The Company seeks safe harbor for our forward-looking statements contained in Items 5.E and F. See the heading "Cautionary“Cautionary Note Regarding Forward-Looking Statements"Statements” above.
Name and Age | Current Office Held with the Company | Current director and/or Executive Office Since | Principal Occupation During Last Five Years (3) |
Masa Igata (1)(2) Age: 5960 | Independent Director | Independent Director | April 23, 2014 | Present: Director of the Company from April 23, 2014 to present; Founder and ChefChief Executive Officer of Frontier LLC (Mongolia)(Mongolia from March 2007 to present and Founder and Chief Executive Officer of Frontier Japan from January 2015 to present. |
David H. Smith (6) Age: 73 | Independent Director |
August 3, 2020
Ronald Clayton
Age: 61
| Independent Director | November 4, 2019 | Present: Independent Director of the Company from November 4, 2019August 2020 to present; President, Chief Executive OfficerSenior Analyst for The Morgan Report.com; regular contributor to Money Metals Exchange; regular Contributor by Invitation to The Prospector News; and a Director of 1911 Gold Corporation (formerly Havilah Mining Corporation) from November 26, 2018 to present; and a Director of Gold Standard Ventures Corp. from January 30, 2018 to present.ghostwriter. Former: President, Chief Executive Officer and a Director of Tahoe Resources Inc. from May 25, 2010 to June 15, 2018.
| Ronald Espell Age: 59 60 | Vice-President, Environment and Sustainability | October 29, 2018 | Present: Vice-President, Environment and Sustainability of the Company from November 2018 to present. Former: VP Environment of American Vanadium Corp. from April 2012 to April, 2015; Principal Consultant of SRK Consulting from April, 2015 to April, 2016; Corporate Environmental Director of McEwen Mining Inc. from April, 2016 to November, 2017. | Danniel Oosterman Age: 47 48 | Vice-President, Exploration | February 20, 2018 | Present: Vice-President, Exploration of the Company from February 2018 to present. Former: President & CEO of Canstar Resources Inc. from March 2013 to December 2017. |
Joaquin Merino-Marquez Age: 52 53 | Vice-President, South South American
Operation | November 1, 2019 | Present: Vice-President, South American Operations of the Company from November 1, 2019 to present; President and a Director of Emerita Resources Corp. (Formerly “Emerita Gold Corp.”) from January 11, 2013 to present. |
Name and Age | Current Office Held with the Company | Current director and/or Executive Office Since | Principal Occupation During Last Five Years (3) | Irina Plavutska Age: 6263 | Chief Financial Officer | Chief Financial Officer | September 11, 2013 | Present: Chief Financial Officer of the Company from September 13, 2013 to present. | Brigitte McArthur Age: 57 | Corporate Secretary | November 15, 2019 | Present: Corporate Secretary of the Company from November 15, 2019 to present. President and Director of RJL Consultant Ltd. from November 2006 to present. Former: Controller at the CompanyCorporate Secretary of Nevsun Resources Ltd. from November 2012March 2018 to September 9, 2013; Interim CFOJanuary 2019; and Admin, Officer I Corp. Secretary Dept. of the CompanyHSBC Bank Canada from August 20112015 to November 2012; and Controller of the CompanyMarch 2018. from August 2010 to August 2011. |
Notes: (1) Member of the Audit Committee. (2) Member of the Corporate Governance and Compensation Committee. (3) The information as to principal occupation, business or employment is not within the knowledge of our management and has been furnished by the respective individuals. Each director or officer has held the same or similar principal occupation with the organization indicated or a predecessor thereof for the last five years. (4) Mr. Lee was appointed Chief Executive Officer upon the departure of Michael Doolin effective July 17, 2020. (5) Mr. Hall is the Chair of the Audit Committee and Chair of the Corporate Governance and Compensation Committee. (6) Mr. Smith was appointed a Director of the Company on August 3, 2020. During the year ended December 31, 20192020, the Company experienced variousthe following changes in Directors, Officers and Management of the Company as follows:Management: ● Gerald Panneton ceased to be the President, Chief Executive Officer and a Director on February 15, 2019;
●
Tony WongMichael Doolin ceased to act as Corporate Secretary on February 22, 2019;
●
Louis Dionne ceased to be a Director on February 28, 2019;
●
Rocio Echegaray was appointed Corporate Secretary on March 8, 2019;
●
Michael Doolin was appointed Chief Operating Officer and Interim Chief Executive Officer on April 1, 2019;July 17, 2020;
● John Lee ceased to act as Interim President andwas appointed Chief Executive Officer on April 1, 2019;effective July 17, 2020; ● Bekzod Kasimov ceased to actRonald Clayton resigned as Vice-President Business Developmenta Director on July 1, 2019;31, 2020; and
● Marc LeducDavid H. Smith was appointed as a Director on July 22, 2019;August 3, 2020.
●
Joaquin Merino-Marquez was appointed as Vice-President, South American Operation on November 1, 2019;
●
Ronald Clayton was appointed as a Director on November 4, 2019;
●
Michael Drozd ceased to act as Vice-President, Operations on November 7, 2019;
●
Rocio Echegaray ceased to act as Corporate Secretary on November 15, 2019; and
●
Brigitte McArthur was appointed Corporate Secretary on November 15, 2019.
Biographical Information of Directors and Senior Management The following are brief biographies of our directors and senior management as of December 31, 2019:2020: John Lee is the Chief Executive Officer, Executive Chairman and has been a Director of the Company since October 2009. Mr. Lee has been an accredited investor in the resource industry since 2001. Under John’s leadership, the Company raised over $110 million and grew from having minimal assets to owning substantial assets in USA, Bolivia and Mongolia. Mr. Lee is a CFA charter holder and has degrees in economics and engineering from Rice University. Since joining the Company Mr. Lee has led the Company in making several timely project acquisitions and has also identified, negotiated and financed Pulacayo Project acquisition in 2015 and the Gibellini Project acquisition in 2017. Michael DoolinGreg Hall was appointed as Interim Chief Executive Office replacing Gerald Panneton on April 1, 2019. Mr. Doolin was also appointed Chief Operating Officeris a Co-Founder of the Company on April 1, 2019. Mr. Doolin is a mining professional with over 30 years of operational and management experience in Nevada with an emphasis on planning and budgeting. Mr. Doolin manages the Company’s worldwide operations while collaborating with Prophecy’s executive chairman John Lee on investor marketing, fundraising and the Company’s overall strategic direction. Prior to joining the Company, Mr. Doolin was Chief Operating Officer at Klondex Mines Ltd. (“Klondex”) a mid-tier precious metals mining company with over 200,000 oz. annual gold production prior to its takeover by Hecla Mining Company for US$462 million in July 2018. From 2012 to 2018, Mr. Doolin was an integral part of Klondex management team that upgraded Klondex to major NYSE American listing, grew the staff count to over 250, and raised over US$200 million in equity to develop Klondex’s Fire Creek, Hollister and Midas, gold and silver mines located in Nevada from permitting to construction to commissioning stages and then further expansion. At Klondex, Mr. Doolin’s team obtained an Environmental Assessment for the Fire Creek Mine in nine months from the Battle Mountain BLM office who are overseeing Prophecy’s current Gibellini permitting, which is the Company’s top priority.
Greg Hall has been an Independent Director of the Company since October 2009. As corporate director of several public companies since 2003, Mr. Hall has been involved in strategic planning, mergers and acquisitions, and investment decisions. Currently Mr. Hall is President and Director of Water Street Assets, Director of CanX CBD Processing and a self-employed businessman with over 25 years’ experience as a broker, senior executive officer and founderMember of several successful Vancouver-based brokerage firms. For over 25 years, Mr. Hall has focused on significant international exploration, development, and mining ventures, and all aspectsthe Institute of their structuring and finance. Mr. Hall previously served as a director of Silvercorp Metals Inc. (NYSE: SVM, TSX: SVM), China’s largest primary silver producer and the lowest cost silver producer among its industry peers. Mr. Hall’s previous positions include: Director at Haywood Securities Inc.; Vice-President, Canaccord Capital Corporation; and Senior Vice-President of Leede Financial Markets Inc.Corporate Directors. Mr. Hall is a graduate of the Rotman School of Management, University of Toronto, SME Enterprise Board Program, and a Member of the Institute of Corporate Directors.
Masa Igata has been an Independent Director of the Company since April 2014. Mr. Masa Igata, Founder & CEO of Frontier LLC and Frontier Japan, has more than 30 years of professional experience in Asian financial markets. Prior to establishing Frontier Securities(Later renamed as Frontier LLC) in 2007, he had been a Managing Director at Salomon Brother/Citigroup/Nikko Citigroup in Tokyo leading the company to be the most profitable foreign investment bank in Japan for more than the decade. After leaving the firm in 2004, Mr. Igata became interested in Mongolia’s fast-growing economy, and began to develop close relationships with many Mongolian businesses since then. Mr. Igata has since invested in Mining, Finance and real estate sector in Japan, Mongolia, Canada and China through his own companies in each region. In addition, with proven expertise on cross-border capital raising, Mr. Igata has been actively promoting Mongolian investment opportunities to foreign investors and advocating capital market’s best practices in Mongolia to ensure and enhance its access to foreign investors through a full range of financial services, corporate access and research. In addition, he has extensively advised the Government of Mongolia, several government agencies and major corporate in Mongolia on fund raising, corporate governance and value enhancement. In Japan, Mr. Igata has been advising to major mining companies on corporate governance, investor relations and the outlook on the global mining sector. Hosting Invest Mongolia Tokyo is one of the service to facilitate himself and Japanese investors to access to the Government and the Business in Mongolia. In addition, Mr. Igata has been actively advising to Japanese Government and Government related agencies on the various issues on the global mining industry. Mr. Igata is a certified member of the Securities Analyst Association of Japan and an Advisory Member of the Board at Business Council of Mongolia (BCM). Mr. Igata was conferred a decoration of Nairamdal (Friendship) from President of Mongolia Tsakhiagiin Elbegdorj on June 2017. Marc Leduc has been an Independent Director of the Company since July 2019. Mr. Leduc is a mining engineer and geologist with more than 30 years’ experience involving all aspects of the development, operations, planning and evaluation of mining projects. Mr. Leduc holds a B.Sc. (Hons) degree in Mining Engineering from Queen’s University Kingston, and B.Sc. degree in Geology from the University of Ottawa, and he is a registered professional engineer in both Ontario and BC. Mr. Leduc has led technical teams in the design and construction of large mines, heap leach and tailings facilities. Mr. Leduc has held top management positions with several mining companies including most recently Chief Operating Officer and Interim CEO of NewCastle Gold Ltd before it was acquired in 2017 via merger with Trek Mining Inc. and Anfield Gold Corp. (now named Equinox Gold Corp.). Mr. Leduc, following the merger, remained with Equinox Gold for all of 2018 and into 2019 holding the position of Senior Vice President of US Operations. Mr. Leduc currently holds the position of COO with Kore Mining and is an independent director of South Star Mining.Mining and South Atlantic Gold. Mr. Leduc spent several years working in Peru as the President and COO for Bear Creek Mining Corp, a silver exploration and development company. Ronald ClaytonDavid H. Smith has been an Independent Director of the Company since November 4, 2019. Mr. ClaytonAugust 2020. He is a seasoned executive with over 40 years of mine operating experience. He was the CEO of Tahoe ResourcesSenior Analyst for The Morgan Report.com, a regular contributor to Money Metals Exchange and led the successful constructiona regular Contributor by Invitation to The Prospector News, and operation of Tahoe’s flagship Escobal silver mine, which at its peak (2015 to 2017) produced over 20 million ounces of silver annually. Tahoe was acquired by Pan American Silver Corp for US$1.07 billion in February 2019. Prior to his 8-year tenure at Tahoe, Mr. Clayton was senior vice president for operations and general manager of several underground mines for Hecla Mining Company. Mr. Clayton earned a Bachelor of Science degree in mining engineering from the Colorado School of Mines and is a graduate of the Tuck School of Business Executive Program at Dartmouth College.ghostwriter.
Irina Plavutska has been with the Company since 2010 and was appointed Chief Financial Officer in April 2011. Ms. Plavutska is a professional accountant with over 20 years of international experience in financial reporting, auditing, and accounting. Ms. Plavutska is a member of Chartered Professional Accountants Canada. Ronald Espell was appointed Vice President, Environment and Sustainability in October 2018. Mr. Espell is a highly regarded specialist in U.S. federal and Nevada state mine permitting, with over 30 years of experience in corporate environmental management, permitting in conformance with applicable regulatory and performance standards, mine waste management, reclamation, and closure planning. Prior to joining the Company, Mr. Espell was the corporate environmental director of McEwen Mining Inc. Within 18 months from the time he joined McEwen Mining, Mr. Espell led his team to successfully obtain the Gold Bar project’s environmental impact statement (EIS) approval from the BLM in November 2017. Prior to his time with McEwen Mining, Mr. Espell was a principal consultant at SRK Consulting and Vice-President of Environment for the Gibellini Project’s prior operator, where he led efforts in the preparation of Gibellini’sthe Gibellini Project’s baseline studies and plan of operation. Mr. Espell’s wealth of experience includes being an environmental management specialist at the Nevada Division of Environmental Protection, as well as working for 17 years in positions of increasing responsibility at Barrick Gold Corp., from being Environmental Superintendent, Environmental Manager of Barrick Goldstrike, Regional Environmental Director — Australia Pacific, and Corporate Environmental Director. Danniel Oosterman was appointed Vice-President, Exploration in February 2018. Mr. Oosterman worked for 20 years in the mining and exploration business specializing in exploration and development of projects from grass roots, brown field, to feasibility stage. Mr. Oosterman’s background includes occupying both technical and executive roles, with an early career joining exploration efforts for mining companies such as Falconbridge Ltd. and Inco Limited before transitioning to the junior mining sector to manage many technical projects across Canada before advancing to President and CEO of Canstar Resources Inc., a TSX Venture Exchange-listed company. He holds a B.Sc. (Hons) degree in Geology from Laurentian University and is a member of the Association of Professional Geoscientists of Ontario. Mr. Oosterman is closely involved in the development of the Company’s Gibellini Project and exploration of its Bolivian project.the Pulacayo Project. Mr. Oosterman is a “qualified person” within the meaning of NI 43–101.
Joaquin Merino-Marquez was appointed Vice-President, South American Operations in November 2019. Based in Bolivia, Mr. Merino-Marquez is a professional geologist with 27 years of experience in the mining industry. Mr. Merino-Marquez is currently the President and a Director of Emerita Resources Corp. (Formerly(Formerly “Emerita Gold Corp.”)since January 11, 2013. Prior industry affiliations include roles as vice-president of exploration for Primero Mining Corp. and vice-president of exploration for Apogee Minerals Ltd. Prior to Apogee, Mr. Merino-Marquez was the exploration manager for Placer Dome at the Porgera mine and a mine geologist at Hecla Mining’s La Camorra mine. Mr. Merino-Marquez is a native Spanish speaker and fluent in English. He holds a Master of Science from Queens University and a Bachelor of Science in geology from University of Seville (Spain). He is a member of the Association of Professional Geoscientists of Ontario. From 2006 to 2010, Mr. Merino-Marquez lived in Bolivia and led Apogee’s 85,000-metre85,000-meter drill campaign at Pulacayo and Paca silver projects. The drill campaign was a success and defined over 90 million ounces of silver resources according to independent, third party estimates (which are now considered historic in nature and should not be relied up on as they are no longer National Instrument 43-101 compliant). Brigitte McArthur was appointed Corporate Secretary in November 2019. Ms. McArthur brings over 30 years’ experience working with private and publicly trading companies. Ms. McArthur is the President and Director of RJL Consultant Ltd., a private company that provides corporate secretarial and governance services. Previous to joining the Company, Ms. McArthur served as Corporate Secretary of Nevsun Resources Ltd. until being acquired by Zijin Mining Group Company Limited. Throughout her extensive experience, Ms. McArthur has been responsible for all aspects of corporate governance and regulatory matters. Executive Officers For the purposes of this Annual Report, “executive officer” of the Company means an individual who at any time during the year was the Chief Executive Officer (“CEO”), President or Chief Financial Officer (“CFO”) of the Company; any Vice-President in charge of a principal business unit, division or function; and any individual who performed a policy-making function in respect of the Company. Set out below are particulars of compensation paid to the following persons (the “Named Executive Officers” or “NEOs”) for the fiscal year ended December 31, 2019:2020: 3. each of the three most highly compensated executive officers, or the three most highly compensated individuals acting in a similar capacity, other than the CEO and CFO, at the end of the most recently completed financial year whose total compensation was, individually, more than C$150,000$150,000 for that financial year; and 4. any individual who would be a NEO under paragraph (3) but for the fact that the individual was neither an executive officer of the Company, nor acting in a similar capacity, at the end of that financial year.
The Company has no pension, defined contribution, or deferred compensation plans for its directors, executive officers or employees. | | | | Non-equity incentive plan compensation ($) | | | Name and Position | | | Option-based awards (3) ($) | | | | | John Lee (1)(2) Executive Chairman & Director | Nil | 320,000 | 21,908(6) | Nil | Nil | 377,370 | 719,278 | Michael Doolin (1)(2)(4) CEO, COO & Director | 298,469 | 265,000 | 74,387(7) | Nil | Nil | 10,672 | 648,528 | Irina Plavutska (2) CFO | 143,152 | 40,000 | 7,303(8) | Nil | Nil | 6,370 | 196,825 | Ronald Espell (2) VP, Environment and Sustainability | 331,674 | 60,000 | 7,303(9) | Nil | Nil | 29,548 | 428,525 | Michael Drozd (5) Former VP, Operations | 322,942 | Nil | 3,188(10) | Nil | Nil | 41,038 | 367,168 |
| | | | | Non-equity incentive plan compensation ($) | | | | Name and Position | Year | Salary ($) | Share based awards ($) | Option-based awards (1) ($) | Annual incentive plans | Long-term incentive plans | Pension value ($) | All other compensation ($) (4) | Total compensation ($) | John Lee(2)(10) Executive Chairman, Chief Executive Officer & Director | 2020 2019 2018 | Nil Nil Nil | Nil 320,000 (11) Nil | 174,476 21,908 (3) (6) 80,064 | Nil Nil Nil | Nil Nil Nil | Nil Nil Nil | 426,792 (5) 377,370 (5) 406,468 (5) | 601,268 719,278 486,532 | Irina Plavutska CFO | 2020 2019 2018 | 145,200 143,152 118,500 | Nil 40,000 (11) Nil | 43,619 7,303 (3) 17,617 | Nil Nil Nil | Nil Nil Nil | Nil Nil Nil | 6,792 6,370 5,424 | 195,611 196,825 141,541 | Danniel Oosterman(6) Vice-President Exploration | 2020 2019 2018 | 151,800 138,000 108,015 | Nil 40,000(11) Nil | 43,619 12,342(3) 42,192 | Nil Nil Nil | Nil Nil Nil | Nil Nil Nil | Nil Nil Nil | 195,419 190,342 150,207 | Ronald Espell(7) VP, Environment and Sustainability | 2020 2019 2018 | 335,317 331,674 Nil | Nil 60,000 (11) Nil | 95,213 7,303 (3) Nil | Nil Nil Nil | Nil Nil Nil | Nil Nil Nil | 19,603 29,548 Nil | 450,134 428.525 Nil | Joaquin Merino-Marquez(8) VP, South American Operation | 2020 2019 2018 | Nil Nil Nil | Nil Nil Nil | 96,124 Nil Nil | Nil Nil Nil | Nil Nil Nil | Nil Nil Nil | 208,728 Nil Nil | 304,852 Nil Nil | Michael Doolin(2) (9) Former CEO & COO | 2020 2019 2018 | 259,021 298,469 Nil | Nil 265,000 (11) Nil | 75,676 74,387 Nil | Nil Nil Nil | Nil Nil Nil | Nil Nil Nil | 6,526 10,672 Nil | 341,224 648,528 Nil |
Notes: 1) Amounts shown in this column represent Options granted as part of the annual compensation package of each NEO. Fair value at the time of grant calculated using the Black-Scholes option pricing model using the assumption Value calculated based on the difference between the closing price of the Common Shares on December 31, 2020 - $0.49 (2019 - $0.39; 2018 - $0.27) and the option exercise price. (1) 2)
John Lee and Michael Doolin (“Mr. Doolin”) dodid not receive compensation for acting as a Director of the Company. (2) 3)
After the year end, the Company issued bonus common shares with a fair value of $0.40 per Share to executive officers under the Share- Based Compensation Plan.
(3)
The stock options issued, included and described under these Option-based awards were granted to executive officers under the Share- Based Compensation Plan. Stock options granted on July 29, 2019 to John Lee, Irina Plavutska and Ronald Espell were not valued at December 31, 2019 due to the following: further to the voluntary forfeiture of share options with expire dates on April 7, 202, June 22, 2020, and November 14, 2023, at exercise prices ranging from $0.50 to $0.65, the Company granted 794, 000 new stock options with an expire date of July 29, 2024 at an exercise price of $0.20 per share. As at December 31, 2019, the re-issuing of these options had been approved by the TSX, but they had not been approved by the shareholders; consequently, these options were no valued.
(4)
Mr. Doolin was appointed Chief Executive Officer and Chief Operating Officer on April 1, 2019. The Company issued 500,000 sign-on bonus Shares with a fair value of $0.23 per share to Mr. Doolin.
(5)
Michael Drozd was appointed Vice-President, Operations on August 16, 2018, and ceased to be Vice–President, Operations effective November 7, 2019.
(6)
300,000 stock options exercisable at $0.44 and expiring on November 1, 2024.
(7)
The equivalent of 500,000 and 300,000 stock options, exercisable at the equivalent of $0.21 and $0.44, respectively, and expiring on April 1, 2024 and November 1, 2024, respectively.
(8)
100,000 stock options exercisable at $0.44 and expiring on November 1, 2024.
(9)
100,000 stock options exercisable at $0.44 and expiring on November 1, 2024.
(10)
100,000 stock options exercisable at $0.20 and expiring on July 29, 2024.
Directors
Independent directors are paid varying amounts depending on the degree to which they are active on behalf of the Company. See the table below for amounts paid or accrued in fiscal year 2019.
The compensation provided to directors who were not an executive officer for the Company’s most recently completed financial year of December 31, 2019, are as follows:
Name | | | Option-Based Awards ($) (5) | Non-equity Incentive Plan Compensation (4) | | All other Compensation ($) | | Greg Hall | 21,400 | 6,000 | 5,842(6) | Nil | Nil | Nil | 33,242 | Masa Igata | 19,600 | 6,000 | 5,842(7) | Nil | Nil | Nil | 31,442 | Marc Leduc (1) | 4,962 | 6,000 | 13,401(8) | Nil | Nil | 20,443 | 38,806 | Ronald Clayton (2) | 2,600 | 6,000 | 14,606(9) | Nil | Nil | Nil | 23,206 | Louis Dionne (3) | 3,600 | Nil | Nil | Nil | Nil | Nil | 3,600 |
Notes:
(1)
Marc Leduc was appointed as a Director of the Company on July 22, 2019.
(2)
Ronald Clayton was appointed as a Director of the Company on November 4, 2019.
(3)
Louis Dionne ceased to be a Director on February 28, 2019.
(4)
After the year end, the Company issued bonus Shares with a fair value of $0.40 per Share to directors under the Share-Based Compensation Plan.
(5)
The stock options issued, included and described under these Option-based awards were granted to executive officers under the Share-Based Compensation Plan. Stock options granted on July 29, 2019 to Messrs. Greg Hall and Masa Igata were not valued at December 31, 2019, due to the following: further to the voluntary forfeiture of share options with expire dates on April 7, 2020, June 22, 2020, and November 14, 2023, at exercise prices ranging from $0.50 to $0.65, the Company granted 794, 000 new stock options with an expire date of July 29, 2024 at an exercise price of $0.20 per share. As atof December 31, 2019, the re-issuing of these options had been approved by the TSX, but they had not been approved by the shareholders; consequently, these options were not valued. Subsequently the stock options were ratified and approved by the shareholders at the Company’s special meeting of shareholders held March 16, 2020.
(6) 4)
80,000 stock options exercisable at $0.44All Other Compensation for NEOs is comprised of payments for health Benefits amongst other things which are made on behalf of all corporate employees of the Company.
5) All other Compensation for Mr. Lee consisted of the following: Linx Partners Ltd., a private company controlled by John Lee, our Chief Executive Officer, Executive Chairman and expiringa director of the Company, has provided management and consulting services to the Company since April 7, 2015 (prior to that, from June 13, 2011, Mr. Lee’s management and consulting services were provided to the Company though Mau Capital Management LLC, another private company controlled by Mr. Lee). During the year ended December 31, 2020, we paid $420,000 (2019 - $371,000; 2018 - $401,044) for management and consulting services rendered to the Company by Linx Partners Ltd. and $6,792 (2019 - $6,370; 2018 - $5,424) for health benefits 6) Danniel Oosterman was appointed Vice President Exploration on February 2, 2018. 7) Ronald Espell was appointed VP, Environment and Sustainability on October 29, 2018. 8) Joaquin Merino-Marquez was appointed VP, South American Operations on November 1, 2024.2019. (7) 9)
80,000 stock options exercisable at $0.20Michael Doolin was appointed Chief Executive Officer and expiringChief Operating Officer on NovemberApril 1, 2024.2019 and ceased to act as Chief Executive Officer and Chief Operating Officer on July 17, 2020. Mr. Lee assumed the role of Chief Executive Officer effective July 17, 2020.
(8) 10)
The equivalentMr. Lee was appointed the role of 150,000 and 80,000 stock options, exercisable at the equivalent of $0.20 and $0.44, respectively, and expiring onChief Executive Officer effective July 29, 2024 and November 1, 2024, respectively.17, 2020.
(9) 11)
200,000 stock options exercisable at $0.44 and expiringOn January 6, 2020, the Company issued bonus Common Shares with a fair value of $0.40 per share to executive officers under the Share- Based Compensation Plan. The bonus Common Shares were based on November 1, 2024.the year ended December 31, 2019.
D uring the years ended December 31, 2020, 2019 and 2018, the stock option values were calculated using the following weighted average assumptions: | | | | Year ended December 31, | | | | | 2020 | 2019 | 2018 | Risk-free interest rate | | | | 1.46% | 1.54% | 1.77% | Expected life of options in years | | | 4.06 | 4.45 | 4.40 | Expected volatility | | | | 132.47% | 132.75% | 135.71% | Expected dividend yield | | | | Nil | Nil | Nil | Expected forfeiture rate | | | | 12% | 12% | 12% | Weighted average fair value of options granted during the period | $0.30 | $0.31 | $0.32 |
The expected volatility used in the Black-Scholes option pricing model is based on the historical volatility of the Common Shares. The expected forfeiture rate is based on the historical forfeitures of options issued. Directors Independent directors are paid varying amounts depending on the degree to which they are active on behalf of the Company. See the table below for amounts paid or accrued in fiscal year 2020. The compensation provided to directors who were not an executive officer for the Company’s most recently completed financial year of December 31, 2020, are as follows: Name | Fees Earned ($) | Share-Based Awards ($) | Option-Based Awards ($) (4) | Non-equity Incentive Plan Compensation | Pension Value | All other Compensation ($) | Total ($) | Greg Hall | 26,800 | Nil | 21,810 | Nil | Nil | Nil | 48,610 | Masa Igata | 20,100 | Nil | 21,810 | Nil | Nil | Nil | 41,910 | Marc Leduc | 19,100 | Nil | 21,810 | Nil | Nil | Nil | 40,910 | Ronald Clayton (1) | 11,100 | Nil | 45,406 | Nil | Nil | Nil | 56,506 | David H. Smith (2) | 7,500 | Nil | 20,638 | Nil | Nil | Nil | 28,138 |
Notes: 1. Ronald Clayton resigned as a Director on July 31, 2020 2020. 2. David H. Smith was appointed as a Director on August 3, 2020. Description of Compensation Plan We have adopted the Share-Based Compensation Plan. The purpose of the Share-Based Compensation Plan is to allow us to grant options, bonus sharesCommon Shares and stock appreciation rights (the “Awards”"Awards") to directors, officers, employees and consultants, as additional compensation, and as an opportunity to participate in our success. The granting of Awards is intended to align the interests of such persons with that of our shareholders.
