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 JUNE, 2015
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a part of such registration statements from the date on which this report on Form 6-K is filed, to the extent not superseded by documents or reports subsequently filed or furnished by PolyMet Mining Corp.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: June 15, 2015 |
By: |
/s/ Jonathan Cherry |
|
|
Jonathan Cherry |
|
Title: |
President and CEO |
POLYMET MINING CORP.
CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS
For the three months ended April 30, 2015
PolyMet Mining Corp.
Condensed Interim Consolidated Balance Sheets
Unaudited
- All figures in thousands of U.S. Dollars
|
|
April 30, |
|
|
January 31, |
|
|
|
2015 |
|
|
2015 |
|
|
|
|
|
|
|
|
ASSETS |
|
|
|
|
|
|
|
|
|
|
|
|
|
Current |
|
|
|
|
|
|
Cash |
$ |
9,939 |
|
$ |
9,301 |
|
Amounts receivable (Note 5) |
|
740 |
|
|
381 |
|
Prepaid expenses |
|
1,126 |
|
|
1,108
|
|
|
|
11,805 |
|
|
10,790 |
|
Non-Current |
|
|
|
|
|
|
Amounts receivable
(Note 5) |
|
2,283 |
|
|
- |
|
Mineral Property, Plant and Equipment
(Notes 3 and 4) |
|
299,316 |
|
|
296,247 |
|
Wetland Credit
Intangible (Note 5) |
|
1,888 |
|
|
6,192 |
|
Total Assets
|
$ |
315,292 |
|
$ |
313,229 |
|
|
|
|
|
|
|
|
LIABILITIES |
|
|
|
|
|
|
|
|
|
|
|
|
|
Current |
|
|
|
|
|
|
Accounts payable and
accrued liabilities |
$ |
3,400 |
|
$ |
2,673 |
|
Convertible debt (Notes 7 and 8)
|
|
33,840 |
|
|
33,451 |
|
Non-convertible debt
(Notes 7 and 9) |
|
20,796 |
|
|
4,614 |
|
Environmental rehabilitation provision
(Note 6) |
|
2,326 |
|
|
1,724
|
|
|
|
60,362 |
|
|
42,462 |
|
Non-Current |
|
|
|
|
|
|
Non-convertible debt
(Note 7) |
|
- |
|
|
7,855 |
|
Environmental rehabilitation provision
(Note 6) |
|
65,596 |
|
|
70,536 |
|
|
|
|
|
|
|
|
Total Liabilities |
|
125,958 |
|
|
120,853 |
|
|
|
|
|
|
|
|
SHAREHOLDERS EQUITY |
|
|
|
|
|
|
|
|
|
|
|
|
|
Share Capital (Note 10) |
|
241,662 |
|
|
241,489 |
|
Share Premium |
|
3,007 |
|
|
3,007 |
|
Equity Reserves |
|
52,047 |
|
|
51,704 |
|
Deficit |
|
(107,382 |
) |
|
(103,824 |
) |
|
|
|
|
|
|
|
Total Shareholders Equity |
|
189,334 |
|
|
192,376 |
|
|
|
|
|
|
|
|
Total Liabilities and Shareholders Equity |
$ |
315,292 |
|
$ |
313,229 |
|
|
|
|
|
|
|
|
Nature of Business and Liquidity
(Note 1) |
|
|
|
|
|
|
Commitments and Contingencies (Note 13) |
|
|
|
|
|
|
|
|
|
|
|
|
|
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 April 30 |
|
|
|
2015 |
|
|
2014 |
|
|
|
|
|
|
|
|
General and Administrative Expenses |
|
|
|
|
|
|
Salaries and benefits |
$ |
323 |
|
$ |
299 |
|
Share-based compensation
(Note 10) |
|
126 |
|
|
149 |
|
Director fees and expenses |
|
74 |
|
|
73 |
|
Professional fees |
|
126 |
|
|
147 |
|
Filing and regulatory fees |
|
54 |
|
|
56 |
|
Investor and public relations |
|
436 |
|
|
462 |
|
Travel |
|
81 |
|
|
95 |
|
Rent and other office expenses |
|
67 |
|
|
55 |
|
Insurance |
|
48 |
|
|
47 |
|
Amortization |
|
8 |
|
|
8 |
|
|
|
1,343 |
|
|
1,391 |
|
|
|
|
|
|
|
|
Other Expenses (Income) |
|
|
|
|
|
|
Finance costs (Note 11)
|
|
372 |
|
|
410 |
|
Gain on foreign exchange |
|
(2 |
) |
|
- |
|
Loss on disposal of Wetland
Credit Intangible (Note 5) |
|
1,852 |
|
|
- |
|
Rental income |
|
(7 |
) |
|
(17 |
) |
|
|
2,215 |
|
|
393 |
|
|
|
|
|
|
|
|
Loss for the Period |
|
3,558 |
|
|
1,784 |
|
|
|
|
|
|
|
|
Other Comprehensive Income |
|
|
|
|
|
|
Items that may be subsequently reclassified to profit or loss: |
|
|
|
|
|
|
Change in value of available-for-sale financial assets (Note 5) |
|
(16 |
) |
|
- |
|
Total Comprehensive Loss for the period |
|
3,542 |
|
|
1,784 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and
Diluted Loss per Share |
$ |
(0.01 |
) |
$ |
(0.01 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted Average Number of Shares |
|
276,470,266 |
|
|
275,592,892 |
|
- 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) |
|
|
|
|
|
Accumulated |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Paid-in |
|
|
|
|
|
|
|
|
Other |
|
|
|
|
|
|
|
|
Total |
|
|
|
Issued |
|
|
Share |
|
|
Share |
|
|
Contributed |
|
|
Comprehensive |
|
|
Equity |
|
|
|
|
|
Shareholders' |
|
|
|
Shares |
|
|
Capital |
|
|
Premium |
|
|
Surplus |
|
|
Income |
|
|
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 |
|
- |
|
|
- |
|
|
- |
|
|
- |
|
|
- |
|
|
- |
|
|
(1,784 |
) |
|
(1,784 |
) |
Exercise of share options (Note10)
|
|
75,000 |
|
|
81 |
|
|
- |
|
|
- |
|
|
- |
|
|
- |
|
|
- |
|
|
81 |
|
Share-based compensation (Note 10) |
|
- |
|
|
80 |
|
|
- |
|
|
207 |
|
|
- |
|
|
207 |
|
|
- |
|
|
287 |
|
Bonus share cost amortization (Note 10) |
|
- |
|
|
- |
|
|
- |
|
|
143 |
|
|
- |
|
|
143 |
|
|
- |
|
|
143 |
|
Balance - April
30, 2014 |
|
275,650,392 |
|
$ |
240,491 |
|
$ |
3,007 |
|
$ |
49,893 |
|
$ |
- |
|
$ |
49,893 |
|
$ |
(98,332 |
) |
$ |
195,059 |
|
|
|
Share Capital (authorized =
unlimited) |
|
|
|
|
|
Accumulated |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Paid-in |
|
|
|
|
|
|
|
|
Other |
|
|
|
|
|
|
|
|
Total |
|
|
|
Issued |
|
|
Share |
|
|
Share |
|
|
Contributed |
|
|
Comprehensive |
|
|
Equity |
|
|
|
|
|
Shareholders' |
|
|
|
Shares |
|
|
Capital |
|
|
Premium |
|
|
Surplus |
|
|
Income |
|
|
Reserves |
|
|
Deficit |
|
|
Equity |
|
Balance - January 31, 2015 |
|
276,351,374 |
|
$ |
241,489 |
|
$ |
3,007 |
|
$ |
51,704 |
|
$ |
- |
|
$ |
51,704 |
|
$ |
(103,824 |
) |
$ |
192,376 |
|
Loss and comprehensive loss for the period |
|
- |
|
|
- |
|
|
- |
|
|
- |
|
|
16 |
|
|
16 |
|
|
(3,558 |
) |
|
(3,542 |
) |
Payment of land purchase options |
|
38,321 |
|
|
49 |
|
|
- |
|
|
- |
|
|
- |
|
|
- |
|
|
- |
|
|
49 |
|
Share-based compensation (Note 10) |
|
115,888 |
|
|
124 |
|
|
- |
|
|
222 |
|
|
- |
|
|
222 |
|
|
- |
|
|
346 |
|
Bonus share cost amortization (Note 10) |
|
- |
|
|
- |
|
|
- |
|
|
105 |
|
|
- |
|
|
105 |
|
|
- |
|
|
105 |
|
Balance - April
30, 2015 |
|
276,505,583 |
|
$ |
241,662 |
|
$ |
3,007 |
|
$ |
52,031 |
|
$ |
16 |
|
$ |
52,047 |
|
$ |
(107,366 |
) |
$ |
189,334 |
|
- 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 April 30 |
|
|
|
2015 |
|
|
2014 |
|
|
|
|
|
|
|
|
Operating Activities |
|
|
|
|
|
|
Loss for the period |
$ |
(3,558 |
) |
$ |
(1,784 |
) |
Items not involving cash
|
|
|
|
|
|
|
Amortization |
|
8 |
|
|
8 |
|
Environmental rehabilitation provision accretion (Note 6) |
|
369 |
|
|
428 |
|
Share-based compensation
(Note 10) |
|
126 |
|
|
149 |
|
Unrealized foreign exchange gain |
|
(2 |
) |
|
(4 |
) |
Loss on disposal of
Wetland Credit Intangible (Note 5) |
|
1,852 |
|
|
- |
|
Interest
income |
|
(4 |
) |
|
(18 |
) |
Changes in non-cash working capital |
|
|
|
|
|
|
Amounts
receivable |
|
(74 |
) |
|
1,305 |
|
Prepaid expenses |
|
(18 |
) |
|
(105 |
) |
Accounts
payable and accrued liabilities |
|
(215 |
) |
|
(1,069 |
) |
Interest received |
|
4
|
|
|
18 |
|
Net cash used in operating activities
|
|
(1,512 |
) |
|
(1,072 |
) |
|
|
|
|
|
|
|
Financing Activities |
|
|
|
|
|
|
Share issuance proceeds, net of costs (Note
10) |
|
- |
|
|
81 |
|
Debenture funding, net of
costs (Notes 7 and 9) |
|
7,954 |
|
|
- |
|
Net cash provided by financing activities |
|
7,954 |
|
|
81 |
|
|
|
|
|
|
|
|
Investing Activities |
|
|
|
|
|
|
Property, plant and equipment
purchases (Note 4) |
|
(5,706 |
) |
|
(8,116 |
) |
Wetland Credit Intangible purchases (Note
5) |
|
(100 |
) |
|
(100 |
) |
Net cash used in investing activities
|
|
(5,806 |
) |
|
(8,216 |
) |
|
|
|
|
|
|
|
Net Increase (Decrease) in Cash and Cash
Equivalents |
|
636 |
|
|
(9,207 |
) |
Effect of foreign exchange on Cash and Cash Equivalents
|
|
2 |
|
|
4 |
|
Cash and Cash Equivalents at beginning
of period |
