UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C.
20549
Form 6-K
REPORT OF FOREIGN PRIVATE ISSUER PURSUANT TO RULE
13a-16 or 15d-16 UNDER
THE SECURITIES EXCHANGE ACT OF 1934
For the month of January, 2016
Commission File Number 001-35001
AVALON RARE METALS
INC.
(Translation of registrants name into English)
130 Adelaide Street West
Suite #1901
Toronto, Ontario M5H 3P5
(Address of principal
executive offices)
Indicate by check mark whether the registrant files or will
file annual reports under cover Form 20-F or Form 40-F
Form 20-F [X] |
Form 40-F [ ]
|
Indicate by check mark if the registrant is submitting the Form
6-K in paper as permitted by Regulation S-T Rule
101(b)(1): [ ]
Note: Regulation S-T Rule 101(b)(1) only permits the
submission in paper of a Form 6-K if submitted solely to provide an attached
annual report to security holders.
Indicate by check mark if the registrant is submitting the Form
6-K in paper as permitted by Regulation S-T Rule
101(b)(7): [ ]
Note: Regulation S-T Rule 101(b)(7) only permits the
submission in paper of a Form 6-K if submitted to furnish a report or other
document that the registrant foreign private issuer must furnish and make public
under the laws of the jurisdiction in which the registrant is incorporated,
domiciled or legally organized (the registrants home country), or under the
rules of the home country exchange on which the registrants securities are
traded, as long as the report or other document is not a press release, is not
required to be and has not been distributed to the registrants security
holders, and, if discussing a material event, has already been the subject of a
Form 6-K submission or other Commission filing on EDGAR.
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on its behalf by
the undersigned, thereunto duly authorized.
|
AVALON RARE METALS INC. |
|
|
|
|
|
|
|
/s/ R. James Andersen |
Date: January 14, 2016 |
R. James Andersen |
|
Chief Financial Officer and VP Finance
|
EXHIBIT INDEX
Condensed Consolidated Interim Financial Statements
For the three months ended
November 30,
2015
(Unaudited)
INDEX
Condensed Consolidated Interim Statements of Financial
Position |
(expressed in Canadian Dollars) |
(unaudited)
|
|
|
November 30, |
|
|
August 31, |
|
|
|
2015 |
|
|
2015 |
|
|
|
|
|
|
|
|
Assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
Current
Assets |
|
|
|
|
|
|
Cash and cash equivalents |
$ |
3,156,769 |
|
$ |
5,247,738 |
|
Other receivables |
|
469,858 |
|
|
424,259 |
|
Prepaid expenses and deposits |
|
381,391 |
|
|
680,008 |
|
|
|
4,008,018 |
|
|
6,352,005 |
|
|
|
|
|
|
|
|
Non-Current Assets |
|
|
|
|
|
|
Exploration and evaluation assets (note 5) |
|
10,839,078 |
|
|
9,003,980 |
|
Property, plant and equipment (note 6) |
|
103,953,300 |
|
|
103,867,289 |
|
|
|
114,792,378 |
|
|
112,871,269 |
|
|
|
|
|
|
|
|
|
$ |
118,800,396 |
|
$ |
119,223,274 |
|
|
|
|
|
|
|
|
Liabilities |
|
|
|
|
|
|
|
|
|
|
|
|
|
Current Liabilities |
|
|
|
|
|
|
Accounts payable |
$ |
741,892 |
|
$ |
488,719 |
|
Accrued liabilities |
|
607,365 |
|
|
600,070 |
|
Deferred flow-through share premium (note 7) |
|
88,164 |
|
|
293,808 |
|
Warrants denominated in foreign currency (note 8) |
|
125,818 |
|
|
288,857 |
|
|
|
1,563,239 |
|
|
1,671,454 |
|
|
|
|
|
|
|
|
Non-Current Liabilities |
|
|
|
|
|
|
Site closure and reclamation provisions |
|
263,600 |
|
|
263,600 |
|
|
|
|
|
|
|
|
|
|
1,826,839 |
|
|
1,935,054 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shareholders Equity |
|
|
|
|
|
|
|
|
|
|
|
|
|
Share
Capital (note 9b) |
|
164,919,377 |
|
|
164,695,991 |
|
Reserve for Warrants (note 9c) |
|
4,020,968 |
|
|
4,020,968 |
|
Reserve
for Share Based Payments (note 9d) |
|
16,352,197 |
|
|
16,244,942 |
|
Reserve for Brokers
Compensation Warrants (note 9e) |
|
219,238 |
|
|
219,238 |
|
Accumulated Deficit |
|
(68,538,223 |
) |
|
(67,892,919 |
) |
|
|
|
|
|
|
|
|
|
116,973,557 |
|
|
117,288,220 |
|
|
|
|
|
|
|
|
|
$ |
118,800,396 |
|
$ |
119,223,274 |
|
Approved on behalf of the Board |
|
|
|
Donald S.
Bubar |
, Director |
|
|
Brian
MacEachen |
, Director |
Avalon Rare Metals
Inc. |
Page 1
|
Unaudited Interim Financial Statements |
|
For the three months ended November 30, 2015 |
|
Condensed Consolidated Interim Statements of
Comprehensive Loss |
(expressed in Canadian Dollars, except number of
shares) |
(unaudited)
|
|
|
Three Months
Ended |
|
|
|
November 30,
|
|
|
|
2015 |
|
|
2014 |
|
|
|
|
|
|
|
|
Revenue |
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest |
$ |
13,895 |
|
$ |
15,415 |
|
|
|
|
|
|
|
|
Expenses |
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate
and administrative expenses (note 10) |
|
939,603 |
|
|
1,242,499 |
|
Impairment loss on
exploration and evaluation assets (note 5) |
|
- |
|
|
2,375 |
|
Write-off
of land acquisition option payments (note 11) |
|
- |
|
|
212,960 |
|
General exploration |
|
4,025 |
|
|
17,544 |
|
Depreciation |
|
9,571 |
|
|
12,636 |
|
Share based compensation
(note 9d) |
|
77,739 |
|
|
283,088 |
|
Foreign
exchange gain |
|
(3,056 |
) |
|
(9,902 |
) |
Decrease in
fair value of warrants denominated in foreign currency (note 8) |
|
(163,039 |
) |
|
(1,126,913 |
) |
|
|
|
|
|
|
|
|
|
864,843 |
|
|
634,287 |
|
|
|
|
|
|
|
|
Net Loss before Income Taxes |
|
(850,948 |
) |
|
(618,872 |
) |
|
|
|
|
|
|
|
Deferred Income Tax Recoveries (note 7) |
|
205,644 |
|
|
- |
|
|
|
|
|
|
|
|
Net Loss and Total Comprehensive Loss for the
period |
$ |
(645,304 |
) |
$ |
(618,872 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss per Share - Basic and
Diluted |
$ |
(0.00 |
) |
$ |
(0.00 |
) |
|
|
|
|
|
|
|
Weighted Average Number of
Common Shares Outstanding,
Basic
and Diluted |
|
154,058,042 |
|
|
126,667,591 |
|
Avalon Rare Metals
Inc. |
Page 2
|
Unaudited Interim Financial Statements |
|
For the three months ended November 30, 2015 |
|
Condensed Consolidated Interim Statements of Changes in
Equity |
(expressed in Canadian Dollars, except number of
shares) |
(unaudited)
|
|
|
Share Capital |
|
|
|
|
|
Reserves |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Brokers |
|
|
|
|
|
|
|
|
|
Number of |
|
|
|
|
|
|
|
|
Share Based |
|
|
Compensation |
|
|
Accumulated |
|
|
|
|
|
|
Shares |
|
|
Amount |
|
|
Warrants |
|
|
Payments |
|
|
Warrants |
|
|
Deficit |
|
|
Total |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at September 1, 2014 |
|
126,343,686 |
|
$ |
158,553,485 |
|
$ |
3,863,018 |
|
$ |
15,270,866 |
|
$ |
123,576 |
|
$ |
(64,716,545 |
) |
$ |
113,094,400 |
|
Equity offerings |
|
1,381,967 |
|
|
343,258 |
|
|
- |
|
|
- |
|
|
- |
|
|
- |
|
|
343,258 |
|
Share
based compensation |
|
- |
|
|
- |
|
|
- |
|
|
354,121 |
|
|
- |
|
|
- |
|
|
354,121 |
|
Share issuance costs -
cash |
|
- |
|
|
(59,926 |
) |
|
- |
|
|
- |
|
|
- |
|
|
- |
|
|
(59,926 |
) |
Net loss
for the three month period |
|
- |
|
|
- |
|
|
- |
|
|
- |
|
|
- |
|
|
(618,872 |
) |
|
(618,872 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at November 30, 2014 |
|
127,725,653 |
|
|
158,836,817 |
|
|
3,863,018 |
|
|
15,624,987 |
|
|
123,576 |
|
|
(65,335,417 |
) |
|
113,112,981 |
|
Equity offerings |
|
25,009,829 |
|
|
6,951,976 |
|
|
184,370 |
|
|
- |
|
|
- |
|
|
- |
|
|
7,136,346 |
|
Issued
for other considerations |
|
- |
|
|
- |
|
|
1,184 |
|
|
- |
|
|
- |
|
|
- |
|
|
1,184 |
|
Exercise of options |
|
50,000 |
|
|
11,000 |
|
|
- |
|
|
- |
|
|
- |
|
|
- |
|
|
11,000 |
|
Reserve
transferred on exercise of options |
|
- |
|
|
4,282 |
|
|
- |
|
|
(4,282 |
) |
|
- |
|
|
- |
|
|
- |
|
Compensation
warrants issued on equity offerings |
|
- |
|
|
- |
|
|
- |
|
|
- |
|
|
95,662 |
|
|
- |
|
|
95,662 |
|
Share
based compensation |
|
- |
|
|
- |
|
|
- |
|
|
624,237 |
|
|
- |
|
|
- |
|
|
624,237 |
|
Share issuance costs
cash |
|
- |
|
|
(1,015,323 |
) |
|
(24,703 |
) |
|
- |
|
|
- |
|
|
- |
|
|
(1,040,026 |
) |
Share issuance costs
compensation warrants issued |
|
- |
|
|
(92,761 |
) |
|
(2,901 |
) |
|
- |
|
|
- |
|
|
- |
|
|
(95,662 |
) |
Net loss for the nine
month period |
|
- |
|
|
- |
|
|
- |
|
|
- |
|
|
- |
|
|
(2,557,502 |
) |
|
(2,557,502 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at August 31, 2015 |
|
152,785,482 |
|
|
164,695,991 |
|
|
4,020,968 |
|
|
16,244,942 |
|
|
219,238 |
|
|
(67,892,919 |
) |
|
117,288,220 |
|
Equity
offerings |
|
1,553,724 |
|
|
248,086 |
|
|
- |
|
|
- |
|
|
- |
|
|
- |
|
|
248,086 |
|
Share based compensation |
|
- |
|
|
- |
|
|
- |
|
|
107,255 |
|
|
- |
|
|
- |
|
|
107,255 |
|
Share
issuance costs - cash |
|
- |
|
|
(24,700 |
) |
|
- |
|
|
- |
|
|
- |
|
|
- |
|
|
(24,700 |
) |
Net loss for the three
month period |
|
- |
|
|
- |
|
|
- |
|
|
- |
|
|
- |
|
|
(645,304 |
) |
|
(645,304 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at November 30, 2015 |
|
154,339,206 |
|
$ |
164,919,377 |
|
$ |
4,020,968 |
|
$ |
16,352,197 |
|
$ |
219,238 |
|
$ |
(68,538,223 |
) |
$ |
116,973,557 |
|
Avalon Rare Metals
Inc. |
Page 3
|
Unaudited Interim Financial Statements |
|
For the three months ended November 30, 2015 |
|
Condensed Consolidated Interim Statements of Cash
Flows |
(expressed in Canadian Dollars) |
(unaudited)
|
|
|
Three Months
Ended |
|
|
|
November 30,
|
|
|
|
2015 |
|
|
2014 |
|
|
|
|
|
|
|
|
Operating Activities |
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash paid
to employees |
$ |
(455,997 |
) |
$ |
(557,226 |
) |
Cash paid to suppliers |
|
(377,615 |
) |
|
(512,326 |
) |
Interest
received |
|
12,899 |
|
|
14,419 |
|
|
|
|
|
|
|
|
Cash Used by Operating
Activities |
|
(820,713 |
) |
|
(1,055,133 |
) |
|
|
|
|
|
|
|
Financing Activities |
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds
from equity offerings |
|
222,280 |
|
|
278,934 |
|
|
|
|
|
|
|
|
Cash Provided by Financing
Activities |
|
222,280 |
|
|
278,934 |
|
|
|
|
|
|
|
|
Investing Activities |
|
|
|
|
|
|
|
|
|
|
|
|
|
Exploration and evaluation assets |
|
(1,418,023 |
) |
|
(569,212 |
) |
Property, plant and
equipment |
|
(77,569 |
) |
|
(1,259,436 |
) |
|
|
|
|
|
|
|
Cash Used by Investing Activities |
|
(1,495,592 |
) |
|
(1,828,648 |
) |
|
|
|
|
|
|
|
Change in Cash and Cash Equivalents |
|
(2,094,025 |
) |
|
(2,604,847 |
) |
|
|
|
|
|
|
|
Foreign Exchange Effect on Cash |
|
3,056 |
|
|
9,902 |
|
|
|
|
|
|
|
|
Cash and Cash Equivalents beginning of
period |
|
5,247,738 |
|
|
6,017,598 |
|
|
|
|
|
|
|
|
Cash and Cash Equivalents end of period |
$ |
3,156,769 |
|
$ |
3,422,653 |
|
Supplemental Cash Flow Information (note 14)
Avalon Rare Metals
Inc. |
Page 4
|
Unaudited Interim Financial Statements |
|
For the three months ended November 30, 2015 |
|
Notes to the Condensed Consolidated Interim Financial
Statements |
For the three months ended November 30, 2015 |
(unaudited)
|
Avalon Rare Metals Inc. (the Company)
is a publicly listed company incorporated in Canada and continued under the
Canada Business Corporations Act. The Companys common shares are listed
on the Toronto Stock Exchange (TSX: AVL), on the OTCQX® Best Market (OTCQX:
AVLNF), and the Frankfurt Stock Exchange in Germany.
The registered address, principal
address and records office of the Company is located at 130 Adelaide Street
West, Suite 1901, Toronto, Ontario, Canada, M5H 3P5.
The Company is in the process of
exploring and developing its mineral resource properties. To date, the Company
has not earned significant revenues.
The realization of amounts shown for
its exploration and evaluation assets and its development asset - Nechalacho
Rare Earth Elements Project (the Nechalacho REE Project) is dependent upon the
discovery of economically recoverable reserves, the ability of the Company to
obtain the necessary financing to develop these assets, and future profitable
production or proceeds of disposition from these assets.