Options are exercisable for up to 10 years from the date of grant or as determined by the corporate governance and compensation committee of our Board (the “CGCC”"CGCC") and are required to have exercise prices equal to or greater than the market price (as defined by the stock exchange on which our sharesCommon Shares are principally listed for trading and based on the volume weighted average trading price of our sharesCommon Shares as reported on such exchange for the five trading days immediately preceding the day that the options are granted). Options granted under the Share-Based Compensation Plan vest at 12.5% per quarter over a two-year period unless determined otherwise by the CGCC. In addition, the CGCC may accelerate the vesting date, permit the conditional exercise of options, amend or modify the terms of the options, or terminate options. Pursuantoptions pursuant to the Share-Based Compensation Plan, the CGCC may from time to time authorize the issuance of Awards to directors, officers, employees and consultants of the Company or employees of companies providing management or consulting services to the Company. The maximum number of common sharesCommon Shares which may be reserved for issuance under the Share-Based Compensation Plan is 14,374,419, which was approved at the Company’s AGM held September 12, 2019.
C. Board Practices Overview Our Board has a formal mandate as outlined in our Corporate Governance Policies and Procedures Manual, as amended (the “Manual”"Manual"). The Manual mandates the Board to: (i) oversee management of the Company, (ii) exercise business judgment, (iii) understand the Company and its business, (iv) establish effective systems, (v) protect confidentiality and proprietary information, and (vi) prepare for and attend Board, committee and shareholder meetings. The Manual also includes written charters for each committee and it contains a Code of Ethics, policies dealing with issuance of news releases and disclosure documents, as well as shareCommon Share trading black-out periods. Further, in the Manual, the Board encourages but does not require continuing education for all the Company’s directors. Term of Office Unless the director’s office is vacated earlier in accordance with the provisions of the BCBCA, each of our current directors will hold office until the conclusion of the next annual meeting of the Company’s shareholders or if no director is then elected, until a successor is elected. John Lee, our Chief Executive Officer and Executive Chairman, will hold his office for an indefinite period until the termination of our consulting agreement dated February 20, 2018 with his wholly-owned company, Linx. Our consulting agreement with Linx may be terminated without cause by either party upon 90 days’ written notice, or immediately by us for cause. Michael Doolin, our Chief Executive Officer and Chief Operating Officer, will hold his respective offices for an indefinite period until the termination of our employment agreement dated March 5, 2019. Our employment agreement with Mr. Doolin may be terminated by us without cause upon the amount of written notice required by the British Columbia Employment Standards Act based on each employee’s respective length of service, or immediately for cause. Mr. Doolin may terminate his employment with us upon thirty (30) days’ written notice.
Irina Plavutska, our Chief Financial Officer, will hold her respective officesoffice for an indefinite period until the termination of our employment agreement dated February 1, 2018. Our employment agreement with Ms. Plavutska may be terminated by us without cause upon the amount of written notice required by the British Columbia Employment Standards Act based on each employee’s respective length of service, or immediately for cause. Ms. Plavutska may terminate her employment with us upon two weeks’ written notice. Ronald Espell, our Vice-President, Environment and Sustainability, will hold his office for an indefinite period until the termination of our subsidiary Nevada Vanadium’s employment agreement with him dated October 23, 2018. Nevada Vanadium’s employment agreement with Mr. Espell may be terminated by Nevada Vanadium without cause upon 30 days’ written notice and payment of a severance amount equal to 6 months’ salary during the first three years that Mr. Espell is employed, or one month’s salary for each full year that Mr. Espell is employed after three years, by Nevada Vanadium, or immediately for cause. Mr. Espell may terminate his employment with Nevada Vanadium upon 30 days’ written notice. Danniel Oosterman, our Vice-President, Exploration, will hold his office for an indefinite period on a month-to-month basis until the termination of our consulting agreement dated February 12, 2018. Our consulting agreement with Mr. Oosterman may be terminated by us or by Mr. Oosterman upon thirty days’ written notice. Joaquin Merino-Marquez, our Vice-President, South American Operation, will hold his office for an indefinite period on a month-to-month basis until the termination of our consulting agreement dated November 1, 2019. Our consulting agreement with Mr. Merino-Marquez may be terminated by us or by Mr. Merino-Marquez upon sixty days’ written notice. Brigitte McArthur, our Corporate Secretary, will hold her office for an indefinite period until the termination of our employment agreement dated November 15, 2019. Our employment agreement with Ms. McArthur may be terminated by us without cause upon the amount of written notice required by the British Columbia Employment Standards Act based on each employee’s respective length of service, or immediately for cause. Ms. McArthur may terminate her employment with us upon two weeks’ written notice. The period during which each of our directors and executive officers has held their respective office is specified in the table set forth in “Item 6.A. Directors, Senior Management and Employees - Directors and Senior Management.” Termination and Change of Control Benefits Other than as set out below, there are no contracts, agreements, plans or arrangements that provide for payments to a NEO following or in connection with any termination (whether voluntary, involuntary or constructive), resignation, retirement, change of control of the Company or change in responsibilities of the NEO.
John Lee, Chief Executive officer & Executive Chairman On January 1, 2010, the Company entered into a consulting agreement with a holding company solely owned by Mr. Lee, at an annual fee of $16,000 (as amended). On November 6, 2012 this agreement was terminated and on November 7, 2012 a new consulting agreement was entered into (which we refer to as the “Mau Agreement”). On April 7, 2015, the Mau Agreement was terminated, and the Company entered into an agreement with Linx that subsequently, on October 9, 2018, was replaced with another agreement with Linx Partners Ltd. (“Linx”) (which we refer to as the “New LinkLinx Agreement”) for an indefinite term. The New Linx Agreement provides for: (1) consulting fees of $336,000 per year, with up to $36,600$33,600 per year annual increases during fiscal years 2020 to 2022, at the discretion of the Board of Directors; (2) bonus, based on pre-determined criteria; (3) up to 3,000,000 common sharesCommon Shares upon meeting certain milestone targets described in the New Linx Agreement; (4) stock options; (5) health and dental benefits; and (6) vacation pay. The New Linx Agreement may be terminated by the Company at any time for any reason other than for cause upon a 90 days’ written notice withnotice. If the Company having the option of paying the consulting fees due underterminates the New Linx Agreement for that 90-day period in lieu thereof. In such case,any reason other than cause, the Company shall pay a termination payment of either $1,600,000, which shall include all applicable taxes, provided the Company has successfully raisesraised total gross aggregate proceeds of no less than $25,000,000 through one or more equity financing(s) undertaken after October 9, 2018, or the commencementlesser amount of $1,000,000, which shall include all applicable taxes, in the New Linx Agreement: (a)event the Company has not successfully raised total gross aggregate proceeds of no less than $25,000,000 through one or more equity financing(s) undertaken after October 9, 2018. Linx may terminate the Linx Agreement by providing the Company will paywith a termination payment90 days’ written notice. The Company entered into a Change of $1,000,000; or (b) total gross aggregate proceeds of more than $25,000,000, the Company will pay a termination payment of $1,600,000. The New LinxControl Agreement with the Company alsoLinx (the "Linx Change of Control Agreement") dated October 9, 2018. The Linx Change of Control Agreement provides that in the event the New Linx Agreement is terminated as a result of, or within six months following, a significant change in the affairs of the Company such as a take-over bid, change of control of the Board, the sale, exchange or other disposition of a majority of the outstanding common shares,Common Shares, the merger or amalgamation or other corporate restructuring of the Company in a transaction or series of transactions in which the Company’s shareholders receive lessmore than 51%50% of the outstanding common sharesCommon Shares of the new or continuing company, (we refer to such significant change as a “Change of Control”),and upon an involuntary termination, Mr. Lee shall receive from the Company within 30 days,days: i) a payment equivalentof $1,600,000; ii) reimbursement for all reasonable business related promotion, entertainment and/or travel expenses incurred by Linx during the course of the Linx Agreement with the Company, subject to two years’ worth of his regular annual consulting fees (currently $336,000). In the eventexpense reimbursement provisions set out in the Linx Agreement; iii) Mr. Lee’s consulting agreement is terminated asentitlement to participate in the Company’s annual bonus plan in respect of the calendar year in which the involuntary termination has occurred, and the prior year if such payment has not yet been made; iv) provide Mr. Lee and his eligible dependents with coverage under the Company’s Benefit Plans for a resultperiod of a Change in Control,30 days after termination of the Linx Agreement; and v) all of hisMr. Lee’s rights to any stock options he holds shall be governed by the provisions of his stock option agreements with the Company. Michael Doolin, Chief Executive Office and Chief Operating Officer
Mr. Doolin entered into an employment agreement with the Company on March 5, 2019 and a Change of Control agreement dated March 5, 2019. The employment agreement had an effective date of April 1, 2019 and is for an indefinite term and provides for: (1) salary; (2) bonus, at the discretion of the Company; (3) stock options; (4) employee benefits; and (5) vacation pay. In the event Mr. Doolin’s employment agreement is terminated as a result of a Change in Control, all of his rights to any stock options he holds shall be governed by the provisions of his stock option agreements with the Company. Mr. Doolin’s Change of Control agreement provides that in the event his employment is terminated as a result of, or within six months following, a Change in Control, Mr. Doolin shall receive from the Company within 30 days, a payment equal to two years of his regular annual salary.
Irina Plavutska, Chief Financial Officer Ms. Plavutska entered into her latest employment agreement with the Company effective February 1, 2018, as amended January 31, 2019. The employment agreement is for an indefinite term and provides for: (1) salary; (2) bonus, at the discretion of the Company; (3) stock options; (4) employee benefits; and (5) vacation pay. Her employment agreement with the Company also provides that in the event her employment is terminated as a result of, or within six months following, a Change in Control, Ms. Plavutska shall receive from the Company within 30 days, a payment equal to two years of her regular annual salary (currently $132,000)$145,200). In the event Ms. Plavutska’s employment agreement is terminated as a result of a Change in Control, all of her rights to any stock options she holds shall be governed by the provisions of her stock option agreements with the Company.Company including, without limitation, acceleration of vesting and the time period remaining to exercise any vested options. Brigitte McArthur, Corporate Secretary Ms. McArthur entered into her employment agreement with the Company on November 15, 2019. The employment agreement is for an indefinite term and provides for: (1) salary; (2) bonus, at the discretion of the Company; (3) stock options; (4) employee benefits; and (5) vacation pay. Her employment agreement with the Company also provides that in the event her employment is terminated as a result of, or within six months following, a Change in Control, Ms. McArthur shall receive from the Company within 30 days, a payment equal to one year of her regular annual salary (currently $90,000). In the event Ms. McArthur’s employment agreement is terminated as a result of a Change in Control, all of her rights to any stock options she holds shall be governed by the provisions of her stock option agreements with the Company including, without limitation, acceleration of vesting and the time period remaining to exercise any vested options. The criteria used to determine the amounts payable to the NEOs is based on industry standards and the Company’s financial circumstances. The agreements with the NEOs and subsequent changes were accepted by the Board based on recommendations of the CGCC.
Board Committees Applicable regulatory governance policies require that: (i) committees of the our board of directors be composed of at least a majority of independent directors; (ii) our Board expressly assume responsibility, or assign to a committee of the Board, responsibility for the development of the Company’s approach to governance issues; (iii) the audit committee of the Board (the “Audit Committee”) be composed only of independent directors, and the role of the Audit Committee be specifically defined and include the responsibility for overseeing management’s system of internal controls; (iv) the Audit Committee have direct access to the Company’s external auditor; and (v) the Board appoint a committee, composed of a majority of independent directors, with the responsibility for proposing new nominees to the Board and for assessing directors on an on-going basis. Audit Committee We have an Audit Committee comprised of directors Greg Hall (Chair), Masa Igata and Marc Leduc. All members of the Audit Committee are financially literate within the meaning of National Instrument 52-110 Audit Committees. Messrs. Hall, Igata and Leduc are not independent under the criteria established by SEC Rule 10A-3. The relevant education and experience of each member of the Audit Committee is described under “Item“Item 6.A. Directors, Senior Management and Employees - Directors and Senior Management”Management” above. The terms of reference of the Audit Committee are given in the charter of the Audit Committee, which is available on the Company’s website.attached hereto as Exhibit 2.2.
Corporate Governance and Compensation Committee The Board has a CGCC (as previously defined) whose functions include reviewing, on an annual basis, the compensation paid to the Company’s executive officers and directors, reviewing the performance of the Company’s executive officers, and making recommendations on compensation to the Board. The CGCC periodically considers the grant of incentive Awards under the Share-Based Compensation Plan. The CGCC currently consists of Greg Hall (Chairman), Masa Igata and Marc Leduc. All members have direct experience relevant to their responsibilities on the CGCC. The Board has not made a determination on whether Messrs. Hall, Igata and Leduc meet the independence requirements for members of the compensation committee established under NYSE American Company Guide Section 805(c)(1). As of December 31, 2018, we had four employees in Canada, seven employees in Mongolia, and four non-independent consultants working in Bolivia, Canada and the United States. As of December 31, 2019, we had three employees in Canada, ten employees in Mongolia, and four non-independent consultants working in Bolivia, Canada and the United States. As of December 31, 2018, we had four employees in Canada, seven employees in Mongolia, and four non-independent consultants working in Bolivia, Canada and the United States. As of December 31, 2017,2020, we had three employees in Canada, fourteen10 employees in Mongolia, 1 employee working in the United States and seven5 non-independent consultants working in Bolivia, Canada and the United States.
We rely on and engage consultants on a contract basis to assist us to carry on our administrative and exploration activities.activities
The following table sets forth certain information as of March 30, 202012, 2021 regarding the beneficial ownership of our common sharesCommon Shares by the executive officers, officers and directors named herein. The percentage of common sharesCommon Shares beneficially owned is computed on the basis of 122,900,508 common shares200,542,449 Common Shares outstanding as of March 30, 2020.12, 2021. Name and Title | | Percentage of Common Shares as at March 30, 2020 | | Exercise Price of Stock Options ($) | Date of Expiration (Stock Options) | John Lee, Executive Chairman | 9,733,211(1) | 7.9% | 500,000 | 0.20 | 2-Jun-21 | | | | 300,000 | 0.49 | 12-Jan-22 | | | | 550,000 | 0.33 | 12-Jun-22 | | | | 680,000 | 0.35 | 1-Sep-22 | | | | 400,000 | 0.28 | 6-Apr-23 | | | | 350,000 | 0.33 | 17-Oct-23 | | | | 700,000 | 0.20 | 29-Jul-24 | | | | 300,000 | 0.44 | 1-Nov-24 | Michael Doolin, Interim CEO & COO | 1,525,000 | 1% | 500,000 | 0.21 | 1-Apr-24 | | | | 300,000 | 0.44 | 1-Nov-24 | Greg Hall, Director | 238,092 | * | 120,000 | 0.20 | 2-Jun-21 | | | | 50,000 | 0.49 | 12-Jan-22 | | | | 50,000 | 0.33 | 12-Jun-22 | | | | 50,000 | 0.35 | 1-Sep-22 | | | | 40,000 | 0.28 | 6-Apr-23 | | | | 50,000 | 0.33 | 17-Oct-23 | | | | 120,000 | 0.20 | 29-Jul-24 | | | | 80,000 | 0.44 | 1-Nov-24 | Marc Leduc, Director | 23,585 | * | 150,000 | 0.20 | 29-Jul-24 | | | | 80,000 | 0.44 | 1-Nov-24 | Masa Igata, Director | 1,138,928(2) | 1% | 120,000 | 0.20 | 2-Jun-21 | | | | 70,000 | 0.49 | 12-Jan-22 | | | | 50,000 | 0.33 | 12-Jun-22 | | | | 50,000 | 0.35 | 1-Sep-22 | | | | 40,000 | 0.28 | 6-Apr-23 | | | | 50,000 | 0.33 | 17-Oct-23 | | | | 100,000 | 0.20 | 29-Jul-24 | | | | 80,000 | 0.44 | 1-Nov-24 | Ronald Clayton, Director | 15,000 | * | 200,000 | 0.44 | 1-Nov-24 | Ronald Espell, Vice-President, Environment and Sustainability | 150,000 | * | 200,000 | 0.20 | 29-Jul-24 | | | | 100,000 | 0.44 | 1-Nov-24 | Danniel Oosterman , Vice-President, Exploration | 100,000 | * | 200,000 | 0.31 | 20-Feb-23 | | | | 20,000 | 0.28 | 6-Apr-23 | | | | 50,000 | 0.33 | 17-Oct-23 | | | | 100,000 | 0.20 | 29-Jul-24 | | | | 100,000 | 0.44 | 1-Nov-24 | Joaquin Merino-Marquez, Vice-President, South American Operations | 10,000 | * | 200,000 | 0.44 | 1-Nov-24 | Irina Plavutska, Chief Financial Officer | 100,000 | * | 70,000 | 0.49 | 12-Jan-22 | | | | 100,000 | 0.35 | 1-Sep-22 | | | | 37,500 | 0.28 | 6-Apr-23 | | | | 50,000 | 0.33 | 17-Oct-23 | | | | 100,000 | 0.20 | 29-Jul-24 | | | | 100,000 | 0.44 | 1-Nov-24 | Louis Dionne, (Former) Director (3) | 0 | | 0 | N/A | N/A | Michael Drozd, (Former) VP, Operations (4) | 0 | | 0 | N/A | N/A | TOTAL | 12,749,506 | 10.37% | 7,557,500 | | |
Name and Title | Common Shares Held | Percentage of Common Shares as at March 12, 2021 (%) | Stock Options Granted | Exercise Price of Stock Options ($) | Date of Expiration (Stock Options) | John Lee, Chief Executive Officer and Executive Chairman | 9,610,211 (1) | 4.8 | 500,000 | 0.20 | 2-Jun-21 | | | | 300,000 | 0.49 | 12-Jan-22 | | | | 550,000 | 0.33 | 12-Jun-22 | | | | 680,000 | 0.35 | 1-Sep-22 | | | | 400,000 | 0.28 | 6-Apr-23 | | | | 350,000 | 0.33 | 17-Oct-23 | | | | 700,000 | 0.20 | 29-Jul-24 | | | | 300,000 | 0.44 | 1-Nov-24 | | | | 800,000 | 0.22 | 4-May-25 | Greg Hall, Director | 183,092 | * | 120,000 | 0.20 | 2-Jun-21 | | | | 50,000 | 0.49 | 12-Jan-22 | | | | 50,000 | 0.33 | 12-Jun-22 | | | | 50,000 | 0.35 | 1-Sep-22 | | | | 40,000 | 0.28 | 6-Apr-23 | | | | 50,000 | 0.33 | 17-Oct-23 | | | | 120,000 | 0.20 | 29-Jul-24 | | | | 80,000 | 0.44 | 1-Nov-24 | | | | 100,000 | 0.22 | 4-May-25 | Marc Leduc, Director | 23,585 | * | 150,000 | 0.20 | 29-Jul-24 | | | | 80,000 | 0.44 | 1-Nov-24 | | | | 100,000 | 0.22 | 4-May-25 | Masa Igata, Director | 826,348 (2) | * | 120,000 | 0.20 | 2-Jun-21 | | | | 70,000 | 0.49 | 12-Jan-22 | | | | 50,000 | 0.33 | 12-Jun-22 | | | | 50,000 | 0.35 | 1-Sep-22 | | | | 40,000 | 0.28 | 6-Apr-23 | | | | 50,000 | 0.33 | 17-Oct-23 | | | | 100,000 | 0.20 | 29-Jul-24 | | | | 80,000 | 0.44 | 1-Nov-24 | | | | 100,000 | 0.22 | 4-May-25 | David H. Smith, Director | 0 | * | 50,000 | 0.20 | 2-Jun-21 | | | | 120,000 | 0.50 | 17-Aug-25 | Ronald Espell, Vice-President, Environment and Sustainability | 150,000 | * | 200,000 | 0.20 | 29-Jul-24 | | | | 100,000 | 0.44 | 1-Nov-24 | | | | 200,000 | 0.22 | 4-May-25 | | | | 300,000 | 0.50 | 17-Aug-25 |
Notes:Name and Title | Common Shares Held | Percentage of Common Shares as at March 12, 2021 (%) | Stock Options Granted | Exercise Price of Stock Options ($) | Date of Expiration (Stock Options) | Danniel Oosterman, Vice-President, Exploration | 101,531 | * | 200,000 | 0.31 | 20-Feb-23 | | | | 20,000 | 0.28 | 6-Apr-23 | | | | 50,000 | 0.33 | 17-Oct-23 | | | | 100,000 | 0.20 | 29-Jul-24 | | | | 100,000 | 0.44 | 1-Nov-24 | | | | 200,000 | 0.22 | 4-May-25 | Joaquin Merino-Marquez, Vice-Président, South American Operations | 10,000 | * | 200,000 | 0.44 | 1-Nov-24 | | | | 250,000 | 0.22 | 4-May-25 | | | | 300,000 | 0.50 | 17-Aug-25 | Irina Plavutska, Chief Financial Officer | 0 | * | 70,000 | 0.49 | 12-Jan-22 | | | | 37,500 | 0.28 | 6-Apr-23 | | | | 50,000 | 0.33 | 17-Oct-23 | | | | 50,000 | 0.20 | 29-Jul-24 | | | | 100,000 | 0.44 | 1-Nov-24 | | | | 200,000 | 0.22 | 4-May-25 | Brigitte McArthur, Corporate Secretary | 6,000 | * | 100,000 | 0.33 | 15-Nov-24 | TOTAL | 10,084,419 | 5.04% | 9.227.500 | | |
Notes: (*) Indicates less than 1%. (1)1.
The equivalent of 10,448,9019,325,901 are held directly by Mr. Lee and a total of 284,310 common sharesCommon Shares are held by Merit Holdings Ltd., a private company wholly owned and controlled by Mr. Lee. (2)2.
The Common Shares and Stock Option grantsOptions are held by Sophir Asia Limited, a private company wholly owned and controlled by Mr. Igata. (3)
Louis Dionne ceased to be a Director on February 28, 2019.
(4)
Michael Drozd was appointed Vice-President, Operations on August 16, 2018 and ceased to be Vice -President of the Company effective November 7, 2019.
See “Description of Compensation Plan” for more details. ITEMITEM 7.MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS There are no entities who, to our knowledge, own beneficially, directly or indirectly, more than 5% of any class of our voting securities (other than as set forth in the directors’ and officers’ table). John Lee’s share ownership was reduced from 14.2% on March 29, 2019 to 7.9%, on March 18, 2020.
Voting Rights The Company’s major shareholders do not have different voting rights from our other shareholders. Record Holders As at March 27, 2020,12, 2021, there were 261275 holders of record of our common shares,Common Shares, of which 7781 were U.S. residents owning 2,234,727 (1.81%2,234,897 Common Shares (1.12%) of our outstanding common sharesCommon Shares outstanding at that time. Control The Company is a publicly owned Canadian corporation, the shares of which are owned by Canadian residents, U.S. residents, and residents of other countries. Change in Control To the best of the Company’s knowledge, there are no arrangements the operation of which may result in a change in control of the Company.
B. Related Party Transactions The related party transactions of the Company since January 1, 20172020 are presented below. ● Linx Partners Ltd., a private company controlled by John Lee, our interim President, interim CEOChief Executive Officer, Executive Chairman and a director of the Company, has provided management and consulting services to the Company since April 7, 2015 (prior to that, from June 13, 2011, Mr. Lee’s management and consulting services were provided to the Company though Mau Capital Management LLC, another private company controlled by Mr. Lee).. During the year ended December 31, 2019,2020, we paid $371,000 (2018$420,000 and issued bonus Common Shares with a value of $320,000 (2019 - $401,044; 2017$371,000; 2018 - $363,781)$401,044) for management and consulting services rendered to the Company by Linx Partners Ltd. Linx Partners Ltd. provided a revolving credit facility for a maximum principal amount of $2.5 million, with a two-year term at a simple interest rate of 18% per annum. The Company fully paid the amount owing under the credit facility and subsequently terminated the same on November 28, 2017. ● MaKevCo Consulting Inc., a private company 50% owned by Greg Hall, a director of the Company, provides consulting services to the Company. During the year ended December 31, 20192020, we paid $21,400 (2018$26,800 and issued bonus Common Shares with a value of $6,000 (2019 - $21,200; 2017$21,400; 2018 - $23,600)$21,200) for consulting services rendered to the Company by MaKevCo Consulting Inc. ● Sophir Asia Ltd., a private company controlled by Masa Igata, a director of the Company, provides consulting services to the Company. During the year ended December 31, 2019,2020, we paid $19,600 (2018$20,100 and issued bonus Common Shares a value of $6,000 (2019 - $19,100; 2017$19,600; 2018 - $19,700)$19,100) for consulting services rendered to the Company by Sophir Asia Ltd. A summary of related party transactions by related party and a summary of the transactions by nature among the related parties is as follows: | Year Ended December 31, 2019 | Year Ended December 31, 2018 | Year Ended December 31, 2017 | Directors and officers | $1,685,242 | $1,265,152 | $307,425 | Linx Partners Ltd. | 371,000 | 401,044 | 363,781 | MaKevCo Consulting Inc. | 21,400 | 21,200 | 23,600 | Sophir Asia Ltd. | 19,600 | 19,100 | 19,700 | TOTAL | $2,097,242 | $1,706,496 | $714,506 |
| Year Ended December 31, 2019 | Year Ended December 31, 2018 | Year Ended December 31, 2017 | Consulting and management fees | $218,500 | $268,456 | $247,525 | Directors' fees | 103,805 | 70,378 | 60,600 | Mineral properties | 1,171,585 | 631,610 | 201,875 | Salaries | 603,352 | 736,052 | 204,506 | TOTAL | $2,097,242 | $1,706,496 | $714,506 |
| Year Ended December 31, 2020 | Year Ended December 31, 2019 | Year Ended December 31, 2018 | Directors and officers | $1,536,167 | $1,685,242 | $1,265,152 | Linx Partners Ltd. | 740,000 | 371,000 | 401,044 | MaKevCo Consulting Inc. | 32,800 | 21,400 | 21,200 | Sophir Asia Ltd. | 26,100 | 19,600 | 19,100 | TOTAL | $2,335,067 | $2,097,242 | $1,706,496 |
| Year Ended December 31, 2020 | Year Ended December 31, 2019 | Year Ended December 31, 2018 | Consulting and management fees | $370,000 | $218,500 | $268,456 | Directors’ fees | 108,600 | 103,805 | 70,378 | Mineral properties | 1,387,067 | 1,171,585 | 631,610 | Salaries | 469,400 | 603,352 | 736,052 | TOTAL | $2,335,067 | $2,097,242 | $1,706,496 |
As at December 31, 2019,2020, there are no related party loans and amounts due to related parties were $30,533 (December 31,$1,800 (2019 - $30,533; 2018 - $4,634, (December 31, 2017 – $160,503)$4,634). C. Interests of Experts and Counsel Not applicable.
