The following table sets forth certain standard conversions
from the International System of Units (metric units) to the Standard Imperial
Units:
This Annual Report and the documents incorporated by reference
herein contain forward-looking statements within the meaning of the United
States Private Securities Litigation Reform Act of 1995 and forward-looking
information within the meaning of applicable Canadian securities legislation
(collectively, Forward-Looking Statements). All statements, other than
statements of historical fact, that address activities, events or developments
that the Company believes, expects or anticipates will, may, could or might
occur in the future are Forward-Looking Statements. The words expect,
anticipate, estimate, may, could, might, will, would, should,
intend, believe, target, budget, plan, strategy, goals,
objectives, projection or the negative of any of these words and similar
expressions are intended to identify Forward-Looking Statements, although these
words may not be present in all Forward-Looking Statements. Forward-Looking
Statements included or incorporated by reference in this Annual Report include,
without limitation, statements with respect to:
Forward-Looking Statements reflect the current expectations or
beliefs of the Company based on information currently available to the Company.
Forward-Looking Statements in respect of capital costs, operating costs,
production rate, grade per tonne and concentrator and smelter recovery are based
upon the estimates in the technical report referred to in this Annual Report and
in the documents incorporated by reference herein and ongoing cost estimation
work, and the Forward-Looking Statements in respect of metal prices and exchange
rates are based upon the three year trailing average prices and the assumptions
contained in such technical report and ongoing estimates.
Forward-Looking Statements are subject to a number of risks and
uncertainties that may cause the actual events or results to differ materially
from those discussed in the Forward-Looking Statements, and even if events or
results discussed in the Forward-Looking Statements are realized or
substantially realized, there can be no assurance that they will have the
expected consequences to, or effects on, the Company. Factors that could cause
actual results or events to differ materially from current expectations include,
among other things:
These factors should be considered carefully, and investors
should not place undue reliance on the Companys Forward-Looking Statements. In
addition, although the Company has attempted to identify important factors that
could cause actual actions or results to differ materially from those described
in Forward-Looking Statements, there may be other factors that cause actions or
results not to be as anticipated, estimated or intended.
The mineral resource and mineral reserve figures referred to in
this Annual Report and the documents incorporated herein by reference are
estimates and no assurances can be given that the indicated levels of platinum
(
Pt
), palladium (
Pd
), rhodium (
Rh
) and gold
(
Au
) will be produced. Such estimates are expressions of judgment based
on knowledge, mining experience, analysis of drilling results and industry
practices. Valid estimates made at a given time may significantly change when
new information becomes available. By their nature, mineral resource and mineral
reserve estimates are imprecise and depend, to a certain extent, upon
statistical inferences which may ultimately prove unreliable. Any inaccuracy or
future reduction in such estimates could have a material adverse impact on the
Company.
Any Forward-Looking Statement speaks only as of the date on
which it is made and, except as may be required by applicable securities laws,
the Company disclaims any intent or obligation to update any Forward-Looking
Statement, whether as a result of new information, future events or results or
otherwise.
Estimates of mineralization and other technical information
included or incorporated by reference herein have been prepared in accordance
with Canadas National Instrument 43-101
Standards of Disclosure for
Mineral Projects
(
NI 43-101
). The definitions of proven and
probable reserves used in NI 43-101 differ from the definitions in SEC Industry
Guide 7 of the U.S. Securities and Exchange Commission (the
SEC
). Under
SEC Industry Guide 7 standards, a final or bankable feasibility study is
required to report reserves, the three-year historical average price is used in
any reserve or cash flow analysis to designate reserves and the primary environmental analysis or
report must be filed with the appropriate governmental authority. As a result,
the reserves reported by the Company in accordance with NI 43-101 may not
qualify as reserves under the current SEC standards. In addition, the terms
mineral resource, measured mineral resource, indicated mineral resource
and inferred mineral resource are defined in and required to be disclosed by
NI 43-101; however, these terms are not defined terms under SEC Industry Guide 7
and have not normally been permitted to be used in reports and registration
statements filed with the SEC. Mineral resources that are not mineral reserves
do not have demonstrated economic viability. Investors are cautioned not to
assume that any part or all of the mineral deposits in these categories will
ever be converted into reserves. Inferred mineral resources have a great
amount of uncertainty as to their existence, and great uncertainty as to their
economic and legal feasibility. It cannot be assumed that all or any part of an
inferred mineral resource will ever be upgraded to a higher category. Under
Canadian securities laws, estimates of inferred mineral resources may not form
the basis of feasibility or prefeasibility studies, except in rare cases. See
Reserve and Mineral Resource Disclosure. Additionally, disclosure of
contained ounces in a resource is permitted disclosure under Canadian
securities laws; however, SEC Industry Guide 7 normally only permits issuers to
report mineralization that does not constitute reserves by SEC Industry Guide
7 standards as in place tonnage and grade without reference to unit
measurements. Accordingly, information contained in this Annual Report and the
documents incorporated by reference herein containing descriptions of the
Companys mineral deposits may not be comparable to similar information made
public by U.S. companies subject to the reporting and disclosure requirements of
SEC Industry Guide 7. The Company has not disclosed or determined any mineral
reserves under the current SEC Industry Guide 7 standards in respect of any of
its properties.
Due to the uncertainty that may be attached to inferred mineral
resource estimates, it cannot be assumed that all or any part of an inferred
mineral resource estimate will be upgraded to an indicated or measured mineral
resource estimate as a result of continued exploration. Confidence in an
inferred mineral resource estimate is insufficient to allow meaningful
application of the technical and economic parameters to enable an evaluation of
economic viability sufficient for public disclosure, except in certain limited
circumstances set out NI 43-101. Inferred mineral resource estimates are
excluded from estimates forming the basis of a feasibility study.
NI 43-101 requires mining companies to disclose reserves and
resources using the subcategories of proven reserves, probable reserves,
measured resources, indicated resources and inferred resources. Mineral
resources that are not mineral reserves do not have demonstrated economic
viability.
A mineral reserve is the economically mineable part of a
measured or indicated mineral resource demonstrated by at least a preliminary
feasibility study. This study must include adequate information on mining,
processing, metallurgical, infrastructure, economic, marketing, legal,
environmental, social, governmental and other relevant factors that demonstrate,
at the time of reporting, that economic extraction can be justified. A mineral
reserve includes diluting materials and allowances for losses which may occur
when the material is mined or extracted. A proven mineral reserve is the
economically mineable part of a measured mineral resource for which quantity,
grade or quality, densities, shape and physical characteristics are estimated
with confidence sufficient to allow the appropriate application of technical and
economic parameters to support detailed mine planning and final evaluation of
the economic viability of the deposit. A probable mineral reserve is the
economically mineable part of an indicated, and in some circumstances, a
measured mineral resource for which quantity, grade or quality, densities, shape
and physical characteristics are estimated with sufficient confidence to allow
the appropriate application of technical and economic parameters in
sufficient detail to support mine planning and evaluation of the economic
viability of the deposit.
A mineral resource is a concentration or occurrence of solid
material in or on the Earths crust in such form, grade or quality and quantity
that there are reasonable prospects for eventual economic extraction. The
location, quantity, grade or quality, continuity and other geological
characteristics of a mineral resource are known, estimated or interpreted from
specific geological evidence and knowledge, including sampling. A measured
mineral resource is that part of a mineral resource for which quantity, grade
or quality, densities, shape, and physical characteristics are estimated with
confidence sufficient to allow the appropriate application of technical and
economic parameters to support detailed mine planning and final evaluation of
the economic viability of the deposit. Geological evidence is derived from
detailed and reliable exploration, sampling and testing and is sufficient to
confirm geological and grade or quality continuity between points of
observation. An indicated mineral resource is that part of a mineral resource
for which quantity, grade or quality, densities, shape and physical
characteristics are estimated with sufficient confidence to allow the
application of technical and economic parameters in sufficient detail to support
mine planning and evaluation of the economic viability of the deposit.
Geological evidence is derived from adequately detailed and reliable
exploration, sampling and testing and is sufficient to assume geological and
grade continuity between points of observation. Mineral resources that are not
mineral reserves do not have demonstrated economic viability. An inferred
mineral resource is that part of a mineral resource for which quantity and
grade or quality are estimated on the basis of limited geological evidence and
sampling. Geological evidence is sufficient to imply but not verify geological
and grade or quality continuity. An inferred mineral resource is based on
limited information and sampling gathered through appropriate sampling
techniques from locations such as outcrops, trenches, pits, workings and drill
holes.
A feasibility study is a comprehensive technical and economic
study of the selected development option for a mineral project that includes
appropriately detailed assessments of applicable mining, processing,
metallurgical, infrastructure, economic, marketing, legal, environmental,
social, governmental and other relevant operational factors and detailed
financial analysis that are necessary to demonstrate, at the time of reporting,
that extraction is reasonably justified (economically mineable). The results of
the study may serve as the basis for a final decision by a proponent or
financial institution to proceed with, or finance, the development of the
project. A preliminary feasibility study or pre-feasibility study is a
comprehensive study of a range of options for the technical and economic
viability of a mineral project that has advanced to a stage where a preferred
mining method, in the case of underground mining, or the pit configuration, in
the case of an open pit, is established and an effective method of mineral
processing is determined. It includes a financial analysis based on reasonable
assumptions on the applicable mining, processing, metallurgical, infrastructure,
economic, marketing, legal, environmental, social, governmental and other
relevant operational factors and the evaluation of any other relevant factors
which are sufficient for a qualified person, acting reasonably, to determine if
all or part of the mineral resource may be converted to a mineral reserve at the
time of reporting. Cut-off grade means (a) in respect of mineral resources,
the lowest grade below which the mineralized rock currently cannot reasonably be
expected to be economically extracted, and (b) in respect of mineral reserves,
the lowest grade below which the mineralized rock currently cannot be
economically extracted as demonstrated by either a preliminary feasibility study
or a feasibility study. Cut-off grades vary between deposits depending upon the
amenability of ore to mineral extraction and upon costs of production and metal
prices.
PART I
ITEM 1.
|
IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND
ADVISERS
|
Not applicable.
ITEM 2.
|
OFFER STATISTICS AND EXPECTED TIMETABLE
|
Not applicable.
A.
|
Selected Financial Data
|
The Company’s selected financial data as at August 31, 2018 and 2017 and
for the fiscal years ended August 31, 2018, 2017 and 2016 are derived from its
consolidated financial statements which have been audited by
PricewaterhouseCoopers LLP as indicated in their independent auditors report
which is included elsewhere in this Annual Report. The selected financial data
as at August 31, 2016 and 2015 and September 1, 2014 and for the fiscal year
ended August 31, 2015 are derived from audited consolidated financial statements
which are not included in this Annual Report.
The selected financial data should be read in conjunction with
the financial statements and notes thereto as well as the information appearing
under Item 5 Operating and Financial Review and Prospects.
Summary of Financial Data
The Company’s financial statements and the table set forth below have
been prepared in accordance with IFRS, as issued by the IASB. All figures
presented are in USD. On September 1, 2015, the first day of the 2016 fiscal
year, the Company changed its presentation currency from CDN to USD. As a
result, historical financial information from and after September 1, 2014 was
restated in USD. The Company has omitted the presentation of selected financial
data for periods prior to September 1, 2014 because such financial data cannot
be restated in USD without unreasonable effort or expense.
SELECTED FINANCIAL DATA
(in thousands of
USD, except
share and per share data)
|
|
|
|
|
|
|
Year Ended
31-Aug-18
|
Year Ended
31-Aug-17
|
Year Ended
31-Aug-16
|
Year Ended
31-Aug-15
|
|
Other Income
|
2,056
|
3,143
|
1,133
|
3,781
|
|
Net Loss
|
41,024
|
590,371
|
36,651
|
3,972
|
|
Loss Per Share
|
0.20
|
4.30
|
0.26
|
0.05
|
|
Dividends per Share
|
-
|
-
|
-
|
-
|
|
|
31-Aug-18
|
31-Aug-17
|
31-Aug-16
|
31-Aug-15
|
1-Sep-14
|
Working Capital
|
7,744
|
13,258
|
(20,683)
|
33,114
|
86,579
|
Total Assets
|
41,849
|
100,528
|
519,858
|
498,342
|
506,055
|
Long Term Liabilities
|
57,807
|
61,046
|
56,823
|
8,626
|
12,159
|
Mineral Properties
|
29,406
|
22,900
|
22,346
|
24,629
|
28,154
|
Property Plant and Equipment
|
1,057
|
1,543
|
469,696
|
417,177
|
356,483
|
Shareholders Equity
|
(19,530)
|
(23,226)
|
419,448
|
473,346
|
467,617
|
Capital Stock
|
818,454
|
800,894
|
714,190
|
681,762
|
573,800
|
Number of Shares
|
291,034,110
|
148,469,377
|
88,857,028
|
76,894,302
|
55,131,283
|
17
B.
|
Capitalization and
Indebtedness
|
Not applicable.
C.
|
Reasons for the Offer and Use of
Proceeds
|
Not applicable.
The Companys securities should be considered a highly
speculative investment due to the nature of the Companys business and present
stage of exploration and development of its mineral properties. Resource
exploration and development is a speculative business, characterized by a number
of significant risks including, among other things, unprofitable efforts
resulting not only from the failure to discover mineral deposits but also from
finding mineral deposits, which, though present, are insufficient in quantity or
quality to return a profit from production. Investors should carefully consider
all of the information disclosed in the Companys Canadian and U.S. regulatory
filings prior to making an investment in the Company. Without limiting the
foregoing, the following risk factors should be given special consideration when
evaluating an investment in the Companys securities. Additional risks not
currently known to the Company, or that the Company currently deems immaterial,
may also impair the Companys operations.
Risks
Relating to the Company
The Company may be unable to generate sufficient cash to
service its debt or otherwise comply with the terms of its debt, the terms of
the agreements governing the Companys debt may restrict its current or future
operations and the indebtedness may adversely affect the Companys financial
condition and results of operations.
The Companys ability to make scheduled payments on its
indebtedness will depend on its ability to successfully realize on the proceeds
from the Maseve Sale Transaction and raise additional funding by way of debt or
equity offerings. It will also depend on the Companys financial condition and
operating performance, which are subject to prevailing economic and competitive
conditions and to certain financial, business, legislative, regulatory and other
factors beyond its control. If the Companys cash flows and capital resources
are insufficient to fund its debt service obligations, including if the Company
is unable to realize on the proceeds of Step 2 of the Maseve Sale Transaction or
if any necessary extensions or waivers the Companys lenders are not available,
the Company could face substantial liquidity problems. This could also force the
Company to reduce or delay investments and capital expenditures or to dispose of
material assets or operations, seek additional debt or equity capital or
restructure or refinance its indebtedness, including indebtedness under the LMM
Facility. The Company may not be able to effect any such alternative measures on
commercially reasonable terms or at all. Additionally, even if successful, those
alternatives may not allow the Company to meet its scheduled debt service
obligations.
18
In addition, a breach of the covenants under the Companys debt
instruments could result in an event of default under the applicable
indebtedness, or other events of default could occur. Such default could result
in secured creditors realization of collateral. It may also allow the creditors
to accelerate the related debt, result in the imposition of default interest,
and result in the acceleration of any other debt to which a cross acceleration
or cross default provision applies. In particular, a cross default provision
applies to certain of the Companys indebtedness, including the LMM Facility and
the Notes (defined below). In the event a lender accelerates the repayment of
the Companys borrowings, the Company may not have sufficient assets to repay
its indebtedness.
The Companys debt instruments include a number of covenants
that impose operating and financial restrictions on it and may limit its ability
to engage in acts that may be in its long term best interest. In particular, the
LMM Facility requires the Company to sell its RBPlat ordinary shares by December
14, 2018, and to take all steps and actions as may be required to maintain the
listing and posting for trading of the Common Shares on the Toronto Stock Exchange (the
TSX
) and the
NYSE American LLC (the
NYSE American
), provided that the Company may
move its listings to any other stock exchange or market as is acceptable to LMM.
The LMM Facility also restricts the Companys ability to:
|
modify material contracts;
|
|
|
|
dispose of assets;
|
|
|
|
use the proceeds from permitted dispositions
and financings;
|
|
|
|
incur additional indebtedness;
|
|
|
|
enter into transactions with affiliates;
|
|
|
|
grant security interests or encumbrances; and
|
|
|
|
use proceeds from future debt or equity
financings.
|
The indenture governing the Notes (defined below) also includes
restrictive covenants, including, without limitation, covenants restricting the
incurrence of indebtedness and the use of proceeds from asset sales. As a result
of these and other restrictions, the Company:
|
may be limited in how it conducts its business,
|
|
|
|
may be unable to raise additional debt or
equity financing,
|
|
|
|
may be unable to compete effectively or to take
advantage of new business opportunities or
|
|
|
|
may become in breach of its obligations to the
other shareholders of Waterberg JV Co., Mnombo and others,
|
each of which may affect the Companys ability to grow in
accordance with its strategy or may otherwise adversely affect its business and
financial condition.
19
Further, the Companys maintenance of substantial levels of
debt could adversely affect its financial condition and results of operations
and could adversely affect its flexibility to take advantage of corporate
opportunities. Substantial levels of indebtedness could have important
consequences to the Company, including:
|
limiting the Companys ability to obtain additional
financing to fund future working capital, capital expenditures,
acquisitions or other general corporate requirements, or requiring it to
make non-strategic divestitures;
|
|
|
|
requiring a substantial portion of the Companys cash
flows to be dedicated to debt service payments instead of other purposes,
thereby reducing the amount of cash flows available for working capital,
capital expenditures, acquisitions and other general corporate purposes;
|
|
|
|
increasing the Companys vulnerability to general adverse
economic and industry conditions;
|
|
|
|
exposing the Company to the risk of increased interest
rates for any borrowings at variable rates of interest;
|
|
|
|
limiting the Companys flexibility in planning for and
reacting to changes in the mining industry;
|
|
|
|
placing the Company at a disadvantage compared to other,
less leveraged competitors; and
|
|
|
|
increasing the Companys cost of borrowing.
|
The Company will require additional financing, which may
not be available on acceptable terms, if at all.
The Company does not have any source of operating revenues. The
Company will be required to source additional financing by way of private or
public offerings of equity or debt or the sale of project or property interests
in order to have sufficient working capital for the continued exploration on the
Waterberg Project, as well as for general working capital purposes and
compliance with, and repayment of, its existing indebtedness. The Company can
give no assurance that financing will be available to it or, if it is available,
that it will be offered on acceptable terms. If the Company is required to
complete any financings while the LMM Facility remains in force, securities
issued in connection with such financings could not contain cashless exercise or
conversion features due to the restrictions in the LMM Facility. This may make
it more difficult to raise funds in amounts or on terms that are acceptable to
the Company. Any failure to timely complete any required financing may result in
a default under the LMM Facility. Unforeseen increases or acceleration of
expenses and other obligations could require additional capital as of an earlier
date. If additional financing is raised by the issuance of Company equity
securities, control of the Company may change, security holders will suffer
additional dilution and the price of the Common Shares and the Warrants may
decrease. If additional financing is raised through the issuance of
indebtedness, the Company will require additional financing in order to repay
such indebtedness. Failure to obtain such additional financing could result in
the delay or indefinite postponement of further development of its properties or
even a loss of property interests.
If the Company fails to obtain required financing on acceptable
terms or on a timely basis, this could cause it to delay development of the
Waterberg Project, result in the Company being forced to sell additional assets
on an untimely or unfavorable basis or result in a default under its outstanding
indebtedness. Any such delay or sale could have a material adverse effect on the
Companys financial condition, results of operations and liquidity. Any default
under the Companys outstanding indebtedness could result in the loss of its
entire interest in PTM RSA, and therefore its interests in the Waterberg
Project.
20
The Company may be unable to receive and realize on the proceeds of Step 2 of the Maseve Sale Transaction on the terms and timeframe anticipated, or at all, or such transaction may result in litigation.
The Company holds 4,524,279 RBPlat ordinary shares received in
Step 2 of the Maseve Sale Transaction. These RBPlat ordinary shares had a market
value on November 29, 2018 of approximately US$8.64 million based on the closing
price of the RBPlat ordinary shares on the JSE Limited and the daily average
exchange rates for Rand and U.S. dollars reported by the Federal Reserve of New
York. While the Company intends to sell the RBPlat ordinary shares for cash,
there can be no assurance that the Company will be able to sell the RBPlat
ordinary shares for their current market value, or at all. The Companys RBPlat
ordinary shares were held in a broker account at the time of writing this Annual
Report, pending future disposition and payment of proceeds to LMM.
Additionally, the Maseve Sale Transaction may in the future be subject to litigation by one or more shareholders of the Company who may disagree with the Company’s disposition of the Maseve Mine and may seek to vary or unwind the Maseve Sale Transaction. The impact of such litigation or the possible effect of a settlement of such litigation upon the Company cannot be predicted with any degree of certainty at this time. The failure to receive and realize on the proceeds of the Maseve Sale Transaction, or any such litigation, would adversely affect the Company’s financial condition and may result in a default under the Company’s indebtedness and the Company’s insolvency.
The Company has granted security interests in favour of
the LMM Lenders over all of its personal property, subject to certain
exceptions, and the Company has pledged its shares of PTM RSA, and PTM RSA has
pledged its shares of Waterberg JV Co. to the LMM Lenders under the LMM
Facility, which may have a material adverse effect on the Company.
To secure the Companys obligations under the LMM Facility, its
has entered into a general security agreement under which the Company has
granted security interests in favour of LMM over all of its present and after
acquired personal property, subject to certain exceptions. The Company has also
entered into share pledge agreements pursuant to which it has granted a security
interest in favour of LMM over all of the issued shares in the capital of PTM
RSA. PTM RSA has also guaranteed the Companys obligations to LMM and pledged
the shares the Company holds in Waterberg JV Co. in favour of LMM. These
security interests and guarantee may impact the Companys ability to obtain
project financing for the Waterberg Project or its ability to secure other types
of financing. The LMM Facility has various covenants and provisions, including
payment covenants and financial tests that must be satisfied and complied with
during the term of the LMM Facility. There is no assurance that such covenants
will be satisfied. Any default under the LMM Facility, including any covenants
thereunder, could result in the loss of the Company’s entire interest in PTM RSA, and
therefore the Companys interests in the Waterberg Project.
The Company has a history of losses and it anticipates
continuing to incur losses.
The Company has a history of losses. The Company anticipates
continued losses until it can successfully place one or more of its properties
into commercial production on a profitable basis. It could be years before the
Company receives any profits from any production of metals, if ever. If the
Company is unable to generate significant revenues with respect to its
properties, the Company will not be able to earn profits or continue operations.
The Company has a history of negative operating cash
flow, and may continue to experience negative operating cash flow.
The Company has had negative operating cash flow in recent
financial years. The Companys ability to achieve and sustain positive operating
cash flow will depend on a number of factors, including the Companys ability to
advance the Waterberg Project into production. To the extent that the Company
has negative cash flow in future periods, the Company may need to deploy a
portion of its cash reserves to fund such negative cash flow. After giving
effect to an October 18, 2018 amendment, the LMM Facility requires that effective January 31, 2019 the Company maintain
consolidated cash and cash equivalents of at least US$2.0 million and working
capital in excess of US$1.0 million. There can be no assurance that additional
debt or equity financing or other types of financing will be available if needed
or that these financings will be on terms at least as favorable to the Company
as those obtained previously. The Company may be required to raise additional
funds through the issuance of additional equity or debt securities to satisfy
the minimum cash balance requirements under the LMM Facility. The LMM Facility
provides, however, that a significant portion of the proceeds of such financings
are required to be paid to LMM in partial repayment of the LMM Facility. There
can be no assurance that additional debt or equity financing or other types of
financing will be available if needed or that these financings will be on terms
at least as favorable to us as those obtained previously.
21
In October 2017, the Company also agreed with BMO Nesbitt Burns Inc. (“
BMO
”) and Macquarie Capital Markets Canada Ltd. (“
Macquarie
”) to pay BMO and Macquarie an aggregate of approximately US$2.9 million as soon as practicable following the repayment of the Company’s working capital facility (the “
Sprott Facility
”) with the Sprott Resource Lending Partnership and the other secured lenders (the “
Sprott Lenders
”), and the LMM Facility for services previously provided. If the Company fails to raise additional funds, it may not be able to pay BMO and Macquarie, which may adversely affect the Company.
The Company may not be able to continue as a going
concern.
The Company has limited financial resources. The Companys
ability to continue as a going concern is dependent upon, among other things,
the Company establishing commercial quantities of mineral reserves and
successfully establishing profitable production of such minerals or,
alternatively, disposing of its interests on a profitable basis. Any unexpected
costs, problems or delays could severely impact the Companys ability to
continue exploration and development activities. Should the Company be unable to
continue as a going concern, realization of assets and settlement of liabilities
in other than the normal course of business may be at amounts materially
different than the Companys estimates. The amounts attributed to the Companys
exploration properties in its financial statements represent acquisition and
exploration costs and should not be taken to represent realizable value. The
Company has suffered recurring losses from operations and significant amounts of
debt payable without any current source of operating income. Also, the Company
had a net capital deficiency that raised substantial doubt about its ability to
continue as a going concern.
The Companys properties may not be brought into a state
of commercial production.
Development of mineral properties involves a high degree of
risk and few properties that are explored are ultimately developed into
producing mines. The commercial viability of a mineral deposit is dependent upon
a number of factors which are beyond the Companys control, including the
attributes of the deposit, commodity prices, government policies and regulation
and environmental protection. Fluctuations in the market prices of minerals may
render reserves and deposits containing relatively lower grades of
mineralization uneconomic. The development of the Companys properties will
require obtaining land use consents, permits and the construction and operation
of mines, processing plants and related infrastructure. The Company is subject
to all of the risks associated with establishing new mining operations,
including:
|
the timing and cost, which can be considerable,
of the construction of mining and processing facilities and related
infrastructure;
|
|
|
|
the availability and cost of skilled labour and
mining equipment;
|
22
|
the availability and cost of appropriate smelting and/or
refining arrangements;
|
|
|
|
the need to obtain and maintain necessary environmental
and other governmental approvals and permits, and the timing of those
approvals and permits;
|
|
|
|
in the event that the required permits are not obtained
in a timely manner, mine construction and ramp-up will be delayed and the
risks of government environmental authorities issuing directives or
commencing enforcement proceedings to cease operations or administrative,
civil and criminal sanctions being imposed on the Company, its directors
and employees;
|
|
|
|
the availability of funds to finance construction and
development activities;
|
|
|
|
potential opposition from non-governmental organizations,
environmental groups or local community groups which may delay or prevent
development activities; and
|
|
|
|
potential increases in construction and operating costs
due to changes in the cost of fuel, power, materials and supplies and
foreign exchange rates.
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The costs, timing and complexities of mine construction and
development are increased by the remote location of the Waterberg Project, with
additional challenges related thereto, including water and power supply and
other support infrastructure. For example, water resources are scarce at the
Waterberg Project. If the Company should decide to mine at the Waterberg
Project, it will have to establish sources of water and develop the
infrastructure required to transport water to the project area. Similarly, the
Company will need to secure a suitable location by purchase or long-term lease
of surface or access rights at the Waterberg Project to establish the surface
rights necessary to mine and process.
It is common in new mining operations to experience unexpected
costs, problems and delays during development, construction and mine ramp-up.
Accordingly, there are no assurances that the Companys properties, will be
brought into a state of commercial production.
Estimates of mineral reserves and mineral resources are
based on interpretation and assumptions and are inherently imprecise.
The mineral resource and mineral reserve estimates contained in
this Annual Report and the other documents incorporated by reference herein have
been determined and valued based on assumed future prices, cut off grades and
operating costs. However, until mineral deposits are actually mined and
processed, mineral reserves and mineral resources must be considered as
estimates only. Any such estimates are expressions of judgment based on
knowledge, mining experience, analysis of drilling results and industry
practices. Estimates of operating costs are based on assumptions including those
relating to inflation and currency exchange, which may prove incorrect.
Estimates of mineralization can be imprecise and depend upon geological
interpretation and statistical inferences drawn from drilling and sampling
analysis, which may prove to be unreliable. In addition, the grade and/or
quantity of precious metals ultimately recovered may differ from that indicated
by drilling results. There can be no assurance that precious metals recovered in
small scale tests will be duplicated in large scale tests under onsite
conditions or in production scale. Amendments to the mine plans and production
profiles may be required as the amount of resources changes or upon receipt of
further information during the implementation phase of the project. Extended
declines in market prices for platinum, palladium, rhodium and gold may render
portions of the Companys mineralization uneconomic and result in reduced
reported mineralization. Any material reductions in estimates of mineralization,
or of the Companys ability to develop its properties and extract and sell such
minerals, could have a material adverse effect on the Companys results of
operations or financial condition.
23
Actual capital costs, operating costs, production and
economic returns may differ significantly from those the Company has anticipated
and there are no assurances that any future development activities will result
in profitable mining operations.
The capital costs to take the Companys projects into
commercial production may be significantly higher than anticipated. None of the
Companys mineral properties has an operating history upon which the Company can
base estimates of future operating costs. Decisions about the development of the
Companys mineral properties will ultimately be based upon feasibility studies.
Feasibility studies derive estimates of cash operating costs based upon, among
other things:
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anticipated tonnage, grades and metallurgical
characteristics of the ore to be mined and processed;
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anticipated recovery rates of metals from the
ore;
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cash operating costs of comparable facilities
and equipment; and
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anticipated climatic conditions.
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Capital costs, operating costs, production and economic returns
and other estimates contained in studies or estimates prepared by or for the
Company may differ significantly from those anticipated by the Companys current
studies and estimates, and there can be no assurance that the Companys actual
capital and operating costs will not be higher than currently anticipated. As a
result of higher capital and operating costs, production and economic returns
may differ significantly from those the Company has anticipated.
The Company is subject to the risk of fluctuations in the
relative values of the U.S. Dollar, the Rand and the Canadian Dollar.
The Company may be adversely affected by foreign currency
fluctuations. Effective September 1, 2015, the Company adopted U.S. Dollars as
the currency for the presentation of its financial statements. Historically, the
Company has primarily generated funds through equity investments into the
Company denominated in Canadian or U.S. Dollars. In the normal course of
business, the Company enters into transactions for the purchase of supplies and
services primarily denominated in Rand or Canadian Dollars. The Company also has
assets, cash and liabilities denominated in Rand, Canadian Dollars and U.S.
Dollars. Several of the Companys options to acquire properties or surface
rights in South Africa may result in payments by the Company denominated in Rand
or in U.S. Dollars. Exploration, development and administrative costs to be
funded by the Company in South Africa will also be denominated in Rand.
Settlement of sales of minerals from the Companys projects, once commercial
production commences, will be in Rand, and will be converted to U.S. Dollars.
Fluctuations in the exchange rates between the U.S. Dollar and the Rand or
Canadian Dollar may have a material adverse effect on the Companys financial
results.
In addition, South Africa has in the past experienced
double-digit rates of inflation. If South Africa experiences substantial
inflation in the future, the Companys costs in Rand terms will increase
significantly, subject to movements in applicable exchange rates. Inflationary
pressures may also curtail the Companys ability to access global financial
markets in the longer term and its ability to fund planned capital expenditures,
and could materially adversely affect the Companys business, financial
condition and results of operations. Downgrades, and potential further
downgrades, to South Africas sovereign currency ratings by international
ratings agencies would likely adversely affect the value of the Rand relative to
the Canadian or U.S. Dollar. The South African governments response to
inflation or other significant macro-economic pressures may include the
introduction of policies or other measures that could increase the Companys
costs, reduce operating margins and materially adversely affect its business,
financial condition and results of operations.
24
Metal prices are subject to change, and low prices or a
substantial or extended decline or volatility in such prices could materially
and adversely affect the value of the Companys mineral properties and potential
future results of operations and cash flows.
Metal prices have historically been subject to significant
price fluctuations. No assurance may be given that metal prices will remain
stable. Significant price fluctuations over short periods of time may be
generated by numerous factors beyond the control of the Company, including:
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domestic and international economic and
political trends;
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expectations of inflation;
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currency exchange fluctuations;
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interest rates;
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global or regional consumption patterns;
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speculative activities; and
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increases or decreases in production due to
improved mining and production methods.
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Low metal prices or significant or continued reductions or
volatility in metal prices may have an adverse effect on the Companys business,
including the amount of the Companys mineral reserves, the economic
attractiveness of the Companys projects, the Companys ability to obtain
financing and develop projects, the amount of the Companys revenues or profit
or loss and the value of the Companys assets. An impairment in the value of the
Companys assets would require such assets to be written down to their estimated
net recoverable amount. The Company wrote down certain assets as at August 31,
2017 and August 31, 2016. See the Companys financial statements included in
this Annual Report.
The failure of the Company or its joint venture partners
to fund their pro-rata share of funds under the respective joint ventures may
have a material adverse effect on the Companys business and results of
operations.
Except in the case of a $20 million funding commitment by
Japan, Oil, Gas and Metals National Corporation (
JOGMEC
), which has now
been fully funded and expended, and the potential for the receipt of funding if
Impala exercises its Purchase and
Development Option (as defined below), the exercise of which is not guaranteed
and is not expected to occur prior to the completion of the DFS, funding of
Waterberg Project costs is generally required to be provided by Waterberg JV Co.
shareholders on a pro rata basis. Even if Implats exercises and funds its
Purchase and Development Option, additional development costs are likely to be
incurred. The ability of the Company, and the ability and willingness of its
joint venture partners, to satisfy required funding obligations is uncertain.
The Company's only material mineral property is the Waterberg
Project (the Waterberg Project), which is comprised of two adjacent project
areas formerly known as the Waterberg Joint Venture Project, which was created
in 2009 as a joint venture between the Company, JOGMEC and Mnombo (the
Waterberg Joint Venture Project
), and the Waterberg Extension Project,
which was created in 2009 as a joint venture between the Company and Mnombo (the
Waterberg
Extension Project
). The Company has agreed in the Mnombo shareholders
agreement to fund Mnombos pro rata share of costs for the original Waterberg
Joint Venture Project area through the completion of the DFS. Mnombo is
responsible to fund its proportionate share of costs for the Waterberg Extension
Project area. The ability of Mnombo to repay the Company for advances and
accrued interest as at August 31, 2018 of approximately Rand 49.98 million
(approximately $3.4 million as at August 31, 2018) or to fund future investment
in the Waterberg Project following the expiration of the Companys contractual
obligation may be uncertain. If the Company fails to fund Mnombos future
capital obligations for the Waterberg Project, Mnombo may be required to obtain
funding from alternative sources, which may not be available on favorable terms,
or at all. If Mnombo is unable to fund its share of such work, this may delay
project expenditures and may result in dilution of Mnombos interest in the
Waterberg Project and require the sale of the diluted interests to another
qualified broad-based black economic empowerment (
BEE
) entity.
25
Because the development of the Companys projects depends on
the ability to finance further operations, any inability of the Company or of
one or more of the other shareholders of Waterberg JV Co. or Mnombo to fund
their respective funding obligations and cash calls in the future could require
the other parties, including the Company, to increase their respective funding
of the project. In this event, such parties may be unwilling or unable to do on
a timely and commercially reasonable basis, or at all. At the Maseve Mine, the
Company was adversely affected by the failure of Africa Wide to satisfy its pro
rata share of funding. The occurrence of the foregoing, the failure of any
shareholder, including the Company, to increase their funding as required to
cover any shortfall, as well as any dilution of its interests in the Company’s ventures as
a result of its own failure to satisfy a cash call, may have a material adverse
effect on the Companys business and results of operations.
Any disputes or disagreements with the other shareholders
of Waterberg JV Co. or Mnombo or the former shareholders of Maseve could
materially and adversely affect the Companys business.
The Company participates in corporatized joint ventures and may
enter into other joint ventures and similar arrangements in the future. Until
the closing of the Maseve Sale Transaction, PTM RSA was a party to the Maseve
shareholders agreement related to the exploration and development of Project 1
and Project 3. In addition, PTM RSA is also a party to the Waterberg Project
shareholders agreement. PTM RSA is also a 49.9% shareholder of Mnombo and the
relationship among the shareholders of Mnombo is governed by the Mnombo
shareholders agreement. Any dispute or disagreement with another shareholder or
joint venture partner, any change in the identity, management or strategic
direction of another shareholder or joint venture partner, or any disagreement
among the Mnombo shareholders, including with respect to Mnombos role in the
Waterberg Project, could materially adversely affect the Companys business and
results of operations. If a dispute arises between the Company and another
shareholder or joint venture partner or the other Mnombo shareholders that
cannot be resolved amicably, the Company may be unable to move its projects
forward and may be involved in lengthy and costly proceedings to resolve the
dispute. This could materially and adversely affect the Companys business and
results of operations.
Completion of a DFS for the Waterberg Project is subject
to economic analysis requirements.
Completion of a DFS for the Waterberg Project is subject to
completion of a positive economic analysis of the mineral deposit. No assurance
can be provided that such analysis will be positive.
26
If the Company is unable to retain key members of
management, the Companys business might be harmed.
The Companys development to date has depended, and in the
future, will continue to depend, on the efforts of its senior management
including: R. Michael Jones, President and Chief Executive Officer and a
director of the Company; and Frank R. Hallam, Chief Financial Officer and
Corporate Secretary and a director of the Company. The Company currently does
not, and does not intend to, have key person insurance for these individuals.
Departures by members of senior management could have a negative impact on the
Companys business, as the Company may not be able to find suitable personnel to
replace departing management on a timely basis or at all. The loss of any member
of the senior management team could impair the Companys ability to execute its
business plan and could therefore have a material adverse effect on the
Companys business, results of operations and financial condition.
If the Company is unable to procure the services of
skilled and experienced personnel, the Companys business might be harmed.
There is currently a shortage of skilled and experienced
personnel in the mining industry in South Africa. The competition for skilled
and experienced employees is exacerbated by the fact that mining companies
operating in South Africa are legally obliged to recruit and retain historically
disadvantaged persons (
HDPs
), as defined by the Mineral and Petroleum
Resources Development Act, 2002 (the
MPRDA
) and women with the relevant
skills and experience at levels that meet the transformation objectives set out
in the MPRDA and Mining Charter 2018. If the Company is unable to attract and
retain sufficiently trained, skilled or experienced personnel, its business may
suffer, and it may experience significantly higher staff or contractor costs,
which could have a material adverse effect on its business, results of
operations and financial condition.
Conflicts of interest may arise among the Companys
officers and directors as a result of their involvement with other mineral
resource companies.
Certain of the Companys officers and directors are, and others
may become, associated with other natural resource companies that acquire
interests in mineral properties. R. Michael Jones, President and Chief Executive
Officer and a director of the Company, is also the President and Chief Executive
Officer and a director of West Kirkland Mining Inc., a public company with
mineral exploration properties in Ontario and Nevada (
WKM
), and a
director of Nextraction Energy Corp. (
NE
), a public company which
previously held oil properties in Alberta, Kentucky and Wyoming. Frank Hallam,
Chief Financial Officer, Corporate Secretary and a director of the Company, is
also a director, Chief Financial Officer and Corporate Secretary of WKM, and a
director of NE. John A. Copelyn, a director of the Company, is also Chief
Executive Officer of Hosken Consolidated Investments Limited, a significant
shareholder of the Company and the holder of a diverse group of investments
including hotel and leisure, interactive gaming, media and broadcasting,
transport, mining, clothing and properties. Diana Walters, a director of the
Company, was formerly an executive officer of LMM, a significant shareholder of
the Company, the lender under the LMM Facility.
Such associations may give rise to conflicts of interest from
time to time. As a result of these potential conflicts of interests, the Company
may miss the opportunity to participate in certain transactions, which may have
a material adverse effect on the Companys financial position. The Companys
directors are required by law to act honestly and in good faith with a view to
the best interests of the Company and to disclose any interest that they may
have in any project or opportunity of the Company. If a subject involving a conflict of interest arises at a meeting of the
board of directors, any director in a conflict must disclose his interest and
abstain from voting on such matter.
27
The Company is currently subject to litigation, and may
become subject to additional litigation and other legal proceedings, that may
adversely affect the Companys financial condition and results of operations.
All companies are subject to legal claims, with and without
merit. The Companys operations are subject to the risk of legal claims by
employees, unions, contractors, lenders, suppliers, joint venture partners,
shareholders, governmental agencies or others through private actions, class
actions, administrative proceedings, regulatory actions or other litigation. On
September 20, 2018 the Company reported that it is in receipt of a summons
issued by Africa Wide whereby Africa Wide, formerly the holder of a 17.1%
interest in Maseve, has instituted legal proceedings in South Africa against the
Companys wholly owned subsidiary, PTM RSA, RBPlat and Maseve in relation to the
Maseve Transaction. Africa Wide is seeking to set aside or be paid increased
value for, the closed Maseve Transaction. While the Company believes that the
Africa Wide action is factually and legally defective, no assurance can be
provided that the Company will prevail in this action. If Africa Wide were
successful, it could have a material adverse effect on the Company.
The outcome of litigation and other legal proceedings that the
Company may be involved in the future, particularly regulatory actions, is
difficult to assess or quantify. Plaintiffs may seek recovery of very large or
indeterminate amounts, or equitable remedies such as setting aside the Maseve
Transaction, and the magnitude of the potential loss relating to such lawsuits
may remain unknown for substantial periods of time. Defense and settlement costs
can be substantial, even with respect to claims that have no merit. Due to the
inherent uncertainty of the litigation process, the litigation process could
take away from the time and effort of the Companys management and could force
the Company to pay substantial legal fees. There can be no assurance that the
resolution of any particular legal proceeding, including the Africa Wide action,
will not have an adverse effect on the Companys financial position and results
of operations.
An actual or alleged breach or breaches in governance
processes or fraud, bribery and corruption may lead to public and private
censure, regulatory penalties, loss of licenses or permits and may damage the
Companys reputation.
The Company is subject to anti-corruption laws and regulations,
including the Canadian Corruption of Foreign Public Officials Act and certain
restrictions applicable to U.S. reporting companies imposed by the U.S. Foreign
Corrupt Practices Act of 1977, as amended, and similar anti-corruption and
anti-bribery laws in South Africa, which generally prohibit companies from
bribing or making other prohibited payments to foreign public officials in order
to obtain or retain an advantage in the course of business. The Companys Code
of Business Conduct and Ethics, among other governance and compliance processes,
may not prevent instances of fraudulent behavior and dishonesty nor guarantee
compliance with legal and regulatory requirements. The Company is particularly
exposed to the potential for corruption and bribery owing to the financial scale
of the mining business in South Africa. In March 2014, the Organisation for
Economic Cooperation and Development (the
OECD
) released its Phase 3
Report on Implementing the OECD Anti-Bribery Convention in South Africa,
criticizing South Africa for failing to enforce the anti-bribery convention to
which it has been a signatory since 2007. The absence of enforcement of
corporate liability for foreign bribery coincides with recent growth in
corporate activity in South Africas economic environment. Allegations of
bribery, improper personal influence or officials holding simultaneous business
interests have been linked in recent years to the highest levels of the South
African government.
28
To the extent that the Company suffers from any actual or
alleged breach or breaches of relevant laws, including South African
anti-bribery and corruption legislation, it may lead to regulatory and civil
fines, litigation, public and private censure and loss of operating licenses or
permits and may damage the Companys reputation. The occurrence of any of these
events could have an adverse effect on the Companys business, financial
condition and results of operations.
The Company may become subject to the requirements of the
Investment Company Act, which
would limit or alter the Companys business operations and may require the
Company to spend significant resources, or dissolve, to comply with such
act.
The Investment Company Act generally defines an investment company to include, subject to
certain exceptions, an issuer that is engaged or proposes to engage in the
business of investing, reinvesting, owning, holding or trading in securities,
and owns or proposes to acquire investment securities having a value exceeding
40 percent of the issuer's unconsolidated assets, excluding cash items and
securities issued by the U.S. federal government. The Company believes that it
is not an investment company and is not subject to the Investment Company Act.
However, recent and future transactions that affect the Companys assets,
operations and sources of income and loss, including any exercise of the
Purchase and Development Option (defined below), may raise the risk that the
Company could be deemed an investment company.
The Company has obtained no formal determination from the SEC
as to its status under the Investment Company Act but the Company may in the
future determine that it is necessary or desirable to seek an exemptive order
from the SEC that it is not deemed to be an investment company. There can be no
assurance that the SEC would agree with the Company that it is not an investment
company and the SEC may make a contrary determination with respect to the
Companys status as an investment company. If an SEC exemptive order were
unavailable, the Company may be required to liquidate or dispose of certain
assets, including its interests in Waterberg JV Co., or otherwise alter its
business plans or activities.
If the Company is deemed to be an investment company, the
Company would be required to register as an investment company under the
Investment Company Act, pursuant to which the Company would incur significant
registration and compliance costs, which is unlikely to be feasible for the
Company. In addition, a non-U.S. company such as the Company is not permitted to
register under the Investment Company Act absent an order from the SEC, which
may not be available. If the Company were deemed to be an investment company and
it failed to register under the Investment Company Act, it would be subject to
significant legal restrictions, including being prohibited from engaging in the
following activities, except where incidental to the Companys dissolution:
offering or selling any security or any interest in a security; purchasing,
redeeming, retiring or otherwise acquiring any security or any interest in a
security; controlling an investment company that engages in any of these
activities; engaging in any business in interstate commerce; or controlling any
company that is engaged in any business in interstate commerce. In addition,
certain of the Companys contracts might not be enforceable and civil and
criminal actions could be brought against the Company and related persons. As a
result of this risk, the Company may be required to significantly limit or alter
its business plans or activities.
29
Risks Related to the Mining Industry
Mining is inherently dangerous and is subject to
conditions or events beyond the Companys control, which could have a material
adverse effect on the Companys business.
Hazards such as fire, explosion, floods, structural collapses,
industrial accidents, unusual or unexpected geological conditions, ground
control problems, power outages, inclement weather, cave-ins and mechanical
equipment failure are inherent risks in the Companys mining operations. These
and other hazards may cause injuries or death to employees, contractors or other
persons at the Companys mineral properties, severe damage to and destruction of
the Companys property, plant and equipment and mineral properties, and
contamination of, or damage to, the environment, and may result in the
suspension of the Companys exploration and development activities and any
future production activities. Safety measures implemented by the Company may not
be successful in preventing or mitigating future accidents and the Company may
not be able to obtain insurance to cover these risks at economically feasible
premiums or at all. Insurance against certain environmental risks is not
generally available to the Company or to other companies within the mining
industry.
In addition, from time to time the Company may be subject to
governmental investigations and claims and litigation filed on behalf of persons
who are harmed while at its properties or otherwise in connection with the
Companys operations. To the extent that the Company is subject to personal
injury or other claims or lawsuits in the future, it may not be possible to
predict the ultimate outcome of these claims and lawsuits due to the nature of
personal injury litigation. Similarly, if the Company is subject to governmental
investigations or proceedings, the Company may incur significant penalties and
fines, and enforcement actions against it could result in the cessation of
certain of the Companys mining operations. If claims, lawsuits, governmental
investigations or proceedings, including Section 54 stoppage notices issued
under the Mine Health and Safety Act, No. 29 of 1996 (the
MHSA
), are
resolved against the Company, the Companys financial performance, financial
position and results of operations could be materially adversely affected.
The Companys prospecting and mining rights are subject
to title risks.
The Companys prospecting and mining rights may be subject to
prior unregistered agreements, transfers, claims and title may be affected by
undetected defects. Although Waterberg JV Co. has the exclusive right to apply
for a mining right in regard to the Waterberg Project by reason of its prior
holding of the prospecting rights over the project area, there is no guarantee
that it will be granted the mining right for which it has applied. A successful
challenge to the precise area and location of these claims could result in the
Company being unable to operate on its properties as permitted or being unable
to enforce its rights with respect to its properties. This could result in the
Company not being compensated for its prior expenditures relating to the
property. Title insurance is generally not available for mineral properties and
the Companys ability to ensure that it has obtained secure claims to individual
mineral properties or mining concessions may be severely constrained. These or
other defects could adversely affect the Companys title to its properties or
delay or increase the cost of the development of such prospecting and mining
rights.
The Company is subject to significant governmental
regulation.
The Companys operations and exploration and development
activities in South Africa and Canada are subject to extensive federal, state,
provincial, territorial and local laws and regulation governing various matters,
including:
30
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environmental protection;
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management and use of hazardous and toxic substances and
explosives;
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management of tailings and other waste generated by the
Companys operations;
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management of natural resources;
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exploration, development of mines, production and
post-closure reclamation;
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exports and, in South Africa, potential local
beneficiation quotas;
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price controls;
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taxation;
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regulations concerning business dealings with local
communities;
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labour standards, BEE laws and regulations and
occupational health and safety, including mine safety; and
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historic and cultural preservation.
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Failure to comply with applicable laws and regulations may
result in civil or criminal fines or administrative penalties or enforcement
actions, including orders issued by regulatory or judicial authorities enjoining
or curtailing operations, requiring corrective measures, installation of
additional equipment, remedial actions or recovery of costs if the authorities
attend to remediation of any environmental pollution or degradation, any of
which could result in the Company incurring significant expenditures.
Environmental non-profit organizations have become particularly vigilant in
South Africa and focus on the mining sector. Several such organizations have
recently instituted actions against mining companies. The Company may also be
required to compensate private parties suffering loss or damage by reason of a
breach of such laws, regulations or permitting requirements. It is also possible
that future laws and regulations, or a more stringent enforcement of current
laws and regulations by governmental authorities, could cause additional
expense, capital expenditures, restrictions on or suspensions of the Companys
operations and delays in the development of the Companys properties.
The Company may face equipment shortages, access
restrictions and lack of infrastructure.
