UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 6-K
REPORT OF FOREIGN PRIVATE ISSUER PURSUANT TO RULE 13a-16
OR 15d-16
UNDER THE SECURITIES EXCHANGE ACT OF 1934
For the month of DECEMBER, 2014
Commission File Number: 001-32929
POLYMET MINING CORP.
(Translation of registrant's name into English)
100 King Street, Suite 5700
Toronto, ON Canada M5X 1C7
(Address of principal executive offices)
Indicate by check mark whether the registrant files or will file annual reports under cover Form 20-F or Form 40-F.
[ X ] Form 20-F [ ]
Form 40-F
Indicate by check mark if the registrant is submitting the
Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(1): [ ]
Indicate by check mark if the registrant is submitting the
Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(7): [ ]
EXPLANATORY NOTE
This report on Form 6-K and attached exhibit are incorporated by reference into Registration Statements No. 333-185071 and No. 333-192208 and this report on Form 6-K shall be deemed a part of such registration statements from the date on which this report on Form 6-K is filed, to the extent not superseded by documents or reports subsequently filed or furnished by PolyMet Mining Corp. under the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended.
SUBMITTED HEREWITH
Exhibits
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act
of 1934, the registrant has duly caused this report to be signed on its behalf
by the undersigned, thereunto duly authorized.
|
PolyMet Mining Corp. |
|
(Registrant) |
|
|
|
Date: December 15, 2014 |
By: |
/s/ Jonathan Cherry |
|
|
Jonathan Cherry |
|
Title: |
President and CEO |
POLYMET MINING CORP.
CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS
For the three and nine months ended October 31, 2014
PolyMet Mining Corp.
Condensed Interim Consolidated Balance Sheets
Unaudited
- All figures in thousands of U.S. Dollars
|
|
October 31, |
|
|
January 31, |
|
|
|
2014 |
|
|
2014 |
|
|
|
|
|
|
|
|
ASSETS |
|
|
|
|
|
|
|
|
|
|
|
|
|
Current |
|
|
|
|
|
|
Cash and cash equivalents |
$ |
8,866 |
|
$ |
32,790 |
|
Amounts receivable |
|
303 |
|
|
1,420 |
|
Prepaid expenses |
|
1,073 |
|
|
1,195 |
|
|
|
10,242 |
|
|
35,405 |
|
Non-Current |
|
|
|
|
|
|
Mineral Property, Plant
and Equipment (Notes 3 and 4) |
|
271,243 |
|
|
246,028 |
|
Wetland Credit Intangible (Note 5)
|
|
6,192 |
|
|
6,092 |
|
Total Assets |
$ |
287,677 |
|
$ |
287,525 |
|
|
|
|
|
|
|
|
LIABILITIES |
|
|
|
|
|
|
|
|
|
|
|
|
|
Current |
|
|
|
|
|
|
Accounts payable and accrued
liabilities |
$ |
2,363 |
|
$ |
3,806 |
|
Long-term debt (Note
7) |
|
4,528 |
|
|
- |
|
Convertible debt (Notes 8 and 9)
|
|
33,073 |
|
|
31,967 |
|
Environmental
rehabilitation provision (Note 6) |
|
1,212 |
|
|
1,504 |
|
|
|
41,176 |
|
|
37,277 |
|
Non-Current |
|
|
|
|
|
|
Long-term debt (Note 7) |
|
- |
|
|
4,276 |
|
Environmental rehabilitation provision
(Note 6) |
|
53,573 |
|
|
49,640 |
|
|
|
|
|
|
|
|
Total Liabilities |
|
94,749 |
|
|
91,193 |
|
|
|
|
|
|
|
|
SHAREHOLDERS EQUITY |
|
|
|
|
|
|
Share Capital (Note 10)
|
|
240,599 |
|
|
240,330 |
|
Share Premium |
|
3,007 |
|
|
3,007 |
|
Equity Reserves |
|
50,883 |
|
|
49,543 |
|
Deficit |
|
(101,561 |
) |
|
(96,548 |
) |
|
|
|
|
|
|
|
Total Shareholders Equity |
|
192,928 |
|
|
196,332 |
|
|
|
|
|
|
|
|
Total
Liabilities and Shareholders Equity |
$ |
287,677 |
|
$ |
287,525 |
|
|
|
|
|
|
|
|
Nature of Business and Liquidity (Note 1) |
|
|
|
|
|
|
Commitments and Contingencies
(Note 14) |
|
|
|
|
|
|
ON BEHALF OF THE BOARD OF DIRECTORS:
/S/ Jonathan Cherry |
, Director |
/S/ William Murray |
, Director |
- See Accompanying Notes
PolyMet Mining Corp.
Condensed Interim Consolidated Statements of Loss and Comprehensive Loss
Unaudited - All figures in thousands of U.S. Dollars, except
for number of shares and loss per share
|
|
Three months ended October 31 |
|
|
Nine months ended October 31 |
|
|
|
2014 |
|
|
2013 |
|
|
2014 |
|
|
2013 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
General and Administrative |
|
|
|
|
|
|
|
|
|
|
|
|
Salaries and benefits |
$ |
292 |
|
$ |
271 |
|
$ |
879 |
|
$ |
839 |
|
Share-based compensation
(Note 10) |
|
134 |
|
|
84 |
|
|
499 |
|
|
357 |
|
Director fees and expenses |
|
74 |
|
|
76 |
|
|
221 |
|
|
220 |
|
Professional fees |
|
100 |
|
|
71 |
|
|
302 |
|
|
296 |
|
Filing and regulatory fees |
|
65 |
|
|
40 |
|
|
153 |
|
|
97 |
|
Investor and public relations |
|
268 |
|
|
645 |
|
|
1,030 |
|
|
1,720 |
|
Travel |
|
68 |
|
|
60 |
|
|
257 |
|
|
234 |
|
Rent and other office expenses |
|
73 |
|
|
69 |
|
|
185 |
|
|
158 |
|
Insurance |
|
49 |
|
|
47 |
|
|
143 |
|
|
109 |
|
Amortization |
|
8 |
|
|
10 |
|
|
24 |
|
|
22 |
|
|
|
1,131 |
|
|
1,373 |
|
|
3,693 |
|
|
4,052 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other Expenses (Income) |
|
|
|
|
|
|
|
|
|
|
|
|
Finance costs (Note 11)
|
|
495 |
|
|
345 |
|
|
1,356 |
|
|
1,096 |
|
Loss / (gain) on foreign exchange |
|
2 |
|
|
(5 |
) |
|
(3 |
) |
|
11 |
|
Loss on investment |
|
- |
|
|
48 |
|
|
- |
|
|
48 |
|
Rental income |
|
(9 |
) |
|
(8 |
) |
|
(33 |
) |
|
(32 |
) |
|
|
488 |
|
|
380 |
|
|
1,320 |
|
|
1,123 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss for the period |
|
1,619 |
|
|
1,753 |
|
|
5,013 |
|
|
5,175 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other Comprehensive Loss |
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized gain on investment |
|
- |
|
|
(1 |
) |
|
- |
|
|
(7 |
) |
Reclass loss on investment |
|
- |
|
|
(48 |
) |
|
- |
|
|
(48 |
) |
Total Comprehensive Loss for the period |
|
1,619 |
|
|
1,704 |
|
|
5,013 |
|
|
5,120 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and
Diluted Loss per Share |
$ |
(0.01 |
) |
$ |
(0.01 |
) |
$ |
(0.02 |
) |
$ |
(0.02 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted Average Number of Shares |
|
275,709,199 |
|
|
274,964,697 |
|
|
275,653,395 |
|
|
223,233,090 |
|
- See Accompanying Notes -
PolyMet Mining Corp.
Condensed Interim Consolidated Statements of Changes in Shareholders Equity
Unaudited - All figures in
thousands of U.S. Dollars, except for
number of shares
|
|
Share Capital (authorized = unlimited) |
|
|
Equity Reserves |
|
|
|
|
|
|
|
|
|
|
|
|
Paid-in |
|
|
|
|
|
Warrants and |
|
|
Accumulated |
|
|
Total |
|
|
|
|
|
Total |
|
|
|
Issued |
|
|
Share |
|
|
Share |
|
|
Share-based |
|
|
Other |
|
|
Equity |
|
|
|
|
|
Shareholders' |
|
|
|
Shares |
|
|
Capital |
|
|
Premium |
|
|
Payments |
|
|
Comp
Loss |
|
|
Reserves |
|
|
Deficit |
|
|
Equity |
|
Balance - January 31, 2013 |
|
183,250,082 |
|
$ |
181,215 |
|
$ |
3,007 |
|
$ |
47,161 |
|
$ |
(55 |
) |
$ |
47,106 |
|
$ |
(88,416 |
) |
$ |
142,912 |
|
Loss and comprehensive loss for the period |
|
- |
|
|
- |
|
|
- |
|
|
- |
|
|
55 |
|
|
55 |
|
|
(5,175 |
) |
|
(5,120 |
) |
Rights offering and issuance
costs (Note 10) |
|
91,636,202 |
|
|
58,372 |
|
|
- |
|
|
- |
|
|
- |
|
|
- |
|
|
- |
|
|
58,372 |
|
Land purchase options |
|
108,123 |
|
|
93 |
|
|
- |
|
|
- |
|
|
- |
|
|
- |
|
|
- |
|
|
93 |
|
Share-based compensation
(Note 10) |
|
- |
|
|
- |
|
|
- |
|
|
669 |
|
|
- |
|
|
669 |
|
|
- |
|
|
669 |
|
Bonus share cost amortization (Note 10) |
|
- |
|
|
- |
|
|
- |
|
|
546 |
|
|
- |
|
|
546 |
|
|
- |
|
|
546 |
|
Balance - October 31, 2013 |
|
274,994,407 |
|
$ |
239,680 |
|
$ |
3,007 |
|
$ |
48,376 |
|
$ |
- |
|
$ |
48,376 |
|
$ |
(93,591 |
) |
$ |
197,472 |
|
|
|
Share Capital (authorized = unlimited) |
|
|
Equity Reserves |
|
|
|
|
|
|
|
|
|
|
|
|
Paid-in |
|
|
|
|
|
Warrants and |
|
|
Accumulated |
|
|
Total |
|
|
|
|
|
Total |
|
|
|
Issued |
|
|
Share |
|
|
Share |
|
|
Share-based |
|
|
Other |
|
|
Equity |
|
|
|
|
|
Shareholders' |
|
|
|
Shares |
|
|
Capital |
|
|
Premium |
|
|
Payments |
|
|
Comp
Loss |
|
|
Reserves |
|
|
Deficit |
|
|
Equity |
|
Balance - January 31, 2014 |
|
275,575,392 |
|
$ |
240,330 |
|
$ |
3,007 |
|
$ |
49,543 |
|
$ |
- |
|
$ |
49,543 |
|
$ |
(96,548 |
) |
$ |
196,332 |
|
Loss and comprehensive loss for the period |
|
- |
|
|
- |
|
|
- |
|
|
- |
|
|
- |
|
|
- |
|
|
(5,013 |
) |
|
(5,013 |
) |
Land purchase options |
|
98,481 |
|
|
108 |
|
|
- |
|
|
- |
|
|
- |
|
|
- |
|
|
- |
|
|
108 |
|
Exercise of share options (Note 10) |
|
75,000 |
|
|
81 |
|
|
- |
|
|
- |
|
|
- |
|
|
- |
|
|
- |
|
|
81 |
|
Fair value transfer on
exercise of share options |
|
- |
|
|
80 |
|
|
- |
|
|
(80 |
) |
|
- |
|
|
(80 |
) |
|
- |
|
|
- |
|
Share-based compensation (Note 10) |
|
- |
|
|
- |
|
|
- |
|
|
1,046 |
|
|
- |
|
|
1,046 |
|
|
- |
|
|
1,046 |
|
Bonus share cost amortization (Note 10) |
|
- |
|
|
- |
|
|
- |
|
|
374 |
|
|
- |
|
|
374 |
|
|
- |
|
|
374 |
|
Balance - October 31, 2014 |
|
275,748,873 |
|
$ |
240,599 |
|
$ |
3,007 |
|
$ |
50,883 |
|
$ |
- |
|
$ |
50,883 |
|
$ |
(101,561 |
) |
$ |
192,928 |
|
- See Accompanying Notes -
PolyMet Mining Corp.
Condensed Interim Consolidated Statements of Cash Flows
Unaudited - All figures in thousands of U.S. Dollars
|
|
Three months ended October 31 |
|
|
Nine months ended October 31 |
|
|
|
2014 |
|
|
2013 |
|
|
2014 |
|
|
2013 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating activities |
|
|
|
|
|
|
|
|
|
|
|
|
Loss for the period |
$ |
(1,619 |
) |
$ |
(1,753 |
) |
$ |
(5,013 |
) |
$ |
(5,175 |
) |
Items not involving cash
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization |
|
8 |
|
|
10 |
|
|
24 |
|
|
22 |
|
Accretion
of environmental rehabilitation provision (Note 6) |
|
407 |
|
|
407 |
|
|
1,254 |
|
|
1,117 |
|
Share-based compensation
(Note 10) |
|
134 |
|
|
103 |
|
|
499 |
|
|
453 |
|
Investment loss |
|
- |
|
|
48 |
|
|
- |
|
|
48 |
|
Unrealized foreign
exchange loss (gain) |
|
4 |
|
|
- |
|
|
- |
|
|
5 |
|
Changes in non-cash working
capital |
|
|
|
|
|
|
|
|
|
|
|
|
Amounts receivable |
|
(133 |
) |
|
(267 |
) |
|
1,117 |
|
|
(540 |
) |
Prepaid
expenses |
|
220 |
|
|
42 |
|
|
122 |
|
|
(199 |
) |
Accounts payable and
accrued liabilities |
|
118 |
|
|
(545 |
) |
|
(1,013 |
) |
|
(2,267 |
) |
Net cash used in operating activities
|
|
(861 |
) |
|
(1,955 |
) |
|
(3,010 |
) |
|
(6,536 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Financing activities |
|
|
|
|
|
|
|
|
|
|
|
|
Share issuance proceeds, net of costs (Note
10) |
|
- |
|
|
- |
|
|
81 |
|
|
58,372 |
|
Debenture funding (Note 8)
|
|
- |
|
|
- |
|
|
- |
|
|
20,000 |
|
Debenture repayment (Note 8) |
|
-
|
|
|
- |
|
|
-
|
|
|
(20,000 |
) |
Net cash provided by financing
activities |
|
- |
|
|
- |
|
|
81 |
|
|
58,372 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investing activities |
|
|
|
|
|
|
|
|
|
|
|
|
Purchase of property, plant & equipment
(Note 4) |
|
(6,552 |
) |
|
(6,339 |
) |
|
(20,895 |
) |
|
(19,109 |
) |
Proceeds from sale of
investment |
|
- |
|
|
24 |
|
|
- |
|
|
24 |
|
Capitalized interest and fees paid (Note 8)
|
|
- |
|
|
- |
|
|
- |
|
|
(326 |
) |
Purchase of Wetland Credit
Intangible (Note 5) |
|
- |
|
|
- |
|
|
(100 |
) |
|
- |
|
Net cash used in investing activities |
|
(6,552 |
) |
|
(6,315 |
) |
|
(20,995 |
) |
|
(19,411 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Increase (Decrease) in Cash and Cash
Equivalents |
|
(7,413 |
) |
|
(8,270 |
) |
|
(23,924 |
) |
|
32,425 |
|
Effect of foreign exchange on Cash and
Cash Equivalents |
|
(4 |
) |
|
- |
|
|
- |
|
|
(5 |
) |
Cash and Cash Equivalents - beginning of period
|
|
16,283 |
|
|
48,778 |
|
|
32,790 |
|
|
8,088 |
|
Cash and Cash Equivalents - end of period |
$ |
8,866 |
|
$ |
40,508 |
|
$ |
8,866 |
|
$ |
40,508 |
|
Supplemental Disclosure with Respect to Statement of Cash
Flows (Note 12)
- See Accompanying Notes -
PolyMet Mining Corp. |
Notes to Condensed Interim Consolidated
Financial Statements |
As at October 31, 2014 and for the three and nine months
ended October 31, 2014 |
Unaudited - Tabular amounts in thousands of U.S.
