
Liabilities and Shareholders' Deficit
Current Liabilities
Accounts payable and accrued liabilities
Loan Facilities - due to Resource Capital Funds V L.P.
Repayment option
Flow-through share liability
Short-term portion of lease obligation
Total Current Liabilities
Non-Current Liabilities
Provision for environmental obligations
Loan Facilities - due to Resource Capital Funds V L.P.
Loan Facilities - due to Franco-Nevada Corporation
Long-term portion of lease obligation
Total Non-Current Liabilities
Total Liabilities
Shareholders' Deficit
Capital stock
Warrants
Contributed surplus
Deficit
Total Shareholders' Deficit
Note
6
7
8
9a
13b(iv)
10
11a
11b
9b
12
11a
11c
9b
13b
13d
As at
December 31,
2019
As at
December 31,
2018
$
7,331,777
41,944
92,859
23,416
$
5,569,465
99,806
223,558
101,776
$
7,489,996
$
5,994,605
1,096,142
25,418,065
253,100
331,422
257,250
27,355,979
34,845,975
815,671
-
4,621,680
865,963
126,932
$
$
$
1,189,086
25,418,065
365,600
-
-
26,972,751
32,967,356
1,128,832
18,135,019
424,920
423,514
-
$
$
$
$
6,430,246
$
20,112,285
1,991,440
16,736,732
36,383,986
248,593
1,867,054
-
40,071,502
-
$
$
55,360,751
61,790,997
$
$
41,938,556
62,050,841
$ 217,826,449
2,038,767
38,196,321
(285,006,559)
$ 211,671,420
2,402,290
36,669,673
(279,826,868)
$ (26,945,022)
$ (29,083,485)
Total Liabilities and Shareholders' Deficit
$
34,845,975
$
32,967,356
Nature of Business and Going Concern (Note 1)
Commitments and Contingencies (Note 16)
Subsequent Events (Note 19)
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.
372019 Consolidated Financial Statements Noront Resources Ltd.
Consolidated Statements of Loss and Comprehensive Loss
(Expressed in Canadian dollars)
Note
Expenses
Development and exploration expenditures 18a
Office and general
18b
Amortization
Share-based compensation
13c, 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 loan extinguishment
Gain on sale of mineral property
Gain on sale of royalty
Accretion expense
Re-measurement of repayment option
Foreign exchange gain (loss)
Net loss and other comprehensive loss
Other comprehensive loss
Changes in fair value of investments
in equity securities
11a
11c
11b
Year Ended
December 31,
2019
December 31,
2018
$
5,744,672
2,878,923
357,359
1,128,375
$
7,123,248
3,195,109
300,359
1,152,547
$ (10,109,329)
33,991
(4,772,055)
936,399
801,714
7,241,336
-
4,972,383
(6,033,299)
(1,488,742)
3,350,411
$ (11,771,263)
50,411
(4,431,708)
962,777
3,648,477
-
150,000
-
(5,595,478)
1,621,439
(4,520,821)
$ (5,067,191)
$ (19,886,166)
(112,500)
-
Comprehensive loss
$ (5,179,691)
$ (19,886,166)
Loss per share - basic and diluted
15
$
(0.01) $
(0.06)
The accompanying notes are an integral part of these consolidated financial statements.
382019 Consolidated Financial Statements Noront Resources Ltd.
Consolidated Statements of Changes in Equity
(Expressed in Canadian dollars, unless otherwise indicated)
Balance, December 31, 2017
IFRS 9 adjustment
Restated balance, January 1, 2018
Issuance of interest shares
Issuance of shares
Issuance of warrants
Share-based compensation
Exercise of RSU
Exercise of options
Exercise of warrants
Issuance of Flow-through shares
Flow-through share premium
Net loss for the period
Balance, December 31, 2018
Balance, December 31, 2018
Issuance of interest shares (Note 11(a)(ii)(iii)(iv),13(b)
Share-based compensation (Note 13c,e)
Exercise of RSU
Issuance of warrants
Issuance of Flow-through units (Note 13 b(i),(v))
Flow-through share premium
Transaction costs - paid in shares
Issuance of shares (Note 13b (ii)(iii)(iv)(v)(vi)(vii))
Expiry of warrants
Net loss for the period
Balance, December 31, 2019
Capital Stock
Common
Shares
345,061,661 $ 201,181,223 $
Warrants
2,205,734 $
Contributed
Surplus
36,279,458 $ (260,886,262) $
Deficit
4,559,450
5,771,510
-
-
334,517
4,103,334
500
18,545,820
-
-
378,376,792
1,545,360
1,683,040
-
-
83,629
1,393,017
230
6,707,785
(922,864)
-
-
-
196,586
-
-
-
(30)
-
-
-
$
211,671,420 $
2,402,290
$
Common
Shares
378,376,762 $
6,499,242
Capital Stock
Warrants
211,671,420 $
1,599,261
2,402,290
$
945,560
$ (259,940,702)
-
-
-
-
-
-
-
-
-
-
-
(196,586)
1,152,547
(83,629)
(482,117)
-
-
-
-
(19,886,166)
36,669,673 $ (279,826,868)
Total
(21,219,847)
945,560
(20,274,287)
1,545,360
1,683,040
-
1,152,547
-
910,900
200
6,707,785
(922,864)
(19,886,166)
(29,083,485)
Deficit
Contributed
Surplus
36,669,673 $ (279,826,868) $ (29,083,485)
1,599,261
1,128,375
1,128,375
Total
200,000
50,000
19,030,807
2,952,917
5,410,546
(1,378,848)
(213,713)
687,783
443,246
(50,000)
(358,496)
(806,769)
806,769
-
84,750
5,410,546
(1,378,848)
(213,713)
687,783
-
407,059,728 $
217,826,449 $
2,038,767
$
(5,179,691)
(5,179,691)
38,196,321 $ (285,006,559) $ (26,945,022)
The accompanying notes are an integral part of these consolidated financial statements.
