Independent auditor’s report
To the Shareholders of Josemaria Resources Inc.
Our opinion
In our opinion, the accompanying consolidated financial statements present fairly, in all material respects,
the financial position of Josemaria Resources Inc. and its subsidiaries (together, the Company) as at
December 31, 2021 and 2020, 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, 2021 and 2020;
●
the consolidated statements of comprehensive loss for the years then ended;
●
the consolidated statements of cash flows for the years then ended;
●
the consolidated statements of changes in equity for the years then ended; and
●
the notes to the consolidated financial statements, which include significant accounting policies and
other explanatory information.
Basis for opinion
We conducted our audit in accordance with Canadian generally accepted auditing standards. Our
responsibilities under those standards are further described in the
Auditor’s responsibilities for the audit of
the consolidated financial statements
section of our report.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for
our opinion.
Independence
We are independent of the Company in accordance with the ethical requirements that are relevant to our
audit of the consolidated financial statements in Canada. We have fulfilled our other ethical responsibilities
in accordance with these requirements.
PricewaterhouseCoopers LLP
PricewaterhouseCoopers Place, 250 Howe Street, Suite 1400, Vancouver, British Columbia, Canada V6C 3S7
T: +1 604 806 7000, F: +1 604 806 7806
“PwC” refers to PricewaterhouseCoopers LLP, an Ontario limited liability partnership.
Key audit matters
Key audit matters are those matters that, in our professional judgment, were of most significance in our
audit of the consolidated financial statements for the year ended December 31, 2021. These matters were
addressed in the context of our audit of the consolidated financial statements as a whole, and in forming
our opinion thereon, and we do not provide a separate opinion on these matters.
Assessment of impairment indicators of
mineral properties
Refer to Note 6(b), Assessment of impairment
indicators of mineral properties, Note 6(e),
Exploration and project investigation expenditures
and mineral properties, Note 6(f), Impairment of
non-financial assets, and Note 9, Mineral
properties.
The total book value of mineral properties
amounted to $12.4 million as at December 31,
2021. At each reporting period, management
applies judgment in assessing whether there are
any indicators of impairment relating to mineral
properties. If any such indicator exists, then an
impairment test is performed by management.
Information considered by management in
assessing indicators of impairment may include (i)
the period for which the entity has the right to
conduct its exploration and project investigation
activities, including expected renewals, (ii) whether
substantive expenditure on further exploration and
project investigation of mineral properties is
budgeted, (iii) the evaluation of the results of
exploration and project investigation activities up
to the reporting date and (iv) the likelihood that the
carrying value of mineral properties will be
recovered in full from successful development of
the asset. No impairment indicators were identified
by management as at December 31, 2021.
Our approach to addressing the matter included
the following procedures, among others:
●
Assessed the judgments made by management in
its assessment of impairment indicators, which
included the following:
−
Obtained a list of mining titles to assess (i) the
right to explore the area and (ii) title expiration
dates.
−
Evaluated whether the mining titles are in
good standing by agreeing the rights to
explore to government agency websites, and
other regulatory bodies, as applicable.
−
Read the Board of Directors’ minutes and
obtained budget approvals to evidence
continued and planned exploration
expenditure for 2022, which included
evaluating results of current year work
programs and management’s longer term
plans.
−
Assessed if sufficient data exists to indicate
that the carrying amount is unlikely to be
recovered from successful development or
sale, based on evidence obtained in other
areas of the audit.
Key audit matter How our audit addressed the key audit matter
We considered this a key audit matter due to the
significance of the mineral properties and the
judgments made by management in its
assessment of indicators of impairment related to
mineral properties, and these have resulted in a
high degree of subjectivity in performing audit
procedures related to these judgments applied by
management.
Other information
Management is responsible for the other information. The other information comprises the Management’s
Discussion and Analysis.
Our opinion on the consolidated financial statements does not cover the other information and we do not
express any form of assurance conclusion thereon.
In connection with our audit of the consolidated financial statements, our responsibility is to read the other
information identified above and, in doing so, consider whether the other information is materially
inconsistent with the consolidated financial statements or our knowledge obtained in the audit, or
otherwise appears to be materially misstated.
If, based on the work we have performed, we conclude that there is a material misstatement of this other
information, we are required to report that fact. We have nothing to report in this regard.
Responsibilities of management and those charged with governance for the
consolidated financial statements
Management is responsible for the preparation and fair presentation of the consolidated financial
statements in accordance with IFRS, and for such internal control as management determines is
necessary to enable the preparation of consolidated financial statements that are free from material
misstatement, whether due to fraud or error.
In preparing the consolidated financial statements, management is responsible for assessing the
Company’s ability to continue as a going concern, disclosing, as applicable, matters related to going
concern and using the going concern basis of accounting unless management either intends to liquidate
the Company or to cease operations, or has no realistic alternative but to do so.
Those charged with governance are responsible for overseeing the Company’s financial reporting
process.
Auditor’s responsibilities for the audit of the consolidated financial statements
Our objectives are to obtain reasonable assurance about whether the consolidated financial statements as
a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor’s
report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a
guarantee that an audit conducted in accordance with Canadian generally accepted auditing standards
will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and
are considered material if, individually or in the aggregate, they could reasonably be expected to influence
the economic decisions of users taken on the basis of these consolidated financial statements.
As part of an audit in accordance with Canadian generally accepted auditing standards, we exercise
professional judgment and maintain professional skepticism throughout the audit. We also:
●
Identify and assess the risks of material misstatement of the consolidated financial statements, whether
due to fraud or error, design and perform audit procedures responsive to those risks, and obtain audit
evidence that is sufficient and appropriate to provide a basis for our opinion. The risk of not detecting a
material misstatement resulting from fraud is higher than for one resulting from error, as fraud may
involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control.
●
Obtain an understanding of internal control relevant to the audit in order to design audit procedures that
are appropriate in the circumstances, but not for the purpose of expressing an opinion on the
effectiveness of the Company’s internal control.
●
Evaluate the appropriateness of accounting policies used and the reasonableness of accounting
estimates and related disclosures made by management.
●
Conclude on the appropriateness of management’s use of the going concern basis of accounting and,
based on the audit evidence obtained, whether a material uncertainty exists related to events or
conditions that may cast significant doubt on the Company’s ability to continue as a going concern. If
we conclude that a material uncertainty exists, we are required to draw attention in our auditor’s report
to the related disclosures in the consolidated financial statements or, if such disclosures are
inadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained up to the
date of our auditor’s report. However, future events or conditions may cause the Company to cease to
continue as a going concern.
●
Evaluate the overall presentation, structure and content of the consolidated financial statements,
including the disclosures, and whether the consolidated financial statements represent the underlying
transactions and events in a manner that achieves fair presentation.
●
Obtain sufficient appropriate audit evidence regarding the financial information of the entities or
business activities within the Company to express an opinion on the consolidated financial statements.
We are responsible for the direction, supervision and performance of the group audit. We remain solely
responsible for our audit opinion.
We communicate with those charged with governance regarding, among other matters, the planned scope
and timing of the audit and significant audit findings, including any significant deficiencies in internal
control that we identify during our audit.
We also provide those charged with governance with a statement that we have complied with relevant
ethical requirements regarding independence, and to communicate with them all relationships and other
matters that may reasonably be thought to bear on our independence, and where applicable, related
safeguards.
From the matters communicated with those charged with governance, we determine those matters that
were of most significance in the audit of the consolidated financial statements of the current period and
are therefore the key audit matters. We describe these matters in our auditor’s report unless law or
regulation precludes public disclosure about the matter or when, in extremely rare circumstances, we
determine that a matter should not be communicated in our report because the adverse consequences of
doing so would reasonably be expected to outweigh the public interest benefits of such communication.
The engagement partner on the audit resulting in this independent auditor’s report is Kevin Bromley.
/s/PricewaterhouseCoopers LLP
Chartered Professional Accountants
Vancouver, British Columbia
February 25, 2022
Josemaria Resources Inc.
Consolidated Statements of Financial Position
(All amounts expressed in Canadian Dollars, unless otherwise indicated.)