The Company is principally engaged in
the acquisition, exploration, evaluation and development of rare metal and
mineral properties located principally in Canada.
These unaudited condensed consolidated
interim financial statements have been prepared in accordance with International
Financial Reporting Standards (IFRS) applicable to a going concern, which
assumes the Company will continue to meet its obligations and discharge its
liabilities in the normal course of business for the foreseeable future.
Different bases of measurement may be appropriate when a company is not expected
to continue operations for the foreseeable future. The Company is in the
exploration and development stage and, as is common with many exploration and
development companies, raises funds in the equity markets to conduct its
business activities. The Company has incurred losses in the current and prior
periods, with a net loss of $645,304 for the three months ended November 30,
2015 (the Quarter) and an accumulated deficit of $68,538,223 as at November
30, 2015.
The Companys cash and cash equivalents
balance at November 30, 2015 is $3,156,769 and adjusted working capital is
$2,658,761 (calculated by adding back the deferred flow-through share premium of
$88,164 and the liability for warrants denominated in foreign currency of
$125,818 to the net current assets of $2,444,779). Given the continuation of
weak investor sentiment and capital market conditions in the junior resource
sector, there exists an uncertainty as to the Companys ability to raise
additional funds on favorable terms. This condition indicates the existence of a
material uncertainty that raises substantial doubt about the Companys ability
to continue as a going concern. As at November 30, 2015, the Company is required
to incur additional Canadian exploration expenses (CEE) of $1,146,138 by
December 31, 2016. This amount represents the remaining balance of the required
expenditures resulting from the prospectus offering completed in May 2015. The
Companys expenditures on other discretionary exploration and development
activities have some scope for flexibility in terms of amount and timing, which
can be adjusted accordingly. Management intends to finance these expenditures
over the next twelve months with funds currently on hand and through planned
equity financings.
These unaudited condensed consolidated
interim financial statements do not reflect the adjustments to the carrying
values of assets and liabilities and the reported expenses and statement of
financial position classifications that would be necessary should the going
concern assumption be inappropriate, and those adjustments could be material.
These unaudited condensed consolidated
interim financial statements have been reviewed and approved by the Companys
Audit Committee and the Board of Directors on January 12, 2016.
Avalon Rare Metals
Inc. |
Page 5
|
Notes to the Condensed Consolidated Interim Financial
Statements |
For the three months ended November 30, 2015 |
(unaudited)
|
|
a) |
Statement of Compliance and Basis of
Presentation |
These unaudited condensed consolidated
interim financial statements, including comparatives, have been prepared in
accordance with International Accounting Standards (IAS) 34 Interim
Financial Reporting, as issued by International Accounting Standards Board
(IASB).
These unaudited condensed consolidated
interim financial statements do not contain all disclosures required by IFRS and
accordingly should be read in conjunction with the Companys consolidated annual
financial statements for the year ended August 31, 2015.
These unaudited condensed consolidated
interim financial statements have been prepared on a going concern basis using
the historical cost basis, except for certain financial instruments which are
measured at fair value in accordance with the policies disclosed in Note 3 of
the Companys consolidated annual financial statements for the year ended August
31, 2015.
|
b) |
Basis of
Consolidation |
These unaudited condensed consolidated
interim financial statements include the accounts of the Company and the
entities controlled by the Company. Control exists when the Company is exposed,
or has rights, to variable returns from its involvement with the investee and
has the ability to affect those returns through its power over the investee. The
financial statements of subsidiaries are included in the consolidated financial
statements from the date that control commences until the date that control
ceases.
These unaudited condensed consolidated
interim financial statements include the accounts of the Company and its
wholly-owned subsidiaries, 8110131 Canada Inc., Nolava Minerals Inc. (Nolava),
Avalon Rare Metals Ltd. (ARML), Avalon Rare Metals Processing Inc. (ARMP)
and Avalon Rare Metals Processing LLC (ARMLLC). Nolava, ARML, ARMP and ARMLLC
are incorporated in the United States of America (USA). ARML, ARMP and ARMLLC
have not carried on any significant operations since their inception. During the
year ended August 31, 2012, 8110131 Canada Inc. acquired certain net smelter
returns (NSR) royalty interests in the Companys properties which were held by
third parties. Nolava had held certain mining claims in Utah, USA and had
conducted exploration work on those mining claims during fiscal year 2011 to
fiscal year 2014. ARMP was dissolved on February 11, 2015. All intercompany
transactions and balances have been eliminated on consolidation of the accounts.
3. |
Significant Accounting
Policies |
These unaudited condensed consolidated
interim financial statements have been prepared using the same accounting
policies, significant accounting judgments and estimates, and methods of
computation as the annual consolidated financial statements of the Company as at
and for the year ended August 31, 2015, as described in Note 3 of those
financial statements.
Avalon Rare Metals
Inc. |
Page 6
|
Notes to the Condensed Consolidated Interim Financial
Statements |
For the three months ended November 30, 2015 |
(unaudited)
|
4. |
Recent Accounting
Pronouncements |
The following pronouncements are issued
but not yet effective:
|
a) |
IFRS 9, Financial
Instruments |
IFRS 9, Financial instruments (IFRS
9) was issued by the IASB in July 2014 and will replace IAS 39, Financial
Instruments: recognition and measurement (IAS 39). IFRS 9 utilizes a single
approach to determine whether a financial asset is measured at amortized cost or
fair value and a new mixed measurement model for debt instruments having only
two categories: amortized cost and fair value. The approach in IFRS 9 is based
on how an entity manages its financial instruments in the context of its
business model and the contractual cash flow characteristics of the financial
assets. Final amendments released in July 2014 also introduce a new expected
loss impairment model and limited changes to the classification and measurement
requirements for financial assets. IFRS 9 is effective for annual periods
beginning on or after January 1, 2018. The Company is currently evaluating the
impact of this standard and amendments on its consolidated financial statements.
|
b) |
IFRS 15, Revenue from Contracts and
Customers |
IFRS 15, Revenue from Contracts and
Customers (IFRS 15) was issued by the IASB in May 2014, and will replace IAS
18, Revenue, IAS 11, Construction Contracts, and related interpretations on
revenue. IFRS 15 sets out the requirements for recognizing revenue that apply to
all contracts with customers, except for contracts that are within the scope of
the standards on leases, insurance contracts and financial instruments. IFRS 15
uses a control based approach to recognize revenue which is a change from the
risk and reward approach under the current standard. Companies can elect to use
either a full or modified retrospective approach when adopting this standard and
it is effective for annual periods beginning on or after January 1, 2018. The
Company is currently evaluating the impact of IFRS 15 on its consolidated
financial statements.
Avalon Rare Metals
Inc. |
Page 7
|
Notes to the Condensed Consolidated Interim Financial
Statements |
For the three months ended November 30, 2015 |
(unaudited)
|
5. |
Exploration and Evaluation
Assets |
|
|
September 1, |
|
|
|
|
|
Impairment |
|
|
November 30, |
|
|
|
2015 |
|
|
Expenditures |
|
|
Loss |
|
|
2015 |
|
For the Quarter |
|
|
|
|
|
|
|
|
|
|
|
|
Separation Rapids Lithium Project (a) |
$ |
5,637,890 |
|
$ |
653,947 |
|
$ |
- |
|
$ |
6,291,837 |
|
East Kemptville Tin-Indium Project (b) |
|
3,148,165 |
|
|
1,151,601 |
|
|
- |
|
|
4,299,766 |
|
Miramichi Tin Project (c) |
|
202,925 |
|
|
29,550 |
|
|
- |
|
|
232,475 |
|
Warren Township Anorthosite Project (d) |
|
- |
|
|
- |
|
|
- |
|
|
- |
|
Other (e) |
|
15,000 |
|
|
- |
|
|
- |
|
|
15,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
9,003,980 |
|
$ |
1,835,098 |
|
$ |
- |
|
$ |
10,839,078 |
|
|
|
September 1, |
|
|
|
|
|
Impairment |
|
|
August 31, |
|
|
|
2014 |
|
|
Expenditures |
|
|
Loss |
|
|
2015 |
|
For the year ended August 31,
2015 |
|
|
|
|
|
|
|
|
|
|
|
|
Separation Rapids Lithium Project (a) |
$ |
5,089,720 |
|
$ |
548,170 |
|
$ |
- |
|
$ |
5,637,890 |
|
East Kemptville Tin-Indium Project (b) |
|
1,857,161 |
|
|
1,291,004 |
|
|
- |
|
|
3,148,165 |
|
Miramichi Tin Project (c) |
|
178,109 |
|
|
24,816 |
|
|
- |
|
|
202,925 |
|
Warren Township Anorthosite Project (d) |
|
- |
|
|
6,425 |
|
|
(6,425 |
) |
|
- |
|
Other (e) |
|
15,000 |
|
|
- |
|
|
- |
|
|
15,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
7,139,990 |
|
$ |
1,870,415 |
|
$ |
(6,425 |
) |
$ |
9,003,980 |
|
Avalon Rare Metals
Inc. |
Page 8
|
Notes to the Condensed Consolidated Interim Financial
Statements |
For the three months ended November 30, 2015 |
(unaudited)
|
5. |
Exploration and Evaluation Assets
(continued) |
|
a) |
Separation Rapids Lithium Project, Ontario |
|
|
|
|
|
The Company owns a 100% interest in certain claims and a
mining lease in the Paterson Lake area of Ontario. |
|
|
|
|
b) |
East Kemptville Tin-Indium Project, Nova Scotia |
|
|
|
|
|
During the year ended August 31, 2007, the Company was
granted a special exploration licence to search and prospect for all
minerals except for coal, salt, potash and uranium within four claims in
the East Kemptville area of Yarmouth, Nova Scotia. The special licence has
been renewed multiple times since then. |
|
|
|
|
|
In September 2014, the Company submitted an application
for a new Special Licence reflecting the entire original mine site. During
the quarter ended May 31, 2015, by Order in Council, the Government of
Nova Scotia approved this application. The current Special Licence has a
term of three years beginning on February 2, 2015 and includes a
requirement to incur $5.25 million in expenditures over the three years
including $750,000 in the first year (of which $2,037,915 had been
incurred by November 30, 2015). |
|
|
|
|
|
The Company also has a number of regular exploration
licences covering certain claims in the same proximity to the claims
covered under the special exploration licence. |
|
|
|
|
c) |
Miramichi Tin Project, New Brunswick |
|
|
|
|
|
The Company owns a 100% interest in certain claims
located in York County, New Brunswick, which were staked by the Company
during the year ended August 31, 2012. |
|
|
|
|
|
During the Quarter, the Company entered into an option
letter agreement to earn a 100% interest (subject to a 2.0% NSR, which can
be bought back for $1.0 million) in certain mineral claims located in
Charlotte County, New Brunswick. To keep the option in good standing, the
Company is required to incur exploration expenditures of $75,000 by
October 28, 2016 (of which $33,034 had been incurred as at November 30,
2015) and make cash payments totalling $120,000 over five years (including
$10,000 by October 28, 2016). |
|
|
|
|
d) |
Warren Township Anorthosite Project, Ontario |
|
|
|
|
|
The Company owns a 100% interest in certain claims
located near Foleyet, Ontario, which were staked by the Company during the
year ended August 31, 2003. During the year ended August 31, 2013, the
Company entered into a Mining Lease with the Province of Ontario under the
Mining Act of Ontario covering these claims. |
|
|
|
|
|
No substantial work has been carried out on the Warren
Township project during the last five years and no work was planned or
budgeted for fiscal 2016. In addition, no new potential customer has been
identified for the projects calcium feldspar product. The current outlook
as at November 30, 2015 for the Warren Township project remains unchanged.
It is managements view that the fair value of this project has been
significantly impaired and has estimated the recoverable amount of this
project as at November 30, 2015 to be $nil. |
|
|
|
|
e) |
Other Resource Properties |
|
|
|
|
|
The Company has a 100% interest in several claims in the
Lilypad Lakes Tantalum Property, a 2.0% NSR interest in certain claims of
the East Cedartree Gold Property located near Kenora, Ontario, and a 2.4%
NSR interest in the Wolf Mountain Platinum-Palladium
Project. |
Avalon Rare Metals
Inc. |
Page 9
|
Notes to the Condensed Consolidated Interim Financial
Statements |
For the three months ended November 30, 2015 |
(unaudited)
|
6. |
Property, Plant and
Equipment |
|
|
Nechalacho |
|
|
|
|
|
Computer |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
REE Project |
|
|
|
|
|
and Office |
|
|
Land and |
|
|
Exploration |
|
|
Leasehold |
|
|
|
|
|
|
(a) |
|
|
Airstrip |
|
|
Equipment |
|
|
Building |
|
|
Equipment |
|
|
Improvements |
|
|
Total |
|
Cost |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As at September 1, 2014 |
$ |
101,507,002 |
|
$ |
646,860 |
|
$ |
330,659 |
|
$ |
- |
|
$ |
671,583 |
|
$ |
98,796 |
|
$ |
103,254,900 |
|
Additions |
|
1,615,243 |
|
|
- |
|
|
- |
|
|
74,455 |
|
|
9,301 |
|
|
- |
|
|
1,698,999 |
|
Disposals |
|
- |
|
|
- |
|
|
(29,103 |
) |
|
- |
|
|
- |
|
|
(4,202 |
) |
|
(33,305 |
) |
As at
August 31, 2015 |
|
103,122,245 |
|
|
646,860 |
|
|
301,556 |
|
|
74,455 |
|
|
680,884 |
|
|
94,594 |
|
|
104,920,594 |
|
Additions |
|
112,119 |
|
|
- |
|
|
- |
|
|
- |
|
|
- |
|
|
- |
|
|
112,119 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As at November 30, 2015 |
$ |
103,234,364 |
|
$ |
646,860 |
|
$ |
301,556 |
|
$ |
74,455 |
|
$ |
680,884 |
|
$ |
94,594 |
|
$ |
105,032,713 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated Depreciation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As at September 1, 2014 |
$ |
- |
|
$ |
163,390 |
|
$ |
213,538 |
|
$ |
- |
|
$ |
510,770 |
|
$ |
63,303 |
|
$ |
951,001 |
|
Depreciation expense |
|
- |
|
|
28,788 |
|
|
39,550 |
|
|
537 |
|
|
48,649 |
|
|
15,775 |
|
|
133,299 |
|
Disposals |
|
- |
|
|
- |
|
|
(26,793 |
) |
|
- |
|
|
- |
|
|
(4,202 |
) |
|
(30,995 |
) |
As at
August 31, 2015 |
|
- |
|
|
192,178 |
|
|
226,295 |
|
|
537 |
|
|
559,419 |
|
|
74,876 |
|
|
1,053,305 |
|
Depreciation expense |
|
- |
|
|
6,621 |
|
|
5,627 |
|
|
806 |
|
|
9,110 |
|
|
3,944 |
|
|
26,108 |
|
As at
November 30, 2015 |
$ |
- |
|
$ |
198,799 |
|
$ |
231,922 |
|
|
1,343 |
|
$ |
568,529 |
|
$ |
78,820 |
|
$ |
1,079,413 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Book Value |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As at
August 31, 2015 |
$ |
103,122,245 |
|
$ |
454,682 |
|
$ |
75,261 |
|
$ |
73,918 |
|
$ |
121,465 |
|
$ |
19,718 |
|
$ |
103,867,289 |
|
As at November 30, 2015 |
$ |
103,234,364 |
|
$ |
448,061 |
|
$ |
69,634 |
|
$ |
73,112 |
|
$ |
112,355 |
|
$ |
15,774 |
|
$ |
103,953,300 |
|
Avalon Rare Metals
Inc. |
Page 10
|
Notes to the Condensed Consolidated Interim Financial
Statements |
For the three months ended November 30, 2015 |
(unaudited)
|
6. |
Property, Plant and Equipment
(continued) |
|
a) |
Nechalacho REE Project, Northwest Territories |
|
|
|
|
|
During the year ended August 31, 2005, the Company
acquired a 100% interest in five mining leases covering the Nechalacho
rare earth elements deposit (Nechalacho Deposit) located at Thor Lake in
the Mackenzie Mining District of the Northwest Territories. In addition,
three mineral claims were staked in 2009 to cover favourable geology to
the west of the mining leases. |
|
|
|
|
|
The property was subject to two underlying net smelter
returns (NSR) royalty agreements, one for a 3.0% royalty and one for a
2.5% royalty. During the year ended August 31, 2012, the Company bought
out the 3.0% NSR royalty for a cash payment of $2.0 million. The remaining
2.5% NSR royalty can be bought back at the principal amount of $150,000
compounded annually at the average Canadian prime rate from May 2, 1982 to
the buyback date, which currently approximates $1.4 million. |
|
|
|
|
|
During the year ended August 31, 2012, the Company
entered into an accommodation agreement (the Accommodation Agreement)
with the Deninu Kue First Nation (DKFN). The DKFN is one of three
Akaitcho bands who have used, occupied and have constitutionally protected
aboriginal rights with respect to the lands on which the Nechalacho
Deposit in the Northwest Territories is located. |
|
|
|
|
|
The Accommodation Agreement provides for business and
employment opportunities for the DKFN related to the Nechalacho Deposit
and associated facilities in the Northwest Territories and contains
measures to mitigate environmental and cultural impacts that may result
from the project development. The Accommodation Agreement also commits the
DKFN to supporting timely completion of the environmental assessment,
permitting and development processes of the Nechalacho REE Project, and
provides for the DKFN to participate in the project economics. |
|
|
|
|
|
In conjunction with the Accommodation Agreement, the
Company had issued an aggregate of 10,000 common shares of the Company and
agreed to grant an aggregate of 50,000 non-transferrable common share
purchase warrants of the Company to the DKFN. The common shares are
subject to certain contractual restrictions on transfer pending receipt of
certain regulatory permits and approvals for the Nechalacho REE Project.