392019 Consolidated Financial Statements Noront Resources Ltd.
Consolidated Statements of Cash Flows
(Expressed in Canadian dollars)
Operating activities
Net loss for the period
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 loan extinguishment
Gain on sale of mineral property
Gain on sale of royalty
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
13c, e
11b
Year Ended
December 31,
2019
December 31,
2018
$ (5,067,191)
357,359
1,128,375
6,033,299
(936,399)
1,599,261
1,488,742
430,283
3,078,848
(801,714)
(7,241,336)
-
(4,972,383)
(3,349,381)
57,862
130,699
78,360
(376,547)
1,378,848
$ (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
(38,813)
(140,879)
4,780
77,377
922,864
Net cash used in operating activities
$ (6,983,015)
$ (9,425,607)
Investing activities
Acquisition of equipment
Proceeds on sale of mineral properties
Proceeds on sale of royalties, net of costs
(73,451)
-
4,972,383
(85,859)
75,000
-
Net cash provided by (used in) investing activities
$
4,898,932
$
(10,859)
Financing activities
Private placement, net of costs and sale of tax benefits
Proceeds from exercise of options
Proceeds from exercise of warrants
Lease payments
Lease inducement
3,902,985
-
-
(105,793)
49,387
7,362,961
910,900
200
-
-
Net cash provided by financing activities
$
3,846,579
$
8,274,061
Change in cash and cash equivalents
Effect of foreign exchange rates on cash and cash equivalents
Cash and cash equivalents, beginning of period
1,762,496
(184)
5,569,465
(1,162,405)
10,062
6,721,808
Cash and cash equivalents, end of period
$
7,331,777
$
5,569,465
The accompanying notes are an integral part of these consolidated financial statements.
402019 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, 2019
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 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, 2019. At December 31,
2019, the Company had not yet achieved profitable operations, had an accumulated deficit of $285.0 million since inception
(December 31, 2018, – $279.8 million), expects to incur further losses in the development of its business, and had a positive
net working capital of $6.5 million. Net working capital includes all current assets and current liabilities, and excludes the
flow-through share liability of $0.9 million and the repayment option of $4.6 million. Included in accounts payable and accrued
liabilities is $0.4 million of current liabilities which will be settled in cash, and $0.4 million in interest expense which was settled
in shares subsequent to the year end.
On December 23, 2019, the Company finalized the extension on the terms of its USD $15 million convertible loan facility with
RCF. The maturity date has been extended to September 30, 2021. The loan facililty continues to be convertible into common
shares of the Company at the option of RCF, with the conversion price having been set at $0.20 per common share
(previously $0.34 per common share) 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.
The Company has a USD $28.0 million loan facility, including accrued interest, with Franco-Nevada Corporation ("Franco").
The Franco loan is held within a subsidiary company and is secured against certain chromite assets acquired in 2015 with
limited recourse to the Company. On December 23, 2019, the Company finalized an extension to the Franco loan facility to
September 30, 2022 with all other terms and conditions remaining the same. In addition, the Company sold a 1% gross
revenue royalty on the Eagle's Nest Nickel-Copper-PGM deposit for CAD $5 million to Franco. The proceeds from the sale of
the royalty will be used to advance the Eagle's Nest Project, the Chromite Projects and for general working capital purposes.
At December 31, 2019, the Company has a flow-through commitment to spend $2.8 million during the year on Canadian
Exploration Expenditures by December 31, 2020 as a result of a $3.5 million Flow-Through financing completed on April 12,
2019 and a $1.975 million Flow-Through financing completed on November 20, 2019.
The Company’s ability to continue as a going concern is dependent upon its ability to repay or refinance its 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.
412019 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, 2019
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 8, 2020.
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., Noront Muketei Minerals Ltd. (NMM) and Meekahnah Development
Corp. NMM was formed as result of the acquisition of certain 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)
Cash and Cash Equivalents
Cash and cash equivalents include cash on hand, deposits held at call with banks, and other short-term highly liquid
investments with original maturities of three months or less.
d)
Financial Instruments
The Company's financial instruments consist of cash and cash equivalents, investments, taxes and other receivables,
accounts payable and accrued liabilities, loan facilities and related repayment option.