6
December 31,
December 31,
Note
2021
2020
ASSETS
Current assets:
Cash and cash equivalents
$
$
Investments
Receivables and other assets
7
Non-current assets:
Receivables and other assets
7
Equipment and other fixed assets
8
Mineral properties
9
TOTAL ASSETS
$
$
LIABILITIES
Current liabilities:
Trade payables and accrued liabilities
$
$
Debentures
13
Other liabilities
10
Non-current liabilities:
Other liabilities
10
Debentures
13
TOTAL LIABILITIES
EQUITY
Share capital
11
Contributed surplus
12
Deficit
(333,218,226 )
(281,807,438 )
Accumulated other comprehensive loss (“AOCI”)
(1,973,269 )
TOTAL EQUITY
(2,368,165 )
(12,355,972 )
TOTAL LIABILITIES AND EQUITY
$
$
Nature of operations and liquidity risk (Note 1)
Subsequent event (Note 2)
The accompanying notes are an integral part of these consolidated financial statements.
ON BEHALF OF THE BOARD:
/s/Ashley Heppenstall /s/Adam I. Lundin
Director Director
Josemaria Resources Inc.
Consolidated Statements of Comprehensive Loss
(All amounts expressed in Canadian Dollars, unless otherwise indicated.)
7
For the Year Ended December 31,
Note
2021
2020
Expenses
Exploration and project investigation
14
$
$
General and Administration (“G&A”):
Salaries and benefits
Share-based compensation
12
Management fees
Professional fees
Travel
Promotion and public relations
Regulatory, transfer agent and administration
Operating loss
Other items
Financing costs
13
Interest Income
(72,674 )
(47,294 )
Unrealized foreign exchange gain
(308,869 )
(1,572,861 )
Accretion of share consideration receivable
(109,469 )
Foreign exchange and trading gains realized on
5
(20,002,517 )
(6,489,532 )
Other income
(145,596 )
Loss on net monetary position
4
Net loss
Other Comprehensive (income)/loss
Items that may be reclassified subsequently to net loss:
Foreign currency translation adjustment
(601 )
Impact of hyperinflation
4
(5,170,159 )
(679,424 )
Comprehensive loss
$
$
Basic and diluted loss per common share
$
$
Weighted average common shares outstanding
The accompanying notes are an integral part of these consolidated financial statements.
Josemaria Resources Inc.
Consolidated Statements of Cash Flows
(All amounts expressed in Canadian Dollars, unless otherwise indicated.)
8
For the Year Ended December 31,
Note
2021
2020
Cash flows used in operating activities
Net loss for the year
$
(51,410,788 )
$
(31,237,163 )
Items not involving cash and cash equivalents:
Loss on net monetary position and unrealized foreign
Depreciation
Share-based compensation
Financing costs
Accretion of share consideration receivable
(109,469 )
Other income
(59,176 )
(192,890 )
Unrealized fair value gain on equity investments
(4,669 )
(82,183 )
Net changes in working capital items:
Receivables and other
(1,849,819 )
Trade payables and other liabilities
(4,248,154 )
(31,889,193 )
(30,023,156 )
Cash flows from financing activities
Funds received from debentures
13
Repayment of debentures
13
(20,534,853 )
(19,730,170 )
Share issuances from option exercises
Repayment of lease liabilities
10
(52,796 )
(43,091 )
Private placement and bought deal, gross proceeds
Private placement and bought deal, issuance costs
11
(1,373,834 )
(1,312,993 )
Cash flows used in investing activities
Acquisition of fixed assets
8
(33,311,138 )
(9,226 )
Receipt of proceeds in lieu of share consideration
(33,311,138 )
Effect of exchange rate change on cash and cash equivalents
(143,721 )
(656,668 )
Increase (decrease) in cash and cash equivalents during the year
(4,111,050 )
Cash and cash equivalents, beginning of year
Cash and cash equivalents, end of year
$
$
The accompanying notes are an integral part of these consolidated financial statements.
Josemaria Resources Inc.
Consolidated Statements of Changes in Equity
(All amounts expressed in Canadian Dollars, unless otherwise indicated.)
9
Number of
shares issued
and outstanding
Share
capital
Contributed
surplus
Accumulated other
comprehensive loss
Accumulated
deficit
Total
December 31, 2019
$
$
$
(2,645,047 )
$
(250,570,275 )
$
(16,354,774 )
Private placement and bought deal, gross proceeds (Note 11)
Private placement and bought deal, issuance costs (Note 11)
-
(1,312,993 )
(1,312,993 )
Debenture financing consideration (Note 13)
Share-based compensation (Note 12)
-
Foreign currency translation adjustment
-
(7,646 )
(7,646 )
Impact of hyperinflation (Note 3)
-
Net loss for the year
-
(31,237,163 )
(31,237,163 )
December 31, 2020
$
$
$
(1,973,269 )
$
(281,807,438 )
$
(12,355,972 )
Private placement and bought deal, gross proceeds (Note 11)
Private placement and bought deal, issuance costs (Note 11)
-
(1,373,834 )
(1,373,834 )
Exercise of options (Note 12)
(277,732 )
Debenture financing consideration (Note 13)
Share-based compensation (Note 12)
-
Foreign currency translation adjustment
-
Impact of hyperinflation (Note 4)
-
Net loss for the year
-
(51,410,788 )
(51,410,788 )
December 31, 2021
$
(333,218,226 )
(2,368,165 )
The accompanying notes are an integral part of these consolidated financial statements.
Josemaria Resources Inc.
Notes to Consolidated Financial Statements
For the Years Ended December 31, 2021 and 2010
(All amounts expressed in Canadian Dollars, unless otherwise indicated.)
10
1.
NATURE OF OPERATIONS AND LIQUIDITY RISK
.
located at
. The
Company trades under the ticker symbol of “JOSE” on the TSX and on the NASDAQ Stockholm Stock
Exchange (“OMX”) and “JOSMF” on the OTCQB Venture Market.
During the year ended December 31, 2021 an d as of the date of these financial statements, the Company
has been affected by the novel coronavirus (“COVID -19”) pandemic. The COVID-19 pandemic resulted in
the implementation by governments of non-routine measures such as quarantines, travel restrictions and
business closures, and while many of these restrictions are now being gradually lifted, measures enacted
within Argentina remain strict. These measures at first negatively impacted the global economy and led to
volatile market conditions and commodity prices, however indications of economic recovery have endured
and the Company, which has strictly followed recommended safety protocols in its operating jurisdictions,
has been able to carry on its business activities without significant negative impacts. Despite no significant
negative impacts to date, the Company cannot determine any future impact that COVID-19 may have on
its operations, financial position or cash flows.
The consolidated financial statements have been prepared on the basis that the Company will continue as
a going concern, which assumes that the Company will be able to meet its existing obligations and
commitments and fund ongoing operations in the normal course of business for at least twelve months
from December 31, 2021. As at December 31, 2021, the Company’s working capital deficit is $27.6 million,
and while the net $50.6 million financing completed in April 2021 (Note 11), two additional Debentures
issued in September 2021 (Note 13), and US$100.0 million loan provided by Lundin Mining Corporation
(“Lundin Mining”; Note 2) will provide sufficient capital for the Company to fund operations for the near
term, the Company will need further funding to support the advancement of the Josemaria Project towards
development within the next twelve months.
Historically, capital requirements have been funded through equity financing, joint ventures, disposition of
mineral properties and investments, and the use of credit facilities with related parties (Note 13). While
management is confident that additional sources of funding will be secured to fund planned expenditures,
factors that could affect the availability of financing include the progress and results of ongoing exploration
and project investigation activities at the Company’s Josemaria Project, the state of international debt and
equity markets, investor perceptions and expectations of the global copper, gold, and/or silver markets,
and the ongoing COVID-19 pandemic. If necessary, the Company may explore opportunities to revise the
due dates of its liabilities, and/or settle its liabilities through the issuance of common shares and other
equity instruments. Depending on the amount of funding raised, the Company’s planned initiatives and
other work programs may be postponed, or otherwise revised, as necessary.
Josemaria Resources Inc.
Notes to Consolidated Financial Statements
For the Years Ended December 31, 2021 and 2010
(All amounts expressed in Canadian Dollars, unless otherwise indicated.)
11
2.