As at November 30, 2015, the Company has issued 40,000 warrants with a
weighted average exercise price of $0.73 per share to the DKFN and these
warrants have a weighted average remaining contract life of 3.2 years. The
remaining 10,000 warrants will be issued on the next anniversary of the
effective date (July 31, 2016) of the Accommodation Agreement. These
warrants will have a term of five years and will have an exercise price
based on the then current market price of the Companys common shares at
the date of issue of the warrants, and will be subject to statutory
restrictions on resale. |
7. |
Deferred Flow-Through Share
Premium |
A summary of the changes in the
deferred flow-through share premium amount is set out below:
Balance September 1, 2014
|
$ |
- |
|
Increase relating to flow-through common
shares issued |
|
641,397 |
|
Decrease relating to CEE
incurred |
|
(347,589 |
) |
|
|
|
|
Balance August 31, 2015 |
|
293,808 |
|
Decrease relating to CEE incurred |
|
(205,644 |
) |
|
|
|
|
Balance November 30, 2015 |
$ |
88,164 |
|
Avalon Rare Metals
Inc. |
Page 11
|
Notes to the Condensed Consolidated Interim Financial
Statements |
For the three months ended November 30, 2015 |
(unaudited)
|
8. |
Warrants Denominated in Foreign
Currency |
The following table reconciles the
outstanding warrants (with an exercise price in a currency that is not the
functional currency of the Company) to purchase common shares of the Company at
the beginning and end of the respective reporting periods:
|
|
Number |
|
|
|
|
|
|
of Warrants |
|
|
Amount |
|
|
|
|
|
|
|
|
Balance September 1, 2014 |
|
6,466,513 |
|
|
1,720,622 |
|
Decrease in fair value |
|
- |
|
|
(1,431,765 |
) |
|
|
|
|
|
|
|
Balance August 31, 2015 |
|
6,466,513 |
|
|
288,857 |
|
Decrease in fair value |
|
- |
|
|
(163,039 |
) |
|
|
|
|
|
|
|
Balance November 30, 2015 |
|
6,466,513 |
|
$ |
125,818 |
|
These warrants are denominated in US$
and each warrant is exercisable into a common share of the Company at the
original exercise price of US$0.56 per share until June 13, 2021 (US$ Warrant)
and is subject to certain anti-dilution provisions, which may reduce the
exercise price, with a floor of US$0.5095 per share. The adjusted exercise price
as calculated by the anti-dilution provisions as at November 30, 2015 is
US$0.5223.
In accordance with IAS 32 Financial
Instruments: Presentation and IAS 39 Financial Instruments: Recognition
and Measurement, the fair value of these warrants had been classified as a
financial liability at fair value through profit or loss and recorded at fair
value at the time of issuance, and are re-measured at each financial statement
reporting date. The fair value of these warrants has been re-measured as at
November 30, 2015 using the Black-Scholes pricing model with the following
assumptions: expected dividend yield of Nil; risk free interest rate of 0.92%;
expected life of 5.5 years; and expected volatility of 61%, and the resulting
change in value has been recorded as decrease in fair value of warrants
denominated in foreign currency in the statement of comprehensive loss.
The Company is presently authorized to
issue an unlimited number of common shares without par value. The Company is
also authorized to issue up to 25,000,000 preferred shares without par value, of
which none have been issued.
Avalon Rare Metals
Inc. |
Page 12
|
Notes to the Condensed Consolidated Interim Financial
Statements |
For the three months ended November 30, 2015 |
(unaudited)
|
9. |
Share Capital
(continued) |
|
b) |
Common Shares Issued and
Outstanding |
|
|
Number |
|
|
Amount |
|
|
|
|
|
|
|
|
Balance September 1, 2014 |
|
126,343,686 |
|
$ |
158,553,485 |
|
Issued pursuant to: |
|
|
|
|
|
|
equity offerings |
|
26,391,796 |
|
|
7,936,631 |
|
exercise of options |
|
50,000 |
|
|
15,282 |
|
Issuance costs cash |
|
- |
|
|
(1,075,249 |
) |
Issuance costs compensation warrants issued |
|
- |
|
|
(92,761 |
) |
Price premium of flow-through
shares issued |
|
- |
|
|
(641,397 |
) |
|
|
|
|
|
|
|
Balance August 31, 2015 |
|
152,785,482 |
|
$ |
164,695,991 |
|
Issued pursuant to prospectus offering (i) |
|
1,553,724 |
|
|
248,086 |
|
Issuance costs - cash |
|
- |
|
|
(24,700 |
) |
|
|
|
|
|
|
|
Balance November 30, 2015 |
|
154,339,206 |
|
$ |
164,919,377 |
|
|
i) |
During the year ended August 31, 2014, the Company
entered into a sales agreement (the Sales Agreement) with Cowen and
Company, LLC (Cowen), pursuant to which the Company may, at its
discretion and from time to time during the term of the Sales Agreement,
sell, through Cowen, as agent and/or principal, such number of the
Companys common shares as would result in aggregate gross proceeds to the
Company of up to US$25,000,000. Sales of common shares will be made
through at the market issuances on the NYSE MKT at the market price
prevailing at the time of each sale, and, as a result, prices may
vary. |
|
|
|
|
|
The Company filed a prospectus supplement, dated
September 24, 2013, pursuant to which the Company may issue up to
US$8,100,000 in common shares using the Sales Agreement (each prospectus
supplement is limited to 10% of the market value of the Company at the end
of the month prior to filing) (the First Supplement). |
|
|
|
|
|
The Company will pay Cowen a commission, or allow a
discount, equal to 3.0% of the gross proceeds of all common shares sold
under the Sales Agreement. |
|
|
|
|
|
Pursuant to the Sales Agreement, as at August 31, 2015,
the Company had issued 9,428,180 common shares for gross proceeds of
$3,855,388 (US$3,439,916) and paid cash commissions totaling $115,661
(US$103,197). During the year ended August 31, 2014, the Company had also
incurred other costs (primarily related to the preparation of the Sales
Agreement and the First Supplement) of $399,032, of which $381,775 had
been recognized as share issuance costs as at August 31, 2015, and the
balance of $17,257 was recorded as prepaid transaction costs. |
|
|
|
|
|
During the Quarter, the Company has issued 1,553,724
common shares for gross proceeds of $248,086 (US$187,696) pursuant to the
Sales Agreement and paid cash commissions totaling $7,443 (US$5,631). The
Company has recognized the balance of the prepaid transaction costs of
$17,257 as share issuance costs. |
|
|
|
|
|
The Sales Agreement expired in October
2015. |
Avalon Rare Metals
Inc. |
Page 13
|
Notes to the Condensed Consolidated Interim Financial
Statements |
For the three months ended November 30, 2015 |
(unaudited)
|
9. |
Share Capital
(continued) |
The following table reconciles the
warrants outstanding to purchase common shares of the Company at the beginning
and end of the respective reporting periods:
|
|
|
|
|
Weighted |
|
|
|
Number |
|
|
Average |
|
|
|
of Warrants |
|
|
Exercise Price |
|
|
|
|
|
|
|
|
Balance September 1, 2014 |
|
1,252,500 |
(1) |
$ |
0.607 |
|
Issued pursuant to equity offerings |
|
2,215,985 |
|
|
0.425 |
|
Issued pursuant to
Accommodation Agreement |
|
10,000 |
|
|
0.210 |
|
|
|
|
|
|
|
|
Balance August 31, 2015 and
November 30, 2015 |
|
3,478,485 |
(1) |
$ |
0.490 |
|
(1) Does not include the
6,466,513 US$ Warrants as disclosed below.
The outstanding warrants have a
weighted average remaining contract life of 1.2 years.
The warrants reserve, included as a
component of the consolidated statement of changes in equity, relates to equity
settled instruments issued by the Company to various stakeholders.
As disclosed in Note 8, the Company
also has 6,466,513 US$ Warrants outstanding as at November 30, 2015, with an
adjusted exercise price of US$0.5223 per share. These US$ Warrants are
exercisable until June 13, 2021.
The Company is also required to issue
the following warrants:
|
i) |
as disclosed in Note 6(a), issue 10,000 warrants to the
DKFN on the next anniversary of the effective date of the Accommodation
Agreement (July 31, 2016); and |
|
|
|
|
ii) |
issue 20,000 warrants to the Northwest Territory Métis
Nation in two equal installments of 10,000 warrants upon the Nechalacho
REE Project meeting certain milestones. |
The shareholders have approved a Stock
Option Plan (the Plan) that provides for the issue of up to 10% of the number
of issued and outstanding common shares of the Company to eligible employees,
directors and service providers of the Company.
The Plan authorizes the granting of
options to purchase common shares of the Company at a price equal to or greater
than the closing price of the shares on either the trading day prior to the
grant or the day of the grant. The options generally vest over a period of up to
four years, and generally have a term of two to five years (but can have a
maximum term of up to 10 years).
Avalon Rare Metals
Inc. |
Page 14
|
Notes to the Condensed Consolidated Interim Financial
Statements |
For the three months ended November 30, 2015 |
(unaudited)
|
9. |
Share Capital (continued) |
The following table reconciles the
stock options outstanding at the beginning and end of the respective reporting
periods:
|
|
|
|
|
Weighted |
|
|
|
Number |
|
|
Average |
|
|
|
of Options |
|
|
Exercise Price |
|
|
|
|
|
|
|
|
Balance September 1, 2014 |
|
8,630,250 |
|
$ |
2.02 |
|
Granted |
|
2,620,000 |
|
|
0.27 |
|
Exercised |
|
(50,000 |
) |
|
0.22 |
|
Expired |
|
(1,200,250 |
) |
|
1.94 |
|
Forfeited |
|
(225,000 |
) |
|
2.51 |
|
|
|
|
|
|
|
|
Balance August 31, 2015 |
|
9,775,000 |
|
$ |
1.56 |
|
Granted |
|
140,000 |
|
|
0.17 |
|
Expired |
|
(75,000 |
) |
|
1.80 |
|
Forfeited |
|
(150,000 |
) |
|
2.13 |
|
|
|
|
|
|
|
|
Balance November 30, 2015 |
|
9,690,000 |
|
$ |
1.53 |
|
As at November 30, 2015, there were
6,880,000 options vested (August 31, 2015 6,570,000) with an average exercise
price of $1.85 (August 31, 2015 - $1.89) .
The share based payments reserve,
included as a component of the consolidated statement of changes in equity,
relates to equity settled compensation options issued by the Company to its
directors, officers, employees and consultants.
The estimated fair value of options
earned during the Quarter was $107,255 (2014 - $354,121), of which $1,211 (2014
- $50,888) was capitalized to property, plant and equipment, $28,184 (2014 -
$17,956) was capitalized as exploration and evaluation assets, $121 (2014 -
$2,189) was charged to operations as general exploration expenses with the
balance of $77,739 (2014 - $283,088) charged to operations as share based
compensation expense.
The fair value of each option granted
is estimated at the time of grant using the Black-Scholes option-pricing model.
The Black-Scholes option-pricing model requires the input of subjective
assumptions, including expected life of the option award, share price volatility
and other assumptions. The expected life of options granted is derived from
historical data on employee exercises and post-vesting employment termination
behavior. Expected volatility is based on the historic volatility of the
Companys shares. These assumptions involve inherent uncertainties and the
application of management judgment. In addition, the Company is required to
estimate the expected forfeiture rate and only recognize expense for those
options expected to vest.
