REG - SolGold PLC - Quarterly Financial Report and MD&A
13/05/2022 07:00
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RNS Number : 3668L SolGold PLC 13 May 2022
13 May 2022
SolGold plc
("SolGold" or the "Company")
Quarterly Financial Report and MD&A
The Board of Directors of SolGold (LSE & TSX: SOLG) is pleased to advise
all shareholders and interested investors that the Company's website contains
access to a copy of the Quarterly Financials and Management Discussion and
Analysis ("MD&A") required to be filed on SEDAR in Canada, in connection
with the Company's quarterly financial period ended 31 March 2022. The
Financial Reports are available the Investor Centre page of the Company's
website: www.solgold.com.au (http://www.solgold.com.au) .
By order of the Board
Dennis Wilkins
Company Secretary
Certain information contained in this announcement would have been deemed
inside information.
CONTACTS
Dennis Wilkins
SolGold Plc (Company Secretary) Tel: +61 (0) 417 945 049
dwilkins@solgold.com.au (mailto:dwilkins@solgold.com.au)
Fawzi Hanano / Lia Abady
SolGold Plc (Investors / Communication) Tel: +44 (0) 20 3823 2130
fhanano@solgold.com.au (mailto:fhanano@solgold.com.au) / labady@solgold.com.au
(mailto:labady@solgold.com.au)
Tavistock (Media)
Jos Simson/Gareth Tredway Tel: +44 (0) 20 7920 3150
Follow us on twitter @SolGold_plc
MANAGEMENT DISCUSSION AND ANALYSIS
2022 FINANCIAL YEAR
THIRD QUARTER REPORT
For the three months and nine months ended 31 March 2022
This management discussion and analysis ("MD&A") is management's
assessment of the results and financial condition of SolGold plc ("SolGold" or
the "Company") and its controlled subsidiaries (the "Group") and should be
read in conjunction with the Group's unaudited interim condensed consolidated
financial statements for the period ended 31 March 2022 and 2021 and the notes
thereto. The financial statements have been prepared in accordance with
International Financial Reporting Standards as issued by the International
Accounting Standards Board ("IASB").
Management is responsible for the preparation of the financial statements and
this MD&A. Unless otherwise stated, all amounts discussed in this MD&A
are denominated in United States dollars.
Mr Jason Ward (CP, B.Sc. Geol.), the Head of Exploration of the Group is a
"Qualified Person" as defined in NI 43-101 and has reviewed and approved the
technical information in this MD&A with respect to all the Group's
properties.
The information included in this MD&A is as of 13 May 2022 and all
information is current as of such date. Readers are encouraged to read the
Company's Regulatory News Service ("RNS") announcements filed on the London
Stock Exchange and on the System for Electronic Document Analysis and
Retrieval ("SEDAR") under the Company's issuer profile.
Description of Business
SolGold is a mineral exploration and development company headquartered in
Brisbane, Australia. The Company is a UK incorporated public limited company,
dual LSE and TSX-listed (SOLG on both exchanges) and has a leading exploration
and project team focussed on copper-gold exploration and mine development with
assets in Ecuador, Solomon Islands and Australia. SolGold is a large and
active concession holder in Ecuador and is aggressively exploring the length
and breadth of this highly prospective and gold-rich section of the Andean
Copper Belt. SolGold's primary objective is to discover, define and develop
world-class copper-gold deposits. Cascabel, SolGold's 85% owned "World Class"
(Refer to www.solgold.com.au/cautionary-notice/
(http://www.solgold.com.au/cautionary-notice/) )
(http://www.solgold.com.au/cautionary-notice/) flagship copper-gold porphyry
project (the "Project"), is located in northern Ecuador.
SolGold is a registered shareholder with an unencumbered legal and beneficial
85% interest in Exploraciones Novomining S.A. ("ENSA") and approximately 5.60%
(excluding share options and warrants) of TSX-V-listed Cornerstone Capital
Resources Inc. ("Cornerstone"), which holds the remaining 15% of ENSA, the
Ecuadorean registered company which holds 100% of the Cascabel concession,
which includes the Alpala deposit.
Results of Operations
Leadership and key roles
The Board of Directors of SolGold plc has recently established a Strategy
Committee with the primary purpose to assist the Board in fulfilling its
overall responsibilities relating to the strategic direction and development
of the Company to deliver long-term stakeholder value. The Strategy Committee
will be chaired by the Chair of the Company, Liam Twigger and consists of Nick
Mather, James Clare, Kevin O'Kane and CEO, Darryl Cuzzubbo. The main
responsibilities are to make recommendations to the board about proposed
M&A transactions and to assess the corporate and strategic performance of
the Company in its broadest sense and form a wide view on the adequacy of
progress made in achieving strategic objectives and outcomes, and of the
systems to measure, monitor and deliver on them.
Tania Cashman was appointed Chief People Officer effective 10th January 2022.
Ms. Cashman brings over 20 years senior leadership experience with global
organisations including Orica, BHP, Shell and Pasminco. She began her career
in Human Resources and since then has worked across many geographies and led
several complex, large scale transformation programmes, supporting the
business through significant change.
The Company announced on 11 May the appointment of Ayten Saridas to the
position of Group Chief Financial Officer ("CFO") of SolGold. Ms. Saridas, who
will assume her new role on 27 June, brings over 30 years of international
corporate finance experience with a proven track record in delivering results
and creating value. Ayten is a high-impact executive who brings a compelling
blend of strategic and capital allocation discipline, well-honed finance
skills, and transformational leadership abilities.
In the quarter ended 31 March 2022 the Company hired three new employees into
the Finance function including a new Finance Director and a Senior Accountant
in Ecuador. A new HR Director was also hired to lead the HR team in Ecuador.
A new Head of Ecuador is currently being sourced, with a current short list of
four candidates. The Head of Ecuador will report to the MD & CEO, Darryl
Cuzzubbo and is responsible for managing SolGold operations day to day in
Ecuador. As the most senior point of contact for executive leadership within
Ecuador, this is a key role that will develop and grow significantly as the
Cascabel project transitions from PFS to DFS to execution.
Exploration Highlights
The Company continues to pursue its strategy as an integrated explorer and
developer, aiming to create maximum value for all shareholders. The Company is
applying its exploration blueprint of systematically evaluating its
exploration assets across Ecuador, which are held by four wholly owned
subsidiaries that are exploring throughout the country. SolGold has identified
several high priority copper and gold resource targets, some of which the
Company believes have the potential to reach resource definition and
feasibility levels in close succession.
Early-stage results from the Company's regional exploration programmes are
testament to this approach following the discovery of significant copper-gold
mineralisation at surface at the Cacharposa porphyry copper-gold target at
Porvenir as well as discovery of significant geochemical and geophysical
hallmarks of large porphyry systems identified at several project areas,
including the Rio Amarillo and Cisne Loja projects.
SolGold's regional exploration programme in Ecuador coordinates multiple
highly skilled field teams systematically exploring its concessions throughout
the country. The Company's regional concessions are located along the prolific
Andean Copper Belt which is renowned as the production base for a significant
portion of the world's copper and gold resources. The regional exploration
programme currently focusses on a number of high priority projects identified
for targeted exploration, of which several are considered core targets that
are drill ready.
SolGold has regulatory licencing approvals for scout drilling at five projects
including Porvenir and Rio Amarillo. This has been made possible with the
government recognising and approving the need, in the Initial Exploration
phase, for initial drilling to identify any potential deposit. During the
period the Company obtained authorisation to collect water for the Rio
Amarillo project.
During the period, SolGold has focused on completing the critical study work
and data collection for the Preliminary Feasibility Study ("PFS") at its
Cascabel project, which is based on the Alpala deposit containing 9.9Mt Cu,
21.7Moz Au and 92.2Moz Ag. The results of the PFS were announced on 20 April
2022 (see summary results on p.8). The Company also concentrated on continuing
to uncover the value in the Company's vast regional exploration portfolio
throughout Ecuador.
Figure 1 - Overview of Priority Projects and drill ready Core Targets from
SolGold's Regional Exploration portfolio in Ecuador
Subsidiary Priority Project Priority Targets Core Targets
Carnegie Ridge Resources S.A. Blanca* Cielito, Cerro-Quiroz Further work required
Carnegie Ridge Resources S.A. Chical Esperanza, Espinosa Further work required
Carnegie Ridge Resources S.A. Rio Amarillo* Varela, Palomar, Chalanes Varela
Valle Rico Resources S.A. Salinas Target #1 Further work required
Cruz Del Sol S.A. Cisne Victoria Victoria Further work required
Cruz Del Sol S.A. Coangos Further work required Further work required
Cruz Del Sol S.A. Helipuerto Tinkimints Further work required
Cruz Del Sol S.A. La Hueca* Target #6, Target #1-5 Further work required
Green Rock Resources S.A. Chillanes Central Chillanes Further work required
Green Rock Resources S.A. Cisne Loja Celen Celen
Green Rock Resources S.A. Porvenir* Cacharposa, Target #2-16 Cacharposa, Mula Muerte, Viño
Green Rock Resources S.A. Sharug* Santa Martha Further work required
Green Rock Resources S.A. Timbara Tunantza Further work required
* Received regulatory licencing approvals for scout drilling
Figure 2 - SolGold actual drilling across Ecuador (metres drilled)
PROJECT PROSPECT FY21 Q3 FY21 Q4 FY21 Total FY22 Q1 FY22 Q2 FY22 Q3 Grand Total
Cascabel Alpala 6,599 5,679 28,880 604 - - 250,221
Tandayama-Ameríca 4,708 5,945 12,640 9,127 8,180 1,057 31,003
Aguinaga 847 865 1,712 - - - 8,971
Blanca Cielito - - - - - - 800
Cerro Quiroz - 533 1,774 601 - - 2,375
La Hueca Target #6 - - 1,558 - - - 1,558
Porvenir Cacharposa 6,690 3,735 15,224 4,073 2,867 263 22,427
Mula Muerte - - - - 1,974 144 2,118
Rio Amarillo Varela - - - 1,062 2,164 517 3,743
Sharug Santa Martha - - - 1,463 1,010 - 2,473
Quillosisa - - - - 421 - 421
Grand Total 18,844 16,758 61,788 16,930 16,615 1,981 326,109
Ecuadorian business INTERNAL investigation
In early 2021 SolGold's Board of Directors commissioned a special audit by KPMG LLP to help identify where the control environment needed enhancing as part of the Board's focus on strengthening internal controls and good corporate governance. As a consequence, the Company started to strengthen its internal financial capabilities and internal control framework. Immediate needs identified were the recruitment of a group financial controller in Brisbane and a group General Counsel in London, who were appointed in February and March 2021 respectively. A group Internal Audit function was also established, reporting to the Audit and Risk Committee ("ARC"). The ARC agreed on an annual audit plan focusing on enterprise risks. Increased scrutiny and analysis by the Group finance team throughout 2021 led to cost reductions, but also the discovery of the misappropriation of funds in Ecuador in late 2021.
In December 2021, in immediate response to the discovery, the Company instructed EY Ecuador to commence a forensic investigation into the alleged misappropriation of funds. SolGold's Internal Audit function was engaged to provide independent oversight of the investigation, reporting directly to both the Chair of the Audit & Risk Committee and the group CFO.
The forensic investigation revealed that during the years 2017 to 2021 US$4.6 million was misappropriated. The investigation brought to light the material misstatement of exploration assets as a result of false expenses being capitalised. The investigation brought to light additional controls and failures in the risk management framework, which need further investigation. Part of the investigation is to identify if there was a material weakness in the company’s Internal Controls over Financial Reporting (“ICFR”) relating to design, which has not yet been determined.
This misappropriation resulted in the overstatement of our exploration assets by US$4.6 million, with the associated false expenses having been capitalised in-line with SolGold's accounting policy. SolGold concluded that it was appropriate to write-down the value of these assets accordingly and restate our accounts. The profit and loss impact for the 9-month period 1(st) July 2021 to 31(st) March 2022 amounted to US$228k, reflecting the fact that most losses were incurred in prior years and that increased diligence by the group finance function had had an impact. Though the misstatements are material to the quantum of exploration assets, the Company does not consider the misstatements to be material to the financial statements as a whole, either on an individual or cumulative basis. The overstatement of the exploration assets is cumulative and is made up of smaller annual misstatements that were not material in their respective years.