Dollars, except for price per share and number of shares |
|
1. |
Nature of Business and Liquidity |
|
|
|
PolyMet Mining Corp. (PolyMet or the Company) was
incorporated in British Columbia, Canada on March 4, 1981 under the name
Fleck Resources Ltd. The Company changed its name from Fleck Resources to
PolyMet Mining Corp. on June 10, 1998. The Company is engaged in the
exploration and development, when warranted, of natural resource
properties. The Companys primary mineral property is the NorthMet Project
(NorthMet or Project), a polymetallic project in northeastern
Minnesota, USA which comprises the NorthMet copper-nickel-precious metals
ore body and the Erie Plant, a processing facility located approximately
six miles from the ore body. The realization of the Companys investment
in NorthMet and other assets is dependent upon various factors, including
the existence of economically recoverable mineral reserves, the ability to
complete the environmental review and obtain permits necessary to
construct and operate NorthMet, the ability to obtain financing necessary
to complete the exploration and development of NorthMet, and future
profitable operations or alternatively, disposal of the investment on an
advantageous basis. |
|
|
|
On September 25, 2006, the Company received the results
of a Definitive Feasibility Study prepared by Bateman Engineering Pty Ltd
and NorthMet moved from the exploration stage to the development stage. An
updated Technical Report under NI 43-101 was filed in January
2013. |
|
|
|
The corporate address and records office of the Company
are located at 100 King Street West, Suite 5700, Toronto, Ontario, Canada
M5X 1C7, and 700 West Georgia, 25th Floor, Vancouver, British
Columbia, Canada, V7Y 1B3, respectively. The executive office of Poly Met
Mining, Inc. (PolyMet US), the Companys wholly-owned subsidiary, is
located at 444 Cedar Street, Suite 2060, St. Paul, Minnesota, United
States of America, 55101. |
|
|
|
The consolidated financial statements have been prepared
on a going concern basis, which contemplates the realization of assets and
the settlement of liabilities in the normal course of
operations. |
|
|
|
Liquidity risk is the risk the Company will not be able
to meet its financial obligations as they become due and arises through
the excess of financial obligations over available financial assets due at
any point in time. As at October 31, 2014, PolyMet had cash of $8.866
million and a working capital deficiency of $30.934 million. The
significant reduction in working capital during the period is a result of
the $33.073 million convertible debt due to Glencore AG, a wholly owned
subsidiary of Glencore Xstrata plc (together Glencore) being reclassified as a
current liability on the basis it matures on September 30, 2015. If
Glencore does not exchange the convertible debt for common shares, PolyMet
will need to renegotiate the agreement or raise sufficient funds to repay
the debt. While in the past the Company has been successful in
renegotiating debt and closing financing agreements, there can be no
assurance it will be able to do so again. |
|
|
|
Management believes that, based upon the underlying value of the NorthMet Project, the advanced stage of permitting, the ongoing discussions with numerous investment banks and investors including Glencore regarding potential financing, and the recent execution of a confidential and non-binding term sheet for a loan facility of up to $30 million expected to close in early calendar 2015, that financing will continue to be available from Glencore and/or other potential third party sources allowing the Company to meet its current obligations, as well as fund ongoing development, capital expenditures and administration expenses in accordance with the Company’s spending plans for the next twelve months. |
1
PolyMet Mining Corp. |
Notes to Condensed Interim Consolidated
Financial Statements |
As at October 31, 2014 and for the three and nine months
ended October 31, 2014 |
Unaudited - Tabular amounts in thousands of U.S.
Dollars, except for price per share and number of shares |
|
2. |
Summary of Significant Accounting
Policies |
|
|
|
a) Statement of Compliance |
|
These unaudited condensed interim consolidated financial
statements have been prepared in accordance with International Financial
Reporting Standards (IFRS) as issued by the International Accounting
Standards Board (IASB), including IAS 34, Interim Financial Reporting
and follow the same accounting policies and methods of application as set
out in Note 2 of the audited consolidated financial statements for the
year ended January 31, 2014, except as outlined in Note 2c below. These
condensed interim consolidated financial statements do not include all the
information and note disclosures required by IFRS for annual financial
statements and therefore should be read in conjunction with the Companys
audited consolidated financial statements for the year ended January 31,
2014. These condensed interim consolidated financial statements were
approved by the Board of Directors on December 15, 2014. |
|
|
|
b) Basis of Consolidation and Presentation
|
|
The condensed interim consolidated financial statements
include the accounts of the Company and its wholly-owned subsidiary.
Inter-Company balances and transactions have been eliminated on
consolidation. |
|
|
|
The condensed interim consolidated financial statements
have been prepared under the historical cost convention, as modified by
the revaluation of financial assets classified as available-for-sale. All
dollar amounts presented are in United States (US) dollars unless
otherwise specified. |
|
|
|
c) Adoption of New or Amended IFRS
|
|
On February 1, 2014, the Company adopted the following
new or amended accounting standards previously issued by the IASB, which
did not have a significant impact on the Companys consolidated financial
statements. |
|
|
|
IFRIC 21 Levies |
|
|
|
IFRIC 21 is an interpretation of IAS 37 and addresses the
accounting for an obligation to pay a levy that is not an income tax.
IFRIC 21 is effective for annual periods beginning on or after January 1,
2014. |
|
|
|
d) Future Accounting Changes |
|
The Company anticipates that all of the relevant
pronouncements will be adopted in the Companys accounting policy for the
first period beginning after the effective date of the
pronouncement. |
|
|
|
Information on new standards, amendments and
interpretations that are expected to be relevant to the Companys
financial statements is provided below. Certain other new standards and
interpretations have been issued but are not expected to have a material
impact on the Companys financial statements and are therefore not
discussed below. |
|
|
|
IFRS 9 Financial instruments - classification and
measurement |
|
|
|
The IASB has suspended the originally planned effective
date of January 1, 2015 for IFRS 9. The IASB issued IFRS 9 as the first
step in its project to replace IAS 39: Financial Instruments recognition
and measurement. The Company will commence assessing the impact of this
new standard upon the announcement of its new effective
date. |
2
PolyMet Mining Corp. |
Notes to Condensed Interim Consolidated
Financial Statements |
As at October 31, 2014 and for the three and nine months
ended October 31, 2014 |
Unaudited - Tabular amounts in thousands of U.S.
Dollars, except for price per share and number of shares |
|
3. |
Mineral Property Agreements |
|
|
|
NorthMet, Minnesota, U.S.A. |
|
|
|
Pursuant to an agreement dated January 4, 1989,
subsequently amended and assigned, the Company leases certain property in
St. Louis County, Minnesota from RGGS Land & Minerals Ltd., L.P. The
initial term of the renewable lease was 20 years and called for total
lease payments of $1.475 million. The Company can, at its option,
terminate the lease at any time by giving written notice to the lessor not
less than 90 days prior to the effective termination date or can
indefinitely extend the 20-year term by continuing to make $150,000 annual
lease payments on each successive anniversary date. All lease payments
have been paid or accrued to October 31, 2014. The next payment is due in
January 2015. |
|
|
|
The lease payments are considered advance royalty
payments and shall be deducted from future production royalties payable to
the lessor, which range from 3% to 5% based on the net smelter return
received by the Company. The Companys recovery of $2.225 million in
advance royalty payments is subject to the lessor receiving an amount not
less than the amount of the annual lease payment due for that
year. |
|
|
|
Pursuant to an agreement effective December 1, 2008, the
Company leases certain property in St. Louis County, Minnesota from LMC
Minerals. The initial term of the renewable lease is 20 years and calls
for minimum annual lease payments of $3,000 for the first four years after
which the minimum annual lease payment increases to $30,000. The initial
term may be extended for up to four additional five-year periods on the
same terms. All lease payments have been paid or accrued to October 31,
2014. The next payment is due in November 2014. |
|
|
|
The lease payments are considered advance royalty
payments and will be deducted from future production royalties payable to
the lessor, which range from 3% to 5% based on the net smelter return
received by the Company. The Companys recovery of $0.069 million in
advance royalty payments is subject to the lessor receiving an amount not
less than the amount of the annual lease payment due for that
year. |
|
|
|
Pursuant to the leases, PolyMet holds mineral rights and
the right to mine upon receiving the required permits. PolyMet has
proposed to acquire surface rights through a land exchange with the United
States Forest Service (Note 7). |
3
PolyMet Mining Corp. |
Notes to Condensed Interim Consolidated
Financial Statements |
As at October 31, 2014 and for the three and nine months
ended October 31, 2014 |
Unaudited - Tabular amounts in thousands of U.S.
Dollars, except for price per share and number of shares |
|
4. |
Mineral Property, Plant and Equipment |
|
|
|
Details of Mineral Property, Plant, and Equipment are as
follows: |
|
|
|
|
|
|
Other fixed |
|
|
|
|
|
Net Book
Value |
|
NorthMet |
|
|
assets |
|
|
Total |
|
|
Balance at January 31, 2014 |
$ |
245,880 |
|
$ |
148 |
|
$ |
246,028 |
|
|
Additions |
|
22,010 |
|
|
38 |
|
|
22,049 |
|
|
Changes to environmental rehabilitation provision (Note 6) |
|
3,191 |
|
|
- |
|
|
3,191 |
|
|
Amortization |
|
- |
|
|
(24 |
) |
|
(24 |
) |
|
Balance at October 31, 2014 |
$ |
271,081 |
|
$ |
162 |
|
$ |
271,243 |
|
|
|
|
October 31, |
|
|
January 31, |
|
|
NorthMet
|
|
2014 |
|
|
2014 |
|
|
Mineral property acquisition and interest
costs |
$ |
47,609 |
|
$ |
46,334 |
|
|
Mine plan and development |
|
39,897 |
|
|
38,065 |
|
|
Environmental |
|
75,241 |
|
|
61,866 |
|
|
Consulting and wages |
|
38,693 |
|
|
34,630 |
|
|
Environmental rehabilitation |
|
52,191 |
|
|
49,000 |
|
|
Site activities |
|
16,501 |
|
|
15,036 |
|
|
Mine equipment |
|
949 |
|
|
949 |
|
|
|
|
|
|
|
|
|
|
Total |
$ |
271,081 |
|
$ |
245,880 |
|
Erie Plant, Minnesota, U.S.A.
In October 2003, the Company entered
into an option with Cliffs Natural Resources Inc. (Cliffs) to purchase 100%
ownership of large parts of the former LTV Steel Mining Company ore processing
plant in northeastern Minnesota (the Erie Plant). The Company exercised this
option on November 15, 2005 under the Asset Purchase Agreement with Cliffs
(Cliffs I).
On December 20, 2006, the Company
closed a transaction (Cliffs II) in which it acquired, from Cliffs, property
and associated rights sufficient to provide it with a railroad connection
linking the mine development site and the Erie Plant. The transaction also
included a 120-railcar fleet, locomotive fuelling and maintenance facilities,
water rights and pipelines, administrative offices on site and an additional
6,000 acres to the east and west of and contiguous to its existing tailings
facility.
The cost of acquisition of the Erie
Plant and associated infrastructure was $18.9 million in cash and 9,200,547
shares at a fair market value of $13.953 million.
The Company assumed certain ongoing
site-related environmental and reclamation obligations as a result of the above
purchases (Note 6). These environmental and reclamation obligations are
presently contracted under the terms of the purchase agreements with Cliffs.
Once the Company obtains its permit to mine and Cliffs is released from its
obligations by the State agencies, the Companys obligations will be direct with
the governing bodies.
During the nine months ended October
31, 2014, the Company capitalized 100% of borrowing costs on long-term (Note 7)
and convertible debt (Note 9) in the amount of $1.358 million (October 31, 2013
- $1.658 million) as part of the cost of NorthMet assets. As NorthMet assets are
not in use or capable of operating in a manner intended by management, no
amortization of these assets has been recorded to October 31, 2014.
4
PolyMet Mining Corp. |
Notes to Condensed Interim Consolidated
Financial Statements |
As at October 31, 2014 and for the three and nine months
ended October 31, 2014 |
Unaudited - Tabular amounts in thousands of U.S.
Dollars, except for price per share and number of shares |
|
5. |
Wetland Credit Intangible |
|
|
|
Details of Wetland Credit Intangibles are as
follows: |
|
|
|
October 31, |
|
|
January 31, |
|
|
|
|
2014 |
|
|
2014 |
|
|
Wetland Credit Intangible Exercised
options |
$ |
1,579 |
|
$ |
1,579 |
|
|
Wetland Credit Intangible Unexercised options |
|
4,613 |
|
|
4,513
|
|
|
|
$ |
6,192 |
|
$ |
6,092 |
|
On March 9, 2012, the Company acquired
a secured interest in land (AG Land) owned by AG for Waterfowl, LLP ("AG")
that is permitted for wetland restoration. AG subsequently assigned the
agreement to EIP Minnesota, LLC (EIP) and the Company consented on September
7, 2012. EIP will restore the wetlands and, upon completion, wetland credits are
to be issued by the proper governmental authorities. The Company plans to use
the wetland credits to offset wetlands disturbed during construction and
operation of NorthMet. The Company holds a first mortgage on the AG Land, which
will be proportionately released as wetland credits are transferred to the
Company. The Company has the option to exercise five separate phases of wetland
credit development. Any option not exercised by February 28, 2017 will expire
and the remaining mortgage, if any, will be released. As at October 31, 2014,
the Company had exercised the option on phase 1. Upon completion of phase 1
construction, 371,854 common shares paid as part of the initial consideration
will be released from escrow.
As part of the initial consideration,
AG holds warrants to purchase 1,249,315 common shares at $1.3007 per share at
any time until December 31, 2015, subject to mandatory exercise if the 20-day
volume weighted average price (VWAP) of PolyMet shares is equal to or greater
than $3.00 and PolyMet provides notice to AG that it has received permits
necessary to start construction of the NorthMet Project. The exercise price of
the purchase warrants and the number of warrants are subject to conventional
anti-dilution provisions.
Performance payments for ongoing
maintenance totaling $0.68 million will be due over the seven years following
construction completion of phase 1. Performance payments for construction
completion and ongoing maintenance totaling $1.063 million per phase of phase 2
through 5 will only be incurred if and when the Company exercises its option on
those phases and will be due over the seven years following exercise of each
phase. The Company is also required to make annual payments of $0.025 million
per unexercised phase, which is applied towards future performance payments. If
wetland credits are issued by the proper governmental authorities before the
seven-year anniversary of exercise of each phase, any unpaid amounts are due
upon issuance of the wetland credits.
5
PolyMet Mining Corp. |
Notes to Condensed Interim Consolidated
Financial Statements |
As at October 31, 2014 and for the three and nine months
ended October 31, 2014 |
Unaudited - Tabular amounts in thousands of U.S.
Dollars, except for price per share and number of shares |
|
6. |
Environmental Rehabilitation Provision |
|
|
|
Details of environmental rehabilitation provision are as
follows: |
|
|
|
Nine months ended |
|
|
Year ended |
|
|
|
|
October 31, 2014 |
|
|
January 31, 2014 |
|
|
Environmental rehabilitation provision
beginning of period |
$ |
51,144 |
|
$ |
53,488 |
|
|
Change in estimated liability |
|
- |
|
|
2,430 |
|
|
Liabilities discharged |
|
(804 |
) |
|
(1,515 |
) |
|
Accretion expense |
|
1,254 |
|
|
1,521 |
|
|
Change in risk-free interest
rate |
|
3,191 |
|
|
(4,780 |
) |
|
Environmental rehabilitation provision end of period |
|
54,785 |
|
|
51,144 |
|
|
Less current portion |
|
(1,212 |
) |
|
(1,504 |
) |
|
|
|
|
|
|
|
|
|
Non-current portion |
$ |
53,573 |
|
$ |
49,640 |
|
Federal, state and local laws and
regulations concerning environmental protection affect the Companys operations.
As part of the consideration for the Cliffs Purchase Agreements (Note 4), the
Company indemnified Cliffs for the liability related to final reclamation and
closure of the acquired property. The Companys provisions for reclamation and
closure costs are based upon existing laws and regulations. It is not currently
possible to estimate the impact on operating results, if any, of future
legislative or regulatory developments.
In April 2010, Cliffs entered into a
consent decree with the Minnesota Pollution Control Agency (MPCA) relating to
alleged violations on the Cliffs Erie Property. This consent decree required
both short-term and long-term mitigation. Field study activities were completed
in 2010 and 2011 and short-term mitigations were initiated in 2011 as outlined
in the plans and approved by the MPCA. In April 2012, long-term mitigation plans
were submitted to the MPCA for its review and approval. In October 2012, a
response was received from the MPCA approving plans for pilot tests of various
treatment options to determine the best course of action. Although there is
substantial uncertainty related to applicable water quality standards,
engineering scope, and responsibility for the financial liability, the October
2012 response from the MPCA and subsequent communication provides clarification
to the potential liability for the long-term mitigation included in the
Companys environmental rehabilitation provision. This resulted in a $2.4
million increase to the provision during the year ended January 31, 2014.
The Companys best estimate of the
environmental rehabilitation provision at October 31, 2014 was $54.8 million
(January 31, 2014 - $51.1 million) based on estimated cash flows required to
settle this obligation in present day costs of $27.1 million (January 31, 2014 -
$27.3 million) for Cliffs I and $32.6 million (January 31, 2014 - $33.1 million)
for Cliffs II, an annual inflation rate of 2.00% (January 31, 2014 2.00%) and
a risk-free interest rate of 2.81% (January 31, 2014 3.35%) . Payments are
expected to occur over a period of approximately 34 years.
6
PolyMet Mining Corp. |
Notes to Condensed Interim Consolidated
Financial Statements |
As at October 31, 2014 and for the three and nine months
ended October 31, 2014 |
Unaudited - Tabular amounts in thousands of U.S.