TRANSACTION WITH LUNDIN MINING
On December 20, 2021 the Company announced it had entered into a binding agreement (the
“Arrangement Agreement”) with Lundin Mining whereby Lundin Mining will acquire all of the outstanding
common shares of Josemaria (the “Transaction”).
Under the terms of the Transaction, Josemaria shareholders will receive total consideration of
approximately $625 million on a fully diluted basis, representing $1.60 per common share. Josemaria
shareholders will be able to elect to receive the consideration as either (i) $1.60 in cash or (ii) 0.1487 of a
Lundin Mining share, or some combination of cash and shares, subject to proration. The total consideration
will be subject to maximum aggregate cash consideration of approximately $183 million (representing 30%
of the aggregate consideration) and maximum aggregate share consideration of approximately 39.7 million
Lundin Mining shares (representing 70% of the aggregate consideration), in each case subject to
adjustments in accordance with the plan of arrangement. The consideration represents a premium of 31%
and 29% to the closing price and the 10-day volume weighted average price, respectively, of Josemaria’s
shares on the TSX for the period ending December 17, 2021. On closing of the Transaction, Josemaria
shareholders are expected to own approximately 5% of Lundin Mining, on a partially diluted basis.
On February 17, 2022, Lundin Mining announced a semi-annual variable performance dividend of $0.11
per Lundin Mining share to be paid to Lundin Mining shareholders. In accordance with the terms of the
Arrangement Agreement, the share consideration payable pursuant to the Transaction will be adjusted
such that, for each whole Lundin Mining share that is issued to a Josemaria shareholder on closing of the
Transaction, $0.11 in cash will also be paid to such Josemaria shareholder to reflect the semi-annual
variable performance dividend of Lundin Mining. The cash consideration payable pursuant to the cash
election or pro-ration under the Arrangement Agreement will remain unchanged.
The Transaction, which is not subject to any financing conditions, will be carried out by way of a court-
approved plan of arrangement under the CBCA and will require approval by at least (1) 66
⅔
% of the votes
cast by Josemaria shareholders, and (2) 66
⅔
% of the votes cast by Josemaria security holders (comprised
of shareholders and optionholders) at a special meeting expected to be held to consider the Transaction. In
addition to approval by Josemaria shareholders, the Transaction is also subject to court approval,
regulatory approvals, including approval by the TSX and Nasdaq Stockholm, the approval by the Swedish
Financial Supervisory Authority of a Swedish prospectus regarding Lundin Mining’s offer to Josemaria
shareholders, and the admission of trading of the new Lundin Mining shares and other customary closing
conditions for transactions of this nature. The Transaction is expected to be completed in April 2022.
As part of the Arrangement Agreement, Lundin Mining agreed to provide the Company with a loan in the
principal amount of up to US$100.0 million (the “Lundin Debenture”) to fund anticipated activities of the
Company between the date of the Arrangement Agreement and closing of the Transaction. Any principal
amount outstanding on the Lundin Debenture will accrue interest at a rate of 5.0% per annum with
payments due semi-annually on the last day of June and December. The Lundin Debenture matures on
June 30, 2022. On January 18, 2022, the Company received the first draw on the Lundin Debenture in the
amount of US$29.8 million.
Josemaria Resources Inc.
Notes to Consolidated Financial Statements
For the Years Ended December 31, 2021 and 2010
(All amounts expressed in Canadian Dollars, unless otherwise indicated.)
12
3.
BASIS OF PRESENTATION
These consolidated financial statements have been prepared in accordance with International Financial
Reporting Standards (“IFRS”) as issued by the International Accounting Standards Board on a going
concern basis, which contemplates the realization of assets and settlement of liabilities in the normal
course of business. Except for the application of inflation accounting and accounting of equity investments
as further described on Notes 4 and 5, these consolidated financial statements are prepared on a historical
cost basis.
The consolidated financial statements were approved by the Board of Directors of the Company on
February 25, 2022.
4.
ACCOUNTING FOR HYPERINFLATION
Argentina was designated a hyper-inflationary economy as of July 1, 2018 for accounting purposes.
Accordingly, IAS 29, Financial Reporting in Hyper-Inflationary Economies, has been applied to these
consolidated financial statements as the Company’s Argentine operating subsidiary (the “Argentine
Subsidiary”) use the Argentine Peso as its functional currency. The financial statements are based on the
historical cost approach in IAS 29.
The application of hyperinflation accounting requires restatement of the Argentine subsidiary’s non-
monetary assets and liabilities, shareholders’ equity and comprehensive loss items from the transaction
date when they were first recognized into the current purchasing power which reflects a price index current
at the end of the reporting period before being included in the consolidated financial statements. To
measure the impact of inflation on its financial position and results, the Company has elected to use the
Wholesale Price Index (Indice de Precios Mayoristas or ”IPIM”) for periods up to December 31, 2016, and
the Retail Price Index (Indice de Precios al Consumidor or “IPC”) thereafter. These price indices have been
recommended by the Government Board of the Argentine Federation of Professional Councils of Economic
Sciences (“FACPCE”).
As the consolidated financial statements of the Company have been previously presented in Canadian
dollars, a stable currency, the comparative period amounts have not been restated.
For the year ended December 31, 2021, the Company recognized a gain of $5,170,159 (2020 – $679,424)
in relation to the impact of hyperinflation within other comprehensive (income)/loss during the year.
As a result of the change in the IPC from January 1, 2021 to December 31, 2021, the Company recognized
a net monetary loss within the Argentine Subsidiary of $366,004 for the year ended December 31, 2021
(2020 – $387,800), to adjust transactions for the period into a measuring unit current as of December 31,
2021. The level of the IPC at December 31, 2021 was 582.5, which represents an increase of 50.9% over
the IPC of 385.9 at December 31, 2020.
Josemaria Resources Inc.
Notes to Consolidated Financial Statements
For the Years Ended December 31, 2021 and 2010
(All amounts expressed in Canadian Dollars, unless otherwise indicated.)
13
5.
ACCOUNTING FOR EQUITY INVESTMENTS
From time to time, as part of the capital funding process from the Canadian parent to the Argentinian
subsidiary, the Company will purchase equity instruments via a third-party investment broker. The equity
instruments are transferred from the parent to the subsidiary and held for a pre-determined period and then
sold. The Company will only purchase equity instruments of highly reputable companies with high trading
volumes and low volatilities. The Company conducts such transactions on an intra-period basis and does
not hold the equity instruments at period end. The equity instruments are designated as held-for-trading,
and as such all changes in the fair value of the underlying equity instruments are recognized through profit
and loss.
Upon receipt of the transferred equity instruments by the local investment broker, the Company realizes an
immediate foreign exchange impact. This foreign exchange impact is incurred directly as a result of holding
equity instruments with the intention of trading, and as such the foreign exchange impact is also
recognized through profit and loss.
For the year ended December 31, 2021, the Company realized a trading loss of $3,652,255 (2020 –
$1,636,799) and a foreign exchange gain of $23,650,103 (2020 – $8,044,148) as a result of holding the
equity instruments for a net realized gain of $19,997,848 (2020 – $6,407,349). For the year ended
December 31, 2021, the Company also incurred an unrealized gain on available for sale equity
investments of $4,669 (2020 – $82,183).
6.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
a)
Basis of consolidation
These consolidated financial statements include the accounts of the Company and its subsidiaries. All
significant intercompany balances and transactions have been eliminated on consolidation. The
Company’s key operating subsidiary as at December 31, 2021 is Desarrollo de Prospectos Mineros
S.A. (Argentina).
Subsidiaries are all entities over which the Company has control. An entity is controlled by the
Company when it is exposed to, or has rights to, variable returns from its involvement with the entity
and has the ability to affect those returns through its power over the entity. Subsidiaries are fully
consolidated from the date on which control is transferred to the Company. They are de-consolidated
from the date that control ceases. All of the Company’s subsidiaries are wholly-owned.
b)
Critical accounting estimates and judgements
The preparation of the consolidated financial statements in accordance with IFRS requires
management to make estimates and judgements that affect the reported amounts of assets, liabilities
and expenditures on the financial statements. These estimates and judgements are based on
management’s best knowledge of the relevant facts and circumstances taking into account previous
experience. Actual results could differ from those estimates and such differences could be material.