Our corporate culture is designed to encourage transparency and professionalism, protect our shareholders' funds and inspire confidence in our workforce. SolGold recognises there is more to do and the Company will continue to take steps to improve its control, governance and risk management environment and processes. These steps include increasing the resources and improving the capabilities of senior management and the Finance function.
This behaviour is an extremely serious matter and it has no place in SolGold. SolGold management is enhancing its risk, governance and controls environment and is acting on both the recommendations of KPMG (special audit) and EY (forensic audit) and our own observations.
SolGold's immediate response includes:
· Commissioning of a forensic audit by Ernst & Young Ecuador EY Cía. Ltda. ("EY Ecuador")
· The investigation was supervised by the SolGold Internal Audit function and supported by our General Counsel, both based in the UK
· Hiring of three new employees into the Finance function since 1(st) January 2022, including a Senior Accountant and new Finance Director in Ecuador, the latter reporting directly to the group CFO
SolGold's ongoing actions include:
· Restructuring the Finance organisation in Quito and hiring several roles locally that will help us strengthen our processes and improve our control culture
· Recruitment of an in-house lawyer and a procurement manager in Ecuador, which is on-going
· Commissioning an independent Anti-Bribery and Anti-Corruption assessment in Ecuador, to be followed up with a tailored training programme
· Improvement and tightening of payment controls, enhancing controls and improving procure-to-pay processes
· Internal Audit analysing further specific processes in related to the Ecuadorian entity
Update Statement on 2021 AGM Voting Outcome
The Board of Directors of SolGold recognises that at the 2021 Annual General
Meeting ("AGM") convened on 15 December 2021, a meaningful proportion of
shareholders did not support certain resolutions.
In accordance with Provision 4 of the Financial Reporting Council's ("FRC")
2018 UK Corporate Governance Code (the "Code"), the Board is providing an
update in response to the six (6) of the thirteen (13) resolutions put to the
2021 AGM that received less than 80% of votes in favour. These resolutions
related to the re-election of Messrs Ward, Moller and Marshall, the ability of
the Company to raise fresh capital via the allotment of shares, and the
disapplication and further disapplication of pre-emptive rights.
The Board, via Chair Mr Twigger and MD & CEO Mr Cuzzubbo have consulted
with a range of the Company's corporate and institutional shareholders over
the past months in relation to the 2021 AGM to understand and discuss their
concerns with respect to these resolutions.
Director re-election
The total votes for resolutions 5, 6 and 7, to re-appoint Mr Ward, Mr Moller
and Mr Marshall were below 80% (at 56.46%, 36.81% and 71.55%, respectively).
Feedback was received that the votes received against resolutions 5 and 6 were
influenced by an expectation by certain shareholders of more independence at
SolGold's Board of Directors. In relation to resolution 6, votes received
against were also influenced by a recommended against vote by proxy advisors
citing potential overcommitment and related party transactions. As a result of
receiving less than 50% of votes in favour, Mr Moller stepped down from the
Board following the AGM on 15 December 2021.
SolGold's Board adheres to Principle 11 of the Code that at least half the
Board, excluding the Chair, should be Non-Executive Directors whom the Board
considers to be independent. The Board is comprised of four independent
Non-Executive Directors out of a total of seven, excluding the independent
Chair.
Votes received against resolution 7 were influenced by shareholder frustration
from delays to the publication of the Cascabel pre-feasibility study. The
Company has on 20 April announced the results of the PFS that confirms the
Cascabel project's world class, Tier 1 potential to be a large, low-cost, and
long-life mining operation.
Allotment of shares
Resolution 10 to allot shares at the 2021 AGM received 77.98% votes in favour.
Feedback received indicates that the votes received were influenced by certain
shareholders objecting to part (b) of the resolution that grants authority to
allot shares representing approximately two-thirds of the Company's existing
issued ordinary share capital. The Company has not generated revenues from
operations and in common with many exploration companies the Company raises
capital for its exploration and appraisal activities in discrete tranches. As
such, the ability of the Group to continue as a going concern depends on its
ability to secure additional financing.
Disapplication of pre-emptive rights
Special resolutions 11 and 12 to disapply and to further disapply pre-emption
rights did not pass having received 57.05% and 56.90% votes in favour,
respectively, below the 75% minimum requirement for special resolutions.
Feedback was received that the votes were influenced by The Board not putting
all Directors up for re-election at the 2021 AGM as well as to protect
shareholders' pre-emption rights.
The SolGold Board is committed to complying with the Code from mid-2022,
including to Provision 18 that all Directors be subject to annual re-election
commencing from the Company's 2022 AGM. The Company also intends to respect
the principles of pre-emption as far as practicable to protect shareholders'
pre-emption rights.
The Board will continue to consult with its shareholders via non-deal
roadshows, conference attendances and other presentations. Details of the
Company's activities in this regard will be outlined in the 2022 Annual
Report.
government relations
A series of meetings took place in Ecuador with government officials and
SolGold CEO Darryl Cuzzubbo in January 2022, including with President Lasso
and a number of ministers. Key areas of discussion included Ecuador's tax
regime, investment incentives and project permitting. The Government expressed
its support and interest to collaborate closely with SolGold to develop the
Cascabel project in an environmentally and socially responsible way.
Industry representatives, including SolGold, held meetings with President
Lasso, six Ambassadors and Ministers in March 2022 to discuss the opening of
the Mining Cadastre, the development of a law relating to prior consultation
process (Consulta Previa) for indigenous areas and improvements in permitting
times. These discussions were received positively by the industry members
present and reinforced the commitment to organised mining by the Government of
Ecuador.
SolGold has initiated detailed discussions with the Ministry of Environment
and Water on the ESIA (Environmental and Social Impact Assessment) studies to
develop the Cascabel project. These discussions will be carried out on a
regular basis with the intention of keeping the authorities fully informed and
aligned on project developments and related social and environmental issues.
On 3 January 2022 ENSA received approval for the two-year extension to the
Economic Evaluation stage of the Cascabel license. This period shall expire on
3 January 2024 by which time the Company shall convert the current approval
into the Exploitation Agreement with the State.
Health and Safety
The Company achieved a Total Recordable Injury Frequency Rate ("TRIFR") of
2.68 in the three-month period ended 31 March 2022, down from 14.92 in the
three months ended 31 March 2021. TRIFR refers to the frequency of recordable
work-related injuries or illness for each one million hours worked.
An increased programme of road inspections on access roads and tracks was
implemented in response to heavy rains during this period to prevent prolonged
road closures and travel delays. The inspections targeted safety hazards,
maintenance and safety signage requirements to maintain safe access and allow
timely repair and maintenance to reduce the likelihood of safety incidents and
road closures.
COVID-19
In response to the increased risk of contagion due the Omicron variant of
COVID-19 in early 2022, and the high number (approximately 40%) of positive
tests recorded in our camps in January, personnel were evacuated from SolGold
controlled worksites for a two-week period to avoid the spread of the virus.
A campaign delivering the third dose of COVID-19 vaccines continues with 100%
uptake achieved in the Cruz del Sol subsidiary and strong response from other
subsidiaries.
The latest resolution of the COE (Emergency Committee of Ecuador) established
in mid-March recommends that economic activities be carried out at 100%
capacity, however, the COE requires that biosecurity measures such as social
distancing, hand washing and the use of a mask must continue to be a
requirement.
SolGold's medical team continues to enforce measures to maintain healthy
conditions at SolGold facilities including coordination of testing,
verification of results prior to entering camps, surveillance and monitoring
of any symptoms that occur in the camp and implementation of immediate control
actions to prevent the spread of COVID-19.
Environment
In this reporting period further workshops on water management, waste
management and the conservation of flora and fauna were held in the community
of our stakeholders in the Cascabel and regional projects. SolGold continues
to fully comply with the environmental requirements of the Government of
Ecuador. SolGold has successfully rehabilitated 619m(2) of disturbed lands in
this period including access tracks, areas of drilling platforms and
geotechnical pits in both the Cascabel and regional project areas. The
following reports were delivered in the first quarter of 2022 to the Ministry
of the Environment, Water and Ecological Transition ("MAATE"):
1. Annual Declaration of Hazardous Waste for 2021
2. Update of the Hazardous Waste Minimization Plan including results
3. Initial Exploration Semester Report for the period July-December 2021
4. Six-monthly report on compliance with the Environmental Management
Plan for the Advanced Exploration phase of the Cascabel project
5. Semi-annual reports for projects Blanca Nieves, La Hueca, Sharug 2,
Río Amarillo I-II and Porvenir
6. Report on the flow of catchment points of the Blanca Nieves, Porvenir
and Sharug 2 projects
7. Water measurement records for authorized water collection points for
2021
8. Forest Inventory of Porvenir 4, Chical 1 and Chical 2
9. Annual reports of the Timbara 1, Timbara 2, San Antonio, Sharug
projects. Río Amarillo III, Río Mira, Chical 1, Chical 2, Coangos, Loyola,
Sacapalca 1-2., Salampe Salinas and Agustín 1-2-3
10. Annual declaration of hazardous waste for the Blanca Nieves, La Hueca
and Porvenir projects
INPC of Cuenca
1. Annual report of the Archaeological Research Programme
Authorisations
The Complementary Environmental Impact Study for the Advanced Exploration
Phase of Metallic Minerals in the Cascabel project was accepted by the
Undersecretary of Environmental Quality of the Ministry of the Environment,
Water and Ecological Transition (MAATE) on March 10, 2022. After submitting
the fees and bank guarantee to MAATE, SolGold expects to receive its
Environmental License. Other authorisations were received for projects
throughout SolGold's concessions portfolio in Ecuador allowing the Company to
progress with work in those areas.
Authorisations received in this period include:
· Obtaining authorisation to collect water for the Rio Amarillo
project
· Approval of the Archaeological Research Programme of the Río
Amarillo I-II project by the INPC
· Approval of the annual declaration of hazardous waste for the
Blanca Nieves project by the MAATE
· Approval of the Terms of Reference for the Partial Waiver Audit of
the Río Amarillo I and Río Amarillo II concessions
· Approval of the Terms of Reference for the Total Waiver Audit of
the Sharug, Cisne 1A, Cisne 1B and Loyola concessions
· Issuance of the Water Availability Certificate granted by the ARCA
for the use of 6 water collection points of the Timbara concession
Community
On March 7 and 8, cooperation agreements between SolGold and the parishes of
Lita and La Carolina were signed. These agreements focus on the promotion of
health, education, community development and road infrastructure initiatives,
and the promotion of social, cultural and sports activities. ENSA, in
partnership with the parishes of Lita and La Carolina contributed to the
construction of health centres in these parishes.
The Comprehensive Solid Waste Management Project - GIRS: a project co-financed
by Franco Nevada and SolGold in partnership with the regional government of
Ibarra and effected parishes completed its feasibility study on 31 March. The
initiative aims to improve solid waste management in the parishes of Lita and
La Carolina.
On March 7, 2022, the Specific Cooperation Agreement between the parish of
Lita and ENSA was signed with the objective of improving the living conditions
of 100 older adults and people with disabilities in the community of Lita; the
total investment is $70,459.00, of which $32,259.00 will be contributed by
ENSA.
At the time of this report SolGold is conducting a study how to increase the
rate of university attendance from the community of Santa Cecilia. This
initiative is an agreement between ENSA and the Universidad Técnica del
Norte.
An agreement between the regional parishes of La Carolina, and the association
"Mujeres Emprendedoras Por Un Futuro Mejor" (Women entrepreneurs for a better
future) of the Collapí community was signed with the purpose of promoting
commercial and tourism activities.
HUMAN RESOURCES
SolGold remains committed to establishing and implementing sustainable
practices and building the foundations for a positive legacy for all
stakeholders. Providing equal opportunities and having a largely local
workforce makes SolGold a strong contributor to the local Ecuadorian economy.
As at 31 March 2022, SolGold group employed 792 employees with 99% Ecuadorian,
16% female, and 81% living in neighbouring communities. Additionally, SolGold
employs 4% of individuals registered as disabled. 57 Ecuadorian employees have
a science degree in geology, giving SolGold a significant advantage exploring
the highly prospective and gold-rich section of the Andean Copper Belt.
SolGold employs 9 people in Australia, 5 in the United Kingdom, and 1 in
Switzerland.