|
9,301 |
|
|
32,790 |
|
Cash at end of
period |
$ |
9,939 |
|
$ |
23,587 |
|
|
|
|
|
|
|
|
Supplementary information: |
|
|
|
|
|
|
Accounts
payable and accrued liabilities related to PP&E |
$ |
988 |
|
$ |
504 |
|
Accretion and capitalized
interest on debt (Notes 7, 8, and 9) |
$ |
716 |
|
$ |
448 |
|
Share-based compensation related to PP&E (Note 10) |
$ |
220 |
|
$ |
138 |
|
Bonus Shares amortization
related to PP&E (Note 10) |
$ |
105 |
|
$ |
143 |
|
Shares issued for land
options |
$ |
49 |
|
$ |
- |
|
- See Accompanying Notes -
PolyMet Mining Corp. |
Notes to Condensed Interim Consolidated
Financial Statements |
As at April 30, 2015 and for the three months ended April
30, 2015 |
Unaudited - Tabular amounts in thousands of U.S.
Dollars, except for number of shares and price per share |
|
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 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 National Instrument 43-101 incorporating
numerous project improvements 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 condensed interim 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 April 30, 2015, PolyMet had cash of $9.939
million and a working capital deficiency of $48.557 million primarily due
to the $33.840 million convertible debt and $16.097 non- convertible debt
due to Glencore AG, a wholly owned subsidiary of Glencore plc (together
Glencore) being classified as a current liability. If Glencore does not exchange the convertible
debt for common shares upon maturity, PolyMet will need to renegotiate the
agreement or raise sufficient funds to repay the convertible 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
financing arrangements with Glencore (see Notes 7, 8, and 9) and the
ongoing discussions with numerous investment banks and investors including
Glencore regarding potential financing, 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 Companys spending plans for the next twelve
months. |
1
PolyMet Mining Corp. |
Notes to Condensed Interim Consolidated
Financial Statements |
As at April 30, 2015 and for the three months ended April
30, 2015 |
Unaudited - Tabular amounts in thousands of U.S.
Dollars, except for number of shares and price per share |
|
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, 2015. 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, 2015. These condensed
interim consolidated financial statements were approved by the Board of
Directors on June 15, 2015. |
|
|
|
b) 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 15 Revenue from Contracts with
Customers |
|
|
|
IFRS 15 establishes principles for reporting the nature,
amount, timing, and uncertainty of revenue and cash flows arising from an
entitys contract with customers and is effective for annual periods
beginning on or after January 1, 2017 with early adoption permitted. The
Company is currently assessing the impact of adopting IFRS 15 on its
consolidated financial statements. |
|
|
|
IFRS 9 Financial Instruments - Classification and
Measurement |
|
|
|
IFRS 9 provides a revised model for recognition,
measurement and impairment of financial instruments and is effective for
annual periods beginning on or after January 1, 2018 with early adoption
permitted. The Company is currently assessing the impact of adopting IFRS
9 on its consolidated financial statements. |
2
PolyMet Mining Corp. |
Notes to Condensed Interim Consolidated
Financial Statements |
As at April 30, 2015 and for the three months ended April
30, 2015 |
Unaudited - Tabular amounts in thousands of U.S.
Dollars, except for number of shares and price per share |
|
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 perpetually 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 term by continuing to make $150,000 annual
lease payments on each successive anniversary date. All lease payments
have been paid or accrued to April 30, 2015. The next payment is due in
January 2016. |
|
|
|
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 per
ton received by the Company. The Companys recovery of $2.375 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 increased 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 April 30,
2015. The next payment is due in November 2015. |
|
|
|
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 per
ton received by the Company. The Companys recovery of $0.099 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 (see Note 9). |
3
PolyMet Mining Corp. |
Notes to Condensed Interim Consolidated
Financial Statements |
As at April 30, 2015 and for the three months ended April
30, 2015 |
Unaudited - Tabular amounts in thousands of U.S.
Dollars, except for number of shares and price per share |
|
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, 2015 |
$ |
296,102
|
|
$ |
145 |
|
$ |
296,247
|
|
|
Additions |
|
7,526 |
|
|
5 |
|
|
7,531 |
|
|
Changes to environmental rehabilitation provision (Note 6) |
|
(4,444 |
) |
|
- |
|
|
(4,444 |
) |
|
Amortization |
|
- |
|
|
(18 |
) |
|
(18 |
) |
|
Balance at April 30, 2015 |
$ |
299,184 |
|
$ |
132 |
|
$ |
299,316 |
|
|
|
|
April 30, |
|
|
January 31, |
|
|
NorthMet
|
|
2015 |
|
|
2015
|
|
|
Mineral property acquisition and interest
costs |
$ |
48,740 |
|
$ |
48,051 |
|
|
Mine plan and development |
|
41,152 |
|
|
40,451 |
|
|
Environmental |
|
83,065 |
|
|
78,866 |
|
|
Consulting and wages |
|
42,801 |
|
|
41,247 |
|
|
Reclamation and remediation (Note 6) |
|
65,010 |
|
|
69,454 |
|
|
Site activities |
|
17,467 |
|
|
17,084 |
|
|
Mine equipment |
|
949 |
|
|
949 |
|
|
|
|
|
|
|
|
|
|
Total |
$ |
299,184 |
|
$ |
296,102 |
|
Erie Plant, Minnesota, U.S.A.
In February 2004, 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.
On December 20, 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.
The transaction also included a railcar fleet, locomotive fuelling and
maintenance facilities, water rights and pipelines, administrative offices on
site and 6,000 acres of land to the east and west of and contiguous to its
existing tailing facilities.
The consideration paid for 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 indemnified Cliffs for
reclamation and remediation obligations as a result of the above purchases (see
Note 6). These obligations are presently contractual in nature 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 three months ended April 30,
2015, the Company capitalized 100% of the borrowing costs on the convertible
debt (see Note 8) and non-convertible debt (see Note 9) in the amount of $0.716
million (April 30, 2014 - $0.448 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
April 30, 2015.
4
PolyMet Mining Corp. |
Notes to Condensed Interim Consolidated
Financial Statements |
As at April 30, 2015 and for the three months ended April
30, 2015 |
Unaudited - Tabular amounts in thousands of U.S.
Dollars, except for number of shares and price per share |
|
5. |
Wetland Credit Intangible |
|
|
|
Details of Wetland Credit Intangibles are as
follows: |
|
|
|
Three months ended |
|
|
Year ended |
|
|
|
|
April 30, 2015 |
|
|
January 31, 2015 |
|
|
Wetland Credit Intangible
beginning of period |
$ |
6,192 |
|
$ |
6,092 |
|
|
Additional investment |
|
100 |
|
|
100 |
|
|
Disposal |
|
(4,404 |
) |
|
- |
|
|
|
|
|
|
|
|
|
|
Wetland Credit Intangible end of period |
$ |
1,888 |
|
$ |
6,192 |
|
In March 2012 the Company acquired a
secured interest in land owned by AG for Waterfowl, LLP ("AG") that is permitted
for wetland restoration. AG subsequently assigned the agreement to EIP
Minnesota, LLC (EIP) in September 2012. EIP will restore the wetlands and,
upon completion, wetland credits are to be issued by the proper governmental
authorities.