Estimates are reviewed on an ongoing basis and are based on historical experience and other facts
and circumstances. Revisions to estimates and the resulting effects on the carrying amounts of the
Company’s assets and liabilities are accounted for prospectively. Information about estimates,
judgements and other sources of estimation uncertainty as at December 31, 2021 that have a risk of
Josemaria Resources Inc.
Notes to Consolidated Financial Statements
For the Years Ended December 31, 2021 and 2010
(All amounts expressed in Canadian Dollars, unless otherwise indicated.)
14
resulting in a material adjustment to the carrying amounts of assets and liabilities within the next year
are as follows:
Going Concern
In preparation of these consolidated financial statements, management has made certain estimates
and judgements with respect to evaluating the Company’s ability to continue as a going concern,
including budgeted expenditures, foreign exchange rates, the timing of certain work activities, and
the ability to raise additional funds and extend the maturity dates of the Company’s debenture
facilities (Note 13). While management is confident in the reasonableness of these underlying
assumptions, they are subject to change which could impact the Company’s ability to continue as a
going concern.
Assessment of impairment indicators of mineral properties
The application of the Company’s accounting policy for the impairment of mineral properties
requires judgment to determine whether indicators of impairment exist. This includes information
such as the period for which the Company has the right to conduct its exploration and project
investigation activities, including expected renewals, whether substantive expenditures on further
exploration and project investigation of mineral properties are budgeted, the evaluation of the
results of exploration and project investigation activities up to the reporting date, and the likelihood
that the carrying value of mineral properties will be recovered in full from successful development or
sale of the asset. Management has performed an impairment indicator assessment on the
Company’s mineral properties and has concluded that no impairment indicators exist as of
December 31, 2021.
c)
Foreign currency translation
Foreign subsidiaries whose functional currency is the currency of a hyperinflationary economy are
required to apply hyperinflation accounting in accordance with IAS 29 as described in Note 4. When
the economy ceases to be hyperinflationary, the Company will discontinue the application of
hyperinflation accounting and the amounts presented in the measuring unit current at the end of the
previous reporting period will become the basis for the carrying amounts in its subsequent financial
statements.
For foreign subsidiaries whose functional currency is the currency of a non-hyperinflationary economy,
transactions in foreign currencies are translated to the functional currency of the entity at the exchange
rate at the date of the transaction. Monetary assets and liabilities denominated in foreign currencies are
translated at period end exchange rates at the balance sheet date. Non-monetary assets and liabilities
are translated based on the historical rate on the date of the transaction. All gains and losses on
translation of these foreign currency transactions are included in the statement of net loss.
The functional currency of each of the subsidiaries is the currency of the primary economic
environment in which the entity operates. Primary and secondary indicators are used to determine the
functional currency. The local currency has been determined to be the functional currency of the
Company’s significant operating subsidiaries. Foreign operations are translated from their functional
currencies into Canadian dollars on consolidation as follows:
Josemaria Resources Inc.
Notes to Consolidated Financial Statements
For the Years Ended December 31, 2021 and 2010
(All amounts expressed in Canadian Dollars, unless otherwise indicated.)
15
●
Assets and liabilities for each balance sheet presented are translated at the closing rate at the
date of the balance sheet;
●
Income and expenses for each income statement are translated at average exchange rate; and
●
All resulting exchange differences are recognized in other comprehensive income as
cumulative translation adjustments.
The functional currency of Josemaria Resources Inc., the parent entity, is the Canadian dollar, which is
also the presentation currency of the consolidated financial statements.
d)
Equipment and other fixed assets
Property, plant and equipment are stated at cost less accumulated depreciation and impairment losses.
The cost of an asset consists of its purchase price, any directly attributable costs of bringing the asset
to its present working condition and location for its intended use and an initial estimate of the costs of
dismantling and removing the item and restoring the site on which it is located.
Subsequent costs are included in the asset’s carrying amount or recognized as a separate asset, as
appropriate, only when it is probable that future economic benefits associated with the item will flow to
the Company and the cost of the item can be measured reliably.
Depreciation of an asset begins when it is available for use, ie – when it is in the location and condition
necessary for it to be capable of operating in the manner intended by management. Depreciation of
each asset is calculated using the straight-line method to allocate its cost less its residual value over its
estimated useful life.
The assets’ residual values and useful lives are reviewed, and adjusted if appropriate, at each balance
sheet date. An asset’s carrying amount is written down immediately to its recoverable amount if the
asset’s carrying amount is greater than its estimated recoverable amount. Gains and losses on
disposals are determined by comparing the proceeds with the carrying amount and are recognized in
the statement of comprehensive loss.
e)
Exploration and project investigation expenditures and mineral properties
Exploration and project investigation (“E&P”) expenditures are those costs required to find a mineral
property and determine its commercial viability. E&P costs include costs to establish an initial mineral
resource and determine whether inferred mineral resources can be upgraded to measured and
indicated mineral resources.
E&P costs are expensed as incurred until such time that the project demonstrates economic viability
and technical feasibility. When these milestones have been achieved, the capitalization of E&P costs
will commence. Property acquisition costs are capitalized as mineral properties. In accounting for its
asset acquisitions, the Company recognizes future contingent considerations as additions to the cost
of the asset initially recorded when incurred.
f)
Impairment of non-financial assets
The carrying amounts of non-financial assets are reviewed at each reporting period for impairment
whenever facts and circumstances indicate that the carrying amounts are not recoverable. An
impairment loss is recognized for the amount by which the asset’s carrying amount exceeds its
Josemaria Resources Inc.
Notes to Consolidated Financial Statements
For the Years Ended December 31, 2021 and 2010
(All amounts expressed in Canadian Dollars, unless otherwise indicated.)
16
recoverable amount. The recoverable amount is the higher of its fair value less costs of disposal and
its value in use. For the purpose of assessing impairment, assets are grouped at the lowest levels for
which there are separate cash flows (cash generating units or “CGU”). An impairment loss exists if the
asset’s or CGU’s carrying amount exceeds its recoverable amount and is recorded as an expense in
the consolidated statement of loss. If, in a subsequent period, the amount of the impairment loss
decreases and the decrease can be related objectively to an event occurring after the impairment was
recognized, the reversal of the previously recognized impairment loss is recognized in the
consolidated statement of loss.
g)
Financial instruments
Recognition:
The Company measures and classifies its financial assets based on its business model for managing
its financial assets and the contractual cash flow characteristics of those financial assets. Financial
assets are classified into three measurement categories on initial recognition: those measured at fair
value through profit and loss, those measured at fair value through other comprehensive loss and
those measured at amortized cost.
Financial assets and liabilities at amortized costs are initially recognized at fair value plus or minus
transaction costs, respectively, and subsequently carried at amortized cost less any impairment.
Investments in equity instruments are required to be measured by default at fair value through profit or
loss unless the Company makes an irrevocable election to present subsequent changes in the fair
value of its equity investments in OCI. The Company has not elected to measure any of its equity
instruments through OCI.
Derecognition:
The Company derecognizes financial assets when the contractual rights to cash flows from the
financial assets expire, or when it transfers the financial assets and substantially all of the associated
risk and rewards of ownership to another entity. A financial liability is derecognized when the obligation
under the liability is discharged, canceled or expired. Gains and losses on derecognition of financial
assets and liabilities are generally recognized in the consolidated statements of loss.
Impairment:
The Company recognizes a loss allowance for expected credit losses on financial assets that are
measured at amortized costs based on a probability-weighted estimate of credit losses over the
expected life of the financial asset.
The expected credit losses are reviewed and updated at each reporting date as appropriate to reflect
changes in the credit risk of the financial instruments, whereby the Company measures the loss
allowance for the financial asset at an amount equal to the lifetime expected credit losses if the credit
risk on the financial asset has increased significantly since initial recognition. If at the reporting date,
the credit loss of the financial asset has not increased significantly since initial recognition, the
Company measures the loss allowance for the financial asset at an amount equal to twelve month
expected credit losses. Impairment losses on financial assets carried at amortized cost are reversed in
subsequent periods if the expected credit losses are reversed after the impairment was recognized.
Josemaria Resources Inc.