Natural resource exploration, development and mining activities
are dependent on the availability of mining, drilling and related equipment in
the particular areas where such activities are conducted. A limited supply of
such equipment or access restrictions may affect the availability of such
equipment to the Company and may delay exploration, development or extraction
activities. Certain equipment may not be immediately available, or may require
long lead time orders. A delay in obtaining necessary equipment for mineral
exploration, including drill rigs, could have a material adverse effect on the
Companys operations and financial results.
Mining, processing, development and exploration activities also
depend, to one degree or another, on the availability of adequate
infrastructure. Reliable roads, bridges, power sources, fuel and water supply
and the availability of skilled labour and other infrastructure are important
determinants that affect capital and operating costs. At the Waterberg Project,
additional infrastructure will be required prior to commencement of mining. The
establishment and maintenance of infrastructure, and services are subject to a
number of risks, including risks related to the availability of equipment and
materials, inflation, cost overruns and delays, political opposition and
reliance upon third parties, many of which are outside the Companys control.
The lack of availability on acceptable terms or the delay in the availability
of any one or more of these items could prevent or delay
development or ongoing operation of the Companys projects.
31
Exploration of mineral properties is less intrusive, and
generally requires fewer surface and access rights, than properties developed
for mining. The Company has not secured any surface rights at the Waterberg
Project other than those access rights legislated by the MPRDA. If a decision is
made to develop the Waterberg Project, or other projects in which the Company
has yet to secure adequate surface rights, the Company will need to secure such
rights. No assurances can be provided that the Company will be able to secure
required surface rights on favorable terms, or at all. Any failure by the
Company to secure surface rights could prevent or delay development of the
Companys projects.
The Companys operations are subject to environmental
laws and regulations that may increase the Companys costs of doing business and
restrict its operations.
Environmental legislation on a global basis is evolving in a
manner that will ensure stricter standards and enforcement, increased fines and
penalties for non-compliance, more stringent environmental assessment of
proposed development and a higher level of responsibility and potential
liability for companies and their officers, directors, employees and,
potentially, shareholders. Compliance with environmental laws and regulations
may require significant capital outlays on behalf of the Company and may cause
material changes or delays in the Companys intended activities. There can be no
assurance that future changes to environmental legislation in Canada or South
Africa will not adversely affect the Companys operations. Environmental hazards
may exist on the Companys properties which are unknown at present and which
have been caused by previous or existing owners or operators for which the
Company could be held liable. Furthermore, future compliance with environmental
reclamation, closure and other requirements may involve significant costs and
other liabilities. In particular, the Companys operations and exploration
activities are subject to Canadian and South African national and provincial
laws and regulations governing protection of the environment. Such laws are
continually changing and, in general, are becoming more onerous. See Item 4.B.
South African Regulatory Framework.
Amendments to current laws, regulations and permits governing
operations and activities of mining companies, or more stringent implementation
thereof, could have a material adverse impact on the Company and cause increases
in capital expenditures or production costs or a reduction in levels of
production at producing properties or require abandonment or delays in
development of new mining properties. Environmental hazards may exist on the
Companys properties that are unknown at the present time, and that may have
been caused by previous owners or operators or that may have occurred naturally.
These hazards, as well as any pollution caused by the Companys mining
activities, may give rise to significant financial obligations in the future and
such obligations could have a material adverse effect on the Companys financial
performance.
The mineral exploration industry is extremely
competitive.
The resource industry is intensely competitive in all of its
phases. Much of the Companys competition is from larger, established mining
companies with greater liquidity, greater access to credit and other financial
resources, and that may have newer or more efficient equipment, lower cost
structures, more effective risk management policies and procedures and/or
greater ability than the Company to withstand losses. The Companys competitors
may be able to respond more quickly to new laws or regulations or emerging
technologies, or devote greater resources to the expansion of their operations,
than the Company can. In addition, current and potential competitors may
make strategic acquisitions or establish cooperative relationships among
themselves or with third parties. Competition could adversely affect the
Companys ability to acquire suitable new producing properties or prospects for
exploration in the future. Competition could also affect the Companys ability
to raise financing to fund the exploration and development of its properties or
to hire qualified personnel. The Company may not be able to compete successfully
against current and future competitors, and any failure to do so could have a
material adverse effect on the Companys business, financial condition or
results of operations.
32
The Company requires various permits in order to conduct
its current and anticipated future operations, and delays or a failure to obtain
such permits, or a failure to comply with the terms of any such permits that the
Company has obtained, could have a material adverse impact on the
Company.
The Companys current and anticipated future operations,
including further exploration, development activities and commencement of
commercial production on the Companys properties, require permits from various
national, provincial, territorial and local governmental authorities in the
countries in which the Companys properties are located. Compliance with the
applicable environmental legislation, permits and land use consents is required
on an ongoing basis, and the requirements under such legislation, permits and
consents are evolving rapidly and imposing additional requirements. The
Waterberg Project prospecting rights issued by the Department of Mineral
Resources ("
DMR
") are also subject to land use consents and compliance
with applicable legislation on an ongoing basis.
In addition, the duration and success of efforts to obtain,
amend and renew permits are contingent upon many variables not within the
Companys control. Shortage of qualified and experienced personnel in the
various levels of government could result in delays or inefficiencies. Backlog
within the permitting agencies could also affect the permitting timeline of the
Companys various projects. Other factors that could affect the permitting
timeline include the number of other large-scale projects currently in a more
advanced stage of development, which could slow down the review process, and
significant public response regarding a specific project. As well, it can be
difficult to assess what specific permitting requirements will ultimately apply
to all the Companys projects.
Risks of Doing Business in South Africa
Any adverse decision in respect of the Companys mineral
rights and projects in South Africa under the MPRDA could materially affect the
Companys projects in South Africa.
With the enactment of the MPRDA, the South African state became
the sole regulator of all prospecting and mining operations in South Africa. All
prospecting and mining licenses and claims granted in terms of any prior
legislation became known as the old order rights. All prospecting and mining
rights granted in terms of the MPRDA are new order rights. The treatment of
new applications and pending applications is uncertain and any adverse decision
by the relevant regulatory authorities under the MPRDA may adversely affect
title to the Companys mineral rights in South Africa, which could stop,
materially delay or restrict the Company from proceeding with its exploration
and development activities or any future mining operations.
A wide range of factors and principles must be taken into
account by the Minister when considering applications for new order rights.
These factors include the applicants access to financial resources and
appropriate technical ability to conduct the proposed prospecting or mining
operations, the environmental impact of the operation, whether the applicant
holds an environmental authorization, water-use licence and waste management
licence and, in the case of prospecting rights, considerations relating to fair competition. Other factors include
considerations relevant to promoting employment and the social and economic
welfare of all South Africans and showing compliance with the provisions
regarding the empowerment of HDPs in the mining industry. All the Companys
current prospecting rights are new order rights.
33
The assessment of some of the provisions of the MPRDA or the
Mining Charter 2018 may be subjective and is dependent upon the views of the DMR
as to whether the Company is in compliance. The Waterberg Social and Labour
Plan, for instance, will contain both quantitative and qualitative goals,
targets and commitments relating to the Companys obligations to its employees
and community residents, the achievement of some of which are not exclusively
within the Companys control.
The Minister has the discretion to cancel or suspend mining
rights under Section 47(1) of the MPRDA as a consequence of the Companys
non-compliance with the MPRDA, environmental legislation, Mining Charter 2018,
the terms of its prospecting rights or, once granted, its Mining Right.
The Section 47 process involves multiple, successive stages
which include granting the Company a reasonable opportunity to show why its
rights should not be cancelled or suspended. Pursuant to the terms of the
provisions of Section 6(2)(e)(iii) of the Promotion of Administrative Justice
Act, No. 3 of 2000 (the
PAJA
) read with Section 6 of the MPRDA, the
Minister can direct the Company to take remedial measures. If such remedial
measures are not taken, the Minister must again give the Company a reasonable
opportunity to make representations as to why such remedial measures were not
taken. The Minister must then properly consider the Companys further
representations (which considerations must also comply with PAJA) and only then
is the Minister entitled to cancel or suspend a mining right. Any such
cancellation or suspension will be subject to judicial review if it is not in
compliance with the MPRDA or PAJA, or it is not lawful, reasonable and
procedurally fair under Section 33(1) of the South African Constitution.
Failure by the Company to meet its obligations in relation to
the MPRDA, its prospecting rights or its Mining Right, once granted, or Mining
Charter 2018 could lead to the suspension or cancellation of such rights and the
suspension of the Companys other rights, which would have a material adverse
effect on the Companys business, financial condition and results of operations.
The failure to maintain or increase equity participation
by HDPs in the Companys prospecting and mining operations could adversely
affect the Companys ability to maintain its prospecting and mining rights.
The Company is subject to a number of South African statutes
aimed at promoting the accelerated integration of HDPs, including the MPRDA, the
Broad-Based Black Economic Empowerment Act, 2003 (the
BEE Act
), and
Mining Charter 2018. To ensure that socioeconomic strategies are implemented,
the MPRDA provides for the Mining Codes which specify empowerment targets
consistent with the objectives of Mining Charter 2018. The Mining Charter 2018
Scorecard requires the mining industrys commitment of applicants in respect of
ownership, management, employment equity, human resource development,
procurement, mine community development and housing and living conditions. For
ownership by BEE groups in mining enterprises, the previous mining charter
("
Mining Charter 2010
") set a 26% target by December 31, 2014.
The South African government awards procurement contracts,
quotas, licenses, permits and prospecting and mining rights based on numerous
factors, including the degree of HDP ownership. The MPRDA and Mining Charter
2018 contain provisions relating to the economic empowerment of HDPs. One of the
requirements which must be met before the DMR will issue a
mining right is that an applicant must facilitate equity participation by HDPs
in the prospecting and mining operations which result from the granting of the
relevant rights.
34
The Company has sought to satisfy the foregoing requirements by
partnering, at the operating company level, with companies demonstrating 26% HDP
ownership. The Company has partnered with Mnombo in respect to the Waterberg
Project and for the prospecting rights.
The Company is satisfied that Mnombo is majority-owned by HDPs.
The contractual arrangements between Mnombo, the Company and the HDPs require
the HDPs to maintain a minimum level of HDP ownership in Mnombo of more than
50%. However, if at any time Mnombo becomes a company that is not majority owned
by HDPs, the ownership structure of the Waterberg Project and the prospecting
rights and applications over the Waterberg Project may be deemed not to satisfy
HDP requirements.
On September 27, 2018, the Minister of Mineral Resources
announced the implementation, with immediate effect, of Mining Charter 2018.
Mining Charter 2018 sets out new and revised targets to be
achieved by mining companies, the most pertinent of these being the revised BEE
ownership shareholding requirements for mining rights holders. The Mining
Charter 2018 no longer applies to prospecting rights. Mining Charter 2018
provides revised ownership structures for mining rights holders. New mining
rights holders will be required to have a minimum 30% Black Person shareholding
(which includes African, Coloured and Indian persons who are citizens of the
Republic of South Africa or who became citizens of the Republic of South Africa
by naturalisation before April 27, 1994, or a juristic person managed and
controlled by such persons) (a 4% increase from the previously required 26%
under the Mining Charter 2010), which shall include economic interest plus a
corresponding percentage of voting rights, per right or in the mining company
which holds the right. Applicants for mining rights whose applications have been
filed and accepted before September 27, 2018 will have a period of five years
from the effective date of the right within which to increase their BEE
shareholding to 30%. Whether such 30% will be required to reflect the stipulated
distribution to employees, communities and black entrepreneurs is not clear.
Existing mining right holder who achieved a minimum of 26% BEE shareholding, or
who achieved a 26% BEE shareholding but whose BEE shareholders exited prior to
September 27, 2018 will be recognised as BEE ownership compliant for the
duration of the mining right, but not for any period of renewal thereof.
The BEE ownership element of 30% BEE shareholding is ring
fenced and requires 100% compliance at all times, other than as set out in
Mining Charter 2018. The 30% BEE shareholding for new mining rights must be
distributed as to
(i)
a minimum of 5% non-transferable carried interest to qualifying
employees from the effective date of a mining right. The definition of
qualifying employees excludes employees who already own shares in the company as
a condition of their employment, except where such is a "Mining Charter"
requirement;
(ii) a
minimum of 5% non-transferable carried interest from the effective date of a
mining right, or a minimum 5% equity equivalent benefit; and
(iii) a
minimum of 20% shareholding to a BEE entrepreneur, of which 5% must preferably
be for women.
35
A holder can claim a maximum of a 5% offset credit against the
BEE entrepreneur allocation for beneficiation on the basis of a DMR approved
"beneficiation equity equivalent plan". However, the baselines for beneficiation
are still required to be determined by the Minister of Mineral Resources.
The Waterberg Project shareholders agreement confirms the
principles of BEE compliance and contemplates the potential transfer of equity
and the issuance of additional equity to one or more broad based black
empowerment partners at fair value in certain circumstances, including a change
in law or imposition of a requirement upon Waterberg JV Co. In certain
circumstances, Mnombo may be diluted with equity transferred or issued to
different black empowerment shareholders.
The carried interest of 5% to each of the community and the
employees must be issued to them at no cost and free of encumbrance. The costs
to the right holder of such issue can be recovered from the development of the
mineral asset.
An additional tax is also being raised for Human Resource
Development. A right holder will be required to pay 5% of the "leviable amount",
being the levy payable under the South African Skills Development Act, No. 97 of
1998, (excluding the mandatory statutory skills levy) towards essential skills
development activities such as science, technology, engineering, mathematics
skills as well as artisans, internships, apprentices, bursaries, literacy and
numeracy skills for employees and non-employees (community members), graduate
training programmes, research and development of solutions in exploration,
mining, processing, technology efficiency (energy and water use in mining),
beneficiation as well as environmental conservation and rehabilitation.
In regard to employment equity, the Draft Mining Charter sets
minimum levels for the participation of Black Persons on all levels of company
management and sets incremental targets for the procurement of local goods and
services.
Compliance with a mining right holder's mine community
development obligations, principally in terms of its approved social and labour
plan ("
SLP
") is a ring-fenced element of Mining Charter 2018 which
requires 100% annual compliance for the duration of the mining right.
Subject to conditions contained in the Companys prospecting
and future mining rights, the Company may be required to obtain approval from
the DMR prior to undergoing any change in its empowerment status under Mining
Charter 2018. In addition, if the Company or its BEE partners are found to be in
non-compliance with the requirements of Mining Charter 2018 and other BEE
legislation, including failure to retain the requisite level of HDP ownership,
the Company may face possible suspension or cancellation of its rights under a
process governed by Section 47 of the MPRDA.
In addition, Mining Charter 2018 requires that its provisions
be implemented in accordance with Implementation Guidelines, anticipated to be
published around November 27, 2018. This creates greater uncertainty in
measuring the Companys progress towards, and compliance with, its commitments
under Mining Charter 2018 and other BEE legislation.
The Company is obliged to report on its compliance with Mining
Charter 2018 against Mining Charter 2018 Scorecard, including its percentage of
HDP shareholding, to the DMR on an annual basis.
When the Company is required to increase the percentage of HDP
ownership in any of its operating companies or projects, the Companys interests
may be diluted. In addition, it is possible that any such transactions or plans
may need to be executed at a discount to the proper economic value of the Companys operating assets or it may also prove necessary for
the Company to provide vendor financing or other support in respect of some or
all of the consideration, which may be on non-commercial terms.
36
Currently, the South African Department of Trade and Industry
is responsible for leading government action on the implementation of BEE
initiatives under the auspices of the BEE Act and the Generic BEE Codes, while
certain industries have their own transformation charters administered by the
relevant government department (in this case, the DMR). The Broad-Based Black
Economic Empowerment Amendment Act, No. 46 of 2013 (the
BEE Amendment
Act
) came into operation on October 24, 2014. Among other matters, the BEE
Amendment Act, through section 3(2), amends the BEE Act to make the BEE Act the
overriding legislation in South Africa with regard to BEE requirements the
Trumping Provision and will require all governmental bodies to apply the Generic
BEE Codes or other relevant code of good practice when procuring goods and
services or issuing licenses or other authorizations under any other laws, and
penalize fronting or misrepresentation of BEE information. The Trumping
Provision came into effect on October 24, 2015. On October 30, 2015, the South
African Minister of Trade and Industry exempted the DMR from applying the
Trumping Provision for a period of twelve months on the basis that the alignment
of Mining Charter 2018 with the BEE Act and the Generic BEE Codes was an ongoing
process. The Mining Charter 2018 purports to be aligned with the Generic BEE
Codes. The Trumping Provision expired on October 31, 2016 and no new application
for exemption was made. Generally speaking, the amended Generic BEE Codes will
make BEE-compliance by mining companies more onerous to achieve. The DMR and
industry bodies are aware of the implications of the Trumping Provision.
Notwithstanding that there has been no further extension of the exemption in
respect of the Trumping Provision, to date, the DMR continues to apply the
provisions of Mining Charter 2010 and Mining Charter 2018, as applicable, and
not the Generic BEE Codes. See Item 4.B. South African Regulatory Framework -
Black Economic Empowerment in the South African Mining Industry, and Mining
Charter.
The Generic BEE Codes and Mining Charter 2018 require Mnombo to
be 51% held and controlled by HDPs to qualify it as a black-controlled company
or a "BEE Entrepreneur and hence a qualified BEE entity. Mnombo is presently
50.1% owned and controlled by HDPs.
If the Company is unable to achieve or maintain its empowered
status under Mining Charter 2018 or comply with any other BEE legislation or
policies, it may not be able to maintain its existing prospecting and mining
rights and/or acquire any new rights; and therefore, would be obliged to suspend
or dispose of some or all of its operations in South Africa, which would likely
have a material adverse effect on the Companys business, financial condition
and results of operations.
Socio-economic instability in South Africa or regionally,
including the risk of resource nationalism, may have an adverse effect on the
Companys operations and profits.
The Company has ownership interests in a significant project in
South Africa. As a result, it is subject to political and economic risks
relating to South Africa, which could affect an investment in the Company.
Downgrades, and potential further downgrades, to South Africas sovereign
currency ratings by international ratings agencies would likely adversely affect
the value of the Rand relative to the Canadian or U.S. Dollar. South Africa was
transformed into a democracy in 1994. The government policies aimed at
redressing the disadvantages suffered by the majority of citizens under previous
governments may impact the Companys South African business. In addition to
political issues, South Africa faces many challenges in overcoming substantial
differences in levels of economic development among its people. Large parts of
the South African population do not have access to adequate education, health
care, housing and other services, including water and electricity. The Company
also faces a number of risks from deliberate, malicious or criminal acts relating to these inequalities,
including theft, fraud, bribery and corruption. On February 15, 2018 the new
president of South Africa was inaugurated. He has vowed to take a hard line
against graft, corruption and government excesses.
37
The Company is also subject to the risk of resource
nationalism, which encompasses a range of measures, such as expropriation or
taxation, whereby governments increase their economic interest in natural
resources, with or without compensation. Although wholesale nationalization was
rejected by the ruling party, the African National Congress (the
ANC
),
leading into the 2014 national elections, a resolution adopted by the ANC on
nationalization calls for state intervention in the economy, including state
ownership. A wide range of stakeholders have proposed ways in which the State
could extract greater economic value from the South African mining industry. A
call for resource nationalization has also been made by the Economic Freedom
Fighters, a political party under the leadership of Julius Malema.
The Company cannot predict the future political, social and
economic direction of South Africa or the manner in which government will
attempt to address the countrys inequalities. Actions taken by the South
African government, or by its people without the sanction of law, could have a
material adverse effect on the Companys business. Furthermore, there has been
regional, political and economic instability in countries north of South Africa,
which may affect South Africa. Such factors may have a negative impact on the
Companys ability to own, operate and manage its South African mining projects.
Labour disruptions and increased labour costs could have
an adverse effect on the Companys results of operations and financial
condition.
Although the Companys employees are not unionized at this
time, trade unions could have a significant impact on the Companys labour
relations, as well as on social and political reforms. There is a risk that
strikes or other types of conflict with unions or employees may occur at any of
the Companys operations, particularly where the labour force is unionized.
Labour disruptions may be used to advocate labour, political or social goals in
the future. For example, labour disruptions may occur in sympathy with strikes
or labour unrest in other sectors of the economy. South African employment law
sets out minimum terms and conditions of employment for employees, which form
the benchmark for all employment contracts. Disruptions in the Companys
business due to strikes or further developments in South African labour laws may
increase the Companys costs or alter its relationship with its employees and
trade unions, which may have an adverse effect on the Companys financial
condition and operations. South Africa has recently experienced widespread
illegal strikes and violence.
Changes in South African State royalties where many of
the Companys mineral reserves are located could have an adverse effect on the
Companys results of operations and its financial condition.
The Mineral and Petroleum Resources Royalty Act, No. 28 of 2008
(the
Royalty Act
) effectively came into operation on May 1, 2009. The
Royalty Act establishes a variable royalty rate regime, in which the prevailing
royalty rate for the year of assessment is assessed against the gross sales of
the extractor during the year. The royalty rate is calculated based on the
profitability of the mine (earnings before interest and taxes) and varies
depending on whether the mineral is transferred in refined or unrefined form.
For mineral resources transferred in unrefined form, the minimum royalty rate is
0.5% of gross sales and the maximum royalty rate is 7% of gross sales. For
mineral resources transferred in refined form, the maximum royalty rate is 5% of
gross sales. The royalty will be a tax-deductible expense. The royalty becomes
payable when the mineral resource is transferred, which refers to the disposal
of a mineral resource, the export of a mineral resource or the consumption,
theft, destruction or loss of a mineral resource. The Royalty Act allows the holder of a mining right
to enter into an agreement with the tax authorities to fix the percentage
royalty that will be payable in respect of all mining operations carried out in
respect of that resource for as long as the extractor holds the right. The
holder of a mining right may withdraw from such agreement at any time.
38
The feasibility studies covering the Companys South African
projects made certain assumptions related to the expected royalty rates under
the Royalty Act. If and when the Company begins earning revenue from its South
African mining projects, and if the royalties under the Royalty Act differ from
those assumed in the feasibility studies, this new royalty could have a material
and adverse impact on the economic viability of the Companys projects in South
Africa, as well as on the Companys prospects, financial condition and results
of operations.
Interruptions, shortages or cuts in the supply of
electricity or water could lead to disruptions in production and a reduction in
the Companys operating capacity.
The Company procures all of the electricity necessary for its
operations from ESKOM Holdings Limited, South Africas state-owned electricity
utility (
ESKOM
), and no significant alternative sources of supply are
available to it. ESKOM has suffered from prolonged underinvestment in new
generating capacity which, combined with increased demand, led to a period of
electricity shortages. ESKOM has now established sufficient capacity to meet
South Africa's current requirements but remains severely under-capitalized.
Since 2008, ESKOM has invested heavily in new base load power generation
capacity. It
s
principal project, a power station known as Medupi, has
been subject to delays, with the last unit scheduled for commissioning in 2019.
ESKOM is heavily dependent on coal to fuel its electricity plants. Accordingly,
if coal mining companies experience labour unrest or disruptions to production
(which have occurred historically in South Africa, including a coal strike by
approximately 30,000 National Union of Mineworkers members which lasted for
approximately one week in October 2015), or if heavy rains, particularly during
the summer months in South Africa, adversely impact coal production or coal
supplies, ESKOM may have difficulty supplying sufficient electricity supply to
the Company.
The Company is dependent on the availability of water in its
areas of operations. Shifting rainfall patterns and increasing demands on the
existing water supply have caused water shortages in the Companys areas of
operations.
If electricity or water supplies are insufficient or
unreliable, the Company may be unable to operate as anticipated, which may
disrupt production and reduce revenues.
Characteristics of and changes in the tax systems in
South Africa could materially adversely affect the Companys business, financial
condition and results of operations.
The Companys subsidiaries pay different types of governmental
taxes in South Africa, including corporation tax, payroll taxes, VAT, state
royalties, various forms of duties, dividend withholding tax and interest
withholding tax. The tax regime in South Africa is subject to change. After
having published a number of papers on the introduction of a carbon tax, the
South African government released the Second Draft Carbon Tax Bill 2017 (the
Bill
) published in December 2017, together with an Explanatory
Memorandum in respect of the Bill (the
Explanatory Memorandum
). The
Bill was open for comment until March 9, 2018 and is now being considered by the
South African Parliament. On November 12, 2018 The National Treasury published
the
Draft Regulation on the Carbon Offset
for a second round of public
comment and further consultation.The South African Minister of Finance recently
announced that carbon tax will be implemented from June 1, 2019. See Item 4.B.
Business Overview -
Carbon Tax/Climate Change Policies.
39
The ANC held a policy conference in June 2012 at which the
State Intervention in the Minerals Sector report (the
SIMS Report
)
commissioned by the ANC was debated. The SIMS Report includes a proposal for a
super tax of 50% of all profits above a 15% return on investment, which would
apply in respect of all metals and minerals. If a super tax is implemented, the
Company may realize lower after-tax profits and cash flows from its current
mining operations and may decide not to pursue certain new projects, as such a
tax could render these opportunities uneconomic.
It is also possible that the Company could become subject to
taxation in South Africa that is not currently anticipated, which could have a
material adverse effect on its business, financial condition and results of
operations.
Community relations may affect the Companys business.
Maintaining community support through a positive relationship
with the communities in which the Company operates is critical to continuing
successful exploration and development. As a business in the mining industry,
the Company may come under pressure in the jurisdictions in which it explores or
develops, to demonstrate that other stakeholders benefit and will continue to
benefit from the Companys commercial activities. The Company may face
opposition with respect to its current and future development and exploration
projects which could materially adversely affect its business, results of
operations, financial condition and common share price.
Under the Mining Charter 2018 there is a greater focus on mine
community development. A right holder must meaningfully contribute towards mine
community development in keeping with the principles of the social license to
operate. A right holder must develop its Social and Labour Plan ("
SLP
"),
in consultation with relevant municipalities, mine communities, traditional
authorities and affected stakeholders, and identify developmental priorities of
mine communities. The identified developmental priorities must be contained in
the SLP. See Item 4.B.
South African Regulatory Framework - Mining
Charter
.
South African foreign exchange controls may limit
repatriation of profits.
The Company will need to repatriate funds from its foreign
subsidiaries to fulfill its business plans and make payments on the LMM
Facility. Since commencing business in South Africa, the Company has loaned or
invested approximately CDN$843 million (net of repayments) as at August 31, 2018
into PTM RSA in South Africa. The Company obtained approval from the SARB in
advance for its investments into South Africa. The Company anticipates that it
will loan the majority of the proceeds from an offering to PTM RSA with the
advance approval of the SARB. Although the Company is not aware of any law or
regulation that would prevent the repatriation of funds it has loaned or
invested into South Africa back to the Company in Canada, no assurance can be
given that the Company will be able to repatriate funds back to Canada in a
timely manner or without incurring tax payments or other costs when doing so,
due to legal restrictions or tax requirements at local subsidiary levels or at
the parent company level, which costs could be material.
South Africas exchange control regulations restrict the export
of capital from South Africa. Although the Company is not itself subject to
South African exchange control regulations, these regulations do restrict the
ability of the Companys South African subsidiaries to raise and deploy capital
outside the country, to borrow money in currencies other than the Rand and to
hold foreign currency. Exchange control regulations could make it difficult for the Companys South
African subsidiaries to: (a) export capital from South Africa; (b) hold foreign
currency or incur indebtedness denominated in foreign currencies without
approval of the relevant South African exchange control authorities; (c) acquire
an interest in a foreign venture without approval of the relevant South African
exchange control authorities and compliance with certain investment criteria;
and (d) repatriate to South Africa profits of foreign operations. While the
South African government has relaxed exchange controls in recent years, and
continues to do so, it is difficult to predict whether or how it will further
relax or abolish exchange control measures in the foreseeable future. There can
be no assurance that restrictions on repatriation of earnings from South Africa
will not be imposed on the Company in the future.
40
The Companys land in South Africa could be subject to
land restitution claims or land expropriation which could impose significant
costs and burdens.
To the extent that the Company's operating subsidiaries acquire
privately held land, such land could be subject to land restitution claims under
the Restitution of Land Rights Act, No. 22 of 1994, as amended (the
Land
Claims Act
) and the Restitution of Land Rights Amendment Act 15 of 2014
(the
Restitution Amendment Act
), which took effect on July 1, 2014.
Under the Land Claims Act and the Restitution Amendment Act, any person who was
dispossessed of rights in land in South Africa after June 19, 1913 as a result
of past racially discriminatory laws or practices without payment of just and
equitable compensation, and who (subject to the promulgation of further
legislation) lodges a claim on or before June 30, 2019, is granted certain
remedies. A successful claimant may be granted either return of the dispossessed
land (referred to as
restoration
) or equitable redress (which includes
the granting of an appropriate right in alternative state-owned land, payment of
compensation or
alternative relief
). If restoration is claimed, the
Land Claims Act requires the feasibility of such restoration to be considered.
Restoration of land may only be given in circumstances where a claimant can use
the land productively with the feasibility of restoration dependent on the value
of the property.
The South African Minister of Rural Development and Land Reform
may not acquire ownership of land for restitution purposes without a court order
unless an agreement has been reached between the affected parties. The Land
Claims Act also entitles the South African Minister of Rural Development and
Land Reform to acquire ownership of land by way of expropriation either for
claimants who are entitled to restitution of land, or, in respect of land over
which no claim has been lodged but the acquisition of which is directly related
to or affected by such claim, will promote restitution of land to claimants or
alternative relief. Expropriation would be subject to provisions of legislation
and the South African Constitution which provide, in general, for just and
equitable compensation.
However, the ANC has declared its intention to proceed with an
orderly process of land expropriation, potentially without compensation being
paid to land owners. The form of this process remains unclear.
There is no guarantee, however, that any privately held land
rights could not become subject to acquisition by the state without the
Companys agreement, or that the Company would be adequately compensated for the
loss of any land rights. Any such claims could have a negative impact on the
Companys South African projects and therefore an adverse effect on its
business, operating results and financial condition.
41
Risks Relating to the Companys Common Shares
The Company has never paid dividends and does not expect
to do so in the foreseeable future.
The Company has not paid any dividends since incorporation and
it has no plans to pay dividends in the foreseeable future. The Companys
directors will determine if and when dividends should be declared and paid in
the future based on the Companys financial position at the relevant time. In
addition, the Companys ability to declare and pay dividends may be affected by
the South African governments exchange controls. See Item 4.B. South African
Regulatory Framework Exchange Control.
The Common Share price has been volatile in recent years.
In recent years, the securities markets in the United States
and Canada have experienced a high level of price and volume volatility, and the
market price of securities of many companies, particularly those considered
exploration or development-stage mining companies, have experienced wide
fluctuations in price which have not necessarily been related to the operating
performance, underlying asset values or prospects of such companies. There can
be no assurance that continual fluctuations in price will not occur.
The factors influencing such volatility include macroeconomic
developments in North America and globally, and market perceptions of the
attractiveness of particular industries. The price of the Companys Common
Shares is also likely to be significantly affected by short term changes in
precious metal prices or other mineral prices, currency exchange fluctuations
and the Companys financial condition or results of operations as reflected in
its earnings reports. Other factors unrelated to the performance of the Company
that may have an effect on the price of the Companys Common Shares and other
securities include the following:
|
the extent of analyst coverage available to
investors concerning the business of the Company may be limited if
investment banks with research capabilities do not follow the Companys
securities;
|
|
|
|
lessening in trading volume and general market
interest in the Companys securities may affect an investors ability to
trade significant numbers of securities of the Company;
|
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changes to South African laws and regulations
might have a negative effect on the development prospects, timelines or
relationships for the Companys material properties;
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the size of the Companys public float may
limit the ability of some institutions to invest in the Companys
securities; and
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a substantial decline in the price of the
securities of the Company that persists for a significant period of time
could cause the Companys securities to be delisted from an exchange,
further reducing market liquidity.
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Securities class action litigation often has been brought
against companies following periods of volatility in the market price of their
securities. The Company may in the future be the target of similar litigation.
Securities litigation could result in substantial costs and damages and divert
managements attention and resources.
The Company may be unable to maintain compliance with
NYSE American and TSX continued listing standards and the Companys Common
Shares may be delisted from the NYSE American and TSX equities markets, which
would likely cause the liquidity and market price of the Common Shares to
decline.
42
The Companys Common Shares are currently listed on the NYSE
American and the TSX. The Company is subject to the continued listing criteria
of the NYSE American and the TSX and such exchanges will consider suspending
dealings in, or delisting, securities of an issuer that does not meet its
continued listing standards. In order to maintain the listings, the Company must
maintain certain objective standards, such as share prices, shareholders
equity, market capitalization and, share distribution targets. In addition to
objective standards, the NYSE American may delist the securities of any issuer,
among other reasons, if the issuer sells or disposes of principal operating
assets, ceases to be an operating company or has discontinued a substantial
portion of its operations or business for any reason or the NYSE American
otherwise determines that the securities are unsuitable for continued trading.
The Company may not be able to satisfy these standards.
On May 23, 2018 the Company received a letter from NYSE
American stating that it was not in compliance with the continued listing
standards as set forth in Sections 1003(a)(i), 1003(a)(ii) and 1003(a)(iii) of
the NYSE American Company Guide (the Company Guide) with respect to
stockholders equity, or in Section 1003(f)(v) of the Company Guide with respect
to the selling price of the Companys Common Shares. On June 21, 2018, the
Exchange notified the Company that it had accepted the Companys plan of
compliance and granted the Company an extension until November 23, 2018 to
regain compliance with the requirements of Section 1003(f)(v) of the Company
Guide and until October 10, 2019 to regain compliance with Sections 1003(a)(i),
1003(a)(ii) and 1003(a)(iii) of the Company Guide. The Company is not currently
in compliance with NYSE American listing standards, but its listing is being
continued pursuant to an exception. The Company will be subject to periodic
review by Exchange staff during the extension period. If the Company is not in
compliance with the Company Guide by the applicable deadlines or if the Company
does not make progress consistent with the plan during the plan period, Exchange
staff will initiate delisting proceedings as appropriate.
Delisting of the Common Shares may result in a breach or
default under certain of the Companys agreements. Without limiting the
foregoing, a TSX delisting would result in a default (unless any required
waivers could be obtained) under certain or all of the Companys outstanding
indebtedness, which would have a material adverse impact on the Company. See
Risks Relating to the Company
.
A delisting of the Companys
Common Shares could also adversely affect the Companys reputation, the
Companys ability to raise funds through the sale of equity or securities
convertible into equity and the terms of any such fundraising, the liquidity and
market price of the Companys Common Shares and the ability of broker-dealers to
purchase the Common Shares.
The Company intends to complete the 2018 Share
Consolidation of its outstanding Common Shares in order to meet the listing
requirements of the NYSE American.
Due to the low selling price of the Common Shares, on May 23,
2018, the Company received a letter from the NYSE American stating that it is
not in compliance with the continued listing standards set forth in Section
1003(f)(v) of the Company Guide relating to the trading price of the Companys
Common Shares. The NYSE American granted the Company until November 23, 2018 to
regain compliance with such requirements. After consulting with the NYSE
American staff, the Company announced on November 20, 2018 its intention to
effect the 2018 Share Consolidation effective December 13, 2018.
Pursuant to Section 1003(f)(v) of the NYSE American Company
Guide, the NYSE American could take action to delist the Companys Common Shares
in the event that its Common Shares trade at levels viewed as abnormally low for
a substantial period of time. The Company cannot be certain that the market
price of its Common Shares following the 2018 Share Consolidation will remain at
the level required for the period of time required for listing or for continuing compliance with
that requirement. A share consolidation may be viewed negatively by the market
and could lead to a decrease in the Companys overall market capitalization. If
the per share market price does not increase proportionately as a result of the
2018 Share Consolidation, then the value of the company as measured by market
capitalization could be reduced significantly. If the Company successfully
completes the 2018 Share Consolidation the number of the Companys Common Shares
that is outstanding will be reduced, and the liquidity of the Common Shares
could be adversely affected.
43
The exercise of outstanding stock options or warrants
will result in dilution to the holders of Common Shares.
The issuance of Common Shares upon the exercise of the Company’s outstanding stock options and warrants will result in dilution to the interests of shareholders, and may reduce the trading price of the Common Shares. Additional stock options and warrants to purchase Common Shares may be issued in the future. Exercises of these securities, or even the potential of their exercise, may have an adverse effect on the trading price of the Company’s Common Shares. The holders of stock options or warrants are likely to exercise them at times when the market price of the Company’s Common Shares exceeds the exercise price of the securities. Accordingly, the issuance of Common Shares upon exercise of the stock options and warrants will likely result in dilution of the equity represented by the then outstanding Common Shares held by other shareholders. The holders of stock options or warrants can be expected to exercise or convert them at a time when the Company would, in all likelihood, be able to obtain any needed capital on terms which are more favorable to the Company than the exercise terms provided by these stock options and warrants.
Future sales, conversion of senior subordinated notes or
issuances of equity securities could decrease the value of the Common Shares,
dilute investors voting power and reduce the Companys earnings per
share.
The Company may sell equity securities in offerings (including
through the sale of debt securities convertible into equity securities) and may
issue additional equity securities to finance operations, exploration,
development, acquisitions or other projects.
On June 30, 2017 the Company issued $20 million aggregate principal amount of 6 7/8% convertible senior subordinated notes due 2022 (the “
Notes
”). The Notes bear interest at a rate of 6 7/8% per annum, payable semi-annually on January 1 and July 1 of each year, beginning on January 1, 2018, in cash or at the election of the Company, in Common Shares of the Company or a combination of cash and Common Shares, and will mature on July 1, 2022, unless earlier repurchased, redeemed or converted. Subject to certain exceptions, the Notes are convertible at any time at the option of the holder, and may be settled, at the Company's election, in cash, Common Shares, or a combination of cash and Common Shares. If any Notes are converted on or prior to the three and one-half year anniversary of the issuance date, the holder of the Notes will also be entitled to receive an amount equal to the remaining interest payments on the converted Notes to the three and one-half year anniversary of the issuance date, discounted by 2%, payable in Common Shares.
On May 15, 2018 the Company announced the issue of 117,453,862
Units in a public offering at a price of $0.15 per Unit for gross proceeds of
approximately $17.62 million. Each Unit consisted of one common share of
Platinum Group Metals and one common share purchase warrant of Platinum Group
Metals. Each warrant will entitle the holder thereof to purchase one common
share at a price of $0.17 for a term of 18 months until November 15, 2019. In connection with the
closing of the public offering of Units, the Company entered into a warrant
indenture governing the terms of the warrants with Computershare Trust Company
of Canada as warrant agent. Such terms include, without limitation, that a
warrant holder who purchased such warrants in the Companys public offering of
the Units shall not have the right to exercise any portion of a warrant to the
extent that, after giving effect to such issuance after exercise, the warrant
holder (together with the warrant holders affiliates, and any other persons
acting as a group together with the warrant holder or any of the warrant
holders affiliates), would beneficially own in excess of 19.9% of the number of
Common Shares outstanding immediately after giving effect to the issuance of
Common Shares issuable upon exercise of the warrant in question.
44
On May 15, 2018 the Company announced the closing of a
strategic investment in the Company by Hosken Consolidated Investments Limited,
a South African Broad-Based Black Economic Empowerment Company (
HCI
) on
a private placement basis. HCI subscribed, through a subsidiary, for 15,090,999
Units at a price of US$0.15 per Unit for gross proceeds of $2,263,649.85. Each
Unit consists of one common share and one common share purchase warrant, with
each common share purchase warrant allowing HCI to purchase one further common
share of the Company at a price of $0.17 per share for a period of 18 months
until November 15, 2018.
The Company cannot predict the timing or amount of conversions
of Notes, exercises of stock options or warrants, or the size or terms of future
issuances of equity securities or securities convertible into equity securities
or the effect, if any, that future issuances and sales of the securities will
have on the market price of the Companys Common Shares. In addition, the
conversion price of the Notes is subject to adjustment in certain circumstances.
Any transaction involving the issuance of previously authorized but unissued
Common Shares, or securities convertible into Common Shares, would result in
dilution, possibly substantial, to shareholders. Exercises of presently
outstanding stock options may also result in dilution to shareholders.
The board of directors of the Company has the authority to
authorize certain offers and sales of the securities without the vote of, or
prior notice to, shareholders. Based on the need for additional capital to fund
expected expenditures and growth, it is likely that the Company will issue the
securities to provide such capital. Such additional issuances may involve the
issuance of a significant number of Common Shares at prices less than the
current market price.
Sales of substantial amounts of securities, or the availability
of the securities for sale, could adversely affect the prevailing market prices
for the securities and dilute investors earnings per share. A decline in the
market prices of the securities could impair the Companys ability to raise
additional capital through the sale of additional securities should the Company
desire to do so.
Judgments based upon the civil liability provisions of
the United States federal securities laws may be difficult to enforce.
The ability of investors to enforce judgments of United States
courts based upon the civil liability provisions of the United States federal
securities laws against the Company, its directors and officers, and the experts
named herein may be limited due to the fact that the Company is incorporated
outside of the United States, a majority of such directors, officers, and
experts reside outside of the United States and a substantial portion of the
assets of the Company and said persons are located outside the United States.
There is uncertainty as to whether foreign courts would: (a) enforce judgments
of United States courts obtained against the Company, its directors and officers
or the experts named herein predicated upon the civil liability provisions of the United States federal
securities laws; or (b) entertain original actions brought in Canadian courts
against the Company or such persons predicated upon the federal securities laws
of the United States, as such laws may conflict with Canadian laws.
45
There may be adverse Canadian tax consequences for a
foreign controlled Canadian company that acquires the securities of the Company.
Certain adverse tax considerations may be applicable to a
shareholder that is a corporation resident in Canada and is, or becomes,
controlled by a non-resident corporation for the purposes of the foreign
affiliate dumping rules in the
Income Tax Act
(Canada) (the
Tax
Act
). Such shareholders should consult their tax advisors with respect to
the consequences of acquiring the securities.
The Company may be a passive foreign investment company
for its current and future tax years, which may have adverse U.S. federal income
tax consequences for U.S. investors.
Potential investors in the securities who are U.S. taxpayers
should be aware that the Company may be classified as a passive foreign
investment company or PFIC for its current tax year ending August 31, 2019
and may be a PFIC in future tax years. If the Company is a PFIC for any tax year
during a U.S. taxpayers holding period of the securities, then such U.S.
taxpayer generally will be required to treat any gain realized upon a
disposition of the securities or any so-called excess distribution received on
the securities, as ordinary income, and to pay an interest charge on a portion
of such gain or excess distribution. In certain circumstances, the sum of the
tax and the interest charge may exceed the total amount of proceeds realized on
the disposition, or the amount of excess distribution received, by the U.S.
taxpayer. Subject to certain limitations, these tax consequences may be
mitigated if a U.S. taxpayer makes a timely and effective qualified electing
fund or QEF election (a
QEF Election
) under Section 1295 of the
Internal Revenue Code of 1986, as amended (the
Code
) or a
mark-to-market election (a
Mark-to-Market Election
) under Section 1296
of the Code. Subject to certain limitations, such elections may be made with
respect to shares of Common Stock. A U.S. taxpayer who makes a timely and
effective QEF Election generally must report on a current basis its share of the
Companys net capital gain and ordinary earnings for any year in which the
Company is a PFIC, whether or not the Company distributes any amounts to its
shareholders. However, U.S. taxpayers should be aware that there can be no
assurance that the Company will satisfy the record keeping requirements that
apply to a qualified electing fund, or that the Company will supply U.S.
taxpayers with information that such U.S. taxpayers require to report under the
QEF Election rules, in the event that the Company is a PFIC and a U.S. taxpayer
wishes to make a QEF Election. Thus, U.S. taxpayers may not be able to make a
QEF Election with respect to their shares of Common Stock. A U.S. taxpayer who
makes the Mark to Market Election generally must include as ordinary income each
year the excess of the fair market value of the shares of Common Stock over the
taxpayers basis therein. This paragraph is qualified in its entirety by the
discussion below under the heading Certain United States Federal Income Tax
Considerations Passive Foreign Investment Company Rules. Each potential
investor who is a U.S. taxpayer should consult its own tax advisor regarding the
tax consequences of the PFIC rules and the acquisition, ownership, and
disposition of the shares of Common Stock.
46
The Company is a non-accelerated filer and the Company
cannot be certain whether the reduced disclosure requirements applicable to
non-accelerated filers will make the securities less attractive to
investors.
The Company is a non-accelerated filer and intends to take
advantage of exemptions from various requirements that are applicable to other
public companies that are non-accelerated filers, including not being required
to comply with the auditor attestation requirements of Section 404 of the U.S.
Sarbanes-Oxley Act of 2002 for so long as the Company is a non-accelerated
filer. The Company cannot predict if investors will find the securities less
attractive because the Companys independent auditors will not have attested to
the effectiveness of the Companys internal controls. If some investors find the
securities less attractive as a result of the Companys independent auditors not
attesting to the effectiveness of the Companys internal controls or as a result
of other exemptions that the Company may take advantage of, or if the Company’s independent auditors do not determine the internal control over financial
reporting to be effective when required after it ceases to be a non-accelerated
filers, the trading market for the Companys securities and the value of the
securities may be adversely affected.
The Companys growth, future profitability and ability to
obtain financing may be impacted by global financial conditions.
Global financial conditions continue to be characterized by
extreme volatility. In recent years, global markets have been adversely impacted
by the credit crisis that began in 2008, the European debt crisis and
significant fluctuations in fuel and energy costs and metals prices. Many
industries, including the mining industry, have been impacted by these market
conditions. Global financial conditions remain subject to sudden and rapid
destabilizations in response to economic shocks. A slowdown in the financial
markets or other economic conditions, including but not limited to consumer
spending, employment rates, business conditions, inflation, fuel and energy
costs, consumer debt levels, lack of available credit, the state of the
financial markets, interest rates and tax rates, may adversely affect the
Companys growth and profitability. Future economic shocks may be precipitated
by a number of causes, including debt crises, a continued rise in the price of
oil and other commodities, the volatility of metal prices, geopolitical
instability, terrorism, the devaluation and volatility of global stock markets,
health crises and natural disasters. Any sudden or rapid destabilization of
global economic conditions could impact the Companys ability to obtain equity
or debt financing in the future on terms favourable to the Company or at all. In
such an event, the Companys operations and financial condition could be
adversely impacted.
ITEM 4.
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INFORMATION ON THE COMPANY
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A.
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History and Development of Platinum
Group
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The Company is a corporation organized under the laws of
British Columbia, Canada. The Company was formed on February 18, 2002 under the
Company Act
(British Columbia) pursuant to an order of the Supreme Court
of British Columbia approving an amalgamation between Platinum Group Metals Ltd.
and New Millennium Metals Corporation. On January 25, 2005 the Company was
transitioned under the
Business Corporations Act
(British Columbia) (the
BCBCA
).
The Companys head office is located at Suite 788 550 Burrard
Street, Vancouver, British Columbia, Canada, V6C 2B5 and its telephone number is
(604) 899-5450. The Companys registered office is located at Gowling WLG (Canada) LLP, Suite 2300 - 550 Burrard Street,
Vancouver, British Columbia, Canada, V6C 2B5.
47
Information regarding the Companys organizational structure is
provided under Item 4.C. Organizational Structure.
Since its formation, the Company has been engaged in the
acquisition, exploration and development of platinum and palladium properties.
PTM currently holds interests in platinum properties in the Northern Limb of the
Bushveld Complex in South Africa and in Canada. The Companys business is
currently conducted primarily in South Africa.
At present the Companys sole material mineral property is the
Waterberg Project. A planned DFS is now underway, targeting a large, thick PGM
resource with the objective to model a large-scale, fully-mechanized mine. A
substantial portion of the Waterberg Projects prospecting area remains
unexplored.
In addition to the information provided below regarding the
Companys principal capital expenditures and divestitures during the last three
financial years, see Item 5.B. Liquidity and Capital Resources Equity
Financings for information on use of proceeds from equity financings.
Recent Developments
The following is a summary of the Companys noteworthy
developments since September 1, 2017:
September
2017
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Corporatization of Waterberg Project
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On September 21, 2017 the Company completed the planned
corporatization of the Waterberg Project by the transfer of all Waterberg
Project prospecting permits held in trust by PTM RSA into Waterberg JV Co.
Effective September 21, 2017 Waterberg JV Co. owned 100% of the
prospecting rights comprising the entire Waterberg Project area and
Waterberg JV Co. was owned 45.65% by PTM RSA, 28.35% by JOGMEC and 26% by
Mnombo.
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November 2017
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Implats Transaction
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On November 6, 2017, the Company, along with Waterberg JV
Co., JOGMEC and Mnombo completed the first phase of a transaction
involving the Waterberg Project initially announced on October 16, 2017
with Implats (the
Implats
Transaction
) whereby Implats
purchased an aggregate 15.0% equity interest in Waterberg JV Co. (the
Initial Purchase
) $30 million. The Company received consideration
of $17.2 million from Implats for the sale of an 8.6% interest in the
Waterberg Project and JOGMEC received $12.8 million for the sale of a 6.4%
interest in the Waterberg Project.
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Pursuant to the Implats Transaction, Implats was also
granted an option (the
Purchase and Development Option
), after
the completion by Waterberg JV Co. and approval by Waterberg JV Co. or
Implats of the planned DFS (
DFS
Approval
), the preparation
of which is currently underway and which is expected to be completed in
the first part of 2019, to increase its stake to 50.01% through additional
share purchases from JOGMEC for an amount of $34.8 million and earn-in
arrangements for $130 million paid to Waterberg JV
Co. to fund development work on the
Waterberg Project, as well as a right of first refusal to smelt and refine
Waterberg concentrate.