ITEMITEM 8.FINANCIAL INFORMATION A. Consolidated Statements and Other Financial Information Consolidated Financial Statements The consolidated financial statements of the Company and the report of the independent registered public accounting firm, Davidson & Company LLP, are filed as part of this Annual Report under Item 18. Legal or Arbitration Proceedings Other than as disclosed below, the Company has not been involved in any legal or arbitration proceedings or regulatory actions which may have, or have had in the recent past, significant effects on the company’s financial position or profitability. The Company accrues for liabilities when it is probable and the amount can be reasonably estimated.
ASC Tax Claim On January 2, 2015, the Company acquired ASC Holdings Limited and ASC Bolivia LDC (which together, hold ASC Bolivia LDC Sucursal Bolivia, which in turn, held Apogee Silver Ltd.’s (“Apogee”) joint venture interest in the Pulacayo Project) and Apogee Minerals Bolivia S.A. Pursuantby paying to the terms of the Agreement, theApogee $250,000 in cash and issuing to Apogee 60 million Common Shares. The Company agreed to assume all liabilities of these former Apogee subsidiaries, including legal and tax liabilities associated with the Pulacayo Project. During Apogee’s financial year ended June 30, 2014, it received notice from the Servicio de Impuestos Nacionales, the national tax authority in Bolivia, that ASC Bolivia LDC Sucursal Bolivia, now the Company’s wholly-owned subsidiary, owed approximately Bs42,000,000 in taxes, interest and penalties relating to a historical tax liability in an amount originally assessed at approximately $7,600,000 in 2004, prior to Apogee acquiring the subsidiary in 2011. Apogee disputed the assessment and disclosed to the Company that it believed the notice was improperly issued. The Company continued to dispute the assessment and hired local legal counsel to pursue an appeal of the tax authority’s assessment on both substantive and procedural grounds. The Company received a positive Resolution issued by the Bolivian Constitutional Court that among other things, declared null and void the previous Resolution of the Bolivian Supreme Court issued in 2011 (that imposed the tax liability on ASC Bolivia LDC Sucursal Bolivia) and sent the matter back to the Supreme court to consider and issue a new resolution. On November 18, 2019 the Company received Resolution No. 195/2018 issued by the Supreme Court of Bolivia which declared the tax claim brought by Bolivia’s General Revenue Authority against the Company’s Bolivian subsidiary as not proven. The Resolution is final and binding. Hence neither the Company nor the Company’s Bolivian subsidiaries owe any outstanding back taxes to the Bolivian General Revenue Authority. During the year ended December 31, 2019, the Company and legal counsel reassessed the status of tax rulings and determined that the probability of a re-issuance of a tax claim against the Company in connection with the above was remote. As a result, the Company has written off the tax liability and recorded a debt settlement gain in the amount of $7,952,700 on its consolidated statements of operations and comprehensive loss. Red Hill Tax Claim During the year ended December 31, 2014, the Company’s wholly-owned subsidiary, Red Hill Mongolia LLC (“Red Hill”) was issued a letter from the Sukhbaatar District Tax Division notifying it of the results of the Sukhbaatar District Tax Division’s VAT inspection of Red Hill’s 2009-2013 tax imposition and payments that resulted in validating VAT credits of only MNT235,718,533 from Red Hill’s claimed VAT credit of MNT2,654,175,507. Red Hill disagreed with the Sukhbaatar District Tax Division’s findings as the tax assessment appeared to the Company to be unfounded. The Company disputed the Sukhbaatar District Tax Division’s assessment and submitted a complaint to the Capital City Tax Tribunal. On March 24, 2015, the Capital City Tax Tribunal resolved to refer the matter back to the Sukhbaatar District Tax Division for revision and separation of the action between confirmation of Red Hill’s VAT credit, and the imposition of the penalty/deduction for the tax assessment.
Due to the uncertainty of realizing the VAT balance, the Company has recorded an impairment charge for the full VAT balance in the year ended December 31, 2015. In June 2019, the Company received a positive resolution issued from the Capital City Tax Tribunal, which is binding and final, affirmed Red Hill’s outstanding VAT credit of 1.169 billion MNT resulted from past mining equipment purchases. The VAT credit can be used to offset taxes and royalty payments; or be refunded in cash by Mongolia’s Ministry of Finance within 12 to 24 months processing time. Due to the credit risk associated with the VAT credit, the Company has provided a full valuation provision against the balance. Dividend Policy To date, we have not paid any dividends on our outstanding common sharesCommon Shares and it is not contemplated that we will pay any dividends in the immediate or foreseeable future. It is our intention to use all available cash flow to finance further operations and exploration of our resource properties. Holders of our common sharesCommon Shares will be entitled to receive dividends, if, as and when declared by the Board out of profits, capital or otherwise. There are no restrictions that could prevent us from paying dividends on our common sharesCommon Shares except that we may not pay dividends if that payment would render us insolvent. Not applicable. None.
ITEMITEM 9.THE OFFER AND LISTING A. Offer and Listing Details The Company’s common sharesCommon Shares trades on the TSX under the symbol “ELEF”, the OTCQX under the symbol “SILEF” and the Frankfurt Stock Exchange under the symbol “1P2N”. Not applicable. Our common sharesCommon Shares are listed for trading on the TSX, the OTCQX, and the Frankfurt Stock Exchange. Our common sharesCommon Shares were voluntarily delisted from the OTCQX on January 29, 2016 and began trading again on the OTCQX on February 27, 2018. The following tables set forth the reported high and low prices on the TSX for the five most recent fiscal years. YEAR | | | TSX ($) HIGH | TSX ($) LOW | December 31, 2020 | | 0.55 | 0.10 | December 31, 2019 | 0.49 | 0.15 | 0.49 | 0.15 | December 31, 2018 | 4.35 | 0.105 | 4.35 | 0.105 | December 31, 2017 | 6.19 | 2.78 | 6.19 | 2.78 | December 31, 2016 | 4.61 | 0.015 | 4.61 | 0.015 | December 31, 2015 | 0.075 | 0.02 | |
Not applicable.
Not applicable.
Not applicable. Not applicable. F.Expenses of the Issue Not applicable. ITEM 10.ADDITIONAL INFORMATION Not Applicable. B. Memorandum and Articles of Association Incorporation We are amalgamated under the British Columbia Business Corporations Act (BCBCA). Our British Columbia incorporation number is BC0912924. Objects and Purposes of Our Company Our articles do not contain a description of our objects and purposes. Voting on Proposals. Arrangements, Contracts or Compensation by Directors Other than as disclosed below, our articles do not restrict directors'directors’ power to (a) vote on a proposal, arrangement or contract in which the directors are materially interested or (b) to vote compensation to themselves or any other members of their body in the absence of an independent quorum.
The BCBCA does, however, contain restrictions in this regard. The BCBCA provides that a director who holds a disclosable interest in a contract or transaction into which we have entered or proposes to enter is not entitled to vote on any directors'directors’ resolution to approve that contract or transaction, unless all the directors have a disclosable interest in that contract or transaction, in which case any or all of those directors may vote on such resolution. A director who holds a disclosable interest in a contract or transaction into which we have entered or proposes to enter and who is present at the meeting of directors at which the contract or transaction is considered for approval may be counted in the quorum at the meeting whether or not the director votes on any or all of the resolutions considered at the meeting. A director or senior officer generally holds a disclosable interest in a contract or transaction if (a) the contract or transaction is material to our company; (b) we have entered, or proposed to enter, into the contract or transaction, and (c) either (i) the director or senior officer has a material interest in the contract or transaction or (ii) the director or senior officer is a director or senior officer of, or has a material interest in, a person who has a material interest in the contract or transaction. A director or senior officer does not hold a disclosable interest in a contract or transaction merely because the contract or transaction relates to the remuneration of the director or senior officer in that person'sperson’s capacity as director, officer, employee or agent of our company or of an affiliate of our company.
Borrowing Powers of Directors Our articles provide that we, if authorized by our directors, may: ● | borrow money in the manner and amount, on the security, from the sources and on the terms and conditions that they consider appropriate; | ● | issue bonds, debentures and other debt obligations either outright or as security for any liability or obligation of our company or any other person and at such discounts or premiums and on such other terms as they consider appropriate; | ● | guarantee the repayment of money by any other person or the performance of any obligation of any other person; and | ● | mortgage, charge, whether by way of specific or floating charge, grant a security interest in, or give other security on, the whole or any part of the present and future assets and undertaking of our company. |
● borrow money in the manner and amount, on the security, from the sources and on the terms and conditions that they consider appropriate; ● issue bonds, debentures and other debt obligations either outright or as security for any liability or obligation of our company or any other person and at such discounts or premiums and on such other terms as they consider appropriate; ● guarantee the repayment of money by any other person or the performance of any obligation of any other person; and ● mortgage, charge, whether by way of specific or floating charge, grant a security interest in, or give other security on, the whole or any part of the present and future assets and undertaking of our company. Qualifications of Directors Under our articles, a director is not required to hold a share in the capital of the Company as qualification for his or her office but must be qualified as required by the BCBCA to become, act or continue to act as a director. Our articles contain no provisions regarding retirement or non-retirement of directors under an age limit requirement. Share Rights The holders of our common sharesCommon Shares are entitled to vote at all meetings of shareholders of the Company, to receive dividends if, as and when declared by the Board and to participate ratably in any distribution of property or assets upon the liquidation, winding-up or other dissolution of the Company. Our common sharesCommon Shares carry no pre-emptive rights, conversion or exchange rights, redemption, retraction, repurchase, sinking fund or purchase fund provisions. There are no provisions requiring the holders of our common sharesCommon Shares to contribute additional capital and there are no restrictions on the issuance of additional securities by the Company. There are no restrictions on the repurchase or redemption of the Company’s common sharesCommon Shares by the Company except to the extent that any such repurchase or redemption would render the Company insolvent pursuant to the BCBCA. Procedures to Change the Rights of Shareholders Our articles state that subject to Article 9.2 of the BCBCA, the Company may by ordinary resolution of its shareholders: (a) create one or more classes or series of shares or, if none of the shares of a class or series of shares are allotted or issued, eliminate that class or series of shares; (b) increase, reduce or eliminate the maximum number of shares that the Company is authorized to issue out of any class or series of shares or establish a maximum number of shares that the Company is authorized to issue out of any class or series of shares for which no maximum is established; (c) subdivide or consolidate all or any of its unissued, or fully paid issued shares; (d) if the Company is authorized to issue shares of a class of shares with par value: (i) decrease the par value of those shares, or (ii) if none of the shares of that class of shares are allotted or issued, increase the par value of those shares); (e) change all or any of its unissued or fully paid issued shares with par value into shares without par value or all or any of its unissued shares without par value into shares with par value; (f) alter the identifying name of any of its shares; or (g) otherwise alter its shares or authorized share structure when required or permitted to do so by the BCBCA. Meetings Each director holds office until our next annual general meeting or until his office is earlier vacated in accordance with our articles or with the provisions of the BCBCA. A director appointed or elected to fill a vacancy on our board also holds office until our next annual general meeting. Our articles and the BCBCA provide that our annual meetings of shareholders must be held at least once in each calendar year and not more than 15 months after the last annual general meeting at such time and place as our Board may determine. Our directors may, at any time, call a meeting of our shareholders. Under the BCBCA, the holders of not less than five percent of our issued sharesCommon Shares that carry the right to vote at a meeting may requisition our directors to call a meeting of shareholders for the purposes of transacting any business that may be transacted at a general meeting.
Under our articles, the quorum for the transaction of business at a meeting of our shareholders is two persons who are, present in person or represent by proxy, shareholders holding, in the aggregate, at least five percent of the issued sharesCommon Shares entitled to be voted at the meeting. Our articles state that in addition to those persons who are entitled to vote at a meeting of our shareholders, the only other persons entitled to be present at the meeting are the directors, the president (if any), the secretary (if any), the assistant secretary (if any), the auditor for our company, and any other persons invited by our directors but if any of those persons does attend a meeting of shareholders, that person is not to be counted in the quorum and is not entitled to vote at the meeting unless that person is a shareholder or proxy holder entitled to vote at the meeting. Limitations on Ownership of Securities Neither Canadian law nor our articles limit the right of a non-resident to hold or vote common shares of the Company,Common Shares, other than as provided in the Investment Canada Act (the “Investment Act”), as(as amended by the World Trade Organization Agreement Implementation Act, (the “WTOA Act”the "Investment Act"). The Investment Act generally prohibits implementation of a direct reviewable investment by an individual, government or agency thereof, corporation, partnership, trust or joint venture that is not a “Canadian,”"Canadian", as defined in the Investment Act (a “non-Canadian”"non-Canadian"), unless, after review, the minister responsible for the Investment Act is satisfied that the investment is likely to be of net benefit to Canada. An investment in the common shares of the companyCommon Shares by a non-Canadian (other than a “WTO"WTO Investor,”" as defined below) would be reviewable under the Investment Act if it were an investment to acquire direct control of the company, and the value of the assets of the company were $5.0 million or more (provided that immediately prior to the implementation of the investment the Company was not controlled by WTO Investors). An investment in common shares of the CompanyCommon Shares by a WTO Investor (or by a non-Canadian other than a WTO Investor if, immediately prior to the implementation of the investment the Company was controlled by WTO Investors) would be reviewable under the Investment Act if it were an investment to acquire direct control of the company and the value of the assets of the Company equaled or exceeded an amount determined by the Minister of Finance (Canada) (the “Minister”) on an annual basis. The current threshold for review for WTO Investors or vendors (other than Canadians) is $1 billion. A non-Canadian, whether a WTO Investor or otherwise, would be deemed to acquire control of thea company for purposes of the Investment Act if he or she acquired a majority of the common sharesCommon Shares of the company. The acquisition of less than a majority, but at least one-third of the shares,Common Shares, would be presumed to be an acquisition of control of the company, unless it could be established that the company is not controlled in fact by the acquirer through the ownership of the shares.Common Shares. In general, an individual is a WTO Investor if he or she is a “national”"national" of a country (other than Canada) that is a member of the World Trade Organization (“("WTO Member”Member") or has a right of permanent residence in a WTO Member. A corporation or other entity will be a “WTO Investor”"WTO Investor" if it is a “WTO"WTO Investor-controlled entity,”entity", pursuant to detailed rules set out in the Investment Act. The U.S. is a WTO Member. Certain transactions involving our common sharesCommon Shares would be exempt from the Investment Act, including: ● | an acquisition of the shares if the acquisition were made in the ordinary course of that person’s business as a trader or dealer in securities; | ● | an acquisition of control of the Company in connection with the realization of a security interest granted for a loan or other financial assistance and not for any purpose related to the provisions of the Investment Act; and | ● | ● an acquisition of the Common Shares if the acquisition were made in the ordinary course of that person’s business as a trader or dealer in securities; ● an acquisition of control of the Company in connection with the realization of a security interest granted for a loan or other financial assistance and not for any purpose related to the provisions of the Investment Act; and ● an acquisition of control of the Company by reason of an amalgamation, merger, consolidation or corporate reorganization, following which the ultimate direct or indirect control in fact of the Company, through the ownership of voting interests, remains unchanged. |
Change in Control There are no provisions in our articles or in the BCBCA that would have the effect of delaying, deferring or preventing a change in control of our company, and that would operate only with respect to a merger, acquisition or corporate restructuring involving our Company or our subsidiaries. Ownership Threshold Our articles or the BCBCA do not contain any provisions governing the ownership threshold above which shareholder ownership must be disclosed. Securities legislation in Canada, however, requires that we disclose in our information circular for our annual general meeting, holders who beneficially own more than 10% of our issued and outstanding shares.Common Shares. Most state corporation statutes do not contain provisions governing the threshold above which shareholder ownership must be disclosed. Upon the effectiveness of this Registration Statement, weWe expect that the United States federal securities laws will require us to disclose in our annual report on Form 20-F, holders who own 5% or more of our issued and outstanding shares.Common Shares of the Company. As of the date of this Annual Report there are no persons who, or corporations which, beneficially own, or control or direct, directly or indirectly, shares carrying 5% or more of the issued and outstanding Common Shares of the Company.
●1)
the Amendment to the Mineral Lease Agreement dated April 19, 2018 between the Company and Janelle Dietrich, concerning the lease by the Company of those mining claims which constitute the Gibellini group of claims; andProject. Refer to Gibellini Project, History disclosure for full details. 2) ●
the Pulacayo Mining Production Contract dated September 30, 2019, between the Company and the Corporación Minera de Bolivia, a branch of the Bolivian Mining Ministry.Refer to Pulacayo Project, Property disclosure for full details. 3) The Triunfo APA between the Company’s subsidiary Illumina Silver Mining Corp. and a private party to acquire the Triunfo Project. Refer to the Triunfo Project, Bolivia disclosure for full details. There are no governmental laws, decrees, regulations or other legislation, including foreign exchange controls, in Canada which may affect the export or import of capital or that may affect the remittance of dividends, interest or other payments to non-resident holders of the Company’s securities. Any remittances of dividends to United States residents, however, are subject to a withholding tax pursuant to the Income Tax Act (Canada) and the Canada-U.S. Income Tax Convention (1980) (the “Convention”), each(each as amended.amended and together the "Convention"). Remittances of interest to U.S. residents entitled to the benefits of suchthe Convention are generally not subject to withholding taxes except in limited circumstances involving participating interest payments. Certain other types of remittances, such as royalties paid to U.S. residents, may be subject to a withholding tax depending on all of the circumstances.
CERTAIN UNITED STATES FEDERAL INCOME TAX CONSIDERATIONS The following is a general summary of certain material U.S. federal income tax considerations applicable to a U.S. Holder (as defined below) arising from and relating to the acquisition, ownership, and disposition of common shares.Common Shares. This summary is for general information purposes only and does not purport to be a complete analysis or listing of all potential U.S. federal income tax considerations that may apply to a U.S. Holder arising from and relating to the acquisition, ownership, and disposition of common shares.Common Shares. In addition, this summary does not take into account the individual facts and circumstances of any particular U.S. Holder that may affect the U.S. federal income tax consequences to such U.S. Holder, including, without limitation, specific tax consequences to a U.S. Holder under an applicable income tax treaty. Accordingly, this summary is not intended to be, and should not be construed as, legal or U.S. federal income tax advice with respect to any U.S. Holder. This summary does not address the U.S. federal net investment income, U.S. federal alternative minimum, U.S. federal estate and gift, U.S. state and local, and non-U.S. tax consequences to U.S. Holders of the acquisition, ownership, and disposition of common shares.Common Shares. In addition, except as specifically set forth below, this summary does not discuss applicable tax reporting requirements. Each prospective U.S. Holder should consult its own tax advisors regarding the U.S. federal, U.S. federal net investment income, U.S. federal alternative minimum, U.S. federal estate and gift, U.S. state and local, and non-U.S. tax consequences relating to the acquisition, ownership and disposition of common shares.Common Shares. No legal opinion from U.S. legal counsel or ruling from the Internal Revenue Service (the “IRS”"IRS") has been requested, or will be obtained, regarding the U.S. federal income tax consequences of the acquisition, ownership, and disposition of common shares.Common Shares. This summary is not binding on the IRS, and the IRS is not precluded from taking a position that is different from, and contrary to, the positions taken in this summary. In addition, because the authorities on which this summary is based are subject to various interpretations, the IRS and the U.S. courts could disagree with one or more of the conclusions described in this summary. F.Scope of this Summary Authorities This summary is based on the Internal Revenue Code of 1986, as amended (the “Code”"Code"), Treasury Regulations (whether final, temporary, or proposed), published rulings of the IRS, published administrative positions of the IRS, the Convention Between Canada and the United States of America with Respect to Taxes on Income and on Capital, signed September 26, 1980, as amended (the “Canada-U.S."Canada-U.S. Tax Convention”Convention"), and U.S. court decisions that are applicable, and, in each case, as in effect and available, as of the date of this document. Any of the authorities on which this summary is based could be changed in a material and adverse manner at any time, and any such change could be applied retroactively. This summary does not discuss the potential effects, whether adverse or beneficial, of any proposed legislation.
U.S. Holders For purposes of this summary, the term “U.S. Holder”"U.S. Holder" means a beneficial owner of common sharesCommon Shares that is for U.S. federal income tax purposes: ● an individual who is a citizen or resident of the United States; ● a corporation (or other entity treated as a corporation for U.S. federal income tax purposes) organized under the laws of the United States, any state thereof or the District of Columbia; ● an estate whose income is subject to U.S. federal income taxation regardless of its source; or ● a trust that (1) is subject to the primary supervision of a court within the U.S. and the control of one or more U.S. persons for all substantial decisions or (2) has a valid election in effect under applicable Treasury Regulations to be treated as a U.S. person. U.S. Holders Subject to Special U.S. Federal Income Tax Rules Not Addressed This summary does not address the U.S. federal income tax considerations applicable to U.S. Holders that are subject to special provisions under the Code, including, but not limited to, U.S. Holders that: (a) are tax-exempt organizations, qualified retirement plans, individual retirement accounts, or other tax-deferred accounts; (b) are financial institutions, underwriters, insurance companies, real estate investment trusts, or regulated investment companies; (c) are broker-dealers, dealers, or traders in securities or currencies that elect to apply a mark-to-market accounting method; (d) have a “functional currency”"functional currency" other than the U.S. dollar; (e) own common sharesCommon Shares as part of a straddle, hedging transaction, conversion transaction, constructive sale, or other arrangement involving more than one position; (f) acquire common sharesCommon Shares in connection with the exercise of employee stock options or otherwise as compensation for services; (g) hold common sharesCommon Shares other than as a capital asset within the meaning of Section 1221 of the Code (generally, property held for investment purposes); (h) are subject to special tax accounting rules with respect to common shares;Common Shares; (i) own, have owned or will own (directly, indirectly, or by attribution) 10% or more of the total combined voting power or value of the outstanding shares of the Company;Common Shares; (j) are partnerships or other pass-through entities; (k) U.S. expatriates or former long-term residents of the U.S.; or (l) are persons that have been, are or will besubject to tax in a resident or deemednon-U.S. jurisdiction with respect to be a resident in Canada for purposes of the Income Tax Act (Canada) (the “Tax Act”); (m) are persons that use or hold, will use or hold, or that are or will be deemed to use or hold common shares in connection with carrying on a business in Canada; (n) are persons whose common shares constitute “taxable Canadian property” under the Tax Act; or (o) are persons that have a permanent establishment in Canada for the purposes of the Canada-U.S. Tax Convention.their Common Shares U.S. Holders that are subject to special provisions under the Code, including, but not limited to, U.S. Holders described immediately above, should consult their own tax advisors regarding the U.S. federal, U.S. federal net investment income, U.S. federal alternative minimum, U.S. federal estate and gift, U.S. state and local, and non-U.S. tax consequences relating to the acquisition, ownership and disposition of common shares.Common Shares.
If an entity or arrangement that is classified as a partnership (or other “pass-through”"pass-through" entity) for U.S. federal income tax purposes holds common shares,Common Shares, the U.S. federal income tax consequences to such entity or arrangement and the partners (or other owners or participants) of such entity or arrangement generally will depend on the activities of the entity or arrangement and the status of such partners (or owners or participants). This summary does not address the tax consequences to any such partner (or owner or participants). Partners (or other owners or participants) of entities or arrangements that are classified as partnerships or as “pass-through”"pass-through" entities for U.S. federal income tax purposes should consult their own tax advisors regarding the U.S. federal income tax consequences arising from and relating to the acquisition, ownership, and disposition of common shares. Common Shares.
Passive Foreign Investment Company Rules PFIC Status of the Company If the Company were to constitute a “passive foreign investment company” under the meaning of Section 1297 of the Code (a “PFIC”, as defined below) for any year during a U.S. Holder’s holding period, then certain potentially adverse rules may affect the U.S. federal income tax consequences to a U.S. Holder as a result of the acquisition, ownership and disposition of common shares.Common Shares. The Company believes that it was classified as a PFIC during the tax year ended December 31, 2019,2020, and based on current business plans and financial expectations, the Company expects that it willshould be a PFIC for the current tax year and may be a PFIC in future tax years. No opinion of legal counsel or ruling from the IRS concerning the status of the Company as a PFIC has been obtained or is currently planned to be requested. The determination of whether any corporation was, or will be, a PFIC for a tax year depends, in part, on the application of complex U.S. federal income tax rules, which are subject to differing interpretations. In addition, whether any corporation will be a PFIC for any tax year depends on the assets and income of such corporation over the course of each such tax year and, as a result, cannot be predicted with certainty as of the date of this document. Accordingly, there can be no assurance that the IRS will not challenge any determination made by the Company (or any subsidiary of the Company) concerning its PFIC status. Each U.S. Holder should consult its own tax advisors regarding the PFIC status of the Company and each subsidiary of the Company. In any year in which the Company is classified as a PFIC, a U.S. Holder will be required to file an annual report with the IRS containing such information as Treasury Regulations and/or other IRS guidance may require. In addition to penalties, a failure to satisfy such reporting requirements may result in an extension of the time period during which the IRS can assess a tax. U.S. Holders should consult their own tax advisors regarding the requirements of filing such information returns under these rules, including the requirement to file an IRS Form 8621 annually. The Company generally will be a PFIC if, for a tax year, (a) 75% or more of the gross income of the Company is passive income (the “PFIC income test”) or (b) 50% or more of the value of the Company’s assets either produce passive income or are held for the production of passive income, based on the quarterly average of the fair market value of such assets (the “PFIC asset test”). “Gross income” generally includes all sales revenues less the cost of goods sold, plus income from investments and from incidental or outside operations or sources, and “passive income” generally includes, for example, dividends, interest, certain rents and royalties, certain gains from the sale of stock and securities, and certain gains from commodities transactions. Active business gains arising from the sale of commodities generally are excluded from passive income if substantially all of a foreign corporation’s commodities are stock in trade or inventory, depreciable property used in a trade or business, or supplies regularly used or consumed in the ordinary course of its trade or business, and certain other requirements are satisfied. For purposes of the PFIC income test and PFIC asset test described above, if the Company owns, directly or indirectly, 25% or more of the total value of the outstanding shares of another corporation, the Company will be treated as if it (a) held a proportionate share of the assets of such other corporation and (b) received directly a proportionate share of the income of such other corporation. In addition, for purposes of the PFIC income test and PFIC asset test described above, and assuming certain other requirements are met, “passive income” does not include certain interest, dividends, rents, or royalties that are received or accrued by the Company from certain “related persons” (as defined in Section 954(d)(3) of the Code) also organized in Canada, to the extent such items are properly allocable to the income of such related person that is not passive income. Under certain attribution rules, if the Company is a PFIC, U.S. Holders will generally be deemed to own their proportionate share of the Company’sCommon Share’s direct or indirect equity interest in any company that is also a PFIC (a ‘‘Subsidiary PFIC’’), and will generally be subject to U.S. federal income tax on their proportionate share of (a) any “excess"excess distributions,”" as described below, on the stock of a Subsidiary PFIC and (b) a disposition or deemed disposition of the stock of a Subsidiary PFIC by the Company or another Subsidiary PFIC, both as if such U.S. Holders directly held the shares of such Subsidiary PFIC. In addition, U.S. Holders may be subject to U.S. federal income tax on any indirect gain realized on the stock of a Subsidiary PFIC on the sale or disposition of common shares.Common Shares. Accordingly, U.S. Holders should be aware that they could be subject to tax under the PFIC rules even if no distributions are received and no redemptions or other dispositions of common sharesCommon Shares are made.