SUBSEQUENT EVENTS
Cascabel Pre-Feasibility Study
The PFS confirms the Cascabel project's world class, Tier 1 potential to be a
large, low-cost, and long-life mining operation that is based on achievable,
proven, and tested mining and processing assumptions. Once constructed,
Cascabel is expected to be a top 20 South American copper & gold mine
benefiting from a high-grade core, advantageous infrastructure and an
increasingly investor friendly government. The mine is expected to produce a
clean copper-gold-silver concentrate, to be sold to Asian and European
smelters as part of a project construction financing package.
Key highlights include:
· Estimated US$5.2bn pre-tax Net Present Value ("NPV") and 25.3%
Internal Rate of Return ("IRR")
· Estimated US$2.9bn after-tax NPV, 19.3% IRR and 4.7-year payback
period from start of processing
· After-tax NPV would be US$4.1bn (US$7.9bn pre-tax) and IRR 23.4%
(30.5% pre-tax) at current spot commodity prices
· Estimated average production of 132ktpa of copper, 358kozpa of gold
and 1Mozpa of silver - 212ktpa copper equivalent ("CuEq") - with peak copper
production of 210ktpa (391ktpa CuEq)
· Initial project Life-of-Mine ("LOM") All-In-Sustaining Cost
("AISC") of US$0.06/lb of copper, placing Cascabel well within the first
decile of the copper industry cost curve
· On achieving nameplate capacity, average of approximately 190ktpa
of copper, 680kozpa of gold and 1.3Mozpa of silver (>330ktpa CuEq) over
initial 5 years at an average negative AISC of US$(1.38)/lb
· Estimated pre-production capital expenditure of US$2.7bn for the
initial cave development, first process plant module and infrastructure
· Initial Mineral Reserve of 558Mt containing 3.3Mt Cu @ 0.58%,
9.4Moz Au @ 0.52g/t and 30Moz Ag @ 1.65g/t over an initial 26-year mine life
· Potential mine life upside in excess of 50 years following initial
LOM
· Annual after-tax free cash flow ("FCF") to average US$740m, peaking
at over US$1.6bn
· Average annual EBITDA of nearly US$1.2bn, peaking at over US$2.4bn
· Additional optimisations being progressed for a PFS Addendum
planned for completion in H2 CY22
· Cascabel project Definitive Feasibility Study ("DFS") planned for
completion in H2 CY23
Operating Results
The quarter ended 31 March 2022 compared with the quarter ended 31 March 2021
The Group incurred a loss after tax of US$9,042,382 and loss per share of 0.4
cents per share for the quarter ended 31 March 2022 compared to a loss after
tax of US$5,619,254 and loss per share of 0.3 cents per share for the quarter
ended 31 March 2021. Administrative expenses incurred during the quarter ended
31 March 2022 were US$4,043,503 compared to US$3,538,102 for the quarter ended
31 March 2021. The movement in administrative expenses over the prior year was
due to a number of factors, the most notable of which are:
Employment expenses increased by US$439,081 to US$1,096,778 for the quarter
ended 31 March 2022 compared to US$657,697 for the quarter ended 31 March
2021. This increase was due to additional payments to the new Company
Secretary and additional key management personnel.
Insurance payments increased by US$297,470 to US$923,534 for the quarter ended
31 March 2022 compared to US$626,064 for the quarter ended 31 March 2021. This
increase is due to the increase in the Company's political risk insurance
premium.
Unrealised foreign exchange losses (gains) decreased by US$109,285 to
US$92,414 unrealised foreign exchange loss for the quarter ended 31 March 2022
compared to an unrealised foreign exchange gain of US$16,871 for the quarter
ended 31 March 2021. This was as a result of the United States dollar slightly
strengthening against both the AUD and GBP, currencies in which the Company
holds a portion of its treasury.
Exploration costs written-off were US$399,286 for the quarter ended 31 March
2022 compared to US$230,110 (US$228,318 related to misappropriation) for the
quarter ended 31 March 2021. Exploration costs written off during the quarter
ended 31 March 2022 represents the costs capitalised to date on 10 of the 72
concessions held within the Company's four 100% owned subsidiaries in Ecuador
that the board decided to relinquish on 7 September 2021.
Other income and expenses for quarter ended 31 March 2022
Derivative liabilities in the quarter ended 31 March 2022 measured at fair
value resulted in a loss of US$1,212,750 compared to a gain of US$1,828,750
for the quarter ended 31 March 2021. The movement represents the fair value
remeasurement of the options granted to BHP as part of the December 2019
placement, measured at 31 March 2022. Since the options issued to BHP were not
granted in exchange for goods or services and were exercisable in a currency
other than the functional currency, the options were treated as a derivative
financial liability measured at fair value on the date of grant and are
remeasured at each reporting period.
Finance costs for the quarter ended 31 March 2022 were US$3,395,052 compared
to US$3,042,240 for the quarter ended 31 March 2021. The sizeable finance
costs predominantly relate to the effective interest charge calculated on the
NSR Financing Agreement, of US$3,379,139, a non-cash item, which was
US$3,020,050 for the quarter ended 31 March 2021. First payments under the NSR
Financing Agreement are due from either late 2028 or when production is
declared, whichever is earlier.
Finance income was US$236,252 for the quarter ended 31 March 2022 compared to
US$115,104 for the quarter ended 31 March 2021. The interest income comprises
US$6,717 received from banking institutions on short term deposits and
US$229,535 from the accretion of interest on the Company Funded Loan Plan.
Other income was US$41,740 for the quarter ended 31 March 2022 compared to
US$50,299 for the quarter ended 31 March 2021. Other income represents
US$36,010 rent received from the subletting of office space at 111 Eagle
Street Brisbane and a gain on disposal of PP&E of US$5,730.
All other expenses for the quarter ended 31 March 2022 remain consistent to
those for the quarter ended 31 March 2021.
The operating variances for the period were:
For the quarter ended 31 March 2022 2021 Variance
US$ US$ US$
restated
Expenses
Exploration costs written-off (399,286) (230,110) (169,176)
Administrative expenses (4,043,503) (3,538,102) (505,401)
Share based payments expense (454,336) (268,059) (186,277)
Operating loss (4,897,125) (4,036,271) (860,854)
Other income 41,740 50,299 (8,559)
Finance income 236,252 115,104 121,148
Finance costs (3,395,052) (3,042,240) (352,812)
Movement in fair value of derivative liability (1,212,750) 1,828,750 (3,041,500)
Loss before tax (9,226,935) (5,084,358) (4,142,577)
Tax (expense) / benefit 184,553 (534,896) 719,449
Loss for the period (9,042,382) (5,619,254) (3,423,128)
Other comprehensive (loss) / profit
Items that may be reclassified to profit and loss
Exchange differences on translation of foreign operations 264,462 (135,131) 399,593
Items that will not be reclassified to profit or loss
Change in Ecuador pension value - - -
Change in fair value of financial assets net of tax 683,447 (1,254,567) 1,938,014
Other comprehensive (loss) / profit, net of tax 947,909 (1,389,698) 2,337,607
Total comprehensive (loss) / income for the period (8,094,473) (7,008,952) (1,085,521)
The nine months ended 31 March 2022 compared with the nine months ended 31
March 2021
The Group incurred a loss after tax of US$27,100,883 and loss per share of 1.2
cents per share for the nine months ended 31 March 2022 compared to a loss
after tax of US$14,910,365 and loss per share of 0.7 cents per share for the
nine months ended 31 March 2021. Administrative expenses incurred during the
nine months ended 31 March 2022 were US$12,768,363 compared to US$7,752,447
for the nine months ended 31 March 2021. The movement in administrative
expenses for the nine months ended 31 March 2022 over the comparable nine
months ended 31 March 2021 were due to a number of factors, the most notable
of which are:
Employment Expenses increased by US$2,266,581 to US$4,395,274 for the nine
months ended 31 March 2022 from US$2,128,693 for the nine months ended 31
March 2021. This increase was mainly due to the fair value adjustment of the
Company Funded Loan plan extension to 30 June 2022, payments to the new
Company Secretary, and payment of bonuses to corporate employees based on
established key performance indicators.
Insurance payments increased by US$455,609 to US$2,869,909 for the nine months
ended 31 March 2022 compared to US$2,414,300 for the nine months ended 31
March 2021. This increase is due to the increase in the Company's political
risk insurance premium.
Unrealised foreign exchange losses (gains) for the nine months ended 31 March
2022 saw an unrealised foreign exchange loss of US$259,548, compared to an
unrealised foreign exchange gain of US$1,914,601 for the nine months ended 31
March 2021. This was as a result of the United States dollar strengthening
against both the AUD and GBP, currencies in which the Company holds a portion
of its treasury.
Exploration costs written-off were US$3,965,871 for the nine months ended 31
March 2022 compared to US$682,919 (US$679,079 related to misappropriation) for
the nine months ended 31 March 2021. Exploration costs written off during the
nine months ended 31 March 2022 represents the costs capitalised to date on 10
of the 72 concessions held within the Company's four 100% owned subsidiaries
in Ecuador that the board decided to relinquish on 7 September 2021.
Derivative liabilities in the nine months ended 31 March 2022 measured at fair
value resulted in a loss of US$924,000 compared to a gain of US$483,504 for
the nine months ended 31 March 2021. The movement represents the fair value
remeasurement of the options granted to BHP as part of the December 2019
placement, measured at 31 March 2022. Since the options issued to BHP were not
granted in exchange for goods or services and were exercisable in a currency
other than the functional currency, the options were treated as a derivative
financial liability measured at fair value on the date of grant and are
remeasured at each reporting period.
Finance costs for the nine months ended 31 March 2022 were US$9,895,561
compared to US$6,965,853 for the nine months ended 31 March 2021. The increase
in finance costs predominantly relates to the effective interest charge
calculated on the NSR Financing Agreement, which for the previous period was
only for the period 11 September to 31 March. First payments under the NSR
Financing Agreement are due from either late 2028 or when production is
declared, whichever is earlier.
Finance income was US$610,531 for the nine months ended 31 March 2022 compared
to US$337,347 for the nine months ended 31 March 2021. The interest income
comprises US$34,773 received from banking institutions on short term deposits
and US$575,758 from the accretion of interest on the Company Funded Loan Plan.
Other income was US$165,964 for the nine months ended 31 March 2022 compared
to US$195,042 for the nine months ended 31 March 2021. Other income represents
US$151,346 rent received from the subletting of office space at 111 Eagle
Street Brisbane and a gain on disposal of PP&E of US$14,618.
All other expenses for the nine months ended 31 March 2022 remain consistent
to those for the nine months ended 31 March 2021.
Financial Position
Total assets at 31 March 2022 were US$435,753,893 compared to US$452,553,028
(restated) at 30 June 2021, representing a decrease of US$16,799,135.
Current assets overall decreased by US$73,316,101, which was primarily cash
used to fund the Group's flagship Cascabel project and related overheads, the
Group's regional exploration programme and general overhead expenses. Other
receivables and prepayments decreased by US$2,305,476 as a result of land
deposits being capitalised during the nine months ended 31 March 2022. Initial
deposits and payments for land purchases are classified as other receivables
until such time the land processes in Ecuador are finalised and title deeds
are issued, whereupon they are capitalised.
Non-current assets increased by US$58,563,335 mainly due to increases in
exploration and evaluation assets, classified as intangible assets.
Exploration assets increased by US$54,475,410 predominantly due to the
exploration expenditure incurred on the Alpala project and the various
regional projects in Ecuador during the nine months ended 31 March 2022.
Financial assets held at fair value through OCI increased by US$681,863
representing the mark to market adjustments that the Company makes on its
investment in Cornerstone. Property, plant and equipment increased by
US$3,097,736 primarily due to strategic land purchases at the Alpala project.
Total liabilities at 31 March 2022 were US$127,644,683 compared to
US$118,290,830 at 30 June 2021 representing an increase of US$9,353,853
largely as a result of an increase in the NSR royalty, relating to accrued
interest, accounted for at amortised cost.
Current liabilities at 31 March 2022 were US$6,907,619 compared to
US$8,183,399 at 30 June 2021, representing a decrease of US$1,275,780. Trade
and other payables decreased by US$1,376,947.
Non-current liabilities increased by US$10,629,633 mainly due to the
capitalisation of the interest on the NSR and increase in the valuation of the
derivative liability associated with the BHP options issued in December 2019.
Selected Financial Data
The Company prepares its consolidated annual financial statements in
accordance with International Financial Reporting Standards, UK adopted
International Accounting Standards and Interpretations (collectively "IFRS")
applied in accordance with the provisions of the Companies Act 2006. The
following table provides selected annual financial information derived from
the most recently completed audited annual financial statements and should be
read in conjunction with the Company's audited consolidated financial
statements for the periods below.
