Management's discussion and analysis of financial status
Three months and nine months ending September 30, 2021
The management’s discussion and analysis of Fortune Minerals Limited's ("Fortune" or "Company") financial status and operating performance ("MD&A") is dated November 15, 2021, and should be combined with the company's unaudited interim condensed consolidated statement Read together the financial statements and notes for the three months and nine months ended September 30, 2021, as well as the annual audit for the year ended December 31, 2020 prepared in accordance with International Financial Reporting Standards ("IFRS") Consolidated financial statements and their notes). This discussion contains certain forward-looking information and is specifically limited by the warning statement at the end of this MD&A. Unless otherwise stated, all U.S. dollar amounts are expressed in Canadian dollars. Unless the context requires otherwise, the terms "Fortune" and "Company" used in this article refer to Fortune Mining Co., Ltd. and its subsidiaries on the basis of the merger.
The following table provides selected consolidated financial information derived from the company's unaudited interim condensed consolidated financial statements and audited consolidated financial statements. The amount represents the three-month period that has ended:
During the nine months ending September 30, 2021, Fortune carried out the following activities to support the corporate financing plan and its wholly-owned NICO cobalt, gold, bismuth and copper deposits and proposed mines in the Northwest Territories ("NWT") ("NICO")) and related hydrometallurgical refineries ("Refiners") (collectively referred to as "NICO Projects") to be built in southern Canada, as well as permits and optimizations to produce more financially sound development:
Management's discussion and analysis of financial status and operating results for the three and nine months ended September 30, 2021
Fortune's vision is to be a recognized developer, miner, processor, and refiner of key minerals needed for new technologies and a growing green economy, as well as the gold and other by-products contained in the company's deposits. Supporting this vision is the mission of Fortune, which is to produce specialty metals and precious metals in a profitable manner to meet the needs of our customers and partners, and to attract and cultivate an excellent team of talents who are motivated to work in safety and Responsible attitude. The company's most important asset is the NICO project.
The governments of Canada and the United States ("U.S.") have signed a joint action plan on key mineral cooperation to enable certain minerals identified by the U.S. government to be important to the economy and national security to be produced more in North America. Minerals considered vital for this purpose have important uses in important industrial and defense applications and cannot be easily replaced by other minerals. Their supply chain is threatened by geographical concentration of production and/or geopolitical risks and/or in harsh environments Jurisdictions produce social governance ("ESG") performance or values. Cobalt and bismuth are identified as key minerals in the list of key minerals in the United States and the European Union ("EU"). On March 12, 2021, Natural Resources Canada released a list of key minerals in Canada, which also includes cobalt, bismuth and copper. Fortune magazine has been discussing potential financial support for the development of the NICO project with the governments of Canada, the United States and the European Union, as well as the provincial governments.
Fortune continues to advance its wholly-owned NICO project, and the company's business activities have been focused on certain priority critical path activities required to advance licensing and financing for planned development. The NICO project includes a proposed open-pit mine and underground mine, as well as a factory and concentrator at NWT. The related refinery will be located in southern Canada. The refinery was previously planned to be built at a location in the rural city of Corman Park, Saskatchewan ("Saskatchewan Metal Processing Plant" or "SMPP"), but is now evaluating alternative locations, especially existing facilities The brownfield site significantly reduces the capital cost of planned development.
Before completing the updated technical report of the NICO project, Fortune magazine has been evaluating many optimization measures that have been confirmed to make the project more financially sound, including:
Management's discussion and analysis of financial status and operating results for the three and nine months ended September 30, 2021
Tlicho All Season Highway is a 97-kilometer two-lane road from Highway 3 to Wha Ti community ("Tlicho Road"). It is basically completed and is scheduled to open to traffic on November 30, 2021. This will enable the company to align the construction schedule of the mine with the availability of all-season roads, eliminate winter icy road construction, reduce the construction cycle and capital costs of no longer needed facilities and equipment, and reduce construction supply chain risks.
Fortune has experienced personnel who are focused on pushing NICO projects into commercial production while minimizing the risks associated with its development. Fortune is committed to developing its projects in a socially and environmentally responsible manner. Fortune continues to work with many private sector companies and potential strategic partners interested in the key minerals and/or gold contained in the NICO project.