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.
In April 2015, the Company entered into a revised agreement with EIP whereby EIP will seek to sell credits that PolyMet does not need to third parties and, over time, reimburse PolyMet for its costs. The financial asset has been designated as available for sale. Upon closing of the transaction, the Company recognized the receivable at fair value calculated using a 9.25% discount rate and 12 year term resulting in a receivable of $2.552 million and a non-cash loss of $1.852 million. The Company accounted for subsequent fair value changes through other comprehensive income or loss. Under the agreement, PolyMet retains the right to purchase up to 300 credits until February 28, 2017 with additional payments due only if PolyMet exercises that right in part or in full.
5
PolyMet Mining Corp. |
Notes to Condensed Interim Consolidated
Financial Statements |
As at April 30, 2015 and for the three months ended April
30, 2015 |
Unaudited - Tabular amounts in thousands of U.S.
Dollars, except for number of shares and price per share |
|
6. |
Environmental Rehabilitation Provision |
|
|
|
Details of Environmental Rehabilitation Provision are as
follows: |
|
|
|
Three months ended |
|
|
Year ended |
|
|
|
|
April 30, 2015 |
|
|
January 31, 2015 |
|
|
Environmental Rehabilitation
Provision beginning of period |
$ |
72,260 |
|
$ |
51,144 |
|
|
Change in estimated liability
|
|
- |
|
|
9,867 |
|
|
Liabilities
discharged |
|
(263 |
) |
|
(977 |
) |
|
Accretion expense |
|
369 |
|
|
1,639 |
|
|
Change in
risk-free interest rate |
|
(4,444 |
) |
|
10,587 |
|
|
Environmental Rehabilitation Provision end
of period |
|
67,922 |
|
|
72,260 |
|
|
Less current
portion |
|
(2,326 |
) |
|
(1,724 |
) |
|
|
|
|
|
|
|
|
|
Non-current portion |
$ |
65,596 |
|
$ |
70,536 |
|
Federal, state and local laws and
regulations concerning environmental protection affect the Companys NorthMet
assets. As part of the consideration for the Cliffs Purchase Agreements (see
Note 4), the Company indemnified Cliffs for reclamation and remediation
obligations of the acquired property. The Companys provisions 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 $9.9
million increase to the provision during the year ended January 31, 2015.
The Companys best estimate of the
environmental rehabilitation provision at April 30, 2015 was $67.9 million
(January 31, 2015 - $72.3 million) based on estimated cash flows required to
settle this obligation in present day costs of $72.3 million (January 31, 2015 -
$72.6 million), an annual inflation rate of 2.00% (January 31, 2015 2.00%) and
a risk-free interest rate of 2.49% (January 31, 2015 2.04%) . Payments are
expected to occur over a period of approximately 31 years.
6
PolyMet Mining Corp. |
Notes to Condensed Interim Consolidated
Financial Statements |
As at April 30, 2015 and for the three months ended April
30, 2015 |
Unaudited - Tabular amounts in thousands of U.S.
Dollars, except for number of shares and price per share |
|
7. |
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 debentures in calendar 2008 drawn in four tranches (Tranches A
through D, together the 2008 Debentures), $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), $20.960 million
purchase of PolyMet common shares in the Rights Offering (the 2013
Agreement), and $30.0 million initial principal debentures in calendar
2015 drawn and to be drawn in four trances (the 2015 Debentures). 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 28.5% of PolyMet's issued
shares; |
|
|
|
|
|
$25.0 million initial principal floating rate secured
debentures due September 30, 2015 (see Note 8). Including capitalized and
accrued interest as at April 30, 2015, these debentures are exchangeable
at $1.2920 per share into 26,192,886 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 111,375,708 common
shares of PolyMet, representing 36.0% on a partially diluted basis, that is, if
no other options or warrants were exercised or 33.4% on a fully diluted basis,
if all other options and warrants were exercised, whether they are in-the-money
or not.
7
PolyMet Mining Corp. |
Notes to Condensed Interim Consolidated
Financial Statements |
As at April 30, 2015 and for the three months ended April
30, 2015 |
Unaudited - Tabular amounts in thousands of U.S.
Dollars, except for number of shares and price per share |
|
7. |
Glencore Financing - Continued |
|
|
|
2015 Agreement |
|
On January 28, 2015, the Company amended its previous
financing arrangement and agreed to issue to Glencore new Tranche F, G, H,
and I debentures with the total principal amount of $30.0 million. Tranche
F in the amount of $8.0 million was issued on January 30, 2015 (see Note
9). Tranche G in the amount of $8.0 million was issued on April 15, 2015
(see Note 9). Tranches H and I in the amounts of $8 million and $6 million,
respectively, are to be issued on or before July 1 and October 1, 2015,
respectively. The 2015 Debentures bear interest at 12-month US dollar
LIBOR plus 8.0% per annum payable in cash upon maturity and mature on the
earlier of (i) the availability of at least $100 million of finance
provided the Company demonstrates repayment is prudent or (ii) March 31,
2016. The Company provided security by way of a guarantee and a pledge of
the assets of the Company and its wholly-owned subsidiary. The Company
recognized the 2015 Debentures initially at fair value and subsequently
accounted for the debentures at amortized cost. Transaction costs for the
financing were $0.150 million. |
|
|
8. |
Convertible Debt |
|
|
|
Details of the Convertible Debt are as
follows: |
|
|
|
Three months ended |
|
|
Year ended |
|
|
|
|
April 30, |
|
|
January 31, |
|
|
|
|
2015 |
|
|
2015
|
|
|
Convertible Debt beginning
of period |
$ |
33,451 |
|
$ |
31,967 |
|
|
Accretion and capitalized
interest |
|
389 |
|
|
1,484
|
|
|
Convertible Debt end of
period |
|
33,840 |
|
|
33,451 |
|
|
Less current portion |
|
(33,840 |
) |
|
(33,451 |
) |
|
|
|
|
|
|
|
|
|
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 4.0%, compounded quarterly. Interest is payable in cash or by
increasing the principal amount of the Debentures, at Glencores option. At
April 30, 2015, $8.840 million (January 31, 2015 - $8.451 million) of interest
had been accreted and capitalized 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 7), 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 borrowing costs were eligible for
capitalization and 100% of these costs were capitalized during the three months
ended April 30, 2015.
8
PolyMet Mining Corp. |
Notes to Condensed Interim Consolidated
Financial Statements |
As at April 30, 2015 and for the three months ended April
30, 2015 |
Unaudited - Tabular amounts in thousands of U.S.
Dollars, except for number of shares and price per share |
|
9. |
Non-Convertible Debt |
|
|
|
Details of Non-Convertible Debt are as
follows: |
|
|
|
April 30, |
|
|
January 31, |
|
|
|
|
2015 |
|
|
2015
|
|
|
IRRRB debt (Note 9a) |
$ |
4,699 |
|
$ |
4,614 |
|
|
Glencore debt (Note 9b) |
|
16,097 |
|
|
7,855
|
|
|
Total Non-Convertible Debt |
|
20,796 |
|
|
12,469 |
|
|
Less current portion |
|
(20,796 |
) |
|
(4,614 |
) |
|
|
|
|
|
|
|
|
|
Non-current portion |
$ |
- |
|
$ |
7,855 |
|
|
a) |
IRRRB debt |
|
|
|
|
|
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. The
loan is classified as current as the land exchange is expected to occur
within 12 months from April 30, 2015. 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 borrowing
costs were eligible for capitalization and 100% of these costs were
capitalized during the three months ended April 30, 2015. |
|
|
|
|
b) |
Glencore debt |
|
|
|
|
|
On January 30, 2015, the Company issued $8.0 million
Tranche F debentures to Glencore that bear interest at 12-month US dollar
LIBOR plus 8.0%. On April 15, 2015, the Company issued $8.0 million
Tranche G debentures to Glencore that bear interest at 12-month US dollar
LIBOR plus 8.0%. The Company has provided security on these 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 these
debentures is the earlier of (i) the availability of at least $100 million
of finance provided the Company demonstrates repayment is prudent or (ii)
March 31, 2016, on which date all principal and interest accrued to such
date will be due and payable. All borrowing costs were eligible for
capitalization and 100% of these costs were capitalized during the three
months ended April 30, 2015. |
9
PolyMet Mining Corp. |
Notes to Condensed Interim Consolidated
Financial Statements |
As at April 30, 2015 and for the three months ended April
30, 2015 |
Unaudited - Tabular amounts in thousands of U.S.