Year ended 30 June 2021 2020 2019
US$ US$ US$
restated restated
Operations
Loss for the year after tax (23,621,972) (16,501,272) (32,069,793)
Total comprehensive loss for the year
Owners of the parent company (23,540,214) (16,445,497) (31,941,715)
Non-controlling interest (81,758) (55,775) (128,078)
Basic and diluted loss per share (cents per share) (1.1) / (1.1) (0.9) / (0.9) (1.8) / (1.8)
Balance Sheet
Working capital 116,668,877 43,718,966 38,122,935
Total assets 452,553,028 303,435,961 244,716,163
Total liabilities 118,290,830 24,810,414 6,514,592
Distributions or cash dividends declared per share Nil Nil Nil
Summary of Quarterly Results
The following table sets forth a comparison of revenues and earnings for the
previous eight quarters ending with 31 March 2022. Financial information is
prepared in accordance with IFRS as issued by the IASB and is reported in
United States Dollars.
Quarter ended Mar 31, 2022 Dec 31, 2021 Sep 30, 2021 Jun 30, 2021
US$ US$ US$ US$
restated restated restated
Loss for the quarter after tax (9,042,377) (7,270,260) (10,788,241) (8,862,781)
Net loss per share (cents per share) (0.4) (0.3) (0.5) (0.4)
Loss for the quarter after tax attributable to the owners of the parent (9,009,202) (7,251,888) (10,742,095) (8,850,458)
Net loss per share attributable to the owners of the parent (cents per share) (0.4) (0.3) (0.5) (0.4)
Quarter ended Mar 31, 2021 Dec 31, 2020 Sep 30, 2020 Jun 30, 2020
US$ US$ US$ US$
restated restated restated restated
Loss for the quarter after tax (5,619,254) (7,123,531) (2,167,471) (10,657,180)
Net loss per share (cents per share) (0.3) (0.3) (0.1) (0.6)
Loss for the quarter after tax attributable to the owners of the parent (5,619,254) (7,099,989) (2,137,541) (10,646,621)
Net loss per share attributable to the owners of the parent (cents per share) (0.3) (0.3) (0.1) (0.6)
Net loss presented over the eight quarters generally reflects general and
administrative costs which includes unrealised foreign exchange gains and
losses, share-based payment expenses and finance costs including non-cash
interest charges.
Equity Financing
During the quarter ended 31 March 2022, the Company did not issue any
additional equities.
Exploration and Evaluation Assets
Total capitalised expenditures on exploration and evaluation assets at 31
March 2022 were US$358,547,425 compared to US$304,072,015 (restated) at 30
June 2021. Exploration expenditure of US$58,440,125 was incurred during the
nine months ended 31 March 2022 compared to US$59,576,106 during the nine
months ended 31 March 2021. An impairment charge of US$3,965,871 (March 2021:
US$682,918 - restated) was recognised for exploration expenditure associated
with concessions that the Board decided to surrender, as per the announcement
on 7 September 2021 and additional US$227,846 relating to the internal
investigation
The following table represents the capitalised expenditures on exploration and
evaluations to date by project area.
Project Capitalised at Capitalised during period ended Impairment during the period ended 31 March 2022US$ Foreign exchange impact during period ended 31 March 2022 US$ Capitalised at
30 June 2021
31 March 2022
31 March 2022
US$ US$ US$
Restated
Cascabel 225,095,626 30,281,960 (227,846) - 255,149,740
Ecuador regional exploration 68,119,089 27,948,459 (3,738,025) - 92,329,523
Australia 10,430,948 40,774 - (3,065) 10,468,657
Solomon Islands 426,352 168,932 - 4,221 599,505
TOTAL 304,072,015 58,440,125 (3,965,871) 1,156 358,547,425
PROJECT ACTIVITIES
The Alpala deposit at the Cascabel project in northern Ecuador, with its
1km-plus copper-gold-silver intersections, is the first of potentially many
discoveries in the country. The recent release of the maiden Mineral Resource
Estimates ("MRE") for the Tandayama-America deposit at Cascabel and the
Cacharposa deposit at the Porvenir project is a testament to the quality of
the Company's exploration portfolio. The Company's focus since 2012 has been
on the riches of the underexplored section of the Andean Copper Belt in
Ecuador. In addition to the Tier 1 Cascabel project, SolGold has identified a
number of highly prospective priority projects throughout Ecuador and is
exploring these in parallel with the development of Cascabel. Activities
conducted on the priority projects are described by subsidiary in the
following sections.
Figure 3 - Overview of SolGold concessions throughout Ecuador
EXPLORACIONES NOVOMINING S.A.
Cascabel Project
Location: Imbabura province,
Northern Ecuador
Ownership: 85%
Subsidiary: Exploraciones Novomining
S.A.
Tenement area: 50 km(2)
Primary Targets: Copper gold porphyry
The Cascabel project base is located at Rocafuerte in northern Ecuador,
approximately three hours' drive north of the capital Quito, close to water,
power supply and Pacific ports. Having fulfilled its earn-in requirements,
SolGold is a registered shareholder with an unencumbered legal and beneficial
85% interest in ENSA which holds 100% of the Cascabel tenement covering
approximately 50km(2), and subject to a 2% net smelter return royalty held by
Santa Barbara Resources Ltd which may be purchased for US$4.0 million in two
stages, the latest following a production decision. Following the completion
of a Definitive Feasibility Study by ENSA, Cornerstone, which currently holds
a 15% interest in ENSA, will be obligated to contribute to the funding of
ENSA.
During the nine months ended 31 March 2022, the Group capitalised
US$30,281,960 on the Cascabel project.
At the Tandayama-Ameríca deposit drilling continues for geotechnical,
hydrogeological and metallurgical testwork. Resource extension and infill
drilling continues.
Figure 4 - Major activities undertaken in the reporting period
Drilling 1,057m of drilling was completed at TAM in the three months ended 31 March
2022. Geologists are consolidating data and significant results from completed
· Tandayama-Ameríca holes at TAM. Activities include:
(1 rig) · Resource drilling
· Updating of interpretation of 3D geology and alteration models
· Resource modelling and reporting is underway
· Logging and collection of geotechnical parameters and samples for
lab testwork
Water monitoring Site-wide hydrological monitoring and hydrogeological monitoring in and around
the Alpala deposit and potential infrastructure sites. This work continues and
includes:
· Installation of additional piezometers
· Surface, near surface and underground water monitoring
Geotechnical Ongoing geological and geotechnical site investigations for areas identified
for project infrastructure including:
· Detailed surface mapping
· Geotechnical sampling for geotechnical lab testwork
· Metallurgical testwork is ongoing
Ancillary programmes · Ongoing geomorphological risk management including stability
monitoring at identified locations (observations did not identify significant
movement)
· Surface mapping campaign over proposed infrastructure locations
· Sampling for geochemical characterisation across multiple location
commenced
Current Drilling - Tandayama-Ameríca
To date a total of approximately 31,000m has been drilled at the TAM deposit
with drill hole 41 currently in progress at a depth of 500m. Assay results
from hole 41 are pending. An updated TAM MRE#2 is currently underway with a
dataset that comprises 30,925.2m of diamond drilling from holes 1-41, 458m of
surface rock-saw channel assays from 72 outcrops and a total of 29,631.6m of
final assay results from holes 1-40.
Cascabel Mineral Resource and Mineral Reserve Estimates
Alpala Mineral Resource Estimate (MRE#3)
The Alpala porphyry copper-gold-silver deposit, at a cut-off grade of 0.21%
CuEq, comprises 2,663 Mt at 0.53% CuEq in the Measured plus Indicated
categories, which includes 1,192 Mt at 0.72% CuEq in the Measured category and
1,470 Mt at 0.37% CuEq in the Indicated category. The Inferred category
contains an additional 544 Mt at 0.31% CuEq.
The estimate comprises a contained metal content of 9.9 Mt Cu and 21.7 Moz Au
in the Measured plus Indicated categories, which includes 5.7 Mt Cu and 15 Moz
Au in the Measured category, and 4.2 Mt Cu and 6.6 Moz Au in the Indicated
category. The Inferred category contains an additional 1.3 Mt Cu and 1.9 Moz
Au.
Cut-off grade Mineral Resource category Mt Grade Contained Metal
CuEq (%) Cu (%) Au (g/t) Ag (g/t) CuEq (Mt) Cu (Mt) Au (Moz) Ag (Moz)
0.21% Measured 1,192 0.72 0.48 0.39 1.37 8.6 5.7 15.0 52.4
Indicated 1,470 0.37 0.28 0.14 0.84 5.5 4.2 6.6 39.8
Measured + Indicated 2,663 0.53 0.37 0.25 1.08 14.0 9.9 21.7 92.2
Inferred 544 0.31 0.24 0.11 0.61 1.7 1.3 1.9 10.6
Planned dilution 5 0.00 0.00 0.00 0.00 0.0 0.0 0.0 0.0
Notes:
1. Mrs. Cecilia Artica, SME Registered Member, Principal Geology
Consultant of Mining Plus, is responsible for this Mineral Resource statement
and is an "independent Qualified Person" as such term is defined in NI 43-101.
2. The Mineral Resource is reported using a cut-off grade of 0.21%
CuEq calculated using [copper grade (%)] + [gold grade (g/t) x 0.613].
3. The Mineral Resource is considered to have reasonable prospects
for eventual economic extraction by underground mass mining such as block
caving.
4. Mineral Resources are not Mineral Reserves and do not have
demonstrated economic viability.
5. The statement uses the terminology, definitions and guidelines
given in the CIM Standards on Mineral Resources and Mineral Reserves (May
2014) as required by NI 43-101.
6. MRE is reported on 100 percent basis within an optimised shape.
7. Figures may not compute due to rounding.
Alpala Mineral Reserve Estimate
As part of the PFS, the Company announced for the first time a Mineral
Reserve for the Alpala deposit, which has been estimated using block caving as
the sole underground mining method, taking into account the effect of
dilution of indicated material with lower grade or barren material
originating from within the caved zone and the overlying cave backs,
representing the economically mineable part of the measured and indicative
resource, based on achievable mine plan and production schedule. The initial
Mineral Reserve represents 21% of Measured and Indicated Resources tonnes and
approximately 38% of contained metal in dollar terms.
Mineral Reserve Category Mt Grade Contained Metal
Cu (%) Au (g/t) Ag (g/t) Cu (Mt) Au (Moz) Ag (Moz)
Probable 558 0.58 0.52 1.65 3.26 9.37 30
Total 558 0.58 0.52 1.65 3.26 9.37 30
Notes:
1. Effective date of the Mineral Reserves is 31 March 2022.
2. Only Measured and Indicated Mineral Resources were used to
report Probable Mineral Reserves.
3. Mineral Reserves reported above were not additive to the Mineral
Resource and are quoted on a 100% project basis.
4. The Mineral Reserve is based on the 18 March 2020 Mineral
Resource.
5. Totals may not match due to rounding.
6. The statement uses the terminology, definitions and guidelines
given in the CIM Standards on Mineral Resources and Mineral Reserves (May
2014) as required by NI 43-101.
7. The Mineral Reserve Estimate as of 31 March 2022 for Alpala was
independently verified by Aaron Spong FAusIMM CP (Min) who is a full-time
employee of Mining Plus. Mr Spong fulfils the requirements to be a "Qualified
Person" for the purposes of NI 43-101 and is the Qualified Person under NI
43-101 for the Mineral Reserve.
Tandayama-Ameríca Mineral Resource Estimate
The TAM maiden MRE, released on 19 October 2021 comprised 17,535m of diamond
drilling from holes 1-23, 458m of surface rock-saw channel sampling from 72
outcrops, and 14,566m of final assay results from holes 1-18. The TAM
deposit lies approximately 3km north of the Alpala deposit.
The TAM porphyry copper-gold deposit contains a total Mineral Resource of
233.0Mt @ 0.33% CuEq for 0.53Mt Cu, and 1.20Moz Au in the Indicated category,
plus 197.0Mt @ 0.39% CuEq for 0.52Mt Cu, and 1.24Moz Au in the Inferred
category.