Notes to Consolidated Financial Statements
For the Years Ended December 31, 2021 and 2010
(All amounts expressed in Canadian Dollars, unless otherwise indicated.)
17
h)
Current and deferred income tax
The Company follows the liability method of accounting for income taxes. Under the liability method,
deferred income tax assets and liabilities are recognized for the future tax consequences attributable to
differences between the financial statement carrying amounts of existing assets and liabilities and their
respective tax bases, unused tax losses and other income tax deductions. Deferred income tax assets
are recognized for deductible temporary differences, unused tax losses and other income tax
deductions to the extent that it is probable the Company will have taxable income against which those
deductible temporary differences, unused tax losses and other income tax deductions can be utilized.
Deferred income tax assets and liabilities are measured using enacted or substantively enacted tax
rates expected to apply when the related assets are realized or the liabilities are settled. The
measurement of deferred income tax assets and liabilities reflects the tax consequences that would
follow from the manner in which the Company expects, at the reporting date, to recover and settle the
carrying amounts of its assets and liabilities, respectively. The effect on deferred income tax assets and
liabilities of a change in tax rates is recognized in the period in which the change is substantively
enacted.
i)
Provisions
Provisions are recognized when a present legal or constructive obligation exists as a result of past
events, and it is probable that an outflow of resources that can be reliably estimated will be required to
settle the obligation. Where the effect is material, the provision is discounted using an appropriate
credit-adjusted risk-free rate.
j)
Share-based compensation
The Company has a share-based compensation plan for its employees, directors and other eligible
participants (“Participants”). Participants may receive options to purchase common shares at a price
determined at the time of grant. Fair value for stock options granted is determined on grant date using
the Black-Scholes option-pricing model. Share-based compensation expense is recorded over the
period the options vest, with a corresponding increase to contributed surplus. The Company issues
new common shares to satisfy stock option exercises, with the proceeds received net of any directly
attributable transaction costs credited to share capital.
k)
Loss per share
Loss per share is calculated based on the weighted average number of shares outstanding during the
year. For diluted earnings per share, dilution is calculated based upon the net number of common
shares issued should “in-the-money” options be exercised and the proceeds be used to repurchase
common shares at the average market price in the year.
l)
Share capital
Common shares are classified as equity. Incremental costs directly attributable to the issue of new
ordinary shares or options are shown in equity as a deduction, net of tax, from the proceeds.
m)
Segment Reporting
Operating segments are components of an entity that engage in business activities from which they
incur expenses and whose operating results are regularly reviewed by a chief operating decision maker
Josemaria Resources Inc.
Notes to Consolidated Financial Statements
For the Years Ended December 31, 2021 and 2010
(All amounts expressed in Canadian Dollars, unless otherwise indicated.)
18
to make resource allocation decisions and to assess performance. The Chief Executive Officer is
responsible for allocating resources and reviewing operating results of each operating segment on a
periodic basis.
The Company’s primary reporting segments are based on the location of operations, being South
America and Canada. The office in Canada provides support to the project with respect to treasury and
finance, technical support, regulatory reporting and corporate administration.
n)
New accounting pronouncements
Certain new standards, interpretations, amendments and improvements to existing standards were
issued by the International Accounting Standards Board. The following has not yet been adopted by the
Company and is being evaluated to determine its impact:
IAS 16, Property, plant and equipment ("IAS 16")
Amendments to IAS 16 prohibit a company from deducting from the cost of property, plant and
equipment amounts received from selling items produced while the company is preparing the asset for
its intended use. Instead, a company will recognize such sales proceeds and related cost in profit or
loss. The amendments to IAS 16 are effective for annual reporting periods beginning on or after
January 1, 2022. The new standard will not have an impact on the Company’s financial results in fiscal
2022.
Josemaria Resources Inc.
Notes to Consolidated Financial Statements
For the Years Ended December 31, 2021 and 2010
(All amounts expressed in Canadian Dollars, unless otherwise indicated.)
19
7.
RECEIVABLES AND OTHER ASSETS
December 31,
2021
December 31,
2020
Receivables and prepaid expenses
$
2,005,689
$
267,999
Taxes recoverable
494,840
313,371
Due from related parties (Note 15)
3,334
-
Total
$
2,503,863
$
581,370
December 31,
2021
December 31,
2020
Current
$
2,085,358
$
371,132
Non-current
418,505
210,238
Total
$
2,503,863
$
581,370
8.
EQUIPMENT AND OTHER FIXED ASSETS
Equipment
Land &
Buildings
Leased
Assets
Other assets
Total
December 31, 2019
$
2,173,294
$
-
$
6,605
$
38,500
$
2,218,399
Additions
9,226
-
121,045
-
130,271
Hyperinflation adjustment (Note 4)
(49,765)
-
(116)
-
(49,881)
Depreciation
(67,987)
-
(33,388)
(18,300)
(119,675)
December 31, 2020
$
2,064,768
$
-
$
94,146
$
20,200
$
2,179,114
Additions
23,378,358
23,516,080
-
-
46,894,438
Hyperinflation adjustment (Note 4)
965,492
1,845,653
-
-
2,811,145
Depreciation
(188,847)
-
(40,348)
(12,200)
(241,395)
December 31, 2021
$
26,219,771
$
25,361,733
$
53,798
$
8,000
$
51,643,302
During the year ended December 31, 2021, the Company added $22.8 million (2020 - $nil) of fixed
assets, included in “Equipment”, in relation to the procurement of technical deliverables for primary
mine operating assets. No physical delivery of assets has taken place and further commitments are
required in order to proceed with the manufacturing of the physical assets to which the costs incurred to
date relate. During the year ended December 31, 2021, the Company also added $19.7 million (2020 –
$nil) of fixed assets, included in “Land & Buildings”, related to the field season which commenced in Q4
2021. The assets consist of modular -style buildings and related equipment designed to house field and
administrative teams on-site. As at December 31, 2021, $13.6 million related to the acquisition of fixed
assets remains in trade payables and accrued liabilities, and $25.5 million of assets are not yet subject
to depreciation.
Josemaria Resources Inc.
Notes to Consolidated Financial Statements
For the Years Ended December 31, 2021 and 2010
(All amounts expressed in Canadian Dollars, unless otherwise indicated.)
20
9.
MINERAL PROPERTIES
Josemaria Project
(Note a)
December 31, 2019
$
10,608,482
Hyperinflation adjustment (Note 4)
(543,821)
December 31, 2020
$
10,064,661
Hyperinflation adjustment (Note 4)
2,336,697
December 31, 2021
$
12,401,358
a)
The
Josemaria Project
Acquisition of mineral property interests from JOGMEC
The Company holds a 100% interest in the Josemaria project in San Juan Province, Argentina
following its acquisition of all remaining interests in the project from Japan Oil, Gas and Metals National
Corporation (“JOGMEC”) on November 13, 2017 for total cash consideration of US$21 million. US$3
million was paid on November 2017, with the remainder of the cash consideration to be paid upon
completion of the following milestones:
●
US$5.0 million payable upon a development and construction decision being made; and
●
US$13.0 million upon commencement of commercial production from the property.
In accordance with its accounting policy, the future contingent consideration to be paid upon
completion of the applicable milestones will be recorded and added to the mineral property when
incurred. JOGMEC retains an option to purchase up to 40% of the material produced from the mine at
a price not to exceed the prevailing market price at the time the notice of exercise is given.
Acquisition of mining concessions from Filo Mining Corp. (“Filo Mining”)
On February 21, 2018, the Company completed the acquisition of a 100% interest in certain mining
concessions (the “Primary Properties”) with an option to acquire a 100% interest in additional mining
concessions (the “Additional Properties”) located in San Juan Province, Argentina from Filo Mining, a
related party, to expand its Josemaria project in exchange for the following consideration:
●
Providing Filo Mining with the right to use its Batidero Camp facility in Argentina for a minimum
period of two years, which was amended on June 30, 2019 (see below);
●
A 3% net smelter return (“NSR”) royalty on a portion of the mining concessions on properties
auxiliary to the Josemaria project, 2% of which can be re-purchased by the Company at any
time for $2,000,000; and
●
Cash consideration of $64,000 which was paid upon execution of the agreement with Filo
Mining.
Josemaria Resources Inc.