Dollars, except for number of shares and price per share |
|
10. |
Share Capital |
|
|
|
|
a) |
Share Issuances for Cash |
|
|
|
|
|
During the three months ended April 30, 2015 the Company
issued no shares (April 30, 2014 75,000) pursuant to the exercise of
share options for proceeds of $nil (April 30, 2014 - $0.081
million). |
|
|
|
|
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. Options granted may not exceed a term of ten years and
expire if the grantee ceases to be qualified to receive options from the
Company. |
|
|
|
|
|
During the three months ended April 30, 2015, the Company
recorded $0.346 million for share- based compensation (April 30, 2014 -
$0.287 million) with $0.126 million expensed to share- based compensation
(April 30, 2014 - $0.149 million) and $0.220 million capitalized to
mineral property, plant and equipment (April 30, 2014 - $0.138 million).
The offsetting entries were to warrants and share-based payment reserve.
Total share-based compensation for the period comprised $0.133 million for
share options (April 30, 2014 - $0.084 million) and $0.213 million for
restricted shares and restricted share units (April 30, 2014 - $0.203
million). Vesting of restricted share units during the period resulted in
$0.124 million being transferred from warrants and share-based payment
reserve to share capital compared with April 30, 2014 when exercise of
share options resulted in $0.081 million being transferred from warrants
and share-based payment reserve to share capital. |
10
PolyMet Mining Corp. |
Notes to Condensed Interim Consolidated
Financial Statements |
As at April 30, 2015 and for the three months ended April
30, 2015 |
Unaudited - Tabular amounts in thousands of U.S.
Dollars, except for number of shares and price per share |
|
10. |
Share Capital - Continued |
|
|
|
|
c) |
Share Options |
|
|
|
|
|
Details of share options are as
follows: |
|
|
|
Three months ended |
|
|
Year ended |
|
|
|
|
April 30, 2015 |
|
|
January 31, 2015 |
|
|
|
|
|
|
|
Weighted |
|
|
|
|
|
Weighted |
|
|
|
|
|
|
|
Average |
|
|
|
|
|
Average |
|
|
|
|
Number of |
|
|
Exercise |
|
|
Number of |
|
|
Exercise |
|
|
|
|
Options |
|
|
Price (1 |
) |
|
Options |
|
|
Price |
|
|
Outstanding beginning of period |
|
21,085,002 |
|
|
1.33 |
|
|
18,659,000 |
|
|
1.41 |
|
|
Granted |
|
338,000 |
|
|
1.50 |
|
|
2,701,002 |
|
|
1.17 |
|
|
Exercised |
|
- |
|
|
- |
|
|
(75,000 |
) |
|
1.08 |
|
|
Expired |
|
- |
|
|
- |
|
|
(200,000 |
) |
|
1.02 |
|
|
Outstanding end of period |
|
21,423,002 |
|
|
1.36 |
|
|
21,085,002 |
|
|
1.33 |
|
|
(1) |
For information purposes, those share options granted
with an exercise price in Canadian dollars (CDN) have been translated to
the Companys reporting currency using the exchange rate as at April 30,
2015 of 1.00 US$ = 1.2022 CDN$. |
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:
|
|
Three
months ended |
Year
ended |
|
|
April 30, 2015 |
January 31, 2015 |
|
Risk-free interest rate |
0.93% |
0.51% to 0.76% |
|
Expected dividend yield |
Nil |
Nil |
|
Expected forfeiture rate |
Nil |
Nil |
|
Expected volatility |
49.61% |
50.97% to 57.08% |
|
Expected life in years |
2.50 |
2.00 to 3.00 |
|
Weighted average fair value of each option |
$0.32
|
$0.20
to $0.41 |
The expected volatility reflects the
Companys expectation that historical volatility over a period similar to the
life of the option is indicative of future trends, which may or may not
necessarily be the actual outcome.
11
PolyMet Mining Corp. |
Notes to Condensed Interim Consolidated
Financial Statements |
As at April 30, 2015 and for the three months ended April
30, 2015 |
Unaudited - Tabular amounts in thousands of U.S.
Dollars, except for number of shares and price per share |
|
10. |
Share Capital - Continued |
|
|
|
|
c) |
Share Options - Continued |
|
|
|
|
|
Details of share options outstanding as at April 30, 2015
are as follows: |
|
Number of |
Number of |
|
|
Range of Exercise |
options |
options |
Weighted Average |
Weighted Average |
Prices
(1) |
outstanding |
exercisable |
Exercise Price (1) |
Remaining Life |
0.7110 to 0.8671 |
5,045,000 |
4,161,667 |
0.76 |
5.79 |
0.9300 to 1.1500 |
8,822,002 |
8,772,002 |
1.00 |
5.82 |
1.5000 to 1.9907 |
3,921,000 |
3,821,000 |
1.82 |
2.95 |
2.1422 to 2.4886 |
1,565,000 |
1,265,000 |
2.33 |
1.56 |
2.5059 to 3.3990 |
2,070,000 |
1,647,500 |
2.68 |
2.00 |
|
21,423,002 |
19,667,169 |
1.36
|
4.61
|
|
(1) |
For information purposes, those share options granted
with an exercise price in Canadian dollars (CDN) have been translated to
the Companys reporting currency using the exchange rate as at April 30,
2015 of 1.00 US$ = 1.2022 CDN$. |
|
|
As at April 30, 2015 all outstanding share options had
vested and were exercisable, with the exception of 1,755,833, which were
scheduled to vest upon completion of specific targets (EIS 100,000;
Permits 908,333; Construction 337,500; Production 300,000; Other
110,000). The outstanding share options have expiry periods between 0.01
and 9.20 years. |
|
|
|
|
d) |
Restricted Shares and Restricted Share
Units |
|
|
|
|
|
Details of restricted shares and restricted share units
are as follows: |
|
|
|
Three months ended |
|
|
Year ended |
|
|
|
|
April 30, 2015 |
|
|
January 31, 2015 |
|
|
Outstanding - beginning of
period |
|
2,130,286 |
|
|
1,615,510 |
|
|
Issued |
|
- |
|
|
849,522 |
|
|
Vested |
|
(115,888 |
) |
|
(334,746 |
) |
|
Outstanding - end of period |
|
2,014,398 |
|
|
2,130,286 |
|
As at April 30, 2015 outstanding
restricted shares and restricted share units were scheduled to vest upon
completion of specific targets (EIS 91,353; Permits 168,891; Production
168,890; December 2015 909,574; December 2016 559,802; Other 115,888).
12
PolyMet Mining Corp. |
Notes to Condensed Interim Consolidated
Financial Statements |
As at April 30, 2015 and for the three months ended April
30, 2015 |
Unaudited - Tabular amounts in thousands of U.S.
Dollars, except for number of shares and price per share |
|
10. |
Share Capital - Continued |
|
|
|
|
e) |
Bonus Shares |
|
|
|
|
|
Details of bonus shares are as
follows: |
|
|
|
Three months ended |
|
|
Year ended |
|
|
|
|
April 30, 2015 |
|
|
January 31, 2015 |
|
|
|
|
|
|
|
Authorized |
|
|
|
|
|
Authorized |
|
|
|
|
Allocated |
|
|
& Unissued |
|
|
Allocated |
|
|
&
Unissued |
|
|
Outstanding beginning of period |
|
3,150,000 |
|
|
3,640,000 |
|
|
3,540,000 |
|
|
3,640,000 |
|
|
Forfeited |
|
- |
|
|
- |
|
|
(390,000 |
) |
|
- |
|
|
Outstanding end of period |
|
3,150,000 |
|
|
3,640,000 |
|
|
3,150,000 |
|
|
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 authorized 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 in NorthMet. 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 prior year period includes
forfeiture by individuals upon ceasing to be a director or key employee of
the Company. |
|
|
|
|
|
The fair value of these unissued bonus shares is being
amortized until the estimated date of issuance. During the three months
ended April 30, 2015, the Company recorded $0.105 million amortization
related to Milestone 4 bonus shares (April 30, 2014 $0.143 million),
which was capitalized to Mineral Property, Plant and Equipment. |
|
|
|
|
f) |
Share Purchase Warrants |
|
|
|
|
|
Details of share purchase warrants are as
follows: |
|
|
|
Three months ended |
|
|
Year ended |
|
|
|
|
April 30, 2015 |
|
|
January 31, 2015 |
|
|
|
|
|
|
|
Weighted |
|
|
|
|
|
Weighted |
|
|
|
|
Number of |
|
|
Average |
|
|
Number of |
|
|
Average |
|
|
|
|
Purchase |
|
|
Exercise |
|
|
Purchase |
|
|
Exercise |
|
|
|
|
Warrants |
|
|
Price (US$) |
|
|
Warrants |
|
|
Price
(US$) |
|
|
Outstanding beginning of period |
|
8,168,602 |
|
|
1.35 |
|
|
8,168,602 |
|
|
1.35 |
|
|
Outstanding end
of period |
|
8,168,602 |
|
|
1.35 |
|
|
8,168,602 |
|
|
1.35 |
|
The outstanding share purchase
warrants have expiry periods between 0.67 and 1.17 years.