Mining Method Cut-off Grade Resource Category Mt Grade Contained Metal
(CuEq %)
Cu (%) Au (g/t) CuEq (%) Cu (Mt) Au (Moz) CuEq (Mt)
Open Pit 0.16 Indicated 201.0 0.22 0.16 0.33 0.45 1.06 0.66
Inferred 61.8 0.25 0.30 0.44 0.16 0.59 0.27
Underground 0.28 Indicated 32.0 0.26 0.14 0.35 0.08 0.14 0.11
Inferred 135.2 0.27 0.15 0.37 0.37 0.65 0.50
Total Indicated 233.0 0.23 0.16 0.33 0.53 1.20 0.77
Total Inferred 197.0 0.27 0.20 0.39 0.52 1.24 0.77
Notes:
1. Dr Andrew Fowler, MAusIMM CP(Geo), Principal Geology Consultant of
Mining Plus, is responsible for this Mineral Resource statement and is an
"independent Qualified Person" as such term is defined in NI 43-101.
2. The Mineral Resource is reported using cut-off grades that are applied
according to the mining method where 0.16 % CuEq applies to potentially
open-pittable material and 0.28 % CuEq applies to material potentially
mineable by underground bulk mining methods.
3. The Mineral Resource is considered to have reasonable prospects for
eventual economic extraction by open pit or underground bulk mining such as
block caving.
4. Mineral Resources are not Mineral Reserves and do not have
demonstrated economic viability.
5. The statement uses the terminology, definitions and guidelines given
in the CIM Standards on Mineral Resources and Mineral Reserves (May 2014) as
required by NI 43-101.
6. The underground portion of the Mineral Resource is reported on 100
percent basis within an optimised shape as described below.
7. Figures may not compute due to rounding.
CARNEGIE RIDGE RESOURCES S.A.
Rio Amarillo
Location: Imbabura province,
northern Ecuador
Ownership: 100%
Subsidiary: Carnegie Ridge Resources
S.A.
Tenement Area: 3 concessions, 123 km(2)
Primary Targets: Copper porphyry
SolGold's 100%-owned Rio Amarillo project in northern Ecuador lies
approximately 30km southeast of the Company's flagship Alpala porphyry
copper-gold-silver deposit. The Rio Amarillo project comprises three
concessions, Rio Amarillo 1, 2 & 3.
Drilling continued at the Varela target with the second drillhole completed at
the end of December at a depth of 1,500m and a third hole completed at 534m.
No significant assay results have been received to date. In late January, all
drilling activities were suspending pending a review of results and follow-up
fieldwork at both the Varela and Paloma targets.
Blanca
Location: Carchi province,
northern Ecuador
Ownership: 100%
Subsidiary: Carnegie Ridge Resources
S.A
Tenement area: 2 concessions, 74 km(2)
Primary Targets: Epithermal gold
No work was completed at the Blanca project during the reporting period.
CRUZ DEL SOL S.A.
Helipuerto
Location: Morona Santiago
province, south-eastern Ecuador
Ownership: 100%
Subsidiary: Cruz Del Sol S.A.
Tenement Area: 4 concessions, 184 km(2)
Primary Targets: Porphyry & epithermal
copper-gold
The Tinkimints copper prospect and the Helipuerto project concessions lie
within one of the most prolific portions of the Andean Jurassic Porphyry Belt,
which hosts globally significant copper and gold deposits in Ecuador, several
of which have been developed into mines, such as the nearby Fruta del Norte
and Mirador mines, the Santa Barbara, Panantza and Warintza deposits, and
SolGold's newly discovered Cacharposa deposit at Porvenir.
Extensive and systematic geological and geochemical field programmes are
continuing at Helipuerto with an initial focus on the delineation of the size
and tenor of the new Tinkimints copper prospect including mapping and sampling
of the area directly south of Solaris's Warintza copper-gold porphyry
discovery that abuts SolGold's Helipuerto concessions.
La Hueca
Location: Zamora Chinchipe
province, southern Ecuador
Ownership: 100%
Subsidiary: Cruz del Sol S.A.
Tenement area: 3 concessions, 94 km(2)
Primary Targets: Copper-gold porphyry
No work was completed at the La Hueca project during the reporting period.
GREEN ROCK RESOURCES S.A.
Porvenir
Location: Zamora Chinchipe
province, southern Ecuador
Ownership: 100%
Subsidiary: Green Rock Resources S.A.
Tenement area: 7 concessions, 244km(2)
Primary Targets: Copper-gold porphyry
The Porvenir project is located approximately 100km north of the Peruvian
border, in Southern Ecuador. The Cacharposa porphyry copper-gold target is
part of a 1,700m long northerly-trending mineralised corridor, up to 1,000m
wide.
Two holes were completed in early January at the Mula Muerta prospect
totalling 2,118m.
Extensive and systematic geological and geochemical field programmes are
continuing at numerous satellite targets within the Porvenir project. Priority
drill targets are expected to be ranked and drill-ready by Q4 CY22.
Porvenir Mineral Resource Estimate
The Cacharposa maiden MRE, released on 15 December 2021 and Technical Report
on 31 January 2022 comprised 18,635.7m of diamond drilling from holes 1-23,
439.6m of surface rock-saw channel sampling from 23 outcrops, and 16,982.4m of
final assay results from holes 1-20.
The Cacharposa porphyry copper-gold deposit contains a total Mineral Resource
of 396.8Mt @ 0.44% CuEq ( 1 ) for 1.40 Mt Cu, and 1.80 Moz Au in the Indicated
category, plus 96.9 Mt @ 0.37% CuEq for 0.28 Mt Cu, and 0.38 Moz Au in the
Inferred category, using a cut-off grade of 0.16% CuEq.
The NI 43-101 technical report on the Mineral Resource Estimate for the
Cacharposa deposit can be found at the following link:
https://www.sedar.com/DisplayCompanyDocuments.do?lang=EN&issuerNo=00043090
(https://www.sedar.com/DisplayCompanyDocuments.do?lang=EN&issuerNo=00043090)
Mineral Resource Statement (effective date 26 October 2021)
Potential Mining Method Cut-off Grade Resource Category Mt Grade Contained Metal
(CuEq %)
Cu (%) Au (g/t) CuEq (%) Cu (Mt) Au (Moz) CuEq (Mt)
Open Pit 0.16 Indicated 396.8 0.35 0.14 0.44 1.40 1.80 1.75
Inferred 96.9 0.29 0.12 0.37 0.28 0.38 0.36
Notes:
1. Dr Andrew Fowler, MAusIMM CP(Geo), Principal Geology Consultant of
Mining Plus, is responsible for this Mineral Resource statement and is an
"independent Qualified Person" as such term is defined in NI 43-101.
2. The Mineral Resource is reported using a cut-off grade calculated for
the open pit mining method.
3. Copper equivalency factor of 0.632 (whereby CuEq = Cu + Au x 0.632) is
based on third party metal price research, forecasting of Cu and Au prices,
and a cost structure from mining study data available from a similar deposit.
Costs include mining, processing and general and administration (G&A).
Net Smelter Return (NSR) includes off-site realisation (TC/RC) including
royalties, metallurgical recoveries (84% for Cu and 65% for Au) and metal
prices of Cu at US$3.30/lb and Au at US$1,700/oz. The Mineral Resource is
considered to have reasonable prospects for eventual economic extraction by
open pit mining methods.
4. Mineral Resources are not Mineral Reserves and do not have
demonstrated economic viability.
5. The statement uses the terminology, definitions and guidelines given
in the CIM Standards on Mineral Resources and Mineral Reserves (May 2014) as
required by NI 43-101.
7. Figures may not compute due to rounding.
Sharug
Location: Azuay province,
southwest Ecuador
Ownership: 100%
Subsidiary: Green Rock Resources S.A.
Tenement Area: 2 concessions, 58 km(2)
Primary Targets: Copper-gold porphyry
Santa Martha Target
No work has been completed at the Sharug project during the reporting period.
Drilling concluded in December 2021 at the Santa Martha and Quillosisa
copper-gold porphyry targets completing an initial six-hole programme testing
extensive coincident surface geochemical and geophysical anomalies. Results
have been returned from all six holes with no significant results.
Cisne Loja
Location: Loja province, southern
Ecuador
Ownership: 100%
Subsidiary: Green Rock Resources S.A.
Tenement area: 3 concessions, 147 km(2)
Primary Targets: Epithermal gold and silver,
porphyry copper-gold
Extensive and systematic geological and geochemical field programmes are
continuing at the Celen target. Priority drill targets are expected to be
ranked and drill-ready by Q4 CY22.
Qualified Person
Information in this report relating to the exploration results is based on
data reviewed by Mr Jason Ward ((CP) B.Sc. Geol.), Head of Exploration of the
Group. Mr Ward is a Fellow of the Australasian Institute of Mining and
Metallurgy, holds the designation FAusIMM (CP), and has in excess of 20 years'
experience in mineral exploration and is a Qualified Person for the purposes
of the relevant LSE and TSX Rules. Mr Ward consents to the inclusion of the
information in the form and context in which it appears.
Additional Disclosure for Issuers without Significant Revenue
The following table sets out a breakdown of all material components of certain
costs to the Group for the quarters ended 31 March 2022 and 2021.
Mineral Properties - Exploration and Evaluation
The following table sets out the total deferred exploration costs recorded by
the Group for the Cascabel concession, the Ecuador regional exploration
projects, Australian projects and the Solomon Islands projects for the
quarters ended 31 March 2022 and 2021.
Cascabel project Ecuador regional exploration projects Australian projects Solomon Islands projects Total
Exploration expenditures Mar 22 Mar 21 Mar 22 Mar 21 Mar 22 Mar 21 Mar 22 Mar 21 Mar 22 Mar 21
(US$'000) (US$'000) (US$'000) (US$'000) (US$'000) (US$'000) (US$'000) (US$'000) (US$'000) (US$'000)
restated restated restated restated restated
Balance, beginning of period 247,307 200,406 83,379 52,174 10,215 10,619 540 329 341,441 263,528
Restated
Licence fee 206 194 3,153 2,967 11 4 - 5 3,370 3,170
Assays and geochemistry 99 99 164 115 - - - - 263 214
Camp costs 325 942 704 626 - - - - 1,029 1,568
Drilling 655 6,632 1,113 2,594 - - - - 1,768 9,226
Geophysics - 5 - - - - - - - 5
Community 1,648 1,556 706 657 - - - - 2,354 2,213
Salaries and labour 2,552 1,880 2,400 1,818 - 6 39 47 4,991 3,751
Environment 192 241 140 79 - - - - 332 320
PEA - - - - - - - - - -
PFS 1,075 158 - - - - - - 1,075 158
DFS 188 363 - - - - - - 188 363
Other 902 1,266 971 903 - - 2 5 1,875 2,174
Total exploration expenditures 255,149 213,742 93,773 61,933 10,226 10,629 581 386 358,686 286,690
Mineral properties abandoned - - (399) (2) - - - - (399) (2)
Foreign exchange adjustment - - - - 243 (128) 18 (5) 261 (133)
Balance at end of period 255,149 213,742 92,331 61,931 10,469 10,501 599 381 358,548 286,555
Exploration Outlook
The focus of the Group during the financial year ending 30 June 2022 will be
to advance the Cascabel project in Ecuador through the ongoing PFS (including
the additional determination of resources and reserves at the Alpala and
Tandayama-Ameríca deposits), leading into the works for advancement of the
DFS. Planned milestones at the Cascabel Project are:
· Completion of an updated Mineral Resource Estimate at the
Tandayama-America deposit
· Completion of an updated Mineral Resource Estimate at the Alpala
deposit to encompass potentially open pittable Mineral Resources
· Completion of optimisation studies related to the Cascabel PFS and
subsequent release of the PFS NI 43-101 Technical Report
· Ongoing land acquisitions and preliminary works relating to DFS
The regional exploration programme in Ecuador will continue reconnaissance and
follow-up field programmes at key target areas, as well as advancing scoping
studies for the Cacharposa deposit at the Porvenir project
The Australian and Solomon Islands exploration programmes are reduced to a
minimum in order to focus on Ecuador based opportunities.