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48
In the event of certain breaches of
agreement, insolvency events or events that would entitle a Waterberg JV Co.
shareholder to acquire or dispose of any Waterberg JV Co. shares (other than
transfers to certain permitted transferees) prior to the DFS Approval, Implats
may, by notice to the other Waterberg JV Co. shareholders of such event, cause
the Purchase and Development Option to instead become exercisable from the date
of such notice. Subject to certain exceptions, the Purchase and Development
Option will be exercisable for a period of at least 90 business days from the
date of such notice. Upon exercising the Purchase and Development Option,
Implats will have the right to appoint the manager of Waterberg JV Co.
The issuance and transfer of Waterberg
JV Co. shares to Implats following the exercise of the Purchase and Development
Option is subject to the satisfaction or waiver of certain conditions precedent,
including but not limited to: the receipt of required regulatory approvals,
including under the South African Competition Act, 89 of 1998, and the MPRDA;
and within 180 business days after its exercise of the Purchase and Development
Option, Implats confirming the salient terms of a development and mining
financing for the Waterberg Project (the
Development and Mining
Financing
), and providing a signed financing term sheet, subject only to
final credit approval and documentation. If Implats exercises the Purchase and
Development Option and such transactions are consummated, Implats will have
primary control of Waterberg JV Co., including the power to approve matters
submitted to the board of directors. Certain matters would continue to require
the approval of Waterberg JV Co. shareholders by a 75% vote, including the
approval of JOGMEC in certain circumstances.
Should Implats complete the Purchase
and Development Option and increase its interest in Waterberg JV Co. to 50.01%,
Mnombos 26% interest would be maintained by Waterberg JV Co. issuing additional
shares to Mnombo at a nominal price, Platinum Group would retain a direct 18.99%
interest, and JOGMEC would hold a 5% interest. Platinum Groups direct and
indirect (through its shareholding of Mnombo) interests in Waterberg JV Co.
would total 31.96% . Following Implats exercise of the Purchase and Development
Option and the completion of its earn-in spending, all project partners would be
required to participate and fund the development of the Waterberg Project on a
pro-rata basis.
The Implats Transaction agreements
provide for the transfer of equity and the issuance of additional equity to one
or more broad based black empowerment partners, at fair value. If, prior to the
consummation of the Purchase and Development Option, a BEE dilution event has
occurred (i.e., an event resulting in the issuance of additional equity to a BEE
shareholder, thereby reducing the interests of non-BEE shareholders), the amount
of equity to be purchased by Implats and the purchase price for such equity upon
the exercise of the Purchase and Development Option will be adjusted pursuant to
formulas set forth in the Purchase and Development Option.
49
If Implats does not elect to exercise
the Purchase and Development Option and arrange the Development and Mining
Financing, Implats will retain a 15.0% interest and Platinum Group will retain a
50.02% direct and indirect interest in the Waterberg Project.
Implats has also acquired a right of
first refusal to enter into an offtake agreement, on commercial arms-length
terms, for the smelting and refining of mineral products from the Waterberg
Project. JOGMEC will retain a right to receive platinum, palladium, rhodium,
gold, ruthenium, iridium, copper and nickel in refined mineral products at the
volume produced from the Waterberg Project.
Implats, JOGMEC, Mnombo and Platinum
Group (as operator of the Waterberg Project) have agreed to the detailed scope
of work for the DFS. The DFS will investigate two options - a 600,000 tonne per
month mine (744,000 ounces PGEs per year) as outlined in the pre-feasibility
study completed by the Company in October 2016 (the
2016 PFS
), and a
second lower capital option at 250,000 to 350,000 tonnes per month. The
selection of the DFS team was also agreed and a tender process managed by a
third party specialist for engineering groups has been completed. Following the
closing of the Implats Transaction, which occurred on November 6, 2017, DRA
Projects SA (Proprietary) Limited (
DRA
) was appointed for metallurgy,
plant design, infrastructure and cost estimation. Stantec Consulting
International LLC (
Stantec
) was appointed for underground mining
engineering and design and reserve estimation.
The Sprott Lenders and LMM provided
their consent to the Implats Transaction, which consents were conditional on the
satisfaction of certain conditions by the Company including the provision of a
$5 million bridge loan (the
Bridge Loan
) by Sprott Lenders to provide
working capital to the Company until closing of the Implats Transaction. The
Bridge Loan was repaid by the Company on November 17, 2017.
Maseve Sale
Transaction
On November 23, 2017, the Company
entered into definitive agreements to sell its rights and interests in Maseve to
Royal Bafokeng Platinum Limited (
RBPlat
) in a transaction valued at
approximately $74.0 million, payable as $62.0 million in cash and $12.0 million
in RBPlat ordinary shares (the
Maseve Sale Transaction
).
A deposit in escrow was paid by RBPlat
in the amount of Rand 41,367,300 ($3.0 million equivalent) on October 9,
2017.
The Maseve Sale Transaction was
completed in April 2018. The Maseve Sale Transaction occurred in two stages:
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RBPlat paid Maseve $58 million in cash to acquire the
concentrator plant and certain surface assets of the Maseve Mine,
including an appropriate allocation for power and water (the
Plant
Sale
Transaction
). Maseve retained ownership of the mining
right, power and water rights as well as certain surface rights and
improvements.
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50
The payment received by Maseve was
remitted to the Companys South African subsidiary, PTM RSA, in partial
settlement of loans due to PTM RSA. This first payment due from RBPlat was
conditional upon the satisfaction or waiver of certain conditions precedent,
including but not limited to the negotiation and execution of definitive
agreements, the approval, or confirmed obligation, of the holder of the
remaining 17.1% equity interest in Maseve, Africa Wide Mineral Prospecting and
Exploration Proprietary Limited, the approval of PTMs secured lenders, the
approval of the South African Competition Commission (
Competition
Approval
), and completion of due diligence which may result in additional
conditions.
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|
RBPlat paid PTM RSA $7.0 million in Common Shares of
RBPlat plus approximately $4.0 million in cash to acquire PTM RSAs
remaining loans due from Maseve, and paid PTM RSA and Africa Wide, in
proportion to their respective equity interests in Maseve, a further $5.0
million by way of issuance of Common Shares of RBPlat to acquire 100% of
the equity in Maseve (the
Share Transaction
). The second stage of
the transaction was conditional upon implementation of the Plant Sale
Transaction and, among other conditions, obtaining all requisite
regulatory approvals including but not limited to the Minister of Mineral
Resources granting consent to the transfer of the Maseve mining right to
RBPlat in terms of section 11 of the Mineral and Petroleum Resources
Development Act (
Ministerial Consent
) within three years after
the Competition Approval.
|
The RBPlat ordinary shares issued
pursuant to the Share Transaction were priced at their 30-day volume weighted
average price of the RBPlat ordinary shares on the Johannesburg Stock Exchange
calculated on market close on the day preceding the announcement.
RBPlat was granted a management
contract for the Maseve Mine and for carrying out care and maintenance services
during the period between the date of grant of the Competition Approval and the
date of Ministerial Consent. The Company was responsible for 50% of care and
maintenance costs after Competition Approval until the earlier of the date of
Ministerial Consent and the date upon which RBPlat utilizes the surface
infrastructure of the Maseve Mine for its own purposes.
PTMs proceeds from the sale of Maseve
and the Maseve Mine were repaid to secured lenders who were collectively owed
approximately $89 million in principal and accrued interest at August 31, 2017.
Sprott and LMM agreed to terms and conditions, upon completion of which, they
provided their consent to the Maseve Sale Transaction.
December 2017
|
Definitive Feasibility Study Update
I
|
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|
On December 11, 2017 the Company announced that
the ongoing DFS for the Waterberg Project was advancing under the
direction of the Technical Committee appointed by Waterberg JV Co. and
comprised of representatives of the Company, Implats, JOGMEC and Mnombo.
Seventeen drill rigs were on site and drilling commenced with the
objectives of defining the shallowest areas of the current 102 million
tonne reserve (details below) for increased confidence and detailed mine
planning and to upgrade a portion of the indicated resources to measured
resources for reserve consideration in the DFS. Immediate areas for
in-fill drilling include the Northern and Boundary Super F zones.
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51
March 2018
|
Memorandum of Understanding
JOGMEC/Hanwa
|
|
|
|
On March 8, 2018 the Company announced that
JOGMEC and Hanwa Co., Ltd. (
Hanwa
) signed a memorandum of
understanding to transfer part of JOGMECs interest in the Waterberg
Project to Hanwa. The agreement is the result of a public tender on
February 23, 2018 won by Hanwa. JOGMEC started negotiation on the terms of
the transfer with Hanwa. With a successful implementation of the transfer
agreement, Hanwa will secure the right to a supply of refined platinum
group metals for exhaust emission catalytic converters, fuel cells for
cars, and nickel and other metals for rechargeable batteries. Hanwa is a
leading global trading company headquartered in Tokyo Japan with over
3,000 employees and operations spanning steel, non-ferrous metals, metals
and alloys, food, petroleum, chemicals, machinery, lumber and other
business sectors.
|
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April 2018
|
Completion of the Maseve Sale Transaction
Stage One
|
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|
On April 5, 2018 the Company completed the
Plant Sale Transaction of the Maseve Sale Transaction when RBPlat paid
Maseve $58 million in cash to acquire the concentrator plant and certain
surface assets of the Maseve Mine.
|
|
|
|
Completion of the Maseve Sale Transaction
Stage Two
|
|
|
|
The Share Transaction was completed on April
26, 2018 with the release of 4.87 million RBPlat ordinary shares from
escrow, worth approximately $9.0 million at that time. The required cash
payment was made on May 29, 2018, funded by the release of Maseves Rand
58 million environmental bond, valued at $4.6 million on May 29, 2018.
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|
|
|
Payment of Sprott Facility
Indebtedness
|
|
|
|
The Company used US$47.1 million from the
proceeds of the Maseve Sale Transaction to repay all remaining
indebtedness under the Sprott Facility, consisting of the outstanding
principal amount of US$40.0 million, a bridge loan of US$5.0 million and
all accrued and unpaid interest and fees due of approximately US$2.1
million.
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|
|
|
Partial Payment of LMM Facility
Indebtedness
|
|
|
|
The Company also made payments to Liberty
totaling US$23.1 million. These payments first paid down the production
payment termination accrual of $15 million. The remaining US$8.1 million
was then applied against the loan and accrued interest owing.
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52
NYSE American Notice
On April 10, 2018 and May 23, 2018 the
Company received letters from the NYSE American stating that it is not in
compliance with the continued listing standards as set forth in Sections
1003(a)(i), 1003(a)(ii), 1003(a)(iii) and 1003(f)(v) of the NYSE American
Company Guide (the
Company Guide
). Upon submission of a plan of
compliance by the Company, on June 21, 2018 the NYSE American granted the
Company an extension until November 23, 2018 to regain compliance with the
requirements of Section 1003(f)(v) of the Company Guide and until October 10,
2019 to regain compliance with Sections 1003(a)(i), 1003(a)(ii) and 1003(a)(iii)
of the Company Guide. The Company is not currently in compliance with NYSE
American listing standards, but its listing is being continued pursuant to an
exception. The Company will be subject to periodic review by Exchange staff
during the extension period. If the Company is not in compliance with the
Company Guide by the applicable deadlines or if the Company does not make
progress consistent with the plan during the plan period, Exchange staff will
initiate delisting proceedings as appropriate.
Section 1003(a) of the Company Guide
sets forth minimum shareholders equity requirements for a company listed on the
NYSE American. It also provides that the NYSE American will not normally
consider suspending dealings in, or removing from the list, the securities of an
issuer if the issuer is in compliance with the following: (A) total value of
market capitalization of at least US$50.0 million; or total assets and revenue
of US$50.0 million each in its last fiscal year, or in two of its last three
fiscal years; and (B) the issuer has at least 1,100,000 shares publicly held, a
market value of publicly held shares of at least US$15.0 million and 400 round
lot shareholders (collectively, the Alternative Listing Standards). In order
to satisfy the Alternative Listing Standards, the Company must regain a market
capitalization of US$50.0 million or more for a period that the NYSE American
considers adequate. These standards in no way limit or restrict the NYSE
Americans discretionary authority to suspend dealings in, or remove, a security
from listing.
Section 1003(f)(v) of the Company
Guide provides that the NYSE American will normally consider suspending dealings
in, or removing from the list, an issuers shares if the issuers shares sell
for a low price per share for a substantial period of time and the issuer fails
to effect a share consolidation of such shares within a reasonable time after
being notified that the NYSE American deems such action to be appropriate under
the circumstances.
May 2018
|
Amendments to LMM Facility
|
|
|
|
On May 1, 2018 the Company reported amendments
to the LMM Facility pursuant to which the Company must raise a minimum of
US$20 million in subordinated debt and/or equity (the
First Required
Financing
) before May 15, 2018 (previously before May 10, 2018); and
provided that the Company applies the first US$20 million of net proceeds
from the First Required Financing to reduce indebtedness under the LMM
Facility before May 15, 2018, and is not otherwise in default under the
LMM Facility: a previous second required financing to raise a further
US$20 million in subordinated debt and/or equity before July 31, 2018 will
be eliminated; the LMM Facility maturity date will be
extended to June 30, 2019 (previously
September 30, 2018); and interest will continue to accrue until the maturity
date (previously interest became payable quarterly after June 30, 2018).
|
53
On May 15, 2018 the Company further
reported amendments to the LMM Facility to comply with the First Required
Financing before May 31, 2018 (previously May 15, 2018); and provided that the
Company applies the first US$12 million of net proceeds from the First Required
Financing to reduce indebtedness under the LMM Facility before May 31, 2018, and
is not otherwise in default, the LMM Facility maturity date will be extended to
October 31, 2019 (previously June 30, 2018).
US$ 2.26 Million Private
Placement and Directors Appointment
On May 15, 2018 the Company announced
the closing of a strategic investment in the Company by HCI on a private
placement basis. HCI subscribed, through a subsidiary, for 15,090,999 units (the
HCI
Units
) at a price of US$0.15 per unit for gross proceeds of
US$2,263,649.85 (the
May 2018 Private Placement
). Each HCI Unit
consists of one common share and one common share purchase warrant (a Private
Placement Warrant), with each common share purchase warrant allowing HCI to
purchase one further common share of the Company at a price of US$0.17 per share
for a period of 18 months until November 15, 2019. The Company intends to use
the net proceeds of the May 2018 Private Placement: (i) for debt repayment
towards a loan facility and production payment termination fees due to LMM; and
(ii) for general corporate and working capital purposes.
Pursuant to the subscription
agreement, upon completion of the May 2018 Private Placement, HCI became
entitled to nominate one person to be appointed to the board of directors of the
Company and obtained a right to participate in future equity financings of the
Company to maintain its pro-rata interest. Accordingly, Mr. John Anthony
Copelyn, Chief Executive Officer of HCI was appointed as a director of the
Company.
US$ 17.62 Million Public
Offering
On May 15, 2018 the Company announced
the closing of a previously announced marketed public offering (the "
May
2018
Offering
") of units (the
Offering
Units
). The
Company issued 117,453,862 Offering Units at a price of US$0.15 per Offering
Unit for gross proceeds of approximately US$17.62 million, including the
issuance of 3,453,862 Offering Units pursuant to the partial exercise of an
over-allotment option granted to the underwriters of the May 2018 Offering. Each
Unit consisted of one common share (an
Offering
Common
Share
) and one common share purchase warrant (an
Offering
Warrant
), with each Offering Warrant entitling the holder thereof to
purchase one Offering Common Share at a price of US$0.17 for a term of 18 months
from the date of closing of the May 2018 Offering. Upon closing of the May 2018
Offering, the Offering Warrants began trading on the TSX under the symbol
PTM.WT.U. The net proceeds of the May 2018 Public Offering, after expenses,
was approximately US$15.0 million. The Company intends to use the net proceeds
of the May 2018 Offering: (i) towards repayment of a loan facility and production payment termination fees due to LMM; and (ii)
for general corporate and working capital purposes.
54
|
Definitive Feasibility Study Update II
|
|
|
|
On May 29, 2018 the Company announced that work on the
DFS was proceeding according to plan. The latest phase of 38,000 meters of
infill drilling was been completed safely and on budget, bringing the
total drill testing completed on the project to approximately 346,000
meters.
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June 2018
|
Water Supply Management
|
|
|
|
On June 19, 2018 the Company reported an agreement with
the Capricorn District Municipality to jointly develop a water supply
management plan to increase the water supply and infrastructure capacity
for both local community and Waterberg Mine usage. This public-private
partnership will benefit both the mine and the communities around the
mining area.
|
|
|
Period ended
August 31, 2018
|
During the twelve month period ended August 31,
2018
, the Company incurred and capitalized $8.7 million (August
31, 2017 - $5.7 million) exploration and development costs for the
Waterberg Project, of which $5.9 million was covered by joint venture
partners Impala and JOGMEC. At the prior fiscal year end of August 31,
2017 the Company recognized an impairment charge for the Maseve Mine in
the amount of $589 million, reducing the carrying value of the Maseve Mine
to $74 million (before transaction fees), approximating its net value
pursuant to the Maseve Sale Transaction.
|
|
|
October 2018
|
Mining Right Application
|
|
|
|
On October 10, 2018 the Company announced the acceptance
of a mining right application for the Waterberg Project by the DMR. The
application consists of a mining work program, social and labour plan and
applicable environmental applications. The mining right application is
supported by the Company and all of the Waterberg joint venture partners
including Implats, JOGMEC and Mnombo. The process of consultation under
the MPRDA and environmental assessment regulations for the mining right
application has commenced.
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|
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|
Updated Mineral Resource Estimate
|
|
|
|
On October 25, 2018, the Company reported an updated
independent 4E resource estimate for the Waterberg Project. These results,
based on a drilling program completed in 2018, confirmed increased
confidence in the Waterberg Project with 6.26 million 4E ounces recognized
in the higher confidence measured category. Mineral resources estimated in
the combined measured and indicated categories have increased by 1.46
million 4E ounces to 26.34 million 4E ounces. Inferred mineral Resources
are estimated at 7.0 million 4E ounces. The aggregate T Zone and F Zone
measured and indicated resource is comprised of 63% palladium, 29%
platinum, 6% gold and 1% rhodium (242.5 Million Tonnes at 3.38 g/t 4E).
The T Zone measured and indicated mineral resources have increased in
grade from 3.88g/t 4E as estimated for the 2016 PFS to 4.51 g/t 4E in
2018. All of the preceding was estimated at a 2.5 g/t 4E (palladium,
platinum, rhodium and gold) cut-off grade. For more details about the
updated independent 4E resource estimate for the Waterberg Project, see
Item 4.D. Property, Plant and Equipment Technical Report Waterberg.
|
55
|
On November 16, 2018 Platinum Group filed a National
Instrument 43-101 technical report on the above updated mineral resources
entitled Technical Report On The Mineral Resource Update For The
Waterberg Project Located In The Bushveld Igneous Complex, South Africa
(the
October 2018 Waterberg Report
). In addition, a SAMREC 2016
compliant Mineral Resource statement has been prepared and signed- off by
the Independent Geological Qualified Person. The Independent Geological
Qualified Person for the October 2018 Waterberg Report and the companion
SAMREC Mineral Resource statement is Mr. Charles J Muller, (B.Sc. (Hons)
Geology) Pr. Sci. Nat. (Reg. No. 400201/04), CJM Consulting (Pty) Ltd.
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|
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|
Mineral resources in the October 2018 Waterberg Report
are classified in accordance with the SAMREC 2016 standards. There are
certain differences with the "CIM Standards on Mineral Resources and
Mineral Reserves"; however, in this case the Independent Qualified Person
believes the differences are not material and the standards may be
considered the same. Mineral resources that are not mineral reserves do
not have demonstrated economic viability but there are reasonable
prospects for eventual economic extraction. Inferred mineral resources
have a high degree of uncertainty.
|
|
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|
Readers are directed to review the full text of the
October 2018 Waterberg Report, which is incorporated by reference herein
and is available for review under the Companys profile on SEDAR at
www.sedar.com
and on EDGAR at
www.sec.gov
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November 2018
|
Share Consolidation
|
|
|
|
On November 20, 2018, the Company announced its intention
to complete the 2018 Share Consolidation by consolidating the Companys
Common Shares on the basis of one new share for ten old shares (1:10),
effective at 9:00 a.m. (New York time) on December 13, 2018. See
Introduction Share Consolidation.
|
General
The Company is a platinum and palladium focused exploration,
development and operating company conducting work primarily on mineral
properties it has staked or acquired by way of option agreements or applications
in the Republic of South Africa and in Canada.
The Companys sole material mineral property is the Waterberg
Project. The Company continues to evaluate exploration opportunities both on
currently owned properties and on new prospects.
Principal Product
The Company’s principal product from the Waterberg Project, in accordance
with the 2016 PFS, is planned to be a PGM bearing concentrate. The concentrate
will contain certain amounts of eight elements comprised of platinum, palladium,
rhodium, gold, ruthenium, iridium, copper and nickel. Pursuant to the Implats
Transaction, Implats has acquired a right of first refusal to enter into an
offtake agreement, on commercial arms-length terms, for the smelting and
refining of mineral products from the Waterberg Project.
56
Specialized Skill and Knowledge
Various aspects of The Company’s business require specialized skills and
knowledge, including the areas of geology, engineering, operations, drilling,
metallurgy, permitting, logistical planning and implementation of exploration
programs as well as legal compliance, finance and accounting. The Company faces
competition for qualified personnel with these specialized skills and knowledge,
which may increase its costs of operations or result in delays.
Pursuant to the Implats Transaction, Implats is an active
participant in the completion of a DFS for the Waterberg Project. Should Implats
exercise the Purchase and Development Option, Implats will become the majority
owner and will have the right to appoint the manager of the Waterberg Project.
Implats is one of the worlds foremost fully integrated producers of platinum
and associated PGEs. The group produces approximately a quarter of the worlds
supply of primary platinum. Implats operations are located on the Bushveld
Complex in South Africa and the Great Dyke in Zimbabwe, two of the most
significant PGE-bearing ore bodies in the world. In Southern Africa Implats is
structured around five main operations namely Impala, Zimplats, Marula, Mimosa
and Two Rivers with headquarters based in Johannesburg, South Africa.
Employees and Contractors
The Companys current complement of managers, staff and
consultants in Canada consists of approximately 6 individuals. The Companys
complement of managers, staff, consultants, security and casual workers in South
Africa consists of approximately 11 individuals, inclusive of 3 individuals
active at the Waterberg Project conducting exploration and engineering
activities related to the planned completion of a DFS expected in the first part
of 2019. The Waterberg Project is operated by the Company utilizing its own
staff and personnel. Contract drilling, geotechnical, engineering and support
services are utilized as required. Operations at the Waterberg Project are
funded by Waterberg JV Co. and its shareholders.
Foreign Operations
The Company conducts its business in South Africa. South Africa
has a large and well-developed mining industry. This, among other factors, means
the infrastructure in many areas is well-established, with well-maintained roads
and highways as well as electricity distribution networks, water supply and
telephone and communication systems. Electrical generating capacity has been
strained by demand in recent years in South Africa, but additional capacity is
currently under construction. Additional water infrastructure will also be
required. See Risk Factors.
There is also access to materials and skilled labour in South
Africa due to the existence of many platinum, chrome, gold and coal mines.
Smelter complexes and refining facilities are also located in South Africa.
South Africa has an established government, police force and judiciary as well
as financial, health care and social institutions, although such institutions
underwent significant change following the fall of apartheid and free elections
in 1994, and are continuing to be developed. The system of mineral tenure was
overhauled by new legislation in 2002, which came into force in 2004. Since
1994, South Africa has been considered an emerging democracy. See Risk
Factors.
57
Social or Environmental Policies
Corporate Social Responsibility
Being a responsible corporate citizen means protecting the natural environment associated with its business activities, providing a safe workplace for its employees and contractors, and investing in infrastructure, economic development, and health and education in the communities where the Company operates so that it can enhance the lives of those who work and live there beyond the life of such operations. The Company takes a long term view of its corporate responsibility, which is reflected in the policies that guide its business decisions, and in its corporate culture that fosters safe and ethical behaviour across all levels of Platinum Group. The Company’s goal is to ensure that its engagement with its stakeholders, including its workforce, industry partners, and the communities where it operates, is continued, mutually beneficial and transparent. By building such relationships and conducting ourselves in this manner, the Company can address specific concerns of its stakeholders and work cooperatively and effectively towards achieving this goal.
Social and Labour Plans
The Waterberg Social and Labour Plan (the
Waterberg Social
and Labour Plan
) is currently being developed pursuant to South African
Department of Mineral Resources (
DMR
) guidelines for social and labour
plans and a draft has been submitted in accordance with regulation 46 of the
MPRDA together with the application for a mining right for the Waterberg
Project. The objective of a social and labour plan is to align the Companys
social and labour principles with the related requirements established under
Mining Charter 2018. These requirements include promoting employment and
avoiding retrenchments, advancement of the social and economic welfare of all
South Africans, contributing toward the transformation of the mining industry
and contributing towards the socio-economic development of the communities
proximal to the Waterberg Project. Contractors will be required to comply with
the Waterberg Social and Labour Plan and policies, including commitment to
employment equity and BEE, proof of competence in terms of regulations,
commitment to undertake training programs, compliance with all policies relating
to recruitment, training, health and safety, etc. In terms of human resources
training, the Waterberg Social and Labour Plan will establish objectives for
adult-based education training, learnerships and development of skills required
by mining industry, portable skills training for transition into industries
other than mining, education bursaries and internships. The Waterberg Social and
Labour Plan will also plan to establish local economic development objectives
for projects such as community centre refurbishment, high school refurbishment,
water and reticulation projects, housing development, establishment of
recreational parks and various other localized programmes for small scale
industry, agriculture, entrepreneurship and health and education.
Labour in South Africa
The gold and platinum mining industries in South Africa
witnessed significant labour unrest in recent years and demands for higher wages
by certain labour groups. Both legal and illegal or unprotected strikes have
occurred at several mines since the beginning of August 2012. In June 2014, the
Association of Mineworkers and Construction Union accepted a negotiated wage
settlement to end a five-month long strike affecting a significant proportion of
the platinum industry. To date, the Company has seen no adverse labour action on
its operations in South Africa and the retrenchment processes at the Maseve Mine
were peaceful and orderly. See Risk Factors.
58
Environmental Compliance
The Companys current and future exploration and development
activities, as well as future mining and processing operations, if warranted,
are subject to various state, provincial and local laws and regulations in the
countries in which the Company conducts its activities. These laws and
regulations govern the protection of the environment, prospecting, development,
production, taxes, labour standards, occupational health, mine safety, hazardous
substances and other matters. Company management expects to be able to comply
with those laws and does not believe that compliance will have a material
adverse effect on the Companys competitive position. The Company intends to
obtain and maintain all licences and permits required by all applicable
regulatory agencies in connection with its mining operations and exploration
activities. The Company intends to maintain standards of compliance consistent
with contemporary industry practice.
Competitive Conditions
The global PGM mining industry has historically been
characterised by long-term rising demand from global automotive and fabrication
sectors on the one hand and constrained supply sources on the other. South
Africas PGM mining sector has been the largest and fastest growing sector in
the South African mining industry until recently, representing approximately 80%
of global supply. Since mid-2012 global economic uncertainty, recycling and slow
growth have created a weak market for PGMs. Lower market prices for PGMs
combined with labour unrest has caused stoppages and closures of some higher
cost platinum mines and shafts in South Africa. Almost all of the South African
platinum and palladium supply comes from the geographic constraints of the
Western, Northern and Eastern Limbs of the Bushveld Complex, resulting in a high
degree of competition for mineral rights and projects. South Africas PGM mining
sector remains beholden to economic developments in the global automotive
industry, which currently accounts for approximately 41% of the total global
demand for platinum. A prolonged downturn in global automobile and light truck
sales, resulting in depressed platinum prices, often results in declining
production as unprofitable mines are shut down. Alternatively, strong automobile
and light truck sales combined with strong fabrication demand for platinum, most
often results in a more robust industry, creating competition for resources,
including funding, labour, technical experts, power, water, materials and
equipment. There is not a material seasonal effect or influence on the PGM
market or business. Since late 2015 the price of palladium has approximately
doubled due to rising automotive sector demand. The South African industry is
dominated by three or four producers, who also control smelting and refining
facilities. As a result, there is general competition for access to these
facilities on a contract basis. If the Company moves towards production on the
Waterberg Project, it will become exposed to many of the risks of competition
described herein. See Risk Factors.
Mineral Property Interests
Under IFRS, the Company defers all acquisition, exploration and
development costs related to mineral properties. The recoverability of these
amounts is dependent upon the existence of economically recoverable mineral
reserves, the ability of the Company to obtain the necessary financing to
complete the development of the property, and any future profitable production;
or alternatively upon the Companys ability to dispose of its interests on an
advantageous basis.
The Companys key development project and exploration targets
are located in the Bushveld Complex in South Africa. The Bushveld Complex is
comprised of a series of distinct layers or reefs, three of which contain the
majority of the economic concentrations of platinum group metals (together,
PGMs
, and the subset of 4E PGMs consisting of platinum, palladium,
rhodium and gold, or the subset of 3E PGMs consisting of platinum, palladium and
gold) within the Bushveld Complex: (i) the Merensky Reef (
Merensky
or
MR
), which occurs around the Western Limb of the Bushveld Complex, (ii)
the Upper Group 2 Layer or Reef (
UG2
), which occurs around the Eastern
Limb of the Bushveld Complex and (iii) the Platreef (
Platreef
), found
within the Northern Limb. These reefs exhibit extensive geological continuity
and predictability and have an established history of economic PGM production.
The Merensky, UG2 and Platreef have been producing PGMs since the 1920s, 1970s
and 1990s, respectively.
59
For a further discussion of the Companys material and
non-material mineral properties, see Item 4.D. Property, Plant and Equipment.
South African Regulatory Framework
The Company is subject to South African government regulations
that affect all aspects of the Companys operations. Accordingly, the sections
below set out the primary laws and regulatory concepts to which the Company is
subject.
60
Black Economic Empowerment in the South African Mining
Industry
The transition from an apartheid regime to a democratic regime
brought with it a commitment by the South African state, as enshrined in the
Constitution, to take legislative and other measures to redress the results of
past racial discrimination against black South Africans, or as the MPRDA and
Mining Charter defines them, HDPs. Under the MPRDA, the concept includes any
association, the majority of whose members are HDPs as well as juristic persons
if HDPs own and control the majority of the shares and control the majority of
the shareholders votes.
This concept and process to take legislative and other measures
to redress the results of past racial discrimination against black South
Africans is known in South Africa as broad-based black economic empowerment, or
BEE. The mining industry was one of many industries identified by the South
African government as requiring reform to bring about equitable benefit from
South Africas mineral industry to all South Africans and to promote local and
rural development and social upliftment of communities affected by mining.
The regulatory regime governing the South African mining
industry has therefore fundamentally changed over the past decade. Legislation
governing mining and BEE within the mining sector includes, among other laws,
the MPRDA, the Mining Codes and the Standards pursuant to the MPRDA, Mining
Charter 2018, Mining Charter 2018 Scorecard and the Mining Titles Registration
Act No. 16 of 1967 (as amended). The aforementioned legislation, however, is
industry specific and the generic BEE regulatory framework in South Africa is
regulated in terms of the BEE Act, which sets outs the South African
governments policy in respect of the promotion of BEE. The BEE Act also permits
the Minster of Trade and Industry to publish generic BEE Codes of Good Practice
(
Generic BEE Codes
), being codes of good practice that address, among
other things, the indicators to measure BEE and the weightings to be attached to
such indicators.
The Generic BEE Codes were originally published in 2007 and set
out seven indicators or elements in terms of which BEE compliance is measured.
Each element has a scorecard in terms of which various sub-elements are set out,
together with a target for compliance with each sub-element and a corresponding
number of weighting points. An entitys BEE compliance is measured in terms of
each of these scorecards and the aggregate score will then determine that
entitys BEE compliance level. Independent BEE verification agencies are
authorized to verify an entitys compliance and provide it with a verification
certificate which will set out its score and confirm its BEE compliance level.
The seven elements of BEE compliance set out in the original Generic BEE Codes
are ownership (which measures the extent to which black people own the measured
entity), management control (which measures the extent to which black people
form part of the board of directors and top management of the entity),
employment equity (which measures the extent to which black people are employed
with the various management levels of the entity), skills development (which
measures the extent to which the entity has undertaken skills training for the
benefit of its black employees), preferential procurement (which measures the
extent to which the entity procures goods and services from BEE compliant and
black-owned companies), enterprise development (which measures the extent to
which the entity has contributed towards the development of black-owned or BEE
compliant companies), and socio-economic development (which measures the extent
to which the entity has contributed towards the economic development of black
people).
The original Generic BEE Codes were amended on October 11, 2013
and such amendments became effective from May 1, 2015. Generally speaking, the
amended Generic BEE Codes seek to make BEE compliance more onerous to achieve.
The total number of points required to achieve certain levels of BEE compliance have been increased. The elements of management
control and employment equity have been consolidated into a single element
referred to only as management control, and the elements of preferential
procurement and enterprise development have been consolidated into a single
element referred to as enterprise and supplier development. The elements of
ownership, skills development and enterprise and supplier development are
classified as priority elements to which minimum thresholds of compliance attach
and subjects an entity to a penalty of a reduction in its BEE compliance status
by one level if the entity fails to achieve any of such minimum thresholds.
61
In addition, the BEE Act was amended by The BEE Amendment Act,
which came into operation on October 24, 2014.
The provisions of section 3(2) set out in the BEE Amendment Act
states that
in the event of any conflict between this Act and any other law
in force immediately prior to the date of commencement of the Broad-Based Black
Economic Empowerment Act, 2013, this Act prevails if the conflict specifically
relates to a matter dealt with in this Act
(the
Trumping
Provision
). The BEE Amendment Act provides that section 3(2) will come into
effect one year after the date on which the President proclaims the BEE
Amendment Act into law and therefore became operative on October 24, 2015.
However, on October 30, 2015 the Minister of Trade and Industry exempted the DMR
from applying the Trumping Provision until October 31, 2016 on the basis that
the alignment of the Mining Charter 2018 with the BEE Act and the BEE Codes was
still ongoing. There has not been a further extension of this exemption.
Section 10(1)(a) set out in the BEE Amendment Act provides that
every organ of state and public entity must apply any relevant code of good
practice issued in terms of this Act in determining qualification criteria for
the issuing of licences, concessions or other authorizations in respect of
economic activity in terms of any law
. This will require all governmental
bodies to apply the Generic BEE Codes or other relevant codes of good practice
when procuring goods or services or issuing licenses or other authorizations
under any other laws, and to penalize fronting or misrepresentation of BEE
information.
The provisions of section 3(2) and 10(1)(a) indicate that the
DMR would be obliged to apply the provisions of the BEE Act and of any BEE code
of good practice gazetted in terms of the BEE Act when issuing rights,
permissions or permits in terms of the MPRDA in the future.
A code of good practice refers to the Generic BEE Codes or any
sector-specific code of good practice which has been developed and gazetted in
terms of the provisions of the BEE Act after consultation with the relevant
industry stakeholders and the Department of Trade and Industry. It does not
include Mining Charter 2018. The implications of the above provisions of the BEE
Amendment Act are that unless a mining sector code is developed and gazetted, or
unless a further exemption is granted by Ministers of Trade and Industry, the
DMR would not be entitled to apply Mining Charter 2018 when issuing rights,
permissions or permits (after commencement of the abovementioned sections of the
BEE Amendment Act) and would be required to apply the Generic BEE Codes. While
the target for ownership under the Generic BEE Codes is the same as in Mining
Charter 2010 i.e. 26% (as opposed to the current Mining Charter 2018's 30%), the
remaining elements in terms of which BEE compliance is measured are materially
different from those set out in Mining Charter 2018. In addition, the extent of
BEE compliance is determined under the Generic BEE Codes with reference to an
entitys overall score and corresponding BEE compliance level, and Mining
Charter 2018s scorecard does not contain the same methodology. Thus, if the
Generic BEE Codes were to apply to the mining industry, it would place the
industry at a disadvantage and create uncertainty.
62
Section 10(2)(a) set out in the BEE Amendment Act provides that
the Minister may, after consultation with the relevant organ of state or
public entity, exempt the organ of state or public entity from a requirement
contained in subsection (1) or allow a deviation therefrom if particular
objectively verifiable facts or circumstances applicable to the organ of state
or public entity necessitate a deviation
. Such an exemption or deviation is
required to be published in the government gazette. It seems possible, but it is
not certain whether the DMR could apply for such an exemption in respect of the
mining industry.
The DMR and industry bodies are aware of the implications of
the Trumping Provision. Notwithstanding that there has been no further extension
of the exemption in respect of the Trumping Provision, to date, the DMR
continues to apply the provisions of Mining Charter 2018 and not the Generic BEE
Codes.
It is important to bear in mind that none of Mining Charter
2018, Mining Charter 2018 Scorecard or the Mining Codes are drafted as
legislative documents. They are instruments of policy and as such are frequently
ambiguous, loosely worded and difficult to interpret with precision.
The MPRDA seeks to facilitate participation by HDPs in mining
ventures. Complying with the HDP regime is a prerequisite for being granted and
maintaining prospecting and mining rights. Every application for a mining right
under the MPRDA must demonstrate that the granting of such right will:
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substantially and meaningfully expand
opportunities for HDPs, including women, to enter the mineral and
petroleum industry in order to benefit from the exploitation of the
nations mineral and petroleum resources; and
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promote employment and advance the social and
economic welfare of all South Africans.
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The Mining Charter
The original mining charter was developed to give substance and
guidance to the empowerment provisions under MPRDA, which came into effect on
May 1, 2004. The original mining charter set out a number of targets which were
to be achieved by mining companies by 2009 and 2014. Among other targets, mining
companies had to achieve a 15% HDP ownership by 2009 and a 26% HDP ownership by
2014. Ownership relates to ownership of mining assets, whether through the
holding of equity, partnership, joint venture or direct holding.
Notwithstanding the uncertainties in BEE legislation applicable
to mining companies with regard to the measurement of HDP ownership, it is
accepted practice (as confirmed in section 2.1.2 of the Mining Codes) that the
so-called flow-through and modified flow-through principles are applicable to
the calculation of indirectly held HDP interests (i.e. where there is partial
HDP ownership in a corporate structure above the level of the company holding
the prospecting or mining right). In terms of the flow-through principle, the
level of indirect ownership, proportionally reduced to reflect partial HDP
shareholding in intermediate companies, would be calculated to determine the
proportional indirect HDP shareholding in the company holding the right. Under
the modified flow-through principle, a company with more than 51% HDP ownership
(defined as a Historically Disadvantaged Persons Owned and Controlled Company in
Mining Charter 2018) may, at any one level in a corporate structure, attribute
100% HDP ownership to that company for the purposes of applying the flow-through
principle.
On September 13, 2010, the Mining Charter, 2010 came into
effect setting targets (some of which remained the same as those in the original
mining charter) to be achieved by mining companies by December 31, 2014 (the
implementation of which needed to be reported to the DMR by mining companies in 2015), which targets included:
63
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Ownership: this entails 26% meaningful economic
participation by HDPs and 26% full shareholder rights for HDPs. Mining
Charter 2010 refers to BEE entities as opposed to HDP companies but
retains the 26% ownership target.
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Housing and living conditions: occupancy rate
of employee accommodations of one person per room and all conversion of
employee hostels must be fully achieved.
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Procurement and enterprise development:
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a minimum procurement of 40% of capital goods,
70% of services and 50% of consumer goods from BEE entities; and
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ensure that multinational suppliers of capital goods
contribute at least 0.5% of their annual income generated from local
mining companies towards a fund for the purposes of socio- economic
development of local communities.
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Employment equity: 40% HDP participation at
Board level, at executive committee level, in middle management, in junior
management and 40% HDP participation within core skills.
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Human resource development: 5% human resource
development expenditure focused on HDPs as a percentage of total annual
payroll.
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Mine community development: implementation of
approved community projects.
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Sustainable development and growth:
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implementation of approved EMP measured
annually against the approved plans;
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implementation of action plans on health and
safety measured annually against the approved plans; and
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utilization of South African based research
facilities for the analysis of all South African sourced mineral samples.
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Beneficiation: contribute a percentage of
additional production volume towards local beneficiation of mineral
commodities in accordance with the beneficiation strategy introduced
pursuant to the terms of section 26 of the MPRDA. No such strategy has yet
been finalized.
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Reporting: submission of annual reports to the
DMR in respect of compliance with Mining Charter 2018 2010.
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Mining Charter 2010 included targets, measures and weightings
by which mining right holders were assessed against the obligations according to
Mining Charter 2010 Scorecard. Failure of a company to meet its obligations in
relation to Mining Charter 2010 could lead to the suspension or cancellation of
its New Order Rights and could have a negative impact on applications for New
Order Rights.
The application for the Waterberg Project Mining Right will be
adjudicated upon and granted in accordance with the ownership requirements of
Mining Charter 2010, given that it was lodged and accepted prior to the coming
into force of the current Mining Charter 2018.
On September 27, 2018, the Minister of Mineral Resources
announced the implementation of Mining Charter 2018 which sets out new and
revised targets to be achieved by mining companies, the most pertinent of these
being the revised BEE ownership shareholding requirements for mining rights
holders.
64
Mining Charter 2018 provides for the publication of
'Implementation Guidelines' by November 27, 2018. This creates greater
uncertainty in measuring a mining right holder's progress towards, and
compliance with, its commitments under Mining Charter 2018.
Under Mining Charter 2018, new mining rights holders will be
required to
have a minimum 30% BEE shareholding (a 4% increase from the
required 26% under the Mining Charter 2010) which shall include economic
interest plus a corresponding percentage of voting rights, per right or in the
mining company which holds the right. Once the Waterberg Project Mining Right is
granted, Waterberg JV Co. will have a period of 5 years within which to increase
its BEE shareholding to 30%. Mining Charter 2018 remains unclear as to whether
such shareholding will be required to be distributed amongst employees,
communities and black entrepreneurs as detailed below, and if so, in what
percentages.
A new mining right granted after the coming into effect of
Mining Charter 2018 must have a minimum of 30% BEE shareholding, applicable for
the duration of the mining right, which must be distributed as to (i) a minimum
of 5% non-transferable
carried
interest to qualifying employees; (ii) a
minimum of 5% non-transferrable
carried
interest to host communities, or
a minimum 5% equity equivalent benefit; and (iii) a minimum of 20% effective
ownership in the form of shares to a BEE entrepreneur, a minimum of 5% which
must
preferably
be for women.
The equity equivalent benefit relating to communities refers to
a 5% equivalent of the issued share capital, at no cost to a trust or similar
vehicle set up for the benefit of host communities. The intention behind
introducing this alternative is so that communities accessing the benefit of
ownership will not be delayed. The host community would receive an economic
benefit
as if
it was the holder of a 5% equity interest.
The carried interest of 5% to each of the community and the
employees must be issued to them at no cost and free of encumbrance. The costs
to the right holder of such issue can be recovered from the development of the
mineral asset.
Mining right holders may claim an equity equivalent offset
against a maximum 5% of a BEE Entrepreneur shareholding for beneficiation in
accordance with a DMR approved Beneficiation Equity Equivalent Plan.
The Mining Charter 2018 also sets deadlines by which the BEE
Shareholding must vest for new rights, namely a minimum of 50% must vest within
two thirds of the duration of a mining right; and the prescribed minimum 30%
target shall apply for the duration of a mining right.
Existing mining right holder who achieved a minimum of 26% BEE
shareholding, or who achieved a 26% BEE shareholding but whose BEE shareholders
exited prior to September 27, 2018 will be recognized as BEE ownership compliant
for the duration of the mining right, but not for any period of renewal thereof.
A mining right holder will be required to invest in Human
Resource Development by paying 5% of the "leviable amount", being the levy
payable under the South African Skills Development Act, No. 97 of 1998,
(excluding the mandatory statutory skills levy) towards essential skills
development activities such as science, technology, engineering, mathematics
skills as well as artisans, internships, apprentices, bursaries, literacy and
numeracy skills for employees and non-employees (community members), graduate
training programmes, research and development of solutions in exploration,
mining, processing, technology efficiency (energy and water use in mining),
beneficiation as well as environmental conservation and rehabilitation.
Mining right holders must promote economic development through
developing and/or nurturing small, medium and micro enterprises and suppliers of mining goods and
services. Within 6 months of implementation of the Mining Charter 2018, right
holders must submit a 5-year plan indicating incremental implementation of
inclusive procurement targets.
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Holders must spend a minimum of 70% of their total mining goods
procurement expenditure (excluding non-discretionary expenditure) on South
African Manufactured Goods (with a local content of at least 60%) on procurement
from stipulated BEE entities.
Mining right holders may invest in enterprise and supplier
development against which they may offset their procurement obligations in
accordance with the prescripts laid down In the Mining Charter 2018.
A
minimum of 70% of a holder's total research and
development budget must be spent on South African based research and development
entities, either in the public or private sector and only South African based
companies or facilities can be utilized for the analysis of all mineral samples
across the mining value chain.
Mining Charter 2018 also provides for minimum employment equity
thresholds at various levels of management. These include -
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Board - a minimum of 50% are HDP's, 20% of
which must be women;
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Executive Management - a minimum of 50% are
HDP's at the executive director level as a percentage of all executive
directors proportionally represented, 20% of which must be women;
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Senior Management - a minimum of 60% are HDP's
proportionally represented, 25% of which must be women;
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Middle Management - a minimum of 60% are HDP's,
proportionally represented, 25% of which must be women;
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Junior Management - a minimum of 70% are HDP's
proportionally represented, 30% of which must be women;
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Employees with disabilities - a minimum of 1.5%
employees with disabilities as a percentage of all employees, reflective
of national or provincial demographics.
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Mining right holders must also develop and implement a career
progression plan (aligned with its Social and Labour Plan) consistent with the
demographics of South Africa, which plan must provide for (i) career development
matrices of each discipline (inclusive of minimum entry requirements and
timeframes); (ii) develop individual development plans for employees; (iii)
identify a talent pool to be fast tracked in line with needs; and (iv) provide a
comprehensive plan with targets, timeframes and how the plan would be
implemented.
Mining right holders must meaningfully contribute towards Mine
Community Development with biasness towards mine communities both in terms of
impact as well as in keeping with the principles of the social license to
operate. This element, together with the ownership element are ring-fenced and
require 100% compliance at all times. In consultation with relevant
municipalities, mine communities, traditional authorities and affected
stakeholders, mining right holders must identify developmental priorities of
mine communities and make provision for such priorities in prescribed and
approved SLPs, to be be published in English and one or two other languages
commonly used within the mine community. Mining right holders who operate in the
same area may collaborate on certain identified projects to maximize the
socio-economic development impact in line with SLPs.
Holders must implement 100% of their SLP commitments in any
given financial year of the mining right holder. Any amendments and/or
variations to commitments set out in SLPs (including budgets) shall require approval in terms of section 102 of the MPRDA, and
right holders will be required to consult with mine communities.
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Housing and living conditions for mine workers as stipulated in
the Housing and Living Conditions Standards, developed in terms of section
100(1)(a) of the MPRDA, including decent and affordable housing, provision for
home ownership, provision for social, physical and economic integration of human
settlements, secure tenure for the employees in housing institutions, proper
health care services, affordable, equitable and sustainable health system and
balanced nutrition. Under Mining Charter 2018, holders must submit housing and
living conditions plans to be approved by the DMR after consultation with
organized labor and the Department of Human Settlement. To provide clear targets
and timelines for purposes of implementing the aforesaid housing and living
condition principles, the Housing and Living Conditions Standard Guidelines
shall be reviewed by the DMR within the near future.
Mining Charter 2018 provides, for the first time, a regime for
junior miners who meet the qualifying criteria and grants such companies
exemption from certain elements/targets. The regime for junior mining companies
is limited to mining right holders who, either through holding a single or
multiple mining rights, have a combined annual turnover of less than R150
million.
Mining right holders who have a turn-over of less that R10
million per annum are exempt from the following elements/targets set out in the
Mining Charter 2018: Employment Equity Targets (if they have less than 10
employees); Inclusive Procurement Targets; as well as Enterprise and Supplier
Development Targets, and are required to only comply with the following
elements/targets Ownership element (but undefined as to composition of BEE
shareholding); Employment Equity Targets (if they have more than 10 employees);
Human Resource Development Targets; and Mine Community Development Targets.
Mining right holders who have a turn-over of between R10 million and R 50
million per annum are required to comply with the following elements/target:
Ownership element (but undefined as to composition of BEE shareholding); Human
Resource Development Targets; Inclusive Procurement Targets; Employment Equity
Targets (at group level); and Mine Community Development Targets.
New Order Mining and Prospecting Rights Under the
MPRDA
All of the Companys prospecting and mining rights are
so-called new order rights (i.e. rights granted under the MPRDA) as opposed to
old order rights, being rights granted under pre-MPRDA legislation. Under the
MPRDA, mining companies operating in South Africa were required to apply for
conversion of old order rights into new order prospecting and mining rights
issued by the South African state in terms of the MPRDA. New order rights in
respect of mining are granted for a maximum period of 30 years, with renewals of
up to 30 years at a time. Prospecting rights are valid for a period of five
years, with one renewal of up to three years. Furthermore, the MPRDA provides
for a retention period after prospecting of up to three years with one renewal
of up to two years, subject to certain conditions. The holder of a prospecting
right granted under the MPRDA has the exclusive right to apply for and, subject
to compliance with the requirements of the MPRDA, to be granted, a mining right
in respect of the prospecting area in question.
The new order rights are transferable only with the approval of
the Minister and are subject to various terms and conditions, including
commencement of operations within specified periods, maintenance of continuing
and active operations and compliance with work programs, social and labour
plans, EMPs and empowerment requirements.