13
PolyMet Mining Corp. |
Notes to Condensed Interim Consolidated
Financial Statements |
As at April 30, 2015 and for the three months ended April
30, 2015 |
Unaudited - Tabular amounts in thousands of U.S.
Dollars, except for number of shares and price per share |
|
11. |
Finance Costs |
|
|
|
Details of finance costs are as
follows: |
|
|
|
Three months ended April 30, |
|
|
|
|
2015 |
|
|
2014 |
|
|
Interest and financing costs,
net |
$ |
3 |
|
$ |
(18 |
) |
|
Accretion of environmental rehabilitation
provision (Note 6) |
|
369 |
|
|
428 |
|
|
|
|
|
|
|
|
|
|
Finance costs |
$ |
372 |
|
$ |
410 |
|
12. |
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: |
|
|
|
Three months ended April 30, |
|
|
|
|
2015 |
|
|
2014 |
|
|
Salaries and other short-term
benefits |
$ |
273 |
|
$ |
320 |
|
|
Other long-term benefits |
|
10 |
|
|
13 |
|
|
Total |
$ |
283 |
|
$ |
333 |
|
|
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 28.5% of the
Company it is also a related party. Transactions with Glencore are
described in Notes 7, 8, and 9. |
|
|
13. |
Commitments and Contingencies |
|
|
|
In addition to items described elsewhere in these
financial statements: |
|
a) |
As at April 30, 2015, the Company had firm commitments
related to the environmental review process, land options, consultants,
and rent of approximately $3.6 million with the majority due over the next
year and the remainder due over three years. |
|
|
|
|
b) |
As at April 30, 2015, the Company had non-binding
commitments to maintain its mineral lease rights of $0.180 million with
all due in the next year. |
14
PolyMet Mining Corp. |
Notes to Condensed Interim Consolidated
Financial Statements |
As at April 30, 2015 and for the three months ended April
30, 2015 |
Unaudited - Tabular amounts in thousands of U.S.
Dollars, except for number of shares and price per share |
|
14. |
Financial Instruments and Risk
Management |
|
|
|
The Companys financial instruments are classified as
loans and receivables, available for sale, and other financial liabilities. |
|
|
|
The carrying values of each classification of financial
instrument at April 30, 2015 are: |
|
|
|
|
|
|
|
|
|
Other |
|
|
|
|
|
|
|
Loans and |
|
|
Available |
|
|
financial |
|
|
Total carrying |
|
|
|
|
receivables |
|
|
for sale |
|
|
liabilities |
|
|
value |
|
|
Financial assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash |
$ |
9,939 |
|
$ |
- |
|
$ |
- |
|
$ |
9,939 |
|
|
Amounts receivable |
|
455 |
|
|
2,568 |
|
|
- |
|
|
3,023 |
|
|
Total financial assets |
$ |
10,394 |
|
$ |
2,568 |
|
$ |
- |
|
$ |
12,962 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financial liabilities |
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts payable and accrued liabilities |
$ |
- |
|
$ |
- |
|
$ |
3,400 |
|
$ |
3,400 |
|
|
Convertible debt |
|
- |
|
|
- |
|
|
33,840 |
|
|
33,840 |
|
|
Non-convertible debt |
|
- |
|
|
- |
|
|
20,796 |
|
|
20,796 |
|
|
Total financial liabilities |
$ |
- |
|
$ |
- |
|
$ |
58,036 |
|
$ |
58,036 |
|
The carrying values of each
classification of financial instrument at January 31, 2015 are:
|
|
|
|
|
|
Other |
|
|
|
|
|
|
|
Loans and |
|
|
financial |
|
|
Total carrying |
|
|
|
|
receivables |
|
|
liabilities |
|
|
value |
|
|
Financial assets |
|
|
|
|
|
|
|
|
|
|
Cash |
$ |
9,301 |
|
$ |
- |
|
$ |
9,301 |
|
|
Amounts receivable |
|
381
|
|
|
- |
|
|
381
|
|
|
Total financial assets |
$ |
9,682 |
|
$ |
- |
|
$ |
9,682 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Financial liabilities |
|
|
|
|
|
|
|
|
|
|
Accounts payable and accrued liabilities |
$ |
- |
|
$ |
2,673 |
|
$ |
2,673 |
|
|
Convertible debt |
|
- |
|
|
33,451 |
|
|
33,451 |
|
|
Non-convertible debt |
|
- |
|
|
12,469 |
|
|
12,469 |
|
|
Total financial liabilities |
$ |
- |
|
$ |
48,593 |
|
$ |
48,593 |
|
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 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. |
Notes to Condensed Interim Consolidated
Financial Statements |
As at April 30, 2015 and for the three months ended April
30, 2015 |
Unaudited - Tabular amounts in thousands of U.S.
Dollars, except for number of shares and price per share |
|
14. |
Financial Instruments and Risk Management -
Continued |
|
|
|
The fair values of cash, current amounts receivable, and accounts payable and accrued liabilities approximate their carrying amounts due to their short-term nature. The fair value of available for sale amounts receivable are based on cash flows discounted using a rate based on the market interest rate and the risk premium specific to the asset. The fair value of convertible debt and non-convertible debt approximates the carrying amount at amortized cost using the effective interest method. |
|
|
|
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. See additional discussion in Note 1. |
16
POLYMET MINING CORP.
MANAGEMENT DISCUSSION AND ANALYSIS
For the three months ended April 30, 2015
PolyMet Mining Corp. |
Management Discussion and Analysis
|
As at April 30, 2015 and for the three months ended April
30, 2015 |
Tabular amounts in thousands of U.S. Dollars, except for
price per share and number of shares |
|
General
The following information, prepared as at June 15, 2015
should be read in conjunction with the unaudited condensed interim
consolidated financial statements of PolyMet Mining Corp. (PolyMet or the
Company) as at April 30, 2015 and for the three months ended April 30, 2015
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, 2015 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;
- Raising the funds necessary to develop the NorthMet Project and continue
operations;
- 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:
- Changes in general economic and business conditions, including changes in
interest rates and exchange rates;
- Changes in the resource market including prices of natural resources,
costs associated with mineral exploration and development, and other economic
conditions;
- Natural phenomena;
- 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 April 30, 2015 and for the three months ended April
30, 2015 |
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.
Summary of Business
PolyMet is a Toronto Stock Exchange and NYSE MKT listed Issuer
engaged in the exploration and development 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 ore body is at the western end of a series of
known copper-nickel-precious metals deposits in the Duluth Complex, Completion
of the Definitive Feasibility Study (DFS) in 2006 established proven and
probable reserves, positioning NorthMet as the most advanced of the four
advanced projects in the Duluth Complex: namely, from west to east NorthMet,
Mesaba, Serpentine, and Nokomis.
PolyMet acquired the Erie Plant through three Contracts for
Deeds with Cliffs Erie LLC, a subsidiary of Cliffs Natural Resources Inc.
(Cliffs). The plant is located about six miles west of the NorthMet ore body
and comprises a 100,000 ton-per-day crushing and milling facility, a railroad
and railroad access rights connecting the Erie Plant to the NorthMet ore body,
tailings facilities, 120 railcars, locomotive fueling and maintenance
facilities, water rights and pipelines, and large administrative offices on
site.
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. 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.
3
PolyMet Mining Corp. |
Management Discussion and Analysis |
As at April 30, 2015 and for the three months ended April
30, 2015 |
Tabular amounts in thousands of U.S. Dollars, except for
price per share and number of shares |
|
Environmental Review
Under the Minnesota
Environmental Policy Act (MEPA) and the National Environmental Policy Act
(NEPA), state and federal agencies are required to complete an Environmental
Impact Statement (EIS) with periods for public review and comment before
permits to construct and operate the Project can be issued.
PolyMet commenced the environmental review and permitting
process in 2004. In 2005 the Minnesota Department of Natural Resources (MDNR)
and U.S. the Army Corps of Engineers (USACE) were established as Co-lead
Agencies for preparation of the NorthMet EIS. Three Minnesota Chippewa bands
joined as Cooperating Agencies. Following publication of a draft EIS in 2010,
the Co-lead Agencies announced that they intended to complete the EIS process by
preparing a supplemental draft EIS (SDEIS) incorporating a proposed land
exchange with the U.S. Forest Service (USFS) and expanded government agency
cooperation, with the USFS joining as a federal Co-lead Agency. In 2011 the U.S.
Environmental Protection Agency (EPA) joined as a Cooperating Agency.
In December 2013 the Co-lead Agencies published the supplemental draft EIS (“SDEIS”), which started a new 90-day period for public review and comment, including three public meetings. Since then, the Co-lead Agencies have been preparing responses to approximately 58,000 comments on the SDEIS which are being incorporated into the preliminary final EIS (“PFEIS”) for review by the Co-lead and Cooperating Agencies prior to publication of the final EIS in the Federal Register and the Minnesota Environmental Quality Board (“EQB”) Monitor, after which the Co-lead Agencies will be able to issue their Adequacy or Records of Decision.