Default PFIC Rules Under Section 1291 of the Code If the Company is a PFIC for any tax year during which a U.S. Holder owns common shares,Common Shares, the U.S. federal income tax consequences to such U.S. Holder of the acquisition, ownership, and disposition of common sharesCommon Shares will depend on whether and when such U.S. Holder makes an election to treat the Company and each Subsidiary PFIC, if any, as a “qualified"qualified electing fund”fund" or “QEF”"QEF" under Section 1295 of the Code (a “QEF Election”"QEF Election") or makes a mark-to-market election under Section 1296 of the Code (a “Mark-to-Market Election”"Mark-to-Market Election"). A U.S. Holder that does not make either a QEF Election or a Mark-to-Market Election will be referred to in this summary as a “Non-Electing"Non-Electing U.S. Holder.”"
A Non-Electing U.S. Holder will be subject to the rules of Section 1291 of the Code (described below) with respect to (a) any gain recognized on the sale or other taxable disposition of common sharesCommon Shares and (b) any “excess distribution”"excess distribution" received on the common shares.Common Shares. A distribution generally will be an “excess distribution”"excess distribution" to the extent that such distribution (together with all other distributions received in the current tax year) exceeds 125% of the average distributions received during the three preceding tax years (or during a U.S. Holder’s holding period for the common shares,Common Shares, if shorter). Under Section 1291 of the Code, any gain recognized on the sale or other taxable disposition of common sharesCommon Shares (including an indirect disposition of the stock of any Subsidiary PFIC), and any “excess distribution”"excess distribution" received on common sharesCommon Shares or with respect to the stock of a Subsidiary PFIC, must be ratably allocated to each day in a Non-Electing U.S. Holder’s holding period for the respective common shares.Common Shares. The amount of any such gain or excess distribution allocated to the tax year of disposition or distribution of the excess distribution and to years before the entity became a PFIC, if any, would be taxed as ordinary income (and not eligible for certain preferred rates). The amounts allocated to any other tax year would be subject to U.S. federal income tax at the highest tax rate applicable to ordinary income in each such year, and an interest charge would be imposed on the tax liability for each such year, calculated as if such tax liability had been due in each such year. A Non-Electing U.S. Holder that is not a corporation must treat any such interest paid as “personal"personal interest,”" which is not deductible. If the Company is a PFIC for any tax year during which a Non-Electing U.S. Holder holds common shares,Common Shares, the Company will continue to be treated as a PFIC with respect to such Non-Electing U.S. Holder, regardless of whether the Company ceases to be a PFIC in one or more subsequent tax years. A Non-Electing U.S. Holder may terminate this deemed PFIC status by electing to recognize gain (which will be taxed under the rules of Section 1291 of the Code discussed above), but not loss, as if such common sharesCommon Shares were sold on the last day of the last tax year for which the Company was a PFIC. QEF Election A U.S. Holder that makes a timely and effective QEF Election for the first tax year in which the holding period of its common sharesCommon Shares begins generally will not be subject to the rules of Section 1291 of the Code discussed above with respect to its common shares.Common Shares. A U.S. Holder that makes a timely and effective QEF Election will be subject to U.S. federal income tax on such U.S. Holder’s pro rata share of (a) the net capital gain of the Company, which will be taxed as long-term capital gain to such U.S. Holder, and (b) the ordinary earnings of the Company, which will be taxed as ordinary income to such U.S. Holder. Generally, “net"net capital gain”gain" is the excess of (a) net long-term capital gain over (b) net short- term capital loss, and “ordinary earnings”"ordinary earnings" are the excess of (a) “earnings"earnings and profits”profits" over (b) net capital gain. A U.S. Holder that makes a QEF Election will be subject to U.S. federal income tax on such amounts for each tax year in which the Company is a PFIC, regardless of whether such amounts are actually distributed to such U.S. Holder by the Company. However, for any tax year in which the Company is a PFIC and has no net income or gain, U.S. Holders that have made a QEF Election would not have any income inclusions as a result of the QEF Election. If a U.S. Holder that made a QEF Election has an income inclusion, such a U.S. Holder may, subject to certain limitations, elect to defer payment of current U.S. federal income tax on such amounts, subject to an interest charge. If such U.S. Holder is not a corporation, any such interest paid will be treated as “personal"personal interest,”" which is not deductible. A U.S. Holder that makes a timely and effective QEF Election with respect to the Company generally (a) may receive a tax-free distribution from the Company to the extent that such distribution represents “earnings"earnings and profits”profits" of the Company that were previously included in income by the U.S. Holder because of such QEF Election and (b) will adjust such U.S. Holder’s tax basis in the common sharesCommon Shares to reflect the amount included in income or allowed as a tax-free distribution because of such QEF Election. In addition, a U.S. Holder that makes a QEF Election generally will recognize capital gain or loss on the sale or other taxable disposition of common shares.Common Shares. The procedure for making a QEF Election, and the U.S. federal income tax consequences of making a QEF Election, will depend on whether such QEF Election is timely. A QEF Election will be treated as “timely”"timely" if such QEF Election is made for the first year in the U.S. Holder’s holding period for the common sharesCommon Shares in which the Company was a PFIC. A U.S. Holder may make a timely QEF Election by filing the appropriate QEF Election documents at the time such U.S. Holder files a U.S. federal income tax return for such year. If a
U.S. Holder does not make a timely and effective QEF Election for the first year in the U.S. Holder’s holding period for the common shares,Common Shares, the U.S. Holder may still be able to make a timely and effective QEF Election in a subsequent year if such U.S. Holder meets certain requirements and makes a “purging”"purging" election to recognize gain (which will be taxed under the rules of Section 1291 of the Code discussed above) as if such common sharesCommon Shares were sold for their fair market value on the day the QEF Election is effective. If a U.S. Holder makes a QEF Election but does not make a “purging”"purging" election to recognize gain as discussed in the preceding sentence, then such U.S. Holder shall be subject to the QEF Election rules and shall continue to be subject to tax under the rules of Section 1291 discussed above with respect to its common shares.Common Shares. If a U.S. Holder owns PFIC stock indirectly through another PFIC, separate QEF Elections must be made for the PFIC in which the U.S. Holder is a direct shareholder and the Subsidiary PFIC for the QEF rules to apply to both PFICs.
A QEF Election will apply to the tax year for which such QEF Election is timely made and to all subsequent tax years, unless such QEF Election is invalidated or terminated or the IRS consents to revocation of such QEF Election. If a U.S. Holder makes a QEF Election and, in a subsequent tax year, the Company ceases to be a PFIC, the QEF Election will remain in effect (although it will not be applicable) during those tax years in which the Company is not a PFIC. Accordingly, if the Company becomes a PFIC in another subsequent tax year, the QEF Election will be effective and the U.S. Holder will be subject to the QEF rules described above during any subsequent tax year in which the Company qualifies as a PFIC. U.S. Holders should be aware that there can be no assurances that the Company will satisfy the record keeping requirements that apply to a QEF, or that the Company will supply U.S. Holders with information that such U.S. Holders are required to report under the QEF rules, in the event that the Company is a PFIC. Thus, U.S. Holders may not be able to make a QEF Election with respect to their common shares.Common Shares. Each U.S. Holder should consult its own tax advisors regarding the availability of, and procedure for making, a QEF Election. A U.S. Holder makes a QEF Election by attaching a completed IRS Form 8621, including a PFIC Annual Information Statement, to a timely filed United States federal income tax return. However, if the Company does not provide the required information with regard to the Company or any of its Subsidiary PFICs, U.S. Holders will not be able to make a QEF Election for such entity and will continue to be subject to the rules of Section 1291 of the Code discussed above that apply to Non-Electing U.S. Holders with respect to the taxation of gains and excess distributions. Mark-to-Market Election A U.S. Holder may make a Mark-to-Market Election only if the common sharesCommon Shares are marketable stock. The common sharesCommon Shares generally will be “marketable stock”"marketable stock" if the common sharesCommon Shares are regularly traded on (a) a national securities exchange that is registered with the Securities and Exchange Commission, (b) the national market system established pursuant to section 11A of the Securities and Exchange Act of 1934, or (c) a foreign securities exchange that is regulated or supervised by a governmental authority of the country in which the market is located, provided that (i) such foreign exchange has trading volume, listing, financial disclosure, and surveillance requirements, and meets other requirements and the laws of the country in which such foreign exchange is located, together with the rules of such foreign exchange, ensure that such requirements are actually enforced and (ii) the rules of such foreign exchange effectively promote active trading of listed stocks. If such stock is traded on such a qualified exchange or other market, such stock generally will be “regularly traded”"regularly traded" for any calendar year during which such stock is traded, other than in de minimis quantities, on at least 15 days during each calendar quarter. A U.S. Holder that makes a Mark-to-Market Election with respect to its common sharesCommon Shares generally will not be subject to the rules of Section 1291 of the Code discussed above with respect to such common shares.Common Shares. However, if a U.S. Holder does not make a Mark-to-Market Election beginning in the first tax year of such U.S. Holder’s holding period for the common sharesCommon Shares for which the Company is a PFIC and such U.S. Holder has not made a timely QEF Election, the rules of Section 1291 of the Code discussed above will apply to certain dispositions of, and distributions on, the common shares.Common Shares.
A U.S. Holder that makes a Mark-to-Market Election will include in ordinary income, for each tax year in which the Company is a PFIC, an amount equal to the excess, if any, of (a) the fair market value of the common shares,Common Shares, as of the close of such tax year over (b) such U.S. Holder’s adjusted tax basis in such common shares.Common Shares. A U.S. Holder that makes a Mark- to-Market Election will be allowed a deduction in an amount equal to the excess, if any, of (a) such U.S. Holder’s adjusted tax basis in the common shares,Common Shares, over (b) the fair market value of such common sharesCommon Shares (but only to the extent of the net amount of previously included income as a result of the Mark-to-Market Election for prior tax years).
A U.S. Holder that makes a Mark-to-Market Election generally also will adjust such U.S. Holder’s tax basis in the common sharesCommon Shares to reflect the amount included in gross income or allowed as a deduction because of such Mark-to-Market Election. In addition, upon a sale or other taxable disposition of common shares,Common Shares, a U.S. Holder that makes a Mark-to- Market Election will recognize ordinary income or ordinary loss (not to exceed the excess, if any, of (a) the amount included in ordinary income because of such Mark-to-Market Election for prior tax years over (b) the amount allowed as a deduction because of such Mark-to-Market Election for prior tax years). Losses that exceed this limitation are subject to the rules generally applicable to losses provided in the Code and Treasury Regulations. A U.S. Holder makes a Mark-to-Market Election by attaching a completed IRS Form 8621 to a timely filed United States federal income tax return. A Mark-to-Market Election applies to the tax year in which such Mark-to-Market Election is made and to each subsequent tax year, unless the common sharesCommon Shares cease to be “marketable stock”"marketable stock" or the IRS consents to revocation of such election. Each U.S. Holder should consult its own tax advisors regarding the availability of, and procedure for making, a Mark-to-Market Election. Although a U.S. Holder may be eligible to make a Mark-to-Market Election with respect to the common shares,Common Shares, no such election may be made with respect to the stock of any Subsidiary PFIC that a U.S. Holder is treated as owning, because such stock is not marketable. Hence, the Mark-to- Market Election will not be effective to avoid the application of the default rules of Section 1291 of the Code described above with respect to deemed dispositions of Subsidiary PFIC stock or excess distributions from a Subsidiary PFIC to its shareholder.
Other PFIC Rules Under Section 1291(f) of the Code, the IRS has issued proposed Treasury Regulations that, subject to certain exceptions, would cause a U.S. Holder that had not made a timely QEF Election to recognize gain (but not loss) upon certain transfers of common sharesCommon Shares that would otherwise be tax- deferred (e.g., gifts and exchanges pursuant to corporate reorganizations). However, the specific U.S. federal income tax consequences to a U.S. Holder may vary based on the manner in which common sharesCommon Shares are transferred. Certain additional adverse rules may apply with respect to a U.S. Holder if the Company is a PFIC, regardless of whether such U.S. Holder makes a QEF Election. For example, under Section 1298(b)(6) of the Code, a U.S. Holder that uses common sharesCommon Shares as security for a loan will, except as may be provided in Treasury Regulations, be treated as having made a taxable disposition of such common shares.Common Shares. Special rules also apply to the amount of foreign tax credit that a U.S. Holder may claim on a distribution from a PFIC. Subject to such special rules, foreign taxes paid with respect to any distribution in respect of stock in a PFIC are generally eligible for the foreign tax credit. The rules relating to distributions by a PFIC and their eligibility for the foreign tax credit are complicated, and a U.S. Holder should consult with its own tax advisors regarding the availability of the foreign tax credit with respect to distributions by a PFIC. The PFIC rules are complex, and each U.S. Holder should consult its own tax advisors regarding the PFIC rules and how the PFIC rules may affect the U.S. federal income tax consequences of the acquisition, ownership, and disposition of common shares.Common Shares. General Rules Applicable to the Ownership and Disposition of Common Shares The following discussion describes the general rules applicable to the ownership and disposition of the common sharesCommon Shares but is subject in its entirety to the special rules described above under the heading “Passive"Passive Foreign Investment Company Rules.” "
Distributions on Common Shares A U.S. Holder that receives a distribution, including a constructive distribution, with respect to a common shareCommon Share will be required to include the amount of such distribution in gross income as a dividend (without reduction for any Canadian income tax withheld from such distribution) to the extent of the current and accumulated “earnings"earnings and profits”profits" of the Company, as computed for U.S. federal income tax purposes. A dividend generally will be taxed to a U.S. Holder at ordinary income tax rates if the Company is a PFIC for the tax year of such distribution or the preceding tax year. To the extent that a distribution exceeds the current and accumulated “earnings"earnings and profits”profits" of the Company, such distribution will be treated first as a tax-free return of capital to the extent of a U.S. Holder’s tax basis in the common sharesCommon Shares and thereafter as gain from the sale or exchange of such common shares.Common Shares. (See “Sale"Sale or Other Taxable Disposition of Common Shares”Shares" below). However, the Company may not maintain the calculations of its earnings and profits in accordance with U.S. federal income tax principles, and each U.S. Holder may have to assume that any distribution by the Company with respect to the common sharesCommon Shares will constitute ordinary dividend income. Dividends received on common sharesCommon Shares by corporate U.S. Holders generally will not be eligible for the “dividends"dividends received deduction.”" Subject to applicable limitations and provided the Company is eligible for the benefits of the Canada-U.S. Tax Convention or the common sharesCommon Shares are readily tradable on a United States securities market, dividends paid by the Company to non-corporate U.S. Holders, including individuals, generally will be eligible for the preferential tax rates applicable to long-term capital gains for dividends, provided certain holding period and other conditions are satisfied, including that the Company not be classified as a PFIC in the tax year of distribution or in the preceding tax year. The dividend rules are complex, and each U.S. Holder should consult its own tax advisors regarding the application of such rules. Sale or Other Taxable Disposition of Common Shares Upon the sale or other taxable disposition of common shares,Common Shares, a U.S. Holder generally will recognize capital gain or loss in an amount equal to the difference between the U.S. dollar value of cash received plus the fair market value of any property received and such U.S. Holder’s tax basis in such common sharesCommon Shares sold or otherwise disposed of. A U.S. Holder’s tax basis in common sharesCommon Shares generally will be such holder’s U.S. dollar cost for such common shares.Common Shares. Gain or loss recognized on such sale or other disposition generally will be long- term capital gain or loss if, at the time of the sale or other disposition, the common sharesCommon Shares have been held for more than one year. Preferential tax rates currently apply to long-term capital gain of a U.S. Holder that is an individual, estate, or trust. There are currently no preferential tax rates for long-term capital gain of a U.S. Holder that is a corporation. Deductions for capital losses are subject to significant limitations under the Code. Additional Considerations Foreign Currency The amount of any distribution paid to a U.S. Holder in foreign currency, or on the sale, exchange or other taxable disposition of common shares,Common Shares, generally will be equal to the U.S. dollar value of such foreign currency based on the exchange rate applicable on the date of receipt (regardless of whether such foreign currency is converted into U.S. dollars at that time). A U.S. Holder will have a basis in the foreign currency equal to its U.S. dollar value on the date of receipt. Any U.S. Holder who converts or otherwise disposes of the foreign currency after the date of receipt may have a foreign currency exchange gain or loss that would be treated as ordinary income or loss, and generally will be U.S. source income or loss for foreign tax credit purposes. Different rules apply to U.S. Holders who use the accrual method of tax accounting. Each U.S. Holder should consult its own U.S. tax advisors regarding the U.S. federal income tax consequences of receiving, owning, and disposing of foreign currency.
Foreign Tax Credit Subject to the PFIC rules discussed above, a U.S. Holder that pays (whether directly or through withholding) Canadian income tax with respect to dividends paid on the common sharesCommon Shares generally will be entitled, at the election of such U.S. Holder, to receive either a deduction or a credit for such Canadian income tax. Generally, a credit will reduce a U.S. Holder’s U.S. federal income tax liability on a dollar-for-dollar basis, whereas a deduction will reduce a U.S. Holder’s income that is subject to U.S. federal income tax. This election is made on a year-by-year basis and applies to all foreign taxes paid (whether directly or through withholding) by a U.S. Holder during a year. The foreign tax credit rules are complex and involve the application of rules that depend on a U.S. Holder’s particular circumstances. Each U.S. Holder should consult its own U.S. tax advisor regarding the foreign tax credit rules.
Backup Withholding and Information Reporting Under U.S. federal income tax law, certain categories of U.S. Holders must file information returns with respect to their investment in, or involvement in, a foreign corporation. For example, U.S. return disclosure obligations (and related penalties) are imposed on individuals who are U.S. Holders that hold certain specified foreign financial assets in excess of certain thresholds. The definition of specified foreign financial assets includes not only financial accounts maintained in foreign financial institutions, but also, unless held in accounts maintained by a financial institution, any stock or security issued by a non-U.S. person, any financial instrument or contract held for investment that has an issuer or counterparty other than a U.S. person and any interest in a foreign entity. U.S. Holders may be subject to these reporting requirements unless their common sharesCommon Shares are held in an account at certain financial institutions. Penalties for failure to file certain of these information returns are substantial. U.S. Holders should consult with their own tax advisors regarding the requirements of filing information returns, including the requirement to file an IRS Form 8938. Payments made within the U.S., or by a U.S. payor or U.S. middleman, of dividends on, and proceeds arising from the sale or other taxable disposition of, common sharesCommon Shares will generally be subject to information reporting and backup withholding tax, at the rate of 24%, if a U.S. Holder (a) fails to furnish such U.S. Holder’s correct U.S. taxpayer identification number (generally on Form W-9), (b) furnishes an incorrect U.S. taxpayer identification number, (c) is notified by the IRS that such U.S. Holder has previously failed to properly report items subject to backup withholding tax, or (d) fails to certify, under penalty of perjury, that such U.S. Holder has furnished its correct U.S. taxpayer identification number and that the IRS has not notified such U.S. Holder that it is subject to backup withholding tax. However, certain exempt persons generally are excluded from these information reporting and backup withholding rules. Backup withholding is not an additional tax. Any amounts withheld under the U.S. backup withholding tax rules will be allowed as a credit against a U.S. Holder’s U.S. federal income tax liability, if any, or will be refunded, if such U.S. Holder furnishes required information to the IRS in a timely manner. The discussion of reporting requirements set forth above is not intended to constitute a complete description of all reporting requirements that may apply to a U.S. Holder. A failure to satisfy certain reporting requirements may result in an extension of the time period during which the IRS can assess a tax and, under certain circumstances, such an extension may apply to assessments of amounts unrelated to any unsatisfied reporting requirement. Each U.S. Holder should consult its own tax advisors regarding the information reporting and backup withholding rules. THE ABOVE SUMMARY IS NOT INTENDED TO CONSTITUTE A COMPLETE ANALYSIS OF ALL TAX CONSIDERATIONS APPLICABLE TO U.S. HOLDERS WITH RESPECT TO THE ACQUISITION, OWNERSHIP, AND DISPOSITION OF COMMON SHARES. U.S. HOLDERS SHOULD CONSULT THEIR OWN TAX ADVISORS AS TO THE TAX CONSIDERATIONS APPLICABLE TO THEM IN THEIR OWN PARTICULAR CIRCUMSTANCES. F.
G.Dividends and Paying Agents Not Applicable. G.
H.Statement by Experts Not Applicable. H.
I.Documents on Display We are subject to the informational requirements of the Exchange Act and file reports and other information with the SEC. You may read and copy any of our reports and other information we file with the SEC and obtain copies upon payment of any prescribed fees from the Public Reference Room maintained by the SEC at 100 F Street, N.E., Washington, D.C. 20549. In addition, the SEC maintains a website that contains reports and other information regarding registrants that file electronically with the SEC at http://www.sec.gov. The public may obtain information on the operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330. The documents concerning us referred to in this Annual Report may be viewed during normal business hours at our executive offices at Suite 1610 – 409 Granville Street, Vancouver, British Columbia, V6C 1T2. We are required to file reports and other information with the securities commissions in Canada. You are invited to read and copy any reports, statements or other information, other than confidential filings, that we file with the provincial securities commissions. These filings are also electronically available from SEDAR at www.sedar.com, the Canadian equivalent of the SEC’s electronic document gathering and retrieval system. I.
J.Subsidiary Information Not applicable.
ITEMITEM 11.QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK (a) Quantitative Information about market risk Market Risk The significant market risks to which the Company is exposed are interest rate risk, foreign currency risk, and commodity and equity price risk. Despite some signs of improvement, market challenges for commodities and mining sector equities continued during the first part of the year. These economic conditions create uncertainty particularly over the price of vanadium, silver and coal, the exchange rate between Canadian and US dollars and the timing of any further recovery remains uncertain. Interest Rate Risk Interest rate risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate due to changes in market interest rates. The Company’s cash and cash equivalents primarily include highly liquid investments that earn interest at market rates that are fixed to maturity. Due to the short-term nature of these financial instruments, fluctuations in market rates do not have significant impact on the fair values of the financial instruments as of December 31, 2019.2020. The Company manages interest rate risk by maintaining an investment policy that focuses primarily on preservation of capital and liquidity. Foreign Currency Risk The Company is exposed to foreign currency risk to the extent that monetary assets and liabilities held by the Company are not denominated in Canadian dollars. The Company has exploration projects in the United States, Bolivia and Mongolia and undertakes transactions in various foreign currencies. The Company is therefore exposed to foreign currency risk arising from transactions denominated in a foreign currency and the translation of financial instruments denominated in US dollar, Bolivian boliviano and Mongolian tugrik into its reporting currency, the Canadian dollar. Based on the above, net exposures as at December 31, 2019,2020, with other variables unchanged, a 10% (December 31, 20182019 – 10%, December 31, 20172018 – 10%) strengthening (weakening) of the Canadian dollar against the Mongolian tugrik would impact net loss with other variables unchanged by $144,000.$100,000. A 10% strengthening (weakening) of the Canadian dollar against the Bolivian boliviano would impact net loss with other variables unchanged by $70,000.$73,000. A 10% strengthening (weakening) of the US dollar against the Canadian dollar would impact net loss with other variables unchanged by $60,000.$28,000. The Company currently does not use any foreign exchange contracts to hedge this currency risk. Commodity and Equity Price Risk Commodity price risk is defined as the potential adverse impact on earnings and economic value due to commodity price movements and volatilities. Commodity prices fluctuate on a daily basis and are affected by numerous factors beyond the Company’s control. The supply and demand for these commodities, the level of interest rates, the rate of inflation, investment decisions by large holders of commodities including governmental reserves and stability of exchange rates can all cause significant fluctuations in prices. Such external economic factors are in turn influenced by changes in international investment patterns and monetary systems and political developments. The Company is also exposed to price risk with regards to equity prices. Equity price risk is defined as the potential adverse impact on the Company’s earnings due to movements in individual equity prices or general movements in the level of the stock market. The Company closely monitors commodity prices, individual equity movements and the stock market to determine the appropriate course of action to be taken by the Company. Fluctuations in value may be significant. Credit Risk Credit risk is the risk that one party to a financial instrument will fail to discharge an obligation and cause the other party to incur a financial loss. The Company is exposed to credit risk primarily associated to cash and cash equivalents and receivables. The carrying amount of assets included on the statements of financial position represents the maximum credit exposure.
ITEMITEM 12.DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIESA.A.-C. Not applicable. D. American Depository Receipts The Company does not have securities registered as American Depository Receipts.
ITEMITEM 13.DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES Not applicable. ITEMITEM 14.MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF PROCEEDS Not applicable. ITEMITEM 15.CONTROLS AND PROCEDURES A. Disclosure Controls and Procedures An evaluation was performed under the supervision and with the participation of the Company’s Audit Committee and management, including the Company’s CEO and the Company’s CFO, of the effectiveness of the design and operation of the Company’s disclosure controls and procedures pursuant to Rules 13a-15(b) and 15d-15(b) of the U.S. Exchange Act as of December 31, 2019.2020. Based on their evaluation, the Company’s CEO and CFO have concluded that the disclosure controls and procedures were effective to give reasonable assurance that the information required to be disclosed by the Company in reports that it files or submits under the U.S. Exchange Act is, (a) recorded, processed, summarized and reported, within the time periods specified in the SEC’s rules and forms, and (b) accumulated and communicated to management, including its principal executive and principal financial officers, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure. B. Management’s Annual Report on Internal Control Over Financial Reporting The Company’s management, including the Company’s CEO and CFO, is responsible for establishing and maintaining adequate internal control over the Company’s internal control over financial reporting, as such term is defined in Rule 13a-15(f) under the U.S. Exchange Act. The Company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of consolidated financial statements for external purposes in accordance with IFRS. The Company’s internal control over financial reporting includes policies and procedures that: pertain to the maintenance of records that, in reasonable detail accurately and fairly reflect the transactions and disposition of assets; provide reasonable assurance that transactions are recorded as necessary to permit preparation of the consolidated financial statements in accordance with IFRS and that receipts and expenditures are being made only in accordance with authorization of management and directors of the Company; and provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of assets that could have a material effect on the consolidated financial statements. Because of their inherent limitations, internal control over financial reporting can provide only reasonable assurance and may not prevent or detect misstatements. Furthermore, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. The Company’s management (with the participation of the CEO and the CFO) conducted an evaluation of the effectiveness of the Company’s internal control over financial reporting as of December 31, 2019.2020. This evaluation was based on the criteria set forth in the 2013 Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on its assessment, management has concluded that the Company’s internal control over financial reporting was effective during the year ended December 31, 2019,2020, and management’s assessment did not identify any material weaknesses. C. Attestation Report of the Registered Public Accounting Firm This Annual Report does not include an attestation report of our registered public accounting firm regarding internal control over financial reporting. Management’s report was not subject to attestation by our registered public accounting firm due to: (1) the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010, which permits the Company as a “non-accelerated filer” to provide only management’s report on internal control over financial reporting in this Annual Report and omit an attestation report of the issuer’s registered public accounting firm regarding management’s report on internal control over financial reporting; and (2) our qualifying as an "emerging“emerging growth company"company” under section 3(a) of the Exchange Act (as amended by the JOBS Act, enacted on April 5, 2012), providing us an exemption from the attestation requirementrequirement.