New order rights can be suspended or cancelled by the Minister
if a holder has breached its obligations under the terms of the rights and has
failed to remedy such breach after written notice of the breach from the Minister and after being given an opportunity to respond.
In addition, mining rights could potentially be cancelled for non-compliance
with the Mining Charter 2018.
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Resource Nationalism
The concept of resource nationalism encompasses a range of
measures, such as expropriation or taxation, whereby governments increase their
economic interest in corporate entities exploiting natural resources, with or
without compensation. The current South African government has publicly stated
that it does not intend to nationalize the mining industry.
At its 53rd national conference in December 2012, the ANC
debated its previously commissioned State Intervention in the Minerals Sector
report (SIMS Report), and wholesale nationalization was rejected. It was
resolved that state intervention in the economy would focus on beneficiation.
Strategic minerals, which include platinum group metals, coal and iron ore, will
be identified and special public policy measures may be put in place. Further
state interventions could include state ownership through the state mining
company, and mineral resource rents through the imposition of new taxes or a
super-profits tax.
Environment
South Africa has a comprehensive and constantly evolving
environmental regulatory framework, particularly relating to mining. The
Constitution entrenches the right to an environment that is not harmful to human
health or well-being and imposes a duty to protect the environment for the
benefit of present and future generations through reasonable legislative and
other measures. The Constitution and National Environmental Management Act
(
NEMA
) grant legal standing to a wide range of people and interest
groups to bring legal proceedings to enforce their environmental rights, such
that claims can be made against private and public entities and the South
African government.
Environmental impacts of mineral resource operations (including
prospecting and mining of mineral resources and exploration and production of
petroleum) are, at present, primarily regulated by four pieces of legislation,
namely, the MPRDA, NEMA, National Environmental Management: Waste Act
(
NEMWA
) and National Water Act (
NWA
).
South African environmental law is largely permit-based and
requires businesses whose operations may have an environmental impact to obtain
licenses and authorizations principally from the DMR and the DWS, which often
contain stringent conditions.
Environmental legislation also stipulates general compliance
requirements. It incorporates a polluter pays principle and also imposes a
duty on a group of specified parties wider than the actual polluter to take
reasonable measures to assess, prevent and address pollution (even that which
was authorized by law). This duty is retrospective in its application. A failure
to take such measures may result in governmental authorities taking measures
against, and recovering costs from, a wider range of parties than the one on
whom the duty primarily rests. This latter group includes a successor in title
to a property and, based on international jurisprudence, is wide enough to
include a lender or a shareholder of a company who caused the pollution,
although the potential liability of shareholders and lenders has not yet been
considered by South African courts.
NEMA provides for the appointment of Environmental Management
Inspectors and Environmental Mineral Resource Inspectors at the Department of
Environmental Affairs (
DEA
) and DMR respectively.
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These inspectors have wide-ranging powers and can undertake
both announced and unannounced inspections and investigations. Criminal
prosecutions have been initiated and directives and compliance notices issued
following a number of these inspections.
Under NEMA, it is a criminal offence for any person unlawfully
and intentionally or negligently to commit any act or omission which causes, has
caused or is likely to cause significant environmental pollution or degradation
or unlawfully and intentionally or negligently commit any act or omission which
detrimentally affects or is likely to affect the environment in a significant
manner. A maximum criminal fine of up to Rand 10 million and/or a prison term of
up to ten years may be imposed for such an offence. The NWA establishes a
similar criminal offence in relation to water pollution.
Directives or compliance notices can also be issued under NEMA,
the MPRDA or the NWA for the temporary or permanent shut down of facilities at a
mining operation or the entire mining operation, due to environmental
transgressions. NEMA also provides that directors and certain company officers
can also be held liable in their personal capacity for the costs of
rehabilitating environmental pollution or degradation.
The environmental regulation of mining has undergone a
transition. NEMA is now the primary environmental legislation regulating mining
and not the MPRDA. Due to this transition, the majority of the MPRDAs
environmental regulation provisions were deleted (
Pre-MPRDA Amendment Act
Environmental Provisions
) and the National Environmental Management Laws
Amendment Act, No. 25 of 2014 (
NEMLAA
) introduced specific provisions
regulating mining into NEMA. The Minister of Mineral Resources has however
retained the bulk of his environmental regulation competencies under the
NEMLAAs amendments, to be undertaken in accordance with NEMA. This transition
has created some gaps which include that not all of the necessary amendments
have yet commenced under the MPRDA and certain regulations under NEMA are
outstanding.
Under the Pre-MPRDA Amendment Act Environmental Provisions,
before 8 December 2014, environmental management plans and environmental
management programmes (
EMPs
) were required to be approved by the
relevant delegated authority at the DMR before a prospecting right or mining
right respectively became effective.
In addition to requiring that an EMP be approved under the
MPRDA, an environmental authorization (
EA
) was required for certain
activities that are incidental to mining, listed in a series of Environmental
Impact Assessment ("
EIA
") Regulations published under the NEMA. This
includes vegetation clearance; construction of roads, facilities in proximity to
a watercourse and facilities that may cause pollution; and storage of dangerous
goods, where the activities exceeded specified thresholds (
Listed
Activities
). An EA was not required for mining or prospecting
activities.
This position changed on 8 December 2014 when the 2014 EIA
Regulations commenced under NEMA, replacing the 2010 EIA Regulations. Mining and
prospecting activities that commenced after this date required an EA, as do
associated infrastructure and earthworks directly related to the prospecting and
extraction of a mineral resource.
There are presently no provisions in force in the MPRDA or NEMA
deeming EMPs approved under the MPRDA to be EAs issued under the NEMA, which
creates gaps in relation to the obligations of mineral right holders with an
approved EMP. Certain 2013 amendments to the MPRDA (following the implementation
of the
Mineral and Petroleum Resources Development Act No. 49 of 2008
(
MPRDA Amendment Act, 2008
)) introduced a deeming provision however it
has not yet commenced. This provision provides that an EMP approved under the MPRDA before
and at the time of the NEMA coming into force will be deemed to have been
approved and an EA issued in terms of NEMA. The Amendment Bill proposes to amend
the MPRDA Amendment Act, 2008s deeming provision to correct the incorrect
reference of the NEMA to the NEMLAA. The Amendment Bill has however not yet been
enacted into law. There are also no transitional provisions deeming approvals to
EMP applications that were submitted before NEMLAA and approved after NEMLAA to
be deemed to be EAs. This has created the situation where strictly speaking
applicants for mineral rights are now required to submit an application for an
EA, despite an application for EMP approval being previously submitted. In
practice however, the DMR views EMPs submitted under the MPRDA to be EAs.
69
NEMA requires an EA before Listed Activities commence and it is
a criminal offence to commence such Listed Activity without the required EA. A
person who has commenced a Listed Activity without an EA may apply for
rectification of this state of affairs but would be required to pay a maximum
administrative fine of R5 million, and may also face criminal penalties.
Under the NWA, water cannot be owned, but is instead held in
trust for the people of South Africa under the States custodianship. A water
use license (
WUL
) is required to undertake certain water uses specified
in the NWA. This includes water storage; abstraction; disposal of waste water
into the environment; dewatering a mine; and impacting on watercourses flow.
Generally, large scale water users, such as mines, are required to either apply
for WULs or, in certain cases, only to register water uses if small water
volumes are abstracted or stored or the impacts to watercourses are low. In
certain instances, an entity may continue with a water use that was conducted
lawfully prior to 1998 under the predecessor to the NWA, the
Water Act, No.
54 of 1956
, without the requirement for a WUL. Conducting a water use
without the required WUL is unlawful.
Regulations published under the NWA regulate water use in
relation to mining activities, providing for limitations on the location of
mining infrastructure and requirements for separation of dirty and clean water
systems. If a water use or water management is unlawful, the DWS may issue
administrative directives to enforce the NWAs provisions or stop the unlawful
water use. Criminal proceedings can also be instituted. Penalties for offences
are a maximum fine and/or imprisonment of Rand 200,000 and five years,
respectively. Upon a second conviction, the maximum fine and/or imprisonment are
Rand 400,000 and ten years, respectively. While significant progress has been
made by the DWS in processing pending WUL applications, a backlog remains.
The
National Environmental Management Air Quality Act No. 39
of 2004
(
AQA
) regulates air pollution in South Africa and prohibits
the undertaking of activities listed under AQA, including certain mining related
and processing activities, without an atmospheric emission license. Minimum
emission standards have been set for each listed activity. Facilities that were
operational before these regulations came into force were afforded a grace
period within which to comply with the more stringent air emission standards
contained in the Regulations until 2015. If a facility did not comply with the
2015 air emission standards, upgrading of the facilities was necessary. Such
facilities will need to comply with even more stringent air emission standards
from 2020. Additional upgrades may therefore also be required before 2020 to
comply with the 2020 air emission standards, for which significant capital
expenditures (
CAPEX
) may be required. Alternatively, an application to
postpone the time period for compliance with air emission standards may be
possible but the grant of any postponement cannot be guaranteed.
NEMWA regulates the storage, treatment, recycling and disposal
of waste, among other things, including waste generated by the mining sector.
Its provisions are also relevant generally to the Companys operations. Waste management licenses (
WMLs
) are
required for certain waste management activities, dependent on certain
thresholds in relation to the waste. Although WMLs are generally not required
for waste storage, such activities must comply with certain norms and standards.
Residue stockpiles and deposits relating to prospecting, mining, exploration or
production activities regulated under the MPRDA were previously exempt from
NEMWA. This was changed by amendments under the
NEMLAA and WMLs were
required from the Minister for residue stockpiles and deposits since September
2, 2014, if they constitute waste and if they fall above the thresholds for
which a WML is required, unless an entity lawfully conducted these activities
prior to September 2, 2014. The National Environmental Laws Amendment Bill
B14D-2017 ("
NEMA Bill
") has proposed amendments to NEMWA such that the
regulation of residue stockpiles and deposits are removed from NEMWA and will be
regulated by NEMA. If so, WMLs will not be required for residue stockpiles and
deposits. In terms of the 2014 EIA Regulations, an EA would however be
required.
70
Both the MPRDA and NEMA have provisions regulating
rehabilitation and closure, which are not entirely consistent. The MPRDA
provides that a mineral right holder remains liable for any environmental
liability, pollution, ecological degradation, the pumping and treatment of
extraneous water, compliance to the conditions of the EA and the management and
sustainable closure of a mine, until the Minister of Mineral Resources has
issued a closure certificate (
Rehabilitation and Closure Liability
).
NEMA provides that a mineral right holder remains responsible for Rehabilitation
and Closure Liability notwithstanding the issue of a closure certificate.
Under the MPRDA and NEMA, when the Minister issues a closure
certificate, he may retain any portion of such financial provision for latent
and residual safety, health or environmental impact which may become known in
the future.
The Pre-MPRDA Amendment Act Environmental Provisions required
that financial provision for environment rehabilitation and closure costs must
be provided by an applicant for a mineral right prior to the approval of an EMP.
NEMA now requires that this financial provision must be made prior to the
issuing of an EA under NEMA.
New Financial Provision Regulations in regard to rehabilitation
were published under NEMA on November 20, 2015, which have been highly
contentious due to gaps and contradictions with the
Income Tax Act No. 58 of
1962
; MPRDA and NEMA. They will require a substantial increase in financial
provision required for rehabilitation, as they are far more onerous and now
require financial provision to be provided for annual rehabilitation and, more
significantly, the remediation of latent or residual environmental impacts which
may become known in the future including the pumping and treatment of polluted
or extraneous water (
Future Rehabilitation
). The Minerals Council of
South Africa (formerly the Chamber of Mines) has stated that the Financial
Provision Regulations could have a crippling effect on the mining industry. The
Financial Provision Regulations are the subject of a recent High Court
application for an order clarifying their legality and/or meaning. Two sets of
proposed amendments were published to the Financial Provision Regulations which,
if enacted into law, may resolve some of the gaps and contradictions. A further
set of proposed amendments is anticipated to be published shortly. An extension
has been granted for compliance with the Financial Provision Regulations to
February 2020. This extension is ambiguously drafted but appears to apply to
companies who submitted an application for a mining right or holders of rights
where the application was submitted or right was granted prior to the Financial
Provision Regulations coming into force on 20 November 2015. Applicants for new
mining rights submitted after 20 November 2015 are however still required to
provide financial provision in terms of the Financial Provision Regulations.
Trust funds may only be used for Future Rehabilitation and not annual or final
rehabilitation (being the decommissioning and closure of the prospecting,
exploration, mining or production operations at the end of the life of
operations). The financial vehicle used for Future Rehabilitation must, on
issuance of a closure certificate, be ceded to the Minister or if a trust fund
is used, the trustees must authorise payment to the Minister. The aforesaid is
contradictory to the Ministers discretion in the MPRDA and NEMA to retain a
portion of the financial provision.
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A mining or prospecting right can be suspended or cancelled
under the MPRDA or a mining right application may be refused if there is
non-compliance with environmental legislation.
Mine Safety
Mine safety in South Africa is governed by the MHSA, which is
enforced by the Inspectorate of Mine Health and Safety, a part of the DMR. The
reporting provisions of the MHSA are aligned with the International Labour
Organizations Code of Practice on Recording and Notification of Occupational
Accidents and Diseases. Under the MHSA, the Company is obligated, among other
things, to ensure, as far as reasonably practicable, that the Companys mines
are designed, constructed and equipped to provide conditions for safe operation
and a healthy working environment and are commissioned, operated, maintained and
decommissioned in such a way that employees can perform their work without
endangering their health and safety or that of any other person. The Company is
also obliged to ensure, as far as reasonably practicable, that persons who are
not employees, but who may be directly affected by the Companys mining
activities are not exposed to any hazards relating to their health and safety.
The MHSA also authorises mine inspectors to issue safety compliance notices to
mines under section 55 of the MHSA and, should the inspectors feel that the
action is warranted, to temporarily close part or all of the operations under
powers conferred by section 54 of the MHSA, pending compliance with the -
compliance notice.
An employer who has been instructed to temporarily close a mine
or any part thereof in a section 54 notice has the remedy of approaching the
Labour Court for urgent relief to suspend the operation of the section 54 notice
until a review application to set aside that notice is determined by the Labour
Court.
The
Mine Health and Safety Amendment Act, No. 74 of
2008
, which came into effect on May 30, 2009, criminalizes violations of the
MHSA, increases the maximum fines to Rand 1 million per occurrence and creates
the possibility that mining rights could be revoked for continued safety
violations. A number of guidelines on the implementation of mandatory codes of
practice under sections 9(2) and 9(3) of the MHSA have been issued by the Chief
Inspector of Mines and govern the provision of personal protective equipment for
women in the SA Mining Industry; trackless mobile machines; cyanide management;
underground rail bound equipment; conveyor belt installation for transport of
mineral, material or personnel; and risk-based fatigue management.
Royalty Payments
The Royalty Act, imposes a royalty on the first transfer of
refined or unrefined minerals, payable to the state, calculated on the actual or
deemed gross sales amount at the statutorily determined saleable condition (i.e.
whether the mineral is in a refined or unrefined condition as determined in
accordance with Schedule 1 and 2, respectively, of the Royalty Act).
The royalty rate in respect of refined minerals is calculated
by dividing earnings before interest and taxes, or
EBIT
(as defined for
purposes of the Royalty Act), by the product of 12.5 times gross revenue,
calculated as a percentage, plus an additional 0.5% . EBIT refers to the taxable
mining income of the holder of the right (with certain exceptions such as no
deduction for interest payable and foreign exchange losses) before assessed losses but after capital expenditure.
There is also an arms length adjustment, where applicable. A maximum royalty
rate of 5% of revenue applies to refined minerals.
72
The royalty rate in respect of unrefined minerals is calculated
by dividing EBIT by the product of nine times gross revenue, calculated as a
percentage, plus an additional 0.5% . A maximum royalty rate of 7% applies to
unrefined minerals.
Mining Taxation Review
In the 2013 Budget Speech, the Minister of Finance announced
that the mineral and petroleum royalty regime has broadened the South African
tax base and allowed for increased revenue during periods of high commodity
prices, while providing relief to marginal mines when commodity prices and
profitability are low. The broader review of the South African tax system will
consider whether this approach is sufficiently robust and assess what the most
appropriate mining tax regime is to ensure that South Africa remains a
competitive investment destination.
To give effect to announcements made by the Minister of Finance
in his 2013 budget speech, the Davis Tax Committee ("
DTC
") was
established to assess South Africas tax policy framework and its role in
supporting the objectives of inclusive growth, employment, development and
fiscal sustainability. The Terms of Reference of the Davis Tax Committee
includes a review of the current mining tax regime. The Davis Tax Committee
submitted its First Interim Report on Mining on July 1, 2015 and made various
recommendations, including that:
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the mining corporate income tax regime be
aligned with the tax system applicable to other taxpaying sectors
generally, leaving the royalty system to respond to the non-renewable
nature of mineral resources; and
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the upfront capital expenditure write-off
regime be discontinued and replaced with an accelerated capital
expenditure depreciation regime in parity with the write-off periods
provided for in respect of manufacturing assets.
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These recommendations are still under consideration by the
South African government.
The DTC released its second and final report on hard-rock
mining in December 2016.
Amongst the various proposals, the DTC recommended that the
upfront CAPEX write-off regime should be discontinued and replaced with an
accelerated CAPEX depreciation regime. The accelerated CAPEX depreciation regime
will provide for write-off periods in line with that of manufacturing, namely on
a 40/20/20/20. The removal of the upfront CAPEX tax allowance regime paves the
way for the removal of ring fences aimed at preventing the set-off of future
CAPEX expenditure against the tax base of other mining operations and against
non-mining income.
The second and final report also indicated that comprehensive
review of carbon taxes has been undertaken by a separate stream within the DTC
and therefore the report contains no comments on carbon taxes.
The Minister of Finance might adopt these recommendations which
in turn might impact of the net present value and internal rate of return of the
project.
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Exchange Control
South African law provides for Exchange Control which, among
other things, regulates the flow of capital from the Common Monetary Area of
South Africa, Namibia, Lesotho and eSwatini (formerly ESwatini) (
CMA
).
The
Currency and Exchanges Act, No. 9 of 1933
empowers the President of
South Africa to make regulations in regard to any matter directly or indirectly
relating to currency, banking or exchanges. The Minister of Finance is
responsible for all matters regarding exchange control policy, and certain of
these powers and functions have been delegated to the South African Reserve
Bank, more specifically the Financial Surveillance Department.
The Exchange Control Regulations, which are administered by the
Financial Surveillance Department are applied throughout the CMA and regulate
transactions involving South African exchange control residents, including
companies. The basic purpose of the Exchange Control Regulations is to mitigate
the negative effects caused by a decline of foreign capital reserves in South
Africa, which may result in the devaluation of the Rand against other
currencies. It is the stated objective of the authorities to achieve equality of
treatment between residents and non-residents for exchange control purposes as
it relates to inflows and outflows of capital. While the South African
government has relaxed exchange controls in recent years, the Company expects
current exchange controls to remain in place for the foreseeable future.
The Company is subject to various forms of such controls. The
Company is generally not permitted to export capital from South Africa, hold
foreign currency, incur indebtedness denominated in foreign currencies or
acquire an interest in a foreign venture without the approval of the relevant
South African exchange control authorities.
However, there are no exchange control restrictions between the
members of the CMA as they form a single exchange control territory. Lesotho,
Namibia and Eswatini have their own exchange control authorities as well as
their own acts or regulations and rulings but in terms of the Common Monetary
Area Agreement, their application must be at least as strict as that of South
Africa. Accordingly, the Company will not require the approval of the Financial
Surveillance Department for investments and transfers of funds from South Africa
to other CMA countries.
Carbon Tax/Climate Change Policies
After having published a number of papers on the introduction
of a carbon tax, the South African government released the Second Draft Carbon
Tax Bill 2017 (the
Bill
) published in December 2017, together with an
Explanatory Memorandum in respect of the Bill (the
Explanatory
Memorandum
). The Bill was open for comment until March 9, 2018 and is now
being considered by the South African Parliament. The South African Minister of
Finance recently announced that carbon tax will be implemented from June 1,
2019.
In terms of the Paris Agreement under the United Nations
Framework Convention on Climate Change, South Africas greenhouse gas
(
GHG
) emissions are said to firstly peak from the period 2020 until
2025, then plateau from the period 2025 until 2035, whereafter GHG emissions are
said to decline from 2036. The introduction of carbon tax will also take place
in a phased manner, which allows for developmental challenges faced by South
Africa, encourages investment in more energy efficient technology and ensures
that South Africas competitiveness is not being compromised.
74
The South African national treasury noted in the Explanatory
Memorandum that the impact of the first phase has been designed to be revenue
neutral, and revenues will be recycled by way of reducing the current
electricity generation levy, credit rebate for the renewable energy premium, as
well as a tax incentive for energy efficiency savings.
Section 5 of the Bill proposes that the rate of carbon tax will
be R120 per ton of carbon dioxide (CO2e) above the tax free allowances, with an
annual increase of the consumer price inflation plus 2% until December 31, 2022.
Following December 31, 2022, the rate of the increase is required to be made in
line with inflation as determined by Statistics South Africa going forward.
Sections 7 to 13 of the Bill allows for the following tax-free
allowances which were extensively considered following the publication of the
First Draft Carbon Tax Bill 2015 (First Bill), and commented upon in the 2015
First Bill Response Document:
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basic allowance for fuel combustible emissions
of 60%;
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allowance for industrial process emissions of
10%;
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allowance in respect of fugitive emissions of
10%;
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trade exposure allowance of up to a maximum of
10%;
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performance allowance not exceeding 5% of the
total GHG emissions of the taxpayer;
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carbon budget allowance of 5% for companies who
have a carbon budget, which means a limit on total GHG emissions from a
specific company, within a specific period of time; and
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carbon offset allowance of either 5% or 10%.
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On November 12, 2018 the National Treasury published the
Draft Regulation on the Carbon Offset
for a second round of public
comment and further consultation. These draft regulations specifically address
the carbon offset allowance. Only certain new approved projects will qualify,
including clean development mechanism projects under the Kyoto Protocol (an
amendment to the United Nations International Treaty on Global Warming in which
participating nations commit to reducing their emissions of carbon dioxide,
negotiated in Kyoto, Japan, in 1997), verified carbon standard projects, and
gold standard projects. The offset may be utilised for periods ranging between 7
and 100 years, depending on the project. Various administrative procedures have
been prescribed for registering for and claiming the offset allowance.
A taxpayer is only entitled to receive the sum of the
allowances mentioned above in respect of a tax period to the extent that the sum
of the allowances does not exceed 95% of the total GHG emissions.
Taking into account the tax-free thresholds, this would imply
that an initial effective carbon tax rate will be as low as R6 to R48 per ton
CO2e.
South African Companies Act
The Companys South African subsidiaries are subject to the
South African Companies Act, No. 71 of 2008
(
Companies Act
)
which came into force on May 1, 2011. The aim of the Companies Act is to
modernize company law in South Africa so that it is comparable with leading
jurisdictions around the world.
75
The Companies Act has introduced numerous new legal concepts
into South African company law, and there are therefore some areas of
uncertainty in the application and implementation of the Companies Act in these
early stages of its existence. Various compliance obligations have been brought
about for companies and their boards, including a requirement to ensure that a
companys constitutional documents are aligned with the Companies Act, and that
any shareholders agreements that are in place are aligned with the companys
memorandum of incorporation and the Companies Act. There was essentially a
two-year grace period for such alignment process to take place, in that,
subject to certain exceptions, for two years after the commencement date of the
Companies Act (May 1, 2011), a pre-existing companys shareholders agreement
and/or constitutional documents would have prevailed in the case of any
inconsistency with the Companies Act. The position currently, after the lapse of
the grace period, is that a companys memorandum of incorporation prevails over
the shareholders agreement and the Companies Act in turn prevails over both.
Although not peremptory, the Company has registered new memoranda of
incorporation for the Companys South African subsidiaries.
The Companies Act also requires that certain categories of
companies have in place certain committees, namely audit committees (for all
public and state-owned companies) and social and ethics committees (for all
listed public companies and state-owned companies as well as other companies
that reach a certain public interest score in terms of the Companies
Regulations, 2011). The public interest score takes into account the number of
shareholders and employees of the company, as well as the amount of the
companys debt and annual turnover.
Failure to comply with the Companies Act can lead to compliance
notices being issued by the CIPC, administrative fines and civil liability for
damages caused by non-compliance. The Companys South African subsidiaries may
also be liable under the Companies Act to any other person for any loss or
damage suffered by that person as a result of the Companys subsidiarys
non-compliance with the Companies Act.
The Companies Act extends shareholders rights and recourse
against companies and directors. Also, directors, prescribed officers and
committee members will now face more extensive and stricter grounds for personal
liability for their actions in carrying out their functions within the company
than was the case under the previous regime. The Companies Act introduces class
action suits against companies, directors and company officers by persons whose
rights are affected by the company. Companies will thus face a greater risk of
litigation and the costs thereof. Minority shareholders rights in the context
of mergers and other fundamental transactions have also been increased
substantially, such as the introduction of appraisal rights and the ability to
set aside and review special resolutions approving such transactions. This could
result in the hindrance of such transactions.
The Companies Act has also introduced fairly extensive
regulation of financial assistance given among related and inter related
companies, in that there must be shareholder approval, compliance with solvency
and liquidity tests, and fairness and reasonableness in relation to such
financial assistance. This for instance affects intra group loan and security
arrangements, as well transactions with third parties where guarantees or other
security within a group of companies is given. This affects financial assistance
given by South African companies and would accordingly affect financial
assistance given by South African companies to non-South African related
entities.
The Companies Act prohibits companies from creating any further
par value shares. If a company wishes to increase its share capital, it will
have to convert all of its pre-existing par value shares into shares of no par
value. The revenue authorities have issued a ruling with respect to the tax
treatment of such conversions to the effect that such conversions shall not be
viewed as disposals. This may become relevant in respect of the Companys
South African subsidiaries should their share capital be required to be
increased at any stage for whatever reason.
76
An important innovation of the Companies Act is that of
business rescue, which is modelled to some extent on the United States Chapter
11 bankruptcy procedures. Business rescue is a largely non-judicial, commercial
process that aims to rescue a financially distressed company and maximize the
likelihood of the companys continued existence on a solvent basis.
Companies in South Africa can be deregistered if they fail to
timeously lodge their annual returns. This means that the company ceases to
exist as a separate juristic person, and that all of its rights and assets
devolve to the state by operation of law. A companys registration can be
reinstated by application either to the CIPC or the High Court. Currently, under
the Companies Act there is uncertainty in the case-law around the exact legal
consequences of such reinstatement and whether the rights and assets
automatically re-vest, with retrospective effect, in the company. The Company
ensures that at all times the requisite filings and returns of its South African
subsidiaries with CIPC are up-to-date and thereby ensures that such subsidiaries
are not deregistered.
Land Use
The Spatial Planning and Land Use Management Act 16 of 2013
("
SPLUMA
") prescribes principles for the regulation of land use in South
Africa on a national, provincial and municipal level. However, land use planning
is mainly regulated on a municipal level since municipalities are
constitutionally empowered to regulate the effective administration of land use
planning within their respective jurisdictions. Municipal land use planning is
regulated through municipal planning by-laws, spatial development frameworks and
land use or zoning schemes. Land-use or zoning schemes reflect all permissible
land use rights in respect of land situated within the municipality's area of
jurisdiction. Deviations from the land-use or zoning scheme are only permissible
upon application for the necessary departure, land use consent or re-zoning
application, as regulated by the applicable scheme and the relevant municipal
planning by-law read with SPLUMA.
While previously it was in dispute whether municipal planning
had the power to regulate mining activities, April 2012 Constitutional Court
judgments in the cases of
Maccsand (Proprietary) Limited v City of Cape Town
and Others and Minister for Mineral Resources v Swartland Municipality and
others
confirmed that town planning approvals and consents are required for
mining activities. A High Court decision has indicated that such consents will
likewise be required for prospecting activities. The effect of these judgments
is that all mining and prospecting operations need to be conducted on land which
is appropriately zoned for mining or prospecting. Mining companies run the risk
of being interdicted from continuing with their operations pending a re-zoning
if the land on which they are operating is not appropriately zoned. The
practical implications of complying with these judgments are numerous. These
include that there may be different land uses on one property, particularly
where only prospecting is taking place. These implications will need to be
considered further by the Companys operations. This is further complicated by
the fact that there are several provincial land use planning laws for different
provinces.
In addition to statutory controls, certain private law rights,
such as the real rights created by way of registered restrictive conditions of
title or servitudes, may also impact on land use planning in general. Land use
or zoning schemes are subject to the real rights created by restrictive
conditions of title. The implication is that if a land-use or zoning schemes permit a
land use which is prohibited by a restrictive condition of title, such condition
will first have to be removed in terms of the relevant legislation (municipal
planning by-laws read with SPLUMA). Servitudes may also impact on land use
planning, for instance servitudes registered in respect of infrastructure.
Contravention of these real rights may result in a demolition order being
granted in respect of unlawful development.
77
Another aspect which requires consideration is who should apply
for such re-zoning. Although land owners would typically be the applicant, the
Companys operations are not always conducted on land which the Company owns.
Accordingly, the Company may have to obtain a power of attorney from the land
owner to procure amendments to land use or zoning schemes in municipalities in
which the Company intends to prospect or mine and has obtained rezoning
permission where required.
Dealing in Precious Metals
All operations which acquire, refine, beneficiate, possess or
dispose of gold, any metals of the platinum group, or any ores of such metals,
are required to obtain authorisations to do so under the Precious Metals Act No.
37 of 2007. These authorisations include metal beneficiation licences, refining
licences and precious metals export approvals. Applications for such
authorisations must be made to the South African Diamond and Precious Metals
Regulator. Refining licences can be issued for up to 30 years, whilst precious
metals beneficiation licences can be issued for periods of up to ten years. The
issue of certain licences under the Precious Metals Act requires that the
applicant be complaint with the BEE provisions of the Mining Charter 2018.
Land Claims
Under the Restitution of Land Rights Act 22 of 1994
("
Restitution Act
"), as amended, any person who was dispossessed of
rights in land in South Africa after June 19, 1913 as a result of past racially
discriminatory laws or practices without payment of just and equitable
compensation is granted certain remedies and is entitled to redress. In terms of
the Restitution Act, persons entitled to institute a land claim were required to
lodge their claims by December 31, 1998.
The Restitution Act also entitles the South African Minister of
Rural Development and Land Reform ("
Minister
") to acquire ownership of
land or rights in land by way of expropriation and to transfer the expropriated
land or rights in land to successful claimants. Notably, the Minister may elect
not to expropriate land and may provide alternative relief to the claimant, as
directed by section 25(7) of the Constitution. Expropriation would be subject to
provisions of the Expropriation Act 63 of 1975 and section 25(2) of the
Constitution, which provide, in general, for just and equitable compensation.
The South African Minister of Rural Development and Land Reform
may not, however, restore land to a claimant without a court order or an
agreement being reached between the affected parties for the purposes of
achieving restitution.
The Restitution Amendment Act came into effect on July 1, 2014.
The Restitution Amendment Act introduced significant amendments to the
Restitution Act, most notably allowing for land claims by persons previously
disposed of land under apartheid laws to again be submitted, despite the
previous cut-of date having expired approximately 15 years ago. The new period
for lodging claims will be until June 30, 2019, which may arguably create a
possible resurgence of new restitution claims. However, in
Land Access Movement of South Africa and Others v
Chairperson of the National Council of Provinces and Others,
the
Constitutional Court found that the Restitution Amendment Act was invalid as
parliament failed to satisfy its obligation to facilitate public
involvement in accordance with section 72(1)(a) of the Constitution. As a
result, the Constitutional Court interdicted the Commission of Restitution of
Land Rights from processing claims lodged from July 1, 2014 until all claims
submitted prior to December 31, 1998 in terms of section 6(1)(a) of the
Restitution Act have been finalised. Parliament has since this judgment
circulated a bill, which will repeal the Amendment Act, once promulgated. In
terms of this bill, the new period for the lodging of claims will still be until
June 30, 2019.
78
In order to substantiate a claim for restitution, a person is
required to demonstrate that:
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he/she is a person, or it is a deceased estate
dispossessed of a right in land after June 19, 1913, as a result of past
racially discriminatory laws or practices;
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he/she is the direct descendant of a person
referred to above who has died without lodging a claim and has no
ascendant who: (i) is a direct descendant of a person referred to above
and (ii) has lodged a claim for the restitution of a right in land; or
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it is a community or part of a community
dispossessed of a right in land after June 19, 1913, as a result of past
racially discriminatory laws or practices.
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Under the Restitution Act a successful claimant may be granted
either return of the dispossessed land (referred to as restoration) or
equitable redress (which includes the granting of an appropriate right in
alternative state-owned land; or payment of compensation). If restoration is
claimed, the Restitution Act requires,
inter alia
, the feasibility of
such restoration to be considered. Under recent case law, restoration of land
may only be given in circumstances where a claimant can use the land
productively, with the feasibility of restoration being dependent on the costs.
The procedure for lodging a land claim is that a claim must be
lodged with the Land Claims Commissioner. The land claim will then be
investigated by the Land Claims Commissioner, after which the claim will be
published in the Government Gazette and in the media circulating nationally and
in the relevant province. The Restitution Act provides that, if at any stage
during the course of the investigation of a land claim, it becomes evident that:
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there are two or more competing claims in
respect of the same land (whether by communities or otherwise); or
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the land that is subject to the claim is not
state-owned land, and the owner or holder of rights in such land is
opposed to the claim; or
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there is any other issue which might usefully
be resolved through mediation and negotiation,
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the Chief Land Claims Commissioner may direct
the parties concerned to attempt to settle their dispute through mediation
or negotiation. It further provides that if, upon completion of an
investigation of a land claim, it is agreed that it is not possible to
settle the claim by mediation or negotiation, the claim may be referred to
the Land Claims Court for final determination.
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Beneficiation
The beneficiation of mineral resources in South Africa is
regulated by three main pieces of legislation, namely the MPRDA, through section
26 thereof, the
Precious Metals Act, No. 37 of 2005
and the
Diamonds
Act, No. 58 of 1986
(as amended).
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In addition to the legislative framework aimed at promoting
local beneficiation of minerals, the DMR has developed and adopted a
beneficiation strategy which identifies value chains for the purpose of
beneficiation of certain minerals in South Africa (which is also in line with
the developmental goals set-out in the National Development Plan adopted by the
South African government). The Mining Charter 2018 (as discussed above) also
includes an incentive for mining companies to offset the value of the level of
beneficiation achieved by the company against a portion of its BEE Entrepreneur
ownership requirement, not exceeding 15%, in an effort to promote local
beneficiation.
The legislation at the center of the initiation or promotion of
beneficiation of mineral resources is the MPRDA. Section 26 of the MPRDA
regulates the Ministers power to initiate and promote beneficiation of minerals
in South Africa. The term beneficiation was not defined by the MPRDA. The
MPRDA Amendment Act, 2008 introduced a definition for beneficiation, which will
again be amended by the Amendment Bill. The Amendment Bill defines beneficiation
as,
the transformation, value addition or downstream beneficiation of a
mineral and petroleum resource (or a combination of minerals) to a higher value
product, over baselines to be determined by the Minister, which can either be
consumed locally or exported
. As the section currently reads, the Minister
may prescribe levels of beneficiation of a particular mineral should he
establish, on advice from the Minerals and Mining Board and consulting with the
Minister of Trade and Industry, that a particular mineral can be beneficiated
economically in South Africa. Further, a person who intends to beneficiate any
minerals mined in South Africa, outside of the country may only do so with the
written consent of and in consultation with the Minister.
Labour Relations Act
The Constitution gives every person the right to fair labour
practices. The
Labour Relations Act, No. 66 of 1995
(
LRA
) is the
principal legislation that gives effect to the framework in which employees,
employers and industrial relations at an individual and collective level are
regulated. As a premise the LRA regulates the manner in which employees,
employers, trade unions and employers organizations interact and engage with
one another in the work place. This includes processes related to collective
bargaining, wage determination, determination of terms and conditions of
employment, the formulation of industrial policy and employee participation in
the decision-making processes.
The LRA framework holistically is geared at the protection of
employee and employer rights through various structures. Principally the LRA
allows for the creation of trade unions and employers organizations. The extent
of entitlement of the trade union is subject to the size of its membership base.
Depending on the number of employees who are members of the trade union, the
trade union will be allowed access to the workplace, representation at the
workplace, to have meetings at the workplace and to access to information
concerned with the employment of the employees. To be entitled to enter into
collective agreements with the employer, the trade union must have as its
members the majority of the employees at the workplace. The LRA endorses a
co-operative approach whereby two or more trade unions can aggregate their
membership for the purposes of achieving majority status in a collective
bargaining unit or forum.
Collective agreements entered into between the trade union and
the employer will bind all employees employed by the employer, regardless of
their trade union affiliations, for the whole period of the agreement. The LRA
does not provide for a statutory duty to bargain collectively or otherwise, and
therefore such conduct is purely a voluntary decision.
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At a greater level the LRA allows for the creation of
bargaining and statutory councils. Such councils can be established both for
more than one registered trade union or employers organization. Such councils
will be established per sector or area. Councils in this regard will, amongst
others, be entitled to conclude collective agreements and to engage in the
resolution of disputes.
If a dispute between the employer and employee arises the LRA
clearly delineates the lawful context in which this may occur. As a premise the
LRA strictly stipulates and regulates the requirements for a lawful strike,
lockout or picketing. In this regard the LRA expressly identifies who is allowed
to engage in industrial action of this nature, which processes must be followed
and for which purposes employees and employers may engage in such industrial
action. Should the industrial action require the parties to engage in a process
of consultation and negotiation, the LRA also prescribes the procedures to be
followed.
If the conduct of the parties, for whatever reason, result in
the dismissal of employees the LRA establishes the Commission for Conciliation,
Mediation and Arbitration (
CCMA
) as a principal forum for the
resolution of disputes resulting from the dismissal. The LRA defines unlawful
dismissals as being either automatically or not automatically unfair. The type
of dismissal will depend on the nature thereof and the prevailing circumstances
at the time of dismissal, an example being dismissals arising from operational
requirements.
A process of mediation and conciliation is pre-emptory in this
regard. Should the dispute remain unresolved, parties will be required to enter
into a process of arbitration, and the award made by the Commissioner would be
final.
Employment Equity Act
The Employment
Equity Act
, No. 55 of 1998 ("
EEA
")
places an obligation on employers to promote equal opportunity in the workplace
by, amongst other things, eliminating any forms of unfair discrimination in the
workplace.
Section 6 of the EEA prohibits any employment practice or
policy which discriminates, directly or indirectly, against any employee on any
'arbitrary ground'
or one or more of the grounds specifically listed in
the section
'race, gender, sex, pregnancy, marital status, family
responsibility, ethnic or social
origin, colour, sexual
orientation, age, disability, religion, HIV status, conscience,
belief, political opinion, culture, language and birth'.
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Where discrimination is alleged on one of the specified
grounds, it is presumed to be unfair; if the discrimination is based on some
other arbitrary ground, the complainant must establish unfairness.
Pursuant to recent amendments, the EEA now provides that a
difference in the terms and conditions of employment between employees of the
same employer, which are performing the same or substantially the same work or
work of equal value, amounts to unfair discrimination. It is important to note
that the relevant provision refers to 'a difference in the terms and conditions'
of employment and is not only limited to a difference in remuneration.
Nevertheless, to prove such discrimination, the employee will need to
demonstrate that the reason for the difference in treatment is based on one of
the listed grounds or any other arbitrary ground.
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Any party may refer a dispute for unfair discrimination to the
CCMA which, in turn, must attempt to resolve the dispute through conciliation.
Should the conciliation be unsuccessful, either party may refer the dispute to
the Labour Court for adjudication.
Alternatively, an employee may refer the dispute directly to
the CCMA for arbitration if that specific employee earns below the earnings
threshold as prescribed by the Minister of Labour. The current earnings
threshold is R205 433.30 per annum. Irrespective of the foregoing, the employee
may also directly approach the CCMA to resolve the dispute through arbitration
where the employee's claim for unfair discrimination is based on alleged sexual
harassment. Then again, the parties can also agree to refer the matter to the
CCMA for arbitration.
C.
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Organizational Structure
|
The Companys material subsidiaries as at August 31, 2018 were
comprised of one wholly-owned company, a 49.9% holding in a second company, and
a direct and indirect 50.02% holding in a third company, all of which are
incorporated under the company laws of the Republic of South Africa. The
following chart represents the Companys corporate organization as at the date
of filing of this Annual Report:
Notes
|
(1)
|
Remaining 50.1% interest owned by Mlibo Gladly Mgudlwa
and Luyanda Mgudlwa. Qualified BEE Co.
|
82
|
(2)
|
Remaining interest owned as to 21.95% by Japan Oil Gas
and Metals Corp. and 15% by Impala Platinum Holdings
Ltd.
|
As at the date of filing of this Annual Report, the Companys
only material mineral property is the Waterberg Project (the
Waterberg
Project
), which is comprised of two adjacent project areas formerly known
as the Waterberg Joint Venture Project and the Waterberg Extension Project. The
Waterberg Project is held by Waterberg JV Co., in which the Company is the
largest owner, with a 50.02% beneficial interest, of which 37.05% is held
directly by PTM RSA and 12.974% is held indirectly through PTM RSAs 49.9%
interest in Mnombo, a Broad-Based Socio-Economic Empowerment (
BEE
)
company which holds 26.0% of Waterberg JV Co. The remaining interests in
Waterberg JV Co. are held as to 21.95% by a nominee of JOGMEC and 15.0% by
Implats. PTM RSA is the manager of Waterberg JV Co. Waterberg JV Co. and its
shares are governed by a shareholders agreement (the
Waterberg Shareholders
Agreement
) and its memorandum of incorporation. To cause the board of
directors of Waterberg JV Co. to take action, PTM RSA must generally obtain the
approval of the board representatives of at least one other shareholder, which
may be Mnombo, in which the Company has a 49.9% interest. In addition, certain
matters must be approved by a majority, 80% or 90% vote of the Waterberg JV Co.
shareholders, depending on the matter, or, in certain cases, by specific
shareholders. The Waterberg Shareholders Agreement confirms the principles of
BEE compliance and contemplates the potential transfer of equity and the
issuance of additional equity to one or more broad based black empowerment
partners, at fair value in certain circumstances, including a change in law or
imposition of a requirement upon Waterberg JV Co. In certain circumstances,
Mnombo may be diluted with equity transferred or issued to different black
empowerment shareholders.
Implats has been granted a call option exercisable in certain
circumstances to purchase and earn into a 50.01% interest in Waterberg JV Co.
For more detail about the Implats Transaction see Item 4.A. Recent
Developments November 2017 Implats Transaction
D.
|
Property, Plants and
Equipment
|
Material Mineral Property Interests
Waterberg Project
The Waterberg Project is located 85 km north of the town of
Mokopane (formerly Potgietersrus) in the province of Limpopo, South Africa,
approximately 330 km NW from Johannesburg. The property covers 99,244.79
hectares and is approximately centred on UTM coordinate (Latitude 23°21′53 S,
Longitude 28°48′ 23 E). Elevation ranges from approximately 880 to 1365 meters
above sea level.
Waterberg JV Co. holds active prospecting rights covering an
area of 92,672.15 hectares. An application for a mining right covering an area
of 20,482.42 hectares was filed with the DMR Polokwane Regional Office and was
accepted on September 14, 2018 for consideration. The mining right application
area consists of farms of active prospecting rights and farms of prospecting
rights which expired after the mining right application was filed. The rights of
the holder to minerals from both active and expired prospecting rights remain in
place when covered by a valid mining right application or granted mining right.
The total project area, including active prospecting rights and the mining right
application, covers a total of 99,244.79 hectares.
83
Prospecting rights are valid for a period of five years, with
one renewal of up to three years. Furthermore, the MPRDA provides for a
retention period after prospecting of up to three years with one renewal of up
to two years, subject to certain conditions. The holder of a prospecting right
granted under the MPRDA has the exclusive right to apply for and, subject to
compliance with the requirements of the MPRDA, to be granted, a mining right in
respect of the prospecting area in question. On October 10, 2018 the Company
announced that mining right application for the Waterberg Project recently filed
by Waterberg JV Co. had been accepted by the DMR for consideration.
On September 21, 2017, the Company completed the planned
corporatization of the Waterberg Project by the transfer of all Waterberg
Project prospecting rights held by PTM RSA on behalf of the joint venture
participants into Waterberg JV Co.
Effective September 21, 2017 Waterberg JV Co. owned 100% of the
prospecting rights comprising the entire Waterberg Project area and Waterberg JV
Co. was owned 45.65% by PTM RSA, 28.35% by JOGMEC and 26% by Mnombo, giving the
Company total direct and indirect ownership of 58.62% at that time.
On October 16, 2017 Implats entered into definitive agreements
with the Company, JOGMEC, Mnombo and Waterberg JV Co., whereby Implats purchased
shares of Waterberg JV Co. representing a 15.0% interest in the Waterberg
Project from PTM RSA (8.6%) and JOGMEC (6.4%) for $30.0 million, giving the
Company total direct and indirect ownership of 50.02% .
The Waterberg Project is located on a newly-discovered
extension of the Northern Limb of the Bushveld Complex. Anglo American Platinum
Limiteds (
Amplats
) Mogalakwena mine is a Platreef asset also located
on the Northern Limb. The detailed scope of work for the DFS has been agreed.
The DFS will investigate two options - a 600,000 tonne per month mine (744,000
ounces PGEs per year), and a second lower capital option at 250,000 to 350,000
tonnes per month. The selection of the DFS team has also been agreed and tenders
for engineering groups have been completed and Stantec and DRA have been
selected as the lead independent project engineers. A substantial portion of the
Waterberg Project prospecting area remains unexplored.
The Waterberg Project is derived from a group of exploration
projects that came from a regional target initiative by the Company conceived in
2007 and 2008. The projects target a previously unknown extension to the
Northern Limb of the Bushveld Complex in South Africa. The Company selected this
target from a list of new ideas provided by a team of South African
geoscientists. Detailed geophysical and other work indicated potential for a
package of Bushveld Complex rocks under the sedimentary Waterberg formation
cover rocks. Previous mineral exploration activities in the area were limited
due to the extensive sedimentary cover. Exploration by the Company therefore
progressed through preliminary exploration activities to delineate initial drill
targets to primarily drilling focused work now that a deposit has been
discovered.
The Waterberg Project is managed and explored according to a
joint technical committee and is currently planned for development according to
the objective of achieving a best outcome scenario for shareholders and
stakeholders.
Technical Report Waterberg
Technical information in this Annual Report regarding the
Waterberg Project is derived from the October 2018 Waterberg Report. In addition
to the October 2018 Waterberg Report, a SAMREC 2016 compliant Mineral Resource statement has been prepared and signed-off by
the Independent Geological Qualified Person. The Independent Geological
Qualified Person for the October 2018 Waterberg Report and the companion SAMREC
Mineral Resource statement is Mr. Charles J Muller, (B.Sc. (Hons) Geology) Pr.
Sci. Nat. (Reg. No. 400201/04), CJM Consulting (Pty) Ltd. The following summary
is qualified in its entirety with reference to the full text of the October 2018
Waterberg Report, which is incorporated by reference herein. The use of $ in
the October 2018 Waterberg Report denotes USD.
84
The October 2018 Waterberg Report supersedes the Companys
prior technical report and pre-feasibility study with respect to the Waterberg
Project. Prior technical reports and studies relating to the Waterberg Project
should no longer be relied upon.
The October 2018 Waterberg Report has been evaluated and
prepared in accordance with NI 43-101 to comply with the requirements for a
mineral resource estimate. The October 2018 Waterberg Report complies with
disclosure and reporting requirements set forth in the TSX Manual, NI 43-101
Standards of Disclosure for Mineral Projects, Companion Policy 43-101CP to NI
43-101, and Form 43-101F1 of NI 43-101. The October 2018 Waterberg Report
includes measured, indicated and inferred mineral resources. Only measured and
indicated resources will be incorporated into the mine plan and financial model
for the DFS now in process. The reader is cautioned that all estimates of
mineral resources have been prepared in accordance with NI 43-101 and the
Company has not disclosed or determined any mineral reserves under SEC Industry
Guide 7 standards.
Waterberg Project Summary
(Excerpted from the October 2018 Waterberg Report)
Introduction
CJM Consulting (South Africa) Pty Limited (CJM) was requested
by Waterberg JV Resources (Pty) Ltd. (Waterberg JV Resources), on behalf of
Platinum Group Metals Ltd (PTML), the issuer, to complete an Independent
Technical Report on the update for the Mineral Resources Waterberg Project. The
project covers a buried portion of the Northern Limb of the Bushveld Complex
where a deposit containing Platinum Group Metals (PGMs), gold and base metals
(Cu, Ni) was discovered through drilling. The objective of this report is to
provide an update to the Mineral Resources on the Waterberg project, in
accordance with disclosure and reporting requirements set forth in the Toronto
Stock Exchange Manual, National Instrument 43-101 Standards of Disclosure for
Mineral Projects (NI 43-101), Companion Policy 43-101CP to NI 43-101, and Form
43-101F1 of NI 43-101 as well as the South African Code for the Reporting of
Exploration Results, Mineral Resources and Mineral Reserves (The SAMREC Code),
2016 edition.
Project Area and Location
The Waterberg Project is located some 85 km north of the town
of Mokopane (formerly Potgietersrus), within Limpopo Province, South Africa and
covers an area along the strike length of the previously unknown northward
extension of the Bushveld Complex. The Project can be accessed via dirt roads
exiting off sealed highway N11.