Summary of Recent Events and Outlook
Highlights of Fiscal 2016 to Date
- On June 9, 2015 the MDNR Commissioner stated that the PFEIS would be circulated to the Co-lead and Cooperating Agencies for review “very soon” with final decisions on the adequacy of the final EIS before the end of 2015.
- PolyMet received the second tranche of $8 million from the $30 million Glencore AG, a wholly owned subsidiary of Glencore plc (together “Glencore”), loan facility on April 15, 2015. The remaining $14 million is scheduled to be drawn in two further tranches on or before July 1, 2015 and October 1, 2015.
4
PolyMet Mining Corp. |
Management Discussion and Analysis |
As at April 30, 2015 and for the three months ended April
30, 2015 |
Tabular amounts in thousands of U.S. Dollars, except for
price per share and number of shares |
|
Net cash used in operating and investing activities was $7.318
million, of which approximately $3 million was spent on environmental review and
permitting as PolyMet pays its own engineering and legal consultants and also
reimburses the state of Minnesota for its internal staff costs and the cost of
the EIS Contractor. Other spending relates to maintaining existing
infrastructure, engineering, and general corporate purposes.
Goals and Outlook for Remainder of Fiscal 2016
Publication of the final EIS and a subsequent adequacy decision by the MDNR
and Records 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.
The environmental review and permitting process is managed by
the regulatory agencies and, therefore, timelines are not under PolyMets
control. Understanding that, PolyMets objectives include:
- Publication of the final EIS in the state EQB Monitor and the Federal Register, which PolyMet anticipates will be approximately three months after the PFEIS is circulated to the Co-lead and Cooperating Agencies;
- The Company is preparing mining, air and water permit applications as the EIS process is completed;
- Decision on state permits within 150 days of acceptance of applications, under state guidelines;
- Records of Decision on the federal 404 Wetland Permit and the Land
Exchange;
- Completion of the Definitive Cost Estimate and Project Update; and
- Construction finance plan including commitment of debt prior to the
issuance of permits but subject to typical conditions precedent such as
receipt of permits.
PolyMet expects to spend approximately $30 million during the
year ended January 31, 2016. The primary focus remains completion of the
environmental review and permitting process, which is anticipated to cost
approximately $16 million during the year. Other areas of focus include
engineering and completion of the definitive cost estimates, which is
anticipated to cost approximately $3 million during the year.
PolyMet is in discussion with Glencore regarding a further extension of the $25 million initial principal convertible debenture and anticipates that either the term will be extended or Glencore will convert on or before September 30, 2015.
Prior to receipt of permits, the Company will seek to secure
construction financing that would be available upon receipt of key permits, with
construction and ramp-up to commercial production anticipated to take
approximately 21 months.
The Company is in discussion with commercial banks and other
financial institutions regarding construction finance.
Detailed Description of Business
Asset Acquisitions
In November 2005 the Company, through its Minnesota subsidiary
Poly Met Mining, Inc. (PolyMet US), acquired the Erie Plant, which is located
approximately six 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. The facility includes 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 a new
hydrometallurgical metal recovery processing facility which, when completed, will
upgrade the nickel concentrates to produce a nickel-cobalt hydroxide and a
precious metals precipitate.
5
PolyMet Mining Corp. |
Management Discussion and Analysis |
As at April 30, 2015 and for the three months ended April
30, 2015 |
Tabular amounts in thousands of U.S. Dollars, except for
price per share and number of shares |
|
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 6,000 acres of land to the
east and west of and contiguous to its existing tailing facilities.
PolyMet indemnified Cliffs for reclamation and remediation
associated with the property under both transactions. In April 2010, Cliffs
entered into a consent decree with the 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.
Feasibility Study, Mineral Resources and Mineral
Reserves
With publication of the DFS in September 2006, summarized in a
NI 43-101 Technical Report, 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 2007 PolyMet reported an expansion in these proven and
probable mineral reserves to an estimated 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 an estimated 694.2
million short 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.
In 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.
In 2011 PolyMet further 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.
6
PolyMet Mining Corp. |
Management Discussion and Analysis |
As at April 30, 2015 and for the three months ended April
30, 2015 |
Tabular amounts in thousands of U.S. Dollars, except for
price per share and number of shares |
|
In 2013 PolyMet announced further improvements to the NorthMet
Project that it anticipates will reduce the NorthMet Projects environmental
impacts. The reduced environmental impacts include: reductions in sulfur
dioxide, mercury and greenhouse gas emissions at the plant site, capture of
groundwater and surface seepage with the construction of an in ground
containment system to the north and west of the existing tailings basin, and all
contact water discharged from the NorthMet Project will be treated through
reverse osmosis plants.
An Updated Technical Report under NI 43-101 describing these
changes is filed on EDGAR and SEDAR.
PolyMet plans to complete a Definitive Cost Estimate and
Project Update prior to commencement of construction. The Project Update will
incorporate numerous process and project improvements, environmental controls
described in the SDEIS and subsequent changes that will be reflected in the
final EIS. The Project Update will also include detailed capital and operating
costs reflecting the advanced stage of engineering and design.
Environmental Review and Permitting
PolyMet commenced the environmental review and permitting
process in 2004. In 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 for preparation of an EIS for NorthMet.
In November 2009, the Co-lead Agencies published the NorthMet
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 incorporating
a proposed land exchange with the USFS and expanding government agency
cooperation. The USFS joined the USACE as a federal Co-lead Agency and in June
2011, the EPA joined as a Cooperating Agency.
On December 6, 2013 the Co-lead Agencies published the SDEIS,
which started a new period for public review and comment, including three public
meetings. The EPA issued comments on the SDEIS, which included an EC-2 rating.
The EC-2 rating is the highest rating for a proposed mining project, so far as
the Company is aware. The highest rating LO (Lack of Objections) is typically
applied to non-industrial projects such as the Upper Mississippi National
Wildlife and Fish Refuge Comprehensive Conservation Plan Implementation. The
EC-2 (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 and the St. Croix River Crossing which have been built or are in
the process of being constructed.
The SDEIS received approximately 58,000 comments, of which
several thousand were substantive. The Co-lead Agencies have completed their
analysis of all of the comments and assessment of modifications to the EIS, which are being incorporated into the PFEIS.
On June 9, 2015 the MDNR Commissioner stated that the PFEIS would be circulated to the Co-lead and Cooperating Agencies for review “very soon.” PolyMet anticipates that the final EIS will be published in the Federal Register and the Minnesota EQB Monitor about three months after the PFEIS is completed with final decisions on the adequacy of the final EIS before the end of 2015.
7
PolyMet Mining Corp. |
Management Discussion and Analysis |
As at April 30, 2015 and for the three months ended April
30, 2015 |
Tabular amounts in thousands of U.S. Dollars, except for
price per share and number of shares |
|
Publication of the final EIS 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. The Company is preparing mining, air and water permit applications as the EIS process is completed.
The environmental review and permitting process is managed by the regulatory agencies and, therefore, timelines are not under PolyMet’s control. PolyMet expects that, under state guidelines, there should be decisions on state permits within 150 days of the applications being accepted and Records of Decision on the federal 404 Wetland Permit and the land exchange before the end of 2015.
The major permits are:
U.S. Army Corps of Engineers
- Section 404 Individual Permit for Impacted Wetlands
Minnesota Department of Natural Resources
- Permit to Mine
- Water Appropriations Permit
- Dam Safety Permit
- Wetland Replacement Plan
Minnesota Pollution Control Agency
- National Pollutant Discharge Elimination System (NPDES) Permit (storm
water)
- State Disposal System (SDS) Permit
- Air Emissions Permit
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. The universal shelf registration on Form F-3
allows 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 for 36 months. The Company is currently
evaluating the renewal of the universal shelf registration in Canada, which
expired 25 months after its last renewal in January 2013. Unless otherwise
specified the net proceeds from the offering of the securities will be used for
construction finance for the Companys copper, nickel, precious metals
development project located in Minnesota and for working capital. There were no
issuances of securities under these registrations during the three months ended
April 30, 2015 or the year ended January 31, 2015.
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.
8
PolyMet Mining Corp. |
Management Discussion and Analysis |
As at April 30, 2015 and for the three months ended April
30, 2015 |
Tabular amounts in thousands of U.S. Dollars, except for
price per share and number of shares |
|
The financing agreements comprise $25.0 million initial
principal debentures in calendar 2008 drawn in four tranches (Tranches A through
D, together the 2008 Debentures), $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, $20.960 million purchase
of PolyMet common shares in the Rights Offering, and $30.0 million initial
principal debentures in calendar 2015 drawn and to be drawn in four tranches
(the 2015 Debentures). 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 28.5% 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 April 30,
2015, these debentures are exchangeable at $1.2920 per share into 26,192,886
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 (the 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 111,375,708 common shares of PolyMet,
representing 36.0% on a partially diluted basis, that is, if no other options or
warrants were exercised or 33.4% on a fully diluted basis, if all other options
and warrants were exercised, whether they are in-the-money or not.