Property Summary of completed activities (1 January 2022 - 31 March 2022) Expenditures (Quarter ended 31 March 2022) Plans for the property((1)) Planned expenditures for the three-month period: 1 April 2022 to 30 June
2022((1))
US$
US$
Cascabel concession · PFS study work US$7.84 million Financial year ending 30 June 2022 US$6.91 million
· Large scale diamond core drilling campaign · Drilling and assaying
· Geotechnical, metallurgical, hydrogeological and hydrological · Mineral Reserve Estimate and Mineral Resource updates
programmes
· PFS work
· 3D modelling
· Metallurgical testwork
· Community initiatives
· Geochemical characterisation testwork
· Land acquisitions
· Surface geotechnical investigations
· Commencement of DFS
· Land acquisitions
· Community Projects
· Commencement of Environmental and Social Impact Assessment
Ecuador regional exploration projects · Drilling (Porvenir, Rio Amarillo) US$9.35 million Financial year ending 30 June 2022: US$2.26 million
· Development of priority targets · Mineral Resource Estimates
· Exploration reconnaissance including mapping, soils and rock chips · Continued exploration reconnaissance
· Geophysics interpretation · Further target generation
· Camp construction · Community engagement
· Community engagement
Australia projects · 2D & 3D geochemical and geophysical data interpretation and US$11k Financial year ending 30 June 2022: US$nil
modelling
· Desktop studies
· EM data reprocessing and modelling
· Integrated modelling of 3D IP, VTEM and Magnetic
· Inversion model data review
· Plate modelling of VTEM data
· Project assessment
Solomon Island projects · Community consultation US$41k Financial year ending 30 June 2022: US$nil
· Land access and negotiations
· Community projects
Notes: (1) This information is considered forward-looking information. See
"Forward-Looking Statements".
Liquidity and Capital Resources
At 31 March 2022 the Group had cash and cash deposits of US$38,107,804, a
decrease of US$71,454,299 from US$109,562,103 at 30 June 2021.
Cash expenditure (before financing activities) for the nine months ended 31
March 2022 was US$71,152,537 (2021: US$69,687,082). Accordingly, the net cash
outflow of the Group for the nine months ended 31 March 2022 was US$71,508,629
(2021: inflow of US$16,712,621).
Cash of US$58,095,0939 (2021: US$55,387,361) was invested by the Group on
exploration expenditure during the nine months ended 31 March 2022.
Liquidity Outlook
For the period ended
31 March 2022 30 June 2021
US$ US$
Cash and cash equivalents 38,107,804 109,562,103
Other receivables and prepayments 6,153,018 8,458,494
Loans receivable and other current assets(1) 4,939,604 6,495,930
Trade and other payables (6,470,701) (7,847,650)
Net working capital 42,729,725 116,668,877
(1) Represent the CFLP with repayment by Employees due 30 June 2022.
SolGold funds its current exploration and corporate costs through existing
cash and cash equivalents. The Company has no capital commitments but has
certain obligations to spend minimum amounts on exploration in tenement areas.
As outlined in the Company's latest audited consolidated annual financial
statements, such commitments (tenement fees) at 30 June 2021 amounted to
US$6,366,389 and US$6,249,223 over the next 12 months and 13-month to 5-year
period, respectively.
GOING CONCERN
As at 31 March 2022 the Company had cash on hand of US$38.11 million and net
current assets of US$42.29 million. The financial statements have been
prepared on a going concern basis which contemplates the continuity of normal
business activities and the realisation of assets and discharge of liabilities
in the ordinary course of business. The Company has not generated revenues
from operations in its history and, in common with many exploration companies,
the Company raises finance for its exploration and appraisal activities in
discrete tranches. As such, the ability of the Group to continue as a going
concern depends on its ability to secure this additional financing.
Together with its brokers and financial advisors, the Company continuously
monitors the conditions in the relevant capital markets and the board
regularly considers various forms of financing available to SolGold. The
Company is in regular touch with equity investors and actively participates in
investor conferences and other forms of investor engagements as the Company
will need to secure further funding to meet its 12-month exploration and
working capital commitments. As has been the case previously, the Directors
expect that future funding will likely be provided by equity investors or via
alternative or debt funding arrangements.
The Company has proven its ability to execute equity financings successfully,
like the cashbox placing in April 2021, in a cost-effective manner and with a
short turn-around time. In the event that the Company is unable to secure
sufficient funding, it may not be able to fully develop its projects, and this
may have a consequential impact on the carrying value of the related
exploration assets and the investment of the parent company in its
subsidiaries as well as the going concern status of the Company. Given the
nature of the Company's current activities, it will remain dependent on equity
and/or mezzanine or debt funding until such time as the Company becomes self-
financing from the commercial production of its mineral resources. Should
raising additional finance prove challenging, the Company has alternative
options such as the acceleration of the cost reductions, farm-outs or the
relinquishment of licences across Ecuador, Australia and the Solomon Islands.
Given that the company will need to raise funds within 12 months, from the
date of approval of these interim financial statements, the situation gives
rise to a material uncertainty as there can be no assurance the Company will
be able to raise required financing in the future. Notwithstanding this
material uncertainty, the Directors consider it appropriate to prepare the
financial statements on a going concern basis given the Group's proven ability
to raise necessary funding. The financial statements do not include the
adjustments that would result if the Group was unable to continue as a going
concern.
Outstanding Share Data
At 31 March 2022 and at the date of this report the Company had on issue
2,293,816,433 ordinary shares with the authority to allot new shares up to a
maximum of two-thirds of its issued share capital (£13,814,756), subject to
certain restrictions and conditions primarily associated with the pro-rated
nature of any such allotment. At 31 March 2022 and at the date of this report
the Company had outstanding options to purchase an aggregate of 32,250,000
ordinary shares with exercise prices ranging from £0.25 to £0.37 per share
and expiry dates ranging from 26 April 2023 and 2 December 2024.
Contingencies
A 2% Net Smelter Royalty is payable to Santa Barbara Resources Limited, who
were the previous owners of the Cascabel concession. These royalties can be
bought out by paying a total of US$4 million. Fifty percent (50%) of the
royalty can be purchased for US$1 million 90 days following the completion of
a Feasibility Study and the remaining 50% of the royalty can be purchased for
US$3 million, 90 days following a production decision. The smelter royalty is
considered to be a contingent liability as the Group has not yet completed a
Feasibility Study at 31 March 2022 and as such there is significant
uncertainty over the timing of any payments that may fall due.
Under the terms of the Term Sheet (Term Sheet) signed between SolGold plc,
Cornerstone Capital Resources Inc. (CGP), CGP's subsidiary Cornerstone Ecuador
S.A. (CESA), and Exploraciones Novomining S.A. (ENSA), and the SolGold Group
holds an aggregate registered and beneficial equity position in ENSA of 85%.
The parties agreed SolGold will solely fund all operations and activities of
ENSA until the completion of a Feasibility Study, including CESA's
contribution as the registered and beneficial holder of an aggregate equity
position in ENSA of 15%. After completion and delivery of the Feasibility
Study, SolGold and CESA shall jointly fund the operations and activities of
ENSA based on their respective equity positions in ENSA. Furthermore, the Term
Sheet allows for SolGold to be fully repaid for the financing provided,
including interest at LIBOR plus 2% for the expenditures incurred by SolGold
from the time CGP and CESA elected to take the Financing Option and the
completion of the First Phase Drill Programme (FPDP). SolGold is to be repaid
out of 90% of CESA's distribution of earnings or dividends from ENSA or the
Cascabel Tenement to which CESA would otherwise be entitled. If CESA does not
elect to contribute, and its equity stake in ENSA is diluted to below 10%, its
equity stake in ENSA will be converted to a 0.5% interest in the Net Smelter
Return and SolGold may acquire this interest for US$3.5 million at any time.
The amount of financing provided to CESA at 31 March 2022 was US$46,498,025
(2021: US$37,340,126). This will be paid out of CESA's distribution of
earnings or dividends from ENSA or the Cascabel tenement if and when the mine
goes into production.
There were no other contingent assets or liabilities at 31 March 2022 (2021
nil).
Transactions with Related parties and director related entities
Transactions with related parties are disclosed in Note 13 to the 31 March
2022 unaudited interim condensed consolidated financial statements.
Transactions between related parties are on normal commercial terms and
conditions no more favourable than those available to other parties unless
otherwise stated.
The figures noted below are for the nine-month period ended 31 March 2022 with
comparative figures for the nine months ended 31 March 2021.
The Company had a commercial agreement with Samuel Capital Ltd ("Samuel") for
the engagement of Nicholas Mather as Non-Executive Director of the Company.
For the nine months ended 31 March 2022 US$54,326 was paid or payable to
Samuel (2021: US$330,291). The total amount outstanding at 31 March 2022 was
US$6,862 (31 March 2021: US$nil, 30 June 2021: US$nil).
Mr Brian Moller (a Director until 15(th) December 2021) is a partner in the
Australian firm HopgoodGanim Lawyers. For the nine months ended 31 March 2022,
US$4,117 was paid or payable to HopgoodGanim (2021: US$67,933) for the
provision of legal services to the Company. These services were based on
normal commercial terms and conditions. The total amount outstanding at 31
March 2022 is US$2,985 (31 March 2021: US$2,520, 30 June 2021 US$nil).
Mr James Clare (a Director) is a partner in the Canadian firm Bennett Jones
Lawyers. For the nine months ended 31 March 2022, US$222,324 was paid or
payable to Bennett Jones (2021: US$470,993) for the provision of legal
services to the Company. The services were based on normal commercial terms
and conditions. The total amount outstanding at 31 March 2022 is US$nil (31
March 2021: US$225,929, 30 June 2021 US$nil).
The Company had a commercial agreement with Bayview PMF Pty Ltd ("Bayview")
for the engagement of Jason Ward and his wife (until January 2022) for
managerial and administrative services. For the nine months ended 31 March
2022 US$324,806 was paid or payable to Bayview. The total amount outstanding
at 31 March 2022 was US$29,818.
The key management personnel of the Company are the Directors and officers of
the Company. Compensation awarded to key management relating to consulting
fees and share-based payments for the quarters ended 31 March 2022 and 2021
are listed below.
During the quarter, US$26,783 employer's social security costs (2021:
US$26,243) were paid in respect of remuneration for key management personnel.
Basic salary Bonus US$ Other benefits1 US$ Pensions US$ Total remuneration
US$ US$
March quarter 2022
Directors
Darryl Cuzzubbo 151,568 - - 2,690 154,258
Keith Marshall 139,800 - - - 139,800
Nicholas Mather 18,111 - - - 18,111
James Clare 18,182 - - - 18,182
Jason Ward(2) 107,244 - - - 107,244
Liam Twigger 27,310 - - 2,731 27,310
Elodie Grant Goodey 19,569 - - - 19,569
Kevin O'Kane 19,807 - - - 19,807
Maria Amparo Alban 18,238 - - - 18,238
Other Key Management Personnel(3) 371,475 - - 21,362 392,837
Total paid to Key Management Personnel 891,304 - - 26,783 918,087
(1) Other benefits represents the fair value of the share options granted
during the year based on the Black-Scholes model considering the effects of
the vesting conditions.
(2)Jason Ward's basic annual salary consists of annual consultancy fees paid
for the period.
(3) Other Key Management Personnel consist of the aggregated remuneration of
Dennis Wilkins (Company Secretary), Benn Whistler (Technical Services
Manager), Chris Connell (Regional Exploration Manager, resigned January 2022),
Peter Holmes (Director of Studies), Ingo Hofmaier (Interim Chief Financial
Officer), Lisa Park (Metallurgy Manager), and Tania Cashman (Chief People
Officer).
Basic salary Bonus Other benefits1 US$ Pensions US$ Total remuneration
US$ US$ US$
March quarter 2021
Directors
Nicholas Mather 114,977 - - - 114,977
Brian Moller 17,176 - - - 17,176
James Clare 17,176 - - - 17,176
Jason Ward(2) 100,987 - - - 100,987
Liam Twigger 29,361 - - 2,789 32,150
Elodie Grant Goodey 23,157 - - - 23,157
Keith Marshall(3) 84,139 - - - 84,139
Kevin O'Kane 20,940 - - - 20,940
Maria Amparo Alban 19,388 - - - 19,388
Other Key Management Personnel(4) 328,976 - 268,059 23,454 620,489
Total paid to Key Management Personnel 756,275 - 268,059 26,243 1,050,577
(1) Other benefits represents the fair value of the share options granted
during the year based on the Black-Scholes model considering the effects of
the vesting conditions.
(2) Mr Jason Ward's basic annual salary consists of annual consultancy fees
paid for the year including payments prior to Director appointment.
(3 ) Mr Keith Marshall director fees also included pro rata increase for
transition to interim CEO.
(4) Other Key Management Personnel consist of the aggregated remuneration of
Karl Schlobohm (Company Secretary), Benn Whistler (Technical Services
Manager), Chris Connell (Regional Exploration Manager), Peter Holmes (Director
of Studies), Ingo Hofmaier (Interim CFO) and Nadine Dennison (Chief Human
Resources Officer).