85
Waterberg Project
The Waterberg Project is comprised of several prospecting
rights and a pending mining right application covering an area of 99,244.79 ha.
The Project is owned by a consortium consisting of Platinum Group Metals Ltd.,
Mnombo Wethu Consultants (Pty) Ltd. (Mnombo), Japan Oil, Gas and Metals National
Corporation (JOGMEC) and Impala Platinum Holdings Ltd. (Implats). The area of
the prospecting rights extends some 39 km from north to south and 36 km from
east to west. A Mining Right Application was filed over the mineral resource
area and this application was accepted on September 14, 2017 for consideration
by the Department of Mineral Resources. The process of consultation for the
Mining Right and Environmental Assessment has commenced.
The Project Area is an extension of the trend at the northern
tip of the Bushveld Complex and the discovery is the result of some detailed
geophysical, geochemical and geological work that indicated potential for a
package of Bushveld Complex rocks under the Waterberg Group sedimentary cover
rocks.
Geological Setting, Deposit Type And
Mineralisation
The Bushveld and Molopo Complexes in the Kaapvaal Craton are
two of the most well-known mafic/ultramafic layered intrusions in the world. The
Bushveld Complex was intruded about 2,060 million years ago into rocks of the
Transvaal Supergroup, largely along an unconformity between the Magaliesberg
quartzite of the Pretoria Group and the overlying Rooiberg felsites. It is
estimated to exceed 66,000 km2 in extent, of which about 55% is covered by
younger formations. The Bushveld Complex hosts several layers rich in Platinum
Group Metals (PGM), chromium and vanadium, and constitutes the world's largest
known Mineral Resources of these metals.
The Waterberg Project is situated off the northern end of the
previously known Northern Limb of the Bushveld Complex, where the mafic rocks
have a different sequence to those of the Eastern and Western Limbs of the
Bushveld Complex.
PGM mineralisation within the Bushveld package underlying the
Waterberg Project is hosted in two main layers: T Zone and F Zone.
The T Zone occurs within the Main Zone just beneath the contact
of the overlaying Upper Zone. Although the T Zone consists of numerous
mineralised layers, three potential economical layers were identified, TZ, T1
and T0 - Layers. They are composed mainly of anorthosite, pegmatoidal gabbros,
pyroxenite, troctolite, harzburgite, gabbronorite and norite.
The F Zone is hosted in a cyclic unit of olivine rich
lithologies towards the base of the Main Zone towards the bottom of the Bushveld
Complex. This zone consists of alternating units of harzburgite, troctolite and
pyroxenites. The F Zone was divided into the FH (harzburgite) and FP
(pyroxenite) layers. The FH layer has significantly higher volumes of olivine in
contrast with the lower lying FP layer, which is predominately pyroxenite.
Project Geology
The Waterberg Project is located along the strike extension of
the Northern Limb of the Bushveld Complex. The geology consists predominantly of
the Bushveld Main Zone gabbros, gabbronorites, norites, pyroxenites and
anorthositic rock types with more mafic rock material such as harzburgite and
troctolites that partially grade into dunites towards the base of the package.
In the southern part of the project area, Bushveld Upper Zone lithologies such
as magnetite gabbros and gabbronorites do occur as intersected in drillhole
WB001 and WB002. The Lower Magnetite Layer of the Upper Zone was intersected on
the south of the project property (Disseldorp 369 LR) where drillhole
WB001 was drilled and intersected a 2.5 m thick magnetite band.
86
On the property, the Bushveld package strikes south-west to
north-east with a general dip of 34º - 38º towards the west is observed from
drillhole core for the layered units intersected on Waterberg property within
the Bushveld Package. However, some structural blocks may be tilted at different
angles depending on structural and /or tectonic controls.
The Bushveld Upper Zone is overlain by a 120 m to 760 m thick
Waterberg Group which is a sedimentary package predominantly made up of
sandstones, and within the project area the two sedimentary formations known as
the Setlaole and Makgabeng Formations constitute the Waterberg Group. The
Waterberg package is flat lying with dip angles ranging from to 2º to 5º.
Exploration Status
The Waterberg Project is at an advanced project that has
undergone preliminary economic evaluations, and a Pre-Feasibility Study, which
have warranted further work. Drilling to date has given the confidence to
classify Mineral Resources as Inferred, Indicated and Measured. A Definitive
Feasibility Study is in progress at the time of this report.
Sample Preparation
The sampling methodology concurs with Waterberg JV Resources
protocol based on industry best practice. The quality of the sampling is
monitored and supervised by a qualified geologist. The sampling is done in a
manner that includes the entire potentially economic unit, with enough shoulder
sampling to ensure the entire economic zones are assayed.
Analysis
For the present database, field samples were analysed by two
different laboratories: the primary laboratory is currently Set Point
laboratories (South Africa). Genalysis (Australia) is used for referee test work
to confirm the accuracy of the primary laboratory.
Samples are received, sorted, verified and checked for moisture
and dried if necessary. Each sample is weighed, and the results are recorded.
Rocks, rock chips or lumps are crushed using a jaw crusher to less than 10 mm.
The samples are then milled for 5 minutes to achieve a fineness of 90% less than
106 μm, which is the minimum requirement to ensure the best accuracy and
precision during analysis.
Samples are analysed for Pt (ppm), Pd (ppm) Rh (ppm) and Au
(ppm) by standard 25 g lead fire-assay using a silver collector. Rh (ppm) is
assayed using the same method but with a palladium collector and only for
selected samples. After pre-concentration by fire assay the resulting solutions
are analysed using ICP-OES (Inductively Coupled PlasmaOptical Emission
Spectrometry).
The base metals (copper, nickel, cobalt and chromium) are
analysed using ICP-OES (Inductively Coupled Plasma Optical Emission
Spectrometry) after a multi-acid digestion. This technique results in almost
total digestion.
The drilling, sampling and analytical aspects of the project
are considered to have been undertaken to industry standards. The data is
considered to be reliable and suitable for Mineral Resource estimation.
87
Drilling
The data from which the structure of the mineralised horizons
was modelled, and grade values estimated were derived from a total of 359 932
meters of diamond drilling. This report updates the Mineral Resource estimate
using this dataset. The drillhole dataset consists of 437 drillholes and 585
deflections, at the date of drill data cut-off (July 18, 2018).
The management of the drilling programmes, logging and sampling
were undertaken from three facilities: one at the town of Marken in Limpopo
Province, South Africa and the other on the farm Goedetrouw 366LR within the
prospecting right area or at an exploration camp on the adjacent farm Harriets
Wish.
Drilled core is cleaned, de-greased and packed into metal core
boxes by the drilling company. The core is collected from the drilling site
daily by Waterberg JV Resources personnel and transported to the coreyard.
Before the core is taken off the drilling site, core recovery and the depths are
checked. Core logging is done by hand on a pro-forma sheet by qualified
geologists under supervision of the Project Geologist.
Quality Control And Quality Assurance
Waterberg JV Resources have instituted a complete QA/QC
programme including the insertion of blanks and certified reference materials as
well as referee analyses. The programme is being followed and is to industry
standard. The data is as a result, considered reliable in the opinion of the
Qualified Person.
Mineral Resources
This report documents the Mineral Resource estimate - Effective
Date: September 27, 2018. Infill drilling over portions of the project area and
new estimation methodology has made it possible to estimate a new Mineral
Resource estimate and upgrade portions of the Mineral Resource to the Measured
category. All the joint venture partners have been involved in the development
of the latest Mineral Resource model, appropriate cut-off grades, economic
parameters and Mineral Resource model criteria. It has been determined in
relation to basic working costs and in consideration of the overall resource
envelope for the deposit, that at a 2.0 g/t cut-off grade the deposit has a
reasonable prospect of economic extraction. The Mineral Resource Statement is
summarised in Table 1. Notwithstanding the above, for purposes of the DFS,
sensitivity analysis and comparison to the 2016 PFS, which utilized a 2.5 g/t 4E
cut-off grade, a Mineral Resource estimate at a 2.5 g/t cut-off grade is the
preferred scenario (Table 2).
88
Table 1: Summary of Mineral Resource effective September
27, 2018 on a 100% project basis at 2.0 g/t (4E) cut-off
|
T Zone
at 2.0 g/t (4E) cut-off
|
|
Mineral Resource
Category
|
Cut-off
|
Tonnage
|
Grade
|
Metal
|
4E
|
Pt
|
Pd
|
Rh
|
Au
|
4E
|
Cu
|
Ni
|
4E
|
g/t
|
t
|
g/t
|
g/t
|
g/t
|
g/t
|
g/t
|
%
|
%
|
kg
|
Moz
|
Measured
|
2.0
|
3 440 855
|
1.13
|
1.97
|
0.04
|
0.90
|
4.04
|
0.160
|
0.080
|
13 901
|
0.447
|
Indicated
|
2.0
|
22 997 505
|
1.22
|
2.06
|
0.03
|
0.79
|
4.10
|
0.186
|
0.090
|
94 290
|
3.031
|
M+I
|
2.0
|
26 438 360
|
1.21
|
2.05
|
0.03
|
0.80
|
4.09
|
0.183
|
0.089
|
108 191
|
3.478
|
Inferred
|
2.0
|
25 029 695
|
1.17
|
1.84
|
0.03
|
0.60
|
3.64
|
0.137
|
0.069
|
91108
|
2.929
|
|
Resource
Category
|
Prill Split
|
|
Pt
|
Pd
|
Rh
|
Au
|
%
|
%
|
%
|
%
|
Measured
|
28.0
|
48.8
|
1.0
|
22.2
|
Indicated
|
29.8
|
50.2
|
0.7
|
19.3
|
M+I
|
29.6
|
50.0
|
0.7
|
19.7
|
Inferred
|
32.1
|
50.5
|
0.8
|
16.6
|
F Zone
2.0 g/t (4E) cut-off
|
|
Mineral Resource
Category
|
Cut-off
|
Tonnage
|
Grade
|
Metal
|
4E
|
Pt
|
Pd
|
Rh
|
Au
|
4E
|
Cu
|
Ni
|
4E
|
g/t
|
t
|
g/t
|
g/t
|
g/t
|
g/t
|
g/t
|
%
|
%
|
kg
|
Moz
|
Measured
|
2.0
|
75 332 513
|
0.82
|
2.00
|
0.05
|
0.14
|
3.01
|
0.079
|
0.191
|
226 833
|
7.293
|
Indicated
|
2.0
|
273 272 480
|
0.80
|
1.85
|
0.04
|
0.14
|
2.83
|
0.073
|
0.181
|
772 103
|
24.824
|
M+I
|
2.0
|
348 604 993
|
0.83
|
1.86
|
0.04
|
0.14
|
2.87
|
0.075
|
0.183
|
998 936
|
32.117
|
Inferred
|
2.0
|
121 535 227
|
0.70
|
1.62
|
0.04
|
0.13
|
2.50
|
0.067
|
0.162
|
303 722
|
9.765
|
|
Resource
Category
|
Prill Split
|
|
Pt
|
Pd
|
Rh
|
Au
|
%
|
%
|
%
|
%
|
Measured
|
27.2
|
66.4
|
1.7
|
4.7
|
Indicated
|
28.3
|
65.4
|
1.4
|
4.9
|
M+I
|
28.9
|
64.8
|
1.4
|
4.9
|
Inferred
|
28.4
|
64.8
|
1.6
|
5.2
|
Waterberg Aggregate Total 2.0 g/t Cut-off September 2018
100% Project Basis
|
|
Mineral Resource
|
Cut-off
|
Tonnage
|
Grade
|
Metal
|
4E
|
Pt
|
Pd
|
Rh
|
Au
|
4E
|
Cu
|
Ni
|
4E
|
g/t
|
t
|
g/t
|
g/t
|
g/t
|
g/t
|
g/t
|
%
|
%
|
kg
|
Moz
|
Measured
|
2.0
|
78 773 368
|
0.83
|
2.00
|
0.05
|
0.18
|
3.06
|
0.083
|
0.186
|
240 734
|
7.740
|
Indicated
|
2.0
|
296 269 985
|
0.83
|
1.86
|
0.04
|
0.19
|
2.92
|
0.082
|
0.174
|
866 393
|
27.855
|
M+I
|
2.0
|
375 043 353
|
0.86
|
1.87
|
0.04
|
0.18
|
2.95
|
0.083
|
0.176
|
1 107 127
|
35.595
|
Inferred
|
2.0
|
146 564 922
|
0.78
|
1.66
|
0.04
|
0.21
|
2.69
|
0.079
|
0.146
|
394 830
|
12.694
|
|
Resource
Category
|
Prill Split
|
|
Pt
|
Pd
|
Rh
|
Au
|
%
|
%
|
%
|
%
|
Measured
|
27.1
|
65.4
|
1.6
|
5.9
|
Indicated
|
28.4
|
63.7
|
1.4
|
6.5
|
M+I
|
29.1
|
63.4
|
1.4
|
6.1
|
Inferred
|
29.0
|
61.7
|
1.5
|
7.8
|
4E = Platinum Group Elements (Pd+Pt+Rh) and Au. The
cut-offs for Mineral Resources were established by a qualified person
after
a review of potential operating costs and other factors. The
Mineral Resources stated above are shown on a 100% basis, that is,
for the Waterberg Project entity. Conversion Factor used kg to oz
= 32.15076. Numbers may not add due to rounding. A 5% and
7%
geological loss were applied to the Measured/Indicated and Inferred
Mineral Resource categories respectively.
|
89
Table 2: Summary of
Mineral Resource effective September 27, 2018 on a 100% project basis at
2.5 g/t (4E) cut-off
|
T Zone at 2.5 g/t (4E)
cut-off
|
|
Mineral
Resource
Category
|
Cut-off
|
Tonnage
|
Grade
|
Metal
|
4E
|
Pt
|
Pd
|
Rh
|
Au
|
4E
|
Cu
|
Ni
|
4E
|
g/t
|
t
|
g/t
|
g/t
|
g/t
|
g/t
|
g/t
|
%
|
%
|
kg
|
Moz
|
Measured
|
2.5
|
3 098 074
|
1.19
|
2.09
|
0.05
|
0.90
|
4.23
|
0.160
|
0.090
|
13 105
|
0.421
|
Indicated
|
2.5
|
18 419 181
|
1.34
|
2.31
|
0.03
|
0.87
|
4.55
|
0.197
|
0.095
|
83 807
|
2.694
|
M+I
|
2.5
|
21 517 255
|
1.32
|
2.28
|
0.03
|
0.88
|
4.51
|
0.192
|
0.094
|
96 912
|
3.116
|
Inferred
|
2.5
|
21 829 698
|
1.15
|
1.92
|
0.03
|
0.76
|
3.86
|
0.198
|
0.098
|
84 263
|
2.709
|
|
|
Prill Split
|
|
Resource
Category
|
Pt
|
Pd
|
Rh
|
Au
|
%
|
%
|
%
|
%
|
Measured
|
28.1
|
49.4
|
1.2
|
21.3
|
Indicated
|
29.5
|
50.7
|
0.7
|
19.1
|
M+I
|
29.3
|
50.5
|
0.7
|
19.5
|
Inferred
|
29.8
|
49.7
|
0.8
|
19.7
|
F Zone at 2.5 g/t (4E)
cut-off
|
|
Mineral
Resource Category
|
Cut-off
|
Tonnage
|
Grade
|
Metal
|
4E
|
Pt
|
Pd
|
Rh
|
Au
|
4E
|
Cu
|
Ni
|
4E
|
g/t
|
t
|
g/t
|
g/t
|
g/t
|
g/t
|
g/t
|
%
|
%
|
kg
|
Moz
|
Measured
|
2.5
|
54 072 600
|
0.95
|
2.20
|
0.05
|
0.16
|
3.36
|
0.087
|
0.202
|
181 704
|
5.842
|
Indicated
|
2.5
|
166 895 635
|
0.95
|
2.09
|
0.05
|
0.15
|
3.24
|
0.090
|
0.186
|
540 691
|
17.384
|
M+I
|
2.5
|
220 968 235
|
0.95
|
2.12
|
0.05
|
0.15
|
3.27
|
0.089
|
0.190
|
722 395
|
23.226
|
Inferred
|
2.5
|
44 836 851
|
0.87
|
1.92
|
0.05
|
0.14
|
2.98
|
0.064
|
0.169
|
133 705
|
4.299
|
|
|
Prill
Split
|
|
Resource
Category
|
Pt
|
Pd
|
Rh
|
Au
|
%
|
%
|
%
|
%
|
Measured
|
28.3
|
65.4
|
1.5
|
4.8
|
Indicated
|
29.3
|
64.4
|
1.6
|
4.7
|
M+I
|
29.1
|
64.8
|
1.5
|
4.6
|
Inferred
|
29.2
|
64.4
|
1.7
|
4.7
|
Waterberg Aggregate
Total 2.5 g/t Cut-off
|
|
Mineral
Resource Category
|
Cut-off
|
Tonnage
|
Grade
|
Metal
|
4E
|
Pt
|
Pd
|
Rh
|
Au
|
4E
|
Cu
|
Ni
|
4E
|
g/t
|
t
|
g/t
|
g/t
|
g/t
|
g/t
|
g/t
|
%
|
%
|
kg
|
Moz
|
Measured
|
2.5
|
57 170 674
|
0.96
|
2.19
|
0.05
|
0.20
|
3.40
|
0.091
|
0.196
|
194 809
|
6.263
|
Indicated
|
2.5
|
185 314 816
|
0.99
|
2.11
|
0.05
|
0.22
|
3.37
|
0.100
|
0.177
|
624 498
|
20.078
|
M+I
|
2.5
|
242 485 490
|
0.98
|
2.13
|
0.05
|
0.22
|
3.38
|
0.098
|
0.181
|
819 307
|
26.342
|
Inferred
|
2.5
|
66 666 549
|
0.96
|
1.92
|
0.04
|
0.34
|
3.26
|
0.108
|
0.146
|
217 968
|
7.008
|
|
|
Prill
Split
|
|
Resource
Category
|
Pt
|
Pd
|
Rh
|
Au
|
%
|
%
|
%
|
%
|
Measured
|
28.2
|
64.4
|
1.5
|
5.9
|
Indicated
|
29.4
|
62.6
|
1.5
|
6.5
|
M+I
|
29.2
|
63.0
|
1.4
|
6.4
|
Inferred
|
29.5
|
58.9
|
1.2
|
10.4
|
4E = Platinum Group Elements (Pd+Pt+Rh) and Au. The
cut-offs for Mineral Resources were established by a qualified person
after a review of
potential operating costs and other factors. The
Mineral Resources stated above are shown on a 100% basis, that is, for the
Waterberg Project
entity. Conversion Factor used kg to oz =
32.15076. Numbers may not add due to rounding. A 5% and 7% geological loss
were applied to the
Measured/Indicated and Inferred Mineral
Resource categories respectively.
|
90
Notes
:
1.
|
Mineral Resources are classified in accordance with the
SAMREC (2016) standards. There are certain differences with the CIM
Standards on Mineral Resources and Mineral Reserves; however, in this
case the Company and the QP believe the differences are not material and
the standards may be considered the same. Inferred Mineral Resources have
a high degree of uncertainty. Mineral Resources might never be upgraded or
converted to Mineral Reserves.
|
|
|
2.
|
Mineral Resources are provided on a 100% project basis.
Inferred and Indicated categories are separate. The estimates have an
effective date of September 27, 2018. Tables may not add perfectly due to
rounding.
|
|
|
3.
|
A cut-off grade of 2.0 g/t and 2.5 g/t 4E (platinum,
palladium, rhodium and gold) is applied to the selected base case Mineral
Resources.
|
|
|
4.
|
Cut-off grade for the T Zone and the F Zone considered
costs, smelter discounts, concentrator recoveries from the previous and
ongoing engineering work completed on the property by the Company and its
independent engineers. Spot and three year trailing average prices and
exchange rates are considered for the cut-off considerations. The upper
and lower bound metal prices used in the determination of cut-off grade
for resources estimated are as follows: US$983/oz-US$953/oz Pt,
US$993/oz-US$750/oz Pd, US$1 325/oz- US$1 231/oz Au, US$1
923US/oz-US$972/oz Rh, US$6.08/lb-US$4.77/lb Ni, US$3.08/lb-US$2.54/lb Cu,
US$/ZAR15-US$/ZAR12. These metal prices are based on the estimated 3 year
trailing average prices and the spot prices at the time of commencement of
the Mineral Resource estimate modelling. The lower cut-off was tested
against the higher metal price in the range and the higher cut-off was
tested against the lower price in the range.
|
|
|
|
The objective of the cut-off grade estimation was to
establish a minimum grade for working break even. From the 2016 PFS the
following factors were used for the calculation of Cut-off at 2.0 g/t (4E)
at higher potential prices and 2.5 g/t 4E at more conservative lower
prices listed above.
|
|
|
Working Cost Mining of US$ 25.00, 379 Rand per
Tonne, LOM Avg. Total Opex US$ 38, 574 Rand Avg. LOM
|
|
|
|
|
|
80 g/t Concentrate 82% recoveries of the PGMs,
88% of the Copper and 49% of the Nickel
|
|
|
|
|
|
85% Pay ability of the PGMs from a third-party
smelter, 73% for Copper and 68% for Nickel
|
|
These costs recoveries and pay abilities are all to be
updated in the DFS for the consideration of reserves and there can be no
assurance that any of the Mineral Resources will be converted to Mineral
Reserves. Metallurgical work indicates that an economically attractive
concentrate can be produced from standard flotation methods.
|
|
|
5.
|
Charles Muller of CJM Consulting completed the Mineral
Resource Estimate and a NI 43-101 technical report for the Mineral
Resources reported herein, effective September 27, 2018.
|
|
|
6.
|
Mineral Resources were estimated using Ordinary and
Simple Kriging methods in Datamine Studio3 from 437 mother holes and 585
deflections in mineralisation. A process of geological modelling and
creation of grade shells using Indicating Kriging (IK) was completed in
the estimation process.
|
|
|
7.
|
The estimation of Mineral Resources has considered
environmental, permitting, legal, title, taxation, socio- economic,
marketing and political factors. The Mineral Resources may be materially
affected by metals prices, exchange rates, labour costs, electricity
supply issues or many other factors detailed in the Company's Annual
Information Form.
|
|
|
8.
|
Estimated grades and quantities for by-products will be
included in recoverable metals and estimates in the on-going Definitive
Feasibility work. Copper and Nickel are the main value by-products
recoverable by flotation and for Measured and Indicated Mineral Resources
are estimated at 0.18% copper and 0.09% nickel in the T Zone and 0.08%
copper and 0.18% nickel in the F Zone.
|
91
The data that formed the basis of the estimate are the
drillholes drilled by Waterberg JV Resources which consist of geological logs,
the drillhole collars, the downhole surveys and the assay data, all of which
were validated by the QP. The area where each layer was present was delineated
after examination of the intersections in the various drillholes.
There is no guarantee that all or any part of the Mineral
Resource will be converted to a Mineral Reserve. The Prefeasibility study
indicated a conversion rate of less than 50%.
Interpretation and Conclusions
Exploration drilling by Waterberg JV Resources has intersected
layered magmatic PGM mineralisation in what is interpreted to be the northern
extension of the Northern Limb of the Bushveld Complex under the Waterberg Group
rocks. This has confirmed the existence of mineralised zones with potentially
economic concentrations of PGMs. Improved understanding of the geology allowed
an improved Mineral Resource.
Additional infill drilling in the Indicated Mineral Resource
category areas, resulted in portions of the Mineral Resources being upgraded to
the Measured Mineral Resource category.
The Estimation was undertaken using best practices in terms of
geostatistics.
The objectives in terms of adherence to the Scope of this Study
were met in that an updated Mineral Resource model was produced. An objective of
converting Indicated mineral resources from the previous estimates to the higher
confidence of Measured was also completed. Cut-offs using previous estimates of
costs and recoveries from the 2016 PFS were utilized for this resource estimate
with updated price decks.
The delineation of the F Zone and T Zone units was advanced due
to better understanding of the geology. The T Zone was divided into three
distinct layers, TZ, T1 and T0.
The database used for this estimate consisted of 437 drillholes
and 585 deflections. The mineralisation is considered open down-dip and along
strike to the north.
The Waterberg Project represents one of the largest discoveries
of PGE mineralisation in recent history. Metallurgical work completed to date at
Mintek along with previously published Pre-Feasibility Study adds to the
confidence in this discovery.
The Measured and Indicated Mineral Resources are at an
appropriate level of confidence to be considered in the ongoing Definitive
Feasibility Study for mine planning.
Recommendations
It is recommended that the Mineral Resources Reported be
considered in the ongoing Definitive Feasibility Study, (DFS) for the
Waterberg Project. The Indicated and Measured Mineral Resources are of a
confidence interval appropriate for mine planning and consideration in the DFS.
Further work drilling work could be capable of converting the Inferred Mineral
Resources to a higher category but at this time it is likely that future
drilling may be focused on other areas and items like geotechnical
characteristics for mine planning or detailed metallurgical work. A budget for
the DFS is in progress so no specific budget is recommended here. Based on the Mineral Resource estimate here
it is recommended that the DFS and ongoing Mining Right Application work
continue.
92
* * * * * *
Additional Information
During the year ended August 31, 2018, approximately $9.1
million was spent at the Waterberg Project for engineering and exploration
activities. At August 31, 2018 the Company had capitalized $29.4 million in
accumulated net costs to the Waterberg Project. Total expenditures on the
property since inception, and before cost reimbursements by other Waterberg
Project Partners, are approximately $62 million.
The DFS is now being advanced under the direction of the
Technical Committee appointed by Waterberg JV Co., which is comprised of members
representing the Company and all other Waterberg Project Partners Implats,
JOGMEC and Mnombo.
Previously, an updated mineral resource estimate was completed
by the Company for the Waterberg Project in October 2016 as a component NI
43-101 technical report to a pre-feasibility study. Since the October 2016
mineral resource estimate was completed, the joint venture, at the direction of
its Technical Committee, completed a further 61,394 meters of drilling in 143
new drill holes targeting the T and the F Zones. An additional 125 deflections
from the mother holes were also drilled. A total of approximately 26,000 new
assay samples were completed along with 5,000 reference samples and quality
control blanks.
The true width of the shallow dipping (30° to 35) mineralized
zones at the Waterberg Project are approximately 82% to 87% of the reported
interval from the vertical intercepts drilled. For the efficient application of
bulk mining methods and for mine planning, vertical intercepts of 3 meters or
more are desirable. Increased grade thickness zones associated with minor
footwall troughs or bays along the 13 km long layered complex have recently been
identified.
As a result of its shallow depth, good grade and a fully
mechanized mining approach, the Waterberg Project has the opportunity to be a
safe mine within the lowest quartile of the Southern Africa PGE industry cost
curve.
Waterberg JV Co. has applied for a mining right and detailed
consultation with communities, local municipalities, the Limpopo Provincial
government and South African national authorities is ongoing. The application
for a mining right has been accepted by the DMR for consideration. Consultation
with stakeholders has been in a positive climate of mutual respect.
Important detailed infrastructure planning has commenced for
the Waterberg Project. Detailed hydrological work is now underway to study the
possible utilization of known sources for significant volumes of ground water. A
recent co-operation agreement between Waterberg JV Co. and the local Capricorn
Municipality for the development of water resources to the benefit of local
communities and the mine is resulting in good advancement towards the
identification of water supplies and the design of distribution infrastructure.
Hydrological work so far has also identified several large-scale water basins
that are likely able to provide mine process and potable water for the Waterberg
Project and local communities. Test drilling of these water basins has
commenced. An earlier, well executed work and drilling program conducted by the
Capricorn District Municipality identified both potable and high mineral
unpotable water resources in the district. Drilling by Waterberg JV Co. has
identified some potable water resources. Several boreholes proximal to the
Waterberg Project identified large volumes of high mineral unpotable water not suitable for agriculture. Hydrological and
mill process specialists are investigating the use of this water as mine process
water. In general, ground water resources identified proximal to the Waterberg
Project have potential for usage for both mining and local communities.
93
The establishment of servitudes for power line routes and
detailed planning and permitting for an Eskom electrical service to the project
are also advancing well. Power line environmental and servitude work is being
completed by TDxPower in coordination with Eskom. TDxPower has progressed
electrical power connection planning for approximately a 70 km, 137MVA line to
the project.
The joint venture partners target the completion of the DFS at
the end of March, 2019. Planned DFS engineering work on the Waterberg Project
includes resource modelling, metallurgical work, optimization of the
metallurgical flow sheet using South African and Japanese expertise, bulk
services design and mechanized mine planning. Optimization of the mine plan and
working on reducing underground sustaining development capital will be part of
the upcoming DFS. DRA Projects SA (Proprietary) Limited was appointed for DFS
work on metallurgy, plant design, infrastructure and cost estimation. Stantec
Consulting International LLC was appointed for DFS work on underground mining
engineering and design and reserve estimation.
Non-Material Mineral Property Interests
The non-material mineral property interests of the Company
include prospecting rights located in South Africa and various mineral property
interests in Canada. These non-material property interests are not, individually
or collectively, material to the Company and are also described in the Companys
Financial Statements and Managements Discussion and Analysis for the year ended
August 31, 2018.
ITEM 4A.
|
UNRESOLVED STAFF COMMENTS
|
Not applicable.
ITEM 5.
|
OPERATING AND FINANCIAL REVIEW AND
PROSPECTS
|
The following discussion of the Company’s financial condition, changes in
financial conditions and results of operations for each of the three years ended
August 31, 2018 should be read in conjunction with our consolidated financial
statements and related notes included therein included in this annual report at
Item 18. the Company’s consolidated financial statements have been prepared in accordance
with IFRS as issued by the IASB.
The following discussion contains forward-looking statements
that involve inherent risks and uncertainties. Actual results may differ
materially from those contained in such forward-looking statements. See
cautionary statements in Forward-Looking Statements at the beginning of this
document.
Unless otherwise stated, all financial variations in this item
are given on a reported basis.
2018 Share Consolidation
On November 20, 2018, the Company announced its intention to
further consolidate the Company’s Common Shares on the basis of one new share
for ten old shares (1:10), effective at 9:00 a.m. (New York time) on December
13, 2018. The purpose of the consolidation is to increase the Companys common
share price to be in compliance with the NYSE Americans low
selling price requirement. See Introduction Share Consolidation.
94
As at the date of filing of this Annual Report, the 2018 Share
Consolidation has not become effective. Unless otherwise indicated, all
information included in this Item 5 and the Companys consolidated financial
statements and related notes, including, without limitation, all share and per
share amounts, trading and per share prices, note conversion rates and option
and warrant exercise prices, is presented prior to giving effect to the 2018
Share Consolidation.
Financial Overview
Year Ended August 31, 2018 Compare to Year Ended August
31, 2017
For the year ended August 31, 2018, the Company had
a net loss of $41 million (August 31, 2017 net loss of $590 million). This
difference is predominantly due to an impairment of the Maseve Mine of $589
million during the 2017 fiscal year. Other items include a foreign exchange loss
of $4.1 million (August 31, 2017 - $4.6 million gain) due to the US Dollar
increasing in value relative to the Companys functional currency of the
Canadian Dollar. Interest expense of $18.4 million and care and maintenance
costs of $14.4 million were recognized in the current year whereas these costs
were capitalized in the previous year. Also, stock compensation expense of $0.08
million was recognized in the current period (August 31, 2017 $1.1 million) with
the difference due to no share based compensation being issued in the current
year. General and administrative costs rose from $5.3 million to $6.1 million
due to an onerous lease accrual in the current year caused by the termination of lease agreements for mobile machinery utilized by Maseve. The currency translation
adjustment recognized in the period is a gain of $22.1 million (August 31, 2017
- $59 million gain).
Year Ended August 31, 2017 Compared to Year Ended August
31, 2016
For the year ended August 31, 2017, the Company had
a net loss of $590 million (August 31, 2016 net loss of $36.6 million). This
difference is predominantly due to an impairment of the Maseve Mine of $589
million during the year. Other items include a foreign exchange gain of $4.6
million (August 31, 2016 - $1.7 million gain) due to the US Dollar decreasing in
value relative to the Companys functional currency of the Canadian Dollar.
Also, stock compensation expense of $1.1 million was recognized in the current
period (August 31, 2016 $0.1 million) with the difference due to more rapid
vesting of share based compensation issued in the current year. General and
administrative costs rose from $5.4 to $5.7 million due to increase professional
fees. The currency translation adjustment recognized in the period is a gain of
$59 million (August 31, 2017 - $50 million loss) due to an 9% increase in value
of the Rand against the US Dollar in the current year as compared to an 11%
decrease in the value of the Rand in the previous year.
Annual Financial Information
(In thousands of dollars, except for share data)
|
|
Year ended
|
|
|
Year ended
|
|
|
Year ended
|
|
|
|
Aug 31, 2018
|
|
|
Aug 31, 2017
|
|
|
Aug 31, 2016
|
|
Interest income
|
$
|
739
(1)
|
|
$
|
1,062
(1)
|
|
$
|
1,133
(1)
|
|
Net loss
|
$
|
41,024
(2)
|
|
|
590,317
(2)
|
|
$
|
36,651
(2)
|
|
Basic loss per share
|
$
|
0.20
(3)
|
|
$
|
4.30
(3)
|
|
$
|
0.26
(3)
|
|
Diluted loss per share
|
$
|
0.20
(3)
|
|
$
|
4.30
(3)
|
|
$
|
0.26
(3)
|
|
Total assets
|
$
|
41,849
|
|
$
|
100,528
|
|
$
|
519,858
|
|
Long term debt
|
$
|
42,291
|
|
$
|
43,821
|
|
$
|
54,586
|
|
Convertible Debt
|
$
|
14,853
|
|
$
|
17,225
|
|
|
Nil
|
|
Dividends
|
|
Nil
|
|
|
Nil
|
|
|
Nil
|
|
95
Notes
:
(1)
|
the Companys only significant source of income during
the years ending August 31, 2016 to 2018 was interest income from interest
bearing accounts held by the Company.
|
(2)
|
Net loss is affected in 2016 and 2017 by an impairment
recognized on the Maseve Mine and the impairment of the Maseve Mine when
it was held as an asset held for sale.
|
(3)
|
Basic loss per share is calculated using the weighted average number of Common Shares outstanding. The Company uses the treasury stock method for the calculation of diluted earnings per share. Diluted per share amounts reflect the potential dilution that could occur if securities or other contracts to issue Common Shares were exercised or converted to Common Shares. In periods when a loss is incurred, the effect of potential issuances of shares under options and share purchase warrants would be anti-dilutive, and accordingly basic and diluted loss per share are the same. On January 26, 2016, the Company announced that effective January 28, 2016 its Common Shares would be consolidated on the basis of one new share for ten old shares (1:10). All information regarding the issued and outstanding Common Shares, options and weighted average number and per share information has been retrospectively restated to reflect the 2016 ten to one consolidation.
|
Foreign currency fluctuations have not materially impacted the
Companys results of operations in recent years. Inflation in South Africa has
been experienced in labour costs over recent years, with average wage inflation
being at approximately 6% in 2017 and 2018. The Company can provide no assurance
that foreign currency fluctuations and inflation will not materially impact the
Company in the future. See Risk Factors. The Company has not entered into any
agreements or purchased any instruments to hedge possible currency risks at this
time. Under IFRS, the Company defers all acquisition, exploration and
development costs related to mineral properties. The recoverability of these
amounts is dependent upon the existence of economically recoverable mineral
reserves, the ability of the Company to obtain the necessary financing to
complete the development of the property, and any future profitable production,
or alternatively upon the Companys ability to dispose of its interests on an
advantageous basis. The Company evaluates the carrying value of its property
interests on a regular basis. Management is required to make significant
judgements to identify potential impairment indicators. Any properties
management deems to be impaired are written down to their estimated net
recoverable amount.
Events subsequent to the year ended August 31, 2018
On November 20, 2018, the Company announced its intention to
further consolidate the Company's Common Shares on the basis of one new share
for ten old shares (1:10), effective at 9:00 a.m. (New York time) on December
13, 2018. See Introduction Share Consolidation.
On October 25, 2018, the Company reported an updated
independent 4E resource estimate for the Waterberg Project. For more details
about the October 2018 Waterberg Report see Item 4.D. Property, Plant and
Equipment Technical Report Waterberg.
On October 10, 2018 the Company announced that a recently filed
mining right application for the Waterberg Project had been accepted by the DMR
for consideration. The mining right application consisted of a mining work
program, social and labour plan and associated environmental applications. The
mining right application was supported by the Company and all of the Waterberg
joint venture partners including Implats, JOGMEC and Mnombo. The process of
consultation under the MPRDA and applicable environmental assessment regulations
for the mining right application has commenced.
96
On September 20, 2018 the Company reported the receipt of a
summons issued by Africa Wide commencing legal proceedings in South Africa
against PTM RSA, RBPlat and Maseve in relation to the Maseve Transaction. Africa
Wide is seeking, at this very late date, to set aside or be paid increased value
for, the closed Maseve Transaction. Africa Wide held a 17.1% interest in Maseve
prior to the Maseve Transaction. RBPlat consulted with senior counsel, both
during the negotiation of the Maseve Transaction and in regard to the current
Africa Wide legal proceedings. The Company has also received legal advice to the
effect that the Africa Wide action, as issued, is ill-conceived and is factually
and legally defective.
South African Properties
The Company conducts its South African exploration and
development work through its wholly-owned direct subsidiary PTM RSA. The
Companys material mineral property is the Waterberg Project. After a planned
corporatization of the Waterberg joint venture completed on September 21, 2017,
the Waterberg Project is held by Waterberg JV Co. After giving effect to the
Initial Purchase, the Company holds a 50.02% beneficial interest in Waterberg JV
Co., of which 37.05% is held directly by PTM RSA and 12.974% is held indirectly
through PTM RSAs 49.9% interest in Mnombo, which holds 26.0% of Waterberg JV
Co. The remaining interests in Waterberg JV Co. are held by a nominee of JOGMEC
(21.95%) and by Implats (15.0%) . PTM RSA is the manager of Waterberg JV Co.
South African Legislation and Mining Charter
The MPRDA, the Mining Charter 2018 and related regulations in
South Africa require that BEE shareholders own a 26% equity interest in
Waterberg JV Co. to qualify for the grant of a Mining Right. Within 5 years of
the effective date of the Mining Right, this BEE shareholding must be increased
to 30%. The DMR had obtained an exemption from applying the Generic BEE Codes
under the BEE Act until October 31, 2016 and had applied for a further extension
until December 31, 2016. While this exemption was extended to December 31, 2016,
no further exemption was obtained thereafter, and, as a matter of law, the
Generic BEE Codes now apply to the issuance and maintenance of licenses and
other authorizations. As a matter of practice, the DMR has continued to apply
the provisions of Mining Charter 2018 rather than the Generic BEE Codes. See
Item 4.B.
South African Regulatory Framework - Black Economic Empowerment
in the South African Mining Industry, and Mining Charter
.
Material Mineral Property Interests Waterberg
Project
Waterberg Project Activities subsequent to the year ended
August 31, 2018
On October 25, 2018 the Company announced positive results from
additional drilling and an updated mineral resource assessment on the Waterberg
Project, effective September 27, 2018, resulting in increased confidence in the
estimated mineral resources for the project, with 6.26 million 4E ounces now
recognized in the higher confidence measured category. Mineral resources
estimated in the combined measured and indicated categories, at a 2.5 g/t 4E
cut-off grade, increased by 1.46 million 4E ounces to 26.34 million 4E ounces.
Inferred mineral resources at a 2.5 g/t 4E cut-off grade totaled 7.0 million 4E
ounces. The updated measured and indicated mineral resource totaling 26.34
million 4E ounces is comprised of 63.04% palladium, 29.16% platinum, 6.37% gold
and 1.43% rhodium (242.5 million tonnes at 3.38 g/t 4E, versus 218.3 million
tonnes grading 3.55 g/t 4E Indicated in the 2016 PFS). The T zone measured and indicated resources increased in grade from 3.88
g/t 4E in the 2016 PFS to 4.51 g/t 4E in 2018. For more details about the
October 2018 Waterberg Report see Item 4.D. Property, Plant and Equipment
Technical Report Waterberg.
97
The new increased confidence level 2018 resources are being
used for detailed mine planning in the ongoing DFS. The DFS is being managed by
Platinum Group and a Technical Committee including members from all joint
venture partners.
On October 10, 2018 the Company announced that a recently filed
mining right application for the Waterberg Project had been accepted by the DMR
for consideration. The mining right application consisted of a mining work
program, social and labour plan and associated environmental applications. The
mining right application was supported by the Company and all of the Waterberg
joint venture partners including Implats, JOGMEC and Mnombo. The process of
consultation under the MPRDA and applicable environmental assessment regulations
for the mining right application has commenced.
Waterberg Project Activities in the year ended August 31,
2018
During the year ended August 31, 2018, approximately $9.1
million was spent at the Waterberg Project for engineering and exploration
activities. At year end, $29.4 million in accumulated net costs had been
capitalized to the Waterberg Project. Total expenditures on the property since
inception are approximately $62 million. From inception to date, the Company has
funded both the Companys and Mnombos share of expenditures on the Waterberg
Project. At August 31, 2018, Mnombo owed the Company approximately $3.4 million
for funding provided.
At August 31, 2018, the Company carried total net deferred
acquisition and exploration and other costs related to the Waterberg Projects of
$29.4 million (August 31, 2017 - $22.9 million).
On November 6, 2017, the Company, along with Waterberg JV Co.,
JOGMEC and Mnombo completed the first phase of the Implats Transaction. For more
detail about the Implats Transaction see Item 4.A. Recent Developments November
2017 Implats Transaction
Detailed DFS engineering work which commenced during fiscal
2017 was continued and advanced during fiscal 2018.
Waterberg Project Activities in the year ended August 31,
2017
During the year ended August 31, 2017, approximately $5.6
million was spent at the Waterberg Project for engineering and exploration
activities. At August 31, 2017, the Company carried total net deferred
acquisition and exploration and other costs related to the Waterberg Projects of
$22.9 million (August 31, 2016 - $22.3 million). Since March 31, 2015, the
budget for work at the Waterberg Project has been fully funded by joint venture
partner JOGMEC in accordance with the 2
nd
Amendment to the JOGMEC
Agreement (both as defined below). From inception to date the Company has funded
both the Companys and Mnombos share of expenditures on the Waterberg Project.
At August 31, 2017, Mnombo owed the Company approximately $1.9 million for
funding provided.
At August 31, 2017, the Company carried total net deferred
acquisition and exploration and other costs related to the Waterberg Projects of
$22.9 million (August 31, 2016 - $22.3 million).
98
On October 19, 2016, the Company announced positive results
from the 2016 PFS on the Waterberg Project completed by international and South
African engineering firm WorleyParsons RSA (Pty) Ltd. trading as Advisian. An NI
43 101 technical report was filed entitled Independent Technical Report on the
Waterberg Project Including Mineral Resource Update and Pre-Feasibility Study
dated October 19, 2016, with an effective date of October 17, 2016 for the
estimate of mineral reserves and resources (the
October 2016 Waterberg
Report
), prepared by (i) Independent Engineering Qualified Person Mr. Robert
L Goosen, B.Eng. (Mining, Engineering), Pr. Eng. (ECSA), Advisian/WorleyParsons
Group; (ii) Independent Geological Qualified Person Mr. Charles J Muller, B.Sc.
(Hons) Geology, Pri. Sci. Nat., CJM Consulting (Pty) Ltd.; and (iii) Independent
Engineering Qualified Person Mr. Gordon I. Cunningham, B. Eng. (Chemical), Pr.
Eng. (ECSA), Professional association to FSAIMM, Turnberry Projects (Pty)
Ltd.
The October 2016 Waterberg Report included an updated estimate
of mineral resources and recommended the project advance to the DFS stage for a
large scale, shallow, decline accessible, mechanized platinum, palladium,
rhodium and gold mine.
Waterberg Project Activities in the year ended August 31,
2016
During the year ended August 31, 2016, approximately $4.6
million was spent conducting drilling at the Waterberg Project. At times, up to
twelve drill rigs were active on site. In addition to drilling approximately
$2.6 million was spent during the period for prefeasibility engineering,
resource modelling, metallurgy, infrastructure design, etc. On April 19, 2016,
the Company reported an updated independent 4E resource estimate for the
Waterberg Project.
At August 31, 2016, the Company carried total net deferred
acquisition and exploration and other costs related to the Waterberg Projects of
$20.2 million (August 31, 2015 - $22.3 million). Since March 31, 2015 all
Waterberg Project funding was covered by JOGMEC in accordance with the
2
nd
Amendment to the JOGMEC Agreement.
At period end $20.2 million in net costs were capitalized to
the project. The apparent drop from the USD capitalized balance at the previous
year end was due entirely to the devaluation of the Rand and the translation of
Rand denominated balances at year end. The budget for work at Waterberg in
fiscal 2016 was fully funded by joint venture partner JOGMEC. To March 31, 2015,
the Company funded the Companys and Mnombos combined 63% share of the work on
the Waterberg Project with the remaining 37% funded by JOGMEC. To March 31,
2015, the Company funded the Companys and Mnombos combined 100% share of the
work on the Waterberg Extension Project. Exploration work on the Waterberg
Extension Project began in a material way in late 2013.
Waterberg Project October 2018 Waterberg Report
On October 25, 2018, the Company reported an updated
independent 4E resource estimate for the Waterberg Project. These results, based
on a drilling program completed in 2018, confirmed increased confidence in the
Waterberg Project with 6.26 million 4E ounces recognized in the higher
confidence measured category. Mineral resources estimated in the combined
measured and indicated categories have increased by 1.46 million 4E ounces to
26.34 million 4E ounces. Inferred mineral Resources are estimated at 7.0 million
4E ounces. The aggregate T Zone and F Zone measured and indicated resource is
comprised of 63% palladium, 29% platinum, 6% gold and 1% rhodium (242.5 Million
Tonnes at 3.38 g/t 4E). The T Zone measured and indicated mineral resources have
increased in grade from 3.88g/t 4E as estimated for the 2016 PFS to 4.51 g/t 4E
in 2018. All of the preceding was estimated at a 2.5 g/t 4E (palladium,
platinum, rhodium and gold) cut-off grade.
99
On November 16, 2018 Platinum Group filed a National Instrument
43-101 technical report on the above updated mineral resources entitled
Technical Report On The Mineral Resource Update For The Waterberg Project
Located In The Bushveld Igneous Complex, South Africa (defined above as the
October 2018 Waterberg Report
). In addition, a SAMREC 2016 compliant
Mineral Resource statement has been prepared and signed-off by the Independent
Geological Qualified Person. The Independent Geological Qualified Person for the
October 2018 Waterberg Report and the companion SAMREC Mineral Resource
statement is Mr. Charles J Muller, (B.Sc. (Hons) Geology) Pr. Sci. Nat. (Reg.
No. 400201/04), CJM Consulting (Pty) Ltd.
Technical information referenced within this Annual report is
sourced from the October 2018 Waterberg Report. For more details about the
October 2018 Waterberg Report see Item 4.D. Property, Plant and Equipment
Technical Report Waterberg.
Waterberg Projects History of Acquisition
The Waterberg Joint Venture Project was comprised of a
contiguous granted prospecting right area of approximately 255 km
2
located on the Northern Limb of the Bushveld Complex, approximately 70 km north
of the town of Mokopane (formerly Potgietersrus). The adjacent Waterberg
Extension Project included contiguous granted and applied-for prospecting rights
with a combined area of approximately 864 km
2
. Prospecting rights are
valid for a period of five years, with one renewal of up to three years.
Furthermore, the MPRDA provides for a retention period after prospecting of up
to three years with one renewal of up to two years, subject to certain
conditions. The holder of a prospecting right granted under the MPRDA has the
exclusive right to apply for and, subject to compliance with the requirements of
the MPRDA, to be granted, a mining right in respect of the prospecting area in
question.
On September 28, 2009, PTM RSA, JOGMEC and Mnombo entered into
a joint venture agreement, as later amended on May 20, 2013 (the
JOGMEC
Agreement
) whereby JOGMEC could earn up to a 37% participating interest in
the Waterberg Joint Venture Project for an optional work commitment of $3.2
million over four years, while at the same time Mnombo could earn a 26%
participating interest in exchange for matching JOGMECs expenditures on a 26/74
basis ($1.12 million).
On November 7, 2011, the Company entered into an agreement with
Mnombo whereby the Company acquired 49.9% of the issued and outstanding shares
of Mnombo in exchange for cash payments totaling R1.2 million and an agreement
that the Company would pay for Mnombo's 26% share of costs on the Waterberg
Joint Venture Project until the completion of a DFS.
On May 26, 2015, the Company announced a second amendment to
the JOGMEC Agreement (the
2
nd
Amendment
) whereby
the Waterberg Joint Venture Project and the Waterberg Extension Project were to
be consolidated and contributed into operating company, Waterberg JV Co. At
August 31, 2017, the Company held 45.65% of the Waterberg Project while JOGMEC
held 28.35% and Mnombo held 26%. Through its 49.9% share of Mnombo, the Company
held an effective 58.62% of the Waterberg Project, at August 31, 2017. The
transfer of Waterberg prospecting rights into Waterberg JV Co. pursuant to the
2
nd
Amendment was given section 11 approval by the DMR in August,
2017 and the transfer was completed on September 21, 2017. Under the
2
nd
Amendment, JOGMEC committed to fund $20 million in expenditures
over a three-year period ending March 31, 2018, all of which had been funded by
JOGMEC as of August 31, 2017 with $3.1 million still left to be spent. The
Company remained the Project operator under the 2
nd
Amendment.
On November 6, 2017, the Company (along with JOGMEC and Mnombo)
closed the Initial Purchase with Implats and Implats acquired the Purchase and Development
Option. Further details on this transaction can be found above.