Avalon Rare Metals
Inc. |
Page 15
|
Notes to the Condensed Consolidated Interim Financial
Statements |
For the three months ended November 30, 2015 |
(unaudited)
|
9. |
Share Capital (continued) |
The weighted average assumptions for
grants during the Quarter and the year ended August 31, 2015 are as follows:
|
|
November 30, |
|
|
August 31, |
|
|
|
2015 |
|
|
2015 |
|
|
|
|
|
|
|
|
Exercise price |
$ |
0.17 |
|
$ |
0.27 |
|
Closing market price on day preceding date of
grant |
$ |
0.17 |
|
$ |
0.27 |
|
Risk-free interest rate |
|
0.57% |
|
|
0.94% |
|
Expected life (years) |
|
3.6 |
|
|
3.1 |
|
Expected volatility |
|
66% |
|
|
64% |
|
Expected dividend yield |
|
Nil |
|
|
Nil |
|
Grant date fair value |
$ |
0.08 |
|
$ |
0.12 |
|
Forfeiture rate |
|
16% |
|
|
17% |
|
The following table summarizes
information concerning outstanding and exercisable options as at November 30,
2015:
|
|
|
|
|
|
|
|
Weighted Average |
|
|
|
Number of Options |
|
|
Remaining |
|
Option Price Range |
|
Outstanding |
|
|
Exercisable |
|
|
Contractual Life |
|
|
|
|
|
|
|
|
|
|
|
$8.00 - $8.62 |
|
300,000 |
|
|
300,000 |
|
|
0.4 years |
|
$4.00 - $4.99 |
|
700,000 |
|
|
700,000 |
|
|
0.6 years |
|
$3.00 - $3.99 |
|
500,000 |
|
|
500,000 |
|
|
1.0 years |
|
$2.00 - $2.99 |
|
675,000 |
|
|
575,000 |
|
|
1.1 years |
|
$1.00 - $1.99 |
|
1,990,000 |
|
|
1,613,750 |
|
|
1.8 years |
|
$0.50 - $0.99 |
|
2,485,000 |
|
|
1,096,250 |
|
|
3.1 years |
|
$0.17 - $0.49 |
|
3,040,000 |
|
|
2,095,000 |
|
|
3.5 years |
|
|
|
|
|
|
|
|
|
|
|
|
|
9,690,000 |
|
|
6,880,000 |
|
|
|
|
|
e) |
Brokers Compensation
Warrants |
The following table summarizes
information concerning outstanding brokers compensation warrants as at the
beginning and end of the respective reporting periods:
|
|
Number of |
|
|
Weighted |
|
|
|
Compensation |
|
|
Average |
|
|
|
Warrants |
|
|
Exercise Price |
|
|
|
|
|
|
|
|
Balance September 31, 2014 |
|
554,273 |
|
|
0.61 |
|
Issued pursuant to equity offerings |
|
1,178,339 |
|
|
0.31 |
|
|
|
|
|
|
|
|
Balance August 31, 2015 and November 30,
2015 |
|
1,732,612 |
|
$ |
0.45 |
(1) |
|
(1) |
554,273 of the compensation warrants outstanding as at
August 31, 2014 and throughout the period to November 30, 2015 are
denominated in US$. The effect of the change in the foreign exchange rate
between the Canadian$ and the US$ has been reflected in the weighted
average exercise price as at August 31, 2015 and November 30,
2015. |
Avalon Rare Metals
Inc. |
Page 16
|
Notes to the Condensed Consolidated Interim Financial
Statements |
For the three months ended November 30, 2015 |
(unaudited)
|
9. |
Share Capital (continued) |
The brokers compensation warrants
reserve, included as a component of the consolidated statement of changes in
equity, relates to equity settled compensation instruments issued by the Company
to external service providers.
As at November 30, 2015, the Company
has the following compensation warrants outstanding:
|
(i) |
554,273 compensation warrants with an exercise price of
US$0.56 per common share, which are exercisable until June 13,
2017; |
|
|
|
|
(ii) |
527,806 compensation warrants with an exercise
price of $0.27 per common share, which are exercisable until December 19,
2016; |
|
|
|
|
(iii) |
650,533 compensation warrants with an exercise price of
$0.34 per common share, which are exercisable until November 27,
2016. |
10. |
Corporate and Administrative
Expenses |
Corporate and administrative expenses
for the three months ended November 30, 2015 and 2014 consist of the following:
|
|
November 30, |
|
|
November 30, |
|
|
|
2015 |
|
|
2014 |
|
|
|
|
|
|
|
|
Salaries, benefits and
directors fees |
$ |
517,910 |
|
$ |
579,276 |
|
Consulting and professional fees |
|
135,110 |
|
|
285,291 |
|
Office, insurance and other
expenses |
|
123,017 |
|
|
128,276 |
|
Occupancy |
|
75,972 |
|
|
81,964 |
|
Shareholders communications
and filing fees |
|
55,433 |
|
|
85,617 |
|
Travel and related costs |
|
32,161 |
|
|
82,075 |
|
|
|
|
|
|
|
|
|
$ |
939,603 |
|
$ |
1,242,499 |
|
Employees salaries, benefits and stock
based compensation expensed for the Quarter totaled $533,698 (2014 $703,337).
11. |
Write-off of Land Acquisition Option
Payments |
The Companys purchase option on a land
parcel in Geismar, Louisiana expired on December 14, 2014, and accordingly, the
option payments made totaling $212,960 for the purchase option were written off
during the quarter ended November 30, 2014.
12. |
Related Party Disclosures |
Balances and transactions between the
Company and its subsidiaries have been eliminated on consolidation and are not
disclosed in this note. Details of the transactions between the Company and
other related parties are disclosed below:
There have been no material trading
transactions with related parties during each of the three months ended November
30, 2015 and 2014.
Avalon Rare Metals
Inc. |
Page 17
|
Notes to the Condensed Consolidated Interim Financial
Statements |
For the three months ended November 30, 2015 |
(unaudited)
|
12. |
Related Party Disclosures
(continued) |
|
b) |
Compensation of key management
personnel |
The remuneration of directors and
other members of the Companys senior management team during each of the three
months ended November 30, 2015 and 2014 are as follows:
|
|
November 30, |
|
|
November 30, |
|
|
|
2015 |
|
|
2014 |
|
|
|
|
|
|
|
|
Salaries, benefits and
directors fees |
$ |
504,998 |
|
$ |
557,519 |
|
Share based compensation(1) |
|
85,211 |
|
|
273,800 |
|
|
|
|
|
|
|
|
|
$ |
590,209 |
|
$ |
831,319 |
|
|
(1) |
Fair value of stock options earned and recognized as
share based compensation during the respective reporting
period. |
13. |
Financial Instruments |
IFRS 7 establishes a fair value
hierarchy that reflects the significance of inputs used in making fair value
measurements as follows:
|
Level 1 |
quoted prices in active markets for identical
assets or liabilities; |
|
Level 2 |
inputs other than quoted prices included in
Level 1 that are observable for the asset or liability, either directly
(i.e. as prices) or indirectly (i.e. from derived prices); and |
|
Level 3 |
inputs for the asset or liability that are not
based upon observable market data. |
Assets are classified in their entirety
based on the lowest level of input that is significant to the fair value
measurement. The fair value of the Companys warrants denominated in a currency
that is not the functional currency of the Company is based on Level 2 inputs
that are observable for the liability such as interest rate, dividend yield and
historical volatility.
Fair Values
Except as disclosed elsewhere in these
financial statements, the carrying amounts for the Companys financial
instruments approximate their fair values because of the short-term nature of
these items.
The Companys risk exposures and the
impact on the Companys financial instruments are summarized below:
Credit risk
The Company is not exposed to any
significant credit risk as at November 30, 2015. The Companys cash and cash
equivalents are either on deposit with two major Canadian chartered banking
groups in Canada or invested in bankers acceptance notes or guaranteed
investment certificates issued by two major Canadian Chartered banking groups.
The Companys receivables primarily consist of Goods and Services Tax/Harmonized
Sales Tax receivable, government grants and refundable security deposits with
various federal and provincial governments and are therefore not subject to
significant credit risk.
Avalon Rare Metals
Inc. |
Page 18
|
Notes to the Condensed Consolidated Interim Financial
Statements |
For the three months ended November 30, 2015 |
(unaudited)
|
13. |
Financial Instruments
(continued) |
Liquidity risk
Liquidity risk is the risk that an
entity will not be able to meet its financial obligations as they come due. The
Company has in place a planning and budgeting process to assist in determining
the funds required to support the Companys normal operating requirements on an
on-going basis and its plans for exploration and development expenditures. The
Company ensures that there are sufficient funds to meet its short-term
requirements, taking into account its anticipated cash flows from operations and
its holdings of cash and cash equivalents.
As at November 30, 2015, the Company
has current assets of $4,008,018 and current liabilities of $1,563,239. The
adjusted working capital of the Company is $2,658,761 (calculated by adding back
the deferred flow-through share premium of $88,164 and the liability for
warrants denominated in foreign currency of $125,818 to the net current assets
of $2,444,779). As the de-recognition of the balances of the deferred
flow-through share premium and the liability for warrants denominated in foreign
currency accounts will not require the future out flow of resources by the
Company, it is managements belief that the adjusted working capital figure
provides useful information in assessing the Companys liquidity risk.
Repayments due by period as of November
30, 2015:
|
|
Within |
|
|
1-3 |
|
|
4-5 |
|
|
|
|
|
|
1 Year |
|
|
Years |
|
|
Years |
|
|
Total |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts payable and accrued
liabilities |
$ |
1,349,257 |
|
$ |
- |
|
$ |
- |
|
$ |
1,349,257 |
|
Operating lease obligations |
|
227,915 |
|
|
626,374 |
|
|
420,062 |
|
|
1,274,351 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
1,577,172 |
|
$ |
626,374 |
|
$ |
420,062 |
|
$ |
2,623,608 |
|
Market risk
|
(i) |
Interest rate risk |
|
|
|
|
|
The Company has cash and cash equivalents balances and it
has no interest-bearing debt. The Companys current policy is to invest
its excess cash in highly liquid money market investments such as bankers
acceptance notes, treasury bills and GICs. These short term money market
investments are subject to interest rate fluctuations. |
|
|
|
|
(ii) |
Foreign currency risk |
|
|
|
|
|
The Companys functional currency is the Canadian dollar.
The majority of the Companys purchases are transacted in Canadian
dollars. As at November 30, 2015, the Company had cash held in bank
accounts of US$102,639 and accounts payable of US$17,999 denominated in US
currency. |
|
|
|
|
(iii) |
Price risk |
|
|
|
|
|
The prices of metals and minerals fluctuate widely and
are affected by many factors outside of the Companys control. The prices
of metals and minerals and future expectation of such prices have a
significant impact on the market sentiment for investment in mining and
mineral exploration companies. This in turn may impact the Companys
ability to raise equity financing for its long term working capital
requirements. |
Avalon Rare Metals
Inc. |
Page 19
|
Notes to the Condensed Consolidated Interim Financial
Statements |
For the three months ended November 30, 2015 |
(unaudited)
|
13. |
Financial Instruments
(continued) |
Sensitivity analysis
Considering the Companys budget
expenditures for the balance of fiscal 2016 and its current cash and cash
equivalents of $3,156,769, with other variables held constant, sensitivity to a
plus or minus 25 basis points change in interest rates would not have any
significant effect on the Companys net loss for the balance of fiscal 2016.
The Company had cash of US$102,639 and
accounts payable of US$17,999 denominated in US currency as at November 30, 2015
and its anticipated on-going expenditures to be transacted in US dollars for the
next nine month period is approximately US$240,000. If the Canadian dollar
weakens (or strengthens) 5% against the US dollar with other variables held
constant, it would not have any significant effect on the Companys expenditures
for the balance of fiscal 2016.
14. |
Supplemental Cash Flow
Information |
Non-cash financing and investing
transactions not reflected in the Condensed Consolidated Interim Statements of
Cash Flows for the three months ended November 30, 2015 and 2014 are as follows:
|
|
November 30, |
|
|
November 30, |
|
|
|
2015 |
|
|
2014 |
|
|
|
|
|
|
|
|
Share based compensation
capitalized as property, plant and equipment (note 9d) |
$ |
1,211 |
|
$ |
50,888 |
|
Share based compensation capitalized as
exploration and evaluation assets (note 9d) |
|
28,184 |
|
|
17,956 |
|
Depreciation expense
capitalized as property, plant and equipment |
|
14,316 |
|
|
19,258 |
|
Depreciation expense capitalized as
exploration and evaluation assets |
|
2,221 |
|
|
- |
|
|
|
|
|
|
|
|
|
$ |
45,932 |
|
$ |
88,102 |
|
15. |
Events After the Reporting
Period |
Subsequent to the end of the Quarter,
the Company:
|
a) |
completed a private placement and issued 6,000,000
flow-through units (Flow-Through Unit) at $0.125 per unit for gross
proceeds of $750,000. Each Flow-Through Unit consists of one flow-through
common share and one-half of one non-transferrable common share purchase
warrant. Each whole warrant entitles the holder to purchase one common
share of the Company at a price of $0.175 per share, until December 24,
2017. In connection with the private placement, the Company paid finders
fees of $45,000 and issued 360,000 non-transferrable finders compensation
warrants. Each finders compensation warrant entitles the holder to
purchase one common share of the Company at an exercise price of $0.125
per share until December 24, 2017; |
|
|
|
|
b) |
granted an aggregate of 885,000 stock options with a
weighted average exercise price of $0.12 per share to certain employees of
the Company. The weighted average contract life of these options was 5.0
years; and |
|
|
|
|
c) |
had 150,000 stock options with a weighted average
exercise price of $4.07 per share expire. |
Avalon Rare Metals
Inc. |
Page 20
|
Managements Discussion and Analysis of Financial Statements
for three months ended November 30, 2015
This Managements Discussion and Analysis (MDA) of Avalon
Rare Metals Inc. (the "Company" or Avalon) is an analysis of the Company's
financial results for the three months ended November 30, 2015 (the Quarter).
The following information should be read in conjunction with the accompanying
unaudited condensed consolidated interim financial statements for the Quarter
and the consolidated financial statements and Annual Information Form for the
year ended August 31, 2015. This MDA is prepared as of January 12, 2016.