FINANCIAL INSTRUMENTS AND RELATED RISKS
The Group's financial assets and financial liabilities are exposed to various
risk factors that may affect the fair value presentation or the amount
ultimately received or paid on settlement of its assets and liabilities. A
summary of the major financial instrument risks and the Group's approach to
management of these risks are highlighted below.
Credit Risk
The Group is exposed to credit risk primarily from the financial institutions
with which it holds cash and cash deposits. The Group's cash and cash deposits
are held with Australian, Ecuadorean, UK and Swiss financial institutions.
Management believes that the credit risk concentration with respect to
financial instruments included in other receivables and prepayments is
manageable.
Foreign Currency Risk
The Group's operations have limited exposure to currency movements. 93% of the
Group's funds are held in US Dollars, reflective of the expense profile of the
Group. Ecuador has the US Dollar as its official currency, minimising foreign
exchange risk materially.
Liquidity Risk
The Group has no source of operating cash flow to fund its exploration
projects and is dependent on raising funds in capital markets from a variety
of eligible private, corporate and financial investors, or from interested
third parties (including other exploration and mining companies) which may be
interested in earning an interest in the projects of the Group. The success of
such capital raisings is dependent upon a variety of factors including general
equities and metals market sentiment, macro-economic outlook, project
prospectivity, operational risks and other factors from time to time. Should
the Group be unable to continue to raise funds from time to time, it may be
required to realise its assets and liabilities other than in the ordinary
course of business, and at amounts that differ from those stated in the
financial statements.
commodity Price Risk
The Company is exposed to price risk with respect to commodity prices, even as
a pre-production company. Commodity price risk is defined as the potential
adverse impact on future earnings and economic value due to commodity price
movements and volatilities. The Company believes that commodity price
movements can have a substantial effect on the market value of the Company.
Off-Balance Sheet Arrangements
At 31 March 2022, the Group had no off-balance sheet arrangements such as
guarantee contracts, contingent interest in assets transferred to an entity,
derivative instruments obligations or any obligations that trigger financing,
liquidity, market or credit risk to the Group, other than those disclosed as
contingent liabilities.
Critical Accounting Estimates and Judgements
The preparation of financial statements in accordance with IFRS requires
management to make judgements, estimates and assumptions about the carrying
amounts of assets and liabilities, disclosure of commitments and contingent
liabilities at the date of the financial statements and the reported amounts
of revenues and expenses during the reporting period. The determination of
estimates requires the exercise of judgement based on various assumptions and
other factors such as historical experience, current and expected economic
conditions. Actual results could differ from these estimates. The Directors
have made the following judgments and estimates which may have a significant
effect on the amounts recognised in the Group Financial Information:
Exploration and evaluation expenditure
The Group capitalises expenditure relating to exploration and evaluation where
it is considered likely to be recoverable or where the activities have not
reached a stage that permits a reasonable assessment of the existence of
reserves.
The carrying values of exploration and evaluation expenditure were assessed
for indicators of impairment based on an estimation of the recoverability from
expected future development and production. In forming this assessment, the
Group considered the external Mineral Resources Estimate, the status of its
permits and internal economic models and financing which supports the carrying
value of the project. An impairment charge of US$3,965,871 (March 2021:
US$682,919 restated) was recognised for exploration expenditure capitalised to
date on 10 of the 72 concessions held within the Company's four 100% owned
subsidiaries in Ecuador that the Board decided to relinquish on 7 September
2021 and US$227,847 in relation to the misappropriation case.
Net ROYALTY INTEREST
The NSR royalty has been valued using the amortised cost basis. IFRS 9
requires that amortised cost is calculated using the effective interest
method, which allocates interest expense at a constant rate over the term of
the instrument. The effective interest rate of a financial liability is
calculated at initial recognition and is the rate that exactly discounts the
estimated future cash flows through the expected life of the financial
liability, based on the then current mine plan and project development study
assumptions.
In the case of the Franco-Nevada NSR royalty, the Company arrived at an
effective interest rate ("EIR") of 11.84%. Total interest for the nine months
estimated at US$9,846,022, see Note 6. Should there be a 2% increase in the
EIR this would increase the Finance Expenses by US$1,740,701.
Changes in IFRS Accounting Policies and Future Accounting Pronouncements
The Group has applied the same accounting policies and methods of computation
in its interim consolidated financial statements as in its 2021 annual
financial statements, except for those that relate to new standards and
interpretations effective for the first time for periods on (or after) 1 July
2021 that will be applied in the 2022 annual financial statements.
New standards and interpretations
The Group has adopted the following revised and amended standards. The list
below includes only standards and interpretations that could have an impact on
the Consolidated Financial Statements of the Group.
Effective period commencing on or after
IFRS 9, IAS 39, IFRS7, IFRS4 & IFRS 16 Interest Rate Benchmark Reform Phase 2 1 Jan 2021
IFRS 9, IAS 39, IFRS 7, IFRS 4 & IFRS 16: Interest Rate Benchmark Reform
Phase 2
In September 2020, the International Accounting Standards Board ("IASB")
published Interest Rate Benchmark Reform Phase 2 (amendments to IFRS 9, IAS
39, IFRS 7, IFRS 4 and IFRS 16) finalising its response to the ongoing reform
of interest rate benchmarks around the world. The amendments aim to assist
reporting entities to provide investors with useful information about the
effects of the reform on their financial statements.
Many Interbank Offered Rates ("IBOR") are expected to be replaced by new
benchmark Risk-Free-Rates in future reporting periods. This second set of
amendments focus on issues arising post replacement, i.e., when the exiting
interest rate benchmark is actually replaced with alternative benchmark rates.
The main amendments in this second stage are as follows:
o Highly probable requirement and prospective assessments of hedge
effectiveness
o Designating a component of an item as the hedged item
The amendment is effective for periods beginning on or after 1 January 2021
with early application permitted. Management has assessed the effects of
applying the amendment on the Group's financial statements and has determined
that there is no material impact.
As at 31 March 2022, the following amendment to the standard that could be
applicable to the Group, had been issued but was not mandatory for the
reporting period ended 31 March 2022:
IAS 16: Property, Plant and Equipment - proceeds before intended use
The proposed amends the standard to prohibit deducting from the cost of an
item of property, plant and equipment any proceeds from selling items produced
while bringing the asset to the location and condition necessary for it to be
capable of operating in the manner intended by management. Instead, an entity
recognises the proceeds from selling such items, and the cost of producing
those items, in profit or loss.
The amendment is effective for periods beginning on or after 1 January 2022
with early application permitted. Management has made a preliminary assessment
to not apply this change early.
Risks and Uncertainties
Resource exploration, evaluation and development is a high-risk business.
There is no certainty that the investments made by the Company in the
exploration of properties will result in discoveries of commercial quantities
of minerals. Exploration for mineral deposits involves risks which even a
combination of professional evaluation and management experience may not
eliminate. Significant expenditures are required to locate and estimate ore
reserves, and further the development of a property with commercial potential.
There is no assurance the Group has, or will have, commercially viable ore
bodies. Capital expenditures to bring a property to a commercial production
stage are significant and require special skills and long-term planning. There
is no assurance that the Company will be able to arrange sufficient financing
to bring ore bodies into production. The following are some of the additional
risks to the Company and Group, that they may be exposed to from time to time:
Funding Risks
The exploration, evaluation and development of the Group's projects will
require substantial additional financing above and beyond the Group's current
liquid funds. Current global capital market conditions have been subject to
significant volatility, and access to equity and debt financing, particularly
for resource companies, has been negatively impacted in recent years. The war
in the Ukraine, the increasingly hawkish tilt of Western central banks and the
fight of inflation more generally have injected additional risk into the
global capital markets, with most indices lower for the year. These factors
may impact the Group's ability to obtain equity or debt financing in the
future. Additional financing may not be available, or if available, the terms
of such financing may be unfavourable compared to earlier capital raises.
Failure to obtain sufficient financing may result in the delay or indefinite
postponement of exploration activities and the development of the Group's
projects.
Health & Safety
Safety risks are inherent in exploration and mining activities and include
both internal and external factors requiring consideration to reduce the
likelihood of negative impacts. The current highest risk, due to the
geographical spread of exploration activities, is associated with
transportation of people to and from the project areas. This includes transit
vehicle accidents with a potential for fatalities due to vehicle impacts or
rollovers. In addition, the remote locations of drilling activities increase
the risk of delays in gaining access to effective emergency medical assistance
resulting in delayed treatment in the event of incident or accident. Health
and safety reviews, inspections, audits and hazard assessments are completed
on a regular basis to ensure effective, procedures and controls are in place.
Any incident resulting in serious injury or death may result in litigation
and/or regulatory action (including, but not limited to suspension of
development activities and/or fines and penalties), or otherwise adversely
affect the Group's reputation and ability to meet its objectives.
The Group's exploration and business activities continue to be at risk from
the COVID-19 pandemic currently affecting businesses globally. The Group has
adapted the way it conducts its business in response to the pandemic and
follows mandates of various and relevant Governments as well as concerns of
local communities in Ecuador.
Social Licence to Operate
Strong community relations are fundamental to creating safe, sustainable and
successful operations. Losing the support from any individual community would
be a risk for activities in that area. The Group´s concessions are in close
proximity to and, in limited areas, overlap with local communities, and local
approvals are often needed in order to access and operate in these areas. The
Group often enters into agreements with local communities, groups or
individuals that address surface access, road or trail usage, local
employment, social investment and other key issues. Every local stakeholder
relationship, however, requires ongoing dialogue and relationship management.
Events do not always unfold as intended or according to plan, however, and the
status of relations can deteriorate for any number of reasons, including, but
not limited to: influences of local or external political or social actors or
organisations, shifts in the agendas or interests of individuals or the
community as a whole, the Group´s inability to deliver on community
expectations or its commitments, or concerns stemming from communities'
historic or recent experiences with legal and/or illegal miners. However, if
under extreme circumstances the Group were to lose its social licence with one
or more communities and be unable to regain it, this could impact the
viability of the project. By the same token, if the Group is unable to obtain
social licences from some communities, initial exploration could be prevented.
People and leadership
Establishing an effective composition of the Board, succession processes and
evaluation methods is critical to the success of the Group. The Group is
dependent on recruiting and retaining high performing leaders focussed on
managing the Group's interests, requiring a large number of persons skilled in
the project development, engineering, financing, operations and management of
mining properties. Competition for such persons is high in the current
commodity price environment. The inability of the Group to successfully
attract and retain highly skilled and experienced executives and personnel
could have a material adverse effect on SolGold's business, its ability to
attract financing and results of operations. In-country industrial relations
risk, and the potential increase in politicisation of the country, places a
risk on the Group and the country's focus on the development of a mining
industry.
General Exploration and Extraction Risks
Exploration activities are speculative, time-consuming and can be
unproductive. In addition, these activities often require substantial
expenditure to establish Reserves and Resources through drilling and
metallurgical and other testing, determine appropriate recovery processes to
extract copper and gold from the ore and construct mining and processing
facilities. Once deposits are discovered it can take several years to
determine whether Reserves and Resources exist. During this time, the economic
viability of production may change. As a result of these uncertainties, the
exploration programmes in which the Group is engaged may not result in new
Reserves.
Geopolitical, Regulatory and Sovereign Risk
SolGold's exploration tenements are located in Ecuador, Australia and the
Solomon Islands and are subject to the risks associated with operating both in
domestic and foreign jurisdictions. Operating in any country involves some
risk of political and regulatory instability, which may include changes in
government, negative policy shifts, changes to the tax and royalty regime and
civil unrest. In addition, there is a risk that due to the deterioration of
the macroeconomic situation, governments may consider imposing currency
controls and limitations on capital flows. Specifically, under Ecuadorean law,
citizens have a constitutional right pursuant to a judicial process, to apply
to the Constitutional Court for approval for a public referendum on any
subject matter. In 2019, an application was made to the Ecuadorean
Constitutional Court to request to have a referendum held, the effect of which
was to seek to stop mining activities at the Cascabel concession. The
Constitutional Court unanimously rejected the application. However, despite
the Constitutional Court ruling on that particular occasion, no assurance can
be given that at some future time a similar application designed to seek to
stop mining at Cascabel or in any other location of interest to the Group,
will not be made. Anti-mining activism involving protests or blockage of
access is a risk for operational areas. The availability and rights to explore
and mine, as well as industry profitability generally, can be affected by
changes in government policy that are beyond the control of SolGold. These
factors may have a negative impact on the ability of the Group to secure
external financing and an adverse effect on the Group's market value and the
going concern of the business as whole.