100
On March 8, 2018, JOGMEC announced that it had signed a
memorandum of understanding for the transfer of 9.755% of its 21.95% interest in
Waterberg JV Co. to Hanwa, which was the result of Hanwa winning JOGMECs public
tender held on February 23, 2018. JOGMEC and Hanwa have completed negotiations
on the terms of the transfer of interest to Hanwa, including, with a successful
implementation, Hanwa securing the right to a supply of certain metals produced
at the Waterberg Project.
As of the date of filing of this Annual Report, Waterberg JV
Co. owns 100% of the prospecting rights comprising the entire Waterberg Project
area. Waterberg JV Co. is owned 37.05% by PTM RSA, 21.95% by JOGMEC, 26% by
Mnombo and 15% by Implats, giving the Company total direct and indirect
ownership of 50.02% of the Waterberg Project.
Non-Material Mineral Property Interests
The non-material mineral property interests of the Company
include the War Springs and Tweespalk projects located in South Africa and
various Canadian mineral property interests. These non-material property
interests are not, individually or collectively, material to the Company. All
non-material properties have been written off.
Maseve Sale to Royal Bafokeng Platinum
On September 6, 2017, the Company entered into a term sheet to
sell all rights and interests in Maseve to RBPlat in a transaction valued at
approximately $74.0 million, payable as $62.0 million in cash and $12.0 million
in RBPlat ordinary shares.
Definitive legal agreements for the Maseve Sale Transaction
were executed on November 23, 2017. A deposit in escrow was paid by RBPlat in
the amount of Rand 4,871,335 ($3.0 million equivalent) on October 9, 2017. The
Maseve Sale Transaction occurred in two stages:
|
Pursuant to the terms of the stage one Plant Sale
Transaction, on April 5, 2018, RBPlat completed payments to Maseve for the
Rand equivalent of $58 million to acquire the concentrator plant and
certain surface assets of the Maseve Mine, including an appropriate
allocation for power and water. Proceeds from the Plant Sale Transaction
received by Maseve on April 5, 2018 were remitted to the Companys South
African subsidiary, PTM RSA, in partial settlement of loans due to PTM
RSA, and then remitted by PTM RSA on April 10, 2018 to repay the Sprott
Facility (as defined below) in full and to partially repay the LMM
Facility. After completion of Plant Sale Transaction on April 5, 2018,
Maseve retained ownership of the mining right, underground development and
equipment, power and water rights as well as certain surface rights and
improvements in respect of the Maseve Mine.
|
|
|
|
Pursuant to the stage two Share Transaction, on April 26,
2018, RBPlat released 4.87 million RBPlat Common Shares from escrow to PTM
RSA and Africa Wide, worth approximately $9.0 million at that time. The
required cash payment was made to PTM RSA on May 29, 2018, funded by the
release of Maseves Rand 58 million environmental bond, valued at $4.6
million on May 29, 2018. the Companys 4.52 million RBPlat ordinary shares
received were all held in a broker account at May 31, 2018, pending future
disposition and payment of proceeds to LMM.
|
101
|
Conditions precedent to the Plant Sale Transaction were
fulfilled on February 14, 2018. A deposit amount in escrow of Rand 41.37
million (approximately $3.5 million) (the Deposit) was released to the
Company on March 14, 2018. An amount of Rand 1.29 million ($107,755) from
the release of the Deposit was paid to reduce outstanding indebtedness to
the Sprott Lenders and the balance was used to settle certain outstanding
contractor claims in South Africa.
|
|
|
|
The final Plant Sale Transaction cash payment of Rand
646.74 million (the Final Payment) was received by the Company in South
Africa coincident with the registration of the applicable surface rights
to a wholly owned subsidiary of RBPlat on April 5, 2018. The Rand amount
received was the product of $58 million at a quoted USD to Rand exchange
rate of 11.92 on April 5, 2018 less the Deposit amount in Rand. Upon
receipt of Rand Proceeds of 646.74 million in Canada on April 9, 2018 the
Final Payment was exchanged from Rand into $53.3 million at a rate of
12.1341. Later, on April 10, 2018 the Company received a foreign exchange
rate variance amount of Rand 3.26 million from RBPlat (the FX Amount),
which was exchanged for $270,000 and remitted to LMM.
|
In summary, the Company utilized approximately $46.98 million
from the Final Payment to repay all remaining indebtedness under the Sprott
Facility, consisting of the outstanding principal amount of $40.0 million, the
Bridge Loan of $5.0 million and all accrued and unpaid interest and fees due of
approximately $1.98 million. The Company then paid approximately $6.32 million
from the Final Payment and the $270,000 foreign exchange amount against the LMM
Facility. From stage two proceeds a further $4.6 million was paid against the
LMM Facility. Future proceeds from the planned sale of the Companys RBPlat
ordinary shares received in stage two will also be forwarded as a repayment
against the LMM Facility.
B.
|
Liquidity and Capital
Resources
|
The Company’s working capital is a direct result of the excess of funds
raised from debt, the sale of equity shares and the receipt of payments for sale
of PGE concentrate over expenditures for operating costs, engineering costs,
exploration costs as well as administrative expenses. The working capital
balance at the end of the following periods were: August 31, 2018: $8 million;
August 31, 2017: $13 million; August 31, 2016: $21 million.
Cash and cash equivalents at August 31, 2018 totaled $3.0
million compared to August 31, 2017 $3.4 million and $16.4 million at August 31,
2016. The cash and cash equivalents are attributable primarily to the issue of
debt or share capital. Aside from cash and cash equivalents, the Company had no material
unused sources of liquid assets at August 31, 2018, 2017 or 2016.
As described elsewhere in this Annual Report, various legal,
contractual or economic restrictions may affect the ability of the Companys
subsidiaries to transfer funds to the Company as needed to satisfy the Companys
obligations.
For information on the Companys borrowings as of August 31,
2018, see Item 18 Financial Statements, Note 7.
Except in the case of JOGMECs $20 million funding commitment,
which has now been fully funded, and the potential for the receipt of funding if
Implats exercises its Purchase and Development Option, the exercise of which is
not guaranteed and is not expected to occur prior to the completion of the DFS,
funding of Waterberg Project costs is generally required to be provided by
Waterberg JV Co. shareholders on a pro rata basis. Item 4.A. Recent Developments
November 2017 Implats Transaction. For anticipated Waterberg Project capital expenditures, see Item
4.D. Material Mineral Property Interests Waterberg Project Summary (Excerpted
from the October 2016 Waterberg Report).
102
Going Concern
During the year the Company announced and completed the sale of
the Maseve Mine for initial gross proceeds of $74 million. Stage one of the
Maseve Sale Transaction was closed on April 5, 2018, with stage two closing
April 26, 2018. Also during the period, Implats completed the strategic
acquisition of an 8.6% interest in Waterberg JV Co. from the Company for $17.2
million and the Company completed the sale of 132 million units resulting in
gross proceeds of $19.9 million. As a result of these transactions, the Sprott
facility has been completely paid down and the LMM repayment schedule has been
crystalized. The Company currently has limited financial resources and has no
sources of operating income at present. the Companys ability to continue
operations in the normal course of business will therefore depend upon its
ability to secure additional funding by methods that could include debt
refinancing, equity financing, sale of assets and strategic partnerships.
Management believes the Company will be able to secure further funding as
required. Nonetheless, there exist material uncertainties resulting in
substantial doubt as to the ability of the Company to continue to meet its
obligations as they come due and hence, the ultimate appropriateness of the use
of accounting principles applicable to a going concern.
Equity Financings
On May 26, 2016, the Company announced the closing of the May
2016 Offering for 11,000,000 Common Shares at a price of $3.00 per share
resulting in gross proceeds of $33 million. Net proceeds to the Company after
fees, commissions and costs were approximately $30 million.
On November 1, 2016, the Company announced the closing of the
November 2016 Offering for 22,230,000 Common Shares at a price of $1.80 per
share resulting in gross proceeds of $40 million. Net proceeds to the Company
after fees, commissions and costs were approximately $37 million.
On January 31, 2017, the Company announced the closing of the
January 2017 Offering for 19,693,750 Common Shares at a price of $1.46 per share
resulting in gross proceeds of $29 million. Net proceeds to the Company after
fees, commissions and costs were approximately $26 million.
On April 26, 2017, the Company announced the closing of the
April 2017 Offering for 15,390,000 Common Shares at a price of $1.30 per share,
for aggregate gross proceeds of $20 million. Net proceeds to the Company after
fees, commissions and costs were approximately $18.4 million.
On May 15, 2018, the Company announced the closing of a private
placement with HCI for 15,090,999 units at a price of $0.15 per unit for
aggregate gross proceeds of $2.26 million. Each unit consisted of one common
share and one common share purchase warrant, with each common share purchase
warrant allowing HCI to purchase one further common share of the Company at a
price of US$0.17 per share for a period of 18 months until November 15, 2018.
On May 15, 2018, the Company also announced the closing of a
public offering of 117,453,862 units at a price of $0.15 per unit for aggregate
gross proceeds of approximately $17.62 million. Each unit consisted of one
common share and one common share purchase warrant entitling the holder to
purchase one common share at a price of $0.17 for a term of 18 months until
November 15, 2018.
The following is a reconciliation for the use of proceeds from
the financings described above:
103
Use of Proceeds
(In millions of
dollars)
|
|
Project 1
underground
development and
production rampup
costs(100% basis)
($)
|
|
|
Working
capital
during
start-up
(1)
($)
|
|
|
Repayment
of Second
Advance
(2)
($)
|
|
|
Repayment
towards
the LMM
Facility
($)
|
|
|
General
corporate
purposes
($)
|
|
|
Total
($)
|
|
As Estimated in the October 25, 2016 Prospectus Supplement
|
|
22.00
|
|
|
9.40
|
|
|
5.00
|
|
|
-
|
|
|
0.56
|
|
|
36.96
|
|
As
Estimated in the January 24, 2017 Prospectus Supplement
|
|
8.50
|
|
|
4.00
|
|
|
-
|
|
|
-
|
|
|
13.88
(3)
|
|
|
26.38
|
|
As Estimated in the April 19, 2017 Prospectus Supplement
|
|
11.70
|
|
|
3.50
|
|
|
2.50
|
|
|
-
|
|
|
0.66
|
|
|
18.36
|
|
As
Estimated in the May 15, 2018 Private Placement
|
|
-
|
|
|
-
|
|
|
-
|
|
|
1.06
|
|
|
1.06
|
|
|
2.12
|
|
As Estimated in the May 15, 2018 Prospectus Supplement
|
|
-
|
|
|
-
|
|
|
-
|
|
|
10.94
|
|
|
4.48
|
|
|
15.42
|
|
Aggregate Amount
|
|
42.2
|
|
|
16.9
|
|
|
7.5
|
|
|
12.0
|
|
|
20.64
|
|
|
99.24
|
|
Actual to August 31, 2018
|
|
82.43
|
|
|
8.15
|
|
|
5.0
|
|
|
12.0
|
|
|
2.52
|
|
|
96.22
|
|
Notes
:
(1)
|
May be used for interest payable under the Sprott
Facility, wages and salaries and other estimated general and
administrative costs.
|
(2)
|
The proceeds from the Second Advance were used to fund
underground development and production ramp-up at Project 1. The Sprott
Lenders elected for earlier repayment of one half of the Second Advance
from the proceeds of the November 1, 2016 offering. The balance of the
Second Advance was repaid from the net proceeds of the April 26, 2017
offering.
|
(3)
|
Includes $10.35 million estimated in the January 24, 2017
Prospectus Supplement and the balance of net proceeds from the offering
represented by the over-allotment option, which was exercised in
full.
|
Convertible Senior Subordinated Notes
On June 30, 2017, the Company issued and sold to certain
institutional investors $20 million aggregate principal amount of 6 7/8%
convertible senior subordinated notes due 2022 (the
Notes
). The Notes
bear interest at a rate of 6 7/8% per annum, payable semi-annually on January 1
and July 1 of each year, beginning on January 1, 2018, in cash or at the
election of the Company, in Common Shares of the Company or a combination of
cash and Common Shares, and will mature on July 1, 2022, unless earlier
repurchased, redeemed or converted.
104
Subject to certain exceptions, the Notes are convertible at any time at the option of the holder, and may be settled, at the Company's election, in cash, Common Shares, or a combination of cash and Common Shares. If any Notes are converted on or prior to the three and one-half year anniversary of the issuance date, the holder of the Notes will also be entitled to receive an amount equal to the remaining interest payments on the converted Notes to the three and one-half year anniversary of the issuance date, discounted by 2%, payable in Common Shares. The initial conversion rate of the Notes is 1,001.1112 Common Shares per $1,000 principal amount of Notes, which is equivalent to an initial conversion price of approximately $0.9989 per common share, representing a conversion premium of approximately 15% above the NYSE American closing sale price for the Company’s Common Shares of $0.8686 per share on June 27, 2017. The conversion rate will be subject to adjustment upon the occurrence of certain events. If the Company pays interest in Common Shares, such shares will be issued at a price equal to 92.5% of the simple average of the daily volume-weighted average price of the Common Shares for the 10 consecutive trading days ending on the second trading day immediately preceding the payment date, on the NYSE American exchange or, if the Common Shares are not then listed on the NYSE American exchange, on the principal U.S. national or other securities exchange or market on which the Common Shares are then listed or admitted for trading.
Notwithstanding the foregoing, no holder will be entitled to receive Common Shares upon conversion of Notes to the extent that such receipt would cause the converting holder or persons acting as a “group” to become, directly or indirectly, a “beneficial owner” (as defined in the indenture governing the Notes, dated June 30, 2017 between the Company and The Bank of New York Mellon (the “
Indenture
”)) of more than 19.9% of the Common Shares outstanding at such time or, in the case of a certain note holder, if it or its affiliates would become a “beneficial owner” of more than 4.9% of the Common Shares outstanding at such time. In addition, the Company will not issue an aggregate number of Common Shares pursuant to the Notes that exceeds 19.9% of the total number of Common Shares outstanding on June 30, 2017.
Prior to July 1, 2018, the Company may not redeem the Notes,
except upon the occurrence of certain changes to the laws governing Canadian
withholding taxes. On or after July 1, 2018 and before July 1, 2019, the Company
shall have the right to redeem all or part of the Notes at a price, payable in
cash, of 110.3125% of the principal amount of the Notes to be redeemed, plus
accrued and unpaid interest, if any, to, but excluding, the redemption date; on
or after July 1, 2019 and before July 1, 2020, the Company shall have the right
to redeem all or part of the outstanding Notes at a price, payable in cash, of
105.15625% of the principal amount of the Notes to be redeemed, plus accrued and
unpaid interest, if any, to but excluding, the redemption date; and on or after
July 1, 2010, until the maturity date, the Company shall have the right to
redeem all or part of the outstanding Notes at a price, payable in cash, of 100%
of the principal amount of the Notes to be redeemed, plus accrued and unpaid
interest, if any, to, but excluding, the redemption date.
Upon the occurrence of a fundamental change as defined in the
Indenture, the Company must offer to purchase the outstanding Notes at a price,
payable in cash, equal to 100% of the principal amount of the Notes, plus
accrued and unpaid interest, if any.
The Company agreed in the Indenture to cause a prospectus and a
registration statement to be filed with Canadian securities regulatory
authorities and with the U.S. Securities and Exchange Commission, as applicable,
and become usable and effective within six months after June 30, 2017, and to
remain usable and effective for certain periods. The Indenture provides that if
the Company does not do so, it shall pay additional interest on the Notes at a
rate of 0.25% per annum for the first 90 days and at a rate of 0.50% per annum
thereafter, until the Notes are freely tradable by holders other than affiliates
and certain other events have occurred. The Company does not anticipate filing
the prospectus and registration statement and, accordingly, anticipates paying
additional interest as provided for in the Indenture.
105
The Notes will be unsecured senior subordinated obligations and
will be subordinated in right of payment to the prior payment in full of all of
the Companys existing and future senior indebtedness pursuant to the Indenture.
The Company may issue additional Notes in accordance with the terms and
conditions set forth in the Indenture. The Indenture contains certain additional
covenants, including covenants restricting asset dispositions, issuances of
capital stock by subsidiaries, incurrence of indebtedness, business combinations
and share exchanges.
Sprott Facility
On February 13, 2015, the Company announced it had entered into
a credit agreement with the Sprott Lenders led by Sprott for the Sprott Facility
of $40 million. The Sprott Facility was drawn on November 20, 2015. During the
year, a third advance of $5 million was made to the Company, then repaid by the
Company then a fourth advance of $5 million was also made to the Company. All
fees directly attributable to the Sprott loan were capitalized against the loan
balance over the life of the loan and amortized using the effective interest
method. The Sprott Facility was amended, or amended and restated, on November
19, 2015, May 3, 2016, September 19, 2016, October 11, 2016, January 13, 2017,
April 13, 2017, June 13, 2017, September 25, 2017, December 21, 2017, February
12, 2018 and March 8, 2018. All advances, interest owing and principal amounts
owing to Sprott were repaid during the current period ($47.1 million) and at
August 31, 2018 the Sprott Facility had no further payments due.
LMM Facility
On November 20, 2015, the Company also drew down $40 million
from the LMM Facility, pursuant to the LMM credit agreement entered into on
November 2, 2015, which was later amended, or amended and restated, as
applicable on May 3, 2016, September 19, 2016, January 13, 2017, April 13, 2017,
June 13, 2017, June 23, 2017, October 30, 2017, May 1, 2018, May 11, 2018,
August 21, 2018 and October 18, 2018 with LMM.
The interest rate on the LMM Facility is LIBOR plus 9.5% .
During the year the Company forwarded to Liberty payments totalling $23.1
million. These payments completely paid down the production payment termination
accrual of $15 million and the production payments owing of $0.4 million under
the Production Payment Agreement with LMM (the
PPA
), and the PPA is now
terminated. The remaining $7.7 million was then applied against the loan and
accrued interest owing. At August 31, 2018 the Company owed Liberty $46.5
million. No further payments are due on the Liberty facility until October 31,
2019 and certain covenants relating to cash balances, working capital and cash
sweeps have been waived until January 31, 2019.
Current Terms of the Liberty Loan
There have been a number of modifications to the LMM Facility.
At August 31, 2018, only the loan facility remains to be repaid. On May 11, 2018
the Company announced the following loan amendments whereby the Company must:
|
Raise a minimum of US$15 million in financings of
subordinated debt, Common Shares and/or securities convertible into Common
Shares (the
Required Financing
) before May 31, 2018. This was
satisfied with by the completion of both a private placement and a public
offering of Common Shares on May 15, 2018 for combined gross proceeds of US$19.88
million.
|
106
|
Apply the first US$12 million of gross proceeds from the
Required Financing to reduce indebtedness under the LMM Facility before
May 31, 2018. This was satisfied with proceeds from the May 15, 2018 unit
financing
|
|
|
|
Not otherwise be in default under the LMM Facility. The
Company was not in default of any covenants on the LMM Facility at August
31, 2018. LMM has a first priority lien on: (i) the issued shares of PTM
RSA held by the Company (and such other claims and rights described in the
applicable pledge agreement); (ii) all present and after-acquired personal
property of the Company; and (iii) the shares held by PTM RSA in Waterberg
JV Co. The LMM Facility is also guaranteed by PTM RSA.
|
On August 21, 2018 the LMM Facility was modified to allow the
Company until December 14, 2018 to sell its holdings of RBPlat Common Shares and
apply the net proceeds to reduce indebtedness under the LMM Facility. The
Company may or may not request a further extension of this sale requirement from
LMM.
On October 18, 2018 the LMM Facility was modified provide a
waiver allowing the Company to complete an equity financing of up to $6.0
million by way of a private placement issuance before November 30, 2018, without
LMM exercising its right to receive and apply 50% of the net proceeds of such
offering to reduce indebtedness under the LMM Facility. Later, on November 28,
2018 this waiver was extended to December 31, 2018 and was also amended so that
the allowable equity financing limit of up to $6.0 million as described above
could include the exercise of Private Placement Warrants and Offering Warrants .
Accounts Receivable and Payable
Accounts receivable at August 31, 2018, totaled $0.9 million
(August 31, 2017 - $2.1 million) being comprised mainly of South African value
added taxes refundable receivable in the current period. Accounts payable and
accrued liabilities at August 31, 2018, totaled $2.9 million ($16.4 million at
August 31, 2017) the majority of the previous years payables being related to
care and maintenance costs at the Maseve mine.
Accounts receivable at August 31, 2017, totaled $2.1 million
(August 31, 2016 - $6.1 million) being comprised mainly of pre-production
proceeds of $1.6 million in the current period ($2.8 million at August 31, 2016)
and value added taxes refundable in South Africa of $2.6 million ($1.8 million
at August 31, 2016). Accounts payable and accrued liabilities at August 31,
2017, totaled $16.4 million ($16.9 million at August 31, 2016).
C.
|
Research and Development, Patents and Licences,
etc.
|
We do not engage in research and development activities.
the Companys key business objective is to advance the
Waterberg Project to completion of a DFS and a construction decision. Under the
terms of the Implats Transaction a DFS budget of $10.0 million has been
established by Waterberg JV Co. and the Company has set aside an amount of $5.0
million from its proceeds of the Initial Purchase toward its share of DFS costs.
Drilling to increase the confidence in certain areas of the known mineral
resource to the measured category is underway. Engagement with utilities for the
delivery of bulk services is in process. Engineering work on the Waterberg
Project includes resource modelling, metallurgical work, optimization of the
metallurgical flow sheet using South African and Japanese expertise, bulk
services design and mechanized mine planning. Optimization of the mine plan and
working on reducing underground sustaining development capital will be part of
the upcoming DFS.
107
On October 10, 2018 the Company announced that a recently filed
mining right application for the Waterberg Project had been accepted by the DMR
for consideration. The mining right application consisted of a mining work
program, social and labour plan and associated environmental applications. The
mining right application was supported by the Company and all of the Waterberg
joint venture partners including Implats, JOGMEC and Mnombo. The process of
consultation under the MPRDA and applicable environmental assessment regulations
for the mining right application has commenced.
The Company has been actively engaged with shareholders to
explain the new focus on the Waterberg Project and the Companys immediate and
medium term plans. Market interest in palladium has recently been increasing.
The Company believes that the transaction with Implats provides an endorsement
of the Waterberg Project and a mine to market roadmap.
Factors which may have a material effect on the Company’s net sales or
revenues, income from continuing operations, profitability, liquidity or capital
resources, or that would cause reported financial information not necessarily to
be indicative of future operating results or financial condition are set forth
in Item 3.D.- Risk Factors.
E.
|
Off-Balance Sheet
Arrangements
|
There are no off-balance sheet arrangements that have or are
reasonably likely to have a current or future effect on the Company’s financial condition,
changes in financial condition, revenues or expenses, results of operations,
liquidity, capital expenditures or capital resources that is material to
investors.
F.
|
Tabular Disclosure of Contractual
Obligations
|
The following table discloses the Company’s contractual obligations at
August 31, 2018 for loan indebtedness, services, optional mineral property
acquisition payments, optional exploration work and committed lease obligations
for office rent and equipment.
Contractual Obligations
|
|
|
|
|
Payments due by period
|
|
|
|
|
|
|
|
|
|
(in thousands
of dollars)
|
|
|
|
|
|
|
< 1 Year
|
|
|
1-3 Years
|
|
|
3-5 Years
|
|
|
> 5 Years
|
|
|
Total
|
|
Lease obligations
|
$
|
485
|
|
$
|
403
|
|
$
|
-
|
|
$
|
-
|
|
$
|
888
|
|
Contractor payments
|
|
3,552
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
3,552
|
|
Convertible Note
|
|
1,474
|
|
|
2,949
|
|
|
21,464
|
|
|
-
|
|
|
25,887
|
|
LMM
Facility
|
|
-
|
|
|
54,746
|
|
|
-
|
|
|
-
|
|
|
54,746
|
|
Totals
|
$
|
5,511
|
|
$
|
58,908
|
|
|
21,464
|
|
$
|
-
|
|
$
|
85,073
|
|
108
ITEM 6.
|
DIRECTORS, SENIOR MANAGEMENT AND
EMPLOYEES
|
A.
|
Directors and Senior
Management
|
The following table sets forth the Companys current directors and
executive officers, with each position and office held by them. As of the date
of filing of this Annual Report, directors and executive officers of the
Company, as a group, beneficially own, control or direct, directly or
indirectly, approximately 721,488 Common Shares representing approximately 0.25%
of the Companys issued and outstanding Common Shares.
The term of office for each director of the Company expires at
the annual general meeting of shareholders where they can be nominated for
re-election.
Name and Place
of
Residence
|
Position
|
Age
|
Date First Elected
or
Appointed
|
R.
MICHAEL JONES
British Columbia, Canada
|
President, Chief Executive Officer and Director
|
55
|
February 18, 2002
|
FRANK HALLAM
British Columbia, Canada
|
Chief Financial Officer, Corporate Secretary and Director
|
58
|
February 18, 2002
|
IAIN
McLEAN
(1)(2)(3)
British Columbia, Canada
|
Director (Chairman of the Board)
|
63
|
February 18, 2002
|
TIMOTHY MARLOW
(1)(2)(3)
British Columbia, Canada
|
Director
|
74
|
June 15, 2011
|
DIANA WALTERS
(1)(2)(3)
North Salem, New York,
USA
|
Director
|
55
|
July 16, 2013
|
JOHN
A. COPELYN
Cape Town, South Africa
|
Director
|
68
|
May 15, 2018
|
Notes:
(1)
|
Member of the Audit Committee
|
(2)
|
Member of the Compensation Committee
|
(3)
|
Member of the Governance and Nomination
Committee
|
R. Michael Jones
Mr. Jones has over twenty five years of experience as a
professional geological engineer and has been involved with the raising of over
$1 billion for exploration, mining development and production. In addition to
co-founding Platinum Group Metals Ltd., Mr. Jones was a founder of Glimmer
Resources Inc. and was responsible for the discovery of the Glimmer Gold mine,
now Blackfox, in Ontario. During a six-year tenure as President of Cathedral
Gold Corp., Mr. Jones ran a producing gold mining company and was involved in
the review of a feasibility study and financing for the $1 billion Diavik Mine
project during two years as Vice President with Aber Resources. Mr. Jones was a
co-founder and director of West Timmins Mining that was purchased by producing
company Lake Shore Gold Corp. in 2009 and was a co-founder and former director
until 2012 of MAG Silver Corp. Mr. Jones is a Director, President and Chief
Executive Officer of West Kirkland Mining Inc. and a director of Nextraction
Energy Corp. Mr. Jones served on the Securities Policy Advisory Committee of the
British Columbia Securities Commission for six years and holds a B.A.Sc. in
geological engineering from the University of Toronto.
109
Frank Hallam
Mr. Hallam was the original founder of New Millennium Metals
Corp, a predecessor company to Platinum Group Metals Ltd. Mr. Hallam has
extensive operating and financial experience at the senior management level with
several TSX and NYSE listed resource companies and has over twenty years of
experience working in East and South Africa. In his role as CFO and Director
with Tan Range Exploration he set up and administered exploration offices in
Tanzania, Ethiopia and Eritrea, among others. Mr. Hallam has been involved in
raising over $1 billion for exploration, mining development and production and
has been involved in negotiating and managing property deals with Anglo Platinum
Ltd., Barrick Gold Corporation, Johannesburg Consolidated Investments and
Newmont Mining Corporation. Mr. Hallam was a co-founder and director of West
Timmins Mining that was purchased by producing company Lake Shore Gold Corp. in
2009, where he served as a director until April 2016. Mr. Hallam was a
co-founder and former director until 2014 of MAG Silver Corp. Mr. Hallam also
serves as CFO, Corporate Secretary & Director of West Kirkland Mining Inc.
and is a director of Nextraction Energy Corp. Mr. Hallam previously served as an
auditor in the mining practice of Coopers and Lybrand. He is a chartered
accountant and has a degree in business administration from Simon Fraser
University.
Iain McLean
Mr. McLean is experienced in mine operations and senior
management positions in technology companies. Mr. McLeans past roles include
Chief Operating Officer of MineSense Technologies from August 2014 to September
2015; and Vice President for Gemcom Software International/Dassault Systemes
GEOVIA from June 2010 to July 2014. Mr. McLean holds a degree in mining
engineering from the Royal School of Mines, a Degree in Archaeology from the
University of Leicester and a Masters Degree in Egyptology from Cambridge
University. Mr. McLean also holds an M.B.A. from Harvard Business School.
Timothy Marlow
Mr. Marlow has over thirty years of mining engineering and mine
operating experience in North America, South America, Africa and Asia. His
mining and project experience spans the world and he has specific African
experience in Ghana and Zambia. Mr. Marlow is President of Marlow &
Associates since 1995 and was President of Philippine Gold Consulting LLC from
1995 2014. Mr. Marlow is a graduate of the Camborne School of Mines and is
registered as a C.Eng, Registered Charter Engineer in the UK. He is a member of
the Institute of Mining and Metallurgy UK and a Qualified Person as defined by
NI-43-101 for mining.
Diana Walters
Ms. Walters has over twenty-eight years of experience in the
Natural Resources sector, both as an investment banker and in operating roles.
She is the former President and CEO of Liberty Metals & Mining, LLC and was
a Managing Partner of Eland Capital, LLC, a Natural Resources advisory firm. Ms.
Walters has extensive investment experience with both debt and equity through
leadership roles at Credit Suisse, HSBC and other firms. Ms. Walters graduated
with honors from the University of Texas at Austin with a BA in Plan II Liberal
Arts and an MA in Energy and Mineral Resources.
John A. Copelyn
Mr. Copelyn has been CEO of Hosken Consolidated Investments
Limited since joining in 1997. Prior to this, he was a member of the South
African parliament and general secretary of the Southern African Clothing and
Textile Workers Union. Mr. Copelyn is also Chairman of E Media Holdings Ltd., a
JSE listed company that comprises some of the leading media companies in South
Africa, Tsogo Sun Holdings Ltd., which owns and operates hotels and casinos and
is listed on the JSE, Deneb Investments Ltd., an investment holding company with interests in textile
manufacturing and property investments and Niveus Investments Ltd., an
investment holding company.
110
There are no family relationship between any of the persons
named above. Furthermore, there are no arrangements or understandings with major
shareholders, customers, suppliers or others, pursuant to which any of the
persons named above were selected as a director or member of senior management.
Corporate Cease Trade Orders, Bankruptcies, Penalties or
Sanctions
Except as disclosed below, no director or executive officer of
the Company (or any of their personal holding companies) is, or during the ten
years preceding the date of filing of this Annual Report has been, a director,
chief executive officer or chief financial officer of any company, including the
Company, that was subject to a cease trade order, an order similar to a cease
trade order, or an order that denied the relevant company access to any
exemption under securities legislation that was in effect for a period of more
than 30 consecutive days:
(a)
|
that was issued while the director or executive officer
was acting in the capacity as director, chief executive officer or chief
financial order; or
|
|
|
(b)
|
that was issued after the director or executive officer
ceased to be a director, chief executive officer or chief financial
officer and which resulted from an event that occurred while that person
was acting in the capacity as director, chief executive officer or chief
financial officer;
|
Mr. Jones and Mr. Hallam are directors of NE, which is
currently the subject of a Cease Trade Order of the BCSC issued on May 8, 2015
for failing to file a comparative financial statement for its financial year
ended December 31, 2014 and a Form 51-102F1 Managements Discussion and Analysis
for the period ended December 31, 2014 (the
Required Records
). NE is
working to can complete the Required Records.
No director or executive officer of the Company, or a
shareholder holding a sufficient number of securities of the Company to affect
materially the control of the Company, (or any of their personal holding
companies):
(a)
|
is, as at the date of filing of this Annual Report or
during the ten years preceding the date of filing of this Annual Report
has been, a director or executive officer, of any company, including the
Company, that while the director or executive officer was acting in that
capacity or within a year of that person ceasing to act in that capacity,
became bankrupt, made a proposal under any legislation relating to
bankruptcy or insolvency or was subject to or instituted any proceedings,
arrangement, or compromise with creditors, or had a receiver, receiver
manager, or trustee appointed to hold its assets; or
|
|
|
(b)
|
has, within the ten years before the date of this Annual
Report, become bankrupt, made a proposal under any legislation relating to
bankruptcy or insolvency, or become subject to or instituted any
proceedings, arrangement or compromise with creditors, or had a receiver,
receiver manager or trustee appointed to hold the assets of that director
or executive officer.
|
No director or executive officer of the Company, or a
shareholder holding a sufficient number of securities of the Company to affect
materially the control of the Company, (or any of their personal holding
companies) has been subject to:
111
(a)
|
any penalties or sanctions imposed by a court relating to
securities legislation or by a securities regulatory authority or has
entered into a settlement agreement with a securities regulatory
authority; or
|
|
|
(b)
|
any other penalties or sanctions imposed by a court or
regulatory body which would likely be considered important to a reasonable
investor in making an investment decision.
|
Promoters
No individuals acted as promoters of the Company within the two
most recently completed financial years or during the current financial year.
The following table sets forth all compensation paid or accrued
by the Company to its directors and members of its administrative, supervisory
or management bodies for the year ended August 31, 2018.
|
|
|
|
|
Long Term Compensation
|
|
|
|
|
|
|
Awards
(1)
|
Payouts
|
|
|
|
|
|
|
Securities
|
Restricted
|
|
|
|
|
Annual
|
|
Under
|
Shares /
|
|
|
|
|
Compensation
|
Other Annual
|
SARs
|
Units
|
|
All Other
|
Name and
|
|
Salary
|
Bonus
|
Compensation
|
Granted
|
Awarded
|
LTIP
|
Compensation
|
Principal Position
|
Year
|
($)
|
($)
|
($)
|
(#)
|
($)
|
($)
|
($)
|
R.
Michael Jones
President, CEO and Director
|
2018
|
411,248
|
Nil
|
Nil
|
Nil
|
Nil
|
Nil
|
Nil
|
Frank Hallam
CFO, Corp. Sec. and Director
|
2018
|
372,082
|
Nil
|
Nil
|
Nil
|
Nil
|
Nil
|
Nil
|
Iain
McLean
Chairman and Director
|
2018
|
N/A
|
Nil
|
52,929
|
Nil
|
Nil
|
Nil
|
Nil
|
Timothy Marlow
Director
|
2018
|
N/A
|
Nil
|
37,317
|
Nil
|
Nil
|
Nil
|
Nil
|
Diana Walters
Director
|
2018
|
N/A
|
Nil
|
37,317
|
Nil
|
Nil
|
Nil
|
Nil
|
John
A. Copelyn
(2
Director
|
2018
|
N/A
|
Nil
|
5,325
|
Nil
|
Nil
|
Nil
|
Nil
|
Note
:
(1)
|
For additional details, see Item 6.E Share
Ownership.
|
(2)
|
Fees paid to HCI.
|
During the year ended August 31, 2018, no amounts were set
aside for the foregoing persons to provide pension, retirement or similar
benefits.
The board of directors has determined the number of directors
at six and currently consists of six directors. Each director was elected at the
Company’s annual general meeting of stockholders held on February 23, 2018 other than
Mr. Copelyn who was appointed on May 15, 2018 pursuant to the Articles of the
Company whereby the directors may appoint one or more additional directors to
serve until the next annual general meeting of shareholders of the Company.
112
Each director elected will hold office until the next annual
general meeting of the Company or until his or her successor is elected or
appointed, unless his or her office is earlier vacated in accordance with the
Articles of the Company or the provisions of the BCBCA. See Directors and Senior
Management for the dates on which its current directors were first elected or
appointed.
On January 13, 2015, the Board adopted a majority voting policy
(the
Policy
), as amended on February 18, 2015. The Policy requires that
any nominee for director who receives a greater number of votes withheld than
votes for his or her election will be required to tender an offer to resign (a
Resignation Offer
). The Policy applies only to uncontested elections,
which are elections of directors where the number of nominees for election as
director is equal to the number of directors to be elected at such meeting.
Following a tender of a Resignation Offer, the Governance and Nomination
Committee will consider the Resignation Offer and will recommend to the Board
whether or not to accept or reject the Resignation Offer or to propose
alternative actions. The Governance and Nomination Committee will be expected to
recommend accepting the Resignation Offer, except in situations where
extraordinary circumstances would warrant the applicable director to continue to
serve on the Board. Within 90 days following the applicable annual general
meeting, the Board will make a determination of the action to take with respect
to the Resignation Offer and will promptly disclose by news release its decision
to accept or reject the directors Resignation Offer or to propose alternative
actions as referenced in the Policy. If the Board has decided to reject the
Resignation Offer or to pursue any alternative action other than accepting the
Resignation Offer, then the Board will disclose in the news release its reasons
for doing so. The applicable director will not participate in either the
Governance and Nomination Committee or Board deliberations on his or her
Resignation Offer.
We have not entered into contracts providing for benefits to
the directors upon termination of office, other than as described below.
Agreements with Executive Officers
The Company has the following plans or arrangements in respect
of remuneration that may be received by the Companys executive officers that
are also directors of the Company in respect of compensating such officer in the
event of termination of employment (as a result of resignation, change of
control or change of responsibilities).
Pursuant to the employment agreements, each of R. Michael Jones
and Frank R. Hallam (hereinafter referred to as
Jones
and
Hallam
,
respectively; each an
Officer
and together, the
Officers
) may
resign by giving 90 days written notice and thereafter be entitled to his
annual salary earned to the date of cessation, together with any outstanding
earned but untaken vacation pay, reimbursement of any final expenses and all
bonuses earned in respect of any period before the date of cessation
(collectively, the
Final Wages
).
If an Officer is terminated without cause or resigns for good
cause (as defined below), the Company will pay the Officer:
(a)
|
the Final Wages; and
|
|
|
(b)
|
an additional amount equal to 24 months (for Jones and
Hallam) of the Officers annual salary (the
Severance Period
),
and
|
the Officers current benefits will continue until the earlier
of the end of the Severance Period and receipt of similar benefits through other
employment.
113
In the case of either a termination or resignation for good
cause following a Change of Control (as defined below), the Company will pay
severance as follows (the
COC Severance
):
(a)
|
the Final Wages;
|
|
|
(b)
|
an additional amount equivalent to 24 months annual
salary (the
COC Severance Period
);
|
|
|
(c)
|
an additional lump sum equal to the sum of the amounts
paid as bonuses to the Officer in respect of the completed three bonus
years preceding the date of termination divided by 36 (the
Average
Monthly Bonus
) multiplied by the number of completed months in the
current bonus year through to the termination date; and
|
|
|
(d)
|
an additional lump sum equal to the Average Monthly Bonus
multiplied by the number of months in the COC Severance Period,
and
|
the Officers' current benefits will continue until the earlier
of the end of the COC Severance Period and the Officers receipt of similar
benefits through other employment.
In addition, each Officer shall have a special right to resign
on one months written notice, delivered within 60 days following a Change of
Control, in which case the Officer will be entitled to receive the COC
Severance.
Upon a Change of Control, any non-vested options held by the
Officer will be deemed vested on a Change of Control. Where the Change of
Control is a transaction in which the shares of the Company are to be purchased
or otherwise exchanged or acquired, such vesting shall take place so as to
permit the Officer, at his election to participate in the transaction in respect
of any such non-vested option shares, provided that if, for any reason such
Change of Control transaction does not complete, the options shall revert to
their original terms, including as to vesting and all options the vesting of
which is accelerated pursuant to the foregoing shall remain open for exercise
until the earlier of their expiry date or one year from the Change of Control.
Change of Control
means:
(a)
|
the acquisition, beneficially, directly or indirectly, by
any person or group of persons acting jointly or in concert, within the
meaning of Multilateral Instrument 62-104
Takeover Bids and Issuer Bids
(or any successor instrument thereto), of Common Shares of the Company
which, when added to all other Common Shares of the Company at the time
held beneficially, directly or indirectly by such person or persons acting
jointly or in concert, totals for the first time more than 50% of the
outstanding Common Shares of the Company; or
|
|
|
(b)
|
the removal, by extraordinary resolution of the
shareholders of the Company, of more than 51% of the then incumbent
directors of the Company, or the election of a majority of directors to
the Companys Board who were not nominees of the Companys incumbent Board
at the time immediately preceding such election; or
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(c)
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the consummation of a sale of all or substantially all of
the assets of the Company, or the consummation of a reorganization, merger
or other transaction which has substantially the same effect;
or
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114
(d)
|
a merger, consolidation, plan of arrangement or
reorganization of the Company that results in the beneficial, direct or
indirect transfer of more than 50% of the total voting power of the
resulting entitys outstanding securities to a person, or group of persons
acting jointly and in concert, who are different from the person that
have, beneficially, directly or indirectly, more than 50% of the total
voting power prior to such transaction.
|
good cause
means the occurrence of one of the following
events without the Officers written consent:
(a)
|
upon the material breach of any material term of the
Employment Agreement by the Company if such breach or default has not been
remedied to the reasonable satisfaction of the Officer within 30 days
after written notice of the breach of default has been delivered by the
Officer to the Company; or
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(b)
|
a material reduction in the Officers responsibilities,
title or reporting, except as a result of the Officers disability;
or
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(c)
|
any reduction by the Company in the Officers then
current annual salary; or
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(d)
|
relocation of the Officers principal office location by
more than 25 kilometers
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Deferred Share Unit Plan
The Deferred Share Unit Plan (the
DSU Plan
) permits
directors who are not salaried officers or employees of the Company or a related
corporation (referred to as
Eligible Directors
) to convert into DSUs the
fees that would otherwise be payable by the Company to them relating to future
services for their participation on the Board and on committees of the Board,
including all annual retainers and amounts that would be payable for serving as
the Chair of the Board and/or as a chair of a committee of the Board (excluding
any reimbursement of expenses) (the
Board Fees
). Only Eligible Directors
are permitted to participate in the DSU Plan. The DSU Plan is administered by
the Board or such other persons as may be designated by the Board from time to
time, through the recommendation of the Compensation Committee (the
DSUP
Administrators
).
With respect to the conversion of Board Fees into DSUs, each
Eligible Director may, under the DSU Plan, elect to convert a minimum of 20% up
to a maximum of 100%, in 10% increments, of his or her future Board Fees for the
relevant period into DSUs in
lieu
of being paid such fees in cash. On the
date on which the relevant Board Fees are payable, the number of DSUs to be
credited to a participating Eligible Director (a
DSU
Participant
)
will be determined by dividing an amount equal to the designated percentage of
the Board Fees that the DSU Participant has elected to have credited in DSUs on
that fee payment date, by the market value of a Common Share on that fee payment
date. Eligible Directors are entitled to make an election under the DSU Plan in
respect of the period from January 1 through December 31 no later than December
31 of the prior year. Newly elected Eligible Directors will have 30 days from
the date of his/her appointment to make an election in respect of the remainder
of such calendar year. All such elections will be irrevocable in respect of such
period.
If a DSU Participant becomes a salaried officer or an employee
of the Company or a related corporation, such DSU Participant shall thereupon be
suspended from further participation in the DSU Plan in the manner set out in
the DSU Plan.
The DSUP Administrators may also, in their sole discretion from
time to time, award DSUs to one or more Eligible Directors for the purposes of
providing additional equity related remuneration to such Eligible Directors in respect of future services as an Eligible
Director. With respect to the award of such DSUs, the DSUP Administrators will
determine when DSUs will be awarded, the number of DSUs to be awarded, the
vesting criteria for each award of DSUs, if any, and all other terms and
conditions of each award. Unless the DSUP Administrators determine otherwise,
such DSUs will be subject to a vesting schedule whereby they will become vested
in equal instalments over three years with one-third vesting on the first
anniversary of the award and one-third vesting on each of the subsequent
anniversaries of the award. The DSUP Administrators may consider alternatives
for vesting criteria related to the Companys performance and have the
flexibility under the DSU Plan to apply such vesting criteria to particular
awards of DSUs. The DSU Plan also provides that: (a) where the Termination of
Board Service (as defined below) of a DSU Participant (or termination of service
as a salaried officer or employee, if applicable) occurs as a result of the DSU
Participants death, all unvested DSUs of that DSU Participant will vest
effective on the date of death; and (b) if there is a change of control (as such
term is defined in the DSU Plan), all unvested DSUs will vest immediately prior
to such change of control.
115
If cash dividends are paid by the Company on the Common Shares,
a DSU Participant will also be credited with dividend equivalents in the form of
additional DSUs based on the number of vested DSUs the DSU Participant holds on
the record date for the payment of such dividend.
Canadian DSU Participants are not entitled to redeem any DSUs
(regardless of their vested status) until after the DSU Participant ceases to be
a member of the Board by way of retirement, non-re-election as a director,
resignation, incapacity or death (each, a
Termination of Board Service
),
or termination of service as a salaried officer or employee, if applicable.
Except with respect to U.S. Eligible Directors (defined below)
a DSU Participant (or the DSU Participants legal representative, as the case
may be) will be permitted to redeem his or her vested DSUs no earlier than
following Termination of Board Service (and termination of service as a salaried
officer or employee, if applicable) by giving written notice to the Company to
redeem on one or more dates specified by the DSU Participant (or the DSU
Participants legal representative, as the case may be), which dates shall not,
in any event, be earlier than the tenth day following the release of the
Companys quarterly or annual financial results immediately following such
termination, or later than December 1 of the first calendar year commencing
after the time of such termination. The DSUs of an Eligible Director who is a
citizen or resident of the United States, as defined in the United States
Internal Revenue Code of 1986, as amended (the
Code
), and any other
Eligible Director who is subject to tax under the Code with respect to DSUs
granted pursuant to the DSU Plan (each, a
U.S. Eligible Director
) will be
redeemed during the calendar year following the year in which the U.S. Eligible
Director experiences a separation from service (as defined in the Code) on a
date selected by the Company. Upon redemption of DSUs, the Company will pay to
the DSU Participant (or the DSU Participants legal representative, as the case
may be) a lump sum cash payment equal to the number of DSUs to be redeemed
multiplied by the market value of a Common Share on the redemption date, net of
any applicable deductions and withholdings. The DSU Plan does not entitle any
DSU Participant to acquire Common Shares in connection with the redemption of
vested DSUs under the DSU Plan.
The DSU Plan also contains provisions that apply to DSU
Participants who are subject to tax in both the United States and Canada. For
such DSU Participants, in limited circumstances specified in the DSU Plan where
there is a conflict in the requirements of U.S. tax laws and Canadian tax laws,
the relevant DSUs will be forfeited.
116
Audit Committee
The Audit Committees Charter
The following is the text of the Audit Committees charter:
AUDIT COMMITTEE CHARTER
PLATINUM GROUP METALS LTD.
(the
Corporation)
1.
General
The Board of Directors of the Corporation (the Board) has
established an Audit Committee (the Committee) to assist the Board in
fulfilling its oversight responsibilities. The Committee will review and oversee
the financial reporting and accounting process of the Corporation, the system of
internal control and management of financial risks, the external audit process,
and the Corporations process for monitoring compliance with laws and
regulations and its own code of business conduct. In performing its duties, the
Committee will maintain effective working relationships with the Board,
management, and the external auditors and monitor the independence of those
auditors. To perform his or her role effectively, each Committee member will
obtain an understanding of the responsibilities of Committee membership as well
as the Corporations business, operations and risks.
The Corporations independent auditor is ultimately accountable
to the Board and to the Committee. The Board and Committee, as representatives
of the Corporations shareholders, have the ultimate authority and
responsibility to evaluate the independent auditor, to nominate annually the
independent auditor to be proposed for shareholder approval, to determine
appropriate compensation for the independent auditor, and where appropriate, to
replace the outside auditor. In the course of fulfilling its specific
responsibilities hereunder, the Committee must maintain free and open
communication between the Corporations independent auditors, Board and
Corporation management. The responsibilities of a member of the Committee are in
addition to such members duties as a member of the Board.
2.
Members
The Board will in each year appoint a minimum of three (3)
directors as members of the Committee. All members of the Committee shall be
non-management directors and shall be independent within the meaning of all
applicable U.S. and Canadian securities laws and the rules of the Toronto Stock
Exchange and the NYSE MKT (collectively, the Applicable Regulations), unless
otherwise exempt under the Applicable Regulations.
None of the members of the Committee may have participated in
the preparation of the financial statements of the Corporation or any current
subsidiary of the Corporation at any time during the past three years.
All members of the Committee shall be able to read and
understand fundamental financial statements and must be able to read and
understand fundamental financial standards and satisfy all applicable financial
literacy requirements of the Applicable Regulations. Additionally, at least one
member of the Committee shall: (a) be financially sophisticated, in that he or
she shall have past employment experience in finance or accounting, requisite
professional certification in accounting, or any other comparable experience or
background which results in the individuals financial sophistication, which may
include being or having been a chief executive officer, chief financial officer,
or other senior officer with financial oversight responsibilities; and (b) be an audit committee
financial expert within the meaning of U.S. federal securities laws.
117
3. Duties
The Committee will have the following duties:
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Gain an understanding of whether internal control
recommendations made by external auditors have been implemented by
management.
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Gain an understanding of the current areas of greatest
financial risk and whether management is managing these effectively.
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Review significant accounting and reporting issues,
including recent professional and regulatory pronouncements, and
understand their impact on the financial statements.
|
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Review any legal matters which could significantly impact
the financial statements as reported on by the Corporations counsel and
engage outside independent counsel and other advisors whenever as deemed
necessary by the Committee to carry out its duties.
|
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Review the Corporations annual and quarterly financial
statements, including Managements Discussion and Analysis with respect
thereto, and all annual and interim earnings press releases, prior to
public dissemination, including any certification, report, opinion or
review rendered by the external auditors and determine whether they are
complete and consistent with the information known to Committee members;
determine that the auditors are satisfied that the financial statements
have been prepared in accordance with generally accepted accounting
principles.