Notes to Consolidated Financial Statements
For the Years Ended December 31, 2021 and 2010
(All amounts expressed in Canadian Dollars, unless otherwise indicated.)
21
The mining concessions acquired from Filo Mining, including all transaction costs, have been
capitalized as mineral properties. The costs of the mineral properties acquired were measured based
on the fair value of the consideration given up. On June 30, 2019, the Company finalized an
arrangement with Filo Mining to extend the minimum period of use of the Company’s Batidero Camp
facility through April 1, 2021, in exchange for cash consideration of $382,670. On April 27, 2021, Filo
Mining provided formal notice of renewal to the Company for the period through April 1, 2022 with no
additional consideration paid.
10.
OTHER LIABILITIES
Camp use
provision
Lease liability
Total Other
liabilities
December 31, 2019
$
295,573
$
7,586
$
303,159
Additions
-
121,045
121,045
Lease payments
-
(43,091)
(43,091)
Hyperinflation adjustment
(101,325)
-
(101,325)
Recognition to income, net of expense
(158,833)
12,738
(146,095)
December 31, 2020
$
35,415
$
98,278
$
133,693
Additions
-
-
-
Lease payment s
-
(52,796)
(52,796)
Hyperinflation adjustment
(9,122)
-
(9,122)
Recognition to income, net of expense
(26,293)
16,044
(10,249)
December 31, 2021
$
-
$
61,526
$
61,526
December 31,
2021
December 31,
2020
Current
$
44,622
$
72,167
Non-current
16,904
61,526
Total other liabilities
$
61,526
$
133,693
Josemaria Resources Inc.
Notes to Consolidated Financial Statements
For the Years Ended December 31, 2021 and 2010
(All amounts expressed in Canadian Dollars, unless otherwise indicated.)
22
11.
SHARE CAPITAL
The Company has authorized an unlimited number of voting common shares without par value. All
issued shares are fully paid.
On August 18, 2020, the Company closed a private placement and concurrent public offering of
46,652,986 common shares of the Company at a price of $0.67 per common share for gross proceeds
of $31.3 million, less issuance costs of $1.3 million, for net proceeds of $29.9 million. Zebra Holdings
and Investments S.à.r.l. (“Zebra”) and Lorito Holdings S.à.r.l. (“Lorito”), both related parties of the
Company, contributed a combined gross $14.7 million as part of the private placement.
On April 19, 2021, the Company closed a private placement of 58,708,900 common shares of the
Company at a price (the “Offering Price”) of $0.69 per common share for gross proceeds of $40.5
million. Concurrently, the Company also closed a public offering pursuant to which a syndicate of
underwriters purchased, on a bought deal basis, 14,500,000 common shares at the Offering Price for
gross proceeds of $10.0 million, plus an over-allotment option at the Offering Price of an additional
2,175,000 common shares for gross proceeds of $1.5 million for total combined gross proceeds of
$52.0 million. The Company incurred related share issuance costs of $1.4 million for net proceeds of
$50.6 million. As part of both the private placement and public offering, Lorito contributed $20.5 million
and acquired 29,760,657 common shares.
Josemaria Resources Inc.
Notes to Consolidated Financial Statements
For the Years Ended December 31, 2021 and 2010
(All amounts expressed in Canadian Dollars, unless otherwise indicated.)
23
12.
SHARE OPTIONS
a)
Share Option Plan
The Company has a rolling share option plan which reserves an aggregate of 10% of the issued and
outstanding shares of the Company for issuance upon the exercise of options granted.
During the year ended December 31, 2021, the Company granted a total of 9,305,000 (2020 –
3,977,000) share options to officers, employees, directors and other eligible participants at a weighted
average exercise price of $0.79 per share (2020 – $0.67). Share options have an expiry date of five
years. During the year ended December 31, 2021, of the 9,305,000 options granted, 1,475,000
options were granted that vest in thirds upon each of the first three anniversaries of the date of grant,
and 675,000 options were granted that vest in halves, one half six months after the date of grant, and
one half upon the completion of certain milestones. The remaining options typically vest in thirds: one-
third immediately upon grant, and the remaining thirds on the first and second anniversary of the date
of grant.
The fair value of each option granted is estimated on the date of grant using the Black-Scholes option
pricing model, which includes assumptions of volatility based on historical share price performance.
The weighted average assumptions and resulting fair values for grants are as follows:
2021
2020
Weighted-average assumptions:
Risk-free interest rate
(%)
0.4
1.4
Expected life
(years)
4.7
4.2
Expected volatility
(%)
49.6
49.0
Expected dividend
Nil
Nil
Results:
Weighted average fair value of options granted
(per option)
$ 0.33
$ 0.27
Based on the valuation of $0.33 per option granted, the Company will recognize $3,093,412 in total
expense over the vesting period of the 9,305,000 options granted during the year ended December
31, 2021.
The total share-based compensation expense for the year ended December 31, 2021 totaling
$2,266,870 (2020 – $1,248,436) was presented in the statement of comprehensive loss as follows:
2021
2020
General and administration
$
2,140,079
$
1,092,000
Exploration and project investigation
126,791
156,436
$
2,266,870
$
1,248,436
Josemaria Resources Inc.
Notes to Consolidated Financial Statements
For the Years Ended December 31, 2021 and 2010
(All amounts expressed in Canadian Dollars, unless otherwise indicated.)
24
b)
Share Options Outstanding
The following is a summary of the movements in the number of share options outstanding and their
related weighted average exercise prices:
Number of shares
issuable pursuant
to share options
Weighted average
exercise price per
share
December 31, 2019
9,925,000
$
0.76
Granted
3,997,000
0.67
Expired
(3,060,000)
(0.84)
December 31, 2020
10,862,000
$
0.70
Granted
9,305,000
0.79
Expired / forfeited
(1,847,000)
(0.80)
Exercised
(856,000)
(0.69)
December 31, 2021
17,464,000
$
0.74
During the year ended December 31, 2021, the weighted average closing price of the Company’s
shares on the dates that share options were exercised was $1.12 (2020 – no options exercised).
The following table summarizes information about the outstanding and exercisable share options at
December 31, 2021:
Outstanding Options
Exercisable Options
Exercise price
Number of
options
outstanding
Weighted average
remaining
contractual life
(years)
Number of
options
exercisable
Weighted average
remaining
contractual life
(years)
$ 0.96
1,475,000
4.7
-
-
$ 0.80
419,000
4.6
139,667
4.6
$ 0.85
575,000
4.5
287,500
4.5
$ 0.75
6,339,000
4.2
2,113,000
4.2
$ 0.73
75,000
3.4
50,000
3.4
$ 0.67
3,561,000
3.2
2,374,000
3.2
$ 0.61
2,505,000
2.9
2,505,000
2.9
$1.01
925,000
2.6
925,000
2.6
$ 0.65
1,590,000
2.2
1,590,000
2.2
17,464,000
3.6
9,984,167
3.1
Josemaria Resources Inc.
Notes to Consolidated Financial Statements
For the Years Ended December 31, 2021 and 2010
(All amounts expressed in Canadian Dollars, unless otherwise indicated.)
25
13.
DEBENTURE S
A continuity of the changes in the total outstanding debenture balance is as follows:
December 31, 2019
$
27,917,934
Funds drawn on debentures
22,480,236
Repayments on debentures
(19,730,170)
Other items
44,878
Effect of changes in foreign exchange
(1,454,261)
December 31, 2020
$
29,258,617
Funds drawn on debentures
30,585,194
Repayments on debentures
(20,534,853)
Other items
(17,956)
Effect of changes in foreign exchange
(32,141)
December 31, 2021
$
39,258,861
The total debenture balance outstanding, excluding deferred financing fees, as at December 31, 2021 is
comprised as follows:
Lorito Facility
(Note a)
2020 Facilities
(Note b)
2021 Facilities
(Note c)
Total
Current
$
-
$
-
$
-
$
-
Non-current
25,356,000
8,874,600
5,071,200
39,301,800
Total
$
25,356,000
$
8,874,600
$
5,071,200
$
39,301,800
a)
Lorito Facility
On October 25, 2019 the Company secured a US$20.0 million credit facility with Lorito as evidenced
by a debenture (the “Lorito Facility”). Pursuant to the terms of the Lorito Facility, Lorito received
80,000 common shares of the Company as consideration upon execution of the Lorito Facility and is
entitled to receive 800 common shares each month, for every US$50,000 in principal outstanding,
prorated accordingly for the number of days outstanding. On September 8, 2021, the Company
announced an extension of the maturity date of the Lorito Facility from November 25, 2021 to March
7, 2023. No interest is payable during the term of the Lorito Facility, however, any amount remaining
unpaid and outstanding on or after March 7, 2023 shall bear interest at a rate of 5.0% per annum until
repaid in full. As at December 31, 2021, the Lorito Facility was fully drawn with an outstanding balance
of US$20.0 million.
b)
2020 Facilities
On May 25, 2020, the Company secured two credit facilities, evidenced by debentures, totaling
US$7.0 million (collectively the "2020 Facilities"), one with Lorito for US$3.5 million (the "Lorito
2020 Facility") and one with Zebra for US$3.5 million (the "Zebra 2020 Facility"). Pursuant to the
Josemaria Resources Inc.