D. Changes in Internal Control Over Financial Reporting Based upon their evaluation of our controls, our CEO and CFO have concluded that there were no significant changes in our internal control over financial reporting or in other factors during our last fiscal year that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting. ITEMITEM 16. [RESERVED][RESERVED] Not applicable.
ITEM 16A. ITEM AAUDIT COMMITTEE FINANCIAL EXPERT The Company'sCompany’s Board has determined that Mr. Greg Hall, Chairman of the Audit Committee possesses the educational and professional qualifications as well as the experience to qualify as an “Audit Committee Financial Expert” as defined in Item 407(d)(5) of Regulation S-K under the Exchange Act. Mr. Hall does not meet the criteria for independence of an audit committee member established under SEC Rule 10A-3. In addition, the Company believes that the other members of the Audit Committee are capable of analyzing and evaluating the financial statements and understanding internal controls and procedures for financial reporting. ITEM 16B. ITEM BCODE OF ETHICS The Company has adopted a Code of Ethics found at Appendix 4 of the Company’s Corporate Governance Policies and Procedures Manual, that applies to all directors, senior officers and employees of the Company including the CEO and CFO. Shareholders may request a copy of the Code of Ethics by written request directed to Silver Elephant Mining Corp., Suite 1610, 409 Granville Street, Vancouver, British Columbia, Canada V6C 1T2 or by reference to the Company’s website www.silverelef.com.1T2. There have been no waivers or amendments to the Code of Ethics during the year ended December 31, 2019.2020. ITEM 16C. ITEM CPRINCIPAL ACCOUNTANT FEES AND SERVICES The following table shows the aggregate amounts billed to the Company by its principal auditors, Davidson & Company LLP Chartered Accountants, and its affiliates, Chartered Accountants, the Company’s principal auditors for the three fiscal years ended December 31, 20192020, for audit fees, audit related fees, tax fees and all other fees: | Year Ended December 31, 2019 (4) | Year Ended December 31, 2018 | Year Ended December 31, 2017 | Year Ended December 31, 2020 (4) | Year Ended December 31, 2019 | Year Ended December 31, 2018 | Audit Fees (1) | $100,000 | $86,037 | $100,000 | Audit-Related Fees (2) | - | 52,340 | 21,000 | | 52,340 | Tax Fees (3) | 20,000 | 13,000 | 15,950 | 20,000 | 13,000 | All Other Fees | - | 20,000 | | | TOTAL | $120,000 | $165,340 | $146,787 | $120,000 | $165,340 |
Notes: (1)1.
“Audit Fees” represent fees for the audit of the annual consolidated financial statements, and review in connection with the statutory and regulatory filings. (2)2.
“Audit Related Fees” represent fees for assurance and related services that are related to the performance of the audit. (3)3.
“Tax Fees” represent fees for tax compliance, tax advice and planning. (4)4.
Fees for the year ended December 31, 2019,2020, are based, in part, upon estimates received by the Company as final invoices are yet to be rendered as of the date of this Annual Report.
ITEM 16D. ITEM DEXEMPTIONS FROM THE LISTING STANDARDS FOR AUDIT COMMITTEES Not applicable. ITEM 16E. ITEM EPURCHASES OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED PURCHASERS Not applicable. ITEM 16F. ITEM FCHANGE IN REGISTRANT’S CERTIFYING ACCOUNTANT Not applicable. ITEM 16G. GCORPORATE GOVERNANCE Not applicable. ITEM 16H. ITEM HMINE SAFETY DISCLOSURE Pursuant to Section 1503(a) of the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010, issuers that are operators, or that have a subsidiary that is an operator, of a coal or other mine in the United States are required to disclose in their periodic reports filed with the SEC information regarding specified health and safety violations, orders and citations, related assessments and legal actions, and mining-related fatalities with respect to mining operations and properties in the United States that are subject to regulation by the Federal Mine Safety and Health Administration (the “MSHA”) under the Federal Mine Safety and Health Act of 1977 (the “Mine Act”). During the year ended December 31, 2019,2020, the Company had no operating mines in the United States that were subject to regulation by the MSHA under the Mine Act.
PART III ITEMITEM 17.FINANCIAL STATEMENTS Not applicable. ITEMITEM 18.FINANCIAL STATEMENTS
DocumentPage 126
Audited Financial Statements of the Company for the years ended December 31, 2020, 2019 and 2018. Exhibit Number | Description | 1.1* | Articles of Incorporation (incorporated by reference from our Registration Statement on Form 20-F filed with the SEC on June 27, 2018 (SEC File No.: 377- 02144) and Amendment to Articles dated March 16, 2020 under (SEC File No. 000-55985- Film No. 20718657)) | 2.1Exhibit Number Description | Description of Registered Securities | 4.1* | Debt Settlement Agreement dated January 13, 2017 among Silver Elephant Mining Corp., Linx and John Lee (incorporated by reference from our Registration Statement on Form 20- F filed with the SEC on June 27, 2018 (SEC File No.: 377-02144)) | 4.2* | Mineral Lease Agreement dated June 22, 2017 between Silver Elephant Mining Corp. and Janelle Dietrich (incorporated by reference from our Registration Statement on Form 20-F filed with the SEC on June 27, 2018 (SEC File No.: 377-02144)) | 4.3* | Mineral Lease Agreement dated July 10, 2017 among Silver Elephant Mining Corp., Richard A. McKay, Nancy M. Minoletti and Pamela S. Scutt (incorporated by reference from our Registration Statement on Form 20-F filed with the SEC on June 27, 2018 (SEC File No.: 377-02144)) | 4.4* | Share Purchase Agreement dated February 7, 2018 among Silver Elephant Mining Corp., Medalist Capital Ltd. and 631208 B.C. Ltd. (incorporated by reference from our Registration Statement on Form 20-F filed with the SEC on June 27, 2018 (SEC File No.: 377-02144)) | 4.5* | Amendment to the Mineral Lease Agreement dated April 19, 2018 between Silver Elephant Mining Corp. and Janelle Dietrich (incorporated by reference from our Annual Report on Form 20-F filed with the SEC on March 29, 2019 (SEC File No.: 000-55985)) | 4.6* | Share-Based Compensation Plan (incorporated by reference from our Registration Statement on Form 20-F filed with the SEC on June 27, 2018 (SEC File No.: 377-02144)) | 4.7* | English Summary of Pulacayo Joint Venture Agreement (incorporated by reference from our Annual Report on Form 20-F filed with the SEC on March 29, 2019 (SEC File No.: 000-55985)) | | List of Subsidiaries | | Certification of Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 | | Certification of Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 | | Certification of Chief Executive Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 | | Certification of Chief Financial Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 | 101.INS | XBRL Instance Document | 101. SCH | XBRL Taxonomy Extension Schema Document | 101.CAL | XBRL Taxonomy Extension Calculation Linkbase Document 101.DEF XBRL Taxonomy Extension Definition Linkbase Document 101.LAB XBRL Taxonomy Extension Label Linkbase Document 101.PRE XBRL Taxonomy Extension Presentation Linkbase Document |
Articles of Incorporation (incorporated by reference from our Registration Statement on Form 20-F filed with the SEC on June 27, 2018). Amendment to Articles of Incorporation dated March 16, 2020 (incorporated by reference filed with the SEC on March 17, 2020.) Description of Registered Securities (incorporated by reference from our Form 20-F filed with the SEC on March 31, 2020). Audit Committee Charter dated October 21, 2020. Debt Settlement Agreement dated January 13, 2017 among Silver Elephant Mining Corp., Linx and John Lee (incorporated by reference from our Registration Statement on Form 20- F filed with the SEC on June 27, 2018). Mineral Lease Agreement dated June 22, 2017 between Silver Elephant Mining Corp. and Janelle Dietrich (incorporated by reference from our Registration Statement on Form 20-F filed with the SEC on June 27, 2018). Mineral Lease Agreement dated July 10, 2017 among Silver Elephant Mining Corp., Richard A. McKay, Nancy M. Minoletti and Pamela S. Scutt (incorporated by reference from our Registration Statement on Form 20-F filed with the SEC on June 27, 2018). Share Purchase Agreement dated February 7, 2018 among Silver Elephant Mining Corp., Medalist Capital Ltd. and 631208 B.C. Ltd. (incorporated by reference from our Registration Statement on Form 20-F filed with the SEC on June 27, 2018. Amendment to the Mineral Lease Agreement dated April 19, 2018 between Silver Elephant Mining Corp. and Janelle Dietrich (incorporated by reference from our Annual Report on Form 20-F filed with the SEC on March 31, 2019). Share-Based Compensation Plan (incorporated by reference from the Company’s Management information Circular filed with the SEC on June 1, 2020). English Summary of Pulacayo Joint Venture Agreement (incorporated by reference from our Annual Report on Form 20-F filed with the SEC on March 31, 2019). Underwriting Agreement between Silver Elephant Mining Corp., and Mackie Research Capital Corporation, Canaccord Genuity Corp. and Sprott Capital Partners LP. dated October 26, 2020 (incorporated by reference from our Form 6-K filed with the SEC on October 29, 2020). Amendment to Underwriting Agreement between Silver Elephant Mining Corp., and Mackie Research Capital Corporation, Canaccord Genuity Corp. and Sprott Capital Partners LP. dated November 17, 2020 (incorporated by reference from our Form 6-K filed with the SEC on November 18, 2020.) The El Triunfo Sales and Purchase Agreement dated July 13, 2020 between the Company’s subsidiary Illumina Silver Mining Corp. and a private party to acquire the El Triunfo Gold-Silver-Lead-Zinc Project (incorporated by reference filed with the SEC on February 9, 2021). Minago Project Asset Purchase Agreement dated January 21, 2021 (incorporated by reference and filed with the SEC on February 10, 2021) Voting Trust Agreement dated February 9, 2021 between Victory Nickel Inc. and the Company dated February 9, 2021 (incorporated by reference and filed with the SEC on February 10, 2021). Voting Trust Agreement in respect to the Company’s Common Shares dated February 9, 2021 (incorporated by reference and filed with the SEC on February 10, 2021). Debt Purchase Agreement between City Hall Capital LLC and Silver Elephant Mining Corp (redacted) . dated January 15, 2021 (incorporated by reference and filed with the SEC on February 10, 2021). Certification of Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 Certification of Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 Certification of Chief Executive Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 Certification of Chief Financial Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 43-101 Pulacayo 2020 Technical Report, effective Oct 13 2020 dated October 23, 2020 (incorporated by reference from our Form 6-K filed with the SEC on November 18, 2020) 101.INS XBRL Instance Document 101.SCH XBRL Taxonomy Extension Schema Document 101.CAL XBRL Taxonomy Extension Calculation Linkbase Document 101.DEF XBRL Taxonomy Extension Definition Linkbase Document 101.LAB XBRL Taxonomy Extension Label Linkbase Document 101.PRE XBRL Taxonomy Extension Presentation Linkbase Document * Incorporated by reference from the Company’s SEC filings.
SIGNATURES The registrant hereby certifies that it meets all of the requirements for filing on Form 20-F and that it has duly caused and authorized the undersigned to sign this Annual Report on its behalf.
| | SILVER ELEPHANT MINING CORP. | Date: March 12, 2021 | By: | /s/ John Lee | | | | | Date: March 30 , 2020
| By: | /s/Michael Doolin
| | | | Michael Doolin | John Lee | | | Chief Executive Officer and Chief Operating officer | |
SILVER ELEPHANT MINING CORP. (Formerly Prophecy Development Corp.)
Annual Consolidated Financial Statements For the years ended December 31, 2020, 2019 2018 and 20172018 (Expressed in Canadian Dollars)
TABLE OF CONTENTS
MANAGEMENT’S RESPONSIBILITY FOR FINANCIAL REPORTING | 3 | Report of Independent Registered Public Accounting Firm | 4 | Consolidated Statements of Financial Position | 6 | Consolidated Statements of Operations and Comprehensive Gain (Loss) | 7 | Consolidated Statements of Changes in Equity | 8 | Consolidated Statements of Cash Flows | 9 | | | | 1 | DESCRIPTION OF BUSINESS AND NATURE OF OPERATIONS | 10 | 2 | BASIS OF PRESENTATION | 10 | 3 | BASIS OF CONSOLIDATION | 11 | 4 | CHANGES IN ACCOUNTING POLICIES | 11 | 5 | SIGNIFICANT JUDGMENTS, ESTIMATES AND ASSUMPTIONS | 12 | 6 | SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES | 16 | 7 | SEGMENTED INFORMATION | 21 | 8 | CASH AND CASH EQUIVALENTS | 21 | 9 | RECEIVABLES | 22 | 10 | PREPAID EXPENSES | 22 | 11 | MARKETABLE SECURITIES | 22 | 12 | RIGHT-OF-USE ASSET | 22 | 13 | EQUIPMENT | 23 | 14 | MINERAL PROPERTIES | 25 | 15 | ACCOUNTS PAYABLE AND ACCRUED LIABILITIES | 30
| 16 | LEASE LIABILITY | 31
| 17 | PROVISION FOR CLOSURE AND RECLAMATION | 31
| 18 | TAX PROVISION | 32 | 19 | SHARE CAPITAL | 33 | 20 | CAPITAL RISK MANAGEMENT | 38 | 21 | FAIR VALUE MEASUREMENTS AND FINANCIAL INSTRUMENTS | 38 | 22 | FINANCIAL RISK MANAGEMENT DISCLOSURES | 39 | 23 | RELATED PARTY DISCLOSURES | 40 | 24 | KEY MANAGEMENT PERSONNEL COMPENSATION | 41 | 25 | SUPPLEMENTAL CASH FLOW INFORMATION | 42 | 26 | CONTINGENCIES | 42 | 27 | EVENTS AFTER THE REPORTING DATE | 43 |
MANAGEMENT’S RESPONSIBILITY FOR FINANCIAL REPORTING | 3 | Report of Independent Registered Public Accounting Firm | 4 | Consolidated Statements of Financial Position | 6 | Consolidated Statements of Operations and Comprehensive Gain (Loss) | 7 | Consolidated Statements of Changes in Equity | 8 | Consolidated Statements of Cash Flows | 9 | | | | 1 | DESCRIPTION OF BUSINESS AND NATURE OF OPERATIONS | 10 | 2 | BASIS OF PRESENTATION | 10 | 3 | BASIS OF CONSOLIDATION | 11 | 4 | CHANGES IN ACCOUNTING POLICIES | 11 | 5 | SIGNIFICANT JUDGMENTS, ESTIMATES AND ASSUMPTIONS | 12 | 6 | SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES | 15 | 7 | SEGMENTED INFORMATION | 20 | 8 | CASH AND CASH EQUIVALENTS | 20 | 9 | RECEIVABLES | 21 | 10 | PREPAID EXPENSES | 21 | 11 | MARKETABLE SECURITIES | 21 | 12 | RIGHT-OF-USE ASSET | 22 | 13 | EQUIPMENT | 22 | 14 | MINERAL PROPERTIES | 24 | 15 | ACCOUNTS PAYABLE AND ACCRUED LIABILITIES | 28 | 16 | LEASE LIABILITY | 29 | 17 | PROVISION FOR CLOSURE AND RECLAMATION | 29 | 18 | TAX PROVISION | 30 | 19 | SHARE CAPITAL | 31 | 20 | CAPITAL RISK MANAGEMENT | 38 | 21 | FAIR VALUE MEASUREMENTS AND FINANCIAL INSTRUMENTS | 38 | 22 | FINANCIAL RISK MANAGEMENT DISCLOSURES | 39 | 23 | RELATED PARTY DISCLOSURES | 40 | 24 | KEY MANAGEMENT PERSONNEL COMPENSATION | 41 | 25 | SUPPLEMENTAL CASH FLOW INFORMATION | 42 | 26 | COMMITMENTS | 42 | 27 | CONTINGENCIES | 42 | 28 | EVENTS AFTER THE REPORTING DATE | 43 |
MANAGEMENT’S RESPONSIBILITY FOR FINANCIAL REPORTING The annual audited consolidated financial statements (the “Annual Financial Statements”), the notes thereto, and other financial information contained in the accompanying Management’s Discussion and Analysis (“MD&A”) have been prepared in accordance with International Financial Reporting Standards as issued by the International Accounting Standards Board and are the responsibility of the management of Silver Elephant Mining Corp. The financial information presented elsewhere in the MD&A is consistent with the data that is contained in the Annual Financial Statements. The Annual Financial Statements, where necessary, include amounts which are based on the best estimates and judgment of management. In order to discharge management’s responsibility for the integrity of the Annual Financial Statements, the Company maintains a system of internal accounting controls. These controls are designed to provide reasonable assurance that the Company’s assets are safeguarded, transactions are executed and recorded in accordance with management’s authorization, proper records are maintained, and relevant and reliable financial information is produced. These controls include maintaining quality standards in hiring and training of employees, policies and procedures manuals, a corporate code of conduct and ethics and ensuring that there is proper accountability for performance within appropriate and well-defined areas of responsibility. The system of internal controls is further supported by a compliance function, which is designed to ensure that we and our employees comply with securities legislation and conflict of interest rules. The Board of Directors is responsible for overseeing management’s performance of its responsibilities for financial reporting and internal control. The Audit Committee, which is composed of non-executive directors, meets with management as well as the external auditors to ensure that management is properly fulfilling its financial reporting responsibilities to the Board who approve the Annual Financial Statements. The external auditors have full and unrestricted access to the Audit Committee to discuss the scope of their audits and the adequacy of the system of internal controls, and to review financial reporting issues. The external auditors, Davidson & Company LLP, have been appointed by the Company’s shareholders to render their opinion on the Annual Financial Statements and their report is included herein. “Michael Doolin” | John Lee” | “Irina Plavutska” | ---------------------------------------------------- | --------------------------------------------------- | Michael Doolin,John Lee, Chief Executive Officer | | Irina Plavutska, Chief Financial Officer | | Vancouver, British Columbia | | | |
Vancouver, British Columbia March 30, 202012, 2021
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Shareholders and Directors of Silver Elephant Mining Corp. (formerly Prophecy Development Corp.)
Opinion on the Consolidated Financial Statements We have audited the accompanying consolidated statements of financial position of Silver Elephant Mining Corp. (formerly Prophecy Development Corp.) (the “Company”), as of December 31, 2020, 2019 2018 and 20172018, and the related consolidated statements of operations and comprehensive gain (loss), changes in equity (deficiency), and cash flows for the years ended December 31, 2020, 2019 2018, and 2017,2018, and the related notes (collectively referred to as the “financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of Silver Elephant Mining Corp. (formerly Prophecy Development Corp.) as of December 31, 2020, 2019 and 2018, and the results of its operations and its cash flows for the years ended December 31, 2020, 2019 and 2018 and 2017 in conformityaccordance with those requirements of International Financial Reporting Standards (IFRS) as issued by the International Accounting Standards Board. Going Concern The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 1 to the consolidated financial statements, the Company has suffered recurring losses from operations that raise substantial doubt about its ability to continue as a going concern. Management's plans in regard to these matters are also described in Note 1. The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty. Basis for Opinion These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s consolidated financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.
Our audits included performing procedures to assess the risks of material misstatements of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audits provide a reasonable basis for our opinion. We have served as the Company’s auditor since 2013. “DAVIDSON & COMPANY LLP”
| Vancouver, Canada
| Chartered Professional Accountants |
March 30, 2020 12, 2021
SILVER ELEPHANT MINING CORP. (formerly Prophecy Development Corp.)
Consolidated Statements of Financial Position (Expressed in Canadian Dollars) As at | | | | | | | | | | | | | | Assets | | | Current assets | | | Cash and cash equivalents | 8 | $3,017,704 | $5,304,097 | $4,100,608 | | Cash | | 8 | $7,608,149 | $3,017,704 | $5,304,097 | Receivables | 9 | 246,671 | 36,399 | 34,653 | 9 | 75,765 | 246,671 | 36,399 | Prepaid expenses | 10 | 135,767 | 123,272 | 140,610 | 10 | 114,717 | 135,767 | 123,272 | Marketable securities | 11 | - | 205,600 | | | | 3,400,142 | 5,463,768 | 4,481,471 | | 7,798,631 | 3,400,142 | 5,463,768 | Non-current assets | | | | | Restricted cash equivalents | 8 | 34,500 | 8 | 34,500 | Reclamation deposits | | 21,055 | | 21,055 | Right-of-use asset | 12 | 50,023 | - | 12 | 18,430 | 50,023 | - | Equipment | 13 | 159,484 | 101,162 | 531,911 | 13 | 153,800 | 159,484 | 101,162 | Mineral properties | 14 | 23,782,884 | 3,643,720 | 13,299,906 | 14 | 31,806,594 | 23,782,884 | 3,643,720 | | | $27,448,088 | $9,264,205 | $18,368,843 | | $39,833,010 | $27,448,088 | $9,264,205 | Liabilities and Equity (Deficiency) | | | | | Current liabilities | | | | | Accounts payable and accrued liabilities | 15 | $2,420,392 | $1,636,786 | $1,895,983 | 15 | $1,759,163 | $2,420,392 | $1,636,786 | Lease liability | 16 | 32,285 | - | 16 | 20,533 | 32,285 | - | | | 2,452,677 | 1,636,786 | 1,895,983 | | 1,779,696 | 2,452,677 | 1,636,786 | Non-current liabilities | | | | | Lease liability | 16 | 20,533 | - | 16 | - | 20,533 | - | Provision for closure and reclamation | 17 | 266,790 | 265,239 | 244,323 | 17 | 695,257 | 266,790 | 265,239 | Tax provision | 18 | - | 8,121,918 | 7,541,016 | 18 | - | 8,121,918 | | | 2,740,000 | 10,023,943 | 9,681,322 | | 2,474,953 | 2,740,000 | 10,023,943 | Equity (Deficiency) | | | | | Share capital | 19 | 181,129,012 | 173,819,546 | 165,862,805 | 19 | 197,612,182 | 181,129,012 | 173,819,546 | Reserves | | 24,058,336 | 23,413,830 | 22,621,202 | 19 | 24,852,022 | 24,058,336 | 23,413,830 | Accumulated other comprehensive income | | - | 12,160 | | Deficit | | (180,479,260) | (197,993,114) | (179,808,646) | | (185,106,147) | (180,479,260) | (197,993,114) | | | 24,708,088 | (759,738) | 8,687,521 | | 37,358,057 | 24,708,088 | (759,738) | | | $27,448,088 | $9,264,205 | $18,368,843 | | $39,833,010 | $27,448,088 | $9,264,205 |
Approved on behalf of the Board: | | | "John Lee" | | | | | "Greg Hall" | | | John Lee, Director | | | | | Greg Hall, Director | | |
CommitmentsContingencies (Note 26)
Contingencies (Note 27)
Events after the reporting date (Note 28)
The accompanying notes form an integral part of these consolidated financial statements.
SILVER ELEPHANT MINING CORP.
(formerly Prophecy Development Corp.)
Consolidated Statements of Operations and Comprehensive Gain (Loss)
(Expressed in Canadian Dollars)
| | Years Ended December 31, | | | | | | General and Administrative Expenses | | | | | Advertising and promotion | | $794,182 | $471,230 | $101,512 | Consulting and management fees | 23 | 251,552 | 255,610 | 751,612 | Depreciation and accretion | | 65,157 | 28,024 | 8,823 | Director fees | 23 | 103,805 | 70,378 | 60,600 | Insurance | | 93,661 | 55,546 | 52,566 | Office and administration | | 123,904 | 137,289 | 89,808 | Professional fees | | 228,594 | 428,884 | 194,912 | Salaries and benefits | 23 | 760,182 | 827,168 | 260,710 | Share-based payments | 19 | 707,802 | 553,430 | 599,117 | Stock exchange and shareholder services | 139,908 | 239,319 | 163,229 | Travel and accommodation | | 236,815 | 231,505 | 98,476 | | | (3,505,562) | (3,298,383) | (2,381,365) | Other Items | | | | | Costs in excess of recovered coal | | (120,354) | (94,335) | (109,187) | Finance cost | | - | - | (8,111) | Foreign exchange gain/(loss) | | (443,203) | (412,663) | (188,464) | (Impairment)/recovery of mineral property | 14 | 13,708,200 | (13,994,970) | (14,829,267) | Impairment of prepaid expenses | 10 | (51,828) | (26,234) | (57,420) | Impairment of equipment | 13 | - | (425,925) | (159,666) | Impairment of receivables | 9 | (16,304) | (21,004) | (61,202) | Interest expense | | - | - | (21,066) | Loss on sale of marketable securities | | - | (91,890) | (22,810) | Loss on sale of equipment | 13 | (9,795) | - | (1,681) | (Loss)/gain on debt settlement | 27, 23 | 7,952,700 | 50,000 | (752,742) | Other income | | - | 130,936 | - | | | 21,019,416 | (14,886,085) | (16,211,616) | Net Gain/(Loss) for Year | | 17,513,854 | (18,184,468) | (18,592,981) | Fair value loss on marketable securities | | - | (81,000) | 12,160 | Reclassification adjustment for realized loss | | | | marketable securities | | - | 68,840 | - | Comprehensive Gain/(Loss) for Year | | $17,513,854 | $(18,196,628) | $(18,580,821) | Gain/(Loss) Per Common Share, basic | | $0.17 | $(0.23) | $(0.33) | diluted | | $0.17 | $(0.23) | $(0.33) | Weighted Average Number of Common Shares Outstanding, | | | | | basic | | 102,208,111 | 78,445,396 | 55,760,700 | diluted | | 102,398,145 | 78,443,396 | 55,760,700 |
The accompanying notes form an integral part of these consolidated financial statements.
SILVER ELEPHANT MINING CORP.
(formerly Prophecy Development Corp.)
Consolidated Statements of Changes in Equity (Deficiency)
(Expressed in Canadian Dollars)
| | | | Accumulated OtherComprehensive Income (Loss) | | | Balance, December 31, 2016 | 48,076,530 | $156,529,025 | $21,482,133 | $- | $(161,215,665) | $16,795,493 | Private placements, net of share issue costs | 20,775,060 | 6,527,619 | 337,190 | - | - | 6,864,809 | Shares issued on acquisition of property | 200,000 | 96,200 | - | - | - | 96,200 | Debt Settlements | 4,019,130 | 2,039,269 | - | - | - | 2,039,269 | Share bonus to personnel | 390,000 | 190,320 | - | - | - | 190,320 | Share compensation for services | 984,200 | 344,470 | - | - | - | 344,470 | Exercise of stock options | 126,870 | 65,252 | (14,567) | - | - | 50,685 | Exercise of warrants | 150,000 | 70,650 | (10,650) | - | - | 60,000 | Share-based payments | - | - | 827,096 | - | - | 827,096 | Loss for the year | - | - | - | - | (18,592,981) | (18,592,981) | Unrealized gain on marketable securities | - | - | - | 12,160 | - | 12,160 | Balance, December 31, 2017 | 74,721,790 | $165,862,805 | $22,621,202 | $12,160 | $(179,808,646) | $8,687,521 | Private placements, net of share issue costs | 16,061,417 | 6,096,621 | - | - | - | 6,096,621 | Warrants issued for mineral property | - | - | 181,944 | - | - | 181,944 | Exercise of stock options | 87,500 | 39,500 | (15,350) | - | - | 24,150 | Exercise of warrants | 3,445,420 | 1,470,620 | (132,453) | - | - | 1,338,167 | Bonus shares | 1,000,000 | 350,000 | - | - | - | 350,000 | Share-based payments | - | - | 758,487 | - | - | 758,487 | Loss for the year | - | - | - | - | (18,184,468) | (18,184,468) | Unrealized loss on marketable securities | - | - | - | (12,160) | - | (12,160) | Balance, December 31, 2018 | 95,316,127 | $173,819,546 | $23,413,830 | $- | $(197,993,114) | $(759,738) | Private placements, net of share issue costs | 22,750,000 | 6,117,991 | - | - | - | 6,117,991 | Finders shares | 1,179,500 | 366,800 | - | - | - | 366,800 | Debt Settlements | 104,951 | 43,030 | - | - | - | 43,030 | Exercise of stock options | 622,500 | 328,095 | (153,845) | - | - | 174,250 | Exercise of warrants | 651,430 | 279,050 | (28,478) | - | - | 250,572 | Bonus shares | 500,000 | 115,000 | - | - | - | 115,000 | Share compensation for services | 175,000 | 59,500 | - | - | - | 59,500 | Share-based payments | - | - | 826,829 | - | - | 826,829 | Gain for the year | - | - | - | - | 17,513,854 | 17,513,854 | Balance, December 31, 2019 | 121,299,508 | $181,129,012 | $24,058,336 | $- | $(180,479,260) | $24,708,088 |
27) The accompanying notes form an integral part of these consolidated financial statements.