Certain of the statements that are not historical facts
contained in this MDA are forward-looking statements that involve risks and
uncertainties that could cause actual events or results to differ materially
from estimated or anticipated events or results reflected in the forward-looking
statements. Such forward-looking statements reflect the Companys current views
with respect to future events and include, among other things, statements
regarding targets, estimates and/or assumptions in respect of reserves and/or
resources, and are based on estimates and/or assumptions related to future
economic, market and other conditions that, while considered reasonable by
management, are inherently subject to risks and uncertainties, including
significant business, economic, competitive, political and social uncertainties
and contingencies. These estimates and/or assumptions include, but are not
limited to:
|
grade of ore; |
|
rare metal and by-product commodity prices; |
|
metallurgical recoveries; |
|
operating costs; |
|
achievement of current timetables for development;
|
|
strength of the global economy; |
|
availability of additional capital; and |
|
availability of supplies, equipment and labour.
|
Factors that could cause the Companys actual results,
performance, achievements, developments or events to differ materially from
those expressed or implied by forward-looking statements include, among others,
the factors described or referred to under Description of the Business - Risk
Factors in the Companys Annual Information Form for the year ended August 31,
2015, and:
|
risks related to the Companys history of losses, lack of
operating history, ability to generate material revenues and continue as a
going concern; |
|
risks related to establishing new mining operations in
the event that the Company elects to proceed with the development of one
of its mineral projects; |
|
risks related to the Companys need for additional
financing; |
|
risks related to any joint venture or strategic alliances
that may be entered into by the Company; |
|
risks related to the continuation of the Companys toll
refining agreement; |
|
risks related to securing product off-take agreements on
a timely basis; |
|
risks related to the unique ore type at the Nechalacho
Rare Earth Elements Project (Nechalacho or the Nechalacho Project) for
which known metallurgical processes have not previously been applied;
|
Avalon Rare Metals
Inc. |
Page 1 of 19 |
|
uncertainty related to title to the Companys properties
as well as the risk of delays in obtaining licenses and permits as a
result of local opposition, including uncertainty related to any
challenges in connection with Aboriginal land title claims and Aboriginal
rights in the Northwest Territories; |
|
risks related to the possible existence of rights and
interests of Aboriginal groups, which may limit the Companys ability to
develop its properties; |
|
risks related to the need to acquire properties for the
hydrometallurgical plant and potentially a rare earth refinery for the
Nechalacho Project; |
|
risks that actual capital costs, production schedules and
economic returns for the Nechalacho Project may differ significantly from
those anticipated by the Company; |
|
risks related to the demand for rare metals and minerals
and fluctuations in their pricing; |
|
risks related to competition and the actions of
competitors; |
|
risks related to costs or delays in the commercialization
of rare earth products; |
|
uncertainties related to the fact that the Companys
mineral resources and mineral reserves are only estimates; |
|
risks related to possible shortages of supplies,
equipment and labour; |
|
risks related to the Companys ability to secure the
required mineral tenure licenses at the East Kemptville Tin-Indium Project
(East Kemptville Project) which could adversely affect the Companys
ability to conduct further studies and exploration activities; |
|
risks related to obtaining, maintaining and renewing
licenses and permits, and the material costs, liabilities and obligations
in connection therewith; |
|
risks that the Company will be subject to material costs,
liabilities and obligations in connection with environmental laws,
regulations and approvals and that approvals will not be available;
|
|
uncertainties involving uninsured risks; |
|
risks related to the Companys ability to attract and
retain qualified management and technical personnel; |
|
uncertainty whether the Company will acquire commercially
mineable ore deposits or whether the current mineral deposits identified
by the Company can be developed as commercially viable ore bodies;
|
|
risks inherent to the competitive nature of the mineral
industry; |
|
risks related to the extensive federal, state,
provincial, territorial and local laws and regulations to which the
Companys activities are subject; |
|
risks related to the availability and reliability of
adequate infrastructure; |
|
risks and hazards inherent to the mining industry;
|
|
risks related to any changes in critical accounting
estimates that adversely affect the Companys financial results;
|
|
risks related to potential conflicts of interest of the
Companys directors and officers who may have involvement with other
resource companies; |
|
risks due to being a passive foreign investment company
for U.S. purposes; |
|
risks related to fluctuations of currency exchange rates;
|
|
risks related to share price volatility; |
|
risks related to the Companys delisting of the its
common shares from the NYSE MKT; |
|
risks related to dilution of existing shareholders;
|
|
risks related to not paying cash dividends; |
|
risks related to being a non-US corporation; and
|
|
risks related to there being no market for the Companys
warrants. |
Most of the foregoing factors are beyond the Companys ability
to control or predict. Although the Company has attempted to identify important
factors that could cause actual results, performance, achievements, developments
or events to differ materially from those described in forward-looking statements, there may be other factors that cause actual
results, performance, achievements, developments or events not to be as
anticipated, estimated or intended. There can be no assurance that the estimates
and/or assumptions upon which these forward-looking statements are based will
occur.
Avalon Rare Metals
Inc. |
Page 2 of 19 |
Readers can identify many of these statements by looking for
words such as believe, expects, will, intends, projects,
anticipates, estimates, continues or similar words or the negative
thereof. There can be no assurance that the plans, intentions or expectations
upon which these forward-looking statements are based will occur.
The forward-looking statements contained herein are made as of
the date of this MDA and are expressly qualified in their entirety by this
cautionary statement. Readers should not place undue reliance on the
forward-looking statements, which reflect managements plans, estimates,
projections and views only as of the date hereof. The Company undertakes no
obligation to publicly revise these forward-looking statements to reflect
subsequent events or circumstances, except as required by applicable law.
The technical information included in this MDA, unless
otherwise stated, has been reviewed and approved by Donald S. Bubar, P. Geo.,
President and Chief Executive Officer of the Company and Dr. William Mercer, P.
Geo., Vice-President, Exploration of the Company. Mr. Bubar and Dr. Mercer are
both Qualified Persons under National Instrument 43-101 (NI 43-101).
Nature of Business and Overall Performance
Avalon is a Canadian mineral exploration and development
company that is listed on the Toronto Stock Exchange in Canada, traded on the
OTCQX Best Market in the United States and also trades on the Frankfurt Stock
Exchange in Germany. The Company seeks to build shareholder value by becoming a
diversified producer and marketer of rare metals and minerals and expanding the
markets for its mineral products.
Avalon operates primarily in Canada with a focus on rare earth
elements (REE), and other rare metals and minerals, including lithium,
tantalum, niobium, cesium, indium, gallium, yttrium, zirconium as well as tin.
By definition, REE are the lanthanide series of elements (atomic numbers 57 -
71), whereas the term rare metals is a more general umbrella term that
includes the REE as well as other rare metals including those named above.
The Company is in the process of exploring or developing four
of its seven mineral resource properties. The Company completed its feasibility
study (FS) on the Nechalacho Project in April 2013, and its Report of
Environmental Assessment (the Report of EA) was approved by the Minister of
Aboriginal Affairs and Northern Development Canada (AANDC) in November 2013.
Nechalacho is the Companys most advanced project. A preliminary site
preparation water license and land use permit has been issued which provides
approval for first year site preparation work at Nechalacho. The first phase of
the work under this permit was financially assured with the government and the
work has been completed.
The Company has embraced the principles of sustainability as
core to its business practice and has made a strong commitment toward
implementing corporate social responsibility (CSR) best practices. During the
Quarter the Company released its fourth comprehensive Sustainability Report
entitled Balancing Opportunities (the "2015 Sustainability Report").
The Company believes that industrial demand for lithium, REE
and tin is growing due to their importance in an expanding array of applications
in technology related to energy efficiency and a cleaner environment. China is
the major supplier of REE to the world. Policy directives announced by the
Chinese government over the past five years have resulted in a net reduction in
export quotas of unprocessed REE which has led to price volatility and concern
about security of supply of certain REE in major REE consuming countries such as
Japan, Korea, Germany and the United States. Like lithium and tin, REE remain
critical materials in many new technologies.
Avalon Rare Metals
Inc. |
Page 3 of 19 |
Selected Annual Information
The following selected financial data for each of the three
most recently completed fiscal years are derived from the audited annual
financial statements of the Company, which were prepared in accordance with
International Financial Reporting Standards (IFRS), as issued by the
International Accounting Standards Board (IASB).
For the Years Ended August 31, |
2015 |
2014 |
2013 |
|
$ |
$ |
$ |
Revenue (Interest) |
66,014 |
88,075 |
374,281 |
Net Loss before discontinued operations |
3,176,374 |
5,730,581 |
11,199,164 |
Net Loss before discontinued operations, per share basic
and diluted |
0.02 |
0.05 |
0.11 |
Net loss |
3,176,374 |
5,730,581 |
11,199,164 |
Net loss, per share basic and diluted |
0.02 |
0.05 |
0.11 |
Total assets |
119,223,274 |
116,837,367 |
111,845,946 |
Total long term liabilities |
263,600 |
236,600 |
236,600 |
Cash dividends |
- |
- |
- |
The Company has recorded losses in each of its three most
recently completed fiscal years and expects to continue to record losses until
such time as an economic mineral deposit is developed and brought into
profitable commercial operation on one or more of the Companys properties, or
is otherwise disposed of at a profit. Since the Company has no revenue from
operations, annual operating losses typically represent the sum of business
expenses, any impairment losses recognized on its mineral properties and
adjustments to the fair value for the US dollar denominated warrants. The
Company may increase or decrease its level of business activity in coming years
and if it does, investors can anticipate that the Companys annual operating
losses will also increase or decrease until an economic mining operation is
brought into profitable commercial production, or one or more of the Companys
properties are disposed of at a profit.
Exploration and Development Activities
Resource property expenditures for the Quarter totalled
$1,947,217, a 55% increase over the level of expenditures for the same quarter
in fiscal 2015 ($1,259,650). Of these expenditures, 6% were incurred on the
Nechalacho Project, 59% were incurred on the East Kemptville Project, and 34%
were incurred on the Separation Rapids Lithium Project. The increased
expenditures are mainly due to the expenditures incurred in completing the
drilling program on the East Kemptville Project.
No properties were abandoned during the Quarter and no
impairment losses have been recognized.
Nechalacho Rare Earth Elements Project
The Nechalacho Project is located at Thor Lake in the Mackenzie
Mining District of the Northwest Territories (NWT), about five kilometres
north of the Hearne Channel of Great Slave Lake and approximately 100 kilometres
southeast of the city of Yellowknife. The property is comprised of five
contiguous mining leases totalling 10,449 acres (4,249 hectares) and three
claims totalling 4,597 acres (1,869 hectares). The leases are subject to one
underlying 2.5% Net Smelter Returns (NSR) royalty agreement. Avalon has the
contractual right to buy out this royalty on the basis of a fixed formula, which
is currently approximately $1.4 million and which will increase at a rate equal
to the Canadian prime rate until the royalty is bought out.
Avalon Rare Metals
Inc. |
Page 4 of 19 |
The property is situated in an area referred to as the Akaitcho
Territory, an area which is subject to comprehensive native land claim
negotiations between the Government of Canada and the Treaty 8 Tribal
Corporation, which consists of the Yellowknives Dene First Nation (YKDFN), the
Deninu Kue First Nation (DKFN) and the Lutsel Ke Dene First Nation
(LKDFN). The Company has signed an Accommodation Agreement with the DKFN.
Negotiations towards signing similar accommodation agreements with the LKDFN and
the YKDFN continue intermittently. The Company also recognizes that the T cho
First Nation (TFN) has a settled land claim with the Government of Canada
which provides for certain harvesting rights in the area of the Nechalacho site.
The general area around the Nechalacho site is subject to Aboriginal rights
asserted by two Métis organizations; the Northwest Territory Métis Nation
(NWTMN) and the North Slave Métis Alliance (NSMA). During 2014, Avalon
concluded a Participation Agreement with the NWTMN and has commenced negotiating
an agreement with the NSMA, although this has not yet been completed.
Since the completion of the Feasibility Study (FS) in April,
2013, the Company has been engaged in metallurgical test work with the objective
of optimizing the process flowsheets to improve recoveries and reduce costs.
This involved introducing efficiencies to the Concentrator flowsheet, and
designing a new flowsheet for the Hydrometallurgical Plant involving an alkali
cracking process for treatment of the rare earth mineral concentrate as an
alternative to the sulphuric acid bake process contemplated in the FS. The
alkali cracking process enables recovery of 90% of the HREE in the flotation
concentrate, compared to 52% recovery contemplated in the FS using the sulphuric
acid bake process. In addition, the alkali cracking process allows for the
recovery of zirconium in a form for which there is established markets.
Optimization of the alkali cracking process flowsheet is
substantially complete except for finalizing certain details around reagent
recovery and recycling. Work here has indicated an 80% reduction in hydrochloric
acid, 90% reduction in magnesium oxide and almost 100% reduction in calcium
carbonate consumption could be achievable along with associated sustainability
benefits. The new potential flowsheet also successfully suppresses the
precipitation of cerium and separates the lanthanum, both of which dilute the
value of the mixed HREE product.
The only metallurgical testwork investigations conducted during
the Quarter relate to the recovery of zirconium and production of a marketable
quality zirconium basic sulphate (ZBS) and zirconium oxychloride (ZOC)
products. Reworking of the process design criteria, plant designs and cost
estimates for both the Concentrator and Hydrometallurgical Plant, along with any
revisions to the mine plan, are continuing to be developed internally.
Several sites in western Canada are under consideration for the
location of a new Hydrometallurgical Plant design. The original design
contemplated in the FS was planned to be located in Pine Point, NWT, but this
area has insufficient infrastructure to support the new plant design. A number
of potential sites meeting the necessary infrastructure requirements have been
identified in Saskatchewan and Alberta and these are now undergoing further
evaluation. An excellent potential site was identified in Saskatchewan but
nothing has yet been finalised.
A further integrated pilot plant campaign has been planned but
will only proceed when funding becomes available. This is designed to fully
evaluate process performance particularly with the incorporation of the
acid/reagents recovery circuits and associated recycle streams and would include
all unit operations from crushing of ore right through to the generation of a
mixed rare earth precipitate. The total bulk sample of ore required for this
pilot plant is approximately eight tonnes. This material is being stored in
Yellowknife and Lakefield, Ontario, until such time as the funding becomes
available to proceed with the pilot plant work, presently estimated at
approximately $4.0 million. There is no firm timeline for when this work will be
carried out.
In 2014, the Company entered into an agreement with Solvay to
have Solvay toll-process the mixed HREE-rich product from the Hydrometallurgical
Plant into separated and purified rare earth oxides for an anticipated period of
10 years from the start of deliveries to Solvays rare earth refining facility
located in La Rochelle, France. There is no present activity under the agreement
and Solvay retains certain termination rights until project financing is
achieved.
Avalon Rare Metals
Inc. |
Page 5 of 19 |
The Company continues to closely monitor developments in the
global rare earths market and maintain dialogue with potential future customers
and strategic partners. Many consumers continue to be concerned about future
availability of heavy rare earths and would like to see a rare earth supply
chain for heavy rare earths established outside China. It has been reported that
the Chinese government has selected six companies to consolidate and control the
rare earth industry in China, but it has not been able to control the illegal
production, processing and sale of Chinese rare earths. Illegal production is
reported to be at least 20,000 tonnes per year and some estimates go as high as
40,000 tonnes. Verification of the exact quantity being produced or sold
illegally is very difficult. As a result of the illegal activity, the market
price for all rare earths has fallen dramatically and availability out of China
is reported to be good. This has lowered the pressure on non-Chinese consumers
to seek outside China sources of supply and has led, in part, to the Chapter 11
filing of Molycorp Inc., one of the two major producers of rare earths outside
China.
While permits for pre-construction work are already in place,
the Company is continuing to slowly progress the permitting process to obtain
the Class A Water License and Land Use Permit authorizing mine construction,
operation and closure activities. The process can be accelerated again at any
time with the expectation that it would then be completed in approximately 4-6
months. The Company may consider doing this in 2016 if funding is available and
circumstances are favourable.