Notes to Consolidated Financial Statements
For the Years Ended December 31, 2021 and 2010
(All amounts expressed in Canadian Dollars, unless otherwise indicated.)
26
terms of the 2020 Facilities, Lorito and Zebra each received 16,500 common shares of the
Company as consideration upon execution of the 2020 Facilities and are entitled to receive 920
common shares each month, for every US$50,000 in principal outstanding, prorated accordingly
for the number of days outstanding. On September 8, 2021, the Company announced an extension
to the maturity date of the 2020 Facilities from November 25, 2021 to March 7, 2023. No interest is
payable during the term of the 2020 Facilities, however, any amount of the 2020 Facilities
remaining unpaid and outstanding on or after March 7, 2023 shall bear interest at a rate of 5.0%
per annum until repaid in full. As at December 31, 2021, the 2020 Facilities were fully drawn with
an outstanding balance of US$7.0 million.
c)
2021 Facilities
On September 8, 2021, the Company secured two credit facilities, evidenced by debentures, totaling
US$20.0 million (collectively the "2021 Facilities"), one with Lorito for US$10.0 million (the "Lorito
2021 Facility") and one with Zebra for US$10.0 million (the "Zebra 2021 Facility"), each of which has a
term of 18 months ending March 7, 2023. Pursuant to the terms of the 2021 Facilities, Lorito and
Zebra each received 25,000 common shares of the Company as consideration upon execution of the
2021 Facilities and are entitled to receive 450 common shares each month, for every US$50,000 in
principal outstanding, prorated accordingly for the number of days outstanding. No interest is payable
during the term of the 2021 Facilities, however, any amount of the Lorito 2021 Facility or the Zebra
2021 Facility remaining unpaid and outstanding on or after March 7, 2023 shall bear interest at a rate
of 5.0% per annum until repaid in full. As at December 31, 2021, the 2021 Facilities had an
outstanding balance of US$4.0 million. On January 4, 2022, the Company drew the remaining
US$16.0 million on the 2021 Facilities.
Zebra reports its security holdings in the Company as a joint actor with Lorito and they collectively hold
more than 20% of the Company’s issued and outstanding common shares as at December 31, 2021. No
interest is payable in cash during the term and all securities issued in conjunction with these facilities are
subject to a four-month hold period under applicable securities law. During the year ended December 31,
2021 the Company issued 3,061,431 shares to Lorito and Zebra (2020 – 4,853,632) as consideration for
the funds drawn on the facilities, with an additional 484,800 common shares issuable as at December 31,
2021, resulting in $3,133,035 in financing costs recognized during the year ended December 31, 2021
(2020 – $3,526,927).
Josemaria Resources Inc.
Notes to Consolidated Financial Statements
For the Years Ended December 31, 2021 and 2010
(All amounts expressed in Canadian Dollars, unless otherwise indicated.)
27
14.
EXPLORATION AND PROJECT INVESTIGATION
The Company expensed the following exploration and project investigation costs related 100% to the
Josemaria Project:
2021
2020
Land holding costs
$
53,743
$
94,592
Drilling, fuel, camp costs and field supplies
5,034,538
7,484,612
Roadwork, travel and transport
3,940,378
1,460,405
Engineering studies, consultants, geochemistry and
geophysics
27,130,831
10,462,785
Environmental and community relations
3,681,992
2,381,629
VAT, other taxes and fees
2,981,949
5,215,873
VAT related to fixed assets
4,420,144
-
Office and general, salaries, and overhead
11,314,651
2,082,538
Share-based compensation
126,791
156,436
Inflation adjustment (Note 4)
1,008,950
595,438
Total Expenditures
$
59,693,967
$
29,934,308
Josemaria Resources Inc.
Notes to Consolidated Financial Statements
For the Years Ended December 31, 2021 and 2010
(All amounts expressed in Canadian Dollars, unless otherwise indicated.)
28
15.
RELATED PARTY TRANSACTIONS
a)
Related party services and balances
The Company has formalized cost sharing arrangements with NGEx Minerals Ltd. (“NGEx Minerals”)
and Filo Mining Corp. (“Filo Mining”; collectively “Related Parties”), whereby the Related Parties
provide executive management and personnel services to the Company (“Related Party Services”),
while the Company provides financial management and administrative services to Filo Mining and
NGEx Minerals (“Josemaria Services”).
Other than those related party transactions identified in Note 13, the Company’s related party
transactions are as follows:
2021
2020
Income from Josemaria Services provided:
$
99,869
$
314,419
42,058
150,750
Total
$
141,927
$
465,169
2021
2020
Costs of Related Party Services received:
$
(281,813)
$
(943,427)
(83,524)
(139,906)
Total
$
(365,337)
$
(1,083,333)
The amounts due from/to the Related Parties by the Company, and the components of the
consolidated statement of financial position in which they are included, are as follows:
December 31,
2021
December 31,
2020
Due from Filo Mining
$
1,667
$
-
Due from NGEx Minerals
1,667
-
$
3,334
$
-
December 31,
2021
December 31,
2020
Due to Filo Mining
$
(46,678)
$
-
Due to NGEx Minerals
(27,996)
-
$
(74,674)
$
-
Josemaria Resources Inc.
Notes to Consolidated Financial Statements
For the Years Ended December 31, 2021 and 2010
(All amounts expressed in Canadian Dollars, unless otherwise indicated.)
29
b)
Key management compensation
Key management personnel have authority and responsibility for overseeing, planning, directing and
controlling the activities of the Company and consist of the Board of Directors and members of the
executive management team. Total compensation expense for key management personnel inclusive
of the costs of the Related Party Services received from its Related Parties, and the composition
thereof, is as follows:
2020
Salaries and other payments
$
2,879,417
$
1,218,107
Employee benefits
39,610
28,196
Director fees
280,000
103,723
Share-based compensation
1,505,772
1,072,121
$
4,704,799
$
2,422,147
Josemaria Resources Inc.
Notes to Consolidated Financial Statements
For the Years Ended December 31, 2021 and 2010
(All amounts expressed in Canadian Dollars, unless otherwise indicated.)
30
16.
SEGMENTED INFORMATION
The Company is principally engaged in the acquisition, exploration and development of mineral properties in
South America. The segments presented in Note 9 and Note 16 reflect the way in which management
reviews its business performance. The Company’s primary business activity is the advancement of the
Josemaria Project in San Juan, Argentina. All of the Company’s non-current assets and exploration and
project investigation costs are located and incurred within Argentina, whereas materially all of the
Company’s cash and general and administrative costs are held and incurred by the Canadian parent. The
following is a summary of net losses and selected non-current assets by segment:
December 31, 2021
Receivables and
other assets
Equipment and
other fixed assets
Mineral
properties
Total
Josemaria Project
$
418,505
$
51,565,987
$
12,401,358
$
64,385,850
Corporate
-
77,315
-
77,315
Total
$
418,505
$
51,643,302
$
12,401,358
$
64,463,165
December 31, 2020
Receivables and
other assets
Equipment and
other fixed assets
Mineral
properties
Total
Josemaria Project
$
210,238
$
2,149,791
$
10,064,661
$
12,424,690
Corporate
-
29,323
-
29,323
Total
$
210,238
$
2,179,114
$
10,064,661
$
12,454,013
2021
2020
Exploration and
Project
Investigation
G&A and
other items
Net loss/(gain)
for the period
Exploration and
Project
Investigation
G&A and
other items
Net loss for the
period
Josemaria Project
$
59,693,967
$
-
$
59,693,967
$
29,934,308
$
-
$
29,934,308
Corporate
-
(8,283,179)
(8,283,179)
-
1,302,855
1,302,855
Total
$
59,693,967
$
(8,283,179)
$
51,410,788
$
29,934,308
$
1,302,855
$
31,237,163
Josemaria Resources Inc.