SILVER ELEPHANT MINING CORP. Consolidated Statements of Operations and Comprehensive Gain (Loss) (formerly Prophecy Development Corp.)Expressed in Canadian Dollars) | | | | | | | | General and Administrative Expenses | | | | | Advertising and promotion | | $541,029 | $794,182 | $471,230 | Consulting and management fees | 22 | 570,356 | 251,552 | 255,610 | Depreciation and accretion | | 41,116 | 65,157 | 28,024 | Director fees | 22 | 108,600 | 103,805 | 70,378 | Insurance | | 100,948 | 93,661 | 55,546 | Office and administration | | 136,274 | 123,904 | 137,289 | Professional fees | | 321,355 | 228,594 | 428,884 | Salaries and benefits | 23 | 530,065 | 760,182 | 827,168 | Share-based payments | 19 | 770,617 | 707,802 | 553,430 | Stock exchange and shareholder services | | 180,433 | 139,908 | 239,319 | Travel and accommodation | | 93,323 | 236,815 | 231,505 | | | (3,394,116) | (3,505,562) | (3,298,383) | Other Items | | | | | Costs in excess of recovered coal | 13 | (590,204) | (120,354) | (94,335) | Foreign exchange loss | | (64,841) | (443,203) | (412,663) | (Impairment)/recovery of mineral property | 14 | - | 13,708,200 | (13,994,970) | Impairment of prepaid expenses | 10 | (121,125) | (51,828) | (26,234) | Impairment of equipment | 13 | - | - | (425,925) | Impairment of receivables | 9 | (470,278) | (16,304) | (21,004) | Loss on sale of marketable securities | | - | - | (91,890) | (Loss)/gain on sale of equipment | | 13,677 | (9,795) | - | Gain on debt settlement | 23, 26 | - | 7,952,700 | 50,000 | Other income | | - | - | 130,936.00 | | | (1,232,771) | 21,019,416 | (14,886,085) | Gain/(Loss) for Year | | (4,626,887) | 17,513,854 | (18,184,468) | Fair value loss on marketable securities | | - | - | (81,000) | Reclassification adjustment for realized loss | | | | | marketable securities | | - | - | 68,840 | Comprehensive Gain/(Loss) for Year | | $(4,626,887) | $17,513,854 | $(18,196,628) | Gain/(Loss) Per Common Share, | | | | | basic | | $(0.03) | $0.17 | $(0.23) | diluted | | $(0.03) | $0.17 | $(0.23) | Weighted Average Number of Common Shares Outstanding, | | | | | basic | | 137,901,802 | 102,208,111 | 78,445,396 | diluted | | 137,901,802 | 102,398,145 | 78,443,396 |
The accompanying notes form an integral part of these consolidated financial statements.
SILVER ELEPHANT MINING CORP. Consolidated Statements of Changes in Equity (Deficiency) (Expressed in Canadian Dollars) | | | | Accumulated Other Comprehensive Income (loss) | | Total Equity (Deficiency) | Balance, December 31, 2017 | 74,721,790 | $165,862,805 | $22,621,202 | $12,160 | $(179,808,646) | $8,687,521 | Private placements, net of share issue costs | 16,061,417 | 6,096,621 | - | - | - | 6,096,621 | Warrants issued for mineral property | - | - | 181,944 | - | - | 181,944 | Exercise of stock options | 87,500 | 39,500 | (15,350) | - | - | 24,150 | Exercise of warrants | 3,445,420 | 1,470,620 | (132,453) | - | - | 1,338,167 | Bonus shares | 1,000,000 | 350,000 | - | - | - | 350,000 | Share-based payments | - | - | 758,487 | - | - | 758,487 | Loss for the year | - | - | - | - | (18,184,468) | (18,184,468) | Unrealized loss on marketable securities | - | - | - | (12,160) | - | (12,160) | Balance, December 31, 2018 | 95,316,127 | $173,819,546 | $23,413,830 | - | $(197,993,114) | $(759,738) | Private placements, net of share issue costs | 22,750,000 | 6,117,991 | - | - | - | 6,117,991 | Finders shares | 1,179,500 | 366,800 | - | - | - | 366,800 | Debt Settlements | 104,951 | 43,030 | - | - | | 43,030 | Exercise of stock options | 622,500 | 328,095 | (153,845) | - | - | 174,250 | Exercise of warrants | 651,430 | 279,050 | (28,478) | - | - | 250,572 | Bonus shares | 500,000 | 115,000 | - | - | - | 115,000 | Share compensation for services | 175,000 | 59,500 | - | - | - | 59,500 | Share-based payments | - | - | 826,829 | - | - | 826,829 | Gain for the year | - | - | - | - | 17,513,854 | 17,513,854 | Balance, December 31, 2019 | 121,299,508 | $181,129,012 | $24,058,336 | - | $(180,479,260) | $24,708,088 | Private placements, net of share issue costs | 38,200,000 | 10,247,206 | - | - | - | 10,247,206 | Finders units | 156,900 | (24,000) | 24,000 | - | - | - | Broker warrants | - | (226,917) | 226,917 | - | - | - | Shares issued for property acquisition | 4,000,000 | 2,000,000 | - | - | - | 2,000,000 | Exercise of stock options | 1,233,750 | 572,659 | (272,847) | - | - | 299,812 | Exercise of warrants | 14,027,670 | 3,273,822 | (166,628) | - | - | 3,107,194 | Bonus shares | 1,601,000 | 640,400 | - | - | - | 640,400 | Share-based payments | - | - | 982,244 | - | - | 982,244 | Loss for the year | - | - | - | - | (4,626,887) | (4,626,887) | Balance, December 31, 2020 | 180,518,828 | $197,612,182 | $24,852,022 | - | $(185,106,147) | $37,358,057 |
The accompanying notes form an integral part of these consolidated financial statements.
SILVER ELEPHANT MINING CORP. Consolidated Statements of Cash Flows (Expressed in Canadian Dollars) Years Ended December 31, | |
| | | | | | | | | | | | | | | Operating Activities | | | Net gain/(loss) for period | $17,513,854 | $(18,184,468) | $(18,592,981) | | Net gain/(loss) for year | | $(4,626,887) | $17,513,854 | $(18,184,468) | Adjustments to reconcile net loss to net cash flows: | | | Depreciation and accretion | 65,157 | 28,024 | 8,823 | 64,387 | 65,157 | 28,024 | Share-based payments | 707,802 | 553,430 | 599,117 | 770,617 | 707,802 | 553,430 | Finance cost | - | 8,111 | | Interest costs | - | 21,066 | | Unrealized foreign exchange (gain)/loss | (169,218) | 580,902 | 480,325 | - | (169,218) | 580,902 | Share compensation for services | 356,003 | 350,000 | 344,470 | 720,900 | 356,003 | 350,000 | Impairment/(recovery) of mineral property | (13,708,200) | 13,994,970 | 14,829,267 | | (Impairment)/recovery of mineral property | | - | (13,708,200) | 13,994,970 | Impairment of prepaid expenses | 51,828 | 26,234 | 57,420 | 121,125 | 51,828 | 26,234 | Impairment of equipment | - | 425,925 | 159,666 | - | 425,925 | Impairment of receivables | 16,304 | 21,004 | 61,202 | 470,278 | 16,304 | 21,004 | Loss/(gain) on sale of marketable securities | - | 91,890 | 22,810 | | Loss on sale of equipment | 9,795 | - | 1,681 | | Debt settlement gain | (7,952,700) | - | 752,742 | | Loss on sale of marketable securities | | - | 91,890 | (Loss)/gain on sale of equipment | | 13,677 | 9,795 | - | Change in estimate reclamation provision | | 405,196 | - | Gain on debt settlement | | - | (7,952,700) | - | | (3,109,375) | (2,112,089) | (1,246,281) | (2,060,707) | (3,109,375) | (2,112,089) | Working capital adjustments | | | Changes to working capital items | | | Receivables | (196,079) | (22,750) | (4,290) | (299,372) | (196,079) | (22,750) | Prepaid expenses and reclamation deposits | (29,323) | (8,896) | 2,496 | (100,075) | (29,323) | (8,896) | Accounts payable and accrued liabilities | 659,264 | (482,952) | 540,844 | (88,888) | 659,264 | (482,952) | | 433,862 | (514,598) | 539,050 | (488,335) | 433,862 | (514,598) | Cash Used in Operating Activities | (2,675,513) | (2,626,687) | (707,231) | (2,549,042) | (2,675,513) | (2,626,687) | | | | Investing Activities | | | Purchase of GIC | - | (34,500) | | Net (purchases)/proceeds from marketable securities | - | 101,550 | (40,250) | - | 101,550 | Purchase of property and equipment | (113,564) | (120,416) | (515,609) | | Mineral property acquisition and expenditures | (6,123,401) | (3,609,896) | (1,398,207) | | Proceeds on sale of equipment | | 50,695 | - | Purchase of equipment | | (111,592) | (113,564) | (120,416) | Mineral property expenditures | | (6,336,166) | (6,123,401) | (3,609,896) | Cash Used in Investing Activities | (6,236,965) | (3,628,762) | (1,988,566) | (6,397,063) | (6,236,965) | (3,628,762) | | | | Financing Activities | | | Funds borrowed under credit facility | - | 163,405 | | Credit facilities paid | - | (343,076) | | Interest paid | - | (21,066) | | Proceeds from share issuance, net of share issue costs | | 10,201,706 | 6,237,791 | 6,096,621 | Proceeds from exercise of stock options | | 299,812 | 174,250 | 24,150 | Proceeds from exercise of warrants | | 3,072,194 | 250,572 | 1,338,167 | Lease payments | (36,528) | - | (37,162) | (36,528) | - | Proceeds from share issuance, net of share issue costs | 6,237,791 | 6,096,621 | 6,864,809 | | Proceeds from exercise of optons | 174,250 | 24,150 | 50,685 | | Proceeds from exercise of warrants | 250,572 | 1,338,167 | 60,000 | | Cash Provided by Financing Activities | 6,626,085 | 7,458,938 | 6,774,757 | 13,536,550 | 6,626,085 | 7,458,938 | Net Decrease in Cash and Cash equivalents | (2,286,393) | 1,203,489 | 4,078,960 | | Cash and cash equivalents- beginning of year | 5,304,097 | 4,100,608 | 21,648 | | Cash and cash equivalents - end of year | $3,017,704 | $5,304,097 | $4,100,608 | | Net Decrease in Cash | | 4,590,445 | (2,286,393) | 1,203,489 | Cash - beginning of year | | 3,017,704 | 5,304,097 | 4,100,608 | Cash - end of year | | $7,608,149 | $3,017,704 | $5,304,097 |
Supplemental cash flow information (Note 25)
The accompanying notes form an integral part of these consolidated financial statements. SILVER ELEPHANT MINING CORP. (formerly Prophecy Development Corp.)
Notes to Annual Consolidated Financial Statements For the years ended December 31, 2020, 2019 2018 and 20172018 (Expressed in Canadian Dollars) 1. DESCRIPTION OF BUSINESS AND NATURE OF OPERATIONS Silver Elephant Mining Corp. (formerly Prophecy Development Corp.) (the “Company”) is incorporated under the laws of the province of British Columbia, Canada. The Company’s common shares without par value in the capital of the Company (the “Common Shares”) are listed for trading on the Toronto Stock Exchange (the “TSX”) under the symbol “ELEF”, the OTCQX® Best Market under the symbol “SILEF”,and on the Frankfurt Stock Exchange under the symbol “1P2N” and are quoted on the OTCQX® Best Market under the symbol “SILEF”. The Company is an exploration stage company.company. The Company holds a mining joint venturean interest in the Pulacayo Paca silver-lead-zincsilver-zinc-lead property located in Bolivia.Bolivia and The Company also has aan 100% interest in two vanadium projects in North America, includingbeing the Gibellini vanadium project, which is comprised of the Gibellini, Louie Hill and Louie HillBisoni vanadium deposits and associated claims located in the State of Nevada, USA, and the Titan vanadium-titanium-iron property located in the Province of Ontario, Canada. In 2020, the Company acquired the Sunawayo silver-zinc-lead and El Triunfo gold-silver-zinc properties in Bolivia. The Company also has a 100% interest in the Ulaan Ovoo coal property located in Selenge province, Mongolia and a 100% interest in the Chandgana Tal coal property and Khavtgai Uul coal property located in Khentii province, Mongolia. The Company maintains its registered and records office at Suite 1610 – 409 Granville Street, Vancouver, British Columbia, Canada, V6C 1T2. These consolidated audited annual financial statements have been prepared under the assumption that the Company is a going concern, which contemplates the realization of assets and the payment of liabilities in the ordinary course of business. TheAs at December 31, 2020, Company has a deficit of $180$185.1 million. The business of mineral exploration involves a high degree of risk and there can be no assurance that the Company’s current operations, including exploration programs, will result in profitable mining operations. The recoverability of the carrying value of mineral properties, and property and equipment interests and the Company’s continued on going existence is dependent upon the preservation of its interest in the underlying properties, the discovery of economically recoverable reserves, the achievement of profitable operations, the ability of the Company to raise additional sources of funding, and/or, alternatively, upon the Company’s ability to dispose of some or all of its interests on an advantageous basis. Additionally, the current capital markets and general economic conditions are significant obstacles to raising the required funds. These conditions may cast significant doubt upon the Company’s ability to continue as a going concern. In assessing whether the going concern assumption is appropriate, management takes into account all available information about the future, which is at least, but not limited to, twelve months from the end of the reporting period. Management is aware, in making its assessment, of uncertainties related to events or conditions that may cast significant doubt upon the entity’s ability to continue as a going concern that these uncertainties are material and, therefore, that it may be unable to realize its assets and discharge its liabilities in the normal course of business. Accordingly, they do not give effect to adjustments that would be necessary should the Company be unable to continue as a going concern and therefore to realize its assets and discharge its liabilities and commitments in other than the normal course of business and at amounts different from those in the accompanying financial statements. These adjustments could be material. These Annual Financial Statements have been prepared in accordance with International Financial Reporting Standards, (“IFRS”) as issued by the International Accounting Standards Board (“IASB”). The preparation of financial statements in compliance with IFRS requires the use of certain critical accounting estimates. It also requires the Company’s management to exercise judgment in applying the Company’s accounting policies. The areas where significant judgments and estimates have been made in preparing these Annual Financial Statements and their effect are disclosed in Note 5. These Annual Financial Statements have been prepared on a historical cost basis, except for financial instruments classified as marketable securities and fair value through profit or loss (“FVTPL”), which are stated at their fair values. These Annual Financial Statements have been prepared using the accrual basis of accounting except for SILVER ELEPHANT MINING CORP. Notes to Annual Consolidated Financial Statements For the years ended December 31, 2020, 2019 and 2018 (Expressed in Canadian Dollars) 2. BASIS OF PRESENTATION (cont’d…) cash flow information. These Annual Financial Statements are presented in Canadian Dollars, except where otherwise noted.
SILVER ELEPHANT MINING CORP.
(formerly Prophecy Development Corp.)
Notes to Annual Consolidated Financial Statements
For the years ended December 31, 2019, 2018 and 2017
(Expressed in Canadian Dollars)
2.
BASIS OF PRESENTATION (cont’d…)
The accounting policies set out in Note 6 have been applied consistently by the Company and its subsidiaries to all periods presented. Certain prior year amounts have been reclassified to conform to the current year presentation. The Annual Consolidated Financial Statements were reviewed by the Audit Committee and approved and authorized for issue by the Board of Directors on March 24, 20198, 2021. The Annual Financial Statements comprise the financial statements of the Company and its wholly owned and partially owned subsidiaries as at December 31, 2019.2020. Subsidiaries are consolidated from the date of acquisition, being the date on which the Company obtains control, and continue to be consolidated until the date when such control ceases. Effects of transactions between related companiessubsidiaries are eliminated on consolidation. The financial statements of the subsidiaries are prepared for the same reporting period as the parent company. Accounting policies of the subsidiaries have been changed where necessary to ensure consistency with the policies adopted by the Company. The Company’s significant subsidiaries at December 31, 20192020 are presented in the following table:
4. CHANGES IN ACCOUNTING POLICIES Amendment to IFRS 16, COVID‐19‐Related Rent Concessions In May 2020, the International Accounting Standards Board (“IASB”) issued an amendment to permit lessees, as a practical expedient, not to assess whether particular rent concessions that reduce lease payments occurring as a direct consequence of the COVIDEffective January‐19 pandemic are lease modifications and instead to account for those rent concessions as if they are not lease modifications. The amendment is effective for annual reporting periods beginning on or after June 1, 2019,2020, with earlier application permitted. The adoption of this amendment is not expected to have an impact on the Company, for the first time, has applied IFRS 16 Leases (as issued by the IASB in January 2016) effective January 1, 2019, using the modified retrospective approach. The modified retrospective approach does not require restatement of prior period financial information and continues to be reported under IAS 17, Leases and IFRIC 4, Determining Whether an Arrangement Contains a Lease. IFRS 16 introduces new or amended requirements with respect to lease accounting. It introduces changes to the lessee accounting by removing the distinction between operating and finance leases and requiring the recognition of a right-of-use asset and a lease liability at the lease commencement for all leases, except for short-term leases and leases of low value assets. In contrast to lessee accounting, the requirements for lessor accounting have remained largely unchanged.statements. The Company’s leases consistAmendments to IAS 1 and IAS 8: Definition of corporate office lease arrangements. The Company, on adoptionMaterial
In October 2018, the IASB issued amendments to IAS 1, Presentation of IFRS 16, recognized lease liabilitiesFinancial Statements, and IAS 8, Accounting Policies, Changes in relationAccounting Estimates and Errors, to office leases which had previously been classified as operating leases underalign the principlesdefinition of IAS 17. In relation, under“material” across the principlesstandards and to clarify certain aspects of the definition. The new standard these leasesdefinition states that, “Information is material if omitting, misstating or obscuring it could reasonably be expected to influence decisions that the primary users of general purpose financial statements make on the basis of those financial statements, which provide financial information about a specific reporting entity.” These amendments are measured as lease liabilities at the present value of the remaining lease payments, discounted using the Company’s incremental borrowing rate as ateffective for annual periods beginning on or after January 1, 2019.2020. The associated right-of-use asset has been measured at the amount equalamendments to the lease liabilitydefinition of material did not have a significant impact on January 1, 2019. The right-of-use asset is subsequently depreciated from the commencement date to the earlier of the end of the lease term, or the end of the useful life of the asset (refer to Note 12 and Note 16). Furthermore, the right-of-use asset may be reduced due to impairment losses.Annual Financial Statements.
SILVER ELEPHANT MINING CORP. (formerly Prophecy Development Corp.)
Notes to Annual Consolidated Financial Statements For the years ended December 31, 2020, 2019 2018 and 20172018 (Expressed in Canadian Dollars)
4. CHANGES IN ACCOUNTING POLICIES (cont’d…) Future Accounting Pronouncements The following table reconcilesCompany has not early adopted any standard, interpretation or amendment that has been issued but is not yet effective. Amendments to IAS 16: Property, Plant and Equipment: Proceeds before Intended Use. In May 2020, the Company’s operating lease commitments at December 31, 2018, as previously disclosedIASB issued amendments to IAS 16, Property, Plant and Equipment (IAS 16). The amendments prohibit a company from deducting from the cost of property, plant and equipment amounts received from selling items produced while the company is preparing the asset for its intended use. Instead, a company will recognize such sales proceeds and related costs in profit (loss). An entity is required to apply these amendments for annual reporting periods beginning on or after January 1, 2022. The amendments are applied retrospectively only to items of property, plant and equipment that are available for use after the beginning of the earliest period presented in the Company’s Annualfinancial statements in which the entity first applies the amendments. We are currently assessing the effect of this amendment on our financial statements. Amendments to IAS 1: Classification of Liabilities as Current or Non‐Current and Deferral of Effective Date. In January 2020, the IASB issued amendments to IAS 1, Presentation of Financial Statements, to provide a more general approach to the leasepresentation of liabilities as current or non‐current based on contractual arrangements in place at the reporting date. These amendments: − specify that the rights and conditions existing at the end of the reporting period are relevant in determining whether the Company has a right to defer settlement of a liability recognizedby at least twelve months; − provide that management’s expectations are not a relevant consideration as to whether the Company will exercise its rights to defer settlement of a liability; and − clarify when a liability is considered settled. On July 15, 2020, the IASB issued a deferral of the effective date for the new guidance by one year to annual reporting periods beginning on adoption of IFRS 16 ator after January 1, 2019:2023 and is to be applied retrospectively. The Company has not yet determined the impact of these amendments on its financial statements.
5. SIGNIFICANT JUDGMENTS, ESTIMATES AND ASSUMPTIONS The preparation of a company’s financial statements in conformity with IFRS requires management to make judgments, estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Estimates and assumptions are continually evaluated and are based on management’s experience and other factors, including expectations of future events that are believed to be reasonable under the circumstances. Actual results could differ from these estimates. 5.1 5.1.
Significant Judgments The significant judgments that the Company’s management has made in the process of applying the Company’s accounting policies, apart from those involving estimation uncertainties (Annual financial statements 5.2), that have the most significant effect on the amounts recognized in the Annual Financial Statements include, but are not limited to: (a) Functional currency determination The functional currency for each of the Company’s subsidiaries is the currency of the primary economic environment and the Company reconsiders the functional currency of its entities if there is a change in events and conditions which determined the primary economic environment. Management has determined the functional currency of all entities to be the Canadian dollar. SILVER ELEPHANT MINING CORP. Notes to Annual Consolidated Financial Statements For the years ended December 31, 2020, 2019 and 2018 (Expressed in Canadian Dollars) 5. SIGNIFICANT JUDGMENTS, ESTIMATES AND ASSUMPTIONS (cont’d…) 5.1 Significant Judgments (cont’d…) (b) Economic recoverability and probability of future economic benefits of exploration, evaluation and development costs Management has determined that exploratory drilling, evaluation, development and related costs incurred which have been capitalized are economically recoverable. Management uses several criteria in its assessments of economic recoverability and probability of future economic benefit including geologic and metallurgic information, history of conversion of mineral deposits to proven and probable reserves, scoping, prefeasibility and feasibility studies, assessable facilities, existing permits and life of mine plans. Management has determined that during the year ended December 31, 2019,2020, none of the Company’s silver and vanadium projects have reached technical feasibility and commercial viability and therefore remain within Mineral Properties on the Statement of Financial Position. (c) Impairment (recovery) assessment of deferred exploration interests The Company considers both external and internal sources of information in assessing whether there are any indications that mineral property interests are impaired. External sources of information the Company considers include changes in the market, economic and legal environment in which the Company operates that are not within its control and affect the recoverable amount of mineral property interest. Internal sources of information the Company considers include the manner in which mineral properties and plant and equipment are being used or are expected to be used and indications of economic performance of the assets. SILVER ELEPHANT MINING CORP.
(formerly Prophecy Development Corp.)
Notes to Annual Consolidated Financial Statements
For the years ended December 31, 2019, 2018 and 2017
(Expressed in Canadian Dollars)
5.
SIGNIFICANT JUDGMENTS, ESTIMATES AND ASSUMPTIONS (cont’d…)
5.1
Significant Judgments (cont’d…)
During the year ended December 31, 2018, the Company wrote-off $13,994,970 of capitalized mineral property costs. During the year ended December 31, 2019, the Company reversed $13,708,200 of impairment.impairment (Note 14). (d) Deferred Tax LiabilityAssets and Liabilities Judgement is required to determine which typesThe measurement of arrangements are considered to be a tax on income in contrast to an operating cost. Judgement is also required in determining whetherthe deferred tax liabilities are recognisedprovision is subject to uncertainty associated with the timing of future events and changes in legislation, tax rates and interpretations by tax authorities. The estimation of deferred taxes includes evaluating the statementrecoverability of financial position. Deferred tax liabilities, including those arising from un-utilised tax gains, require management to assess the likelihood that the Company will generate sufficient taxable losses in future periods, in order to offset recognised deferred tax liabilities. Assumptions aboutassets based on an assessment of the Company’s ability to utilize the underlying future tax deductions against future taxable income prior to expiry of those deductions. For deferred tax calculation purposes, Management assesses whether it is probable that some or all of the deferred income tax assets will not be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable losses depend on management’s estimatesincome, which in turn is dependent upon the successful discovery, extraction, development and commercialization of future cash flows. These estimates of future taxable losses are based on forecast cash flows from operations (which are impacted by production and sales volumes, commodity prices, reserves, operating costs, closure and rehabilitation costs, capital expenditure, and other capital management transactions) and judgement about the application of existing tax laws in each jurisdiction.mineral reserves. To the extent that future cash flows and taxable losses differ significantly from estimates, the abilitymanagement’s assessment of the Company’s ability to utilize future tax deductions changes, the Company would be required to offset the netrecognize more or fewer deferred tax liabilities recorded at the reporting dateassets, and future tax provisions or recoveries could be impactedaffected.
5.2 Estimates and Assumptions The Company bases its estimates and assumptions on current and various other factors that it believes to be reasonable under the circumstances. Management believes the estimates are reasonable; however, actual results could differ from those estimates and could impact future results of operations and cash flows. The areas which require management to make significant estimates and assumptions in determining carrying values include, but are not limited to: The recoverability of the carrying value of the mineral properties is dependent on successful development and commercial exploitation, or alternatively, sale of the respective areas of interest. SILVER ELEPHANT MINING CORP. Notes to Annual Consolidated Financial Statements For the years ended December 31, 2020, 2019 and 2018 (Expressed in Canadian Dollars) 5. SIGNIFICANT JUDGMENTS, ESTIMATES AND ASSUMPTIONS (cont’d…) 5.2 Estimates and Assumptions (cont’d…) Significant judgment is involved in the determination of useful life and residual values for the computation of depreciation, depletion and amortization and no assurance can be given that actual useful lives and residual values will not differ significantly from current assumptions. The carrying value of long-lived assets are reviewed each reporting period to determine whether there is any indication of impairment. If the carrying amount of an asset exceeds its recoverable amount, the asset is impaired, and an impairment loss is recognized in the consolidated statement of operations. The assessment of fair values, including those of the cash generating units (the smallest identifiable group of assets that generates cash inflows that are largely independent of the cash inflow from other assets or groups of assets) (“CGUs”) for purposes of testing goodwill,impairment, require the use of estimates and assumptions for recoverable production, long-term commodity prices, discount rates, foreign exchange rates, future capital requirements and operating performance. Changes in any of the assumptions or estimates used in determining the fair value of goodwill or otherlong-lived assets could impact the impairment analysis. SILVER ELEPHANT MINING CORP.