In view of the above situation, the company believes that due to the increased demand for batteries for electric vehicles, portable electronic products and stationary storage batteries, the development schedule of the NICO project can be aligned with the expected increase in cobalt supply shortages and ease the government’s concerns related to key minerals Supply chain issues. Fortune will also produce environmentally friendly bismuth metals and oxides used in the automotive and pharmaceutical industries, as well as the growing demand for non-toxic and environmentally safe alternatives to lead. The NICO project will become an important gold producer and produce copper as a secondary by-product. Fortune magazine will be able to showcase the transparency and regulatory control of the metal supply chain from ore to the production of value-added products, and reduce the risk of geographic concentration of supply in the Democratic Republic of Congo and China.
The NICO project was designed in front-end engineering and design research and a technical report titled "NICO Gold Cobalt Bismuth Deposit Technical Report and Update of Mineral Reserve Estimates and Front End Engineering and Design ("FEED") Research, Mazenod Lake Area, Northwest Territories, Canada" dated July 2, 2012 ("2012 FEED Research") submitted by the company to SEDAR according to National Instrument 43-101 at www.sedar.com.
In 2014, it was mainly based on the 2012 FEED research and some subsequent improvements to the project, as well as the cooperation with Procon Group ("Procon"). The 2014 feasibility study was summarized in a technical report reflecting the planned development. The technical report was dated May 5, 2014 and was prepared by Micon International Limited ("Micon"), entitled "NICO Gold-Cobalt-Bismuth- The technical report of the copper feasibility study "Project, Northwest Territories, Canada" ("Technical Report") has also been submitted to SEDAR.
In 2018, Fortune magazine hired Hatch Ltd. ("Hatch"), Micon, and P&E Engineering Consultants Inc. ("P&E") to conduct the latest research on the economics of the NICO project to support discussions with potential strategic partners. The study plans to expand the mill throughput by approximately 30% to 6,000 tons of ore per day ("tpd"), which is higher than the 4,650 tpd used in earlier studies. The updated study also plans to evaluate some process improvements. After evaluating the indicative economics of the expanded 6,000 ton/day rolling mill throughput rate, the company concluded that the additional funds required to build a larger project did not justify the expansion of the rolling mill rate at the current cobalt and bismuth prices. Therefore, the expanded 6,000 tpd mill throughput rate research work was terminated, and the work was refocused on the 4,650 tpd mill throughput rate, which was verified by productivity sensitivity. Sensitivity also confirms that in the early stages of the mine’s life, the combination of open-pit mining and underground mining can obtain deeper, gold-rich ore in the deposit earlier, resulting in a more attractive indicative rate of return.
On May 1, 2015, the company's wholly-owned subsidiary Fortune Coal Limited ("FCL") and FCL's joint venture partner POSCO Klappan Coal Ltd. of Arctos Anthracite Joint Venture ("AAJV") sold its coal license The interests include the Arctos anthracite project in Northwest British Columbia to the British Columbia Railway Company at a cost of US$18,308,000. The AAJV partners reserve the exclusive right to repurchase the coal license at the same price for a period of 10 years, which expires on May 1, 2025. March 31, 2017
Management's discussion and analysis of financial status and operating results for the three and nine months ended September 30, 2021
The Government of British Columbia has imposed a 20-year moratorium on major industrial development in parts of the Klappan area. During the current 10-year selection period, the coal permit is not included in the suspension of industrial development in the Klappan area.
The company’s net income/loss for the three months and nine months ended September 30, 2021 were net income of US$759,394 and net loss of US$2,032,676, which is US$0.00 and US$0.01 per common share, and net losses were 181,619. USD and 1,279,038 USD, or USD 0.00 per common share in the same period last year. The major changes compared with the same period last year were mainly due to changes in the fair value of derivative liabilities. For details, please refer to the discussion in the "Expenses" section below.
For the three months and nine months ended September 30, 2021, revenue and other income in 2021 increased to US$86,040 and US$100,144, respectively, compared to US$49,104 and US$97,900 in the same period last year. The main reason for the increase was that the increase in the premium income from tradable shares recognized during the period was offset by the decrease in interest income earned from cash and cash equivalents.
For the three months and nine months ended September 30, 2021, expenses excluding fair value changes related to derivative liabilities increased to US$612,596 and US$2,072,511 in 2021, compared to US$517,894 and US$1,802,838 in the same period last year.