Dollars, except for price per share and number of shares |
|
7. |
Long-Term Debt |
|
|
|
Details of long-term debt are as
follows: |
|
|
|
Nine months |
|
|
|
|
|
|
|
ended |
|
|
Year ended |
|
|
|
|
October 31, |
|
|
January 31, |
|
|
|
|
2014 |
|
|
2014 |
|
|
Long-term debt beginning of period |
$ |
4,276 |
|
$ |
3,950 |
|
|
Accretion and capitalized interest |
|
252 |
|
|
326
|
|
|
Long-term debt end of period |
|
4,528 |
|
|
4,276 |
|
|
Less current portion |
|
(4,528 |
) |
|
- |
|
|
|
|
|
|
|
|
|
|
Non-current
portion |
$ |
- |
|
$ |
4,276 |
|
On June 30, 2011, the Company closed a
$4.0 million loan from Iron Range Resources & Rehabilitation Board
("IRRRB"), a development agency created by the State of Minnesota to stabilize
and enhance the economy of northeastern Minnesota. At the same time, the Company
exercised its options to acquire two tracts of land as part of the proposed land
exchange with the U.S. Forest Service (USFS). The loan is secured by the land
acquired, carries a fixed interest rate of 5% per annum, compounded annually,
and is repayable on the earlier of June 30, 2016 or the date which the related
land is exchanged with the USFS (expected to occur within 12 months from October
31, 2014). The Company has issued warrants giving the IRRRB the right to
purchase 461,286 shares of its common shares at $2.1678 per share at any time
until the earlier of June 30, 2016 and one year after permits are received
(IRRRB Warrants). All long-term debt borrowing costs were eligible for
capitalization and 100% of these costs were capitalized during the nine months
ended October 31, 2014.
7
PolyMet Mining Corp. |
Notes to Condensed Interim Consolidated
Financial Statements |
As at October 31, 2014 and for the three and nine months
ended October 31, 2014 |
Unaudited - Tabular amounts in thousands of U.S.
Dollars, except for price per share and number of shares |
|
8. |
Glencore Financing |
|
|
|
Since October 31, 2008 the Company and Glencore have
entered into a series of financing agreements and a marketing agreement
whereby Glencore committed to purchase all of the Companys production of
concentrates, metal, or intermediate products on market terms at the time
of delivery for at least the first five years of production. As part of
the 2013 financing agreement, PolyMet and Glencore entered into a
Corporate Governance Agreement whereby from January 1, 2014 as long as
Glencore holds 10% or more of PolyMet's shares (on a fully diluted basis)
Glencore shall have the right, but not obligation to designate at least
one director and not more than the number of directors proportionate to
Glencore's fully diluted ownership of PolyMet, rounded down to the nearest
whole number, such number to not exceed 49% of the total board. |
|
|
|
The financing agreements comprise $25.0 million initial
principal Series A-D debentures in calendar 2008 drawn in four tranches
(Note 9), $25.0 million placement of PolyMet common shares in calendar
2009 in two tranches, $30.0 million placement of PolyMet common shares in
calendar 2010 in three tranches (the 2010 Agreement), $20.0 million
placement of PolyMet common shares in calendar 2011 in one tranche (the
2011 Agreement), and $20.960 million purchase of PolyMet common shares
in the Rights Offering (the 2013 Agreement). As a result of the series
of financing transactions and the purchase by Glencore of PolyMet common
shares previously owned by Cliffs, Glencore's current ownership and
ownership rights of PolyMet comprises: |
|
|
78,724,821 shares representing 28.6% of PolyMet's issued
shares; |
|
|
|
|
|
$25.0 million initial principal floating rate secured
debentures due September 30, 2015 (Note 9). Including capitalized and
accrued interest as at October 31, 2014, these debentures are exchangeable
at $1.2920 per share into 25,597,760 common shares of PolyMet upon PolyMet
giving Glencore ten days notice that it has received permits necessary to
start construction of NorthMet and availability of senior construction
finance in a form reasonably acceptable to Glencore (Early Maturity
Event) or are repayable on September 30, 2015. The exercise price of the
exchange warrants and the number of warrants are subject to conventional
anti-dilution provisions; and |
|
|
|
|
|
Glencore holds warrants to purchase 6,458,001 million
common shares at $1.3007 per share at any time until December 31, 2015,
subject to mandatory exercise if the 20-day volume weighted average price
(VWAP) of PolyMet common shares is equal to or greater than 150% of the
exercise price and occurrence of the Early Maturity Event. The exercise
price of the purchase warrants and the number of warrants are subject to
conventional anti-dilution provisions. |
If Glencore were to exercise all of its
rights and obligations under these agreements, it would own 110,780,582 common
shares of PolyMet, representing 36.0% on a partially diluted basis, that is, if
no other options or warrants were exercised or 33.6% on a fully diluted basis.
8
PolyMet Mining Corp. |
Notes to Condensed Interim Consolidated
Financial Statements |
As at October 31, 2014 and for the three and nine months
ended October 31, 2014 |
Unaudited - Tabular amounts in thousands of U.S.
Dollars, except for price per share and number of shares |
|
8. |
Glencore Financing - Continued |
|
|
|
2013 Agreement |
|
On April 10, 2013, the Company amended its previous
financing arrangement and issued a new Tranche E debenture (2013
Debenture) with the principal amount of $20.0 million to Glencore and
Glencore agreed to a Standby Purchase Agreement (Standby) related to the
$60.480 million Rights Offering by the Company (Note 10). Under the
Standby, Glencore agreed to purchase any common shares offered under the
Rights Offering that were not subscribed for by holders of the rights,
subject to certain conditions and limitations. The 2013 Debenture carried
a fixed interest rate of 4.721% per annum payable in cash monthly and
matured on the earlier of (i) closing of the Rights Offering by the
Company or (ii) May 1, 2014. The Company provided security by way of a
guarantee and by the assets of the Company and its wholly-owned
subsidiary. The sale of the 2013 Debenture was consummated on April 11,
2013. The Company accounted for the 2013 Debenture issued initially at
fair value and subsequently at its amortized cost. Transaction costs for
the financing were $0.103 million. The 2013 Debenture was repaid upon the
closing of the Rights Offering on July 5, 2013. All debt borrowing costs
were eligible for capitalization and 100% of these costs were capitalized
during the year ended January 31, 2014. |
|
|
|
Glencore purchased PolyMet common shares for $20.960
million in the Rights Offering (Note 10), which closed on July 5,
2013. |
|
|
|
2014 Agreement |
|
On April 25, 2014, the Company amended its previous
financing arrangement and extended the term of the Series A-D Debentures
and the expiration date of the associated Exchange Warrants to the earlier
of the Early Maturity Event or September 30, 2015. All other terms of both
the debentures and the warrants described above are unchanged. Other than
reclassification from short-term to long- term, the extension did not
impact the financial statements. |
9
PolyMet Mining Corp. |
Notes to Condensed Interim Consolidated
Financial Statements |
As at October 31, 2014 and for the three and nine months
ended October 31, 2014 |
Unaudited - Tabular amounts in thousands of U.S.
Dollars, except for price per share and number of shares |
|
9. |
Convertible Debt |
|
|
|
Details of convertible debt are as
follows: |
|
|
|
Nine months |
|
|
|
|
|
|
|
ended |
|
|
Year ended |
|
|
|
|
October 31, |
|
|
January 31, |
|
|
|
|
2014 |
|
|
2014 |
|
|
Convertible debt beginning of period |
$ |
31,967 |
|
$ |
30,508 |
|
|
Accretion and capitalized interest |
|
1,106 |
|
|
1,459
|
|
|
Convertible debt end of period |
|
33,073 |
|
|
31,967 |
|
|
Less current portion |
|
(33,073 |
) |
|
31,967 |
|
|
|
|
|
|
|
|
|
|
Non-current
portion |
$ |
- |
|
$ |
- |
|
On October 31, 2008, the Company issued
$25.0 million of Debentures to Glencore that bear interest at 12-month US dollar
LIBOR plus 4%, compounded quarterly. Interest is payable in cash or by
increasing the principal amount of the Debentures, at Glencores option. At
October 31, 2014, $8.073 million (January 31, 2014 - $6.967 million) of interest
had been added to the principal amount of the debt since inception. The Company
has provided security on the Debentures covering all of the assets of PolyMet
and PolyMet US, including a pledge of PolyMets 100% shareholding in PolyMet US.
The due date of the Debentures is the earlier of (i) the Early Maturity Event
(see Note 8), and (ii) September 30, 2015, on which date all principal and
interest accrued to such date will be due and payable. Upon occurrence of the
Early Maturity Event and at the Companys option, the initial principal and
capitalized interest are exchangeable into common shares of PolyMet at $1.2920
per share. Glencore has the right to exchange some or all of the Debentures at
any time under the same conversion terms. All convertible debt borrowing costs
were eligible for capitalization and 100% of these costs were capitalized during
the nine months ended October 31, 2014.
10
PolyMet Mining Corp. |
Notes to Condensed Interim Consolidated
Financial Statements |
As at October 31, 2014 and for the three and nine months
ended October 31, 2014 |
Unaudited - Tabular amounts in thousands of U.S.
Dollars, except for price per share and number of shares |
|
10. |
Share Capital |
|
|
|
|
a) |
Share Issuances for Cash |
|
|
|
|
|
On May 24, 2013, the Company filed the final prospectus
for an offering of rights ("Rights") to holders of common shares of the
Company (the "Rights Offering"). Every shareholder received one Right for
each common share owned on June 4, 2013, the Record Date, and two Rights
entitled the holder to acquire one new common share of the Company at
$0.66 per share. |
|
|
|
|
|
Upon the closing of the Rights Offering on July 5, 2013,
the Company issued a total of 91,636,202 common shares for gross proceeds
of $60.480 million. Expenses and fees relating to the Rights Offering were
$2.108 million, including the $1.061 million standby commitment fee paid
to Glencore, and reduced the gross proceeds recorded as share capital. The
closing of the Rights Offering triggered customary anti-dilution
provisions for outstanding warrants, share options, and unissued
restricted share units. |
|
|
|
|
|
During the nine months ended October 31, 2014 the Company
issued 75,000 shares (October 31, 2013 nil) pursuant to the exercise of
share options for total proceeds of $0.081 million (October 31, 2013 -
$nil). |
|
|
|
|
b) |
Share-Based Compensation |
|
|
|
|
|
The Omnibus Share Compensation Plan (Omnibus Plan) was
created to align the interests of the Companys employees, directors,
officers and consultants with those of shareholders. Effective May 25,
2007, the Company adopted the Omnibus Plan, which was approved by the
Companys shareholders on June 27, 2007, modified and further ratified
and reconfirmed by the Companys shareholders most recently on July 10,
2012. The Omnibus Plan restricts the award of share options, restricted
shares, restricted share units, and other share-based awards to 10% of the
common shares issued and outstanding on the grant date, excluding
2,500,000 common shares pursuant to an exemption approved by the Toronto
Stock Exchange. |
|
|
|
|
|
During the nine months ended October 31, 2014, the
Company recorded $1.046 million for share- based compensation (October 31,
2013 - $0.669 million) with $0.499 million expensed to share- based
compensation (October 31, 2013 - $0.453 million) and $0.547 million
capitalized to mineral property, plant and equipment (October 31, 2013 -
$0.216 million). The offsetting entries were to warrants and share-based
payment reserve. Total share-based compensation for the period comprised
$0.431 million for amortization of share options (October 31, 2013 -
$0.412 million) and $0.615 million for amortization of restricted shares
and restricted share units (October 31, 2013 - $0.257
million). |
11
PolyMet Mining Corp. |
Notes to Condensed Interim Consolidated
Financial Statements |
As at October 31, 2014 and for the three and nine months
ended October 31, 2014 |
Unaudited - Tabular amounts in thousands of U.S.
Dollars, except for price per share and number of shares |
|
10. |
Share Capital - Continued |
|
|
|
|
c) |
Share Options |
|
|
|
|
|
Details of share options are as
follows: |
|
|
|
Nine months ended |
|
|
Year ended |
|
|
|
|
October 31, 2014 |
|
|
January 31, 2014 |
|
|
|
|
|
|
|
Weighted |
|
|
|
|
|
Weighted |
|
|
|
|
|
|
|
Average |
|
|
|
|
|
Average |
|
|
|
|
Number of |
|
|
Exercise |
|
|
Number of |
|
|
Exercise |
|
|
|
|
Options |
|
|
Price (US$) |
|
|
Options |
|
|
Price (US$) |
|
|
Outstanding beginning of period |
|
18,659,000 |
|
|
1.41 |
|
|
14,920,000 |
|
|
1.94 |
|
|
Granted |
|
923,002 |
|
|
1.08 |
|
|
4,639,000 |
|
|
0.97 |
|
|
Exercised |
|
(75,000 |
) |
|
1.08 |
|
|
- |
|
|
- |
|
|
Expired |
|
(200,000 |
) |
|
1.02 |
|
|
(750,000 |
) |
|
2.60 |
|
|
Forfeited |
|
- |
|
|
- |
|
|
(150,000 |
) |
|
2.75 |
|
|
Anti-dilution price adjustment |
|
- |
|
|
- |
|
|
- |
|
|
(0.26 |
) |
|
Outstanding end of period |
|
19,307,002 |
|
|
1.40 |
|
|
18,659,000 |
|
|
1.41 |
|
The fair value of share options
granted was estimated at the date of grant using the Black-Scholes Option
Pricing Model with the following weighted average assumptions:
|
|
Nine
months ended |
Year
ended |
|
|
October 31, |
January 31, |
|
|
2014 |
2014 |
|
Risk-free interest rate |
0.51% to 0.76% |
0.23% to 0.44% |
|
Expected dividend yield |
Nil |
Nil |
|
Expected forfeiture rate |
Nil |
Nil |
|
Expected volatility |
52.59% to 57.08% |
76.04% to 90.43% |
|
Expected life in years |
2.00 to 3.00 |
1.62 to 2.00 |
|
Weighted average fair value of each option |
$0.34
to $0.41 |
$0.28
|
The expected volatility reflects the
Companys expectation that historical volatility over a period similar to the
life of the option is indicative of future trends, which may or may not
necessarily be the actual outcome.
12
PolyMet Mining Corp. |
Notes to Condensed Interim Consolidated
Financial Statements |
As at October 31, 2014 and for the three and nine months
ended October 31, 2014 |
Unaudited - Tabular amounts in thousands of U.S.
Dollars, except for price per share and number of shares |
|
10. |
Share Capital - Continued |
|
|
|
|
c) |
Share Options - Continued |
|
|
|
|
|
Details of share options outstanding as at October 31,
2014 are as follows: |
|
|
|
Exercise Price |
|
|
Exercise Price |
|
|
Number
of |
|
|
Expiry Date |
|
(US$) |
|
|
(CDN$) |
|
|
options |
|
|
September 19, 2015 |
|
1.0536 |
|
|
1.1793 * |
|
|
1,115,000 |
|
|
October 24, 2015 |
|
0.9296 |
|
|
1.0405 * |
|
|
200,000 |
|
|
December 5, 2015 |
|
0.8909 |
|
|
0.9972 * |
|
|
125,000 |
|
|
March 20, 2016 |
|
2.1381 |
|
|
2.3932 * |
|
|
1,950,000 |
|
|
April 1, 2016 |
|
1.0232 |
|
|
|
|
|
50,000 |
|
|
June 19, 2016 |
|
2.3008 |
|
|
2.5753 * |
|
|
325,000 |
|
|
September 1, 2016 |
|
2.9593 |
|
|
3.3123 * |
|
|
300,000 |
|
|
September 25, 2016 |
|
1.0000 |
|
|
|
|
|
750,000 |
|
|
January 5, 2017 |
|
2.5564 |
|
|
2.8614 * |
|
|
525,000 |
|
|
February 13, 2017 |
|
2.5926 |
|
|
|
|
|
500,000 |
|
|
March 12, 2017 |
|
2.5319 |
|
|
|
|
|
250,000 |
|
|
March 23, 2017 |
|
2.5059 |
|
|
|
|
|
50,000 |
|
|
September 4, 2017 |
|
2.6013 |
|
|
|
|
|
360,000 |
|
|
September 9, 2017 |
|
1.1500 |
|
|
|
|
|
150,000 |
|
|
December 12, 2017 |
|
2.6447 |
|
|
|
|
|
205,000 |
|
|
January 11, 2018 |
|
2.6273 |
|
|
|
|
|
70,000 |
|
|
January 31, 2018 |
|
2.4886 |
|
|
|
|
|
100,000 |
|
|
February 15, 2018 |
|
2.3585 |
|
|
|
|
|
500,000 |
|
|
June 2, 2018 |
|
3.3990 |
|
|
|
|
|
100,000 |
|
|
July 30, 2018 |
|
2.7921 |
|
|
|
|
|
175,000 |
|
|
January 30, 2019 |
|
0.7110 |
|
|
|
|
|
585,000 |
|
|
February 17, 2019 |
|
0.7110 |
|
|
|
|
|
910,000 |
|
|
October 15, 2019 |
|
2.3152 |
|
|
|
|
|
115,000 |
|
|
November 19, 2019 |
|
1.0700 |
|
|
|
|
|
523,002 |
|
|
January 8, 2020 |
|
3.0695 |
|
|
|
|
|
60,000 |
|
|
January 25, 2021 |
|
1.8816 |
|
|
|
|
|
300,000 |
|
|
March 10, 2021 |
|
1.7689 |
|
|
|
|
|
750,000 |
|
|
March 8, 2022 |
|
1.0318 |
|
|
|
|
|
1,150,000 |
|
|
April 2, 2022 |
|
1.0058 |
|
|
|
|
|
100,000 |
|
|
June 21, 2022 |
|
0.7613 |
|
|
|
|
|
2,500,000 |
|
|
July 9, 2022 |
|
0.7240 |
|
|
|
|
|
125,000 |
|
|
July 11, 2022 |
|
0.8237 |
|
|
|
|
|
150,000 |
|
|
July 25, 2022 |
|
0.8671 |
|
|
|
|
|
50,000 |
|
|
January 7, 2023 |
|
0.7977 |
|
|
|
|
|
300,000 |
|
|
April 3, 2023 |
|
0.9972 |
|
|
|
|
|
100,000 |
|
|
October 2, 2023 |
|
0.8200 |
|
|
|
|
|
100,000 |
|
|
December 16, 2023 |
|
0.9800 |
|
|
|
|
|
2,100,000 |
|
|
January 9, 2024 |
|
0.9300 |
|
|
|
|
|
200,000 |
|
|
January 17, 2024 |
|
0.9800 |
|
|
|
|
|
1,139,000 |
|
|
July 9, 2024 |
|
1.0700 |
|
|
|
|
|
250,000 |
|
|
Weighted average exercise price and total number of
options outstanding |
|
1.3968 |
|
|
|
|
|
19,307,002 |
|
* For information purposes, those
share options granted with an exercise price in Canadian dollars (CDN) have
been translated to the Companys reporting currency using the exchange rate as
at October 31, 2014 of 1.00 US$ = 1.1193 CDN$.