Notes to Consolidated Financial Statements
For the Years Ended December 31, 2021 and 2010
(All amounts expressed in Canadian Dollars, unless otherwise indicated.)
31
17.
INCOME TAXES
2021
2020
Combined basic federal and provincial income tax rates
27.0%
27.0%
Net loss before taxes
$
(51,410,788)
$
(31,237,163)
Expected income recovery
$
(13,880,913)
$
(8,434,034)
Non-deductible share based compensation
612,055
337,078
Other non-deductible expenses and other permanent differences
8,404,198
2,603,761
Changes in foreign tax and currency rates
(113,554)
788,823
Income tax benefits not recognized and other items
4,978,214
4,704,372
Income tax recovery
$
-
$
-
The Company’s unrecognized deductible temporary differences and unused tax losses for which no
deferred tax asset is recognized consist of the following amounts:
December 31,
2021
December 31,
2020
Non-capital losses carried forward
$
13,238,273
$
9,144,833
Capital losses carried forward
21,043,157
21,043,157
Mineral properties and related expenditures
18,444,398
8,981,100
Others
583,622
384,284
Unrecognized deferred tax assets
$
53,309,450
$
39,553,374
As at December 31, 2021, the Company has the following tax losses, primarily in Canada and Argentina,
which may be used to reduce future taxable income:
Year of Expiry
Canada
Argentina
Other
Total
2022
$
-
4,342
14,212
18,554
2023
-
3,375
19,534
22,909
2024
-
47,294
18,351
65,645
2025
591,513
174,588
21,859
787,960
2026 and onwards
42,993,764
3,905,221
18,291
46,917,276
Total
$
43,585,277
$
4,134,820
$
92,247
$
47,812,344
Josemaria Resources Inc.
Notes to Consolidated Financial Statements
For the Years Ended December 31, 2021 and 2010
(All amounts expressed in Canadian Dollars, unless otherwise indicated.)
32
18.
FAIR VALUE ESTIMATION
The fair values of financial instruments are determined by valuation methods depending on hierarchy levels
as defined below:
●
Level 1 – Quoted market price in active markets for identical assets or liabilities.
●
Level 2 – Inputs other than quoted market prices included within Level 1 that are observable for
the assets or liabilities, either directly (i.e. observed prices) or indirectly (i.e. derived from
prices).
●
Level 3 – Inputs for the assets or liabilities are not based on observable market data.
The carrying values of certain financial instruments maturing in the short-term approximate their fair values.
These financial instruments include cash and cash equivalents, receivables and others, trade payables and
accrued liabilities, and debentures which are classified as amortized cost. The fair value of investments in
shares is determined based on the quoted market price (level 1).
19.
FINANCIAL INSTRUMENTS
The Company classifies its financial instruments at amortized cost or fair value through profit and loss. The
Company’s financial instruments consist of cash and cash equivalents, receivables and other assets,
investments, trade payables and accrued liabilities, debentures, and other liabilities. The carrying values of
certain financial instruments maturing in the short-term approximate their fair values. These financial
instruments include cash and cash equivalents, receivables and other assets, trade payables and accrued
liabilities, debentures, and other liabilities. The fair value of investments is determined directly by reference
to quoted market prices in active markets. The Company’s financial instruments are exposed to certain
financial risks, including credit, liquidity and market risks.
a)
Credit risk
Credit risk is the risk that a counterparty to a financial instrument will cause a financial loss for the
Company by failing to discharge its obligations. Credit risks associated with cash and cash equivalents
is minimal as the Company deposits the majority of its cash with a large Canadian financial institution
that has been accorded a strong investment grade rating by a primary rating agency. Credit risks
associated with receivables and other assets are minimal as the Company manages these amounts so
as not to have material balances outstanding for long periods of time. Credit risks associated with
investments are minimal as the Company does not hold its investments for long periods of time.
b)
Liquidity risk
Liquidity risk is the risk that the Company will encounter difficulty in meeting obligations associated with
financial liabilities, which is managed through the management of its capital structure. The Company
closely monitors and reviews its costs incurred and actual cash flows against the approved budget on a
monthly basis to ensure the Company’s access to funds is adequate to support the Company’s
operations on an ongoing basis. See also Note 1.
Josemaria Resources Inc.
Notes to Consolidated Financial Statements
For the Years Ended December 31, 2021 and 2010
(All amounts expressed in Canadian Dollars, unless otherwise indicated.)
33
The maturities of the Company’s financial liabilities as at December 31, 2021 are as follows:
Total
Less than 1 year
1 to 5 years
More than 5 years
Trade payables and accrued
liabilities
$
32,357,306
$
32,357,306
$
-
$
-
Debentures
39,258,861
-
39,258,861
-
Other liabilities
61,526
44,622
16,904
-
Contractual commitments for
fixed assets
2,215,034
2,215,034
-
-
Total
$
73,892,727
$
34,616,962
$
39,275,765
$
-
As at December 31, 2021, the Company has additional minimum commitments of $2.2 million
related to the procurement of technical deliverables for primary mine operating assets (Note 8).
c)
Market risk
Market risk is the risk that the fair value of future cash flows of a financial instrument will fluctuate
due to changes in market prices. Market prices comprise two types of risk: currency risk and price
risk. Financial instruments affected by market risk include cash and cash equivalents, receivables
and other assets, investments, trades payable and accrued liabilities, debentures, and other
liabilities .
Currency risk
Currency risk is the risk that the value of financial assets and liabilities may change due to changes
in the value of two different currencies. The Company is exposed to currency risks as its parent is
headquartered in Canada and its day-to-day transactions take place in Canadian dollars, while its
foreign operations are conducted in Argentina, and the Company also holds significant debentures
denominated in the United States dollar. While the Company has not used any hedging strategies
to manage its exposure to currency fluctuations, management strives to minimize currency risk by
sending its cash to its foreign operation as required . Based on the Company’s net exposures at
December 31, 2021, a 10% depreciation or appreciation in the Argentina peso or United States
dollar relative to the Canadian dollar would have resulted in an approximate $2.1 million and $3.9
million, respectively, increase or decrease in the Company’s net loss.
Price risk
Price risk is the risk that the fair value or future cash flows of the Company’s financial instruments
will fluctuate because of changes in market prices. From time to time, as part of the funding process
to its subsidiary, the Company holds equity instruments for short periods with the intention of
trading. During these holding periods, the Company is exposed to changes in share prices which
result in gains or losses being recognized in profit and loss. The Company does not hold significant
numbers of equity instruments at period end and therefore has no significant exposure to price risk
as at December 31, 2021.
Josemaria Resources Inc.
Notes to Consolidated Financial Statements
For the Years Ended December 31, 2021 and 2010
(All amounts expressed in Canadian Dollars, unless otherwise indicated.)
34
20.
CAPITAL STRUCTURE MANAGEMENT
The Company’s objectives when managing capital are to safeguard its ability to continue as a going
concern in order to pursue the development of its mineral properties and to maintain a flexible capital
structure which optimizes the costs of capital at an acceptable risk. In the management and definition of
capital, the Company considers the items included in shareholders’ equity to be capital.
The Company manages the capital structure and makes adjustments in light of changes in economic
conditions and the risk characteristics of its assets. In order to maintain or adjust the capital structure,
the Company may attempt to issue new shares or debt instruments, acquire or dispose of assets, or to
bring in joint venture partners.
In order to facilitate the management of its capital requirements, the Company prepares annual
expenditure budgets that are monitored against actual costs, and updated as necessary depending on
various factors, including successful capital deployment and general industry conditions. The annual
and updated budgets are approved by the Board of Directors.