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Pay particular attention to complex and/or unusual
transactions such as those involving derivative instruments and consider
the adequacy of disclosure thereof.
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Focus on judgmental areas, for example those involving
valuation of assets and liabilities and other commitments and
contingencies.
|
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Review audit issues related to the Corporations material
associated and affiliated companies that may have a significant impact on
the Corporations equity investment.
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Meet with management and the external auditors to review
the annual financial statements and the results of the audit.
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Evaluate the fairness of the interim financial statements
and related disclosures including the associated Managements Discussion
and Analysis, and obtain explanations from management on whether:
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actual financial results for the interim period varied
significantly from budgeted or projected results;
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generally accepted accounting principles have been
consistently applied;
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there are any actual or proposed changes in accounting or
financial reporting practices; or
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there are any significant or unusual events or
transactions which require disclosure and, if so, consider the adequacy of
that disclosure.
|
118
|
Review the external auditors proposed audit scope and
approach and ensure no unjustifiable restriction or limitations have been
placed on the scope.
|
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Recommend to the Board an external auditor to be
nominated for appointment by the Corporations shareholders. Subject to
the appointment of the Corporations external auditor by the Corporations
shareholders, the Committee will be directly responsible for the
appointment, compensation, retention and oversight of the work of external
auditor engaged for the purpose of preparing or issuing an auditors
report or performing other audit, review or attest services for the
Corporation, including the resolution of disagreements between management
and the external auditor regarding financial reporting. The Corporations
external auditor shall report directly to the Committee.
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Review with the Corporations management, on a regular
basis, the performance of the external auditors, the terms of the external
auditors engagement, accountability and experience.
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Pre-approve all non-audit services and tax services to be
provided to the Corporation or its subsidiary entities by the external
auditor, or other registered accounting firm.
|
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Consider at least annually the independence of the
external auditors, including reviewing the range of services provided in
the context of all consulting services obtained by the Corporation,
including:
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insuring receipt from the independent auditor of a formal
written statement delineating all relationships between the independent
auditor and the Company, consistent with the Independence Standards Board
Standard No. 1 and related Canadian regulatory body standards;
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considering and discussing with the independent auditor
any relationships or services, including non-audit services, that may
impact the objectivity and independence of the independent auditor; and
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as necessary, taking, or recommending that the Board
take, appropriate action to oversee the independence of the independent
auditor.
|
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Ensure that adequate procedures are in place for the
review of the Corporations public disclosure of financial information
extracted or derived from the Corporations financial statements, other
than the public disclosure contained in the Corporations financial
statements, Managements Discussion and Analysis and annual and interim
earnings press releases; and must periodically assess the adequacy of
those procedures.
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Review any significant disagreement among management and
the external auditors in connection with the preparation of the financial
statements.
|
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Review and approve the Corporations hiring policies
regarding partners, employees and former partners and employees of the
present and former external auditors of the Corporation.
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Establish a procedure for:
|
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the confidential, anonymous submission by employees of
the Corporation of concerns regarding questionable accounting or auditing
matters; and
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the receipt, retention and treatment of complaints
received by the Corporation regarding accounting, internal accounting
controls, or auditing matters.
|
119
|
Meet separately with the external auditors to discuss any
matters that the committee or auditors believe should be discussed
privately in the absence of management.
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Endeavour to cause the receipt and discussion on a timely
basis of any significant findings and recommendations made by the external
auditors.
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Ensure that the Board is aware of matters which may
significantly impact the financial condition or affairs of the business.
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Review and oversee all related party transactions within
the meaning of the Applicable Regulations.
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Perform other functions as requested by the Board.
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If necessary, institute special investigations and, if
appropriate, hire special counsel or experts to assist, and set the
compensation to be paid to such special counsel or other experts.
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Review and re-assess annually the adequacy of this
Charter and recommend updates to this charter; receive approval of changes
from the Board.
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With regard to the Corporations internal control
procedures, the Committee is responsible to:
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review the appropriateness and effectiveness of the
Corporations policies and business practices which impact on the
financial integrity of the Corporation, including those related to
internal auditing, insurance, accounting, information services and systems
and financial controls, management reporting and risk management; and
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review compliance under the Corporations business
conduct and ethics policies and to periodically review these policies and
recommend to the Board changes which the Committee may deem appropriate;
and
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review any unresolved issues between management and the
external auditors that could affect the financial reporting or internal
controls of the Corporation; and
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periodically review the Corporations financial and
auditing procedures and the extent to which recommendations made by the
internal audit staff or by the external auditors have been implemented.
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4. Chair
The Committee will in each year appoint the Chair of the
Committee from among the members of the Committee. In the Chairs absence, or if
the position is vacant, the Committee may select another member as Chair. The
Chair will not have a casting vote.
5. Meetings
The Committee will meet at least once every calendar quarter.
Special meetings shall be convened as required. Notices calling meetings shall
be sent to all members of the Committee, all Board members and the external
auditor. The external auditor of the Corporation must be given reasonable notice
of, and has the right to appear before and to be heard at, each meeting of the
Committee. At the request of the external auditor, the Committee must convene a
meeting of the Committee to consider any matter that the external auditor
believes should be brought to the attention of the Board or shareholders of the
Corporation.
120
The Committee may invite such other persons (e.g. without
limitation, the President or Chief Financial Officer) to its meetings, as it
deems appropriate.
6. Quorum
A majority of members of the Committee, present in person, by
teleconferencing, or by videoconferencing, or by any combination of the
foregoing, will constitute a quorum.
7. Removal
and Vacancy
A member may resign from the Committee, and may also be removed
and replaced at any time by the Board, and will automatically cease to be a
member as soon as the member ceases to be a director of the Corporation. The
Board will fill vacancies in the Committee by appointment from among the
directors in accordance with Section 2 of this Charter. Subject to quorum
requirements, if a vacancy exists on the Committee, the remaining members will
exercise all of the Committees powers.
8. Authority
The Committee may:
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engage independent counsel and other advisors as it
determines necessary to carry out its duties.
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set and pay the compensation for any advisors employed by
the Committee; and
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communicate directly with the internal and external
auditors.
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The Committee may also, within the scope of its
responsibilities, seek any information it requires from any employee and from
external parties, to obtain outside legal or professional advice, and to ensure
the attendance of Corporation officers at meetings as appropriate.
9. Secretary
and Minutes
The Chair of the Committee will appoint a member of the
Committee or other person to act as Secretary of the Committee for purposes of a
meeting of the Committee. The minutes of the Committee meetings shall be in
writing and duly entered into the books of the Corporation, and will be
circulated to all members of the Board.
10. Funding
The Corporation shall provide for appropriate funding, as
determined by the Committee, for payment of
(a)
|
compensation to any registered public accounting firm
engaged for the purposes of preparing or issuing an audit report or
performing other audit, review or attest services for the
Corporation;
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(b)
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compensation to any advisers employed by the Committee;
and (c) ordinary administrative expenses of the Committee that are
necessary or appropriate in carry out its duties.
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Composition
The Audit Committee has been comprised of Iain McLean
(Chairman), Diana Walters and Timothy Marlow since February 23, 2018. All three
members of the Audit Committee are independent and financially literate, meaning
they are able to read and understand the Companys financial statements and to understand the breadth and level of complexity of the issues
that can reasonably be expected to be raised by the Companys financial
statements.
121
Relevant Education and Experience
In addition to each members general business experience, the
education and experience of each member of the Audit Committee that is relevant
to the performance of his or her responsibilities as a member of the Audit
Committee are set forth below:
Member
|
Experience/Education
|
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Iain
McLean
,
B.Sc.Eng (ARSM),
M.B.A., MIMM.
C. Eng.
|
Mr. McLean has experience as a senior executive in
several public companies managing operations, listings, capital raising,
etc. He also has experience in underground mining operations in the UK and
South Africa. Mr. McLean has an M.B.A. from Harvard Business School and a
B.Sc (Eng.) in Mining from the Imperial College of Science and Technology
(London, England). In addition to his education, Mr. McLean has gained
relevant experience acting as the Chief Operating Officer of several
private technology companies since 1995 and as the Vice President of
Operations at Ballard Power Systems from 1993 to 1995. The board of
directors has determined that Mr. McLean is an audit committee financial
expert within the meaning of the regulations promulgated by the SEC and is
independent within the meaning of the NYSE American Company Guide.
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Diana
Walters
,
BA, MA.
|
Ms. Walters has over 28 years in the financial services
sector and has served on the audit committee of other publicly-traded
companies. Ms. Walters graduated with honours from the University of Texas
at Austin with a BA in Plan II Liberal arts and an MA in Energy and
Mineral Resources. Ms. Walters has worked on the natural resources sector
both as an investment banker and in operating roles. In addition, she
gained extensive investment experience with both debt and equity through
leadership roles at Credit Suisse, HSBC and other firms. The board of
directors has determined that Ms. Walters is an audit committee financial
expert within the meaning of the regulations promulgated by the SEC and is
independent within the meaning of the NYSE American Company Guide.
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Timothy
Marlow
,
C.Eng.
|
Mr. Marlow is a registered Charter Engineered in the UK
with over 30 years of experience in mining engineering and mine operations
in the Americas, Africa and Asia. Mr. Marlow has held roles ranging from
project engineer, services and maintenance superintendent, and general
manager to Vice President of Operational Excellence for a multi mine
group. His mining and project experience spans the world and he has
specific African experience in Ghana and Zambia. Mr. Marlow is a graduate
of the Camborne School of Mines and is registered as a C.Eng, Registered
Charter Engineer in the UK. He is a member of the Institute of Mining and
Metallurgy UK and a Qualified Person as defined by NI-43-101 for mining.
The board of directors has determined that Mr. Marlow is independent
within the meaning of the NYSE American Company Guide.
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During earlier periods of the fiscal year ended August 31,
2018, the Audit Committee was comprised of Mr. McLean, Ms. Walters and
then-directors Barry Smee and Eric Carlson, each of which also financially
literate and independent within the meaning of the NYSE American Company Guide.
Responsibilities
See the Audit Committees Charter above for disclosure on the
Audit Committees responsibilities.
122
Reliance on Certain Exemptions
At no time since the commencement of the Company’s most recently completed financial year has the Company relied on any of the exemptions set out in Section 2.4 (
De Minimis Non-audit Services
), Section 3.2 (
Initial Public Offerings
), Section 3.4 (
Events Outside Control of Member
), Section 3.5 (
Death, Disability or Resignation of Audit Committee Member
), Subsection 3.3(2) (
Controlled Companies
), 3.6 (
Temporary Exemption for Limited and Exceptional Circumstances
) or Section 3.8 (
Acquisition of Financial Literacy
) of National Instrument 52 110 – Audit Committees (“
NI 52-110
”), or an exemption from NI 52-110, in whole or in part, granted under Part 8 of NI 52-110.
Audit Committee Oversight
At no time since the commencement of the Company’s most recently completed financial year was a recommendation of the Audit Committee to nominate or compensate an external auditor not adopted by the board of directors.
Pre-Approval Policies and Procedures
The Company’s Audit Committee is authorized to review the performance of the Company’s independent auditors and pre-approves all audit and non-audit services to be provided to the Company by its independent auditor. Prior to granting any pre-approval, the Audit Committee must be satisfied that the performance of the services in question is not prohibited by applicable securities laws and will not compromise the independence of the independent auditor. All non-audit services performed by the Company’s auditor for the fiscal year ended August 31, 2018 and August 31, 2017 have been pre-approved by the Audit Committee.
External Auditor Service Fees (By Category)
Disclosure on the aggregate fees billed by the Company’s current independent auditor, PricewaterhouseCoopers LLP, during the fiscal year ended August 31, 2018 and August 31, 2017 are described under “Item 16.C. Principal Accountant Fees and Services”.
Compensation Committee
Composition
The Compensation Committee has been comprised of Diana Walters
(Chairman), Iain McLean and Timothy Marlow since February 23, 2018. All three
members of the Compensation Committee are independent. During earlier periods of
the fiscal year ended August 31, 2018, the Compensation Committee was comprised
of Mr. McLean (Chairman), Ms. Walters and then-director Barry Smee, who was also
independent.
Responsibilities
The responsibilities of the Compensation Committee include but
are not limited to:
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Review, approve and report to the Board annually on
managements succession plans for all executive officers, other than the
CEO, including specific development plans and career planning for
potential successors;
|
123
|
Review and recommend to the Board for approval the
general compensation philosophy and guidelines for all directors and
executive officers, including the CEO. This includes incentive plan design
and other remuneration;
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Review and recommend to the Board the compensation,
including salary, incentives, benefits and other perquisites, of all
directors and executive officers, except for the CEO; and
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Report on executive compensation as required in public
disclosure documents.
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Review and approve corporate goals and objectives
relevant to CEO compensation, evaluate the CEOs performance in light of
those corporate goals and objectives, consider the Corporate Governance
and Nomination Committees report respecting the CEOs performance and
recommend to the Board the CEOs compensation level based on this
evaluation, including salary, incentives, benefits and other perquisites.
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Establish compensation and recruitment policies and
practices for the Companys executive officers, including establishing
levels of salary, incentives, benefits and other perquisites provided to
executives of the Corporation and its subsidiaries; provided, however,
that the compensation of individual executive officers shall be subject to
the Boards approval.
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Administration of the Companys stock option plans and
stock incentive plans, and recommending to the Board awards under the
plans.
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The Committee shall review all executive compensation
disclosure before the Company publicly discloses this information.
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The Committee will annually review and re-assess the
adequacy of this Charter and recommend updates to this Charter and will
receive approval of all changes from the Board.
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Governance and Nomination Committee
Composition
The Governance and Nomination Committee has been comprised of
Timothy Marlow (Chairman), Iain McLean and Diana Walters since February 23,
2018. All three members of the Governance and Nomination Committee are
independent. During earlier periods of the fiscal year ended August 31, 2018,
the Governance and Nomination Committee was comprised of Mr. McLean, Ms. Walters
and then-director Barry Smee (Chairman), who was also independent.
Responsibilities
The responsibilities of the Governance and Nomination Committee
include but are not limited to:
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review and make recommendations to the Board
respecting corporate governance in general and regarding the Boards
stewardship role in the management of the Company.
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review, approve and report to the Board on:
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the establishment of appropriate processes for the
regular evaluation of the effectiveness of the Board and its members and
its committees and their charters;
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in conjunction with the Chair of the Board, the
performance of individual directors, the Board as a whole, and committees
of the Board;
|
124
|
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the performance evaluation of the Chair of the Board and
the Chair of each Board Committee;
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regularly, the performance evaluation of the CEO,
including performance against corporate objectives.
|
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CEO succession planning;
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oversee compliance with the Companys Code of Business
Conduct and Ethics (the Code), monitor compliance with the Code,
investigate any alleged breach or violation of the Code, authorize any
waiver granted in connection with the Code
|
|
|
|
oversee compliance with any rules, regulations or
guidelines promulgated by regulatory authorities relating to corporate
governance.
|
As of August 31, 2018, the Companys complement of managers,
staff and consultants in Canada consisted of approximately 6 individuals. The
Companys complement of managers, staff, consultants, security and casual
workers in South Africa currently consisted of approximately 11 individuals,
inclusive of 3 individuals active at the Waterberg Project conducting
exploration and engineering activities related to the planned completion of a
DFS expected in the first part of 2019. The Waterberg Project is operated by the
Company utilizing its own staff and personnel. Contract drilling, geotechnical,
engineering and support services are utilized as required.
With respect to the persons listed in Compensation, above, who
are current directors, officers or employees of the Company, the following table
discloses the number of and percent of the Common Shares outstanding held by
those persons, as of the date of this Annual Report. The Common Shares possess
identical voting rights.
Name and Title
|
No. of Shares
(1)
(2)
|
Percent of Shares
Outstanding
of the Class
(3)
|
R. Michael
Jones
Chairman, President, CEO and Director
|
355,587
(4)
|
*
|
Frank R.
Hallam
CFO and Director
|
208,626
|
*
|
Iain McLean
Director
|
20,335
|
*
|
Timothy
Marlow
Director
|
3,000
|
*
|
Diana
Walters
Director
|
4,000
|
*
|
John A. Copelyn
(5)
Director
|
Nil
|
Nil
|
Notes
:
*
|
Less than one percent
|
(1)
|
Includes beneficial, direct and indirect shareholdings.
|
(2)
|
Does not include stock options and other rights to
purchase or acquire shares.
|
(3)
|
There are 291,259,110 shares of Common Stock issued and
outstanding as of the date of filing of this Annual Report.
|
125
(4)
|
Of these shares, 95,600 shares are held by 599143 B.C.
Ltd., a company 50% owned by Mr. Jones and 50% owned by Mr. Jones
wife.
|
(5)
|
Does not include shares owned by HCI, of which Mr.
Copelyn is the Chief Executive Officer. For a description of such shares,
see Item. 7.A Major Shareholders.
|
The following table discloses the stock options outstanding to
the aforementioned persons as of the date of filing of this Annual Report:
|
|
Date of Grant or
|
|
|
# of Shares of
|
|
|
Exercise
|
|
|
|
|
Name and Title
|
|
Issuance
|
|
|
Common Stock
|
|
|
Price Per
|
|
|
Expiry Date
|
|
|
|
|
|
|
Subject to
|
|
|
Share
|
|
|
|
|
|
|
|
|
|
Issuance
|
|
|
|
|
|
|
|
R. Michael Jones
President, CEO and
Director
|
|
Jan 14, 2014
Feb 16, 2015
Dec 22, 2015
Dec 23, 2016
|
|
|
100,000
120,000
67,500
200,000
|
|
$
$
$
$
|
13.00
6.50
2.00
2.00
|
|
|
Jan 14, 2019
Feb 16, 2020
Dec 22, 2020
Dec 23, 2021
|
|
Frank R. Hallam
CFO and Director
|
|
Jan 14, 2014
Feb 16, 2015
Dec 22, 2015
Dec 23, 2016
|
|
|
87,500
100,000
60,000
175,000
|
|
$
$
$
$
|
13.00
6.50
2.00
2.00
|
|
|
Jan 14, 2019
Feb 16, 2020
Dec 22, 2020
Dec 23, 2021
|
|
Iain McLean
Chairman and Director
|
|
Jan 14, 2014
Feb 16, 2015
Dec 22, 2015
Dec 23, 2016
|
|
|
25,000
35,000
33,750
125,000
|
|
$
$
$
$
|
13.00
6.50
2.00
2.00
|
|
|
Jan 14, 2019
Feb 16, 2020
Dec 22, 2020
Dec 23, 2021
|
|
Timothy Marlow
Director
|
|
Jan 14, 2014
Feb 16, 2015
Dec 22, 2015
Dec 23, 2016
|
|
|
25,000
35,000
33,750
125,000
|
|
$
$
$
$
|
13.00
6.50
2.00
2.00
|
|
|
Jan 14, 2019
Feb 16, 2020
Dec 22, 2020
Dec 23, 2021
|
|
Diana Walters
Director
|
|
Jan 14, 2014
Feb 16, 2015
Dec 22, 2015
Dec 23, 2016
|
|
|
25,000
35,000
33,750
125,000
|
|
$
$
$
$
|
13.00
6.50
2.00
2.00
|
|
|
Jan 14, 2019
Feb 16, 2020
Dec 22, 2020
Dec 23, 2021
|
|
John A. Copelyn
Director
|
|
N/A
|
|
|
N/A
|
|
|
N/A
|
|
|
N/A
|
|
Stock Option Plan
The Stock Option Plan exists only for the purpose of governing
the terms of all outstanding options that were issued under the Stock Option
Plan before the adoption of the Companys Share Compensation Plan on February
23, 2017. No new options may be granted under the Stock Option Plan and the
total number of outstanding options issued (but not exercised) under the Stock
Option Plan count towards the maximum number of Options and restricted share
units (
RSUs
) issuable under the Share Compensation Plan. Details of the
Share Compensation Plan are provided below.
The Stock Option Plan was approved by the shareholders at the
annual general meeting held on January 10, 2006 and was amended at the Companys
annual general meeting held on January 10, 2007 and was ratified by the
shareholders at the annual general meetings held on January 12, 2010, January 8,
2013 and February 26, 2016. The Stock Option Plan is classified as a 10%
rolling plan pursuant to which the number of Common Shares which may be issuable
pursuant to options previously granted and those granted under the Stock Option
Plan is a maximum of 10% of the issued and outstanding Common Shares at the time
of the grant.
126
Other information relating to the Stock Option Plan is as
follows:
|
The Stock Option Plan is administered by the Compensation
Committee.
|
|
|
|
Options may be granted to directors, senior officers,
employees, non-employee directors, management company employees and
consultants of the Company and its affiliates.
|
|
|
|
As at the date of filing of this Annual Report, no new
options were issued or issuable under the Stock Option Plan.
|
|
|
|
As at the date of filing of this Annual Report, an
aggregate of 3,085,500 options were outstanding under the Stock Option
Plan, being a number of options equal to 1.06% of the Companys issued and
outstanding Common Shares on such date.
|
|
|
|
The number of Common Shares reserved for issuance under
options granted to Insiders (as defined in the Stock Option Plan),
together with any shares issuable to Insiders pursuant to any other share
compensation arrangements of the Company, may not exceed 10% of the issued
and outstanding number of Common Shares unless approved by disinterested
shareholders.
|
|
|
|
The number of shares issued to Insiders, together with
any shares issued to Insiders pursuant to any other share compensation
arrangements of the Company, within a 12-month period may not exceed 10%
of the issued and outstanding number of Common Shares unless approved by
disinterested shareholders.
|
|
|
|
The number of Common Shares reserved for issuance to any
one individual pursuant to options or any other share compensation
arrangements of the Company in any 12-month period may not exceed 5% of
the number of issued and outstanding Common Shares from time to time
unless approved by securityholders who are not Insiders.
|
|
|
|
The maximum aggregate number of Common Shares that may be
reserved under the Stock Option Plan or other share compensation
arrangements of the Company for issuance to any one consultant during any
12-month period may not exceed 2% of the issued and outstanding Common
Shares.
|
|
|
|
The maximum aggregate number of Common Shares that may be
reserved under the Stock Option Plan or other share compensation
arrangements of the Company for issuance to persons employed in investor
relations activities (as a group) may not exceed, in any 12 month period,
2% of the issued and outstanding Common Shares.
|
|
|
|
The exercise price for options granted under the Stock
Option Plan is determined by the Compensation Committee, in its
discretion, at the time the options are granted, but such price shall be
fixed in compliance with the applicable provisions of the TSX Company
Manual in force at the time of grant, and, in any event, may not be less
than the closing price of the Common Shares on the TSX on the trading day
immediately preceding the day on which the option is granted (provided
that if there are no trades on such day then the last closing price within
the preceding ten trading days will be used, and if there are no trades
within such ten-day period, then the simple average of the bid and ask
prices on the trading day immediately preceding the day of grant will be
used).
|
127
|
The Stock Option Plan does not contain provisions
allowing for the transformation of a stock option into a stock
appreciation right.
|
|
|
|
Vesting of options is at the discretion of the
Compensation Committee at the time of grant of options.
|
|
|
|
Options may be exercisable for a period of time
determined by the Compensation Committee with the maximum term of options
granted under the Existing Plan being ten years from the date of grant.
|
|
|
|
Options can only be exercised by the optionee as long as
the optionee remains an eligible optionee pursuant to the Stock Option
Plan. Options granted to any optionee who is a director, employee,
consultant or management company employee must expire within 90 days after
the optionee ceases to be in at least one of these categories. Options
granted to any optionee who is engaged in investor relations activities
must expire within 30 days after the optionee ceases to be employed to
provide investor relations activities.
|
|
|
|
In the event of death of the optionee, the outstanding
options shall remain in full force and effect and exercisable by the heirs
or administrators of the deceased optionee in accordance with the terms of
the agreement for one year from the date of death or the balance of the
option period, whichever is earlier.
|
|
|
|
Options granted under the Stock Option Plan are not
assignable or transferable other than pursuant to a will or by the laws of
descent and distribution.
|
|
|
|
Subject to the policies of the TSX, the Board may, at any
time, without further action by the Companys shareholders, amend the
Stock Option Plan or any option granted thereunder in such respects as it
may consider advisable and, without limiting the generality of the
foregoing, it may do so to:
|
|
|
ensure that the options granted thereunder will comply
with any provisions respecting stock options in the income tax and other
laws in force in any country or jurisdiction of which a participant to
whom an option has been granted may from time to time be resident or a
citizen;
|
|
|
|
|
|
make amendments of an administrative nature;
|
|
|
|
|
|
change vesting provisions of an option or the Existing
Plan;
|
|
|
|
|
|
change termination provisions of an option provided that
the expiry date does not extend beyond the original expiry date;
|
|
|
|
|
|
reduce the exercise price of an option for an optionee
who is not an Insider;
|
|
|
|
|
|
make any amendments required to comply with applicable
laws or TSX requirements; and
|
|
|
|
|
|
make any other amendments which are approved by the TSX.
|
|
Other than as set forth above, any other amendments to
the Stock Option Plan or options granted thereunder (or options otherwise
governed thereby), including the reduction of the exercise price or the
cancellation and reissuance of options or other entitlements, will be
subject to the approval of the shareholders and TSX.
|
|
|
|
The Stock Option Plan does not contain any provisions
relating to the provision of financial assistance by the Company to
optionees to facilitate the purchase of Common Shares upon the exercise of
options.
|
|
|
|
The Stock Option Plan contains adjustment provisions
pursuant to which the exercise price of an option and/or the number of
securities underlying an option may be adjusted in the event of certain
capital changes of the Company including, without limitation, share
consolidations, stock-splits, dividends and corporate reorganizations. The adjustment
provisions are meant to ensure that the rights associated with the option are
neither enhanced nor prejudiced as a result of the capital change
|
128
Share Compensation Plan
The Share Compensation Plan was adopted by the Company after it
was approved by the shareholders at the annual general meeting held on February
23, 2017 (the
Adoption Date
). As of the Adoption Date, the Share
Compensation Plan govern all new grants of restricted share units (the
RSUs
) and options to purchase Common Shares (the
Options
). The
Companys Stock Option Plan continue to exist but only for the purpose of
governing the terms of all outstanding options that were been issued under the
Stock Option Plan before the adoption of the Share Compensation Plan. No new
options may be granted under the Stock Option Plan and the total number of
outstanding options issued (but not exercised) under the Stock Option Plan count
towards the maximum number of Options and RSUs issuable under the Share
Compensation Plan. A description of the Stock Option Plan is provided above.
The Share Compensation Plan is a 10% rolling plan pursuant to
which the number of Common Shares which may be issuable pursuant to RSUs and
Options granted under the Share Compensation Plan, options previously granted
under the Existing Plan, together with those Common Shares issuable pursuant to
any other security based compensation arrangements of the Company or its
subsidiaries, is a maximum of 10% of the issued and outstanding Common Shares at
the time of the grant.
The Share Compensation Plan provides participants (each, an
SCP Participant
), who may include participants who are citizens or
residents of the United States (each, a
US-SCP Participant
), with the
opportunity, through RSUs
and Options, to acquire an ownership interest
in the Company. The RSUs will rise and fall in value based on the value of the
Common Shares. Unlike the Options, the RSUs will not require the payment of any
monetary consideration to the Company. Instead, each RSU represents a right to
receive one Common Share following the attainment of vesting criteria determined
at the time of the award. See Restricted Share Units Vesting Provisions below.
The Options, on the other hand, are rights to acquire Common Shares upon payment
of monetary consideration (
i.e.
, the exercise price), subject also to
vesting criteria determined at the time of the grant. See Options Vesting
Provisions below.
the Companys Stock Option Plan will continue to govern the
terms of all outstanding options issued under the Stock Option Plan and the
total number of outstanding options issued (but not exercised) under the Stock
Option Plan will count towards the maximum number of Options and RSUs issuable
under the Share Compensation Plan.
Purpose of the Share Compensation Plan
The stated purpose of the Share Compensation Plan is to advance
the interests of the Company, its subsidiaries and its shareholders by: (a)
ensuring that the interests of SCP Participants are aligned with the success of
the Company and its subsidiaries; (b) encouraging stock ownership by such
persons; and (c) providing compensation opportunities to attract, retain and
motivate such persons.
The following people will be eligible to participate in the
Share Compensation Plan: any officer or employee of the Company or any officer
or employee of any subsidiary of the Company and, solely for purposes of the
grant of Options, any non-employee director of the Company or any non-employee
director of any subsidiary of the Company, and any consultant (defined under the
Share Compensation Plan as a consultant that (x) is an individual that provides
bona fide
services to the Company pursuant to a written contract for
services with the Company and such services are not in connection with the offer
or sale of securities in a capital-raising transaction and do
not directly or indirectly promote or maintain a market for the Companys
securities, or (y) otherwise satisfies the requirements to participate in an
employee benefit plan as defined in Rule 405 under the U.S. Securities Act of
1933, as amended, registered by the Company on Form S-8). Non-employee directors
of the Company will not be eligible to participate in the Share Compensation
Plan in respect of RSUs. Under the Share Compensation Plan, non-employee
directors of the Company will continue to be eligible to participate in respect
of Options, however, only on a limited basis. See Restrictions on the Award of
RSUs and Grant of Options below. Under the Existing Plan, directors of the
Company have been technically eligible to participate on a discretionary basis
without any limits on participation.
129
Administration of the Share Compensation Plan
The Share Compensation Plan is administered by the Board or
such other persons as may be designated by the Board (the
SCP
Administrators
) based on the recommendation of the compensation committee
of the Board (the
Compensation Committee
). The SCP Administrators
determine the eligibility of persons to participate in the Share Compensation
Plan, when RSUs and Options will be awarded or granted, the number of RSUs and
Options to be awarded or granted, the vesting criteria for each award of RSUs
and grant of Options and all other terms and conditions of each award and grant,
in each case in accordance with applicable securities laws and stock exchange
requirements.
Number of Common Shares Available for Issuance under the
Share Compensation Plan
The number of Common Shares available for issuance upon the
vesting of RSUs awarded and Options granted under the Share Compensation Plan
will be limited to 10% of the issued and outstanding Common Shares at the time
of any grant, as reduced by the number of Common Shares that may be issuable
pursuant to options outstanding under the Stock Option Plan.
As of the date of filing of this Annual Report, the Company has
291,259,110 Common Shares issued and outstanding. Accordingly, the aggregate
number of Common Shares that may be issued pursuant to the Share Compensation
Plan is 29,125,911, less the 3,085,500 Common Shares issuable pursuant to
options outstanding under the Stock Option Plan.
ITEM 7.
|
MAJOR SHAREHOLDERS AND RELATED PARTY
TRANSACTIONS
|
The Company is not directly or indirectly owned or controlled
by another corporation(s), by any foreign government or by any other natural or
legal person(s), severally or jointly.
There are no arrangements known to the Company the operation of
which may at a subsequent date result in a change in control of the Company.
The following table discloses the holders of the Companys
Common Shares who are known or believed by the Company to be the beneficial
owners of 5% or more of the Companys Common Shares (the
Major
Shareholders
). The percentages in the table below are based on 291,259,110
Common Shares outstanding as November 29, 2018, except as noted.
130
Identity of Person or Group
|
Amount and Nature of
Beneficial
Ownership
|
Percent of
Class
|
Hosken
Consolidated Investments Limited(1)
|
61,470,042
|
19.90
|
Franklin
Resources, Inc./Franklin Advisors, Inc. (2)
|
59,787,569
|
19.90
|
Liberty Metals
& Mining Holdings, LLC.(3)
|
56,160,609
|
18.04
|
Notes
:
(1)
|
Based on information HCI provided to the Company as of
November 14, 2018, HCI through its wholly-owned subsidiary Deepkloof
Limited had sole voting and dispositive power with respect to 43,834,468
Common Shares plus 17,635,574 Common Shares issuable upon exercise of
warrants bearing an exercise price of $0.17 (reflects the application of a
19.9% beneficial ownership limitation included in certain warrants held by
HCI). HCI also holds an additional 22,364,425 warrants, which are excluded
from the table by virtue of the 19.9% beneficial ownership
limitation.
|
(2)
|
Based on information Franklin Resources, Inc./Franklin
Advisors, Inc. provided to the Company as of November 15, 2018, Franklin
Resources, Inc./Franklin Advisors, Inc. had sole voting and dispositive
power with respect to 50,606,629 Common Shares plus an additional
9,180,940 Common Shares issuable upon exercise of warrants bearing an
exercise price of $0.17 per common share (reflects the application of a
19.9% beneficial ownership limitation included in certain warrants held by
Franklin Resources, Inc./Franklin Advisors, Inc.). Franklin Resources,
Inc./Franklin Advisors, Inc. also holds an additional 9,537,255 warrants
and $8.0 million principal amount of convertible notes, the underlying
shares for which are excluded from the table by virtue of 19.9% beneficial
ownership limitations.
|
(3)
|
Based on information LMM provided to the Company as of
November 12, 2018, 2018, LMM had sole voting and dispositive power with
respect to 36,160,609 Common Shares plus an additional 20,000,000 Common
Shares issuable upon exercise of warrants bearing an exercise price of
$0.17 per common share.
|
Except as disclosed in the table above, the Company is not aware of any
other person or group who owns more than 5% of the issued and outstanding Common
Shares as of November 29, 2018.
In their capacity as shareholders of the Company, the Companys
Major Shareholders have the same voting rights as other holders of the Companys
Common Shares. As discussed elsewhere in this Annual Report, LMM has certain
additional rights as the lender under the LMM Facility. In addition, the Company
has granted HCI the right to nominate one person to be appointed to the board of
directors of the Company. John Copelyn is HCIs nominee to the board of
directors.
We are aware of the following changes in the Company’s Major Shareholders
over the past three years:
|
As of May 31, 2017, BlackRock, Inc. (
BlackRock
)
reported as beneficially owning 12.4% of the Companys Common Shares.
However, as of June 30, 2018, BlackRock reported as no longer being a
Major Shareholder of the Company.
|
|
|
|
As of December 31, 2017, Donald Smith & Co., Inc.
reported as beneficially owning 8.99% of the Companys Common Shares.
However, such number of shares would currently represent less than 5% of
the Companys common shares.
|
|
|
|
As of December 31, 2015, Genesis Asset Managers, LLP
(
Genesis
) reported as beneficially owning 7.91% of the Companys
Common Shares. However, as of December 31, 2016, Genesis no longer
reported as being a Major Shareholder of the Company.
|
Based on information available to the Company, as of August 31,
2018, approximately 42.94% of the Companys outstanding Common Shares were
beneficially owned in the United States, by approximately 14,181 holders with
U.S. addresses.
131
B.
|
Related Party Transactions
|
For purposes of this section, a Related Party means (a)
enterprises that directly or indirectly through one or more intermediaries,
control or are controlled by, or are under common control with, the company; (b)
associates; (c) individuals owning, directly or indirectly, an interest in the
voting power of the company that gives them significant influence over the
company, and close members of any such individuals family; (d) key management
personnel, that is, those persons having authority and responsibility for
planning, directing and controlling the activities of the company, including
directors and senior management of companies and close members of such
individuals families; and (e) enterprises in which a substantial interest in
the voting power is owned, directly or indirectly, by any person described in
(c) or (d) or over which such a person is able to exercise significant
influence. Shareholders beneficially owning a 10% interest in the voting power
of the Company are presumed to have a significant influence on the Company for
purposes of this disclosure.
Neither the Company nor any of its subsidiaries has made any
loan or guarantee in favor of any Related Party, nor has any Related Party been
indebted to the Company or its subsidiaries, since September 1, 2017.
Neither the Company nor any of its subsidiaries is a party to
any transactions since September 1, 2017 or any presently proposed transactions
involving a Related Party, which transactions are material to the Company or the
Related Party or are unusual in their nature or conditions, except as follows or
as described elsewhere in this Annual Report:
(1)
|
LMM, a Major Shareholder, is the lender to the Company
pursuant to the LMM Facility, as amended and restated, and was a party to
the PPA prior to the PPA being terminated. The transactions between the
Company and LMM are more fully described elsewhere in this Annual Report.
LMM purchased 20,000,000 units in the Companys May 2018 public offering
of units.
|
|
|
(2)
|
Franklin Advisors, Inc., a Major Shareholder, subscribed
on behalf of certain funds for $8 million of the principal amount of
convertible notes issued by the Company on June 30, 2017. Based on
information provided to the Company as of November 15, 2018 by Franklin
Advisors, Inc., the Company believes that Franklin Advisors, Inc.
continues to hold such notes. Transactions relating to the convertible
notes are more fully described elsewhere in this Annual Report. In
addition, Franklin Advisors, Inc. purchased 18,718,195 units in the
Companys May 2018 public offering of units.
|
|
|
(3)
|
HCI became a Major Shareholder as a result of its
participation a private placement of units in May 2018 and the Companys
concurrent public offering of units. HCI purchased 15,090,999 units in the
private placement and 24,909,000 units in the public offering. Pursuant to
the private placement, HCIs nominee, John Copelyn, was appointed to the
Companys board of directors. Such transactions are more fully described
elsewhere in this Annual Report.
|
|
|
(4)
|
Compensatory matters relating to the Companys directors
and executive officers are described in Item 6 of this Annual
Report.
|
C.
|
Interests of Experts and
Counsel
|
Not applicable.
132
ITEM 8.
|
FINANCIAL INFORMATION
|
A.
|
Consolidated Statements and Other Financial
Information
|
See the audited consolidated financial statements listed in
Item 18 hereof and filed as part of this Annual Report. These financial
statements include the consolidated balance sheets as at August 31, 2018 and
2017 and the statements of operations and cash flows for the three years ended
August 31, 2018.
These consolidated financial statements have been prepared in
accordance with IFRS as issued by the IASB. The consolidated financial
statements have been prepared under the historical cost convention.
Legal Proceedings
On August 28, 2018 the Company received a summons issued by
Africa Wide in the High Court of South Africa whereby Africa Wide, formerly the
holder of a 17.1% interest in Maseve, has instituted legal proceedings in South
Africa against the Companys wholly owned subsidiary, PTM RSA, RBPlat and Maseve
("
Defendants
") in relation to the Maseve Sale Transaction. See Item 5.A.
Operating results - Maseve Sale to Royal Bafokeng Platinum. Africa Wide is
seeking to set aside the Maseve Sale Transaction, alternatively is seeking that
Africa Wide be paid the "true value" of its 17.1% shareholding in Maseve, to be
determined at the time prior to the implementation of stage one of the Maseve
Sale Transaction. Africa Wide avers that (i) pursuant to the term sheet
pertaining to the Maseve Sale Transaction the Defendants disposed of Maseve's
main asset (allegedly the plant) without Africa Wide's consent as required under
the Maseve shareholders agreement; (ii) such disposal significantly devalued its
shares in Maseve which (iii) resulted in the disposal of Africa Wide's shares in
Maseve through a drag-along provision in Maseve's constitutional documents and
(iv) Africa Wide did not have an election to refuse to dispose of its
shareholding. While both the Company and RBPlat believe, and have been so
advised by their respective legal counsel, that the Africa Wide action is
factually and legally defective, no assurance can be provided that the Company
will prevail in this action.
Dividend Policy
We have not declared any dividends since incorporation and do
not anticipate doing so in the foreseeable future. The following restrictions
could prevent the Company from paying dividends or distributions:
|
The exchange controls of the Government of South Africa.
See Item 4.B. South African Regulatory Framework;
|
|
|
|
In 2012, the Government of South Africa replaced the
longstanding secondary tax on corporations with a dividend tax levied on
shareholders. Before the new dividend tax became law, secondary tax on
corporations had been levied at a rate of 10% on all dividends declared by
companies resident in South Africa. The current rate of dividends tax is
20%. Under an existing tax treaty between Canada and South Africa, the
effective rate under the new dividend tax in South Africa on dividends
paid from PTM RSA to the Company will be 5% of the gross amount of
dividends, provided the Company continues to hold at least 10% of the
capital of PTM RSA. Dividend taxes are to be withheld by corporations in
South Africa on behalf of shareholders and remitted to the South African
Revenue Service; and
|
|
|
|
The LMM Facility specifies that the Company may not
declare and pay dividends during the term of the LMM Facility, except with
the prior written consent of LMM.
|
133
The Company has no current dividend or distribution policy and
has no present intention to change its dividend or distribution policy, as it
anticipates that all available funds will be invested to finance the growth of
its business. the Companys directors will determine if and when dividends
should be declared and paid in the future based on the Companys financial
position at the relevant time.
There have been no significant changes since August 31, 2018,
except as otherwise discussed herein.
ITEM 9.
|
THE OFFER AND LISTING
|
A.
|
Offer and Listing Details
|
There is no offer associated with this Annual Report.
Trading History
The following table sets forth the high and low market prices
for the Companys Common Shares on the TSX and on the NYSE American for each
full quarterly period within the two most recent fiscal years ended August 31,
2018 and any subsequent period:
|
TSX
|
TSX
|
NYSE AMERICAN
|
NYSE AMERICAN
|
PERIOD
|
HIGH CDN$
|
LOW CDN$
|
HIGH USD$
|
LOW USD$
|
2018
|
|
|
|
|
Fourth Quarter
|
0.17
|
0.12
|
0.13
|
0.10
|
Third Quarter
|
0.45
|
0.14
|
0.35
|
0.11
|
Second Quarter
|
0.72
|
0.36
|
0.58
|
0.28
|
First Quarter
|
0.89
|
0.40
|
0.72
|
0.32
|
2017
|
|
|
|
|
Fourth Quarter
|
1.66
|
0.64
|
1.23
|
0.51
|
Third Quarter
|
2.41
|
1.42
|
1.81
|
1.03
|
Second Quarter
|
3.19
|
1.89
|
2.45
|
1.40
|
First Quarter
|
3.97
|
1.89
|
3.08
|
1.40
|
The following table sets forth the high and low market prices
of the Companys Common Shares for the five most recent fiscal years ended
August 31, 2018:
YEARS ENDING
|
TSX
|
TSX
|
NYSE AMERICAN
|
NYSE AMERICAN
|
AUG. 31
|
HIGH CDN$
|
LOW CDN$
|
HIGH USD$
|
LOW USD$
|
2018
|
0.89
|
0.12
|
0.72
|
0.10
|
2017
|
3.97
|
0.64
|
3.08
|
0.51
|
2016
(1)
|
5.25
|
1.35
|
4.04
|
1.00
|
2015
|
1.19
|
0.32
|
1.08
|
0.24
|
134
YEARS ENDING
|
TSX
|
TSX
|
NYSE AMERICAN
|
NYSE AMERICAN
|
AUG. 31
|
HIGH CDN$
|
LOW CDN$
|
HIGH USD$
|
LOW USD$
|
2014
|
1.49
|
0.97
|
1.37
|
0.99
|
Notes
:
(1)
|
Effective January 28, 2016 the Companys Common Shares
were consolidated on the basis of one new share for ten old shares (1:10).
All information regarding the issued and outstanding Common Shares,
options and weighted average number and per share information has been
retrospectively restated to reflect the ten to one
consolidation.
|
The following table sets forth the high and low market prices
for the most recent six months:
|
TSX
|
TSX
|
NYSE AMERICAN
|
NYSE AMERICAN
|
MONTH
|
HIGH CDN$
|
LOW CDN$
|
HIGH USD$
|
LOW USD$
|
October 2018
|
0.25
|
0.17
|
0.18
|
0.13
|
September 2018
|
0.25
|
0.14
|
0.19
|
0.10
|
August 2018
|
0.16
|
0.12
|
0.12
|
0.09
|
July 2018
|
0.16
|
0.13
|
0.12
|
0.10
|
June 2018
|
0.17
|
0.12
|
0.13
|
0.08
|
May 2018
|
0.26
|
0.14
|
0.20
|
0.11
|
The closing price of the Common Shares on November 29, 2018 was
C$0.21
on the TSX and $0.1585
on the NYSE American.
There have been no trading suspensions in the prior three
years.
Not applicable.
The Common Shares are listed on the TSX under the symbol PTM
and on the NYSE American under the symbol PLG.
Not applicable.
Not applicable.
Not applicable.
135
ITEM 10.
|
ADDITIONAL INFORMATION
|
Not applicable.
B.
|
Memorandum and Articles of
Association
|
Incorporation
The Company was formed by way of an amalgamation of Platinum
Group Metals Ltd. and New Millennium Metals Corporation on February 18, 2002
under the
Company Act
(British Columbia) pursuant to an order of the
Supreme Court of British Columbia. The Company was transitioned to the BCBCA on
January 25, 2005. the Companys British Columbia incorporation number is
BC0642278.
Objects and Purposes
Neither the Notice of Articles nor the Articles of the Company contains a
limitation on objects and purposes.
Directors
Part 17 of the Articles deals with the directors involvement
in transactions in which they have an interest. Article 17.2 provides that a
director who holds a disclosable interest in a contract or transaction into
which the Company has entered or proposes to enter is not entitled to vote on any
directors' resolution to approve that contract or transaction, unless all the
directors have a disclosable interest in that contract or transaction, in which
case any or all of those directors may vote on such resolution.
Pursuant to the BCBCA, a director does not have a disclosable
interest in a contract or transaction merely because the contract or transaction
relates to the remuneration of the director in that person's capacity as a
director of the Company.
Part 8 of the Articles deals with borrowing powers. The Company, if authorized by the directors, may: (i) borrow money in the manner and
amount, on the security, from the sources and on the terms and conditions that
they consider appropriate; (ii) issue bonds, debentures and other debt
obligations either outright or as security for any liability or obligation of
the Company or any other person and at such discounts or premiums and on such
other terms as they consider appropriate; (iii) guarantee the repayment of money
by any other person or the performance of any obligation of any other person;
and (iv) mortgage, charge (whether by way of specific or floating charge), grant
a security interest in, or give other security on, the whole or any part of the
present and future assets and undertaking of the Company.
Qualifications of Directors
The Articles do not specify a retirement age for directors.
Directors are not required to own any Common Shares of the
Company.
Section 124 of the BCBCA
provides that an individual is
not qualified to become or act as a director of a company if that individual is:
136
1.
|
under the age of 18 years;
|
|
|
2.
|
found by a court, in Canada or elsewhere, to be incapable
of managing the individual's own affairs;
|
|
|
3.
|
an undischarged bankrupt; or
|
|
|
4.
|
convicted in or out of British Columbia of an offence in
connection with the promotion, formation or management of a corporation or
unincorporated business, or of an offence involving fraud,
unless:
|
|
a.
|
the court orders otherwise;
|
|
|
|
|
b.
|
5 years have elapsed since the last to occur
of:
|
|
i.
|
the expiration of the period set for suspension of the
passing of sentence without a sentence having been passed;
|
|
|
|
|
ii.
|
the imposition of a fine;
|
|
|
|
|
iii.
|
the conclusion of the term of any imprisonment;
and
|
|
|
|
|
iv.
|
the conclusion of the term of any probation imposed;
or
|
|
c.
|
a pardon was granted or issued, or a record suspension
ordered, under the
Criminal Records Act
(Canada) and the pardon or
record suspension, as the case may be, has not been revoked or ceased to
have effect.
|
A director who ceases to be qualified to act as a director of a
company must promptly resign.
Section 120 of the BCBCA provides that every company must have
at least one director, and a public company must have at least three directors.
Rights, Preference and Restrictions
All of the authorized shares of Common Stock are of the same class and, once issued, rank equally as to dividends, voting powers, and participation in assets and in all other respects, on liquidation, dissolution or winding up of the Company, whether voluntary or involuntary, or any other distribution of its assets among its stockholders for the purpose of winding up its affairs after the Company have paid out its liabilities. The issued shares of Common Stock are not subject to call or assessment rights or any pre-emptive or conversion rights. The stockholders are entitled to one vote for each share on all matters to be voted on by the stockholders. There are no provisions for redemption, purchase for cancellation, surrender or sinking funds, and there are no provisions discriminating against any existing or prospective holder of Common Shares as a result of such shareholder owning a substantial number of Common Shares.
The rights of stockholders may be altered only with the
approval of the holders of 2/3 or more of the Common Stock voted at a meeting of
our stockholders called and held in accordance with our Articles and applicable
law.
Shareholder Meetings
The BCBCA provides that: (i) a general meeting of shareholders must be held in British Columbia, unless otherwise provided in the Company's Articles (and the Company’s Articles provide that a meeting of shareholders may be held in or outside of British Columbia as determined by a resolution of the directors); (ii) the Company must hold an annual general meeting of shareholders not later than 15 months after the last preceding annual general meeting and once in every calendar year; (iii) for the purpose of determining shareholders entitled to receive notice of or vote at a meeting of shareholders, the directors may set a date as the record date for that determination, provided that such date shall not precede by more than 2 months (or, in the case of a general meeting requisitioned by shareholders under the BCBCA, by more than 4 months) or be less than 21 days before the date on which the meeting is to be held; (iv) a quorum for the transaction of business at a meeting of shareholders of the Company is the quorum established by the Articles (and the Company’s Articles provide that the quorum for the transaction of business at a meeting of shareholders is two persons who are, or who represent by proxy, shareholders who, in the aggregate, hold at least 5% of the issued shares entitled to be voted at the meeting); (v) the holders of not less than five percent of the issued shares entitled to vote at a meeting may requisition the directors to call a meeting of shareholders for the purpose of transacting any business that may be transacted at a general meeting; and (vi) the Supreme Court of British Columbia (the “Court”) may, on its own motion or on the application of the Company, upon the application of a director or the application of a shareholder entitled to vote at the meeting: (a) order that a meeting of shareholders be called, held and conducted in a manner that the Court considers appropriate; and (b) give directions it considers necessary as to the call, holding and conduct of the meeting.