13
PolyMet Mining Corp. |
Notes to Condensed Interim Consolidated
Financial Statements |
As at October 31, 2014 and for the three and nine months
ended October 31, 2014 |
Unaudited - Tabular amounts in thousands of U.S.
Dollars, except for price per share and number of shares |
|
10. |
Share Capital - Continued |
|
|
|
|
c) |
Share Options - Continued |
|
|
|
|
|
As at October 31, 2014 all share options had vested and
were exercisable, with the exception of 2,918,835, which vest upon
completion of specific targets (EIS 160,000; Permits 1,113,333;
Construction 662,500; Start of Commercial Production 300,000; Other
683,002). |
|
|
|
|
d) |
Restricted Shares and Restricted Share
Units |
|
|
|
|
|
Details of restricted shares and restricted share units
are as follows: |
|
|
|
Nine months ended |
|
|
Year ended |
|
|
|
|
October 31, |
|
|
January 31, |
|
|
|
|
2014 |
|
|
2014 |
|
|
|
|
Number of |
|
|
Number of |
|
|
|
|
restricted shares |
|
|
restricted shares |
|
|
|
|
and units |
|
|
and
units |
|
|
Outstanding - beginning of
period |
|
1,615,510 |
|
|
785,882 |
|
|
Granted |
|
289,720 |
|
|
909,574 |
|
|
Vested |
|
- |
|
|
(91,353 |
) |
|
Anti-dilution quantity adjustment |
|
- |
|
|
11,407 |
|
|
Outstanding - end of period |
|
1,905,230 |
|
|
1,615,510 |
|
|
|
During the nine months ended October 31, 2014, the
Company granted 289,720 restricted share units which vest between November
26, 2014 and February 1, 2016. The restricted share units had a fair value
of $0.310 million which is being amortized over the vesting
periods. |
|
|
|
|
|
During the year ended January 31, 2014, the Company
granted 909,574 restricted share units which vest upon start of
construction or December 31, 2015, whichever comes earlier. The restricted
share units had a fair value of $0.881 million which is being amortized
over the vesting periods. |
|
|
|
|
e) |
Bonus Shares |
|
|
|
|
|
Details of bonus shares are as
follows: |
|
|
|
Nine months ended |
|
|
Year ended |
|
|
|
|
October 31, 2014 |
|
|
January 31, 2014 |
|
|
|
|
|
|
|
Number |
|
|
|
|
|
Number |
|
|
|
|
Number |
|
|
Authorized |
|
|
Number |
|
|
Authorized |
|
|
|
|
Allocated |
|
|
& Unissued |
|
|
Allocated |
|
|
& Unissued |
|
|
Outstanding beginning of period |
|
3,540,000 |
|
|
3,640,000 |
|
|
3,140,000 |
|
|
3,640,000 |
|
|
Allocated |
|
- |
|
|
- |
|
|
400,000 |
|
|
- |
|
|
Unallocated |
|
(50,000 |
) |
|
- |
|
|
- |
|
|
- |
|
|
Outstanding end
of period |
|
3,490,000 |
|
|
3,640,000 |
|
|
3,540,000 |
|
|
3,640,000 |
|
The bonus share incentive plan was
established for the Companys directors and key employees and was approved by
the disinterested shareholders at the Companys shareholders meeting held on
May 28, 2004. The Company has allocated 3,640,000 bonus shares for the
achievement of Milestone 4 representing commencement of commercial production at
NorthMet at a time when the Company has not less than 50% ownership interest. At
the Companys Annual General Meeting of shareholders held on June 17, 2008, the
disinterested shareholders approved the bonus shares for Milestone 4. Regulatory
approval is required prior to issuance of these shares. The current year period
includes forfeiture by individuals upon ceasing to be a director or key employee
of the Company.
14
PolyMet Mining Corp. |
Notes to Condensed Interim Consolidated
Financial Statements |
As at October 31, 2014 and for the three and nine months
ended October 31, 2014 |
Unaudited - Tabular amounts in thousands of U.S.
Dollars, except for price per share and number of shares |
|
10. |
Share Capital - Continued |
|
|
|
|
e) |
Bonus Shares - Continued |
|
|
|
|
|
The fair value of these unissued bonus shares is being
amortized until the estimated date of issuance. During the nine months
ended October 31, 2014, the Company recorded $0.374 million amortization
related to Milestone 4 bonus shares (October 31, 2013 $0.546 million),
which was capitalized to mineral property, plant and equipment. |
|
|
|
|
f) |
Share Purchase Warrants |
|
|
|
|
|
Details of share purchase warrants are as
follows: |
|
|
|
Nine months ended |
|
|
Year ended |
|
|
|
|
October 31, 2014 |
|
|
January 31, 2014 |
|
|
|
|
|
|
|
Weighted |
|
|
|
|
|
Weighted |
|
|
|
|
Number of |
|
|
Average |
|
|
Number of |
|
|
Average |
|
|
|
|
Purchase |
|
|
Exercise |
|
|
Purchase |
|
|
Exercise |
|
|
|
|
Warrants |
|
|
Price (US$) |
|
|
Warrants |
|
|
Price (US$) |
|
|
Outstanding beginning of period |
|
8,168,602 |
|
|
1.35 |
|
|
7,083,333 |
|
|
1.56 |
|
|
Anti-dilution price adjustment |
|
- |
|
|
- |
|
|
- |
|
|
(0.21 |
) |
|
Anti-dilution quantity adjustment |
|
- |
|
|
- |
|
|
1,085,269 |
|
|
- |
|
|
Outstanding end
of period |
|
8,168,602 |
|
|
1.35 |
|
|
8,168,602 |
|
|
1.35 |
|
11. |
Finance Costs |
|
|
|
Details of finance costs are as
follows: |
|
|
|
Nine months ended October 31 |
|
|
|
|
2014 |
|
|
2013 |
|
|
Interest and financing costs, net |
$ |
102 |
|
$ |
(21 |
) |
|
Accretion of environmental rehabilitation provision (Note
6) |
|
1,254 |
|
|
1,117 |
|
|
|
|
|
|
|
|
|
|
Finance costs |
$ |
1,356 |
|
$ |
1,096 |
|
12. |
Supplemental Disclosure With Respect to Statements of
Cash Flows |
|
|
|
The Company entered into the following non-cash investing
and financing activities: |
|
|
|
Nine months ended October 31 |
|
|
|
|
2014 |
|
|
2013 |
|
|
Accounts payable and accrued liabilities
related to PP&E |
$ |
(430 |
) |
$ |
194 |
|
|
Accretion and capitalized interest on debt (Notes 7 and
9) |
|
1,358 |
|
|
1,658 |
|
|
Share-based compensation (Note 10) |
|
547 |
|
|
216 |
|
|
Milestone 4 Bonus Shares amortization (Note 10) |
|
374 |
|
|
546 |
|
|
Shares issued for land options |
$ |
108 |
|
$ |
93 |
|
15
PolyMet Mining Corp. |
Notes to Condensed Interim Consolidated
Financial Statements |
As at October 31, 2014 and for the three and nine months
ended October 31, 2014 |
Unaudited - Tabular amounts in thousands of U.S.
Dollars, except for price per share and number of shares |
|
13. |
Related Party Transactions |
|
|
|
The Company conducted transactions with senior
management, directors and persons or companies related to these
individuals, and paid or accrued amounts as
follows: |
|
|
|
Nine months ended October 31 |
|
|
|
|
2014 |
|
|
2013 |
|
|
Salaries and other short-term benefits |
$ |
1,150 |
|
$ |
1,121 |
|
|
Other long-term benefits |
|
47 |
|
|
45 |
|
|
Share-based payment (1) |
|
84 |
|
|
- |
|
|
|
|
|
|
|
|
|
|
Total |
$ |
1,281 |
|
$ |
1,166 |
|
|
(1) |
Share-based payment represents the fair value determined
at grant date to be expensed over the vesting period. Share-based payments
are described in Note 10. |
|
There are agreements with key employees that contain
severance provisions for termination without cause or in the event of a
take-over bid. Other than the President and Chief Executive Officer, none
of PolyMets other directors has a service contract with the Company
providing for benefits upon termination of their employment. |
|
|
|
|
As a result of Glencores ownership of 28.6% of the
Company it is also a related party. Transactions with Glencore are
described in Notes 8 and 9. |
|
|
|
14. |
Commitments and Contingencies |
|
|
|
|
In addition to items described elsewhere in these
financial statements: |
|
|
|
|
a) |
As at October 31, 2014, the Company had firm commitments
related to the environmental review process, land options, wetland credit
intangibles, consultants, and rent of approximately $5.5 million with the
majority due over the next year and the remainder due over seven
years. |
|
|
|
|
b) |
As at October 31, 2014, the Company had non-binding
commitments to maintain its mineral lease rights of $0.180 million with
all due in the next year. |
16
PolyMet Mining Corp. |
Notes to Condensed Interim Consolidated
Financial Statements |
As at October 31, 2014 and for the three and nine months
ended October 31, 2014 |
Unaudited - Tabular amounts in thousands of U.S.
Dollars, except for price per share and number of shares |
|
15. |
Financial Instruments and Risk
Management |
|
|
|
The Company classifies its financial assets as fair value
through profit or loss (FVTPL), available- for-sale, held to maturity,
or loans and receivables. Financial liabilities are classified as either
FVTPL, or other financial liabilities. |
|
|
|
The carrying values of each classification of financial
instrument at October 31, 2014 are: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other |
|
|
Total |
|
|
|
|
|
|
|
Available |
|
|
Loans and |
|
|
Held to |
|
|
financial |
|
|
carrying |
|
|
|
|
FVTPL |
|
|
for sale |
|
|
receivables |
|
|
maturity |
|
|
liabilities |
|
|
value |
|
|
Financial assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash
equivalents |
$ |
- |
|
$ |
- |
|
$ |
8,866 |
|
$ |
- |
|
$ |
- |
|
$ |
8,866 |
|
|
Amounts receivable |
|
- |
|
|
- |
|
|
303 |
|
|
- |
|
|
- |
|
|
303 |
|
|
Total financial assets |
$ |
- |
|
$ |
- |
|
$ |
9,169 |
|
$ |
- |
|
$ |
- |
|
$ |
9,169 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financial liabilities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts payable and
accrued liabilities |
$ |
- |
|
$ |
- |
|
$ |
- |
|
$ |
- |
|
$ |
2,363 |
|
$ |
2,363 |
|
|
Convertible debt
|
|
- |
|
|
- |
|
|
- |
|
|
- |
|
|
33,073 |
|
|
33,073 |
|
|
Long-term debt |
|
- |
|
|
- |
|
|
- |
|
|
- |
|
|
4,528 |
|
|
4,528 |
|
|
Total financial liabilities |
$ |
- |
|
$ |
- |
|
$ |
- |
|
$ |
- |
|
$ |
39,964 |
|
$ |
39,964 |
|
The carrying values of each
classification of financial instrument at January 31, 2014 are:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other |
|
|
Total |
|
|
|
|
|
|
|
Available |
|
|
Loans and |
|
|
Held to |
|
|
financial |
|
|
carrying |
|
|
|
|
FVTPL |
|
|
for sale |
|
|
receivables |
|
|
maturity |
|
|
liabilities |
|
|
value |
|
|
Financial assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash
equivalents |
$ |
- |
|
$ |
- |
|
$ |
32,790 |
|
$ |
- |
|
$ |
- |
|
$ |
32,790 |
|
|
Amounts receivable |
|
- |
|
|
- |
|
|
1,420 |
|
|
- |
|
|
- |
|
|
1,420 |
|
|
Total financial assets |
$ |
- |
|
$ |
- |
|
$ |
34,210 |
|
$ |
- |
|
$ |
- |
|
$ |
34,210 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financial liabilities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts payable and
accrued liabilities |
$ |
- |
|
$ |
- |
|
$ |
- |
|
$ |
- |
|
$ |
3,806 |
|
$ |
3,806 |
|
|
Convertible debt
|
|
- |
|
|
- |
|
|
- |
|
|
- |
|
|
31,967 |
|
|
31,967 |
|
|
Long-term debt |
|
- |
|
|
- |
|
|
- |
|
|
- |
|
|
4,276 |
|
|
4,276 |
|
|
Total financial liabilities |
$ |
- |
|
$ |
- |
|
$ |
- |
|
$ |
- |
|
$ |
40,049 |
|
$ |
40,049 |
|
Fair Value Measurements
The fair value hierarchy prioritizes
the inputs to valuation techniques used to measure fair value. The hierarchy
gives the highest priority to unadjusted quoted prices in active markets for
identical assets or liabilities (Level 1 measurements) and the lowest priority
to unobservable inputs (Level 3 measurements). The three levels of the fair
value hierarchy are described below:
|
Level 1 |
Quoted prices (unadjusted) in
active markets for identical assets or liabilities. |
|
Level 2 |
Inputs other than quoted prices included in Level 1 that
are observable for the asset or liability, either directly or indirectly.
|
|
Level 3 |
Inputs for the asset or liability
that are not based on observable market data. |
17
PolyMet Mining Corp. |
Notes to Condensed Interim Consolidated
Financial Statements |
As at October 31, 2014 and for the three and nine months
ended October 31, 2014 |
Unaudited - Tabular amounts in thousands of U.S.
Dollars, except for price per share and number of shares |
|
15. |
Financial Instruments and Risk Management -
Continued |
|
|
|
The fair values of cash and cash equivalents, amounts
receivable, and accounts payable and accrued liabilities approximate their
carrying amounts due to their short-term nature. The fair value of the
Company's long-term and convertible debt approximates the carrying amount
at amortized cost using the effective interest method. |
|
|
|
Risks Arising from Financial Instruments and Risk
Management |
|
|
|
The Companys activities expose it to a variety of
financial risks: market risk (including currency and interest rate),
credit risk, and liquidity risk. Reflecting the current stage of
development of the Companys NorthMet Project, the overall risk management
program focuses on facilitating the Companys ability to continue as a
going concern and seeks to minimize potential adverse effects on the
Companys ability to execute its business plan. |
|
|
|
Risk management is the responsibility of executive
management. Material risks are identified and monitored and are discussed
with the Audit Committee and the Board of Directors. |
|
|
|
Currency Risk |
|
|
|
The Company incurs expenditures in Canada and in the
United States. The functional and reporting currency of the Company and
its subsidiary is the United States dollar. Foreign exchange risk arises
because the amount of Canadian dollar cash and cash equivalents, amounts
receivable, or accounts payable and accrued liabilities will vary in
United States dollar terms due to changes in exchange rates. |
|
|
|
As the majority of the Companys expenditures are in
United States dollars, the Company has kept a significant portion of its
cash and cash equivalents in United States dollars. The Company has not
hedged its exposure to currency fluctuations. |
|
|
|
The Company was exposed to currency risk through the
following assets and liabilities denominated in Canadian
dollars: |
|
|
|
October 31, |
|
|
January 31, |
|
|
|
|
2014 |
|
|
2014 |
|
|
Cash and cash equivalents |
$ |
238 |
|
$ |
77 |
|
|
Amounts receivable |
|
7 |
|
|
12 |
|
|
Accounts payable and accrued liabilities
|
|
(30 |
) |
|
(8 |
) |
|
|
$ |
215 |
|
$ |
81 |
|
Based on the above net exposures, as at
October 31, 2014, a 10% change in the Canadian / United States exchange rate
would have impacted the Companys loss by approximately $21,500.