The key factors going forward influencing the Nechalacho
Project schedule, all of which are somewhat dependent on one another, are:
securing one or more strategic or financial partners, securing sufficient
binding agreements for offtake to support project financing, the availability of
equity and debt financing at a reasonable cost and the receipt of all requisite
construction and operating permits.
Expenditures during the Quarter totalled $112,119 (2015 -
$827,602), which were primarily incurred on geological and metallurgical
research work being conducted at a Canadian university.
Unless otherwise noted, the technical information on the
Nechalacho Project has been reviewed and approved either by the Companys Senior
Vice President Metallurgy and Technology Development, Mr. David Marsh, FAusIMM
(CP), or Dr. William Mercer, PhD, P.Geo. (Ontario), P. Geo. (NWT), Vice
President, Exploration, who are both Qualified Person under NI 43-101.
East Kemptville Tin-Indium Project
The Company incurred $1,151,601 (2014 - $264,749) in
expenditures during the Quarter on the East Kemptville Project in Yarmouth
County, Nova Scotia. Approximately 74% of these expenditures were incurred on
drilling and geological work in support of the 2015 drilling program, 12% on the
preliminary economic assessment study (PEA), 8% on environmental assessment
work and 6% on metallurgical testing. Initial community engagement work with
Aboriginal government and other local community groups continued during the
Quarter.
The Company holds mineral rights at East Kemptville through a
Special Licence, a form of mineral tenure granted by the Province of Nova
Scotia in circumstances where there is a history of previous industrial land use
activity (such as mining) in the area of interest. It does not immediately
convey surface land rights and, accordingly, access must be arranged with the
permission of surface rights holders (which was done in 2014 and renewed for
2015). Ultimately, with completion of a feasibility study and related
environmental assessment work, a form of mining lease is obtainable from the
government to secure the requisite surface land rights. Discussions with the
surface rights holders toward obtaining full title to the lands covered by the
Special Licence are in progress.
The Company first acquired a Special Licence at East Kemptville
in 2005 and it has been subsequently renewed multiple times while the Company
negotiated access to the site. In September 2014, the Company submitted an
application for a new Special Licence reflecting the entire original mine site.
During the quarter ended May 31, 2015, by Order in Council, the Government of Nova Scotia approved this application. The new
Special Licence designated Special Licence No. 50462, has a term of three years
beginning February 2, 2015 and includes an obligation to incur $5.25 million in
expenditures over the three years including $750,000 in the first year (of which
$2,037,915 had been incurred by November 30, 2015). It is renewable for an
additional two one-year periods. The total area covered by the new Special
Licence is 2,880 acres.
Avalon Rare Metals
Inc. |
Page 6 of 19 |
During the Quarter, the Company completed a $1.3 million work
program utilizing funding secured in the Companys two recent equity offerings
completed in December, 2014 and May, 2015. This work includes preliminary
metallurgical process testwork, diamond drilling and environmental studies
towards the completion of a PEA in accordance with NI 43-101.
The 2015 drilling program was completed in November 2015 and
had the objective of upgrading inferred mineral resources in the Main and Baby
Zones into the indicated and measured categories as well as testing other known
tin occurrences in the area. In addition, it will provide further samples for
metallurgical testing and assist in developing geotechnical knowledge of the
deposit. Twenty-two drill holes totalling 4,514 metres were completed during the
2015 drilling program, on the Main, Baby and Duck Pond Zones with initial assay
results from the Baby Zone holes released on November 3, 2015. Results were in
line with expectations and confirm continuity of the mineralized zone to depth.
Highlights include intersections of 0.46% tin (Sn), 25.2 ppm indium (In) and
0.63% zinc (Zn) over 82.3 metres (EKAV-15-10), 0.23% Sn, 15.6 ppm In and 0.33%
Zn over 36.25 metres (EKAV-15-09) and 0.25% Sn, 29.4 ppm In and 0.64% Zn over
18.67 metres (EKAV-15-11). Assays are pending for the remaining drill core
samples. In addition, certain sections of 2014 drill core that were not sampled
in 2014 (due to apparent low levels of visible mineralization) were sampled this
summer. These produced some surprising results indicating significant widths of
previously unrecognized mineralization adjacent to existing known mineralized
intervals.
Bench scale metallurgical testing, using sample material
collected during the 2014 drill program, was awarded to a commercial laboratory
with specialized expertise in tin metallurgy, located in Cornwall, England and
was completed late in December 2015. The final report arrived early January 2016
and the results are still being interpreted. This work program investigated all
aspects of the flowsheet including milling, copper and zinc sulphide flotation
as well as tin recovery by both gravity and flotation processes. The recovery of
indium to the zinc concentrate was also monitored. This test program will
eventually lead to larger scale pilot plant testing using representative bulk
samples collected from future drilling and existing ore stockpiles at the site.
Environmental studies are examining the nature of the waste
rock generated in the proposed mine, as well as the conditions required for
bringing the existing operation into readiness for future production. These
studies included work on future closure strategies and baseline studies such as
species at risk surveys and studies on effluent chemistry management.
Opportunities have now been identified to significantly reduce the existing site
environmental and associated financial liabilities through innovative management
of future waste rock and tailings and through the processing of ores already
stockpiled on site. These are anticipated to significantly reduce or eliminate
the need for ongoing site care and maintenance.
Engagement with local communities of interest initiated prior
to the drilling program will continue in 2016.
Unless otherwise noted, the technical information on the East
Kemptville Tin-Indium Project has been reviewed and approved either by the
Companys Senior Vice President Metallurgy and Technology Development, Mr. David
Marsh, FAusIMM (CP), or Dr. William Mercer, PhD, P.Geo. (Ontario), P. Geo.
(NWT), Vice President, Exploration, who are both Qualified Person under NI
43-101.
Separation Rapids Lithium Project
During the Quarter, the Company incurred $653,947 (2014 -
$162,964) in expenditures on the Separation Rapids Lithium Project, in the
Paterson Lake area of Ontario. Approximately 80% was spent on metallurgical laboratory test work, to produce the one
tonne petalite sample and to investigate the potential for producing lithium
chemicals, 14% on repairing the access road to the project site, with the
balance incurred on community engagement, permitting and preparatory work for
completing a PEA level economic analysis of the lithium chemicals business
potential.
Avalon Rare Metals
Inc. |
Page 7 of 19 |
Previously reported test work confirmed the potential for
producing a high purity petalite concentrate from both the fine and coarse
grained ore through a single process stream. It has also successfully produced a
marketable feldspar by-product. A further work program targeting the production
of petalite product samples was completed and sub-samples sent to a number of
potential customers in the glass-ceramics industry interested in high purity
petalite. These customers have confirmed that the quality of the samples meets
their requirements and have requested larger trial quantities for further
evaluation.
A 30 tonne bulk sample of crushed ore was shipped in September,
2015 to a commercial laboratory in Germany and process work is now underway (the
material has so far undergone optical sorting and magnetic separation to remove
waste material). The sample will be processed using the Companys proven flow
sheet to produce a high purity lithium mineral (petalite) concentrate for the
following purposes:
|
1) |
to deliver further product samples to potential customers
in the glassceramics industry who have already tested and approved
smaller samples; |
|
2) |
to provide initial test samples to a number of new
potential customers; and |
|
3) |
to generate concentrate for additional process
development work with the objective of producing high purity lithium
chemical products for the lithium ion battery manufacturing
business. |
The petalite production program is expected to be completed,
and concentrate available for distribution, in the first quarter of calendar
2016.
Initial lithium chemicals process optimization work was carried
out at a laboratory in Saskatoon, Saskatchewan. This work provided encouraging
initial results with a battery-grade lithium carbonate (>99.5% pure) being
readily produced. Attempts to produce an enhanced grade carbonate product with a
target purity of 99.9% were postponed, pending the outcome of investigations
into the production of lithium hydroxide. The potential for production of high
grade lithium hydroxide was demonstrated previously and now a test program is
underway to further evaluate this process. These metallurgical programs are
being conducted under the direction of David Marsh, Senior Vice-President,
Metallurgy and Technology Development. Once completed, this information will be
integrated into the PEA.
Permits were acquired and rehabilitation work on the access
road to the site initiated in September was completed in October. This road will
provide ready access to the deposit to support large scale bulk sampling in
2016. Improvements to site safety including the installation of fencing,
improved signage and site clean-up were also completed. In addition, GPS
surveying of certain mineral claims in the project was completed to bring them
into line with new Government of Ontario requirements. Following the completion
of the 30 tonne bulk sample program, the Company may recover and process another
bulk sample of the ore in order to produce a minimum of 800 tonnes of petalite
product for full-scale plant trials by the glass-ceramic customers. These are
required before formal off-take agreements can be concluded. The Company will
need to acquire the necessary permits and funding to proceed with this work
should the Company decide to implement the program.
If implemented the material would be processed through a pilot
plant to be assembled in Kenora using equipment from a commercial laboratory
plus specific items to be purchased and/or leased from specialist vendors. The
need for and timing of this program is still to be finalized and is subject to
arranging necessary financing.
Avalon Rare Metals
Inc. |
Page 8 of 19 |
Growing demand for rechargeable batteries in electric vehicles
and home energy storage is expected to result in continued growth in consumption
of lithium. Critical materials consulting firm Stormcrow Capital estimates that
demand could reach 410,000 tonnes of lithium carbonate equivalent per year in
2025, compared to 200,000 tonnes in 2015. This translates into a compounded
annual growth rate of 7.8% . In their May 2015 Industry Report, Stormcrow
further predicts that a supply deficit will emerge in the market as existing
producers struggle to meet the rapidly growing demand.
Lithium carbonate is one of the lithium chemical products that
provide lithium for the lithium ion battery cathodes. However, other lithium
chemicals such as lithium hydroxide are now also being produced to serve this
market and market studies are underway to determine what product alternative is
best suited for the Separation Rapids petalite.
In addition to the potential opportunities in the lithium
market, Avalon also hired Hains Engineering Company Limited to conduct a market
study focussing on the market for feldspars in North America. This study
concluded that the current feldspar demand in North America is in the region of
50,000tpa. The economics of producing this small volume of feldspar are still to
be evaluated by the Company.
Unless otherwise noted, the technical information on the
Separation Rapids Lithium Project has been reviewed and approved by the
Companys Senior Vice President, Metallurgy and Technology Development, Mr.
David Marsh, FAusIMM (CP), who is a Qualified Person under NI 43-101.
Miramichi Tin Project
The Company completed some grass-roots level prospecting and
sampling on its existing claims in central New Brunswick during the Quarter at a
total cost of $12,918. The Company does not plan to undertake any further work
in this property in the near future.
During the Quarter, the Company acquired an option to earn a
100% interest in certain claims in the Mount Douglas area of New Brunswick. The
option requires $75,000 in exploration expenditures and $120,000 in option
payments over a five year period in order to earn a 100% interest. The property
will be subject to a 2% royalty (which can be bought back for $1 million).
During the Quarter the Company spent $16,632 (net of $16,402 in funding from the
Government of New Brunswick) on this property and completed a small field
program which included mainly rock, soil and panned concentrate sampling along
with ground magnetics and Very Low Frequency EM surveys (VLF-EM). Sample
analyses are not as yet complete.
Corporate Social Responsibility (CSR)
During the Quarter, the Company released its fourth
comprehensive Sustainability Report. The 2015 Sustainability Report is available
for download on the Companys website at:
http://www.avalonraremetals.com
The 2015 Sustainability Report was prepared in accordance with
the Global Reporting Initiative ("GRI") Version 4 guidelines for core reporting.
In accordance with the guidance, the Company conducted a review of the 2014
detailed materiality assessment process identifying the topics that have the
highest priority to the Company and its communities of interest. This report
focuses on the social, environmental and economic issues that are most material
to the Company. In response to comments from our readership, a more focused
report has been prepared and formatted to permit focused access to sections of
the report. It also provides the detailed underlying data for those who wish to
complete a more in-depth analysis and links to related corporate governance.
The 2015 Report also incorporates a self-assessment of Fiscal
2015 performance and sets targets for 2016 against the applicable Mining
Association of Canada's 'Toward Sustainable Mining' indicators. The Companys sustainability reporting period has
now been aligned with its fiscal year ended August 31.
Avalon Rare Metals
Inc. |
Page 9 of 19 |
In addition to the Companys safety performance, the report
highlights many other positive accomplishments such as the risk management
program, management system development and metallurgical improvements that
contribute to improved environmental performance to name a few. Avalon is
committed to signing a Socio-Economic agreement with the Government of the
Northwest Territories prior to starting construction of the Nechalacho Project
and will continue to negotiate and implement Accommodation Agreements with the
Companys Aboriginal partners. Dialogue has also been initiated with the Acadia
First Nation in Nova Scotia as relates to the East Kemptville project and with
Wabaseemoong Independent Nations with respect to the Separation Rapids Lithium
Project.
To provide independent advice as to the efficacy of the
Companys CSR work, the Company maintains an independent Sustainability Advisory
Committee (SAC) that meets to review all of the Companys
sustainability-oriented work related to Nechalacho. Mr. Phil Fontaine, former
National Chief of the Assembly of First Nations and a member of Avalons Board
of Directors, acts as the SAC Chair. While SAC members participated in the
preparation of the 2015 Sustainability Report, no formal meetings were held
during the Quarter.
Administration and Other
Corporate and Administrative expenses totalled $939,603 during
the Quarter, a 24% decrease over the amount incurred during the comparative
quarter in fiscal 2015 ($1,242,499). This decrease reflects the Companys
increasing effort to reduce its overhead costs. The main areas of decreased
operating expenses for the Quarter were salaries, benefits and directors fees,
investor relations related expenses, financing advisory services and expenses,
filing and transfer fees, and marketing and sales expenses.
Salaries, benefits and directors fees for the Quarter
decreased by approximately 11% to $517,910 compared to $579,276 for the same
quarter in fiscal 2015. The decrease in salaries, benefits and directors fees
was primarily related to the 20% to 25% salary reduction for the Companys
senior management team commencing November 2014 and the 50% reduction in
directors fees starting in January 2015.
Expenses on public and investor relations decreased by $49,719
(26%) compared to the same quarter in fiscal 2015. The decrease is primarily
related to the reduced amount of work provided by consultants with respect to
investor relations activities and reduced travel. Investor interest in the
resource sector remains low, reducing the effectiveness for proactive investor
relations programs.
No financial advisory fees and expenses were incurred during
the Quarter compared to $33,619 for the same quarter in fiscal 2015. This
decrease is related to a decreased amount of work with respect to financing
initiatives related to the Project provided by third party consultants.
Filing and transfer fees decreased by 35% to $55,433 during the
Quarter compared to the same quarter in fiscal 2015. The decrease is primarily
related to the decrease in participation fees paid to the Ontario Securities
Commission. The participation fee paid in the Quarter was based on the Companys
average market capitalization in fiscal 2015, whereas the participation fee paid
in the same quarter in fiscal 2015 was based on the Companys average market
capitalization in fiscal 2011.
Marketing and sales related expenses decreased by $35,218 (58%)
during the Quarter compared to the same quarter in fiscal 2015, which primarily
related to the reduction in travel.