The carrying value of the instruments classified as current assets and liabilities 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).
422019 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, 2019
3.
d)
Significant Accounting Policies (Continued)
Financial Instruments
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.
e)
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)
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
statements of loss and comprehensive 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.
432019 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, 2019
3.
h)
Significant Accounting Policies (Continued)
Mineral Properties, Development and Exploration Expenditures (Continued)
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.
i)
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
The Company determines if an arrangement is a lease at contract inception by evaluating if the contract coveys the right to
control the use of identified assets during the period of use. A right of use ("ROU") asset represents the Company's right to
use an identified asset for the lease term and a lease liability represents the Company's obligation to make payments as set
forth in the lease agreement. ROU assets and lease liabilities are included on the Company's statement of financial position
beginning January 1, 2019 and are recognized based on the present value of the future lease payments at the lease
commencement date over the expected lease term which includes options to extend or terminate the lease when it is
reasonably certain those options will be exercised. The interest rate used to determine the present value of the future lease
payments is the Company's incremental borrowing rate at lease inception, because the interest rate implicit in the lease is
generally not readily determinable. An ROU asset initially equals the lease liability, adjusted for any lease payments made
prior to lease commencement and any lease incentives. All leases are recorded on the statement of financial position except
for leases with an initial term of less than 12 months. All of the Company's leases are operating leases. Operating lease
expense is generally recognized on a straight-line basis over the remaining useful life as of January 1, 2019 and is recorded
in development and exploration expenditures and office and general expense in the statements of loss and comprehensive
loss.
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.
442019 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, 2019
3.
m)
Significant Accounting Policies (Continued)
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.
n)
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. On an annual basis, this is reviewed 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 consolidated 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 statement of financial position 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 and comprehensive 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 one reporting segment engaged in the
development and exploration of minerals in Canada.
The accompanying notes are an integral part of these consolidated financial statements.
452019 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, 2019
3.
r)
Significant Accounting Policies (Continued)
New and Amended Standards Adopted by the Company (Continued)
IFRS 16 Leases ("IFRS 16")
The Company adopted the requirements of IFRS 16 as of January 1, 2019 using the modified retrospective approach,
whereby the Company is not required to restate comparative amounts, and there is no impact on opening deficit.
In applying IFRS 16 for the first time, the Company has used the following practical expedients permitted by the standard:
-
-
-
-
the exclusion of low value leases;
the accounting for operating leases with a remaining lease term of less than 12 months as at January 1, 2019 as short-
term leases;
the exclusion of initial direct costs for the measurement of the right-of-use asset at the date of initial application; and
the use of hindsight in determining the lease term where the contract contains options to extend or terminate the lease.
When measuring initial lease obligations as at January 1, 2019, the Company discounted lease payments using a discount
rate of 7.5%.
Operating lease commitments disclosed as at December 31, 2018
Application of IFRS 16 and practical expedients
Mining lease
Application of discount rate
Lease obligation recognized using 7.5% discount rate
January 1, 2019
$
$
1,210,194
(508,805)
(184,515)
(170,740)
346,134
Starting from January 1, 2019, leases are recognized as a right-of-use asset and a corresponding liability at the date at which
the leased asset is available for use by the Company. The lease obligation is measured at the net present value of the future
periodic lease payments, discounted using the interest rate implicit in the lease, if that rate can be determined, or the
Company’s incremental borrowing rate.
The right-of-use asset is measured at cost comprising the amount of the initial measurement of the lease obligation, plus any
lease payments made at or before the commencement date and any initial direct costs incurred, less any lease incentives
received. The right-of-use asset is depreciated over the lesser of the right-of-use asset's useful life and the lease term on a
straight-line basis. Interest accretion expense of the discount on the lease obligation is charged to the consolidated
statements of loss and comprehensive loss using the effective interest method as finance expense. Cash payments for the
principal portion of the lease payments relating to the lease obligation are classified as financing activities in the consolidated
statements of cash flows. See Note 9 for additional lease disclosure.
The accompanying notes are an integral part of these consolidated financial statements.
462019 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, 2019
3.
s)
Significant Accounting Policies (Continued)
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.
472019 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, 2019
3.
s)
Significant Accounting Policies (Continued)
Critical Accounting Estimates and Judgments (Continued)
Stock Options, Warrants
The Black-Scholes option pricing 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 11b 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 11(c).
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; and
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.
The accompanying notes are an integral part of these consolidated financial statements.
482019 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, 2019
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
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, 2019. 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, 2019, the Company had cash and cash equivalents and taxes receivable balances of $7,373,721
(December 31, 2018 - $5,669,271) to settle current liabilities of $6,430,246 (December 31, 2018 - $20,112,285). The
Company also has a flow-through commitment to spend $2.8 million on Canadian Exploration Expenditures by December 31,
2020 which will be fulfilled using existing cash.
The loan facility is convertible into equity with a conversion price of $0.20 per share at the option of RCF anytime prior to
September 30, 2021. 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).
The accompanying notes are an integral part of these consolidated financial statements.