Interest Rate Risk
Interest rate risk arises from interest
paid on floating rate debt and interest received on cash and short-term
deposits. The Company has not hedged any of its interest rate risk. The Company
currently capitalizes the majority of interest charges, and therefore the risk
exposure is primarily on cash interest payable and net earnings in relation to
the subsequent depreciation of capitalized interest charges.
18
PolyMet Mining Corp. |
Notes to Condensed Interim Consolidated
Financial Statements |
As at October 31, 2014 and for the three and nine months
ended October 31, 2014 |
Unaudited - Tabular amounts in thousands of U.S.
Dollars, except for price per share and number of shares |
|
15. |
Financial Instruments and Risk Management -
Continued |
|
|
|
The Company was exposed to interest rate risk through the
following assets and liabilities: |
|
|
|
October 31, |
|
|
January 31, |
|
|
|
|
2014 |
|
|
2014 |
|
|
Cash and cash equivalents |
$ |
8,866 |
|
$ |
32,790 |
|
|
Convertible debt
|
$ |
33,073 |
|
$ |
31,967 |
|
Credit Risk
Credit risk arises on cash and cash
equivalents held with banks and financial institutions, as well as credit
exposure on outstanding amounts receivable. The maximum exposure to credit risk
is equal to the carrying value of the financial assets of $9.169 million.
The Companys cash and cash equivalents
are primarily held through a large Canadian financial institution.
Liquidity Risk
Liquidity risk is the risk the Company
will not be able to meet its financial obligations as they become due and arises
through the excess of financial obligations over available financial assets due
at any point in time. The Companys objective in managing liquidity risk is to
maintain sufficient readily available reserves in order to meet its liquidity
requirements at any point in time and is achieved by maintaining sufficient cash
and cash equivalents. See additional discussion in Note 1.
Capital Management
The Companys capital management
objective is to safeguard the Companys ability to continue as a going concern
in order to pursue the development of its mineral property. In the management of
capital, the Company includes the components of shareholders equity,
convertible debt and long-term debt. The Company manages the capital structure
and makes adjustments to it depending on economic conditions and the rate of
anticipated expenditures. To maintain or adjust the capital structure, the
Company may attempt to issue new shares, issue new debt, acquire or dispose of
assets. The Company has no externally imposed capital requirements.
In order to assist in management of its
capital requirements, the Company prepares budgets that are updated as necessary
depending on various factors. The budgets are approved by the Companys Board of
Directors.
Although the Company plans to have the
resources to carry out its plans and operations through October 31, 2015, it
does not currently have sufficient capital to meet its estimated project capital
expenditure requirements and is in discussions to arrange sufficient capital to
meet these requirements. During the upcoming fiscal year, the Companys
objective is to identify the source or sources from which it will obtain the
capital required to complete the Project. See additional discussion in Note 1.
19
POLYMET MINING CORP.
MANAGEMENT DISCUSSION AND ANALYSIS
For the three and nine months ended October 31, 2014
PolyMet Mining Corp. |
Management Discussion and Analysis |
As at October 31, 2014 and for the three and nine months
ended October 31, 2014 |
Tabular amounts in thousands of U.S. Dollars, except for
price per share and number of shares |
|
General
The following information, prepared as at December 15, 2014
should be read in conjunction with the unaudited condensed interim
consolidated financial statements of PolyMet Mining Corp. (PolyMet or the
Company) as at October 31, 2014 and for the three and nine months ended
October 31, 2014 and related notes attached thereto, which are prepared
in accordance with IAS 34, Interim Financial Reporting and in conjunction with
the audited consolidated financial statements for the year ended January 31,
2014 prepared in accordance with International Financial Reporting Standards
(IFRS) as issued by the International Accounting Standards Board (IASB). All
amounts are expressed in United States (US) dollars unless otherwise
indicated.
The Audit Committee of the Board of Directors of the Company,
consisting of directors who are all independent, has reviewed this document
pursuant to its mandate and charter.
Forward Looking Statements
This Management Discussion and Analysis (MD&A) contains
statements that constitute "forward-looking statements" within the meaning of
Section 21E of the United States Securities Exchange Act of 1934, as amended
(the Exchange Act). These statements appear in a number of different places in
this MD&A and can frequently, but not always, be identified by words such as
expects, anticipates, believes, intends, estimates, potential,
possible, projects, plans and similar expressions, or statements that
events, conditions or results will, may, could or should occur or be
achieved or their negatives or other comparable words. Such forward-looking
statements involve known and unknown risks, uncertainties and other factors
which may cause PolyMets actual results, performance or achievements to be
materially different from any future results, performance or achievements that
may be expressed or implied by such forward-looking statements. Forward-looking
statements include statements regarding the outlook for the Companys future
operations, plans and timing for PolyMets exploration and development programs,
statements about future market conditions, supply and demand conditions,
forecasts of future costs and expenditures, the outcome of legal proceedings,
and other expectations, intentions and plans that are not historical fact. The
Companys actual results may differ materially from those in the forward-looking
statements due to risks facing PolyMet or due to actual facts differing from the
assumptions underlying the Companys predictions.
The forward-looking statements contained in this MD&A are
based on assumptions, which include, but are not limited to:
- Completion of environmental review on the expected timeframe;
- Obtaining permits on a timely basis;
- Execution of prospective business plans;
- Effectively managing currency market fluctuations; and
- Complying with applicable governmental regulations and standards.
Such forward-looking statements are subject to risks,
uncertainties and other factors, including those listed or incorporated by
reference under Risk Factors in the Form 20-F. These risks, uncertainties and
other factors include, but are not limited to:
- Risks related to changes in general economic and business conditions,
including changes in interest rates and exchange rates;
- Risks related to changes in the resource market including prices of
natural resources, costs associated with mineral exploration and development,
and other economic conditions;
- Natural phenomena;
- Risk related to actions by governments and authorities including changes
in government regulation;
- Uncertainties associated with legal proceedings; and
- Other factors, many of which are beyond the Companys control.
2
PolyMet Mining Corp. |
Management Discussion and Analysis |
As at October 31, 2014 and for the three and nine months
ended October 31, 2014 |
Tabular amounts in thousands of U.S. Dollars, except for
price per share and number of shares |
|
All forward-looking statements included in this MD&A are
based on information available to the Company on the date of this MD&A. The
Company expressly disclaims any obligation to update publicly, or otherwise,
these statements, whether as a result of new information, future events or
otherwise except to the extent required by law, rule or regulation. Readers
should not place undue reliance on forward-looking statements. Readers should
carefully review the cautionary statements and risk factors contained in this
and all other documents that the Company files from time to time with regulatory
authorities.
Cautionary note to U.S. investors: the terms measured and
indicated mineral resource, mineral resource, and inferred mineral resource
used in this Management Discussion and Analysis are Canadian geological and
mining terms as defined in accordance with National Instrument 43-101, Standards
of Disclosure for Mineral Projects (NI 43-101) under the guidelines set out in
the Canadian Institute of Mining, Metallurgy and Petroleum (the CIM) Standards
on Mineral Resources and Mineral Reserves. U.S. investors are advised that while
such terms are recognized and required under Canadian regulations, the SEC does
not recognize these terms. Mineral Resources do not have demonstrated economic
viability. It cannot be assumed that all or any part of a Mineral Resource will
be upgraded to Mineral Reserves. Under Canadian rules, estimates of inferred
mineral resources may not form the basis of or be included in feasibility or
other studies. U.S. investors are cautioned not to assume that any part of an
inferred mineral resource exists, or is economically or legally mineable.
3
PolyMet Mining Corp. |
Management Discussion and Analysis |
As at October 31, 2014 and for the three and nine months
ended October 31, 2014 |
Tabular amounts in thousands of U.S. Dollars, except for
price per share and number of shares |
|
Description of Business and Summary of Recent Events
PolyMet is a Toronto Stock Exchange and NYSE MKT listed Issuer
engaged in the exploration and development, when warranted, of natural resource
properties. The Companys primary mineral property and principal focus is the
commercial development of its NorthMet Project (NorthMet or Project), a
polymetallic project in northeastern Minnesota, USA which hosts copper, nickel,
cobalt and platinum group metal mineralization.
The NorthMet Project covers a total of approximately 16,700
acres or 25.9 square miles comprising two areas: the NorthMet mine site totaling
approximately 4,300 acres or 6.5 square miles of leased mineral rights and the
Erie Plant site totaling approximately 12,400 acres or 19.4 square miles of
freehold land located approximately six miles west of the mine site. The
property is located in St. Louis County in the Mesabi Iron Range mining district
about 60 miles north of Duluth, Minnesota. The NorthMet Project is easily
accessible via state and county roads. The surfaced County Highway 666 links the
plant to the town of Hoyt Lakes, itself approximately 25 miles east of Virginia,
Minnesota which is located on State Highway 53. The mine site is accessible by
an all-season gravel road from the plant site and a private railroad crosses the
property immediately south of the deposit and runs to the plant site. The plant
site is serviced by commercial railroad which connects into the US national and
Trans-Canadian railroad systems, as well as a private railroad providing access
to port facilities located on Lake Superior. High-voltage power lines, owned by
Minnesota Power, supply the plant site and there is ready access to industrial
electric power at the mine site.
Asset Acquisitions
In November 2005, the Company, through its Minnesota subsidiary
Poly Met Mining, Inc. (PolyMet US), completed the early exercise of PolyMets
option with Cliffs Natural Resources, Inc. (Cliffs) to acquire the Erie Plant,
which is located approximately 10 kilometers (6 miles) west of PolyMets
NorthMet deposit. The plant was operated by Cliffs for many years and was
acquired by Cliffs from LTV Steel Mining Company after its bankruptcy, at which
time the plant was shut down with a view to a potential restart. With minor
modification, the crushing and milling circuits can be used for the NorthMet
ore. The plant assets now owned by PolyMet include crushing and milling
equipment, comprehensive spare parts, plant site buildings, real estate,
tailings impoundments and mine workshops, as well as access to extensive mining
infrastructure including roads, rail, water, and power.
PolyMet plans to refurbish and reactivate the crushing,
concentrating and tailings facilities at the Erie Plant to produce concentrates
containing copper, nickel, cobalt and precious metals. The Company plans to sell
separate copper and nickel concentrates prior to completion of construction and
commissioning of the new hydrometallurgical metal recovery processing
facilities. Once completed, the new hydrometallurgical plant will upgrade the
nickel concentrates to produce a nickel-cobalt hydroxide and a precious metals
precipitate.
In December 2006, the Company acquired from Cliffs, property
and associated rights sufficient to provide it with a railroad connection
linking the mine development site and the Erie Plant. This transaction also
included 120 railcars, locomotive fueling and maintenance facilities, water
rights and pipelines, large administrative offices on site and an additional
6,000 acres of land to the east and west of and contiguous to its existing
tailings facility.
PolyMet indemnified Cliffs for ongoing reclamation and
remediation associated with the property under both transactions. In April 2010,
Cliffs entered into a consent decree with the Minnesota Pollution Control Agency
(MPCA) relating to alleged violations on the Cliffs Erie Property. This
consent decree required both short-term and long-term mitigation. Field study
activities were completed in 2010 and 2011 and short-term mitigations were initiated in 2011 as outlined in
the plans and approved by the MPCA. In April 2012, long-term mitigation plans
were submitted to the MPCA for its review and approval. In October 2012, a
response was received from the MPCA approving plans for pilot tests of various
treatment options to determine the best course of action. Although there is
substantial uncertainty related to applicable water quality standards,
engineering scope, and responsibility for the financial liability, the October
2012 response from the MPCA and subsequent communication provides clarification
to the potential liability for the long-term mitigation included in the
Companys environmental rehabilitation provision.
4
PolyMet Mining Corp. |
Management Discussion and Analysis |
As at October 31, 2014 and for the three and nine months
ended October 31, 2014 |
Tabular amounts in thousands of U.S. Dollars, except for
price per share and number of shares |
|
On May 14, 2013, the Company exercised its Option to Purchase
and Agreement for Development of Wetland Credit Acres with Burns Enterprises,
LLC for lands located in St. Louis County, Minnesota. The transaction closed on
June 19, 2013 with the final land purchase payment made February 14, 2014. The
Company is committed to pay $0.242 million over the next several years for
development of wetland credits.
Feasibility Study, Mineral Resources and Mineral
Reserves
With publication of the Definitive Feasibility Study in
September 2006 (2006 DFS), summarized in a Technical Report under National
Instrument 43-101 (NI 43-101), PolyMet established SEC-standard mineral
reserves. Proven and probable mineral reserves were estimated at 181.7 million
short tons grading 0.31% copper, 0.08% nickel and 0.012 ounces per short ton
("opt") of precious metals (palladium, platinum and gold).
In September 2007, PolyMet reported an expansion in these
proven and probable mineral reserves to 274.7 million short tons grading 0.28%
copper, 0.08% nickel and 0.010 opt of precious metals. These mineral reserves
lie within measured and indicated mineral resources of 694.2 million tons
grading 0.27% copper, 0.08% nickel and 0.010 opt of precious metals. The
reserves are based on copper at $1.25 per pound, nickel at $5.60 per pound, and
precious metal prices of $210, $800, and $400 per ounce respectively for
palladium, platinum and gold.
PolyMet filed an updated Technical Report under NI 43-101 on
the NorthMet Project in January 2013 which summarized the 2006 DFS, September
2007 expansion of proven and probable mineral reserves, the 2008 DFS Update, and
February 2011 Project Improvements described below.
2008 DFS Update
In May 2008, PolyMet reported revised plans that included the
sale of concentrate during the construction and commissioning of new
metallurgical facilities resulting in a shorter pre-production construction
period and reduced estimates of capital costs prior to first revenues, with the
new metallurgical facilities to be constructed during initial production and
sales of concentrate and funded from cash flow from initial operations.
Project Improvements
In February 2011, PolyMet announced that it had simplified the
proposed metallurgical process and planned to build the Project in two phases:
- Phase I: produce and market concentrates containing copper, nickel, cobalt
and precious metals; and
- Phase II: process the nickel concentrate through a single autoclave,
resulting in production and sale of high-grade copper concentrate, value added
nickel-cobalt hydroxide, and precious metals precipitate products.
5
PolyMet Mining Corp. |
Management Discussion and Analysis |
As at October 31, 2014 and for the three and nine months
ended October 31, 2014 |
Tabular amounts in thousands of U.S. Dollars, except for
price per share and number of shares |
|
PolyMet plans to complete a Definitive Cost Estimate and
Project Update in the next several months, which will incorporate numerous
process and project improvements, environmental controls described in the
supplemental draft Environmental Impact Statement (EIS) published in December
2013 and subsequent changes that will be reflected in the final EIS. The Project
Update will include detailed capital and operating costs reflecting the advance
stage of engineering and design and will be filed under NI 43-101.
Environmental Review and Permitting
To commence commercial production at the NorthMet Project,
various regulatory approvals are needed. The environmental review process is
very thorough:
-
In October 2005, the MDNR published its Environmental Assessment Worksheet
Decision Document establishing the MDNR as the lead state agency and the USACE
as the lead federal agency (together, the Co-lead Agencies) for preparation
of an EIS for the NorthMet Project.
-
In November 2009, the Co-lead Agencies published the PolyMet Draft EIS,
which marked the start of a period for public review and comment including two
public meetings. The EPA issued an extensive comment letter and rating of the
Project and the draft EIS in its role as reviewer of projects that could
impact the environment.
-
In June 2010, the Co-lead Agencies announced that they intended to complete
the EIS process by preparing a supplemental draft EIS that incorporates a
proposed land exchange with the USFS and expands government agency
cooperation. The USFS joined the USACE as a federal Co-lead Agency through the
completion of the EIS process.
-
In June 2011, the United States Environmental Protection Agency (EPA)
joined as a Cooperating Agency.
-
On December 6, 2013 the Co-lead Agencies published the PolyMet supplemental
draft EIS, which started a period for public review and comment, including
three public meetings, which ended on March 13, 2014. The EPA issued an EC-2
rating for the Supplemental Draft EIS. The EC rating is one of four possible
ratings, with the highest LO (Lack of Objections) typically applied to
non-industrial projects such as the Upper Mississippi National Wildlife and
Fish Refuge Comprehensive Conservation Plan Implementation. The EC
(Environmental Concerns) rating is the same as received by some other notable
Minnesota projects including the Central Corridor Light Rail Project in the
Twin Cities, the St. Croix River Crossing, and several other major highway
improvement and bridge projects.