On November 30, 2015, the fair value of the Companys
outstanding warrants denominated in US$ were re-measured using the Black-Scholes
pricing model, which resulted in a gain of $163,039 being the decrease in the
estimated value of these warrants. This decrease is mainly caused by the decrease in the trading price of the Companys common shares as
at November 30, 2015 compared to August 31, 2015.
Avalon Rare Metals
Inc. |
Page 10 of 19 |
Share based compensation earned during the Quarter totalled
$77,739 compared to $283,088 for the same quarter in fiscal 2015. This decrease
is primarily related to the decrease in the estimated average fair values and
the number of options earned during the Quarter compared to the same quarter in
fiscal 2015.
Lower cash balances resulted in interest income decreasing to
$13,895 for the Quarter compared to $15,415 for the comparative quarter in
fiscal 2015.
Summary of Quarterly Results
The following selected financial data is derived from the
unaudited condensed consolidated interim financial statements of the Company.
Fiscal Year |
2016 |
2015 |
2014 |
For the Quarters Ended |
Nov. 30 |
Aug. 31 |
May 31 |
Feb. 28 |
Nov. 30 |
Aug. 31 |
May 31 |
Feb. 28 |
|
$ |
$ |
$ |
$ |
$ |
$ |
$ |
$ |
Revenue (Interest) |
13,895 |
21,911 |
13,536 |
15,152 |
15,415 |
21,343 |
16,158 |
22,581 |
Net Loss before discontinued operations |
645,304 |
226,209 |
748,724 |
1,582,569 |
618,872 |
230,266 |
1,437,178 |
1,813,324 |
Net Loss |
645,304 |
226,209 |
748,724 |
1,582,569 |
618,872 |
230,266 |
1,437,178 |
1,813,324 |
Net Loss, per share, basic and diluted |
0.00 |
0.00 |
0.01 |
0.01 |
0.00 |
0.00 |
0.01 |
0.02 |
The fluctuation on quarterly net loss is primarily due to
share-based compensation expenses recognized as stock options granted to
directors, officers, employees and consultants of the Company are earned, the
impairment losses recognized on resource properties and changes in the fair
value of warrants denominated in foreign currency. The costs of resource
properties are written down at the time the properties are abandoned or
considered to be impaired in value.
Liquidity and Capital Resources
In managements view, given the nature of the Companys
operations, which consist of the exploration and development of mining
properties, the most relevant financial information relates primarily to current
liquidity, solvency, and planned property expenditures. The Companys financial
success will be dependent on the economic viability of its resource properties
and the extent to which it can discover and develop new mineral deposits. Such
development may take several years to complete and the amount of resulting
income, if any, is difficult to determine. The sales value of any mineralization
discovered by the Company is largely dependent on factors beyond the Companys
control, including the market value of the metals and minerals to be produced.
As at November 30, 2015, the Company had adjusted working
capital of $2,658,761 (which is calculated by adding back the deferred
flow-through share premium of $88,164 and the liability for warrants denominated
in foreign currency of $125,818 to the net current assets of $2,444,779) and
cash and cash equivalents on hand of $3,156,769. Substantially all of the
Companys cash and cash equivalents are held at a major Canadian chartered bank
in cashable guaranteed investment certificates bearing an annual interest rate
of 1.4% . As at August 31, 2015, the Company had adjusted working capital of
$5,263,216 and cash and cash equivalents on hand of $5,247,738.
The Companys current operating expenditures, excluding
expenditures on resource property work programs, are approximately $380,000 per
month. The Companys current anticipated resource property expenditures planned
to be incurred during the year ending August 31, 2016 are budgeted at
approximately $4,000,000 (excluding capitalized salaries and benefits), of which
approximately $1,676,000 had been incurred as at November 30, 2015) with
approximately $1,500,000 and $2,000,000 of these expenditures being allocated to the East
Kemptville Project and the Separation Rapids Project, respectively.
Avalon Rare Metals
Inc. |
Page 11 of 19 |
The Company believes its present cash resources are sufficient
to meet all of its current contractual obligations, administrative and overhead
expenditures, and planned exploration programs until at least the end of April
2016. However, there can be no assurances that the Company will be able to raise
additional funds required for all planned 2016 expenditures. As a result,
certain expenditures may have to be delayed until sufficient funding has been
raised. Given the continuation of weak investor sentiment and capital market
conditions in the junior resource sector, there exists an uncertainty as to the
Companys ability to raise additional funds on favourable terms or at all. This
condition indicates the existence of a material uncertainty that raises
substantial doubt about the Companys ability to continue as a going concern.
The Companys expenditures on other discretionary exploration and development
activities have some scope for flexibility in terms of amount and timing, which
can be adjusted accordingly.
Subsequent to the end of the Quarter, the Company voluntarily
withdrew its common shares from listing on the NYSE MKT and at the same time had
its shares commence trading on the OTCQX Best Market. The voluntary delisting is
a result of the Company having been deemed to be not in compliance with the
continued listing standards of the NYSE MKT, due to the Company's recent low
selling share price (see the Companys news release dated August 5, 2015), In
order to maintain the Companys listing on the NYSE MKT, Avalon would have had
to effect a share consolidation, which would have required approval by the
Companys shareholders at the upcoming annual general meeting (AGM) in
February, 2016. After many discussions with shareholders, the Company determined
that a resolution for a share consolidation would not have secured sufficient
support at the upcoming AGM, and may otherwise have been detrimental to the
shareholders long term interest. Accordingly, the Company chose to delist its
common shares from the NYSE MKT, rather than pursue a share consolidation. The
Company will continue to be a reporting issuer with the SEC following the
voluntary delisting.
Subsequent to the end of the Quarter, the Company completed a
private placement and issued 6,000,000 flow-through units (Flow-Through Unit)
at $0.125 per unit for gross proceeds of $750,000. Each Flow-Through Unit
consists of one flow-through common share and one-half of one non-transferrable
common share purchase warrant. Each whole warrant entitles the holder to
purchase one common share of the Company at a price of $0.175 per share, until
December 24, 2017. In connection with the private placement, the Company paid
finders fees of $45,000 and issued 360,000 non-transferrable finders
compensation warrants. Each finders compensation warrant entitles the holder to
purchase one common share of the Company at an exercise price of $0.125 per
share until December 24, 2017.
The Company continues to work on attracting more substantial
project financing through the participation of one or more strategic partners, a
long term construction debt financing facility, and/or through the equity
markets. If the Company is not able to secure financing on satisfactory terms,
expenditures on the development of its projects will need to delayed.
All of the Companys resource properties are owned, leased or
licenced with minimal holding costs. The most significant holding costs being
annual lease rental fees on Nechalacho of $20,998 and the annual expenditures
related to the mining leases at Separation Rapids and Warren Township totalling
$3,327. The Company is required to incur certain exploration expenditures on the
East Kemptville Project in order to keep the new Special Licence in good
standing (as described earlier under Exploration and Development Activities).
The Company is also required to incur additional Canadian Exploration
Expenditures of $1,896,138 by December 31, 2016, which is the remaining balance
of the required expenditures resulting from the flow-through prospectus offering
completed in May, 2015 and the private placement completed in December, 2015.
A joint venture with an industry partner or end-user may
represent an attractive alternative for financing the further stages in the
development of the Project as well as the projects at Separation Rapids, East Kemptville, or Warren Township, once the capital
requirements become relatively large.
Avalon Rare Metals
Inc. |
Page 12 of 19 |
The Company has an operating lease for its premises. As at the
date of this MDA, the minimum lease commitments under these leases are as
follows:
|
Fiscal year ended
August 31, 2016 |
|
|
|
$ |
177,267 |
|
|
2017 |
|
|
|
$ |
311,327 |
|
|
2018 |
|
|
|
$ |
315,047
|
|
|
2019 |
|
|
|
$ |
315,047 |
|
|
2020 |
|
and thereafter |
|
$ |
105,015
|
|
Off Balance Sheet Arrangements
As at November 30, 2015, the Company had no material off
balance sheet arrangements such as guaranteed contracts, contingent interests in
assets transferred to an entity, derivative instrument obligations or any
instruments that could trigger financing, market or credit risk to the Company.
Transactions with Related Parties
Balances and transactions between the Company and its
subsidiaries have been eliminated on consolidation and are not disclosed here.
Details of the transactions between the Company and other related parties are
disclosed below:
There had been no material trading
transactions with related parties during each of the three months ended November
30, 2015 and 2014.
b) |
Compensation of key management |
The remuneration of directors and other
members of the Companys senior management team during each of the three months
ended November 30, 2015 and 2014 are as follows:
|
|
|
November 30, |
|
|
November 30, |
|
|
|
|
2015 |
|
|
2014 |
|
|
|
|
|
|
|
|
|
|
Salaries, benefits and
directors fees |
$ |
504,998 |
|
$ |
557,519 |
|
|
Share based compensation(1) |
|
85,211 |
|
|
273,800 |
|
|
|
|
|
|
|
|
|
|
|
$ |
590,209 |
|
$ |
831,319 |
|
(1) Fair value of stock options earned
and recognized as share based compensation during the respective reporting
period.
Subsequent Events
Subsequent to the end of the Quarter, the Company:
a) |
completed a private placement and issued 6,000,000
flow-through units (Flow-Through Unit) at $0.125 per unit for gross
proceeds of $750,000. Each Flow-Through Unit consists of one flow- through
common share and one-half of one non-transferrable common share purchase
warrant. Each whole warrant entitles the holder to purchase one common
share of the Company at a price of $0.175 per share, until December 24,
2017. In connection with the private placement, the Company paid finders
fees of $45,000 and issued 360,000 non-transferrable finders compensation
warrants. Each finders compensation warrant entitles the holder to
purchase one common share of the Company at an exercise price of $0.125
per share until December 24, 2017; |
Avalon Rare Metals
Inc. |
Page 13 of 19 |
b) |
granted an aggregate of 885,000 stock options with a
weighted average exercise price of $0.12 per share to certain employees of
the Company. The weighted average contract life of these options was 5.0
years; and |
|
|
|
|
c) |
had 150,000 stock options with a weighted average
exercise price of $4.07 per share expire. |
Critical Accounting Judgments and Estimation Uncertainties
The preparation of the consolidated financial statements in
conformity with IFRS requires that the Companys management make critical
judgments, estimates and assumptions about future events that affect the amounts
reported in the consolidated financial statements and related notes to the
consolidated financial statements. Actual results may differ from those
estimates. Estimates and assumptions are reviewed on an ongoing basis based on
historical experience and other factors that are considered to be relevant under
the circumstances. Revisions to estimates are accounted for prospectively.
The Company has identified the following significant areas
where critical accounting judgments, estimates and assumptions are made and
where actual results may differ from these estimates under different assumptions
and conditions and may materially affect financial results or the financial
position reported in future periods.
Key Sources of Estimation Uncertainty
Information about assumptions and estimation uncertainties that
have a significant risk of resulting in material adjustment include the
following:
Recoverability of Exploration and Evaluation Assets, Mineral
Properties and Property Plant and Equipment
The Company assesses all exploration and evaluation assets,
development assets and property, plant and equipment (PPE) at each reporting
date to determine whether any indication of impairment exists. Where an
indicator of impairment exists, a formal estimate of the recoverable amount is
made, which is the higher of the fair value less costs to sell and value in use.
These assessments require the use of estimates and assumptions such as long term
commodity prices, discount rates, foreign exchange rates, future capital
requirements, exploration potential and operating performance.
Determination of reserve and resource estimates
Mineral reserves and mineral resources are estimates of the
amount of ore that can be economically and legally extracted from the Companys
exploration and development properties. The estimation of recoverable mineral
reserves is based upon factors such as estimates of commodity prices, production
costs, production techniques, future capital requirements and foreign exchange
rates, along with geological assumptions and judgments made in estimating the
size and grade of the ore body. Changes in the mineral reserve or mineral
resource estimates may impact the carrying value of exploration and evaluation
assets, development assets, PPE, accrued site closure and reclamation provision
and amortization expense.
Fair value of share based payments and Warrants
The Company follows IFRS 2, Share-based Payment, in
determining the fair value of share based payments. The calculated amount is not
based on historical cost, but is derived based on subjective assumptions input
into a pricing model. The model requires that management make forecasts as to future events, including estimates of: the
average future hold period of issued stock options and compensation warrants
before exercise, expiry or cancellation; future volatility of the Companys
share price in the expected hold period; and the appropriate risk-free rate of
interest. The resulting value calculated is not necessarily the value that the
holder of the option or compensation warrants could receive in an arms length
transaction, given that there is no market for the options or compensation
warrants and they are not transferable. Similar calculations are made in
estimating the fair value of the warrant component of an equity unit. The
assumptions used in these calculations are inherently uncertain. Changes in
these assumptions could materially affect the fair value estimates.
Avalon Rare Metals
Inc. |
Page 14 of 19 |
Site closure and reclamation provision
The Companys accounting policy for the recognition of site
closure and reclamation obligation requires significant estimates and
assumptions such as: requirements of the relevant legal and regulatory
framework, the magnitude of possible disturbance and the timing, extent and
costs of required closure, rehabilitation activity, and discount rate. These
uncertainties may result in future actual expenditure differing from the amounts
currently provided.
Site closure and reclamation provision recognized is
periodically reviewed and updated based on the facts and circumstances available
at the time. Changes to the estimated future costs are recognized in the
statement of financial position by adjusting both the closure and rehabilitation
asset and provision.
Property, Plant and Equipment - Estimated Useful
Lives
Management estimates the useful lives of PPE based on the
period during which the assets are expected to be available for use. The amounts
and timing of recorded expenses for depreciation of PPE for any period are
affected by these estimated useful lives. The estimates are reviewed at least
annually and are updated if expectations change as a result of physical wear and
tear, technical or commercial obsolescence and legal or other limits to use. It
is possible that changes in these factors may cause significant changes in the
estimated useful lives of the Companys PPE in the future.
Critical Judgments
Information about critical judgments in applying accounting
policies that have most significant effect on the consolidated financial
statements are as follows:
Capitalization of Exploration and Evaluation Costs
Exploration and evaluation costs incurred during the Year are
recorded at cost. Capitalized costs include costs directly attributable to
exploration and evaluation activities, including salaries and benefits of
employees who are directly engaged in the exploration and evaluation activities.
Administrative and other overhead costs are expensed. Management has determined
that exploration and evaluation costs incurred during the year have future
economic benefits and are economically recoverable. In making this judgment,
management has assessed various sources of information including but not limited
to the geologic and metallurgic information, history of conversion of mineral
deposits to proven and probable mineral reserves, scoping and feasibility
studies, proximity of operating facilities, operating management expertise and
existing permits.
Changes in Accounting Policies Including Initial Adoption
The Company did not adopt any new accounting standards during
the Quarter.