492019 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, 2019
5.
b)
Property and Financial Risk Factors (Continued)
Financial Risk (Continued)
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.
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.
At December 31, 2019, the Company had monetary assets and liabilities denominated in U.S. dollars as follows:
Cash
Loan Facilities
iii)
Price Risk
December 31, 2019
December 31, 2018
US $
US
2,811
(40,899,845)
$
91,719
(42,667,146)
US $ (40,897,034)
$ (42,575,427)
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. 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, 2019, 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.
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
$0.5 million for the year ended December 31, 2019 (December 31, 2018 - $0.6 million).
The accompanying notes are an integral part of these consolidated financial statements.
502019 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, 2019
6.
Cash and Cash Equivalents
Cash and cash equivalents consist of:
December 31, 2019
December 31, 2018
Cash deposits and restricted cash
Guaranteed investment certificate
$
$
7,231,421
100,356
7,331,777
$
$
5,467,526
101,939
5,569,465
Cash includes restricted cash consisting of $3,892, which is money held in trust for third party donations to First Nation
communities (December 31, 2018 - $20,594).
7.
Equipment
December 31, 2019
Cost
Accumulated Amortization
Closing Net Book Value
Opening Net Book Value
Additions
Re-measurement of provision1
Amortization
Equipment
$ 5,051,458
(3,972,866)
$ 1,078,592
$ 1,167,148
73,451
90,457
(252,464)
Furniture &
Fixtures
Leasehold
Improvements
Total
$
$
$
$
$
$
115,027
(106,409)
8,618
10,773
-
-
(2,155)
200,287
(191,355)
$ 5,366,772
(4,270,630)
8,932
$ 1,096,142
11,165
-
-
(2,233)
$ 1,189,086
73,451
90,457
(256,852)
Closing Net Book Value
$ 1,078,592
$
8,618
$
8,932
$ 1,096,142
December 31, 2018
Cost
Accumulated Amortization
Closing Net Book Value
Opening Net Book Value
Additions
Re-measurement of provision
Amortization
Equipment
Furniture &
Fixtures
Leasehold
Improvements
Total
$ 4,865,605
(3,698,457)
$ 115,027
(104,254)
$ 200,287
(189,122)
$ 5,180,919
(3,991,833)
$
$
$ 1,167,148
$ 1,400,921
85,859
(24,197)
(295,435)
$
$
10,773
13,191
-
-
(2,418)
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
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 12.
The accompanying notes are an integral part of these consolidated financial statements.
512019 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, 2019
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, 2019
December 31, 2018
$
24,654,708
$
24,654,708
763,357
763,357
$
25,418,065
$
25,418,065
Treelawn/Peplinki 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 and Franco holds a 1% Gross Revenue Royalty over the
Eagle's Nest deposit.
Big Daddy, Black Thor, Black Label and Other Properties
These properties are subject to the following royalties granted to Franco Nevada:
a)
2% Gross Smelter Royalty (GSR) on all of the Company's chromite properties, except for Black Thor which has a 3%
GSR; this can be reduced to 2% if the Company grants royalties on certain other claims in the Ring of Fire.
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)
The Black Thor and Big Daddy Chromite Deposits have a 2% NSR half of which can be bought back any time prior to
production for $1 million.
There is a 1.5% NSR on certain claims including the McFaulds Lake VMS deposits.
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 MacDonald's 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 claims which comprise part of the Butler Property, half of which can be bought back for $1
million.
Other Royalties
On other claims which do not currently have known deposits, there is a 2% NSR of which half can be bought back for $1
million and on other certain claims there is a 0.7522% NSR.
The accompanying notes are an integral part of these consolidated financial statements.
522019 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, 2019
9.
a)
Leases
Right-of-Use Asset
The Company's significant lease contracts are for the offices in Toronto and Thunder Bay.The Company's Toronto lease
expires in March 2023 and the Company's Thunder Bay lease expires in April 2022.
Opening balance, January 1, 2019
Additions
Amortization for the period
Closing balance
b)
Lease Obligation
December 31, 2019
$
$
346,134
85,797
(100,509)
331,422
The Company has calculated the lease obligation based on the net present value of the future lease payments.
The obligation was calculated using the following assumptions:
Payments
Discount rate
Fixed payments, less any leasehold inducements receivable
7.5%
For the year ended December 31, 2019, interest of $33,907 was paid on the lease obligations.
Opening lease obligation
Additions
Payments
Lease inducements
Closing lease obligation
Short-term portion of lease obligation
Long-term portion of lease obligation
Total lease obligation
December 31, 2019
$
$
346,134
85,797
(105,793)
49,387
375,525
December 31, 2019
$
$
126,932
248,593
375,525
The accompanying notes are an integral part of these consolidated financial statements.
532019 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, 2019
10.
Accounts Payable and Accrued Liabilities
Accounts payable
Accrued liabilities
Accrued interest payable
11(a)(iv)
11.