(formerly Prophecy Development Corp.)
Notes to Annual Consolidated Financial Statements
For the years ended December 31, 2019, 2018 and 2017
(Expressed in Canadian Dollars)
5.
SIGNIFICANT JUDGMENTS, ESTIMATES AND ASSUMPTIONS (cont’d...)
5.2
Estimates and Assumptions (cont’d...)
(d) Allowance for doubtful accounts, and the recoverability of receivables and prepaid expense amounts. Significant estimates are involved in the determination of recoverability of receivables and no assurance can be given that actual proceeds will not differ significantly from current estimations. Similarly, significant estimates are involved in the determination of the recoverability of services and/or goods related to the prepaid expense amounts, and actual results could differ significantly from current estimations. Management has made significant assumptions about the recoverability of receivables and prepaid expense amounts. During the year ended December 31,201931, 2020 the Company wrote-off $16,304 (2018$470,278 (2019 - $21,004;2017-$61,202)$16,304;2018 - $21,004) of trade receivables which are no longer expected to be recovered and $51,828 (2018$121,125 (2019 - $26,234;2017$51,828;2018 - $57,420)$26,234) of prepaid expenses for which not future benefit is expected to be received. (e) Provision for closure and reclamation The Company assesses its mineral properties’ rehabilitation provision at each reporting date or when new material information becomes available. Exploration, development and mining activities are subject to various laws and regulations governing the protection of the environment. In general, these laws and regulations are continually changing, and the Company has made, and intends to make in the future, expenditures to comply with such laws and regulations. Accounting for reclamation obligations requires management to make estimates of the future costs that the Company will incur to complete the reclamation work required to comply with existing laws and regulations at each location. Actual costs incurred may differ from those amounts estimated. Also, future changes to environmental laws and regulations could increase the extent of reclamation and remediation work required to be performed by the Company. Increases in future costs could materially impact the amounts charged to operations for reclamation and remediation. The provision represents management’s best estimate of the present value of the future reclamation and remediation obligation. The actual future expenditures may differ from the amounts currently provided. Management uses valuation techniques in measuring the fair value of share purchase options granted. The fair value is determined using the Black Scholes option pricing model which requires management to make certain estimates, judgement, and assumptions in relation to the expected life of the share purchase options and share purchase warrants, expected volatility, expected risk-free rate, and expected forfeiture rate. Changes to these assumptions could have a material impact on the Annual Financial Statements. SILVER ELEPHANT MINING CORP. Notes to Annual Consolidated Financial Statements For the years ended December 31, 2020, 2019 and 2018 (Expressed in Canadian Dollars)
5. SIGNIFICANT JUDGMENTS, ESTIMATES AND ASSUMPTIONS (cont’d…) 5.2 Estimates and Assumptions (cont’d…) The assessment of contingencies involves the exercise of significant judgment and estimates of the outcome of future events. In assessing loss contingencies related to legal proceedings that are pending against the Company and that may result in regulatory or government actions that may negatively impact the Company’s business or operations, the Company and its legal counsel evaluate the perceived merits of the legal proceeding or unasserted claim or action as well as the perceived merits of the nature and amount of relief sought or expected to be sought, when determining the amount, if any, to recognize as a contingent liability or when assessing the impact on the carrying value of the Company’s assets. Contingent assets are not recognized in the Annual Financial Statements. (g)
(h) Fair value measurement The Company measures financial instruments at fair value at each reporting date. The fair values of financial instruments measured at amortized cost are disclosed in Note 21. Also, from time to time, the fair values of non-financial assets and liabilities are required to be determined, e.g., when the entity acquires a business, completes SILVER ELEPHANT MINING CORP.
(formerly Prophecy Development Corp.)
Notes to Annual Consolidated Financial Statements
For the years ended December 31, 2019, 2018 and 2017
(Expressed in Canadian Dollars)
5.
SIGNIFICANT JUDGMENTS, ESTIMATES AND ASSUMPTIONS (cont’d...)
5.2
Estimates and Assumptions (cont’d...)
(g)
Fair value measurement (cont’d…)
an asset acquisition or where an entity measures the recoverable amount of an asset or cash-generating unit at fair value less costs of disposal. Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The fair value of an asset or a liability is measured using the assumptions that market participants would use when pricing the asset or liability, assuming that market participants act in their economic best interest. A fair value measurement of a non-financial asset takes into account a market participant’s ability to generate economic benefits by using the asset in its highest and best use or by selling it to another market participant that would use the asset in its highest and best use. The Company uses valuation techniques that are appropriate in the circumstances and for which sufficient data are available to measure fair value, maximising the use of relevant observable inputs and minimising the use of unobservable inputs. Changes in estimates and assumptions about these inputs could affect the reported fair value. COVID-19 An emerging risk is a risk not well understood at the current time and for which the impacts on strategy and financial results are difficult to assess or are in the process of being assessed. Since December 31, 2019, the outbreak of COVID-19 has resulted in governments worldwide enacting emergency measures to combat the spread of the virus. These measures, which include the implementation of travel bans, self-imposed quarantine periods and social distancing, have caused material disruption to businesses globally, resulting in an economic slowdown. Global equity markets have experienced significant volatility and weakness. Governments and central banks have reacted with significant monetary and fiscal interventions designed to stabilize economic conditions. The duration and impact of the COVID-19 outbreak is unknown at this time, as is the efficacy of the government and central bank interventions. It is not possible to reliably estimate the length and severity of these developments and the impact on the financial results and condition of the Company and its operating subsidiaries in future periods. COVID-19 may impact Company operations, and consequently, the nature and amounts and disclosures in the financial statements. Some of the specific areas impacted by COVID-19 include, but are not limited to: ● Going concern assessments; ● Evaluation of subsequent events; ● Impairment and recovery of mineral properties; ● Fair value measurements; ● Employee termination benefits; and ● Financial statement and Management Discussion & Analysis disclosures. As at December 31, 2020, the COVID-19 pandemic has not affected the Company’s critical accounting policies. SILVER ELEPHANT MINING CORP. Notes to Annual Consolidated Financial Statements For the years ended December 31, 2020, 2019 and 2018 (Expressed in Canadian Dollars) 6. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (a) Restricted cash equivalents Restricted cash equivalents consist of highly liquid investments pledged as collateral for the Company’s credit card and are readily convertible to known amounts of cash. Mineral property assets consist of exploration and evaluation costs. Costs directly related to the exploration and evaluation of resource properties are capitalized to mineral properties once the legal rights to explore the resource properties are acquired or obtained. These costs include acquisition of rights to explore, license and application fees, topographical, geological, geochemical and geophysical studies, exploratory drilling, trenching, sampling, and activities in relation to evaluating the technical feasibility and commercial viability of extracting a mineral resource. If it is determined that capitalized acquisition, exploration and evaluation costs are not recoverable, or the property is abandoned or management has determined an impairment in value, the property is written down to its recoverable amount. Mineral properties are reviewed at least annually for indicators of impairment and are tested for impairment when facts and circumstances suggest that the carrying amount may exceed its recoverable amount. From time to time, the Company acquires or disposes of properties pursuant to the terms of option agreements. Options are exercisable entirely at the discretion of the optionee and, accordingly, are recorded as mineral property costs or recoveries when the payments are made or received. After costs are recovered, the balances of the payments received are recorded as a gain on option or disposition of mineral property. (i) Title to mineral properties Although the Company has taken steps to verify title to the properties on which it is conducting exploration and in which it has an interest, in accordance with industry standards for the current stage of exploration of such properties, these procedures do not guarantee the Company’s title, nor has the Company insured title. Property title may be subject to unregistered prior agreements and non-compliance with regulatory requirements.
SILVER ELEPHANT MINING CORP.
(formerly Prophecy Development Corp.)
Notes to Annual Consolidated Financial Statements
For the years ended December 31, 2019, 2018 and 2017
(Expressed in Canadian Dollars)
6.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (cont’d…)
(b)
Mineral properties (cont’d…)
(ii) Realization of mineral property assets
The investment in and expenditures on mineral property interests comprise a significant portion of the Company’s assets. Realization of the Company’s investment in these assets is dependent upon the establishment of legal ownership, and the attainment of successful production from properties or from the proceeds of their disposal. Resource exploration and development is highly speculative and involves inherent risks. While the rewards if an ore body is discovered can be substantial, few properties that are explored are ultimately developed into profitable producing mines. There can be no assurance that current exploration programs will result in the discovery of economically viable quantities of ore. The amounts shown for acquisition costs and deferred exploration expenditures represent costs incurred to date and do not necessarily reflect present or future values. The Company is subject to the laws and regulations relating to environmental matters in all jurisdictions in which it operates, including provisions relating to property reclamation, discharge of hazardous material and other matters. The Company may also be held liable should environmental problems be discovered that were caused by former owners and operators of its properties and properties in which it has previously had an interest. The Company conducts its mineral exploration activities in compliance with applicable environmental protection legislation. Other than as disclosed in Note 17, the Company is not aware of any existing environmental issues related to any of its current or former properties that may result in material liability to the Company. Environmental legislation is becoming increasingly stringent and costs and expenses of regulatory compliance are increasing. The impact of new and future environmental legislation on the Company’s operations may cause additional expenses SILVER ELEPHANT MINING CORP. Notes to Annual Consolidated Financial Statements For the years ended December 31, 2020, 2019 and 2018 (Expressed in Canadian Dollars) 6. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (cont’d…) (b) Mineral properties (cont’d…) (iii) Environmental (cont’d…) and restrictions. If the restrictions adversely affect the scope of exploration and development on the mineral properties, the potential for production on the property may be diminished or negated. Equipment is stated at cost less accumulated depreciation and accumulated impairment losses, if any. The cost of an item of property and equipment consists of the purchase price, any costs directly attributable to bringing the asset to the location and condition necessary for its intended use, and an initial estimate of the costs of dismantling and removing the item and restoring the site on which it is located. Depreciation of equipment is recorded on a declining-balance basis at the following annual rates: Computer equipment | 45% | Furniture and equipment | 20% | Leasehold improvement | Straight line / 5 years | Mining equipment | 20% | Vehicles | 30% | Right-of-use asset | Straight line / term of lease |
When parts of major components of equipment have different useful lives, they are accounted for as a separate item of equipment.
SILVER ELEPHANT MINING CORP.
(formerly Prophecy Development Corp.)
Notes to Annual Consolidated Financial Statements
For the years ended December 31, 2019, 2018 and 2017
(Expressed in Canadian Dollars)
6.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (cont’d…)
The cost of major overhauls of partparts of equipment is recognized in the carrying amount of the item if is probable that the future economic benefits embodied within the part will flow to the Company, and its cost can be measured reliably. The carrying amount of the replaced part is derecognized. The costs of the day-to-day servicing of equipment are recognized in profit or loss as incurred. (d) Impairment of non-current assets and Cash Generating Units (“CGU”) At the end of each reporting period, the Company reviews the carrying amounts of its tangible and intangible assets to determine whether there is an indication that those assets have suffered an impairment loss. If any such indication exists, the recoverable amount of the asset is estimated in order to determine the extent of the impairment loss (if any). Where it is not possible to estimate the recoverable amount of an individual asset, the Company estimates the recoverable amount of the CGU, where the recoverable amount of the CGU is the greater of the CGU’s fair value less costs to sell and its value in use to which the assets belong. In assessing value in use, estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset. If the recoverable amount of an asset (or CGU) is estimated to be less than its carrying amount, the carrying amount of the asset (or CGU) is reduced to its recoverable amount. An impairment loss is recognized immediately in the statement of comprehensive loss, unless the relevant asset is carried at a revalued amount, in which case the impairment loss is treated as a revaluation decrease. Each project or group of claims or licenses is treated as a CGU. The Company uses its best efforts to fully understand all of the aforementioned to make an informed decision based upon historical and current facts surrounding the projects. Discounted cash flow techniques often require management to make estimates and assumptions concerning reserves and expected future production revenues and expenses, which can vary from actual. Where an impairment loss subsequently reverses, the carrying amount of the asset (or CGU) is increased to the revised estimate of its recoverable amount, such that the increased carrying amount does not exceed the carrying amount that would have been determined had no impairment loss been recognized for the asset (or CGU) in prior years. Borrowing costs directly attributable to the acquisition, construction or production of a qualifying asset are capitalized as part of the cost of that asset. Borrowing costs consist of interest and other costs that an entity incurs in connection with the borrowing of funds.
Where funds are borrowed specifically to finance a project, the amount capitalized represents the actual borrowing costs incurred. Where surplus funds are available for a short-term from funds borrowed specifically to finance a project, the income generated from the temporary investment of such amounts is also capitalized and deducted from the total capitalized borrowing cost. Where the funds used to finance a project are from part of general borrowings, the amount capitalized is calculated using a weighted average of rates applicable to relevant general borrowings of the Company during the period. All other borrowing costs are recognized in profit or loss in the period in which they are incurred.
SILVER ELEPHANT MINING CORP. (formerly Prophecy Development Corp.)
Notes to Annual Consolidated Financial Statements For the years ended December 31, 2020, 2019 2018 and 20172018 (Expressed in Canadian Dollars)
6. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (cont’d…) (f) (e)
Foreign currency translation Transactions in currencies other than the functional currency are recorded at the prevailing exchange rates on the dates of the transactions. At each financial position reporting date, monetary assets and liabilities denominated in foreign currencies are translated at the prevailing exchange rates at the date of the consolidated statement of financial position. Non-monetary items measured in terms of historical cost in a foreign currency are not retranslated. Gains and losses arising from this translation are included in the determination of net gain or loss for the year. (g) (f)
Revenue recognition Costs in excess of recovered coal
The Company recognizes interest income on its cash on an accrual basis atExploration expenditures are re-classified from Exploration and evaluation assets to deferred development costs within the stated rates overproperty and equipment category once the termwork completed to maturity.date supports the future development of the property and such development receives appropriate approvals.
SalesAfter reclassification, all subsequent expenditure on the construction, installation or completion of infrastructure facilities is capitalized within deferred development cost. Development expenditure is net of proceeds from the sale of coal are recognized whenextracted during the risks and rewards of ownership passdevelopment phase to the customer andextent that it is considered integral to the price can be measured reliably. Sales contracts and revenuedevelopment of the mine. Any costs incurred in testing the assets to determine if they are functioning as intended, are capitalized, net of any proceeds received from selling any product produced while testing. Where these proceeds exceed the cost of testing, any excess is recognized based onin the termsstatement of profit or loss and other comprehensive income.
As the contract. Revenue is measured at the fairCompany’s Ulaan Ovoo mine has been impaired to a value of the consideration received, excluding discounts and rebates. Royalties related to production$nil (2019 - $nil, 2018 - $nil), all property costs incurred are recorded in cost of sales. Sales of coal are generated from incidental coal sales and are recordedpresented net of associated costs.incidental income earned from the property in all years presented. Proceeds received on the issuance of units, consisting of common shares and warrants, are allocated first to common shares based on the market trading price of the common shares at the time the units are priced, and any excess is allocated to warrants. (i) (h)
Share-based payments The Company has a share purchase option plan that is described in Note 19. The Company accounts for share-based payments using a fair value-based method with respect to all share-based payments to directors, officers, employees, and service providers. Share-based payments to employees are measured at the fair value of the instruments issued and amortized over the vesting periods. Share-based payments to non-employees are measured at the fair value of the goods or services received or if such fair value is not reliably measurable, at the fair value of the equity instruments issued. The fair value is recognized as an expense or capitalized to mineral properties or property and equipment with a corresponding increase in option reserve. This includes a forfeiture estimate, which is revised for actual forfeitures in subsequent periods. Where the terms and conditions of options are modified before they vest, the increase in the fair value of the options, measured immediately before and after the modification, is also charged to the consolidated statement of operations over the remaining vesting period. Upon the exercise of the share purchase option, the consideration received, and the related amount transferred from option reserve are recorded as share capital. Basic loss per share is calculated using the weighted average number of common shares outstanding during the period. The Company uses the treasury stock method to compute the dilutive effect of options and warrants. Under this method the dilutive effect on earnings per share is calculated presuming the exercise of outstanding options SILVER ELEPHANT MINING CORP. Notes to Annual Consolidated Financial Statements For the years ended December 31, 2020, 2019 and 2018 (Expressed in Canadian Dollars) 6. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (cont’d…) and warrants. It assumes that the proceeds of such exercise would be used to repurchase common shares at the average market price during the period. However, the calculation of diluted loss per share excludes the effects of various conversions and exercise of options and warrants that would be anti-dilutive. During the year ended December 31, 2019, the weighted average number of diluted common shares outstanding includes 190,034 dilutive stock options. SILVER ELEPHANT MINING CORP.(j)
(formerly Prophecy Development Corp.) Notes to Annual Consolidated Financial Statements
For the years ended December 31, 2019, 2018 and 2017
(Expressed in Canadian Dollars)
6.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (cont’d…)
The Company usesIncome tax expense comprises current and deferred tax. Current tax is the asset and liability method to account forexpected tax payable or receivable on the taxable income taxes. Deferred income taxes are recognizedor loss for the future incomeyear using tax consequences attributable torates enacted or substantively enacted at the reporting date.
Deferred tax is recognized in respect of temporary differences between the carrying valuesamounts of assets and liabilities for financial reporting purposes and their respective incomethe amounts used for taxation purposes. Deferred tax basisis measured at the tax rates that are expected to be applied to temporary differences when they reverse, based on the statement of financial positiontax laws that have been enacted or substantively enacted by the reporting date. Deferred income tax assets and liabilities are measured usingoffset if there is a legally enforceable right to offset current tax liabilities and assets, and they relate to income taxes levied by the same tax rates expected to be in effect whenauthority on the same taxable entity. A deferred tax asset is recognized for unused tax losses, tax credits and deductible temporary differences, are likely to reverse. The effect on deferred incomethe extent that it is probable that future taxable profits will be available against which they can be utilized. Deferred tax assets are reviewed at each reporting date and liabilities of a change in tax rates is included in operations in the period in which the change is enacted or substantively enacted. The amount of deferred income tax assets recognized is limitedare reduced to the amount ofextent that it is no longer probable that the related tax benefit that is probable upon recovery.will be realized. (l) (k)
Provision for closure and reclamation The Company assesses its equipment and mineral property rehabilitation provision at each reporting date. Changes to estimated future costs are recognized in the statement of financial position by either increasing or decreasing the rehabilitation liability and asset to which it relates if the initial estimate was originally recognized as part of an asset measured in accordance with IAS 16 Property, Plant and Equipment. The Company records the present value of estimated costs of legal and constructive obligations required to restore operations in the period in which the obligation is incurred. The nature of these restoration activities includes dismantling and removing structures; rehabilitating mineral properties; dismantling operating facilities; closure of plant and waste sites; and restoration, reclamation and vegetation of affected areas. Present value is used where the effect of the time value of money is material. The related liability is adjusted each period for the unwinding of the discount rate and for changes in estimates, changes to the current market-based discount rate, and the amount or timing of the underlying cash flows needed to settle the obligation. (m) (l)
Financial instruments Classification Financial assets are classified at initial recognition as either: measured at amortized cost, FVTPL or fair value through other comprehensive income ("FVOCI"). The classification depends on the Company’s business model for managing the financial assets and the contractual cash flow characteristics. For assets measured at fair value, gains and losses will either be recorded in profit or loss or OCI. Derivatives embedded in contracts where the host is a financial asset in the scope of the standard are never separated. Instead, the hybrid financial instrument as a whole is assessed for classification. Financial liabilities are measured at amortized cost, unless they are required to be measured at FVTPL or the Company has opted to measure at FVTPL. Measurement Financial assets and liabilities at FVTPL are initially recognized at fair value and transaction costs are expensed in the consolidated statement of loss and comprehensive loss. Realized and unrealized gains and losses arising from changes in the fair value of the financial assets or liabilities held at FVTPL are included in the consolidated SILVER ELEPHANT MINING CORP. Notes to Annual Consolidated Financial Statements For the years ended December 31, 2020, 2019 and 2018 (Expressed in Canadian Dollars)
6. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (cont’d…) (l) Financial instruments (cont’d…) Measurement (cont’d…) statement of operations and comprehensive loss in the period in which they arise. Where the Company has opted to designate a financial liability at FVTPL, any changes associated with the Company's credit risk will be recognized in OCI. Financial assets and liabilities at amortized cost are initially recognized at fair value, and subsequently carried at amortized cost less any impairment. Impairment The Company assesses on a forward-looking basis the expected credit losses ("ECL"loss (“ECL”) associated with financial assets measured at amortized cost, contract assets and debt instruments carried at FVOCI. The impairment methodology applied depends on whether there has been a significant increase in credit risk. Please refer to Note 21 for relevant fair value measurement disclosures. At inception of a contract, we assess whether a contract is, or contains, a lease. A contract is, or contains, a lease if the contract conveys the right to control the use of an identified asset for a period of time in exchange for consideration. We assess whether the contract involves the use of an identified asset, whether we have the right to obtain substantially all of the economic benefits from use of the asset during the term of the arrangement and if we have the right to direct the use of the asset. At inception or on assessment of a contract that contains a lease component, we allocate the consideration in the contract to each lease component on the basis of their relative stand-alone prices. As a lessee, we recognize a right-of-use asset, which is included in property, plant and equipment, and a lease liability at the commencement date of a lease. The right-of-use asset is initially measured at cost, which is comprised of the initial amount of the lease liability adjusted for any lease payments made at or before the commencement date, plus any decommissioning and restoration costs, less any lease incentives received. The right-of-use asset is subsequently depreciated from the commencement date to the earlier of the end of the lease term, or the end of the useful life of the asset. In addition, the right-of-use asset may be reduced due to impairment losses, if any, and adjusted for certain remeasurements of the lease liability. A lease liability is initially measured at the present value of the lease payments that are not paid at the commencement date, discounted by the interest rate implicit in the lease, or if that rate cannot be readily determined, our incremental borrowing rate. Lease payments included in the measurement of the lease liability are comprised of: ● fixed payments, including in-substance fixed payments, less any lease incentives receivable; ● variable lease payments that depend on an index or a rate, initially measured using the index or rate as at the commencement date; ● amounts expected to be payable under a residual value guarantee; ● exercise prices of purchase options if we are reasonably certain to exercise that option; and ● payments of penalties for terminating the lease, if the lease term reflects the lessee exercising an option to terminate the lease. The lease liability is measured at amortized cost using the effective interest method. It is remeasured when there is a change in future lease payments arising from a change in an index or rate, or if there is a change in our estimate or assessment of the expected amount payable under a residual value guarantee, purchase, and extension or termination option. Variable lease payments not included in the initial measurement of the lease liability are charged directly to profit (loss). SILVER ELEPHANT MINING CORP. (formerly Prophecy Development Corp.)
Notes to Annual Consolidated Financial Statements For the years ended December 31, 2020, 2019 2018 and 20172018 (Expressed in Canadian Dollars) 6. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (cont’d…)
We have elected not to recognize right-of-use assets and lease liabilities for short-term leases that have a lease term of 12 months or less and leases of low-value assets. The lease payments associated with these leases are charged directly to profit (loss) on a straight-line basis over the lease term. The Company operates in one operating segment, being the acquisition, exploration and development of mineral properties. Geographic segmentation of the Company’s non-current assets is as follows: | | | | | | | | Reclamation deposits | $- | $- | $21,055 | $- | $21,055 | Equipment | 9,729 | 80,401 | 2,790 | 60,880 | 153,800 | Mineral properties | - | 13,290,081 | - | 18,516,513 | 31,806,594 | | $9,729 | $13,370,482 | $23,845 | $18,577,393 | $31,981,449 |
| | | | | | | | Reclamation deposits | $- | $- | $21,055 | $- | $21,055 | Equipment | 12,005 | 89,826 | 35,721 | 21,932 | 159,484 | Mineral properties | - | 8,600,658 | - | 15,182,226 | 23,782,884 | | $12,005 | $8,690,484 | $56,776 | $15,204,158 | $23,963,423 |
| | | | | | | | Reclamation deposits | $- | $- | $21,055 | $- | $21,055 | Equipment | 14,839 | 22,713 | 33,440 | 30,170 | 101,162 | Mineral properties | - | 3,643,720 | - | - | 3,643,720 | | $14,839 | $3,666,433 | $54,495 | $30,170 | $3,765,937 |
| | | | | | | | Reclamation deposits | $- | $- | $21,055 | $- | $21,055 | Equipment | 18,376 | - | 48,364 | 465,171 | 531,911 | Mineral properties | - | 490,356 | - | 12,809,550 | 13,299,906 | | $18,376 | $490,356 | $69,419 | $13,274,721 | $13,852,872 |
8. CASH AND RESTRICTED CASH EQUIVALENTS Cash and cash equivalents and restricted cash equivalents of the Company are comprised of bank balances and a guaranteed investment certificate which can be readily converted into cash without significant restrictions, changes in value or penalties. | | | | | | | Cash | $3,017,704 | $804,097 | $4,100,608 | $7,608,149 | $3,017,704 | $5,304,097 | Cash equivalents | - | 4,500,000 | - | | Restricted cash equivalents | 34,500 | 34,500 | | $3,052,204 | $5,338,597 | $4,135,108 | $7,642,649 | $3,052,204 | $5,338,597 |
Cash Equivalents
Restricted Cash Equivalents As at December 31, 2019,2020, a guaranteed investment certificate of $34,500 (2018(2019 - $34,500, 20172018 – $34,500) has been pledged as collateral for the Company’s credit card.
SILVER ELEPHANT MINING CORP. (formerly Prophecy Development Corp.)
Notes to Annual Consolidated Financial Statements For the years ended December 31, 2020, 2019 2018 and 20172018 (Expressed in Canadian Dollars)
Trade receivables are non-interest-bearing and are generally on terms of 30 to 90 days. | | | | | | | Input tax recoverable | $20,741 | $36,399 | $10,562 | $73,804 | $20,741 | $36,399 | Trade receivable | 195,433 | - | 24,091 | 1,961 | 195,433 | - | Subscriptions receivable | 30,497 | - | - | - | 30,497 | - | | $246,671 | $36,399 | $34,653 | $75,765 | $246,671 | $36,399 |
During the year ended December 31, 2019,2020, the Company wrote-off $470,278 (2019 - $16,304, (20182018 - $21,004. 2017 - $61,202)$21,004) of receivables which are no longer expected to be recovered.
| | | | | | | General | $44,613 | $47,215 | $- | $26,759 | $44,613 | $47,215 | Insurance | 59,815 | 57,883 | 41,029 | 69,096 | 59,815 | 57,883 | Environmental and taxes | 6,850 | 8,789 | 47,508 | 6,850 | 8,789 | Rent | 24,489 | 9,385 | 11,458 | 12,012 | 24,489 | 9,385 | Market advisors | - | 40,615 | | | $135,767 | $123,272 | $140,610 | $114,717 | $135,767 | $123,272 |
During the year ended December 31, 2019,2020, the Company wrote-off $121,125 (2019 - $51,828, (20182018 - $26,234, 2017 - $57,420)$26,234) of prepaid expenses for which no future benefit is expected to be received. Marketable securities consist of investment in common shares of public companies and therefore have no fixed maturity date or coupon rate. The fair value of the listed marketable securities has been determined directly by reference to published price quotation in an active market.