-
On December 16, 2013 the USACE published notice of our Section 404 Wetland
Permit application, a key federal permit needed for construction and operation
of the NorthMet Project. The publication was subject to public review for 90
days, which ended March 13, 2014 and included a public meeting in Duluth, MN
on January 16, 2014.
-
On October 8, 2014, the Commissioner of the MDNR stated that the Co-lead
Agencies expect to complete the final EIS in early spring 2015.
6
PolyMet Mining Corp. |
Management Discussion and Analysis |
As at October 31, 2014 and for the three and nine months
ended October 31, 2014 |
Tabular amounts in thousands of U.S. Dollars, except for
price per share and number of shares |
|
Completion of the final EIS, incorporating appropriate
responses to public comments, and a subsequent adequacy decision by the MDNR and
Record of Decision by the federal agencies are necessary before the land
exchange can occur and various permits required to construct and operate the
NorthMet Project can be issued. PolyMet anticipates the land exchange will occur
and permits issued during late calendar 2015, although the final EIS and
permitting schedule is ultimately controlled by the regulatory agencies.
Prior to receipt of these permits, the Company will seek to
secure construction financing that would be available upon receipt of key
permits, with construction anticipated to be complete approximately 15 months
thereafter.
Financing Activities
The universal shelf registration on Form F-3 and short form
base shelf prospectus were renewed in January 2013 for the same offering limit
and covering the same securities. These documents allow PolyMet the option to
offer and sell, from time to time in one or more offerings, up to $500 million
of its debt securities, common shares, warrants and units in the United States
and Canada. Unless otherwise specified the net proceeds from the offering of the
securities will be used for construction finance for its copper, nickel,
precious metals development project located in Minnesota and for working
capital. There were no issuances of securities under these registrations during
the nine months ended October 31, 2014 or the year ended January 31, 2014.
Glencore Financing
Since October 31, 2008 the
Company and Glencore AG, a wholly owned subsidiary of Glencore Xstrata plc
(together Glencore) have entered into a series of financing agreements and a
marketing agreement whereby Glencore committed to purchase all of the Companys
production of concentrates, metal, or intermediate products on market terms at
the time of delivery for at least the first five years of production. As part of
the 2013 financing agreement, PolyMet and Glencore entered into a Corporate
Governance Agreement whereby from January 1, 2014 as long as Glencore holds 10%
or more of PolyMet's shares (on a fully diluted basis) Glencore shall have the
right, but not obligation to designate at least one director and not more than
the number of directors proportionate to Glencore's fully diluted ownership of
PolyMet, rounded down to the nearest whole number, such number to not exceed 49%
of the total board.
The financing agreements comprise $25.0 million initial
principal Series A-D debentures in calendar 2008 drawn in four tranches, $25.0
million placement of PolyMet common shares in calendar 2009 in two tranches,
$30.0 million placement of PolyMet common shares in calendar 2010 in three
tranches, $20.0 million placement of PolyMet common shares in calendar 2011 in
one tranche, and $20.960 million purchase of PolyMet common shares in the Rights
Offering. As a result of the series of financing transactions and the purchase
by Glencore of PolyMet common shares previously owned by Cliffs, Glencore's
current ownership and ownership rights of PolyMet comprises:
|
78,724,821 shares representing
28.6% of PolyMet's issued shares; |
|
|
|
$25.0 million initial principal floating rate secured
debentures due September 30, 2015. Including capitalized and accrued
interest as at October 31, 2014, these debentures are exchangeable at
$1.2920 per share into 25,597,760 common shares of PolyMet upon PolyMet
giving Glencore ten days notice that it has received permits necessary to
start construction of NorthMet and availability of senior construction
finance in a form reasonably acceptable to Glencore (Early Maturity
Event) or are repayable on September 30, 2015. The exercise price of the
exchange warrants and the number of warrants are subject to conventional
anti-dilution provisions; and |
7
PolyMet Mining Corp. |
Management Discussion and Analysis |
As at October 31, 2014 and for the three and nine months
ended October 31, 2014 |
Tabular amounts in thousands of U.S. Dollars, except for
price per share and number of shares |
|
|
Glencore holds warrants to purchase 6,458,001 million
common shares at $1.3007 per share at any time until December 31, 2015,
subject to mandatory exercise if the 20-day volume weighted average price
("VWAP") of PolyMet common shares is equal to or greater than 150% of the
exercise price and occurrence of the Early Maturity Event. The exercise
price of the purchase warrants and the number of warrants are subject to
conventional anti-dilution provisions. |
If Glencore were to exercise all of its rights and obligations
under these agreements, it would own 110,780,582 common shares of PolyMet,
representing 36.0% on a partially diluted basis, that is, if no other options or
warrants were exercised or 33.6% on a fully diluted basis.
On April 10, 2013, the Company amended its previous financing
arrangement and issued a new Tranche E debenture (2013 Debenture) with the
principal amount of $20.0 million to Glencore and Glencore agreed to a Standby
Purchase Agreement (Standby) related to the $60.480 million Rights Offering by
the Company. Under the Standby, Glencore agreed to purchase any common shares
offered under the Rights Offering that were not subscribed for by holders of the
rights, subject to certain conditions and limitations. The 2013 Debenture
carried a fixed interest rate of 4.721% per annum payable in cash monthly and
matured on the earlier of (i) closing of the Rights Offering by the Company or
(ii) May 1, 2014. The Company provided security by way of a guarantee and by the
assets of the Company and its wholly-owned subsidiary. The sale of the 2013
Debenture was consummated on April 11, 2013. The Company accounted for the 2013
Debenture issued initially at fair value and subsequently at its amortized cost.
Transaction costs for the financing were $0.103 million. The 2013 Debenture was
repaid upon the closing of the Rights Offering on July 5, 2013.
Glencore purchased PolyMet common shares for $20.960 million in
the Rights Offering, which closed on July 5, 2013.
On April 25, 2014, the Company amended its previous financing
arrangement and extended the term of the Series A-D debentures and the
expiration date of the associated Exchange Warrants to the earlier of the Early
Maturity Event or September 30, 2015. All other terms of both the debentures and
the warrants described above are unchanged.
Iron Range Resources & Rehabilitation Board ("IRRRB")
Financing
On June 30, 2011, the Company closed a $4.0 million loan from
the IRRRB, a development agency created by the State of Minnesota to stabilize
and enhance the economy of northeastern Minnesota. At the same time, the Company
exercised its options to acquire two tracts of land as part of the proposed land
exchange with the USFS. The loan is secured by the land acquired, carries a
fixed interest rate of 5% per annum, compounded annually, and is repayable on
the earlier of June 30, 2016 or the date which the related land is exchanged
with the USFS (expected to occur within 12 months from October 31, 2014). The
Company has issued warrants giving the IRRRB the right to purchase 461,286
shares of its common shares at $2.1678 per share at any time until the earlier
of June 30, 2016 and one year after permits are received.
AG for Waterfowl, LLP ("AG") Financing
On March 9,
2012, the Company acquired a secured interest in land (AG Land) owned by AG
for Waterfowl, LLP ("AG") that is permitted for wetland restoration. AG
subsequently assigned the agreement to EIP Minnesota, LLC (EIP) and the
Company consented on September 7, 2012. EIP will restore the wetlands and, upon
completion, wetland credits are to be issued by the proper governmental
authorities. The Company plans to use the wetland credits to offset wetlands
disturbed during construction and operation of NorthMet. The Company holds a
first mortgage on the AG Land, which will be proportionately released as wetland
credits are transferred to the Company. The Company has the option to exercise
five separate phases of wetland credit development. Any option not exercised by
February 28, 2017 will expire and the remaining mortgage, if
any, will be released. As at October 31, 2014, the Company had exercised the
option on phase 1. Upon completion of phase 1 construction, 371,854 common
shares paid as part of the initial consideration will be released from escrow.
8
PolyMet Mining Corp. |
Management Discussion and Analysis |
As at October 31, 2014 and for the three and nine months
ended October 31, 2014 |
Tabular amounts in thousands of U.S. Dollars, except for
price per share and number of shares |
|
As part of the initial consideration, AG holds warrants to
purchase 1,249,315 common shares at $1.3007 per share at any time until December
31, 2015, subject to mandatory exercise if the 20-day volume weighted average
price (VWAP) of PolyMet shares is equal to or greater than $3.00 and PolyMet
provides notice to AG that it has received permits necessary to start
construction of the NorthMet Project. The exercise price of the purchase
warrants and the number of warrants are subject to conventional anti-dilution
provisions.
Performance payments for ongoing maintenance totaling $0.68
million will be due over the seven years following construction completion of
phase 1. Performance payments for construction completion and ongoing
maintenance totaling $1.063 million per phase of phase 2 through 5 will only be
incurred if and when the Company exercises its option on those phases and will
be due over the seven years following exercise of each phase. The Company is
also required to make annual payments of $0.025 million per unexercised phase,
which is applied towards future performance payments. If wetland credits are
issued by the proper governmental authorities before the seven-year anniversary
of exercise of each phase, any unpaid amounts are due upon issuance of the
wetland credits.
Rights Offering
On May 24, 2013, the Company filed the final prospectus for an
offering of rights ("Rights") to holders of common shares of the Company (the
"Rights Offering"). Every shareholder received one Right for each common share
owned on June 4, 2013, the Record Date, and two Rights entitled the holder to
acquire one new common share of the Company at $0.66 per share.
Upon the closing of the Rights Offering on July 5, 2013, the
Company issued a total of 91,636,202 common shares for gross proceeds of $60.480
million. Expenses and fees relating to the Rights Offering were $2.108 million,
including the $1.061 million standby commitment fee paid to Glencore, and
reduced the gross proceeds recorded as share capital. The closing of the Rights
Offering triggered customary anti-dilution provisions for outstanding warrants,
share options, and unissued restricted share units.
The key business objectives that the Company expects to
accomplish with the proceeds of the Rights Offering are: (a) repayment of the
Bridge Loan upon closing of the Rights Offering at a cost of $20.0 million (b)
completion of the environmental review that is necessary for the issuance of
permits required to construct and operate the NorthMet Project at a cost of
approximately $17.0 million, (c) maintaining existing infrastructure at a cost
of approximately $5.0 million, (d) completion of engineering needed to commence
construction shortly after receipt of permits at a cost of approximately $10.0
million, and (e) initial procurement of long lead time equipment at a cost of
approximately $10.0 million.
9
PolyMet Mining Corp. |
Management Discussion and Analysis |
As at October 31, 2014 and for the three and nine months
ended October 31, 2014 |
Tabular amounts in thousands of U.S. Dollars, except for
price per share and number of shares |
|
As at October 31, 2014, approximate proceeds usage from the
Rights Offering was as follows:
Purpose |
|
Planned |
|
|
Actual To Date |
|
|
Variance |
|
|
Note |
|
Cash on hand prior to closing |
$ |
15,000 |
|
$ |
12,986 |
|
$ |
(2,014 |
) |
|
(1) |
|
Rights Offering Proceeds |
|
60,480 |
|
|
60,480 |
|
|
-0- |
|
|
|
|
Rights Offering Expenses |
|
(1,630 |
) |
|
(2,108 |
) |
|
(478 |
) |
|
(2) |
|
Repay Bridge Loan (principal) |
|
(20,000 |
) |
|
(20,000 |
) |
|
-0- |
|
|
|
|
Environmental Review & Permitting |
|
(17,000 |
) |
|
(24,613 |
) |
|
(7,613 |
) |
|
(3) |
|
Maintain Existing Infrastructure |
|
(5,000 |
) |
|
(5,419 |
) |
|
(419 |
) |
|
(5) |
|
Engineering |
|
(10,000 |
) |
|
(2,921 |
) |
|
7,079 |
|
|
(4) |
|
Procure Long Lead Equipment |
|
(10,000 |
) |
|
-0- |
|
|
10,000 |
|
|
(4) |
|
General Corporate Purposes |
$ |
(11,850 |
) |
$ |
(9,539 |
) |
$ |
2,311 |
|
|
(5) |
|
Cash as at October 31, 2014 |
|
|
|
$ |
8,866 |
|
|
|
|
|
|
|
Note:
|
(1) |
Land purchase closed before rights offering rather than
after as planned. |
|
(2) |
Additional costs to clarify rights offering eligibility
and assist eligible shareholders. |
|
(3) |
Additional costs to complete SDEIS, respond to public
comments, and prepare FEIS. |
|
(4) |
Spending on engineering and long lead equipment has been
deferred where appropriate to focus on receipt of permits. |
|
(5) |
Future spending to occur in accordance with key business
objectives. |
Other Financings
During the nine months ended
October 31, 2014 the Company issued 75,000 shares (prior year period nil) upon
exercise of options for proceeds of $0.081 million (prior year period -
$nil).
During the nine months ended October 31, 2014, the Company
issued 98,481 shares (prior year period 108,123) as partial payment for
options to purchase land.
10
PolyMet Mining Corp. |
Management Discussion and Analysis |
As at October 31, 2014 and for the three and nine months
ended October 31, 2014 |
Tabular amounts in thousands of U.S. Dollars, except for
price per share and number of shares |
|
Discussion of Results
The financial results for all periods presented below have been
prepared in accordance with IFRS as issued by IASB.
Summary of Quarterly Results
(All figures
in thousands of U.S. dollars, except loss per share)
Three Months Ended
|
Oct 31
2014 |
July 31
2014 |
Apr 30
2014 |
Jan 31
2014 |
Oct 31
2013 |
July 31
2013 |
Apr 30
2013 |
Jan 31
2013 |
Total Revenues |
- |
- |
- |
- |
- |
- |
- |
- |
General and Administrative |
(1,131) |
(1,171) |
(1,391) |
(2,602) |
(1,373) |
(1,372) |
(1,307) |
(1,406) |
Other Income (Expenses) |
(488) |
(439) |
(393) |
(355) |
(380) |
(390) |
(353) |
(735) |
Net Loss |
(1,619) |
(1,610) |
(1,784) |
(2,957) |
(1,753) |
(1,762) |
(1,660) |
(2,141) |
Loss per share (1) |
(0.01) |
(0.01) |
(0.01) |
(0.01) |
(0.01) |
(0.01) |
(0.01) |
(0.01) |
|
|
|
|
|
|
|
|
|
Cash used in operating activities |
(861) |
(1,077) |
(1,072) |
(1,498) |
(1,955) |
(516) |
(4,065) |
1,377 |
Cash provided by (used) by financing
activities |
- |
- |
81 |
- |
- |
38,372 |
20,000 |
- |
Cash used in investing activities |
(6,552) |
(6,227) |
(8,216) |
(6,215) |
(6,315) |
(8,184) |
(4,912) |
(4,347) |
(1) |
Loss per share amounts may not reconcile due to rounding
differences. |
Results fluctuate from quarter to quarter based on activity in
the Company including NorthMet development and corporate activities. See
additional discussion of significant items in the Discussion of Operations
section above and as follows:
The net loss included share-based compensation expense for the
three months ended:
October 31, 2014 - $0.134 million |
October 31, 2013 - $0.084 million |
July 31, 2014 - $0.216 million |
July 31, 2013 - $0.089 million |
April 30, 2014 - $0.149 million |
April 30, 2013 - $0.184 million |
January 31, 2014 - $1.340 million |
January 31, 2013 - $0.304 million
|
Three month period ended October 31, 2014 compared to three
month period ended October 31, 2013
a) Loss for the Period:
During the three months ended October 31, 2014, the Company
incurred a loss of $1.619 million ($0.01 loss per share) compared to a loss of
$1.753 million ($0.01 loss per share) during the three months ended October 31,
2013. The decrease in the net loss for the period was primarily attributable to
a decrease in investor and public relations in the current year period to $0.268
million (prior year period - $0.645 million) relating to the rights offering in
the prior year period.
b) Cash Flows for the Period:
Cash used in operating activities in the three months ended
October 31, 2014 was $0.861 million compared to cash used in the three months
ended October 31, 2013 of $1.955 million. The variance in cash is primarily due
to changes in non-cash working capital balances and the above noted operating
variances.
11
PolyMet Mining Corp. |
Management Discussion and Analysis |
As at October 31, 2014 and for the three and nine months
ended October 31, 2014 |
Tabular amounts in thousands of U.S. Dollars, except for
price per share and number of shares |
|
Cash provided by financing activities for the three months
ended October 31, 2014 was $nil compared to cash provided in the three months
ended October 31, 2013 of $nil.
Cash used in investing activities for the three months ended
October 31, 2014 was $6.552 million compared to cash used in the three months
ended October 31, 2013 of $6.315 million. The increase was primarily due to
increased efforts surrounding the SDEIS public comment period and review of
comments received.
Total cash for the three months ended October 31, 2014
decreased by $7.417 million for a balance of $8.866 million compared to the
three months ended October 31, 2013 where cash decreased $8.270 million to a
balance of $40.508 million.
c) Capital Expenditures for the Period:
During the three months ended October 31, 2014 the Company
capitalized $8.869 million (prior year period - $6.650 million) of mineral
property, plant, and equipment costs related to the NorthMet Project and other
fixed assets. The increase is primarily due to changes in the risk-free interest
rate applied to the provision for environmental rehabilitation.