Loan Facilities
Current portion of loan facilities
Debt agreement with related party - February 26, 2013 (a)(i)
Repayment option (c)
Long term portion of loan facilities
Debt agreement with related party - February 26, 2013 (a)(i)
Long term loan (b)
December 31, 2019
December 31, 2018
$
$
217,458
206,545
391,668
815,671
$
98,439
621,253
409,140
$
1,128,832
December 31, 2019
December 31, 2018
$
-
4,621,680
4,621,680
16,736,732
36,383,986
$
18,135,019
424,920
18,559,939
-
40,071,502
Total Loan Facilities
$
57,742,398
$
58,631,441
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, 2019 owns approximately 20.8% of the Company's common shares, in the aggregate principal
amount of US$15.0 million (the “Facility”) with interest compounding quarterly at an annual interest rate of 8%. Interest is
accrued on a quarterly basis. On February 25, 2014, the Facility automatically rolled into a convertible loan (the "Convertible
Loan").
During 2019, the Company entered into several amending agreements with RCF to extend the terms of the Convertible Loan.
The Company determined that the amendments between January 2019 and November 2019 represented non-substantial
modifications of the existing loan and therefore the amendments were treated as loan modifications. As specified under IFRS
9, on the date of amendments, the Company reduced the carrying value of the Convertible Loan with RCF by $0.8 million to
reflect the amended cash flows discounted at the original effective interest rate, with a corresponding gain on loan
modifications recognized in the statement of loss and comprehensive loss.
On December 23, 2019, the Company entered into a ninth amending agreement with the Lender to extend the terms of the
Convertible Loan to September 30, 2021. The Convertible Loan continues to be convertible into common shares of the
Company at the option of RCF, with the conversion price having been set at $0.20 per common share (previously $0.34 per
common share), at any time prior to the maturity date. All other material terms and conditions of the Facility remain the same.
As the terms of the amendment to the Convertible Loan were substantially different from the terms of the existing Convertible
Loan, the amendment is considered to be an extinguishment of the debt. Subsequent to December 23, 2019, the Convertible
Loan is carried at amortized cost using the effective interest rate method.
The accompanying notes are an integral part of these consolidated financial statements.
542019 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, 2019
11.
a)
(ii)
(iii)
(iv)
(v)
(vi)
b)
Loan Facilities (Continued)
Loan Facilities with Related Party - Resource Capital Funds V L.P. (Continued)
Loan facility
December 31, 2019
December 31, 2018
Beginning balance
Adjustment - Adoption of IFRS 9
Balance, January 1, 2019
Transaction costs - cash
Accretion of loan facility
Foreign exchange (gain) loss
Gain on loan modification
Balance, December 23, 2019 - prior to loan extinguishment
Allocation to repayment option
Balance, December 23, 2019 - New loan facility
Transaction costs - cash
Accretion of loan facility
Foreign exchange (gain) loss
$
18,135,019
-
$
18,292,595
(945,560)
18,135,019
(34,136)
2,969,235
(598,186)
(801,714)
19,670,218
(2,708,018)
16,962,200
(29,250)
25,814
(222,032)
17,347,035
-
2,958,285
1,478,176
(3,648,477)
18,135,019
-
18,135,019
-
-
-
Balance, end of period
$
16,736,732
$
18,135,019
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 of the Company. The interest shares were subject to a four month hold period, which
expired on May 11, 2019.
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 of the Company. The interest shares are subject to a four month hold period, which expired on
August 11, 2019.
On July 11, 2019, the Company satisfied the payment of interest of $392,421 for the second quarter of 2019 through issuance
of 1,649,938 common shares of the Company. The interest shares are subject to a four month hold period, which expired on
November 12, 2019.
On October 10, 2019, the Company satisfied the payment of interest of $396,732 for the third quarter of 2019 through
issuance of 1,640,744 common shares of the Company. The interest shares are subject to a four month hold period, which
expired on February 11, 2020.
As at December 31, 2019, the Company had accrued interest in the amount of $391,668 for the fourth quarter of 2019.
Repayment Option
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 Repayment Option is classified as a current liability since the Lender's option to
convert may be exercised at any point during the term of the Convertible Loan. 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, 2019, the fair value attributed to the convertible feature was $4,621,680 (December 31, 2018 - $424,920).
The accompanying notes are an integral part of these consolidated financial statements.
552019 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, 2019
11.
c)
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 ("Long Term 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 loan. Payment of both principal and accrued interest was 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).
On December 23, 2019, the Company entered into an amending agreement with Franco to extend the Loan Agreement under
substantially the same terms and conditions until September 30, 2022. As the term to maturity of the amendment to the Loan
Agreement is substantially different from the term to maturity of the existing loan, the amendment is considered to be an
extinguishment of the debt. As a result, a gain on debt extinguishment of $7.2 million was recorded for the difference
between the carrying value of the loan at the date of the amendment and the fair value of the cash flows under the amended
terms. Subsequent to December 23, 2019, the Loan is carried at amortized cost using the effective interest rate method.