On January 28, 2015, the Company amended its previous financing
arrangement and agreed to issue to Glencore new Tranche F, G, H, and I
debentures (2015 Debentures) with the total principal amount of $30.0 million.
Tranche F in the amount of $8.0 million was issued on January 30, 2015. Tranche
G in the amount of $8.0 million was issued on April 15, 2015. Tranches H and I
in the amounts of $8 million and $6 million respectively are to be issued on or
before July 1 and October 1, 2015 respectively. The 2015 Debentures bear
interest at 12-month US dollar LIBOR plus 8.0% per annum payable in cash upon
maturity and mature on the earlier of (i) the availability of at least $100
million of finance provided the Company demonstrates repayment is prudent or
(ii) March 31, 2016. The Company provided security by way of a guarantee and a
pledge of the assets of the Company and its wholly-owned subsidiary. The Company
recognized the 2015 Debentures initially at fair value and subsequently
accounted for the debentures at amortized cost. Transaction costs for the
financing were $0.150 million.
9
PolyMet Mining Corp. |
Management Discussion and Analysis |
As at April 30, 2015 and for the three months ended April
30, 2015 |
Tabular amounts in thousands of U.S. Dollars, except for
price per share and number of shares |
|
Iron Range Resources & Rehabilitation Board ("IRRRB")
Financing
On June 30, 2011, the Company closed a $4.0 million loan from
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. The loan is classified as current as the land exchange is
expected to occur within 12 months from April 30, 2015. 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
In March 2012
the Company acquired a secured interest in land owned by AG that is permitted
for wetland restoration. AG subsequently assigned the agreement to EIP
Minnesota, LLC (EIP) in September 2012. EIP will restore the wetlands and,
upon completion, wetland credits are to be issued by the proper governmental
authorities.
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 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.
In April 2015, the Company entered into a revised agreement with EIP whereby EIP will seek to sell credits that PolyMet does not need to third parties and, over time, reimburse PolyMet for its costs. The financial asset has been designated as available for sale. Upon closing of the transaction, the Company recognized the receivable at fair value calculated using a 9.25% discount rate and 12 year term resulting in a receivable of $2.552 million and a non-cash loss of $1.852 million. The Company accounted for subsequent fair value changes through other comprehensive income or loss. Under the agreement, PolyMet retains the right to purchase up to 300 credits until February 28, 2017 with additional payments due only if PolyMet exercises that right in part or in full.
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.
10
PolyMet Mining Corp. |
Management Discussion and Analysis |
As at April 30, 2015 and for the three months ended April
30, 2015 |
Tabular amounts in thousands of U.S. Dollars, except for
price per share and number of shares |
|
The key business objectives that the Company expected to
accomplish with the proceeds of the Rights Offering were: (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.
As at April 30, 2015, 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 |
) |
|
(29,488 |
) |
|
(12,488 |
) |
|
(3) |
Maintain Existing Infrastructure |
|
(5,000 |
) |
|
(6,363 |
) |
|
(1,363 |
) |
|
|
Engineering |
|
(10,000 |
) |
|
(3,481 |
) |
|
6,519 |
|
|
(4) |
Procure Long Lead Equipment |
|
(10,000 |
) |
|
-0- |
|
|
10,000 |
|
|
(4) |
General Corporate Purposes |
$ |
(11,850 |
) |
$ |
(12,026 |
) |
$ |
(176 |
) |
|
|
Remaining Rights Offering Cash |
$ |
- |
|
$ |
- |
|
$ |
- |
|
|
|
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 was
deferred where appropriate to focus on receipt of
permits. |
Other Financings
During the three months ended April
30, 2015 the Company issued no shares (prior year period 75,000) pursuant to
the exercise of share options for proceeds of $nil (prior year period - $0.081
million).
During the three months ended April 30, 2015, the Company
issued 38,321 shares (prior year period nil) as partial payment for options to
purchase land.
11
PolyMet Mining Corp. |
Management Discussion and Analysis |
As at April 30, 2015 and for the three months ended April
30, 2015 |
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
|
Apr 30 2015 |
Jan 31 2015 |
Oct 31 2014 |
Jul 31 2014 |
Apr 30 2014 |
Jan 31 2014 |
Oct 31 2013 |
Jul 31 2013 |
Revenues |
- |
- |
- |
- |
- |
- |
- |
- |
General and Administrative |
(1,343) |
(1,796) |
(1,131) |
(1,171) |
(1,391) |
(2,602) |
(1,373) |
(1,372) |
Other Income (Expenses) |
(2,215) |
(467) |
(488) |
(439) |
(393) |
(355) |
(380) |
(390) |
Loss for the Period |
(3,558) |
(2,263) |
(1,619) |
(1,610) |
(1,784) |
(2,957) |
(1,753) |
(1,762) |
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
|
(1,512) |
(1,186) |
(861) |
(1,077) |
(1,072) |
(1,493) |
(1,955) |
(519) |
Cash provided by (used) by
financing activities |
7,954 |
7,896 |
- |
- |
81 |
- |
- |
38,326 |
Cash used in investing activities
|
(5,806) |
(6,258) |
(6,552) |
(6,227) |
(8,216) |
(6,215) |
(6,315) |
(8,138) |
|
(1) |
Loss per share amounts may not reconcile due to rounding
differences. |
The loss for the period includes share-based compensation
expense for the three months ended:
April 30, 2015 - $0.126 million |
April 30, 2014 - $0.149 million |
January 31, 2015 - $0.622 million |
January 31, 2014 - $1.340 million |
October 31, 2014 - $0.134 million |
October 31, 2013 - $0.084 million |
July 31, 2014 - $0.216 million |
July 31, 2013 - $0.089 million
|
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 sections above and below.
Three months ended April 30, 2015 compared to three months
ended April 30, 2014
The Companys focus during the three months ended April 30,
2015 was to provide the Lead Agencies with input into the FEIS and permit work
at the NorthMet Project and obtain additional financing.
a) Loss for the Period:
During the three months ended April 30, 2015, the Company
incurred a loss of $3.558 million ($0.01 loss per share) compared to a loss of
$1.784 million ($0.01 loss per share) during the three months ended April 30,
2014. The increase in the loss for the period was primarily attributable to a
non-cash loss on disposal of Wetland Credit Intangible as the proceeds will be
received over many years.
12
PolyMet Mining Corp. |
Management Discussion and Analysis |
As at April 30, 2015 and for the three months ended April
30, 2015 |
Tabular amounts in thousands of U.S. Dollars, except for
price per share and number of shares |
|
b) Cash Flows for the Period:
Cash used in operating activities in the three months ended
April 30, 2015 was $1.512 million compared to cash used in the three months
ended April 30, 2014 of $1.072 million. The variance in cash is primarily due to
changes in non-cash working capital balances.
Cash provided by financing activities for the three months
ended April 30, 2015 was $7.954 million compared to cash provided in the three
months ended April 30, 2014 of $0.081 million. The increase was primarily due to
funding from a non-convertible loan.
Cash used in investing activities for the three months ended
April 30, 2015 was $5.806 million compared to cash used in the three months
ended April 30, 2014 of $8.216 million. The decrease was primarily due to
efforts in the prior year period surrounding the SDEIS public comment period and
review of comments received.
Including the effect of foreign exchange, total cash for the
three months ended April 30, 2015 increased by $0.638 million for a balance of
$9.939 million compared to the three months ended April 30, 2014 where cash
decreased $9.203 million to a balance of $23.587 million.
c) Capital Expenditures for the Period:
During the three months ended April 30, 2015 the Company
capitalized $3.069 million of mineral property, plant, and equipment costs
related to the NorthMet Project and other fixed assets as compared to $8.813
million during the three months ended April 30, 2015. The decrease is primarily
due to the environmental rehabilitation provision, which decreased during the
current year period by $4.444 million compared with an increase during the prior
year period by $0.650 million as a result of changes in the risk-free interest
rate. In addition, the Company capitalized $0.100 million (prior year period
$0.100 million) of wetland credit intangible costs related to wetland credit
options and development agreements.
Liquidity and Capital Resources
As at April 30, 2015, the Company had a working capital
deficiency of $48.557 million compared with a working capital deficiency of
$31.672 million as at January 31, 2015. The large increase is the result of the
non-convertible debt to Glencore being reclassified as a current liability
during the period. Working capital consists primarily of cash of $9.939 million
(January 31, 2015 - $9.301 million), current amounts receivable of $0.740
million (January 31, 2015 - $0.381 million), prepaid expenses of $1.126 million
(January 31, 2015 - $1.108 million), accounts payable and accrued liabilities of
$3.400 million (January 31, 2015 - $2.673 million), convertible debt of $33.840
million (January 31, 2015 - $33.451 million), non-convertible debt of $20.796
million (January 31, 2015 - $4.614 million) and the current portion of
environmental rehabilitation provision of $2.326 million (January 31, 2015 -
$1.724 million).