137
Limitations on Ownership of Securities
Except as provided in the
Investment Canada Act
, there
are no limitations specific to the rights of non-Canadians to hold or vote the
Common Shares under the laws of Canada or British Columbia or in the Company's charter
documents. See Exchange Controls below in this Annual Report for a discussion of
the principal features of the Investment Canada Act for non-Canadian residents
proposing to acquire the Common Shares.
Change in Control
There are no provisions in the Articles or charter documents
that would have the effect of delaying, deferring or preventing a change in the
control of the Company, or that would operate with respect to any proposed
merger, acquisition or corporate restructuring involving its company or any of
its subsidiaries.
Ownership Threshold
There are no provisions in ourthe Articles requiring share ownership to be disclosed. Securities legislation in Canada requires that shareholder ownership (as well as ownership of an interest in, or right or obligation associated with, a related financial instrument of a security of the Company) must be disclosed once a person beneficially owns or has control or direction over, directly or indirectly, securities of a reporting issuer carrying more than 10% of the voting rights attached to all the reporting issuer’s outstanding voting securities. This threshold is higher than the 5% threshold under U.S. securities legislation at which stockholders must report their share ownership.
Changes to Capital
There are no conditions imposed by the Articles governing changes in the rights of holders of Common Shares where such conditions are more significant than is required by the laws of British Columbia.
Description of Capital Structure
The rights of the Company’s shareholders are also affected by the
Shareholder Rights Plan, as defined and described below. The Shareholder Rights
Plan is governed by the Shareholder Rights Plan Agreement between the Company
and Computershare Investor Services Inc. dated July 9, 2012.
the Companys authorized share structure consists of an
unlimited number of Common Shares without par value, of which 291,259,110 Common
Shares were issued and outstanding as of the date of filing of this Annual
Report. All of the issued Common Shares are fully paid. The Company does not own
any of its Common Shares.
138
On July 10, 2012, the Company announced that its board of
directors had approved the adoption of a shareholder rights plan dated July 9,
2012 (the
Shareholder Rights Plan
) subject to shareholder approval, which
was received at the Companys annual general meeting held on January 8, 2013 and
which shareholder approval was renewed at the Companys Annual General Meeting
held on February 26, 2016. The Shareholders Rights Plan will continue in force
up to the end of the Companys third annual general meeting of shareholders
following the shareholder approval obtained on February 26, 2016, subject to
earlier expiry in the event of (i) the redemption of the shareholder rights; or
(ii) the exchange of the shareholder rights for debt or equity securities or
assets (or a combination thereof), all as more particularly set out in the
Shareholder Rights Plan.
The Companys management considers its current market valuation
to be in contrast to the advancement of the Company and its business. As a
result, the board of directors undertook a review to consider the need for a
shareholder rights plan. The Shareholder Rights Plan is not intended to prevent
or discourage a fair bid for the Company. The purpose of the Shareholder Rights
Plan is to provide shareholders and the Companys board of directors with
adequate time to consider and evaluate any unsolicited bid made for the Company,
to provide the board of directors with adequate time to identify, develop and
negotiate value-enhancing alternatives, if considered appropriate, to any such
unsolicited bid, to encourage the fair treatment of shareholders in connection
with any take-over bid for the Company and to ensure that any proposed
transaction is in the best interests of the Companys shareholders.
The rights issued under the Shareholder Rights Plan will become
exercisable only if a person, together with its affiliates, associates and joint
actors, acquires or announces its intention to acquire beneficial ownership of
shares which when aggregated with its current holdings, total 20% or more of the
Companys outstanding Common Shares (determined in the manner set out in the
Shareholder Rights Plan), other than by a Permitted Bid or Shareholder Endorsed
Insider Bid (in each case as described in the Shareholder Rights Plan).
Permitted Bids must be made by way of a take-over bid circular prepared in
compliance with applicable securities laws and, among other conditions, must
remain open for 60 days. A Shareholder Endorsed Insider Bid is a take-over bid
made by a bidder who together with its affiliates or associates and joint actors
has beneficial ownership of 10% or more of the voting securities of the Company,
by way of take-over bid circular to all shareholders, and in respect of which,
among other things, more than 50% of the Common Shares held by shareholders have
been tendered to the take-over bid at the time of first take-up under the
take-over bid and the date of such first take-up occurs not later than the
120
th
calendar day following the date on which the take-over bid is
commenced. A Shareholder Endorsed Insider Bid is not required to be open for a
minimum period of time beyond the 35 days required under applicable securities
law.
In the event that a take-over bid does not meet the Permitted
Bid or Shareholder Endorsed Insider Bid requirements of the Shareholder Rights
Plan, the rights will entitle shareholders, other than any shareholder or
shareholders making the take-over bid, to purchase additional Common Shares of
the Company at a substantial discount to the market price of the Common Shares
at that time.
Neither the Company nor its subsidiaries has been a party
within the two years immediately preceding the publication of this Annual Report
to a contract that is material to the Company, except for (i) contracts entered
into in the ordinary course of business, and (ii) contracts discussed elsewhere
in this Annual Report.
139
Canada has no system of exchange controls. There are no
Canadian governmental laws, decrees, or regulations relating to restrictions on
the repatriation of capital or earnings of the Company to nonresident investors.
There are no laws in Canada or exchange control restrictions affecting the
remittance of dividends, profits, interest, royalties and other payments by the
Company to non-resident holders of the Common Stock, except as discussed below
under "Item 10.E. Taxation."
There are no limitations under the laws of Canada or in the
organizing documents of the Company on the right of foreigners to hold or vote
securities of the Company, except that the
Investment Canada Act
may
require that a non-Canadian not acquire control of the Company without prior
review and approval by the Minister of Innovation, Science and Economic
Development. The acquisition of one-third or more of the voting shares of the
Company would give rise a rebuttable presumption of the acquisition of control,
and the acquisition of more than fifty percent of the voting shares of the
Company would be deemed to be an acquisition of control. In addition, the
Investment Canada Act
provides the Canadian government with broad
discretionary powers in relation to national security to review and potentially
prohibit, condition or require the divestiture of, any investment in the Company
by a non-Canadian, including non-control level investments. "Non-Canadian"
generally means an individual who is neither a Canadian citizen nor a permanent
resident of Canada within the meaning of the
Immigration and Refugee
Protection Act
(Canada) who has been ordinarily resident in Canada for not
more than one year after the time at which he or she first became eligible to
apply for Canadian citizenship, or a corporation, partnership, trust or joint
venture that is ultimately controlled by non-Canadians.
Canadian Federal Income Tax Consequences
The following is, as of the date hereof, a summary of the
principal Canadian federal income tax considerations under
Income Tax Act
(Canada) (the
Tax Act
) and the regulations thereunder (the
Regulations
) generally applicable to a beneficial holder of Common Stock
who, at all relevant times, for the purposes of the Tax Act, deals at arms
length with the Company, is not affiliated with the Company, holds such Common
Stock as capital property, is neither resident nor deemed to be resident in
Canada, does not use or hold, and will not be deemed to use or hold, Common
Stock in a business carried on in Canada, is a resident of the United States for
purposes of the Canada-United States Income Tax Convention (1980) (the
Canada-U.S. Tax Convention
), and is a qualifying person within the
meaning of the Canada-U.S. Tax Convention (each, a
US Resident Holder
).
In some circumstances, persons deriving amounts through fiscally transparent
entities (including limited liability companies) may be entitled to benefits
under the Canada-U.S. Tax Convention. US Resident Holders are urged to consult
their own tax advisors to determine their entitlement to benefits under the
Canada-U.S. Tax Convention based on their particular circumstances.
Common Stock will generally be considered to be capital
property to a US Resident Holder unless the US Resident Holder holds or uses the
Common Stock or is deemed to hold or use the Common Stock in the course of
carrying on a business of trading or dealing in securities or has acquired them
or deemed to have acquired them in a transaction or transactions considered to
be an adventure in the nature of trade.
This summary does not apply to a US Resident Holder (a) that is
a financial institution for purposes of the mark to market rules contained in
the Tax Act; (b) an interest in which is or would constitute a tax shelter
investment as defined in the Tax Act; (c) that is a specified financial
institution as defined in the Tax Act; (d) that is a corporation that does not deal at arms
length for purposes of the Tax Act with a corporation resident in Canada and
that is or becomes as part of a transaction or event or series of transactions
or events that includes the acquisition of the Common Stock, controlled by a
non-resident corporation for the purposes of the foreign affiliate dumping rules
in Section 212.3 of the Tax Act; (e) that reports its Canadian tax results in a
currency other than Canadian currency, all as defined in the Tax Act; (f) that
is exempt from tax under the Tax Act; or (g) that has entered into, or will
enter into, a synthetic disposition arrangement or a derivative forward
agreement with respect to the Common Stock, as those terms are defined in the
Tax Act. Such US Resident Holders should consult their own tax advisors with
respect to their holding of Common Stock.
140
Special considerations, which are not discussed in this
summary, may apply to a US Resident Holder that is an insurer that carries on an
insurance business in Canada and elsewhere or an authorized foreign bank (as
defined in the Tax Act). Such US Resident Holders should consult their own
advisors.
This summary does not address the deductibility of interest by
a US Resident Holder who has borrowed money or otherwise incurred debt in
connection with the acquisition of Common Stock.
This summary is based upon the current provisions of the Tax
Act and the Regulations in force as of the date hereof, specific proposals to
amend the Tax Act and the Regulations (the
Tax Proposals
) which have been
announced by or on behalf the Minister of Finance (Canada) prior to the date
hereof, the current provisions of the Canada-U.S. Tax Convention, and counsels
understanding of the current published administrative policies and assessing
practices of the Canada Revenue Agency (the
CRA
). This summary assumes
that the Tax Proposals will be enacted in the form proposed and does not take
into account or anticipate any other changes in law, whether by way of judicial,
legislative or governmental decision or action, nor does it take into account
provincial, territorial or foreign income tax legislation or considerations,
which may differ from the Canadian federal income tax considerations discussed
herein. No assurances can be given that the Tax Proposals will be enacted as
proposed or at all, or that legislative, judicial or administrative changes will
not modify or change the statements expressed herein.
This summary is not exhaustive of all possible Canadian federal
income tax considerations applicable to the holding of Common Stock. This
summary is of a general nature only and is not intended to be, nor should it be
construed to be, legal or income tax advice to any particular US Resident
Holder. US Resident Holders should consult their own income tax advisors with
respect to the tax consequences applicable to them based on their own particular
circumstances.
Amounts Determined in Canadian Dollars
For purposes of the Tax Act, all amounts relating to the Common
Stock must be expressed in Canadian dollars, including cost, adjusted cost base,
proceeds of disposition, and dividends, and amounts denominated in U.S. dollars
must be converted to Canadian dollars using single daily exchange rate published
by the Bank of Canada on the particular date the particular amount arose, or
such other rate of exchange as may be accepted by the CRA. US Resident Holders
may therefore realize additional income or gain by virtue of changes in foreign
exchange rates, and are advised to consult with their own tax advisors in this
regard. Currency tax issues are not discussed further in this summary.
Taxation of Dividends
Subject to an applicable international tax treaty or
convention, dividends paid or credited, or deemed to be paid or credited, to a
non-resident of Canada on the Common Stock will be subject to Canadian withholding tax under the Tax Act at the rate of 25% of the
gross amount of the dividend. Such rate is generally reduced under the
Canada-U.S. Tax Convention to 15% if the beneficial owner of such dividend is a
US Resident Holder. The rate of withholding tax is further reduced to 5% if the
beneficial owner of such dividend is a US Resident Holder that is a company that
owns, directly or indirectly, at least 10% of the voting stock of the Company.
In addition, under the Canada-U.S. Tax Convention, dividends may be exempt from
such Canadian withholding tax if paid to certain US Resident Holders that are
qualifying religious, scientific, literary, educational, or charitable tax
exempt organizations or qualifying trusts, companies, organizations, or
arrangements operated exclusively to administer or provide pension, retirement,
or employee benefits or benefits for the self-employed under one or more funds
or plans established to provide pension or retirement benefits or other employee
benefits that are exempt from tax in the United States and that have complied
with specific administrative procedures.
141
Disposition of Common Stock
A US Resident Holder will not be subject to tax under the Tax
Act in respect of any capital gain realized by such US Resident Holder on a
disposition of Common Stock, unless the Common Stock constitute taxable Canadian
property (as defined in the Tax Act) of the US Resident Holder at the time of
the disposition and are not treaty-protected property (as defined in the Tax
Act) of the US Resident Holder at the time of the disposition.
Generally, as long as the Common Stock is then listed on a
designated stock exchange (which currently includes the TSX and the NYSE
American), the Common Stock will not constitute taxable Canadian property of a
US Resident Holder, unless at any time during the 60 month period immediately
preceding the disposition the following two conditions are met concurrently: (a)
the US Resident Holder, persons with which the US Resident Holder does not deal
at arms length, partnerships whose members include, either directly or
indirectly through one or more partnerships, the US Resident Holder or persons
which do not deal at arms length with the US Resident Holder, or any
combination of them, owned 25% or more of the issued shares of any class or
series of shares of the capital stock of the Company, and (b) more than 50% of
the fair market value of the Common Stock was derived directly or indirectly,
from one or any combination of real or immovable property situated in Canada,
Canadian resource properties, timber resource properties (each as defined in the
Tax Act), and options in respect of or interests in, or for civil law rights in,
any such property (whether or not such property exists).
In the case of a US Holder, the Common Stock of such US Holder
will generally constitute treaty- protected property for purposes of the Tax Act
unless the value of the Common Stock is derived principally from real property
situated in Canada. For this purpose, real property has the meaning that term
has under the laws of Canada and includes any option or similar right in respect
thereof and usufruct of real property, rights to explore for or to exploit
mineral deposits, sources and other natural resources and rights to amounts
computed by reference to the amount or value of production from such resources.
Taxation of Capital Gains and Losses
If the Common Stock is taxable Canadian property of a US
Resident Holder and is not treaty-protected property of that US Resident Holder
at the time of its disposition, that US Resident Holder will realize a capital
gain (or incur a capital loss) equal to the amount by which the proceeds of
disposition in respect of the Common Stock exceed (or are exceeded by) the
aggregate of the adjusted cost base to the Resident Holder of such Common Stock
immediately before the disposition and any reasonable expenses incurred for the
purpose of making the disposition.
142
Generally, one half of any capital gain (a taxable capital
gain) realized by a US Resident Holder must be included in the US Resident
Holders income for the taxation year in which the disposition occurs. Subject
to and in accordance with the provisions of the Tax Act, one half of any capital
loss incurred by a Resident Holder (an allowable capital loss) must generally be
deducted from taxable capital gains realized by the Resident Holder in the
taxation year in which the disposition occurs. Allowable capital losses in
excess of taxable capital gains for the taxation year of disposition generally
may be carried back and deducted in the three preceding taxation years or
carried forward and deducted in any subsequent year against taxable capital
gains realized in such years, in the circumstances and to the extent provided in
the Tax Act.
US Resident Holders whose Common Stock are taxable Canadian
property should consult their own advisors.
United States Federal Income Tax Considerations
The following is a general summary of certain material U.S.
federal income tax considerations applicable to a U.S. Holder (as defined
herein) arising from and relating to the ownership and disposition of shares of
Common Stock. This summary is for general information purposes only and does not
purport to be a complete analysis or listing of all potential U.S. federal
income tax considerations that may apply to a U.S. Holder arising from or
relating to the ownership and disposition of shares of Common Stock. In
addition, this summary does not take into account the individual facts and
circumstances of any particular U.S. Holder that may affect the U.S. federal
income tax consequences to such U.S. Holder, including specific tax consequences
to a U.S. Holder under an applicable tax treaty. Accordingly, this summary is
not intended to be, and should not be construed as, legal or U.S. federal income
tax advice with respect to any U.S. Holder. This summary does not address the
U.S. federal alternative minimum, U.S. federal estate and gift, U.S. state and
local, and non-U.S. tax consequences to U.S. Holders of the ownership and
disposition of shares of Common Stock. In addition, except as specifically set
forth below, this summary does not discuss applicable income tax reporting
requirements. Each prospective U.S. Holder should consult its own tax advisors
regarding the U.S. federal, U.S. federal alternative minimum, U.S. federal
estate and gift, U.S. state and local, and non-U.S. tax consequences relating to
the ownership and disposition of shares of Common Stock.
No legal opinion from U.S. legal counsel or ruling from the
Internal Revenue Service (the "
IRS
") has been requested, or will be
obtained, regarding the U.S. federal income tax consequences of the ownership
and disposition of shares of Common Stock. This summary is not binding on the
IRS, and the IRS is not precluded from taking a position that is different from,
or contrary to, the positions taken in this summary. In addition, because the
authorities on which this summary is based are subject to various
interpretations, the IRS and the U.S. courts could disagree with one or more of
the conclusions described in this summary.
Scope of this Summary
Authorities
This summary is based on the U.S. Internal Revenue Code of
1986, as amended (the "
Code
"), Treasury Regulations (whether final,
temporary, or proposed), published rulings of the IRS, published administrative
positions of the IRS, the Canada-U.S. Tax Convention, and U.S. court decisions
that are available as of the date of this document. Any of the authorities on
which this summary is based could be changed in a material and adverse manner at
any time, and any such change could be applied on a retroactive or prospective
basis, which could affect the U.S. federal income tax considerations described
in this summary. Except as provided herein, this summary does
not discuss the potential effects of any proposed legislation.
143
U.S. Holders
For purposes of this summary, the term "
U.S. Holder
"
means a beneficial owner of shares of Common Stock that is for U.S. federal
income tax purposes:
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a citizen or individual resident of the United States;
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a corporation (or other entity taxable as a corporation
for U.S. federal income tax purposes) organized under the laws of the
United States, any state thereof or the District of Columbia;
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an estate whose income is subject to U.S. federal income
taxation regardless of its source; or
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a trust that (1) is subject to the primary supervision of
a court within the U.S. and the control of one or more U.S. persons for
all substantial decisions or (2) has a valid election in effect under
applicable Treasury Regulations to be treated as a U.S. person.
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Non-U.S. Holders
For purposes of this summary, a "
non-U.S. Holder
" is a
beneficial owner of shares of Common Stock that is not a U.S. Holder or a
partnership. This summary does not address the U.S. federal income tax
consequences to non-U.S. Holders arising from or relating to the ownership and
disposition of shares of Common Stock. Accordingly, a non-U.S. Holder should
consult its own tax advisors regarding the U.S. federal, U.S. federal
alternative minimum, U.S. federal estate and gift, U.S. state and local, and
non-U.S. tax consequences (including the potential application of and operation
of any income tax treaties) relating to the ownership and disposition of shares
of Common Stock.
U.S. Holders Subject to Special U.S. Federal Income Tax
Rules Not Addressed
This summary does not address the U.S. federal income tax
considerations applicable to U.S. Holders that are subject to special provisions
under the Code, including, but not limited to U.S. Holders that: (a) are
tax-exempt organizations, qualified retirement plans, individual retirement
accounts, or other tax-deferred accounts; (b) are financial institutions,
underwriters, insurance companies, real estate investment trusts, or regulated
investment companies; (c) are broker-dealers, dealers, or traders in securities
or currencies that elect to apply a mark-to-market accounting method; (d) have a
"functional currency" other than the U.S. dollar; (e) own shares of Common Stock
as part of a straddle, hedging transaction, conversion transaction, constructive
sale, or other arrangement involving more than one position; (f) acquired shares
of Common Stock in connection with the exercise of employee stock options or
otherwise as compensation for services; (g) hold shares of Common Stock other
than as a capital asset within the meaning of Section 1221 of the Code
(generally, property held for investment purposes); (h) are subject to the
alternative minimum tax; (i) are required to accelerate the recognition of any
item of gross income with respect to shares of Common Stock as a result of such
income being recognized on an applicable financial statement; or (j) own or have
owned or will own (directly, indirectly, or by attribution) 10% or more of the
total combined voting power of the outstanding shares of the Company. This
summary also does not address the U.S. federal income tax considerations
applicable to U.S. Holders who are: (a) U.S. expatriates or former long-term
residents of the U.S.; (b) persons that have been, are, or will be a resident or
deemed to be a resident in Canada for purposes of the Tax Act; (c) persons that
use or hold, will use or hold, or that are or will be deemed to use or hold
shares of Common Stock in connection with carrying on a business in Canada; (d) persons
whose shares of Common Stock constitute "taxable Canadian property" under the
Tax Act; or (e) persons that have a permanent establishment in Canada for the
purposes of the Canada-U.S. Tax Convention. U.S. Holders that are subject to
special provisions under the Code, including, but not limited to, U.S. Holders
described immediately above, should consult their own tax advisors regarding the
U.S. federal, U.S. federal alternative minimum, U.S. federal estate and gift,
U.S. state and local, and non-U.S. tax consequences relating to the ownership
and disposition of shares of Common Stock.
144
In particular, it is noted that the Company may be or may
become a "controlled foreign corporation" for U.S. federal income tax purposes,
and therefore, if a U.S. Holder is a U.S. shareholder owning 10% or more of the
Company's voting stock directly, indirectly and/or under the applicable
attribution rules, the U.S. federal income tax consequences to such U.S. Holder
of owning shares of Common Stock may be significantly different than those
described below in several respects. If a U.S. Holder owns 10% or more of the
Company's voting stock directly, indirectly and/or under the applicable
attribution rules, such holder should consult its own tax advisors regarding the
U.S. federal income tax rules applicable to an investment in a controlled
foreign corporation.
If an entity or arrangement that is classified as a partnership
(or other "pass-through" entity) for U.S. federal income tax purposes holds
shares of Common Stock, the U.S. federal income tax consequences to such entity
and the partners (or other owners) of such entity generally will depend on the
activities of the entity and the status of such partners (or owners). This
summary does not address the tax consequences to any such entity or owner.
Partners (or other owners) of entities or arrangements that are classified as
partnerships or as "pass-through" entities for U.S. federal income tax purposes
should consult their own tax advisors regarding the U.S. federal income tax
consequences arising from and relating to the ownership and disposition of
shares of Common Stock.
Passive Foreign Investment Company Rules
PFIC Status of the Company
If the Company were to constitute a passive foreign investment
company under the meaning of Section 1297 of the Code (a
PFIC
, as defined
below) for any year during a U.S. Holders holding period, then certain
potentially adverse rules may affect the U.S. federal income tax consequences to
a U.S. Holder as a result of the acquisition, ownership and disposition of
shares of Common Stock. Based on current business plans and financial
expectations, the Company believes that it may be a PFIC for its current tax
year ending August 31, 2019 and may be a PFIC in future tax years. No opinion of
legal counsel or ruling from the IRS concerning the status of the Company as a
PFIC has been obtained or is currently planned to be requested. The
determination of whether any corporation was, or will be, a PFIC for a tax year
depends, in part, on the application of complex U.S. federal income tax rules,
which are subject to differing interpretations. In addition, whether any
corporation will be a PFIC for any tax year depends on the assets and income of
such corporation over the course of each such tax year and, as a result, cannot
be predicted with certainty as of the date of this document. Accordingly, there
can be no assurance that the IRS will not challenge any determination made by
the Company (or any subsidiary of the Company) concerning its PFIC status. Each
U.S. Holder should consult its own tax advisors regarding the PFIC status of the
Company and each subsidiary of the Company.
In any year in which the Company is classified as a PFIC, a
U.S. Holder will be required to file an annual report with the IRS containing
such information as Treasury Regulations and/or other IRS guidance may require. In addition to penalties, a failure to satisfy such
reporting requirements may result in an extension of the time period during
which the IRS can assess a tax. U.S. Holders should consult their own tax
advisors regarding the requirements of filing such information returns under
these rules, including the requirement to file an IRS Form 8621 annually.
145
The Company generally will be a PFIC if, for a tax year, (a)
75% or more of the gross income of the Company is passive income (the
PFIC
income test
) or (b) 50% or more of the value of the Companys assets either
produce passive income or are held for the production of passive income, based
on the quarterly average of the fair market value of such assets (the
PFIC
asset test
). Gross income generally includes all sales revenues less the
cost of goods sold, plus income from investments and from incidental or outside
operations or sources, and passive income generally includes, for example,
dividends, interest, certain rents and royalties, certain gains from the sale of
stock and securities, and certain gains from commodities transactions. Active
business gains arising from the sale of commodities generally are excluded from
passive income if substantially all of a foreign corporations commodities are
stock in trade or inventory, depreciable property used in a trade or business,
or supplies regularly used or consumed in the ordinary course of its trade or
business, and certain other requirements are satisfied.
For purposes of the PFIC income test and PFIC asset test
described above, if the Company owns, directly or indirectly, 25% or more of the
total value of the outstanding shares of another corporation, the Company will
be treated as if it (a) held a proportionate share of the assets of such other
corporation and (b) received directly a proportionate share of the income of
such other corporation. In addition, for purposes of the PFIC income test and
PFIC asset test described above, and assuming certain other requirements are
met, passive income does not include certain interest, dividends, rents, or
royalties that are received or accrued by the Company from certain related
persons (as defined in Section 954(d)(3) of the Code) also organized in Canada,
to the extent such items are properly allocable to the income of such related
person that is not passive income.
Under certain attribution rules, if the Company is a PFIC, U.S.
Holders will generally be deemed to own their proportionate share of the
Companys direct or indirect equity interest in any company that is also a PFIC
(a
Subsidiary PFIC
), and will generally be subject to U.S. federal
income tax on their proportionate share of (a) any excess distributions, as
described below, on the stock of a Subsidiary PFIC and (b) a disposition or
deemed disposition of the stock of a Subsidiary PFIC by the Company or another
Subsidiary PFIC, both as if such U.S. Holders directly held the shares of such
Subsidiary PFIC. In addition, U.S. Holders may be subject to U.S. federal income
tax on any indirect gain realized on the stock of a Subsidiary PFIC on the sale
or disposition of shares of Common Stock. Accordingly, U.S. Holders should be
aware that they could be subject to tax under the PFIC rules even if no
distributions are received and no redemptions or other dispositions of shares of
Common Stock are made.
Default PFIC Rules Under Section 1291 of the Code
If the Company is a PFIC for any tax year during which a U.S.
Holder owns shares of Common Stock, the U.S. federal income tax consequences to
such U.S. Holder of the acquisition, ownership, and disposition of shares of
Common Stock will depend on whether and when such U.S. Holder makes an election
to treat the Company and each Subsidiary PFIC, if any, as a qualified electing
fund or
QEF
under Section 1295 of the Code (a
QEF Election
) or
makes a mark-to-market election under Section 1296 of the Code (a
Mark-to-Market Election
). A U.S. Holder that does not make either a QEF
Election or a Mark-to-Market Election will be referred to in this summary as a
Non-Electing U.S. Holder
.
146
A Non-Electing U.S. Holder will be subject to the rules of
Section 1291 of the Code (described below) with respect to: (a) any gain
recognized on the sale or other taxable disposition of shares of Common Stock;
and (b) any excess distribution received on the shares of Common Stock. A
distribution generally will be an excess distribution to the extent that such
distribution (together with all other distributions received in the current tax
year) exceeds 125% of the average distributions received during the three
preceding tax years (or during a U.S. Holders holding period for the shares of
Common Stock, if shorter).
Under Section 1291 of the Code, any gain recognized on the sale
or other taxable disposition of shares of Common Stock (including an indirect
disposition of the stock of any Subsidiary PFIC), and any excess distribution
received on shares of Common Stock or with respect to the stock of a Subsidiary
PFIC, must be ratably allocated to each day in a Non-Electing U.S. Holders
holding period for the respective shares of Common Stock. The amount of any such
gain or excess distribution allocated to the tax year of disposition or
distribution of the excess distribution and to years before the entity became a
PFIC, if any, would be taxed as ordinary income (and not eligible for certain
preferred rates). The amounts allocated to any other tax year would be subject
to U.S. federal income tax at the highest tax rate applicable to ordinary income
in each such year, and an interest charge would be imposed on the tax liability
for each such year, calculated as if such tax liability had been due in each
such year. A Non-Electing U.S. Holder that is not a corporation must treat any
such interest paid as personal interest, which is not deductible.
If the Company is a PFIC for any tax year during which a
Non-Electing U.S. Holder holds shares of Common Stock, the Company will continue
to be treated as a PFIC with respect to such Non-Electing U.S. Holder,
regardless of whether the Company ceases to be a PFIC in one or more subsequent
tax years. A Non-Electing U.S. Holder may terminate this deemed PFIC status by
electing to recognize gain (which will be taxed under the rules of Section 1291
of the Code discussed above), but not loss, as if such shares of Common Stock
were sold on the last day of the last tax year for which the Company was a PFIC.
QEF Election
A U.S. Holder that makes a timely and effective QEF Election
for the first tax year in which the holding period of its shares of Common Stock
begins generally will not be subject to the rules of Section 1291 of the Code
discussed above with respect to its shares of Common Stock. A U.S. Holder that
makes a timely and effective QEF Election will be subject to U.S. federal income
tax on such U.S. Holders pro rata share of (a) the net capital gain of the
Company, which will be taxed as long-term capital gain to such U.S. Holder, and
(b) the ordinary earnings of the Company, which will be taxed as ordinary income
to such U.S. Holder. Generally, net capital gain is the excess of (a) net
long-term capital gain over (b) net short-term capital loss, and ordinary
earnings are the excess of (a) earnings and profits over (b) net capital gain. A
U.S. Holder that makes a QEF Election will be subject to U.S. federal income tax
on such amounts for each tax year in which the Company is a PFIC, regardless of
whether such amounts are actually distributed to such U.S. Holder by the
Company. However, for any tax year in which the Company is a PFIC and has no net
income or gain, U.S. Holders that have made a QEF Election would not have any
income inclusions as a result of the QEF Election. If a U.S. Holder that made a
QEF Election has an income inclusion, such a U.S. Holder may, subject to certain
limitations, elect to defer payment of current U.S. federal income tax on such
amounts, subject to an interest charge. If such U.S. Holder is not a
corporation, any such interest paid will be treated as personal interest, which
is not deductible.
A U.S. Holder that makes a timely and effective QEF Election
with respect to the Company generally (a) may receive a tax-free distribution
from the Company to the extent that such distribution represents earnings and
profits of the Company that were previously included in income by the U.S.
Holder because of such QEF Election and (b) will adjust such U.S. Holders tax
basis in the shares of Common Stock to reflect the amount included in income or
allowed as a tax-free distribution because of such QEF Election. In addition, a
U.S. Holder that makes a QEF Election generally will recognize capital gain or
loss on the sale or other taxable disposition of shares of Common Stock.
147
The procedure for making a QEF Election, and the U.S. federal
income tax consequences of making a QEF Election, will depend on whether such
QEF Election is timely. A QEF Election will be treated as timely if such QEF
Election is made for the first year in the U.S. Holders holding period for the
shares of Common Stock in which the Company was a PFIC. A U.S. Holder may make a
timely QEF Election by filing the appropriate QEF Election documents at the time
such U.S. Holder files a U.S. federal income tax return for such year. If a U.S.
Holder does not make a timely and effective QEF Election for the first year in
the U.S. Holders holding period for the shares of Common Stock, the U.S. Holder
may still be able to make a timely and effective QEF Election in a subsequent
year if such U.S. Holder meets certain requirements and makes a purging election
to recognize gain (which will be taxed under the rules of Section 1291 of the
Code discussed above) as if such shares of Common Stock were sold for their fair
market value on the day the QEF Election is effective. If a U.S. Holder makes a
QEF Election but does not make a purging election to recognize gain as discussed
in the preceding sentence, then such U.S. Holder shall be subject to the QEF
Election rules and shall continue to be subject to tax under the rules of
Section 1291 discussed above with respect to its shares of Common Stock. If a
U.S. Holder owns PFIC stock indirectly through another PFIC, separate QEF
Elections must be made for the PFIC in which the U.S. Holder is a direct
shareholder and the Subsidiary PFIC for the QEF rules to apply to both
PFICs.
A QEF Election will apply to the tax year for which such QEF
Election is timely made and to all subsequent tax years, unless such QEF
Election is invalidated or terminated or the IRS consents to revocation of such
QEF Election. If a U.S. Holder makes a QEF Election and, in a subsequent tax
year, the Company ceases to be a PFIC, the QEF Election will remain in effect
(although it will not be applicable) during those tax years in which the Company
is not a PFIC. Accordingly, if the Company becomes a PFIC in another subsequent
tax year, the QEF Election will be effective and the U.S. Holder will be subject
to the QEF rules described above during any subsequent tax year in which the
Company qualifies as a PFIC.
U.S. Holders should be aware that there can be no assurances
that the Company will satisfy the record keeping requirements that apply to a
QEF, or that the Company will supply U.S. Holders with information that such
U.S. Holders are required to report under the QEF rules, in the event that the
Company is a PFIC. Thus, U.S. Holders may not be able to make a QEF Election
with respect to their shares of Common Stock. Each U.S. Holder should consult
its own tax advisors regarding the availability of, and procedure for making, a
QEF Election.
A U.S. Holder makes a QEF Election by attaching a completed IRS
Form 8621, including a PFIC Annual Information Statement, to a timely filed
United States federal income tax return. However, if the Company does not
provide the required information with regard to the Company or any of its
Subsidiary PFICs, U.S. Holders will not be able to make a QEF Election for such
entity and will continue to be subject to the rules of Section 1291 of the Code
discussed above that apply to Non-Electing U.S. Holders with respect to the
taxation of gains and excess distributions.
Mark-to-Market Election
A U.S. Holder may make a Mark-to-Market Election only if the
shares of Common Stock are marketable stock. The shares of Common Stock
generally will be marketable stock if the shares of Common Stock are regularly traded on (a) a national securities exchange that
is registered with the Securities and Exchange Commission, (b) the national
market system established pursuant to section 11A of the Securities and Exchange
Act of 1934, or (c) a foreign securities exchange that is regulated or
supervised by a governmental authority of the country in which the market is
located, provided that (i) such foreign exchange has trading volume, listing,
financial disclosure, and surveillance requirements, and meets other
requirements and the laws of the country in which such foreign exchange is
located, together with the rules of such foreign exchange, ensure that such
requirements are actually enforced and (ii) the rules of such foreign exchange
effectively promote active trading of listed stocks. If such stock is traded on
such a qualified exchange or other market, such stock generally will be
regularly traded for any calendar year during which such stock is traded, other
than in de minimis quantities, on at least 15 days during each calendar quarter.
Each U.S. Holder should consult its own tax advisor in this regard.
148
A U.S. Holder that makes a Mark-to-Market Election with respect
to its shares of Common Stock generally will not be subject to the rules of
Section 1291 of the Code discussed above with respect to such shares of Common
Stock. However, if a U.S. Holder does not make a Mark-to-Market Election
beginning in the first tax year of such U.S. Holders holding period for the
shares of Common Stock for which the Company is a PFIC and such U.S. Holder has
not made a timely QEF Election, the rules of Section 1291 of the Code discussed
above will apply to certain dispositions of, and distributions on, the shares of
Common Stock.
A U.S. Holder that makes a Mark-to-Market Election will include
in ordinary income, for each tax year in which the Company is a PFIC, an amount
equal to the excess, if any, of (a) the fair market value of the shares of
Common Stock, as of the close of such tax year over (b) such U.S. Holders
adjusted tax basis in such shares of Common Stock. A U.S. Holder that makes a
Mark-to-Market Election will be allowed a deduction in an amount equal to the
excess, if any, of (a) such U.S. Holders adjusted tax basis in the shares of
Common Stock, over (b) the fair market value of such shares of Common Stock (but
only to the extent of the net amount of previously included income as a result
of the Mark-to-Market Election for prior tax years).
A U.S. Holder that makes a Mark-to-Market Election generally
also will adjust such U.S. Holders tax basis in the shares of Common Stock to
reflect the amount included in gross income or allowed as a deduction because of
such Mark-to-Market Election. In addition, upon a sale or other taxable
disposition of shares of Common Stock, a U.S. Holder that makes a Mark-to-Market
Election will recognize ordinary income or ordinary loss (not to exceed the
excess, if any, of (a) the amount included in ordinary income because of such
Mark-to-Market Election for prior tax years over (b) the amount allowed as a
deduction because of such Mark-to-Market Election for prior tax years). Losses
that exceed this limitation are subject to the rules generally applicable to
losses provided in the Code and Treasury Regulations.
A U.S. Holder makes a Mark-to-Market Election by attaching a
completed IRS Form 8621 to a timely filed United States federal income tax
return. A Mark-to-Market Election applies to the tax year in which such
Mark-to-Market Election is made and to each subsequent tax year, unless the
shares of Common Stock cease to be marketable stock or the IRS consents to
revocation of such election. Each U.S. Holder should consult its own tax
advisors regarding the availability of, and procedure for making, a
Mark-to-Market Election.
Although a U.S. Holder may be eligible to make a Mark-to-Market
Election with respect to the shares of Common Stock, no such election may be
made with respect to the stock of any Subsidiary PFIC that a U.S. Holder is
treated as owning, because such stock is not marketable. Hence, the
Mark-to-Market Election will not be effective to avoid the application of the
default rules of Section 1291 of the Code described above with respect to deemed dispositions of Subsidiary PFIC
stock or excess distributions from a Subsidiary PFIC to its shareholder.
149
Other PFIC Rules
Under Section 1291(f) of the Code, the IRS has issued proposed
Treasury Regulations that, subject to certain exceptions, would cause a U.S.
Holder that had not made a timely QEF Election to recognize gain (but not loss)
upon certain transfers of shares of Common Stock that would otherwise be
tax-deferred (e.g., gifts and exchanges pursuant to corporate reorganizations).
However, the specific U.S. federal income tax consequences to a U.S. Holder may
vary based on the manner in which shares of Common Stock are transferred.
Certain additional adverse rules may apply with respect to a
U.S. Holder if the Company is a PFIC, regardless of whether such U.S. Holder
makes a QEF Election. For example, under Section 1298(b)(6) of the Code, a U.S.
Holder that uses shares of Common Stock as security for a loan will, except as
may be provided in Treasury Regulations, be treated as having made a taxable
disposition of such shares of Common Stock.
Special rules also apply to the amount of foreign tax credit
that a U.S. Holder may claim on a distribution from a PFIC. Subject to such
special rules, foreign taxes paid with respect to any distribution in respect of
stock in a PFIC are generally eligible for the foreign tax credit. The rules
relating to distributions by a PFIC and their eligibility for the foreign tax
credit are complicated, and a U.S. Holder should consult with its own tax
advisors regarding the availability of the foreign tax credit with respect to
distributions by a PFIC.
The PFIC rules are complex, and each U.S. Holder should consult
its own tax advisors regarding the PFIC rules and how the PFIC rules may affect
the U.S. federal income tax consequences of the acquisition, ownership, and
disposition of shares of Common Stock.
Ownership and Disposition of Shares of Common Stock to
the Extent that the Passive Foreign Investment Company Rules Do Not Apply
The following discussion is subject, in its entirety, to the
rules described above under the heading "Passive Foreign Investment Company
Rules".
Distributions on Shares of Common Stock
A U.S. Holder that receives a distribution, including a
constructive distribution, with respect to an share of Common Stock will be
required to include the amount of such distribution in gross income as a
dividend (without reduction for any Canadian income tax withheld from such
distribution) to the extent of the current or accumulated "earnings and profits"
of the Company, as computed for U.S. federal income tax purposes. To the extent
that a distribution exceeds the current and accumulated "earnings and profits"
of the Company, such distribution will be treated first as a tax-free return of
capital to the extent of a U.S. Holder's tax basis in the shares of Common Stock
and thereafter as gain from the sale or exchange of such shares of Common Stock.
(See "Sale or Other Taxable Disposition of Shares of Common Stock" below).
However, the Company does not intend to maintain the calculations of its
earnings and profits in accordance with U.S. federal income tax principles, and
each U.S. Holder therefore should assume that any distribution by the Company
with respect to the shares of Common Stock will constitute ordinary dividend
income. Dividends received on shares of Common Stock will not be eligible for
the "dividends received deduction". Subject to applicable limitations and
provided the Company is eligible for the benefits of the Canada-U.S. Tax Convention or the shares of
Common Stock are readily tradable on a United States securities market,
dividends paid by the Company to non-corporate U.S. Holders, including
individuals, generally will be eligible for the preferential tax rates
applicable to long-term capital gains for dividends, provided certain holding
period and other conditions are satisfied, including that the Company not be
classified as a PFIC in the tax year of distribution or in the preceding tax
year. If the Company is a PFIC, a dividend generally will be taxed to a U.S.
Holder at ordinary income tax rates. The dividend rules are complex, and each
U.S. Holder should consult its own tax advisors regarding the application of
such rules.
150
Sale or Other Taxable Disposition of Shares of Common Stock
Upon the sale or other taxable disposition of shares of Common
Stock, a U.S. Holder generally will recognize capital gain or loss in an amount
equal to the difference between the U.S. dollar value of cash received plus the
fair market value of any property received and such U.S. Holder's tax basis in
such shares of Common Stock sold or otherwise disposed of. A U.S. Holder's tax
basis in shares of Common Stock generally will be such U.S. Holder's U.S. dollar
cost for such shares of Common Stock. Gain or loss recognized on such sale or
other disposition generally will be long-term capital gain or loss if, at the
time of the sale or other disposition, the shares of Common Stock have been held
for more than one year.
Preferential tax rates currently apply to long-term capital
gain of a U.S. Holder that is an individual, estate, or trust. There are no
preferential tax rates for long-term capital gain of a U.S. Holder that is a
corporation. Deductions for capital losses are subject to significant
limitations under the Code.
Additional Considerations
Additional Tax on Passive Income
Certain U.S. Holders that are individuals, estates or trusts
(other than trusts that are exempt from tax) will be subject to a 3.8% tax on
all or a portion of their "net investment income", which includes dividends on
the shares of Common Stock, and net gains from the disposition of the shares of
Common Stock. Special rules apply to PFICs. U.S. Holders that are individuals,
estates or trusts should consult their own tax advisors regarding the
applicability of this tax to any of their income or gains in respect of the
shares of Common Stock.
Receipt of Foreign Currency
The amount of any distribution paid to a U.S. Holder in foreign
currency, or on the sale, exchange or other taxable disposition of shares of
Common Stock, generally will be equal to the U.S. dollar value of such foreign
currency based on the exchange rate applicable on the date of receipt
(regardless of whether such foreign currency is converted into U.S. dollars at
that time). A U.S. Holder will have a tax basis in the foreign currency equal to
its U.S. dollar value on the date of receipt. Any U.S. Holder who converts or
otherwise disposes of the foreign currency after the date of receipt may have a
foreign currency exchange gain or loss that would be treated as ordinary income
or loss, and generally will be U.S. source income or loss for foreign tax credit
purposes. Different rules apply to U.S. Holders who use the accrual method of
tax accounting. Each U.S. Holder should consult its own U.S. tax advisors
regarding the U.S. federal income tax consequences of receiving, owning, and
disposing of foreign currency.
151
Foreign Tax Credit
Subject to the PFIC rules discussed above, a U.S. Holder that
pays (whether directly or through withholding) Canadian income tax with respect
to dividends paid on the shares of Common Stock generally will be entitled, at
the election of such U.S. Holder, to receive either a deduction or a credit for
such Canadian income tax. Generally, a credit will reduce a U.S. Holder's U.S.
federal income tax liability on a dollar-for-dollar basis, whereas a deduction
will reduce a U.S. Holder's income subject to U.S. federal income tax. This
election is made on a year-by-year basis and applies to all foreign taxes paid
(whether directly or through withholding) by a U.S. Holder during a year.
Complex limitations apply to the foreign tax credit, including
the general limitation that the credit cannot exceed the proportionate share of
a U.S. Holder's U.S. federal income tax liability that such U.S. Holder's
"foreign source" taxable income bears to such U.S. Holder's worldwide taxable
income. In applying this limitation, a U.S. Holder's various items of income and
deduction must be classified, under complex rules, as either "foreign source" or
"U.S. source". Generally, dividends paid by a foreign corporation should be
treated as foreign source for this purpose. However, and subject to certain
exceptions, a portion of the dividends paid by a foreign corporation will be
treated as U.S. source income for U.S. foreign tax credit purposes, in
proportion to its U.S. source earnings and profits, if U.S. persons own,
directly or indirectly, 50 percent or more of the voting power or value of the
foreign corporation's Common Shares. If a portion of any dividends paid with
respect to the shares of Common Stock are treated as U.S. source income under
these rules, it may limit the ability of a U.S. Holder to claim a foreign tax
credit for Canadian withholding taxes imposed in respect of such dividend. In
addition, the amount of a distribution with respect to the shares of Common
Stock that is treated as a "dividend" may be lower for U.S. federal income tax
purposes than it is for Canadian federal income tax purposes, resulting in a
reduced foreign tax credit allowance to a U.S. Holder. With respect to gains
recognized on the sale of stock of a foreign corporation by a U.S. Holder, such
gains are generally treated as U.S. source for purposes of the foreign tax
credit. These limitations are calculated separately with respect to specific
categories of income. The foreign tax credit rules are complex, and each U.S.
Holder should consult its own U.S. tax advisors regarding the foreign tax credit
rules.
Backup Withholding and Information Reporting
Under U.S. federal income tax law and Treasury Regulations,
certain categories of U.S. Holders must file information returns with respect to
their investment in, or involvement in, a foreign corporation. For example, U.S.
return disclosure obligations (and related penalties) are imposed on individuals
who are U.S. Holders that hold certain specified foreign financial assets in
excess of certain threshold amounts. The definition of specified foreign
financial assets includes not only financial accounts maintained in foreign
financial institutions, but also, unless held in accounts maintained by a
financial institution, any stock or security issued by a non-U.S. person, any
financial instrument or contract held for investment that has an issuer or
counterparty other than a U.S. person and any interest in a non-U.S. entity.
U.S. Holders may be subject to these reporting requirements unless their shares
of Common Stock are held in an account at certain financial institutions.
Penalties for failure to file certain of these information returns are
substantial. U.S. Holders should consult their own tax advisors regarding the
requirements of filing information returns, including the requirement to file an
IRS Form 8938.
Payments made within the U.S. or by a U.S. payor or U.S.
middleman, of dividends on, and proceeds arising from the sale or other taxable
disposition of, shares of Common Stock will generally be subject to information
reporting and backup withholding tax at the rate of 24% if a U.S. Holder (a)
fails to furnish such U.S. Holder's correct U.S. taxpayer identification number
(generally on IRS Form W-9), (b) furnishes an incorrect U.S. taxpayer
identification number, (c) is notified by the IRS that such U.S. Holder has previously failed to properly report items subject to backup
withholding tax, or (d) fails to certify, under penalty of perjury, that such
U.S. Holder has furnished its correct U.S. taxpayer identification number and
that the IRS has not notified such U.S. Holder that it is subject to backup
withholding tax. However, certain exempt persons generally are excluded from
these information reporting and backup withholding rules. Backup withholding is
not an additional tax. Any amounts withheld under the U.S. backup withholding
tax rules will be allowed as a credit against a U.S. Holder's U.S. federal
income tax liability, if any, or will be refunded, if such U.S. Holder furnishes
required information to the IRS in a timely manner.
152
The discussion of reporting requirements set forth above is not
intended to constitute an exhaustive description of all reporting requirements
that may apply to a U.S. Holder. A failure to satisfy certain reporting
requirements may result in an extension of the time period during which the IRS
can assess a tax, and under certain circumstances, such an extension may apply
to assessments of amounts unrelated to any unsatisfied reporting requirement.
Each U.S. Holder should consult its own tax advisor regarding the information
reporting and backup withholding rules.
F.
|
Dividends and Paying
Agents
|
Not applicable.
Not applicable.
Additional information relating to the Company may be found on
SEDAR, the system for electronic document analysis and retrieval, at
www.sedar.com
and on EDGAR, the SECs electronic data gathering, analysis
and retrieval database, at
www.sec.gov
.
Additional information, including directors and officers
remuneration and indebtedness, principal holders of the Companys securities and
securities authorized for issuance under equity compensation plans, if
applicable, is contained in the Companys information circular for its most
recent annual meeting of shareholders.
Additional financial information is provided in the Companys
Financial Statements and Managements Discussion and Analysis for the year ended
August 31, 2018.
Copies of the above may be obtained, on the Companys website
www.platinumgroupmetals.net
; on the SEDAR website at
www.sedar.com
; on the SECs EDGAR website at
www.sec.gov
; or by
calling the Companys investor relations personnel at 604-899-5450.
I.
|
Subsidiary Information
|
Not applicable.
ITEM 11.
|
QUANTITATIVE AND QUALITATIVE DISCLOSURES
ABOUT MARKET RISK
|
(a) Currency Risk
153
While the Companys financial statements are presented in U.S.
dollars, the Companys functional currency is the Canadian dollar, the
functional currency of the Companys subsidiaries is the South African Rand, and
a significant portion of the Companys and its subsidiaries expenses are
incurred in Canadian dollars and South African Rand. Therefore, the Company is
subject to currency risk with respect to changes in exchange rates among the
U.S. dollar, Canadian dollar and South African Rand. The Company has not entered
into any agreements or purchased any instruments to hedge its currency risks. A
hypothetical 10% strengthening/weakening in the U.S. dollar versus the Canadian
dollar and Rand would have given rise to a decrease/increase in net loss for the
year ended August 31, 2018 of approximately $6.8 million. For further
information, see note 18 to the Companys financial statements.
(b) Interest Rate Risk
The Company’s primary exposure to interest rate risk is through its
borrowings under the LMM Facility, which bears interest at LIBOR plus 9.5% . At
August 31, 2018, based on this exposure, an increase or decrease of 2% in the
average interest rate would give rise to an increase/decrease of approximately $
million on interest expense for the year ended August 31, 2018.
ITEM 12.
|
DESCRIPTION OF SECURITIES OTHER THAN EQUITY
SECURITIES
|
Not applicable.
154