Balance, beginning of period
Accrued loan interest
Accretion of loan facility
Foreign exchange (gain) loss
Gain on loan extinguishment
Balance, December 23, 2019
Accrued loan interest
Accretion of loan facility
Foreign exchange (gain) loss
Balance, end of period
December 31, 2019
December 31, 2018
$
40,071,502
3,007,959
2,942,400
(2,047,113)
(7,241,336)
36,733,412
70,889
61,920
(482,235)
$
31,622,186
2,803,114
2,598,252
3,047,950
-
40,071,502
-
-
-
$
36,383,986
$
40,071,502
The accompanying notes are an integral part of these consolidated financial statements.
562019 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, 2019
12.
Provision for Environmental Obligations
McFauld's Lake and Butler Lake
The Company has established a provision of $1,778,422 and $213,018 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 $2,080,802 for McFaulds Lake (December 31, 2018 - $1,945,233) and
$243,788 for Butler Lake (December 31, 2018 - $235,550).
b) Nominal risk-free pre-tax discount rate of 1.76% (December 31, 2018 - 2.13%)
c) Demobilization cost expected to be incurred in 10 years (December 31, 2018 - 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, 2019 December 31, 2018
$
1,867,054
33,929
90,457
$
1,852,310
38,941
(24,197)
Balance, December 31, 2019
$
1,991,440
$
1,867,054
The accompanying notes are an integral part of these consolidated financial statements.
572019 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, 2019
13.
(a)
(b)
Capital Stock
Authorized - Unlimited common shares without par value.
Issued
Balance, January 1, 2018
Issue of flow-through shares, net of costs
Flow-through share premium
Exercise of RSU
Issue of shares
Issue of interest shares
Exercise of options
Exercise of warrants
Balance, December 31, 2018
Issue of flow-through shares, net of costs (i), (v)
Flow through share premium
Transaction costs - paid in shares
Exercise of RSU
Issue of shares (ii)
Issue of shares (iii)
Issue of shares (iv)
Issue of shares (v)
Issue of shares (vi)
Issue of shares (vii)
Issue of interest shares (Note 11 a (i)(ii)(iii))
Number of Shares
Value
345,061,661
18,545,820
-
334,517
5,771,510
4,559,420
4,103,334
500
378,376,762
19,030,807
-
-
200,000
603,334
483,333
750,000
425,000
491,250
200,000
6,499,242
$
$
201,181,223
6,707,785
(922,864)
83,629
1,683,040
1,545,360
1,393,017
230
211,671,420
5,410,546
(1,378,848)
(213,713)
50,000
187,033
105,000
172,500
85,000
98,250
40,000
1,599,261
Balance, December 31, 2019
407,059,728
$
217,826,449
(i)
(ii)
(iii)
(iv)
(v)
(vi)
(vii)
On April 12, 2019, the Company closed a private placement of 11,130,807 Flow-Through Units at a price of $0.31 per Flow-
Through Unit for gross proceeds of $3.45 million. The securities issuable pursuant to the Flow-Through Unit Offering are
subject to a statutory hold period of four months plus one day which expired on August 13, 2019.
On April 12, 2019, in connection with the Flow-Through private placement, the Company issued 603,334 common shares at a
price of $0.31 per common share in satisfaction of advisory and finder's fees. The common shares were subject to a statutory
hold period of four months plus one day which expired on August 13, 2019.
On August 20, 2019, the Company issued 333,333 shares to Marten Falls First Nation under the terms of a Project
Advancement Agreement and 150,000 shares to Aroland First Nation under the terms of a Memorandum of Understanding.
On September 26, 2019, the Company issued Algoma Steel Inc. 750,000 common shares and 750,000 warrants to purchase
common shares for a 5 year option to enter into a 99 year ground lease agreement on a parcel of land owned by Algoma
Steel Inc.
On November 20, 2019, the Company issued 7,900,000 Flow-Through shares for a gross proceeds of $1,975,000 and
425,000 units for gross proceeds of $85,000. Each unit consists of one common share of the Company and one common
share purchase warrant. Each warrant entitles the holder to acquire one common share of the Company at at price of $0.30
until November 20, 2021.
On November 20, 2019, in connection with the Flow-Through private placement, the Company issued 491,250 common
shares at a price of $0.20 per common share in satisfaction of finder's fees. The common shares were subject to a statutory
hold period of four months plus one day which expired on March 21, 2020.
On December 2, 2019, the Company issued 200,000 units at an issue price of $.20 per unit in satisfaction of consulting fees
of $40,000. Each unit consists of one common share of the Company and one common share purchase warrant. The issued
shares are subject to a four month hold period which expired on April 3, 2020.
The accompanying notes are an integral part of these consolidated financial statements.
582019 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, 2019
13.
(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, 2019, share-based compensation of $1,120,677 was charged to net income (year ended
December 31, 2018 - $1,114,419) related to stock options.
(i)
On February 26, 2019, the Company granted 5,277,520 incentive stock options to management and employees of
the Company at an exercise price of $0.30. The share price on February 26, 2019 was $0.30.
The fair value assigned was estimated using the following assumptions:
Dividend yield
Expected volatility
Risk free interest rate
Expected life
Forfeiture rate
0%
67.92%
1.76%
5 years
3%
The stock options were assigned a value of $907,733.