The main reasons for the year-on-year increase were: (i) the increase in stock-based compensation due to the grant of stock options in January 2021; (ii) the increase in interest expenses related to the company's long-term debt accrued interest. This increase was offset by a decrease in general and administrative expenses over the same period.
The fair value changes related to derivative liabilities recognized a gain of US$1,285,950 for the three months ended September 30, 2021 and a loss of US$60,309 for the nine months ended September 30, 2021. The gains were US$287,171 and US$425,900, respectively. The same period in 2020.
The company has not yet confirmed the net recovery or provision of deferred income tax for the three months and nine months ended September 30, 2021 and September 2020. During the nine months ended September 30, 2021, the company confirmed
In the same period of 2020, the company confirmed (i) an estimated tax loss of US$336,000; (ii) a tax rate difference of US$174,000; (iii) a non-deductible change in the fair value of derivatives to US$113,000; (iv) a non-taxable amount of US$22,000 The tradable share premium causes the tax recovery to be offset: (i) $495,000 of unrecognized loss carry forward tax reserves; (ii) $150,000 for non-deductible stock compensation and other expenses.
In the three months ending September 30, 2021, the company confirmed that (i) the unrecognized loss carryover amount was US$621,500; (ii) the non-taxable share premium of US$22,500 caused the tax recovery to be offset: (i) ) A non-deductible change in the fair value of derivatives of USD 370,000; (ii) Estimated tax of USD 212,000
Management's discussion and analysis of financial status and operating results for the three and nine months ended September 30, 2021
Loss; (iii) USD 62,000 for non-deductible stock compensation and other expenses. In the same period of 2020, the company confirmed that (i) the non-deductible change in the fair value of derivatives was US$150,000; (ii) the estimated tax loss was US$44,500; (iii) the non-taxable tradable share premium of US$15,500; (iv) the tax rate of US$1,000 The difference causes the tax recovery to be offset: (i) USD 159,000 carried forward of unrecognized losses; (ii) USD 52,000 for non-deductible stock compensation and other expenses.
Due to the uncertainty in the realization of deferred income tax asset income in the future years, a valuation allowance of US$17,534,000 has been confirmed.
For the three months and nine months ended September 30, 2021, cash used in operating activities was US$5,592 and US$502,784, respectively, compared to US$178,484 and US$364,024 for the same period in 2020. The year-on-year increase in the use of cash in operating activities was mainly attributable to the significant decrease in changes in accounts receivable from the previous year.
The cash used for investment activities was US$268,581 and US$331,566, while the cash for the three and nine months ended September 30, 2021 and 2020 was US$166,271 and US$524,732, respectively. This decrease was mainly due to the decrease in NICO project activities, which resulted in a decrease in capital asset expenditures and exploration and appraisal expenditures contained in mining assets, but was offset by the recovery of USD 45,000 in reclamation deposits.
The NICO project and other exploration projects of the company are classified as exploration and evaluation phase projects for accounting purposes. For the three months and nine months ended September 30, 2021, Fortune's exploration and appraisal cash expenditures on its properties were US$236,555 and US$306,439, respectively, for the following projects:
Total cash exploration and appraisal expenditure
In comparison, for the three months and nine months ended September 30, 2020, Fortune’s exploration and appraisal expenditures on its properties were US$162,117 and US$504,653 respectively, which were used for the following projects:
Total cash exploration and appraisal expenditure
As of September 30, 2021, the company has received US$21,600, which is the remainder of the MIP grant granted in 2020, and received US$144,000 in MIP grants in May 2021, of which US$122,400 has been received. The company has chosen to report these government grants as a reduction in exploration expenditures and include them in the “mining assets” row of the consolidated statement of financial position.
The cash provided (used) for financing activities increased to US$1,477,706 and US$2,008,961 respectively, while the cash for the three months and nine months ended September 30, 2021 and 2020 was US$(2,311) and US$27,689, respectively. The cash provided in 2021 is the result of the issuance of units, the exercise of stock options and warrants, and the issuance of debt. The cash provided in 2020 is related to the receipt of government loans.
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Fortune Minerals Limited published this content on November 16, 2021, and assumes full responsibility for the information contained therein. Distributed by the public at 19:16:07 on November 16, 2021, UTC time, unedited and unaltered.