As at April 30, 2015, the Company has firm commitments related
to the environmental review process, land options, consultants, and rent of
approximately $3.6 million with the majority due over the next year and the
remainder due over three years.
As at April 30, 2015, the Company had non-binding commitments
to maintain its mineral lease rights of $0.180 million with all due in the next
year.
As at April 30, 2015, 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.
13
PolyMet Mining Corp. |
Management Discussion and Analysis |
As at April 30, 2015 and for the three months ended April
30, 2015 |
Tabular amounts in thousands of U.S. Dollars, except for
price per share and number of shares |
|
The condensed interim 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 April 30, 2015, PolyMet had cash of $9.939 million and a working capital deficiency of $48.557 million primarily due to the $33.840 million convertible debt and $16.097 non-convertible debt due to Glencore being classified as a current liability. If Glencore does not exchange the convertible debt for common shares upon maturity, PolyMet will need to renegotiate the agreement or raise sufficient funds to repay the convertible 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 financing
arrangements with Glencore, and the ongoing discussions with numerous investment
banks and investors including Glencore regarding potential financing, 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 Companys spending plans for the next twelve
months.
See additional discussion in the Summary of Recent Events and
Outlook section above and Financial Instruments and Risk Management section
below.
14
PolyMet Mining Corp. |
Management Discussion and Analysis |
As at April 30, 2015 and for the three months ended April
30, 2015 |
Tabular amounts in thousands of U.S. Dollars, except for
price per share and number of shares |
|
Financial Instruments and Risk Management
The Companys financial instruments are classified as loans and
receivables and other financial liabilities.
The carrying values of each classification of financial
instrument at April 30, 2015 are:
|
|
|
|
|
|
|
|
Other |
|
|
Total |
|
|
|
Loans and |
|
|
Available for |
|
|
financial |
|
|
carrying |
|
|
|
receivables |
|
|
sale |
|
|
liabilities |
|
|
value |
|
Financial assets |
|
|
|
|
|
|
|
|
|
|
|
|
Cash |
$ |
9,939 |
|
$ |
- |
|
$ |
- |
|
$ |
9,939 |
|
Amounts receivable |
|
455 |
|
|
2,568 |
|
|
- |
|
|
3,023 |
|
Total financial assets |
$ |
10,394 |
|
$ |
2,568 |
|
$ |
- |
|
$ |
12,962 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financial liabilities |
|
|
|
|
|
|
|
|
|
|
|
|
Accounts payable and accrued liabilities |
$ |
- |
|
$ |
- |
|
$ |
3,400 |
|
$ |
3,400 |
|
Convertible debt |
|
- |
|
|
- |
|
|
33,840 |
|
|
33,840 |
|
Non-convertible debt |
|
- |
|
|
- |
|
|
20,796 |
|
|
20,796 |
|
Total financial liabilities |
$ |
- |
|
$ |
- |
|
$ |
58,036 |
|
$ |
58,036 |
|
The carrying values of each classification of financial
instrument at January 31, 2015 are:
|
|
|
|
|
Other |
|
|
Total |
|
|
|
Loans and |
|
|
financial |
|
|
carrying |
|
|
|
receivables |
|
|
liabilities |
|
|
value |
|
Financial assets |
|
|
|
|
|
|
|
|
|
Cash |
$ |
9,301 |
|
$ |
- |
|
$ |
9,301 |
|
Amounts receivable |
|
381
|
|
|
- |
|
|
381
|
|
Total financial assets |
$ |
9,682 |
|
$ |
- |
|
$ |
9,682 |
|
|
|
|
|
|
|
|
|
|
|
Financial liabilities |
|
|
|
|
|
|
|
|
|
Accounts payable and accrued liabilities |
$ |
- |
|
$ |
2,673 |
|
$ |
2,673 |
|
Convertible debt |
|
- |
|
|
33,451 |
|
|
33,451 |
|
Non-convertible debt |
|
- |
|
|
12,469 |
|
|
12,469 |
|
Total financial liabilities |
$ |
- |
|
$ |
48,593 |
|
$ |
48,593 |
|
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 April 30, 2015 and for the three months ended April
30, 2015 |
Tabular amounts in thousands of U.S. Dollars, except for
price per share and number of shares |
|
The fair values of cash, current amounts receivable, and accounts payable and accrued liabilities approximate their carrying amounts due to their short-term nature. The fair value of available for sale amounts receivable are based on cash flows discounted using a rate based on the market interest rate and the risk premium specific to the asset. The fair value of convertible debt and non-convertible debt approximates the carrying amount at amortized cost using the effective interest method.
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. See additional
discussion in the Liquidity and Capital Resources section above.
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:
|
|
Three months ended April 30, |
|
|
|
2015 |
(1) |
|
2014 |
(2) |
Salaries and other short-term benefits |
$ |
273 |
|
$ |
320 |
|
Other long-term benefits |
|
10 |
|
|
13 |
|
Total |
$ |
283 |
|
$ |
333 |
|
|
(1) |
Three months ended April 30, 2015 includes Directors
(Jonathan Cherry, Matthew Daley, David Dreisinger, W. Ian L. Forrest, Alan
Hodnik, William Murray, Stephen Rowland, and Michael Sill) and senior
management (Jonathan Cherry, Douglas Newby, and Bradley Moore). |
|
(2) |
Three months ended April 30, 2014 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, and Bradley
Moore). |
There are agreements with key employees (Jonathan Cherry,
Douglas J. Newby 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 28.5% 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.
16
PolyMet Mining Corp. |
Management Discussion and Analysis |
As at April 30, 2015 and for the three months ended April
30, 2015 |
Tabular amounts in thousands of U.S. Dollars, except for
price per share and number of shares |
|
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.
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 Board of
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 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.
17
PolyMet Mining Corp. |
Management Discussion and Analysis |
As at April 30, 2015 and for the three months ended April
30, 2015 |
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 on the mineral property interests was recorded for the three
months ended April 30, 2015 or the year ended January 31, 2015.
(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.
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.
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:
18
PolyMet Mining Corp. |
Management Discussion and Analysis |
As at April 30, 2015 and for the three months ended April
30, 2015 |
Tabular amounts in thousands of U.S. Dollars, except for
price per share and number of shares |
|
IFRS 15 Revenue from Contracts with
Customers
IFRS 15 establishes principles for reporting the
nature, amount, timing, and uncertainty of revenue and cash flows arising from
an entitys contract with customers and is effective for annual periods
beginning on or after January 1, 2017 with early adoption permitted. The Company
is currently assessing the impact of adopting IFRS 15 on its consolidated
financial statements.
IFRS 9 Financial instruments - classification and
measurement
IFRS 9 provides a revised model for recognition,
measurement and impairment of financial instruments and is effective for annual
periods beginning on or after January 1, 2018 with early adoption permitted. The
Company is currently assessing the impact of adopting IFRS 9 on its consolidated
financial statements.
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 June 10, 2015:
Type of Security |
Number
Outstanding |
Weighted Average Exercise Price
(US$) |
Issued and outstanding common shares |
276,505,583 |
$
- |
Restricted share units |
1,664,045 |
$ -
|
Share options * |
20,573,002 |
$ 1.30
|
Share purchase warrants |
8,168,602 |
$ 1.35
|
Convertible debt |
26,294,949 |
$ 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 June 10,
2015 of US$1.00 = CDN$1.2375. |
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, 2015
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, 2015 occur, the
Companys business, operating results and financial condition could be seriously
harmed and investors could lose all of their investment.
19
PolyMet Mining Corp. |
Management Discussion and Analysis |
As at April 30, 2015 and for the three months ended April
30, 2015 |
Tabular amounts in thousands of U.S. Dollars, except for
price per share and number of shares |
|
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, have
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, 2015. Based on this evaluation, the CEO and CFO have concluded
that the Companys disclosure controls and procedures were effective at January
31, 2015.
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 (2013) 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, 2015, the
Companys internal control over financial reporting was effective.
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 three month period ended April 30, 2015 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.
20
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 April 30,
2015. |
|
|
|
|
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 the Internal Control Integrated Framework (2013)
published by The Committee of Sponsoring Organizations of the Treadway
Commission (COSO). |
|
|
|
|
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 February 1, 2015 and ended on
April 30, 2015 that has materially affected, or is reasonably likely to
materially affect, the issuers ICFR. |
Date: June 15, 2015
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 April 30,
2015. |
|
|
|
|
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 the Internal Control Integrated Framework (2013)
published by The Committee of Sponsoring Organizations of the Treadway
Commission (COSO). |
|
|
|
|
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 February 1, 2015 and ended on
April 30, 2015 that has materially affected, or is reasonably likely to
materially affect, the issuers ICFR. |
Date: June 15, 2015
Douglas Newby
(signed)
Douglas Newby
Chief Financial Officer
1
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