(ii)
On April 12, 2019, the Company granted 1,500,000 incentive stock options to the directors of the Company at an
exercise price of $0.26. The share price on April 12, 2019 was $0.26.
The fair value assigned was estimated using the following assumptions:
Dividend yield
Expected volatility
Risk free interest rate
Expected life
Forfeiture rate
0%
67.50%
1.60%
5 years
3%
The stock options were assigned a value of $222,000.
The accompanying notes are an integral part of these consolidated financial statements.
592019 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, 2019
13.
(c)
Capital Stock (Continued)
Stock Options (Continued)
The weighted-average remaining contractual life and weighted average exercise price of options outstanding and options
exercisable as at December 31, 2019 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
5,277,520
1,500,000
224,025
367,500
59,100
248,625
76,000
74,509
582,685
39,000
121,200
63,600
863,490
209,000
907,733
222,000
21,928,722
$
4,058,467
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
0.55
0.44
0.35
0.34
0.33
0.31
0.25
0.23
0.35
0.28
0.35
0.35
0.30
0.26
0.32
0.25
0.47
0.65
1.23
1.29
1.52
2.16
2.27
2.44
2.88
3.15
3.15
4.16
4.28
2.76
725,000
1,500,000
300,000
1,275,000
400,000
416,253
3,314,853
200,000
400,000
266,667
3,691,550
666,667
4,274,091
500,000
17,930,081
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
February 2024
April 2024
The following table summarizes the stock option transactions for the year ended December 31, 2019.
December 31, 2018
Granted
Balance, December 31, 2019
Number
of Options
Weighted-Average
Exercise Price
15,151,202
6,777,520
21,928,722
$0.33
$0.29
$0.32
The accompanying notes are an integral part of these consolidated financial statements.
602019 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, 2019
13.
(d)
Capital Stock (Continued)
Warrants
The following table lists the Company's warrants as at December 31, 2019.
Balance, December 31, 2018
Expiry of Warrants
Private Placement Warrants
Option to lease Warrants
Warrants for debt
Balance, December 31, 2019
Number
of Warrants
Weighted-Average
Exercise Price
44,686,422
(17,545,442)
6,009,902
750,000
200,000
34,100,882
$
$
$
$
$
0.44
0.51
0.30
0.03
0.30
$
0.39
On April 12, 2019, 5,565,402 warrants were issued as a result of the private placement (Note 13 (b)(i)). Each whole
warrant entitles the holder to purchase one common share of the Company at a price of $0.34 per share on or before
April 12, 2021. The fair value of the warrants were calculated using the following assumptions:
Expected volatility
Risk Free interest rate
Expected life
61.42%
1.67%
2 years
On September 27, 2019, 750,000 warrants were issued along with 750,000 common shares for a 5 year option to
enter into a lease agreement (Note 11(b)(iv)). Each whole warrant entitles the holder to purchase one common
share of the Company at a price of $0.26 per share on or before September 11, 2024. The fair value of the warrants
were calculated using the following assumptions:
Expected volatility
Risk Free interest rate
Expected life
65.31%
1.43%
5 years
On November 20, 2019, 425,000 warrants were issued as a result of a private placement. Each whole warrant
entitles the holder to purchase one common share of the Company at a price of $0.30 per share on or before
November 20, 2021. As a finder's fee of the November 20, 2019 private placement, 19,500 warrants were issued.
Each whole warrant entitles the holder to purchase one common share of the Company at a price of $0.20 price per
share on or before November 20, 2021. The fair value of the warrants were calculated using the following
assumptions:
Expected volatility
Risk Free interest rate
Expected life
54.43%
1.54%
2 years
On December 2, 2019, 200,000 warrants were issued in satisfaction of consulting fees. Each whole warrant entitles
the holder to purchase one common share of the Company at a price of $0.30 per share on or before December 2,
2021. The fair value of the warrants were calculated using the following assumptions:
Expected volatility
Risk Free interest rate
Expected life
55.39%
1.63%
2 years
The accompanying notes are an integral part of these consolidated financial statements.
612019 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, 2019
13.
(e)
Capital Stock (Continued)
Performance Share Units (PSUs) and Restricted Share Units (RSUs)
For the year ended December 31, 2019, share-based compensation of $7,698 was charged to net income for PSUs and
RSUs (year ended December 31, 2018 - $38,128).
The following tables list the Company's PSUs and RSUs as at December 31, 2019. During the year ended December 31,
2019, no PSUs or RSUs expired.
Performance Share Units
Number of
PSUs
Value at grant
At December 31, 2019 and December 31, 2018
3,000,000
$
455,095
Restricted Share Units
At December 31, 2018
Exercise of RSUs
At December 31, 2019
14.