Nine month period ended October 31, 2014 compared to nine
month period ended October 31, 2013
a) Loss for the Period:
During the nine months ended October 31, 2014, the Company
incurred a loss of $5.013 million ($0.02 loss per share) compared to a loss of
$5.175 million ($0.02 loss per share) during the nine months ended October 31,
2013. The slight decrease in the net loss for the period was primarily
attributable to a decrease in investor and public relations in the current year
period to $1.030 million (prior year period - $1.720 million) relating to the
rights offering in the prior year period. This was partially offset by an
increase in finance costs in the current year period to $1.356 million (prior
year period - $1.096 million) relating to an increase in the accretion of the
environmental rehabilitation provision.
b) Cash Flows for the Period:
Cash used in operating activities in the nine months ended
October 31, 2014 was $3.010 million compared to cash used in the nine months
ended October 31, 2013 of $6.536 million. The variance in cash is primarily due
to changes in non-cash working capital balances and the above noted operating
variances.
Cash provided by financing activities for the nine months ended
October 31, 2014 was $0.081 million compared to cash provided in the nine months
ended October 31, 2013 of $58.372 million. The current year period includes
share option exercises. The prior year period includes proceeds from the rights
offering, funding of the Glencore bridge loan, and repayment of the Glencore
bridge loan.
Cash used in investing activities for the nine months ended
October 31, 2014 was $20.995 million compared to cash used in the nine months
ended October 31, 2013 of $19.411 million. The increase was primarily due to
increased efforts surrounding the SDEIS public comment period and review of
comments received.
Total cash for the nine months ended October 31, 2014 decreased
by $23.924 million for a balance of $8.866 million compared to the nine months
ended October 31, 2013 where cash increased $32.420 million to a balance of
$40.508 million.
12
PolyMet Mining Corp. |
Management Discussion and Analysis |
As at October 31, 2014 and for the three and nine months
ended October 31, 2014 |
Tabular amounts in thousands of U.S. Dollars, except for
price per share and number of shares |
|
c) Capital Expenditures for the Period:
During the nine months ended October 31, 2014 the Company
capitalized $25.215 million (prior year period - $15.726 million) of mineral
property, plant, and equipment costs related to the NorthMet Project and other
fixed assets. The increase is primarily due to changes in the risk-free interest
rate applied to the provision for environmental rehabilitation. In addition, the
Company capitalized $0.100 million (prior year period - $nil) of wetland credit
intangible costs related to wetland credit options and development agreements.
13
PolyMet Mining Corp. |
Management Discussion and Analysis |
As at October 31, 2014 and for the three and nine months
ended October 31, 2014 |
Tabular amounts in thousands of U.S. Dollars, except for
price per share and number of shares |
|
Liquidity and Capital Resources
As at October 31, 2014, the Company had a working capital
deficiency of $30.934 million compared with a working capital deficiency of
$1.872 million as at January 31, 2014 consisting primarily of cash and cash
equivalents of $8.866 million (January 31, 2014 - $32.790 million), amounts
receivable of $0.303 million (January 31, 2014 - $1.420 million), prepaid
expenses of $1.073 million (January 31, 2014 - $1.195 million), accounts payable
and accrued liabilities of $2.363 million (January 31, 2014 - $3.806 million),
current debt of $37.601 million (January 31, 2014 - $31.967 million) and the
current portion of environmental rehabilitation provision of $1.212 million
(January 31, 2014 - $1.504 million).
As at October 31, 2014, the Company has firm commitments
related to the environmental review process, land options, wetland credit
intangibles, consultants, and rent of approximately $5.5 million with the
majority due over the next year and the remainder due over seven years.
As at October 31, 2014, the Company had non-binding commitments
to maintain its mineral lease rights of $180,000 with all due in the next year.
As at October 31, 2014, the Company has obligations to issue
3,640,000 shares under the Companys Bonus Share Plan. The Company has received
shareholder approval for the Bonus Shares of Milestones 1 4 and regulatory
approval for Milestones 1, 2 and 3. Milestone 4 represents commencement of
commercial production at NorthMet at a time when the Company has not less than
50% ownership interest and is subject to regulatory approval.
The consolidated financial statements have been prepared on a
going concern basis, which contemplates the realization of assets and the
settlement of liabilities in the normal course of operations.
Liquidity risk is the risk the Company will not be able to meet
its financial obligations as they become due and arises through the excess of
financial obligations over available financial assets due at any point in time.
As at October 31, 2014, PolyMet had cash of $8.866 million and a working capital
deficiency of $30.934 million. The significant reduction in working capital
during the period is a result of the $33.073 million convertible debt due to
Glencore AG, a wholly owned subsidiary of Glencore Xstrata plc (together
Glencore) becoming a current liability on the basis it matures on September
30, 2015. If Glencore does not exchange the convertible debt for common shares,
PolyMet will need to renegotiate the agreement or raise sufficient funds to
repay the debt. While in the past the Company has been successful in
renegotiating debt and closing financing agreements, there can be no assurance
it will be able to do so again.
Management believes that, based upon the underlying value of the NorthMet Project, the advanced stage of permitting, the ongoing discussions with numerous investment banks and investors including Glencore regarding potential financing, and the recent execution of a confidential and non-binding term sheet for a loan facility of up to $30 million expected to close in early calendar 2015, that financing will continue to be available from Glencore and/or other potential third party sources allowing the Company to meet its current obligations, as well as fund ongoing development, capital expenditures and administration expenses in accordance with the Company’s spending plans for the next twelve months.
See additional discussion in the Financial Instruments and
Risk Management section below.
14
PolyMet Mining Corp. |
Management Discussion and Analysis |
As at October 31, 2014 and for the three and nine months
ended October 31, 2014 |
Tabular amounts in thousands of U.S. Dollars, except for
price per share and number of shares |
|
Financial Instruments and Risk Management
The Company classifies its financial assets as fair value
through profit or loss (FVTPL), available-for-sale, held to maturity, or loans
and receivables. Financial liabilities are classified as either FVTPL, or other
financial liabilities.
The carrying values of each classification of financial
instrument at October 31, 2014 are:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other |
|
|
Total |
|
|
|
|
|
|
Available |
|
|
Loans and |
|
|
Held to |
|
|
financial |
|
|
carrying |
|
|
|
FVTPL |
|
|
for
sale |
|
|
receivables |
|
|
maturity |
|
|
liabilities |
|
|
value |
|
Financial assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents |
$ |
- |
|
$ |
- |
|
$ |
8,866 |
|
$ |
- |
|
$ |
- |
|
$ |
8,866 |
|
Amounts receivable |
|
- |
|
|
- |
|
|
303 |
|
|
- |
|
|
- |
|
|
303 |
|
Total financial assets |
$ |
- |
|
$ |
- |
|
$ |
9,169 |
|
$ |
- |
|
$ |
- |
|
$ |
9,169 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financial liabilities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts payable and
accrued liabilities |
$ |
- |
|
$ |
- |
|
$ |
- |
|
$ |
- |
|
$ |
2,363 |
|
$ |
2,363 |
|
Convertible debt |
|
- |
|
|
- |
|
|
- |
|
|
- |
|
|
33,073 |
|
|
33,073 |
|
Long-term debt |
|
- |
|
|
- |
|
|
- |
|
|
- |
|
|
4,528 |
|
|
4,528 |
|
Total financial liabilities |
$ |
- |
|
$ |
- |
|
$ |
- |
|
$ |
- |
|
$ |
39,964 |
|
$ |
39,964 |
|
The carrying values of each classification of financial
instrument at January 31, 2014 are:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other |
|
|
Total |
|
|
|
|
|
|
Available |
|
|
Loans and |
|
|
Held to |
|
|
financial |
|
|
carrying |
|
|
|
FVTPL |
|
|
for
sale |
|
|
receivables |
|
|
maturity |
|
|
liabilities |
|
|
value |
|
Financial assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents |
$ |
- |
|
$ |
- |
|
$ |
32,790 |
|
$ |
- |
|
$ |
- |
|
$ |
32,790 |
|
Amounts receivable |
|
- |
|
|
- |
|
|
1,420 |
|
|
- |
|
|
- |
|
|
1,420 |
|
Total financial assets |
$ |
- |
|
$ |
- |
|
$ |
34,210 |
|
$ |
- |
|
$ |
- |
|
$ |
34,210 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financial liabilities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts payable and
accrued liabilities |
$ |
- |
|
$ |
- |
|
$ |
- |
|
$ |
- |
|
$ |
3,806 |
|
$ |
3,806 |
|
Convertible debt |
|
- |
|
|
- |
|
|
- |
|
|
- |
|
|
31,967 |
|
|
31,967 |
|
Long-term debt |
|
- |
|
|
- |
|
|
- |
|
|
- |
|
|
4,276 |
|
|
4,276 |
|
Total financial liabilities |
$ |
- |
|
$ |
- |
|
$ |
- |
|
$ |
- |
|
$ |
40,049 |
|
$ |
40,049 |
|
Fair Value Measurements
The fair value hierarchy prioritizes the inputs to valuation
techniques used to measure fair value. The hierarchy gives the highest priority
to unadjusted quoted prices in active markets for identical assets or
liabilities (Level 1 measurements) and the lowest priority to unobservable
inputs (Level 3 measurements). The three levels of the fair value hierarchy are
described below:
Level 1 |
Quoted prices (unadjusted) in active markets
for identical assets or liabilities. |
Level 2 |
Inputs other than quoted prices included in
Level 1 that are observable for the asset or liability, either directly or
indirectly. |
Level 3 |
Inputs for the asset or liability that are not
based on observable market data. |
15
PolyMet Mining Corp. |
Management Discussion and Analysis |
As at October 31, 2014 and for the three and nine months
ended October 31, 2014 |
Tabular amounts in thousands of U.S. Dollars, except for
price per share and number of shares |
|
The fair values of cash and cash equivalents, amounts
receivable, and accounts payable and accrued liabilities approximate their
carrying amounts due to their short-term nature. The fair value of the Company's
long-term and convertible debt approximates the carrying amount at amortized
cost using the effective interest method.
Risks Arising from Financial Instruments and Risk Management
The Companys activities expose it to a variety of financial
risks: market risk (including currency and interest rate), credit risk, and
liquidity risk. Reflecting the current stage of development of the Companys
NorthMet Project, the overall risk management program focuses on facilitating
the Companys ability to continue as a going concern and seeks to minimize
potential adverse effects on the Companys ability to execute its business plan.
Risk management is the responsibility of executive management.
Material risks are identified and monitored and are discussed with the Audit
Committee and the Board of Directors.
Currency Risk
The Company incurs expenditures in Canada and in the United
States. The functional and reporting currency of the Company and its subsidiary
is the United States dollar. Foreign exchange risk arises because the amount of
Canadian dollar cash and cash equivalents, amounts receivable, or accounts
payable and accrued liabilities will vary in United States dollar terms due to
changes in exchange rates.
As the majority of the Companys expenditures are in United
States dollars, the Company has kept a significant portion of its cash and cash
equivalents in United States dollars. The Company has not hedged its exposure to
currency fluctuations.
The Company was exposed to currency risk through the following
assets and liabilities denominated in Canadian dollars:
|
|
October 31, |
|
|
January 31, |
|
|
|
2014 |
|
|
2014 |
|
Cash and cash equivalents |
$ |
238 |
|
$ |
77 |
|
Amounts receivable |
|
7 |
|
|
12 |
|
Accounts payable and accrued liabilities
|
|
(30 |
) |
|
(8 |
) |
|
$ |
215 |
|
$ |
81 |
|
Based on the above net exposures, as at October 31, 2014, a 10%
change in the Canadian / United States exchange rate would have impacted the
Companys loss by approximately $21,500.
Interest Rate Risk
Interest rate risk arises from interest paid on floating rate
debt and interest received on cash and short-term deposits. The Company has not
hedged any of its interest rate risk. The Company currently capitalizes the
majority of interest charges, and therefore the risk exposure is primarily on
cash interest payable and net earnings in relation to the subsequent
depreciation of capitalized interest charges.
The Company was exposed to interest rate risk through the
following assets and liabilities:
|
|
October 31, |
|
|
January 31, |
|
|
|
2014 |
|
|
2014 |
|
Cash and cash equivalents |
$ |
8,866 |
|
$ |
32,790 |
|
Convertible debt
|
$ |
33,073 |
|
$ |
31,967 |
|
16
PolyMet Mining Corp. |
Management Discussion and Analysis |
As at October 31, 2014 and for the three and nine months
ended October 31, 2014 |
Tabular amounts in thousands of U.S. Dollars, except for
price per share and number of shares |
|
Credit Risk
Credit risk arises on cash and cash equivalents held with banks
and financial institutions, as well as credit exposure on outstanding amounts
receivable. The maximum exposure to credit risk is equal to the carrying value
of the financial assets of $9.169 million.
The Companys cash and cash equivalents are primarily held
through a large Canadian financial institution.
Liquidity Risk
Liquidity risk is the risk the Company will not be able to meet
its financial obligations as they become due and arises through the excess of
financial obligations over available financial assets due at any point in time.
The Companys objective in managing liquidity risk is to maintain sufficient
readily available reserves in order to meet its liquidity requirements at any
point in time and is achieved by maintaining sufficient cash and cash
equivalents. See additional discussion in the Liquidity and Capital Resources
section above.
Capital Management
The Companys capital management objective is to safeguard the
Companys ability to continue as a going concern in order to pursue the
development of its mineral property. In the management of capital, the Company
includes the components of shareholders equity, convertible debt and long-term
debt. The Company manages the capital structure and makes adjustments to it
depending on economic conditions and the rate of anticipated expenditures. To
maintain or adjust the capital structure, the Company may attempt to issue new
shares, issue new debt, acquire or dispose of assets. The Company has no
externally imposed capital requirements.
In order to assist in management of its capital requirements,
the Company prepares budgets that are updated as necessary depending on various
factors. The budgets are approved by the Companys Board of Directors.
Although the Company plans to have the resources to carry out
its plans and operations through October 31, 2015, it does not currently have
sufficient capital to meet its estimated project capital expenditure
requirements and is in discussions to arrange sufficient capital to meet these
requirements. During the upcoming fiscal year, the Companys objective is to
identify the source or sources from which it will obtain the capital required to
complete the Project. See additional discussion in the Liquidity and Capital
Resources section above.
17
PolyMet Mining Corp. |
Management Discussion and Analysis |
As at October 31, 2014 and for the three and nine months
ended October 31, 2014 |
Tabular amounts in thousands of U.S. Dollars, except for
price per share and number of shares |
|
Related Party Transactions
The Company conducted transactions with senior management,
directors and persons or companies related to these individuals, and paid or
accrued amounts as follows:
|
|
Nine months ended October 31, |
|
|
|
2014(1) |
|
|
2013(2) |
|
Salaries and other short-term benefits |
$ |
1,150 |
|
$ |
1,121 |
|
Other long-term benefits |
|
47 |
|
|
45 |
|
Share-based payment (3) |
|
84 |
|
|
- |
|
|
|
|
|
|
|
|
Total |
$ |
1,281 |
|
$ |
1,166 |
|
|
(1) |
Nine months ended October 31, 2014 includes Directors
(Jonathan Cherry, David Dreisinger, W. Ian L. Forrest, Alan Hodnik,
William Murray, Stephen Rowland, Michael Sill, Frank Sims, and Matt Daley)
and senior management (Jonathan Cherry, Douglas Newby, Joseph Scipioni,
Bradley Moore, Ryan Vogt, and Stephanie Hunter). |
|
(2) |
Nine months ended October 31, 2013 includes Directors
(Jonathan Cherry, David Dreisinger, W. Ian L. Forrest, Alan Hodnik,
William Murray, Stephen Rowland, Michael Sill, and Frank Sims) and senior
management (Jonathan Cherry, Douglas Newby, Joseph Scipioni, Bradley
Moore, Ryan Vogt, and Stephanie Hunter). |
|
(3) |
Share-based payment represents the fair value determined
at grant date to be expensed over the vesting
period. |
There are agreements with key employees (Jonathan Cherry,
Douglas Newby, Joseph Scipioni, and Bradley Moore) that contain severance
provisions for termination without cause or in the event of a take-over bid.
Other than the President and Chief Executive officer, none of PolyMets other
directors has a service contract with the Company providing for benefits upon
termination of their employment.
As a result of Glencores ownership of 28.6% of the Company it
is also a related party. See additional discussion in the Financing Activities
section above.
Shareholder Rights Plan
The Shareholder Rights Plan is designed to ensure that all
shareholders receive equal treatment and to maximize shareholder values in the
event of a take-over bid or other acquisition that could lead to a change in
control of the Company. It is not intended to deter take-over bids. The
Shareholder Rights Plan is intended to provide time for shareholders to properly
assess any take-over bid and to provide non-abstaining members of the Board of
Directors with sufficient time to explore and develop alternatives for
maximizing shareholder value, including, if considered appropriate, identifying
and locating other potential bidders.