Avalon Rare Metals
Inc. |
Page 15 of 19 |
Recent Accounting Pronouncements
The following pronouncements are issued but not yet effective:
IFRS 9, Financial Instruments
IFRS 9, Financial instruments (IFRS 9) was issued by
the IASB in July 2014 and will replace IAS 39, Financial Instruments:
recognition and measurement (IAS 39). IFRS 9 utilizes a single approach
to determine whether a financial asset is measured at amortized cost or fair
value and a new mixed measurement model for debt instruments having only two
categories: amortized cost and fair value. The approach in IFRS 9 is based on
how an entity manages its financial instruments in the context of its business
model and the contractual cash flow characteristics of the financial assets.
Final amendments released in July 2014 also introduce a new expected loss
impairment model and limited changes to the classification and measurement
requirements for financial assets. IFRS 9 is effective for annual periods
beginning on or after January 1, 2018. The Company is currently evaluating the
impact of this standard and amendments on its consolidated financial statements.
IFRS 15, Revenue from Contracts and Customers
IFRS 15, Revenue from Contracts and Customers (IFRS
15) was issued by the IASB in May 2014, and will replace IAS 18,
Revenue, IAS 11, Construction Contracts, and related
interpretations on revenue. IFRS 15 sets out the requirements for recognizing
revenue that apply to all contracts with customers, except for contracts that
are within the scope of the standards on leases, insurance contracts and
financial instruments. IFRS 15 uses a control based approach to recognize
revenue which is a change from the risk and reward approach under the current
standard. Companies can elect to use either a full or modified retrospective
approach when adopting this standard and it is effective for annual periods
beginning on or after January 1, 2018. The Company is currently evaluating the
impact of IFRS 15 on its consolidated financial statements.
Financial Instruments
The Company's financial instruments consist of cash and cash
equivalents, receivables, accounts payable and accrued liabilities and warrants
denominated in foreign currency.
Management does not believe these financial instruments expose
the Company to any significant interest, currency or credit risks arising from
these financial instruments. The fair market values of cash and cash
equivalents, receivables, and accounts payable and accrued liabilities
approximate their carrying values.
The Company has 6,466,513 warrants outstanding as at November
30, 2015, with an original exercise price of US$0.56 per share (US$ Warrants).
These warrants are subject to certain anti-dilution provisions, which may reduce
the exercise price, with a floor of US$0.5095 per share. The adjusted exercise
price as calculated by the anti-dilution provisions as at November 30, 2015 and
as at the date of this MDA is US$0.5223. These warrants are exercisable until
June 13, 2021. These warrants were recorded at fair value at the time of
issuance, and are re-measured at fair value using the Black-Scholes pricing
model at each financial statement reporting date, with the resulting change in
fair value being recorded in the statement of comprehensive loss.
Interest income from cash and cash equivalents are recorded in
the statement of comprehensive loss.
Avalon Rare Metals
Inc. |
Page 16 of 19 |
Disclosure Controls and Procedures
Disclosure controls and procedures are designed to provide
reasonable assurance that material information is gathered and reported to
senior management, including the Chief Executive Officer (CEO) and Chief
Financial Officer (CFO), as appropriate, to permit timely decisions regarding
public disclosure.
Management, including the CEO and CFO, has designed or caused
to be designed under their supervision, disclosure controls to provide
reasonable assurance that the information required to be disclosed in annual
filings, interim filings, or other reports filed or submitted under Canadian
securities legislation, or reports filed or submitted under the U.S. Securities
Exchange Act of 1934 is recorded, processed, summarized and reported within the
time period specified in those rules.
Design of Internal Control over Financial Reporting
The CEO and CFO have also design or caused to be designed under
their supervision, internal controls over financial reporting (ICFR) to
provide reasonable assurance regarding the reliability of financial reporting
and the preparation of financial statements for external purposes in accordance
with IFRS. Because of its inherent limitation, internal control over financial
reporting may not prevent or detect misstatements.
There have been no changes to the Companys design of internal
controls over financial reporting that occurred during the Quarter that
materially affected, or are reasonably likely to affect, the Companys ICFR.
Outstanding Share Data
a) |
Common and Preferred
Shares |
The Company is presently authorized to
issue an unlimited number of common shares without par value. The Company is
also authorized to issue up to 25,000,000 preferred shares without par value, of
which none have been issued.
As at November 30, 2015, the Company
had 154,339,206 common shares issued and outstanding. Subsequent to the end of
the Quarter, 6,000,000 common shares were issued pursuant to a private placement
(as described earlier under Subsequent Events). As at the date of this MDA,
the Company has 160,339,206 common shares outstanding.
As at November 30, 2015, the Company
had an aggregate of 9,690,000 incentive stock options outstanding with a
weighted average exercise price of $1.53 (of which 6,880,000 were vested and
2,810,000 were unvested). Subsequent to the end of the Quarter, 885,000 options
were granted and 150,000 options expired (as described earlier under Subsequent
Events). As at the date of this MDA, the Company has 10,425,000 incentive stock
options with a weighted average exercise price of $1.37 outstanding.
As at November 30, 2015 the Company had
the following common share purchase warrants outstanding:
|
i. |
6,466,513 US$ Warrants, with an original exercise price
of US$0.56 per share and are exercisable until June 13, 2021. These
warrants are also subject to certain anti-dilution provisions, which may
reduce the exercise price, with a floor of US$0.5095 per share. The
adjusted exercise price as calculated by the
anti-dilution provisions as at November 30, 2015 and as at the date of
this MDA is US$0.5223; |
Avalon Rare Metals
Inc. |
Page 17 of 19 |
|
ii. |
2,215,985 warrants with an exercise price of $0.425 per
share and exercisable until November 27, 2016; |
|
|
|
|
iii. |
1,222,500 warrants with an exercise price of $0.60 per
share and exercisable until July 2, 2017; and |
|
|
|
|
iv. |
40,000 warrants, issued pursuant to the Accommodation
Agreement, with an average exercise price of $0.73 per share and will
expire as follows: 10,000 warrants on August 9, 2017, 10,000 warrants on
July 31, 2018, 10,000 warrants on July 31, 2019, and 10,000 on July 31,
2020. |
The Company is also committed to issue
10,000 common share purchase warrants to the DKFN on the next anniversary of the
effective date of the Accommodation Agreement (July 31, 2016), and 20,000
warrants to the NWTMN in two equal installments of 10,000 warrants upon the
Nechalacho Project meeting certain milestones. These warrants will have a
contractual term of five years and will have an exercise price based on the then
current market price of the Companys common shares at the date of issue of the
warrants.
Subsequent to the end of the Quarter,
the Company issued 3,000,000 warrants as described earlier under Subsequent
Events.
d) |
Brokers Compensation
Warrants |
As at November 30, 2015, the Company
has 1,732,612 brokers compensation warrants outstanding. 554,273 of these
warrants have an exercise price of US$0.56 per share and are exercisable until
June 13, 2017, 527,806 of these warrants have an exercise price of $0.27 per
share and are exercisable until December 19, 2016, and 650,533 of these warrants
have an exercise price of $0.34 per share and are exercisable until November 27,
2016.
Subsequent to the end of the Quarter,
the Company issued 360,000 brokers compensation warrants as described earlier
under Subsequent Events.
Other Information
Additional information on the Company is available on SEDAR at
www.sedar.com and on the Companys website at
www.avalonraremetals.com.
Notice Regarding Presentation of our Mineral Reserve and
Resource Estimates
This MDA has been prepared in accordance with the requirements
of Canadian securities laws, which differ from the requirements of United States
securities laws. Unless otherwise indicated, all reserve and resource estimates
included in this MDA have been prepared in accordance with NI 43-101. NI 43-101
is a rule developed by the Canadian Securities Administrators which establishes
standards for all public disclosure an issuer makes of scientific and technical
information concerning mineral projects.
Avalon Rare Metals
Inc. |
Page 18 of 19 |
Canadian standards, including NI 43-101, differ significantly
from the requirements of the United States Securities and Exchange Commission
(the SEC), and reserve and resource information contained in this MDA may not
be comparable to similar information disclosed by United States companies. In
particular, and without limiting the generality of the foregoing, the term
resource does not equate to the term reserve. Under United States standards,
mineralization may not be classified as a reserve unless the determination has been
made that the mineralization could be economically and legally produced or
extracted at the time the reserve determination is made. The SECs disclosure
standards normally do not permit the inclusion of information concerning
measured mineral resources, indicated mineral resources or inferred mineral
resources or other descriptions of the amount of mineralization in mineral
deposits that do not constitute reserves by United States standards in
documents filed with the SEC. United States investors should also understand
that inferred mineral resources have a great amount of uncertainty as to their
existence and as to their economic and legal feasibility. It cannot be assumed
that all or any part of an inferred mineral resource exists, is economically
or legally mineable, or will ever be upgraded to a higher category. Under
Canadian rules, estimated inferred mineral resources may not form the basis of
feasibility or pre-feasibility studies except in rare cases. Disclosure of
contained ounces in a resource estimate is permitted disclosure under Canadian
regulations; however, the SEC normally only permits issuers to report
mineralization that does not constitute reserves by SEC standards as in-place
tonnage and grade without reference to unit measures. The requirements of NI
43-101 for identification of reserves are also not the same as those of the
SEC, and reserves reported by Avalon in compliance with NI 43-101 may not
qualify as reserves under SEC standards. Accordingly, information concerning
mineral deposits set forth herein may not be comparable with information made
public by companies that report in accordance with United States standards.
Avalon Rare Metals
Inc. |
Page 19 of 19 |
FORM 52-109F2
CERTIFICATION OF INTERIM FILINGS
FULL CERTIFICATE
I, Donald S. Bubar, Chief Executive Officer of Avalon
Rare Metals Inc., certify the following:
1. Review: I have reviewed the interim financial
report and interim MD&A (together, the interim filings) of Avalon Rare
Metals Inc. (the issuer) for the interim period ended November 30, 2015.
2. No misrepresentations: Based on my knowledge,
having exercised reasonable diligence, the interim filings do not contain any
untrue statement of a material fact or omit to state a material fact required to
be stated or that is necessary to make a statement not misleading in light of
the circumstances under which it was made, with respect to the period covered by
the interim filings.
3. Fair presentation: Based on my knowledge,
having exercised reasonable diligence, the interim financial report together
with the other financial information included in the interim filings fairly
present in all material respects the financial condition, financial performance
and cash flows of the issuer, as of the date of and for the periods presented in
the interim filings.
4. Responsibility: The issuers other certifying
officer and I are responsible for establishing and maintaining disclosure
controls and procedures (DC&P) and internal control over financial reporting
(ICFR), as those terms are defined in National Instrument 52-109
Certification of Disclosure in Issuers Annual and Interim Filings, for
the issuer.
5. Design: Subject to the limitations, if any,
described in paragraphs 5.2 and 5.3, the issuers other certifying officer and I
have, as at the end of the period covered by the interim filings
|
a. |
designed DC&P, or caused it to be designed under our
supervision, to provide reasonable assurance
that |
|
i. |
material information relating to the issuer is made known
to us by others, particularly during the period in which the interim
filings are being prepared; and |
|
|
|
|
ii. |
information required to be disclosed by the issuer in its
annual filings, interim filings or other reports filed or submitted by it
under securities legislation is recorded, processed, summarized and
reported within the time periods specified in securities legislation;
and |
|
b. |
designed ICFR, or caused it to be designed under our
supervision, to provide reasonable assurance regarding the reliability of
financial reporting and the preparation of financial statements for
external purposes in accordance with the issuers
GAAP. |
5.1 Control framework: The control framework the
issuers other certifying officer and I used to design the issuers ICFR is the
control framework published by the Committee of Sponsoring Organizations of the
Treadway Commission (COSO 2013), entitled Internal Control Integrated
Framework.
5.2 ICFR material weakness relating to design:
N/A
5.3 Limitation on scope of design: N/A
6. Reporting changes in ICFR: The issuer has
disclosed in its interim MD&A any change in the issuers ICFR that occurred
during the period beginning on September 1, 2015 and ended on November 30, 2015
that has materially affected, or is reasonably likely to materially affect, the
issuers ICFR.
Date: January 14, 2016
(signed) Donald S. Bubar
Donald S. Bubar
Chief
Executive Officer
FORM 52-109F2
CERTIFICATION OF INTERIM FILINGS
FULL CERTIFICATE
I, R. James Andersen, Chief Financial Officer of Avalon
Rare Metals Inc., certify the following:
1. Review: I have reviewed the interim financial
report and interim MD&A (together, the interim filings) of Avalon Rare
Metals Inc. (the issuer) for the interim period ended November 30, 2015.
2. No misrepresentations: Based on my knowledge,
having exercised reasonable diligence, the interim filings do not contain any
untrue statement of a material fact or omit to state a material fact required to
be stated or that is necessary to make a statement not misleading in light of
the circumstances under which it was made, with respect to the period covered by
the interim filings.
3. Fair presentation: Based on my knowledge,
having exercised reasonable diligence, the interim financial report together
with the other financial information included in the interim filings fairly
present in all material respects the financial condition, financial performance
and cash flows of the issuer, as of the date of and for the periods presented in
the interim filings.
4. Responsibility: The issuers other certifying
officer and I are responsible for establishing and maintaining disclosure
controls and procedures (DC&P) and internal control over financial reporting
(ICFR), as those terms are defined in National Instrument 52-109
Certification of Disclosure in Issuers Annual and Interim Filings, for
the issuer.
5. Design: Subject to the limitations, if any,
described in paragraphs 5.2 and 5.3, the issuers other certifying officer and I
have, as at the end of the period covered by the interim filings
|
a. |
designed DC&P, or caused it to be designed under our
supervision, to provide reasonable assurance
that |
|
i. |
material information relating to the issuer is made known
to us by others, particularly during the period in which the interim
filings are being prepared; and |
|
|
|
|
ii. |
information required to be disclosed by the issuer in its
annual filings, interim filings or other reports filed or submitted by it
under securities legislation is recorded, processed, summarized and
reported within the time periods specified in securities legislation;
and |
|
b. |
designed ICFR, or caused it to be designed under our
supervision, to provide reasonable assurance regarding the reliability of
financial reporting and the preparation of financial statements for
external purposes in accordance with the issuers
GAAP. |
5.1 Control framework: The control framework the
issuers other certifying officer and I used to design the issuers ICFR is the
control framework published by the Committee of Sponsoring Organizations of the
Treadway Commission (COSO 2013), entitled Internal Control Integrated
Framework.
5.2 ICFR material weakness relating to design:
N/A
5.3 Limitation on scope of design: N/A
6. Reporting changes in ICFR: The issuer has
disclosed in its interim MD&A any change in the issuers ICFR that occurred
during the period beginning on September 1, 2015 and ended on November 30, 2015
that has materially affected, or is reasonably likely to materially affect, the
issuers ICFR.
Date: January 14, 2016
(signed) R. James Andersen
R. James Andersen
Chief Financial Officer
Avalon Advanced Materials (QB) (USOTC:AVLNF)
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