Title Risk
SolGold's tenements and interest in tenements are subject to the various
conditions, obligations and regulations which apply in the relevant
jurisdictions including Ecuador, Australia (Queensland) and the Solomon
Islands. If applications for title or renewal are required, this can be at the
discretion of the relevant government minister or officials. If approval is
refused, SolGold will suffer a loss of the opportunity to undertake further
exploration, or development, of the tenement. Some of the properties may be
subject to prior unregistered agreements or transfers of native or indigenous
peoples' land claims and title may be affected by undetected defects or
governmental actions. No assurance can be given that title defects do not
exist. If a title defect does exist, it is possible that SolGold may lose all
or a portion of the property to which the title defects relate.
Environmental
The Group's exploration activities are required to adhere to both
international best practice and local environmental laws and regulations. Any
failure to adhere to globally recognised environmental regulations could
adversely affect the Group's ability to explore under its exploration rights.
Significant liability could be imposed on SolGold for damages, clean-up costs,
or penalties in the event of certain discharges into the environment,
environmental damage caused by previous owners of property acquired by SolGold
or its subsidiaries, or non-compliance with environmental laws or regulations.
SolGold proposes to minimise these risks by conducting its activities in an
environmentally responsible manner, in accordance with applicable laws and
regulations. Nevertheless, residual risks inherent in SolGold's activities
could lead to financial liabilities.
Permitting
The Group is required to obtain governmental permits to conduct different
phases of exploration and evaluation on its concessions. Obtaining the
necessary permits can be a complex and time-consuming process, which at times
may involve several different government agencies. The duration and success of
the Group's efforts to obtain permits are contingent upon many variables not
within its control, including the interpretation of applicable requirements
implemented by permitting authorities, the expertise and diligence of civil
servants, and the timeframes for agency decisions. The Group may not be able
to obtain permits in a timeframe that might be reasonably expected. Any
unexpected delays associated with the permitting processes could slow
exploration and could adversely impact the Group's operations. There is a risk
of permits that are needed for ongoing operations being denied regarding
tenure and other development related infrastructure.
Land Access and Surface Rights
Land access is critical for exploration and evaluation to succeed. In all
cases the acquisition of prospective tenements is a competitive business, in
which proprietary knowledge or information is critical and the ability to
negotiate satisfactory commercial arrangements with other parties is often
essential. Access to land for exploration purposes can be affected by land
ownership, including private (freehold) land, pastoral lease and native title
land or indigenous claims. Immediate access to land in the areas of activities
cannot in all cases be guaranteed. SolGold may be required to seek consent of
land holders or other persons or groups with an interest in real property
encompassed by, or adjacent to, SolGold's tenements. Compensation may be
required to be paid by SolGold to land holders so that SolGold may carry out
exploration and/or mining activities. Where applicable, agreements with
indigenous groups have to be in place before a mineral tenement can be
granted. In the long run SolGold will be required to acquire large areas of
land for its surface operations, posing a risk of delays and increasing prices
the longer the process takes.
Mineral Reserve and Resource Estimates
Mineral Reserve and Mineral Resource figures are estimates, and there is a
risk that the estimated Mineral Resources and Mineral Reserves will not be
realised. The quantity of Mineral Resources and Mineral Reserves may vary
depending on, among other things, metal prices. Any material changes in the
quantity of Mineral Resources, Mineral Reserves or the amount of the Mineral
Reserves that are mined, and metal recoveries achieved in production may
affect the economic viability of any project. Mineral Resources that are not
Mineral Reserves do not have demonstrated economic viability, and there is a
risk that they will never be mined or processed profitably. Further, there is
a risk that Inferred Mineral Resources will not be upgraded to proven and
probable Mineral Reserves as a result of continued exploration. Fluctuations
in gold prices, results of drilling, metallurgical testing and preparation and
the evaluation of studies, reports and plans subsequent to the date of any
estimate may require revision of such estimate. Any material reductions in
estimates of Mineral Reserves could have a material adverse effect on
SolGold's results of operations and financial condition.
Project Development Risks
Where the Group discovers a potentially economic resource or reserve, there is
no assurance that the Group will be able to develop a mine thereon, or
otherwise commercially exploit such resource or reserve. Any failure of
management to manage effectively the Group's growth and development could have
a material adverse effect on the Group's business, financial condition and
results of operations. There is no certainty that all or, indeed, any of the
elements of the Group's current strategy will develop as anticipated.
Management's Responsibility For Financial Statements
The Board of Directors carries out its responsibility for the consolidated
financial statements primarily through the Audit and Risk Committee, which is
comprised of independent, non-executive directors who meet periodically with
management and the auditors to review financial reporting and internal control
matters.
Disclosure Controls and Procedures & Internal Controls over Financial Reporting
Disclosure controls and procedures have been designed to ensure that
information required to be disclosed by the Group is accumulated and
communicated to management of the Group as appropriate to allow timely
decisions regarding required disclosure. The Chief Executive Officer and Chief
Financial Officer of the Group are responsible for establishing and
maintaining disclosure controls and procedures ("DC&P") and internal
control over financial reporting ("ICFR"), as those terms are defined in
National Instrument 52-109 - Certification of Disclosure in Issuers' Annual
and Interim Filings ("NI 52-109"). The Chief Executive Officer and Chief
Financial Officer of the Group have concluded that, as at December 31, 2021,
the Group's DC&P have been designed and operate effectively to provide
reasonable assurance that: (i) material information relating to the Group is
made known to them by others, particularly during the period in which the
annual filings are being prepared; and (ii) information required to be
disclosed by the Group in its annual filings, interim filings or other reports
filed or submitted by the Group under securities legislation is recorded,
processed, summarized and reported within the time periods specified in
securities legislation. They have also concluded that the Group's ICFR have
been designed effectively to provide reasonable assurance regarding the
reliability of the preparation and presentation of the financial statements
for external purposes in accordance with IFRS, and were effective at March 31,
2022. It should be noted that, while the Chief Executive Officer and Chief
Financial Officer of the Group believe that the Group's DC&P provide a
reasonable level of assurance that they are effective, they do not expect that
the disclosure controls will prevent all errors and fraud. A control system,
no matter how well conceived or operated, can only provide reasonable, not
absolute, assurance that the objectives of the control system are met. ICFR
are designed to provide reasonable assurance regarding the reliability of
financial reporting and the preparation of the financial statements for
external reporting purposes in line with IFRS. Management is responsible for
establishing and maintaining appropriate ICFR in relation to the nature and
size of the Group. However, any system of ICFR has inherent limitations and
can only provide reasonable assurance with respect to financial statement
preparation and presentation. The Group's ICFR has been designed based on the
control framework established in Internal Control - Integrated Framework
published in 2013 by The Committee of Sponsoring Organizations of the Treadway
Commission. There were no changes to the Group's ICFR that occurred during the
half year ended 31 March 2022 that materially affected, or are reasonably
likely to affect, the Group's ICFR.
Additional Information
Additional information relating to the Company is available on the SEDAR under
the Company's issuer profile at www.sedar.com (http://www.sedar.com/) and can
be found on the Company's website at www.solgold.com.au.
(http://www.solgold.com.au/)
Forward-Looking Statements
Certain statements contained in this MD&A may be deemed "forward-looking
statements" within the meaning of applicable Canadian and U.S. securities
laws. All statements in this MD&A, other than statements of historical
fact, that address future events, developments or performance that SolGold
expects to occur including management's expectations regarding SolGold's
growth, results of operations, estimated future revenues, requirements for
additional capital, mineral reserve and mineral resource estimates, production
estimates, production costs and revenue estimates, future demand for and
prices of commodities, business prospects and opportunities and outlook on
gold and currency markets are forward-looking statements. In addition,
statements (including data in tables) relating to reserves and resources and
gold equivalent ounces are forward-looking statements, as they involve implied
assessment, based on certain estimates and assumptions, and no assurance can
be given that the estimates will be realized. Forward-looking statements are
statements that are not historical facts and are generally, but not always,
identified by the words "expects", "plans", "anticipates", "believes",
"intends", "estimates", "projects", "potential", "scheduled" and similar
expressions or variations (including negative variations), or that events or
conditions "will", "would", "may", "could" or "should" occur including,
without limitation, the performance of the assets of SolGold, the realisation
of the anticipated benefits deriving from SolGold's investments and
transactions and the estimate of gold equivalent ounces to be received.
Although SolGold believes the expectations expressed in such forward-looking
statements are based on reasonable assumptions, such statements involve known
and unknown risks, uncertainties and other factors, most of which are beyond
the control of SolGold, and are not guarantees of future performance and
actual results may accordingly differ materially from those in forward-looking
statements. Factors that could cause the actual results to differ materially
from those in forward-looking statements include, without limitation:
fluctuations in the prices of the commodities; fluctuations in the value of
currency of the United States, Canada, Australia, Switzerland and the United
Kingdom; regulatory changes by national and local governments, including
permitting and licensing regimes and taxation policies; regulations and
political or economic developments in any of the countries where properties in
which SolGold holds interest are located; risks related to the operators of
the properties in which SolGold holds interests; business opportunities that
become available to, or are pursued by SolGold; continued availability of
capital and financing and general economic, market or business conditions;
litigation; title, permit or license disputes related to interests on any of
the properties in which SolGold holds interest; development, permitting,
infrastructure, operating or technical difficulties on any of the properties
in which SolGold holds interest; risks and hazards associated with the
business of exploring, development and mining on any of the properties in
which SolGold holds interest, including, but not limited to unusual or
unexpected geological and metallurgical conditions, slope failures or
cave-ins, flooding and other natural disasters or civil unrest or other
uninsured risks. The forward-looking statements contained in this MD&A are
based upon assumptions management believes to be reasonable, including,
without limitation: the ongoing operation of the properties in which SolGold
holds interest by the owners or operators of such properties in a manner
consistent with past practice; no material adverse change in the market price
of the commodities that underlie the asset portfolio; no adverse development
in respect of any significant property in which SolGold holds interest; the
accuracy of publicly disclosed expectations for the development of underlying
properties that are not yet in production; and the absence of any other
factors that could cause actions, events or results to differ from those
anticipated, estimated or intended. For additional information on risks,
uncertainties and assumptions, please refer to the AIF of SolGold filed on
SEDAR at
https://www.sedar.com/DisplayCompanyDocuments.do?lang=EN&issuerNo=00043090.
which also provides additional general assumptions in connection with these
statements. SolGold cautions that the foregoing list of risk and uncertainties
is not exhaustive. Investors and others should carefully consider the above
factors as well as the uncertainties they represent and the risk they entail.
SolGold believes that the assumptions reflected in those forward- looking
statements are reasonable, but no assurance can be given that these
expectations will prove to be correct and such forward-looking statements
included in this MD&A should not be unduly relied upon. These statements
speak only as of the date of this MD&A. SolGold undertakes no obligation
to publicly update or revise any forward-looking statements, whether as a
result of new information, future events or otherwise, other than as required
by applicable law.
CORPORATE INFORMATION
Board of Directors
Liam Twigger
Chair
Darryl Cuzzubbo
Managing Director & Chief Executive Officer
Nicholas Mather
Non-Executive Director
Keith Marshall
Non-Executive Director
James Clare
Non-Executive Director
Elodie Grant Goodey
Non-Executive Director
Kevin O'Kane
Non-Executive Director
Maria Amparo Alban
Non-Executive Director
Head Office:
Level 27, 111 Eagle Street
Brisbane, Queensland, 4000
Australia
+61 7 3303 0660
London Office and registered office:
1 King Street
London, EC2V 8AU
United Kingdom
+44 20 3823 2130
Quito Office:
Avenida Coruña E25-58
y San Ignacio, Edif. Altana Plaza, Quito
Ecuador
+593 2601 1021 / 298 6606
Auditors:
PricewaterhouseCoopers LLP
1 Embankment Place
London, WC2N 6RH
United Kingdom
Listings:
London Stock Exchange (SOLG)
Toronto Stock Exchange (SOLG)
Contact Information:
Website: solgold.com.au
Email: info@solgold.com.au
Twitter: @solgold_plc
LinkedIn: linkedin.com/company/solgold-plc
UK Company Number:
5449516
ARBN:
117 169 856
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