Effective December 4, 2003, the Company adopted the Shareholder
Rights Plan (Rights Plan), which was approved by the Companys shareholders on
May 28, 2004, modified and further ratified and reconfirmed by the Companys
shareholders most recently on July 9, 2013. Under the Rights Plan, the Company
has issued one right for no consideration in respect of each outstanding common
share held by the shareholder of the Company on December 4, 2003. All common
shares subsequently issued by the Company during the term of the Rights Plan
will have one right represented for each common share held by the shareholder of
the Company. The Rights Plan expires if not reapproved at every third annual
shareholder meeting.
18
PolyMet Mining Corp. |
Management Discussion and Analysis |
As at October 31, 2014 and for the three and nine months
ended October 31, 2014 |
Tabular amounts in thousands of U.S. Dollars, except for
price per share and number of shares |
|
The Rights issued under the Rights Plan become exercisable only
if a party acquires 20% or more of the Company's common shares without complying
with the Rights Plan or without the approval of non-abstaining Directors. Each
Right entitles the registered holder to purchase one common share of the Company
at the price of CDN$43.06 per share, subject to adjustment which was triggered
upon close of the Rights Offering (the Exercise Price). However, if a Flip-in
Event (as defined in the Rights Plan) occurs, each Right would then entitle the
registered holder to purchase that number of common shares having a market value
at the date of the Flip-in Event equal to twice the Exercise Price upon payment
of the Exercise Price.
Off-Balance Sheet Arrangements
The Company does not utilize off-balance sheet arrangements.
Proposed Transactions
There are no proposed transactions that will materially affect
the performance of the Company.
Critical Accounting Estimates and Judgments
The preparation of the consolidated financial statements in
conformity with IFRS as issued by IASB requires the use of certain critical
accounting estimates. These critical accounting estimates require management to
make judgments and estimates that affect the reported amounts of assets and
liabilities and disclosures of contingent assets and liabilities as at the date
of the financial statements.
Critical accounting estimates and judgments used in the
preparation of these consolidated financial statements are as follows:
(i) Determination of mineral
reserves
Reserves are estimates of the amount of product that can be
economically and legally extracted from the Companys property. In order to
estimate reserves, estimates are required about a range of geological, technical
and economic factors, including quantities, production techniques, production
costs, capital costs, transport costs, demand, prices and exchange rates.
Estimating the quantity of reserves requires the size, shape and depth of
deposits to be determined by analyzing geological data. This process may require
complex and difficult geological judgments to interpret the data. In addition,
management will form a view of forecast sales prices, based on current and
long-term historical average price trends. Changes in the proven and probable
reserves estimates may impact the carrying value of property, plant and
equipment, restoration provisions, recognition of deferred tax amounts and
depreciation, depletion and amortization.
19
PolyMet Mining Corp. |
Management Discussion and Analysis |
As at October 31, 2014 and for the three and nine months
ended October 31, 2014 |
Tabular amounts in thousands of U.S. Dollars, except for
price per share and number of shares |
|
(ii) Impairment of non-financial assets
The carrying amounts of the Companys non-financial assets,
including mineral property, plant and equipment, and wetland credit intangible
are reviewed at each reporting date or when events or changes in circumstances
occur that indicate the asset may not be recoverable to determine whether there
is any indication of impairment. If any such indication exists, the assets
recoverable amount is estimated at the greater of its value in use and its fair
value less costs of disposal. In assessing value in use, the estimated future
cash flows are discounted to their present value using a pre-tax discount rate
that reflects current market assessments of the time value of money and the
risks specific to the asset. An impairment loss is recognized if the carrying
amount of an asset exceeds its estimated recoverable amount. An impairment loss
previously recorded is reversed if there has been a change in the estimates used
to determine the recoverable amount resulting in an increase in the estimated
service potential of an asset.
For its mineral property interest the Company considers both
external and internal sources of information in assessing whether there are any
indications of impairment. External sources of information the Company considers
include changes in the market, economic and legal environment in which the
Company operates that are not within its control and affect the recoverable
amount of mineral property interests. Internal sources of information the
Company considers include indications of economic performance of the asset. No
impairment loss for its mineral property interest was recorded for the nine
months ended October 31, 2014 or the year ended January 31, 2014.
(iii) Provision for Environmental Rehabilitation
Costs
Provisions for environmental rehabilitation costs associated
with mineral property, plant and equipment, are recognized when the Company has
a present legal or constructive obligation that can be estimated reliably, and
it is probable an outflow of economic benefits will be required to settle the
obligation. Provisions are determined by discounting the expected future cash
flows at a pre-tax rate that reflects current market assessments of the time
value of money and the risks specific to the liability.
Upon initial recognition of provisions for environmental
rehabilitation costs, a corresponding increase to the carrying amount of the
related asset is recorded and amortized over the life of the asset. The
estimates are based principally on legal and regulatory requirements. Following
initial recognition of the environmental rehabilitation provision, the carrying
amount of the liability is accreted to its future value over the life of the
asset, reduced for actual reclamation payments incurred, adjusted for changes to
the current market-based discount rate, and adjusted for changes in the amount
and timing of the underlying cash flows needed to settle the obligation.
It is possible that the Companys estimates of its ultimate
environmental rehabilitation liabilities could be affected by changes in
regulations, changes in the extent of environmental rehabilitation required,
changes in the means of rehabilitation, changes in the extent of responsibility
for the financial liability or changes in cost estimates. The operations of the
Company may in the future be affected from time to time in varying degrees by
changes in environmental regulations, including those for future removal and
site restoration costs. Both the likelihood of new regulations and their overall
effect upon the Company may vary greatly and are not predictable.
The Companys provision for environmental rehabilitation cost
obligations represents managements best estimate of the present value of the
future cash outflows required to settle the liability.
20
PolyMet Mining Corp. |
Management Discussion and Analysis |
As at October 31, 2014 and for the three and nine months
ended October 31, 2014 |
Tabular amounts in thousands of U.S. Dollars, except for
price per share and number of shares |
|
Adoption of New or Amended IFRS
On February 1, 2014, the Company adopted the following new or
amended accounting standards previously issued by the IASB, which did not have a
significant impact on the Companys consolidated financial statements.
IFRIC 21 Levies
IFRIC 21 is an
interpretation of IAS 37 and addresses the accounting for an obligation to pay a
levy that is not an income tax. IFRIC 21 is effective for annual periods
beginning on or after January 1, 2014.
Future Accounting Changes
The Company anticipates that all of the relevant pronouncements
will be adopted in the Companys accounting policy for the first period
beginning after the effective date of the pronouncement. Information on new
standards, amendments and interpretations that are expected to be relevant to
the Companys financial statements is provided below. Certain other new
standards and interpretations have been issued but are not expected to have a
material impact on the Companys financial statements and are therefore not
discussed below.
IFRS 9 Financial instruments - classification and
measurement
The IASB has suspended the originally planned
effective date of January 1, 2015 for IFRS 9. The IASB issued IFRS 9 as the
first step in its project to replace IAS 39: Financial Instruments recognition
and measurement. The Company will commence assessing the impact of this new
standard upon the announcement of its new effective date.
Other MD&A Requirements
Outstanding Share Data
Authorized Capital: Unlimited common shares without par value.
The following table summarizes the outstanding share
information as at December 11, 2014:
Type of Security |
Number Outstanding
|
Weighted
Average
Exercise Price (US$) |
Issued and outstanding common shares |
275,815,443 |
$
- |
Restricted share units |
1,220,131 |
$ -
|
Share options * |
19,307,002 |
$
1.39 |
Share purchase warrants |
8,168,602 |
$ 1.35
|
Convertible debt |
25,695,057 |
$ 1.29
|
|
* |
For information purposes, those share options granted
with an exercise price in Canadian dollars (CDN) have been translated to
the Companys reporting currency using the exchange rate as at December 11,
2014 of 1.00 US$ = 1.1458 CDN$. |
21
PolyMet Mining Corp. |
Management Discussion and Analysis |
As at October 31, 2014 and for the three and nine months
ended October 31, 2014 |
Tabular amounts in thousands of U.S. Dollars, except for
price per share and number of shares |
|
Risks and Uncertainties
An investment in the Companys common shares is highly
speculative and subject to a number of risks and uncertainties. Only those
persons who can bear the risk of the entire loss of their investment should
participate. An investor should carefully consider the risks described in
PolyMets Form 20-F/Annual Information Form for the year ended January 31, 2014
on file with the SEC and Canadian securities regulators and other information
filed with the Canadian and United States securities regulators before investing
in the Companys common shares. The risks described in PolyMets Form
20-F/Annual Information Form are not the only ones faced. Additional risks that
the Company currently believes are immaterial may become important factors that
affect the Companys business. If any of the risks described in PolyMets Form
20-F/Annual Information Form for the year ended January 31, 2014 occur, the
Companys business, operating results and financial condition could be seriously
harmed and investors could lose all of their investment.
Disclosure controls and procedures
Disclosure controls and procedures are designed to ensure that
information required to be disclosed in reports filed or submitted by the
Company under U.S. and Canadian securities legislation is recorded, processed,
summarized and reported within the time periods specified in those rules,
including providing reasonable assurance that material information is gathered
and reported to senior management, including the Chief Executive Officer (CEO)
and Chief Financial Officer (CFO), as appropriate, to permit timely decisions
regarding public disclosure. Management, including the CEO and CFO, has
evaluated the effectiveness of the design and operation of the Companys
disclosure controls and procedures, as defined in Rule 13a-15(e) and 15d-15(e)
of the US Exchange Act and the rules of Canadian Securities Administration, as
at January 31, 2014. Based on this evaluation, the CEO and CFO have concluded
that the Companys disclosure controls and procedures were effective at January
31, 2014.
Managements Responsibility for Financial Statements
The information provided in this report including the financial
statements, is the responsibility of management. In the preparation of these
statements, estimates are sometimes necessary to make a determination of future
values for certain assets or liabilities. Management believes such estimates
have been based on careful judgments and have been properly reflected in the
accompanying financial statements.
Management maintains a system of internal controls to provide
reasonable assurances that the Companys assets are safeguarded and to
facilitate the preparation of relevant and timely information.
Managements report on internal control over financial
reporting
Management is responsible for establishing and maintaining
adequate internal control over financial reporting as defined in Rule 13a-15(f)
and 15d-15(f) of the U.S. Exchange Act and National Instrument 52-109
Certification of Disclosure in Issuers Annual and Interim filings. Any system
of internal control over financial reporting, no matter how well designed, has
inherent limitations. Therefore, even those systems determined to be effective
can provide only reasonable assurance with respect to financial statement
preparation and presentation. Management has used the criteria established in
Internal Control Integrated Framework (1992) issued by the Committee of
Sponsoring Organizations of the Treadway Commission to evaluate the
effectiveness of the Companys internal control over financial reporting. Based
on this assessment, management has concluded that as at January 31, 2014, the
Companys internal control over financial reporting was effective.
22
PolyMet Mining Corp. |
Management Discussion and Analysis |
As at October 31, 2014 and for the three and nine months
ended October 31, 2014 |
Tabular amounts in thousands of U.S. Dollars, except for
price per share and number of shares |
|
The effectiveness of the Companys internal control over
financial reporting has been audited by PricewaterhouseCoopers LLP, an
independent registered public accounting firm, which has expressed its opinion
in its report included with the Companys annual consolidated financial
statements.
There have been no changes in the Companys internal control
over financial reporting during the nine month period ended October 31, 2014
that have materially affected, or are reasonably likely to material affect, its
internal control over financial reporting.
Additional Information
Additional information related to the Company is available
for view on SEDAR and EDGAR, respectively, at www.sedar.com
and at www.sec.gov, and at the Companys website
www.polymetmining.com.
23
Form 52-109F2
Certification of Interim Filings
Full Certificate
I, Jonathan Cherry, President and Chief Executive Officer of
PolyMet Mining Corp., certify the following:
1. |
Review: I have reviewed the interim
financial report and interim MD&A (together, the interim filings) of
PolyMet Mining Corp. (the issuer) for the interim period ended October
31, 2014. |
|
|
2. |
No misrepresentations: Based on my
knowledge, having exercised reasonable diligence, the interim filings do
not contain any untrue statement of a material fact or omit to state a
material fact required to be stated or that is necessary to make a
statement not misleading in light of the circumstances under which it was
made, with respect to the period covered by the interim filings. |
|
|
3. |
Fair presentation: Based on my knowledge,
having exercised reasonable diligence, the interim financial report
together with the other financial information included in the interim
filings fairly present in all material respects the financial condition,
financial performance and cash flows of the issuer, as of the date of and
for the periods presented in the interim filings. |
|
|
4. |
Responsibility: The issuers other
certifying officer(s) and I 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, for the issuer. |
|
|
5. |
Design: Subject to the limitations, if any,
described in paragraphs 5.2 and 5.3, the issuers other certifying
officer(s) and I have, as at the end of the period covered by the interim
filings |
|
(a) |
designed DC&P, or caused it to be designed under our
supervision, to provide reasonable assurance that |
|
|
|
|
|
|
(i) |
material information relating to the issuer is made known
to us by others, particularly during the period in which the interim
filings are being prepared; and |
|
|
|
|
|
|
(ii) |
information required to be disclosed by the issuer in its
annual filings, interim filings or other reports filed or submitted by it
under securities legislation is recorded, processed, summarized and
reported within the time periods specified in securities legislation;
and |
|
|
|
|
|
(b) |
designed ICFR, or caused it to be designed under our
supervision, to provide reasonable assurance regarding the reliability of
financial reporting and the preparation of financial statements for
external purposes in accordance with the issuers
GAAP. |
5.1 |
Control framework: The control framework
the issuers other certifying officer(s) and I used to design the issuers
ICFR is Committee of Sponsoring Organizations of the Treadway Commission
(COSO) framework. |
|
|
5.2 |
N/A |
|
|
5.3 |
N/A |
|
|
6. |
Reporting changes in ICFR: The issuer has
disclosed in its interim MD&A any change in the issuers ICFR that
occurred during the period beginning on August 1, 2014 and ended on
October 31, 2014 that has materially affected, or is reasonably likely to
materially affect, the issuers ICFR. |
Date: December 15, 2014 |
|
|
|
Jonathan
Cherry (signed) |
|
Jonathan Cherry |
|
President and Chief Executive Officer |
|
1
Form 52-109F2
Certification of Interim Filings
Full Certificate
I, Douglas Newby, Chief Financial Officer of PolyMet Mining
Corp., certify the following:
1. |
Review: I have reviewed the interim
financial report and interim MD&A (together, the interim filings) of
PolyMet Mining Corp. (the issuer) for the interim period ended
October31, 2014. |
2. |
No misrepresentations: Based on my
knowledge, having exercised reasonable diligence, the interim filings do
not contain any untrue statement of a material fact or omit to state a
material fact required to be stated or that is necessary to make a
statement not misleading in light of the circumstances under which it was
made, with respect to the period covered by the interim filings. |
|
|
|
|
3. |
Fair presentation: Based on my knowledge,
having exercised reasonable diligence, the interim financial report
together with the other financial information included in the interim
filings fairly present in all material respects the financial condition,
financial performance and cash flows of the issuer, as of the date of and
for the periods presented in the interim filings. |
|
|
|
|
4. |
Responsibility: The issuers other
certifying officer(s) and I 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, for the issuer. |
|
|
|
|
5. |
Design: Subject to the limitations, if any,
described in paragraphs 5.2 and 5.3, the issuers other certifying
officer(s) and I have, as at the end of the period covered by the interim
filings |
|
|
|
|
|
(a) |
designed DC&P, or caused it to be designed under our
supervision, to provide reasonable assurance that |
|
|
|
|
|
|
(i) |
material information relating to the issuer is made known
to us by others, particularly during the period in which the interim
filings are being prepared; and |
|
|
|
|
|
|
(ii) |
information required to be disclosed by the issuer in its
annual filings, interim filings or other reports filed or submitted by it
under securities legislation is recorded, processed, summarized and
reported within the time periods specified in securities legislation;
and |
|
|
|
|
|
(b) |
designed ICFR, or caused it to be designed under our
supervision, to provide reasonable assurance regarding the reliability of
financial reporting and the preparation of financial statements for
external purposes in accordance with the issuers GAAP. |
|
|
|
|
5.1 |
Control framework: The control framework
the issuers other certifying officer(s) and I used to design the issuers
ICFR is Committee of Sponsoring Organizations of the Treadway Commission
(COSO) framework. |
|
|
|
|
5.2 |
N/A |
|
|
|
|
5.3 |
N/A |
|
|
|
|
6. |
Reporting changes in ICFR: The issuer has
disclosed in its interim MD&A any change in the issuers ICFR that
occurred during the period beginning on August 1, 2014 and ended on
October 31, 2014 that has materially affected, or is reasonably likely to
materially affect, the issuers ICFR. |
Date: December 15, 2014 |
|
|
|
Douglas Newby
(signed) |
|
Douglas Newby |
|
Chief Financial Officer |
|
1
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