Income Taxes
Number of
RSUs
Value at grant
665,483
(200,000)
465,483
$
$
159,671
(50,000)
109,671
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,
2019
Year Ended
December 31,
2018
26.50 %
26.50 %
Loss before recovery of income taxes
$
(5,067,191)
$ (19,886,166)
Expected income tax recovery
Permanent differences
Renounced expenditures
Share issuance costs booked through equity
Benefits of tax attributes not recognized
(1,342,806)
50,874
1,437,771
(60,610)
(85,229)
(5,269,834)
50,289
1,795,541
(44,713)
3,468,717
Total tax recovery
$
-
$
-
The accompanying notes are an integral part of these consolidated financial statements.
622019 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, 2019
14.
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,
2019
Year Ended
December 31,
2018
$ 272,643,463
1,954,939
4,484,598
91,377,589
885,053
12,313,895
25,417,902
$ 272,664,545
1,867,054
4,484,598
88,384,596
1,393,041
16,274,482
25,417,902
$ 409,077,439
$ 410,486,218
At December 31, 2019, 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
2039
$
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
7,694,109
4,080,154
$
91,377,589
The accompanying notes are an integral part of these consolidated financial statements.
632019 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, 2019
15.
Loss Per Share
Loss attributable to common
Shareholders
Weighted average shares
outstanding - basic
Loss per share - basic
Year Ended
December 31,
2019
December 31,
2018
$ (5,067,191)
$ (19,886,166)
392,288,330
360,381,331
$
(0.01)
$
(0.06)
As a result of the net loss for the year ended December 31, 2019, 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.
16.
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, 2019, the Company is committed to incurring $2.8 million in Canadian Exploration
Expenditures by December 31, 2020.
b) Under the terms of leases, not subject to IFRS 16, including Noront's mining leases, leases for office space - including
operating expenses, vehicles, and equipment, the Company is obligated to minimum annual rent and lease payments as
follows:
2020
2021
2022
2023
2024
2025 to 2038
$
251,126
188,434
170,883
49,566
15,394
166,312
c)
As at December 31, 2019, 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,
2019, the amount of this contingent liability is approximately $250,000.
17.
Compensation of Key Management
Salaries, benefits and directors' fees
Share-based compensation
Year Ended
December 31,
2019
December 31,
2018
$
$
1,593,124
1,039,648
2,632,772
$
$
1,582,537
1,067,016
2,649,553
Key management includes the 5 directors and 6 members of the executive management team (year ended December 31,
2018 - 6 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.
642019 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, 2019
18.
Supplementary Expense Information
a)
Development and Exploration Expenditures
Owner's costs
Exploration expenditures
Community engagement & permitting
Engineering, staking & other
Year Ended
December 31,
2019
December 31,
2018
$
146,495
5,339,943
245,343
12,891
$
300,336
6,287,869
312,655
222,388
$
5,744,672
$
7,123,248
Included in development and exploration expenditures expenses for the year ended December 31, 2019 is $2,334,006
of salaries and benefits (year ended December 31, 2018 - $2,534,276) and $714,932 of fuel expenses (year ended
December 31, 2018- $795,030). For the year ended December 31, 2019, $105,000 of costs included in community
engagement and permitting, respectively, was paid in the Company's shares to two First Nation communities (year
ended December 31, 2018 - $105,000 to one First Nation Community).
b)
Office and General:
Salaries, benefits and directors' fees
Employee severance
Donations & sponsorships
Administrative and other expenses
Professional fees
Communications & travel
19.
Subsequent Event
Year Ended
December 31,
2019
December 31,
2018
$
1,663,469
32,332
13,484
370,200
477,917
321,521
$
1,715,275
-
15,774
583,629
503,433
376,998
$
2,878,923
$
3,195,109
On January 10, 2020, the Company satisfied the payment of interest of $391,668 for the fourth quarter of 2019 through
issuance of 2,598,991 common shares (the "Interest Shares) at an effective price of $0.1507 per Interest Share. The Interest
Shares are subject to a four month hold period, expiring on May 11, 2020.
On February 27, 2020, the Board of Directors granted options to acquire an aggregate of 6,823,074 common shares of the
Company to certain directors, officers, management and special advisors of the Company with 4,362,966 of these options
vesting immediately and 2,460,108 of these options vesting over two years. These options have an exercise price of $0.145
per share, being the closing market price on the date of grant, and are exercisable for a period of five years.
The Board has also accelerated the expiry of 1,250,000 performance share units (“PSUs”), and issued 250,000 PSUs and
553,648 restricted share units (“RSUs”) to management of the Company. The RSUs are convertible into common shares of
the Company on the one year anniversary from the date of grant and the PSU’s are convertible into common shares of the
Company upon the achievement of certain performance objectives.
The global outbreak of the COVID-19 coronavirus continues to rapidly evolve. The extent to which the COVID-19 coronavirus
may impact the Company's business and development will depend on future developments, which are highly uncertain and
cannot be predicted with confidence, such as the ultimate geographic spread of the disease, the duration of the outbreak,
travel restrictions and social distancing in Canada, the United States and other countries, business closures or business
disruptions, and the effectiveness of actions taken by governments around the globe to contain and treat the disease. It may
also have an impact on capital markets and the ability of the Company to complete an equity raise.
The accompanying notes are an integral part of these consolidated financial statements.
652019 Consolidated Financial Statements