As at and during the year ended December 31, 2020 and year ended December 31, 2019, the Company did not have marketable securities. During the year ended December 31, 2018, the Company sold all its marketable securities for proceeds of $162,490 and a realized loss of $91,890. Following the disposal of the shares, the Company reclassified the cumulative loss previously recognized in other comprehensive income of $68,840 to profit and loss on the sale of marketable securities. The following table summarized information regarding the Company’s marketable securities as at December 31, 2017, 2018,2020, 2019, and 2019:2018: Marketable securities | | | | | | | Balance, beginning of period | $- | $205,600 | $176,000 | | Balance, beginning of year | | $- | 205600 | Additions | - | 60,940 | 193,440 | - | 60940 | Disposals | - | (162,490) | (153,190) | - | (162,490) | Realized loss on disposal | - | (91,890) | (22,810) | - | (91,890) | Unrealized gain/(loss) on mark-to-market | - | (12,160) | 12,160 | | Balance, end of period | $- | $205,600 | | Unrealized gain/(loss) on market-to-market | | - | (12,160) | Balance, end of year | | $- |
SILVER ELEPHANT MINING CORP.
(formerly Prophecy Development Corp.)
Notes to Annual Consolidated Financial Statements
For the years ended December 31, 2019, 2018 and 2017
(Expressed in Canadian Dollars)
During the first-time application of IFRS 16 to the Company’s office lease, the recognition of a right of use asset was required and the leased asset was measured at the amount of the lease liability using the Company’s current incremental borrowing rate of 10%. The lease contains no extension or termination options. The following table presents the right-of-use-asset as at January 1, 2019, December 31, 2019 and December 31, 2019:2020:
Initial recognition, January 1, 2019 | $81,617 | Additions | - | Depreciation | (31,594) | Balance at December 31, 2019 | $50,023 | Depreciation | (31,593) | Balance at December 31, 2020 | $18,430 |
SILVER ELEPHANT MINING CORP. Notes to Annual Consolidated Financial Statements For the years ended December 31, 2020, 2019 and 2018 (Expressed in Canadian Dollars) During the year ended December 31, 2018, the Company wrote-off $425,925 of mining equipment in Bolivia that was no longer in use. During the year ended December 31, 2017, the Company wrote-off $159,666 (2016 - $Nil) of equipment in Mongolia that was no longer in use. On October 10, 2018, the Company signed a lease agreement (the “Lease”) with an arms-length private Mongolian company (the “Lessee”) whereby the Lessee plans to perform mining operations at Thethe Company’s Ulaan Ovoo coal mine and will pay Thethe Company USD2.00US$2.00 (the “Production Royalty”) for every tonne of coal shipped from the Ulaan Ovoo site premises.The Lessee paid Thethe Company USD100,000US$100,000 in cash (recorded as other income on the consolidated statement of operations) as a non-refundable advance royalty payment and is preparing, at its own and sole expense, to restart and operate the Ulaan Ovoo mine with its own equipment, supplies, housing and crew. The Lease is valid for 3 years with an annual advance royalty payment (“ARP”) for the first year of USD100,000US$100,000 which was due and paid upon signing, and USD150,000US$150,000 and USD200,000US$200,000 due on the 1st and 2nd anniversary of the Lease, respectively. The ARP can be credited towards the USD2.00US$2.00 per tonne Production Royalty payments to be made to Thethe Company as the Lessee starts to sell Ulaan Ovoo coal. The 3-year Lease can be extended upon mutual agreement. The first and second anniversary payments due have not been collected and the Company has recorded a full provision in the amount of $470,278 (US$350,000) due to uncertainty of their collection. The impaired value of $Nil for deferred development costs at Ulaan Ovoo property at December 31, 2019 (2018, 20172020 (2019, 2018 - $Nil) remains unchanged. The following table summarized information regarding the Company’s equipment as at December 31, 2017, 2018,2020, 2019, and 2019:2018: SILVER ELEPHANT MINING CORP. (formerly Prophecy Development Corp.)
Notes to Annual Consolidated Financial Statements For the years ended December 31, 2020, 2019 2018 and 20172018 (Expressed in Canadian Dollars) 13. EQUIPMENT (cont'd…) | | | | | | | | | | | | | | | | | | | | | | | Cost | | | Balance, December 31, 2016 | $100,221 | $279,213 | $453,854 | $1,534,745 | $2,368,033 | | Additions | (147) | (2,383) | - | (2,530) | | Impairment charge | - | (281,162) | (219,916) | (501,078) | | Balance, December 31, 2017 | $100,074 | $276,830 | $172,692 | $1,314,829 | $1,864,425 | $100,074 | $276,830 | $172,692 | $1,314,829 | $1,864,425 | Accumulated depreciation | | | Balance, December 31, 2016 | $94,900 | $181,639 | $339,916 | $833,971 | $1,450,426 | | Depreciation for year | 1,795 | 35,434 | 18,434 | 167,837 | 223,500 | | Impairment charge | - | (228,508) | (112,904) | (341,412) | | Balance, December 31, 2017 | $96,695 | $217,073 | $129,842 | $888,904 | $1,332,514 | | Carrying amount at December 31, 2017 | $3,379 | $59,757 | $42,850 | $425,925 | $531,911 | | Cost | | | Balance, December 31, 2017 | $100,074 | $276,830 | $172,692 | $1,314,829 | $1,864,425 | | Additions/Disposals | 3,180 | 2,015 | - | 24,476 | 29,671 | | Additions/(Disposals) | | 3,180 | 2,015 | - | 24,476 | 29,671 | Impairment charge | - | (1,314,829) | - | (1,314,829) | Balance, December 31, 2018 | $103,254 | $278,845 | $172,692 | $24,476 | $579,267 | $103,254 | $278,845 | $172,692 | $24,476 | $579,267 | Accumulated depreciation | | | Balance, December 31, 2017 | $96,695 | $217,073 | $129,842 | $888,904 | $1,332,514 | $96,695 | $217,073 | $129,842 | $888,904 | $1,332,514 | Depreciation for year | 1,316 | 16,351 | 13,337 | 3,491 | 34,495 | 1,316 | 16,351 | 13,337 | 3,491 | 34,495 | Impairment charge | - | (888,904) | - | (888,904) | Balance, December 31, 2018 | $98,011 | $233,424 | $143,179 | $3,491 | $478,105 | $98,011 | $233,424 | $143,179 | $3,491 | $478,105 | Carrying amount at December 31, 2018 | $5,243 | $45,421 | $29,513 | $20,985 | $101,162 | $5,243 | $45,421 | $29,513 | $20,985 | $101,162 | Cost | | | Balance, December 31, 2018 | $103,254 | $278,845 | $172,692 | $24,476 | $579,267 | $103,254 | $278,845 | $172,692 | $24,476 | $579,267 | Additions | - | 95,887 | - | 95,887 | | Disposals | - | (48,973) | - | (48,973) | | Additions/(Disposals) | | - | 46,914 | - | 46,914 | Balance, December 31, 2019 | $103,254 | $278,845 | $219,606 | $24,476 | $626,181 | $103,254 | $278,845 | $219,606 | $24,476 | $626,181 | Accumulated depreciation | | | Balance, December 31, 2018 | $98,011 | $233,424 | $143,179 | $3,491 | $478,105 | $98,011 | $233,424 | $143,179 | $3,491 | $478,105 | Disposals | - | (39,178) | - | (39,178) | - | (39,178) | - | (39,178) | Depreciation for year | 792 | 12,445 | 10,641 | 3,892 | 27,770 | 792 | 12,445 | 10,641 | 3,892 | 27,770 | Balance, December 31, 2019 | $98,803 | $245,869 | $114,642 | $7,383 | $466,697 | $98,803 | $245,869 | $114,642 | $7,383 | $466,697 | Carrying amount at December 31, 2019 | $4,451 | $32,976 | $104,964 | $17,093 | $159,484 | $4,451 | $32,976 | $104,964 | $17,093 | $159,484 | Cost | | | Balance, December 31, 2019 | | $103,254 | $278,845 | $219,606 | $24,476 | $626,181 | Additions | | - | 111,592 | - | 111,592 | Disposals | | (1,326) | - | (76,803) | - | (78,129) | Balance, December 31, 2020 | | $101,928 | $278,845 | $254,395 | $24,476 | $659,644 | Accumulated depreciation | | | Balance, December 31, 2019 | | $98,803 | $245,869 | $114,642 | $7,383 | $466,697 | Disposals | | - | (12,431) | - | (12,431) | Depreciation for year | | 2,003 | 6,243 | 40,161 | 3,171 | 51,578 | Balance, December 31, 2020 | | $100,806 | $252,112 | $142,372 | $10,554 | $505,844 | Carrying amount at December 31, 2020 | | $1,122 | $26,733 | $112,023 | $13,922 | $153,800 |
SILVER ELEPHANT MINING CORP. (formerly Prophecy Development Corp.)
Notes to Annual Consolidated Financial Statements For the years ended December 31, 2020, 2019 2018 and 20172018 (Expressed in Canadian Dollars) ��
14. MINERAL PROPERTIES | | | | | | | | | | | | | | Balance, December 31, 2016 | $- | $11,186,322 | $3,232,443 | $11,980,943 | $- | $26,399,708 | | Additions: | | - | | Acquisition cost | $58,790 | $- | $96,200 | $154,990 | | Deferred exploration costs: | | - | | Licenses, tax, and permits | 74,876 | 27,190 | 242,766 | - | | 344,832 | | Geological and consulting | 272,620 | 39,362 | - | 102,592 | | 414,574 | | Personnel, camp and general | 84,070 | 2,492 | 726,015 | | 815,069 | | | 431,566 | 69,044 | 245,258 | 828,607 | | 1,574,475 | | Impairment | - | (11,255,366) | (3,477,701) | - | (96,200) | (14,829,267) | | Balance, December 31, 2017 | $490,356 | $- | $12,809,550 | $- | $13,299,906 | $12,809,550 | $490,356 | $- | $13,299,906 | Additions: | | | Acquisition cost | $425,605 | $- | $425,605 | $- | $425,605 | $- | $425,605 | Deferred exploration costs: | | | Licenses, tax, and permits | 387,149 | 1,271 | 261,168 | - | 649,588 | - | 387,149 | - | 1,271 | 261,168 | 649,588 | Geological and consulting | 1,509,587 | - | 51,112 | - | 1,560,699 | 51,112 | 1,509,587 | - | 1,560,699 | Personnel, camp and general | 831,023 | 20,590 | 3,741 | 847,538 | - | 1,702,892 | 847,538 | 831,023 | - | 20,590 | 3,741 | 1,702,892 | | 2,727,759 | 21,861 | 264,909 | 898,650 | - | 3,913,179 | 898,650 | 2,727,759 | - | 21,861 | 264,909 | 3,913,179 | Impairment | - | (21,861) | (264,909) | (13,708,200) | - | (13,994,970) | (13,708,200) | - | (21,861) | (264,909) | (13,994,970) | Balance, December 31, 2018 | $3,643,720 | $- | $3,643,720 | $- | $3,643,720 | $- | $3,643,720 | Additions: | | | Acquisition cost | $- | $- | Deferred exploration costs: | | | Licenses, tax, and permits | 286,158 | - | 286,158 | 6,239 | 286,158 | - | 292,397 | Geological and consulting | 3,200,773 | - | 970,955 | - | 4,171,728 | 964,716 | 3,200,773 | - | 4,165,489 | Personnel, camp and general | 1,470,007 | - | 503,071 | - | 1,973,078 | 503,071 | 1,470,007 | - | 1,973,078 | | 4,956,938 | - | 1,474,026 | - | 6,430,964 | 1,474,026 | 4,956,939 | - | 6,430,965 | Impairment Recovery | - | 13,708,200 | - | 13,708,200 | 13,708,200 | - | 13,708,200 | Balance, December 31, 2019 | $8,600,658 | $- | $15,182,226 | $- | $23,782,884 | $15,182,226 | $8,600,658 | $- | $23,782,885 | Additions: | | | Acquisition cost | | $- | $2,253,566 | $396,936 | $135,676 | $- | $2,786,178 | Deferred exploration costs: | | | Licenses, tax, and permits | | 5,733 | 348,165 | - | 353,898 | Geological and consulting | | 1,767,089 | 897,085 | 116,152 | 327,989 | - | 3,108,315 | Personnel, camp and general | | 584,712 | 1,190,607 | - | 1,775,319 | | | 2,357,534 | 2,435,857 | 116,152 | 327,989 | - | 5,237,531 | Balance, December 31, 2020 | | $17,539,760 | $13,290,081 | $513,088 | $463,665 | $- | $31,806,594 |
SILVER ELEPHANT MINING CORP. (formerly Prophecy Development Corp.)
Notes to Annual Consolidated Financial Statements For the years ended December 31, 2020, 2019 2018 and 20172018 (Expressed in Canadian Dollars) 14. MINERAL PROPERTIES (cont’d...) Gibellini Project, Nevada, United States Gibellini Project The Gibellini Project consists of a total of 354555 unpatented lode mining claims that include:includes: the Gibellini group of 40 claims,the VC Exploration group of 105 claims, the Bisoni group of 201 claims and the Company group of 209 claims. All the claims are located in Eureka County, Nevada, USA. Gibellini Group The Gibellini group of claims waswere acquired on June 22, 2017, through leaseleasehold assignments from the claimant and then-holder of the Gibellini mineral claims (the “Gibellini Lessor”) and includes an area of approximately 771 acres.. Under the Gibellini Mineral Lease Agreement (themineral lease agreement (the “Gibellini MLA”), the Company leased the Gibellinithis core group of claims, which originally constituted the entire Gibellini Project, by, among other things, agreeing to pay to the Gibellini Lessor US$35,000 (paid), and annual advance royalty payments. These payments which will beare tied, based on an agreed formula (notnot to exceed US$120,000 per year),year, to the average vanadium pentoxide price of the prior year.year (each an "Advance Royalty Payment"). Upon commencement of production, Thethe obligation to make Advance Royalty Payments will cease and the Company will instead maintain its acquisition through lease of the Gibellini group of claims by paying to the Gibellini Lessor, a 2.5% net smelter return royalty (the “Gibellini NSR Payments”) until a total of US$3,000,0003 million is paid. Thereafter, the Gibellini NSR will be reduced to 2% over the remaining life of the mine (and referred to thereafter, as “production royalty payments”“Production Royalty Payments”). All advance royalty paymentsUpon commencement of production, any Advance Royalty Payments that have been made will be deducted as credits against future production royalty payments.the Gibellini NSR Payments or Production Royalty Payments, as applicable. The lease is for a term of 10 years, expiring on June 22, 2027, which can be extended for an additional 10 years, at Thethe Company’s option. On April 23,19, 2018, the Company announced an amendment to theGibellini MLA wherebywas amended to grant the Company has been granted the right to cause the Gibellini Lessor of the Gibellini mineral claims to transfer their title to the claims to The Company. With the amendment, the Company will have the option, to, at any time during the term of the Gibellini MLA, which ends on June 22, 2027, to require the Gibellini Lessor to transfer their title over all of the leased unpatented lode mining claims (excluding four claims which will be retained by the Gibellini LessorLessor) (the “"Transferred Claims”") to Thethe Company in exchange for US$1,000,000, towhich will be paid asdeemed an advance royalty payment (theAdvance Royalty Payment(the “Transfer Payment”). A credit of US$99,027 in favour of Thethe Company towards the Transfer Payment is alreadywas paid upon signingthe execution of the amendment, with thea remaining balance of US$900,973 portion ofon the Transfer Payment due and payable by Thethe Company to the Gibellini Lessor upon completion of transfer of the Transferred Claims from the Gibellini Lessor to Thethe Company. The advance royaltyAdvance Royalty Payment obligation and production royaltyProduction Royalty Payments will not be affected, reduced or relieved by the transfer of title. On June 22, 2019,2020, the Company paid US$50,000 (2019 – US$120,000, (20182018 – US$101,943) of the annual royalty paymentAdvance Royalty Payment to the Gibellini Lessor. VC ExplorationDuring year 2020, the Company expanded the land position at the Gibellini Project, by staking a total of 32 new claims immediately adjacent to the Gibellini Project.
The Bisoni Group On July 13, 2017,September 18, 2020, the Company acquired (through lease undercompleted the mineral lease agreement “Louie Hill MLA”) fromacquisition of the holders (the “FormerLouie Hill Lessors”)10 unpatented lode claims totaling approximately 207 acres that comprised the Louie Hill group of claims located approximately 500 metres southBisoni vanadium property situated immediately southwest of the Gibellini groupProject pursuant to an asset purchase agreement (the “Bisoni APA”) dated August 18, 2020, with Cellcube Energy Storage Systems Inc. (“Cellcube”).The Bisoni property comprised of 201 lode mining claims. These claims were subsequently abandoned byAs consideration for the holders, and on March 11, 2018 and March 12, 2018,acquisition of the Company’s wholly owned US subsidiaries, Vanadium Gibellini Company LLC and VC Exploration (US) Inc., stakedBisoni property under the area within and under 17 new claims totaling approximately 340 gross acres which now collectively comprise the expanded Louie Hill group of claims. Under the Louie Hill MLA,Bisoni APA, the Company is requiredissued 4 million Common Shares (the “Bisoni APA Shares”) and paid $200,000 cash to make payments as follows: cash paymentCellcube. Additionally, subject to TSX approval, if, on or before December 31, 2023, the price of US$10,000 (paid), annual advance royalty payments which will be tied, based on an agreed formula (not to exceed US$28,000 per year), to the averageEuropean vanadium pentoxide priceon the Metal Bulletin (or an equivalent publication) exceeds US$12 a pound for the prior year. Upon commencement of production,30 consecutive days, the Company will payissue to Cellcube additional Common Shares with a value of $500,000 calculated based upon the Former Louie Hill Lessors, a 2.5% NSR of which, 1.5%5-day volume weighted average price of the NSR may be purchased at any time byCommon Shares immediately following the Company for US$1,000,000, leaving the total NSR to be reduced to 1% over the remaining lifesatisfaction of the mine (and referred to thereafter, as “production royalty payments”). All advance royalty payments made, will be
vanadium pentoxide pricing condition. SILVER ELEPHANT MINING CORP. (formerly Prophecy Development Corp.)
Notes to Annual Consolidated Financial Statements For the years ended December 31, 2020, 2019 2018 and 20172018 (Expressed in Canadian Dollars)
14. MINERAL PROPERTIES (cont’d...) Gibellini Project, Nevada, United States (cont’d…) deducted as credits against future production royalty payments. VC Exploration Group
The Company entered into a lease will be for a termagreement to acquire 10 unpatented lode claims totaling approximately 207 gross acres (the “FormerLouieHillClaims”) from their holders (the “Former Louie Hill Lessors”) on July 10, 2017 (the “Louie Hill MLA”). The Former Louie Hill Claims werelocated approximately 1600 feet south of 10 years, the Gibellini group of claims. The Former Louie Hill Claims were subsequently abandoned by the Former Louie Hill Lessors, and on March 11 and 12, 2018, the Company staked the area within and under 17 new claims totaling approximately 340 gross acres, which can be extended for an additional 10 years at The Company’s option.now collectively comprise the expanded Louie Hill group of claims (the “CurrentLouieHillClaims”). On October 22, 2018, the Company and Former Louie Hill Lessorsentered into a royalty agreement (the “Royalty Agreement”) with the Former Louie Hill Lessors that terminatedreplaced, on substantially similar terms, the Louie Hill MLA andMLA. The Royalty Agreement provides for the Company to pay the following royalties to the Former Louie Hill Lessors as an advance royalty: (i) US$75,000 upon the Company achieving Commercial Production (as defined in the Royalty Agreement) at itsthe Gibellini Project; (ii) US$50,000 upon the Company selling, conveying, transferring or assigning all or any portion of certain claims defined in the Royalty Agreement to any third party and (iii) annually upon the anniversary date of July 10, 2018, and the like dayanniversary date of each year thereafter during the term of the Royalty Agreement: (a) if the average vanadium pentoxide price per pound as quoted on www.metalbulletin.com (the “Metal Bulletin”) or another reliable and reputable industry source as agreed by the parties, remains below US$7.00/lb during the preceding 12 months, US$12,500; or (b) if the average vanadium pentoxide price per pound as quoted on Metal Bulletin or another reliable and reputable industry source as agreed by the parties, remains equal to or above US$7.00/lb during the preceding 12 months, US$2,000 x average vanadium pentoxide price per pound up to a maximum annual advance royalty payment of US$28,000. Further, the Company will pay to theFormer Louie Hill Lessorsa a production royalty of 2.5% of the net smelter returns ofreturn royalty (the “Louie Hill NSR”) payable on vanadium pentoxide produced from the royalty area and sold.of the Former Louie Hill Claims contained within the Current Louie Hill Claims. The Company has an option tomay purchase 1.5%three-fifths of the 2.5%Louie Hill NSR at any time for US$1,000,000, leaving the total Louie Hill NSR payable by the Company at 1.0% for the remaining life of the production royalty frommine. Any Louie Hill Advance Royalty Payments that have been made at the time of Commercial Production will be deducted as credits against future payments under the Louie Hill NSR. The payments under the Royalty Agreement will continue for an indefinite period and will be payable as long as the Company, its subsidiaries, or any of their permitted successors or assigns holds a valid and enforceable mining concession over the area. On July 7, 2020, the Company paid US$12,500 (2019 – US$28,000, 2018 - US$21,491), comprising the Louie Hill Advance Royalty Payment to the Former Louie Hill Lessors for US$1,000,000. On June 18, 2019, the Company paid US$28,000 (2018 – US$21,491) of the annual royalty payment to the Louie Hill Lessor.
On February 15, 2018, the Company acquiredan additional 105 unpatented lode mining claims located adjacent to its existing Gibellini Projectin Nevada, USA through the acquisition of1104002 B.C. Ltd. and its Nevada subsidiary VC Exploration (US) Inc.(“Inc, ("VC Exploration”")by paying a total of $335,661 in cash and issuing 500,000 Common Share purchase warrants(valued at $89,944) $89,944) to arm’s-length, private parties. Each warrant entitles the holder upon exercise, to acquire one Common Share of the Company at a price of $0.50 per Common Share until February 15, 2021. The acquisition of the VC Exploration has been accounted for as an asset acquisition as their activities at the time of the acquisition consisted of mineral claims only.
The Company Group During 2017 and 2018, the Company expanded the land position at the Gibellini Project, by staking a total of 209 new claims immediately adjacent to the Gibellini Project covering 4091 acres. SILVER ELEPHANT MINING CORP. Notes to Annual Consolidated Financial Statements For the years ended December 31, 2020, 2019 and 2018 (Expressed in Canadian Dollars) 14. MINERAL PROPERTIES (cont’d...) Pulacayo Paca Property,Project, Bolivia The Company holds an interest in the Pulacayo Paca silver-lead-zinc project in Bolivia (the "Pulacayo Project"). The Pulacayo property,Project mining rights are recognized by two legally independent contractual arrangements, one covering all, except the Apuradita deposit, from a mining production contract (the "Pulacayo MPC") between the Company and the Corporación Minera de Bolivia ("silver-lead-zinc projectCOMIBOLlocated"), a Bolivian state mining company, and the original holder of the rights, executed on October 3, 2019. The Pulacayo MPC grants the Company the 100% exclusive right to develop and mine at the Pulacayo and Paca concessions for up to 30 years against certain royalty payments. In connection with the Apuradita deposit, its rights are covered by a second contractual arrangement, with the Bolivian Jurisdictional Mining Authority, acting for the Government of Bolivia, which is in southwestern Bolivia,process of formalization, as a mean of recognition of the acquired rights to what was acquired on January 2, 2015 throughoriginally the acquisitionmining concession. Until such time as the contract is formalized, all mining rights, as recognized in the Bolivian Mining Law 535, can be exercised by the holder of 100% of Apogee’s interest in ASC Holdings Limited and ASC Bolivia LDC,the ex-concession. which together, hold Pursuant to the Pulacayo MPC, ASC Bolivia LDC Sucursal Bolivia(“ (“ASC”), which in turn, holds a joint venture interest insubsidiary of the Pulacayo Project.Company, ha
ASC controls the mining rights to the Pulacayo Project through a joint venture agreement entered into between itself and the Pulacayo Ltda. Mining Cooperative on July 30, 2002 (the “ASC Joint Venture”). The ASC Joint Venture has a term of 23 years which commenced the day the ASC Joint Venture was entered into. Pursuant to the ASC Joint Venture, ASC iss committed to pay monthly rent of US$1,000 to the state-owned Mining Corporation of Bolivia, COMIBOL and US$1,500 monthly rent to the Pulacayo Ltda. Mining Cooperative until the Pulacayo Project starts commercial production.
SILVER ELEPHANT MINING CORP.
(formerly Prophecy Development Corp.)
Notes to Annual Consolidated Financial Statements
For the years ended December 31, 2019, 2018 and 2017
(Expressed in Canadian Dollars)
During the year ended December 31, 2018, the Company determined there were several indicators of potential impairment of the carrying value of the Pulacayo Paca property. The indicators of potential impairment were as follows: 14.
MINERAL PROPERTIES (cont’d...)
Pulacayo Paca Property, Bolivia (cont’d...)
(i) ●
change in the Company’s primary focus to the Gibellini Project; (ii) ●
management’s decision to suspend further exploration activities; and (iii) ●
no positive decision from the Bolivian Government to grant mining production contract to develop the project. As result, in accordance with IFRS 6, Exploration for and Evaluation of Mineral Resources and IAS 36, Impairment of Assets, at December 31, 2018, the Company assessed the recoverable amount of the Pulacayo Paca property exploration costs and determined that its value in use is $nil. As at December 31, 2018, the recoverable amount of $nil resulted in an impairment charge of $13,708,200 against the value of the deferred exploration costs, which was reflected on the consolidated statement of operations. During the year ended December 31, 2019, the Company assessed whether there was any indication that the previously recognized impairment loss in connection with the Pulacayo Paca property may no longer exist or may have decreased. The Company noted the following indications that the impairment may no longer exist: ● Thethe Company signed a mining production contract granting the Company the 100% exclusive right to develop and mine at the Pulacayo Paca property;
● Thethe Company renewed its exploration focus to develop the Pulacayo Paca property in the current year;
● Thethe Company re-initiated active exploration and drilling program on the property;
● Completedthe Company completed a positive final settlement of Bolivian tax dispute (note 27)(Note 26).
As the Company identified indications that the impairment may no longer exist, the Company completed an assessment to determine the recoverable amount of the Pulacayo Paca property. In order to estimate the fair-value of the property the Company engaged a third-party valuation consultant and also utilized level 3 inputs on the fair value hierarchy to estimate the recoverable amount based on the property’s fair value less costs of disposal determined with reference to dollars per unit of metal in-situ. With reference to metal in-situ, the Company applied US$0.79 per ounce of silver resource to its 36.8 million ounces of silver resources and US$0.0136 per pound of zinc or lead in resource to its 303 million pounds of zinc and lead. The Company also considered data derived from properties similar to the Pulacayo Paca Property. The data consisted of property transactions and market valuations of companies holding comparable properties, adjusted to reflect the possible impact of factors such as location, political jurisdiction, commodity, geology, mineralization, stage of exploration, resources, infrastructure and property size.
SILVER ELEPHANT MINING CORP. Notes to Annual Consolidated Financial Statements For the years ended December 31, 2020, 2019 and 2018 (Expressed in Canadian Dollars) 14. MINERAL PROPERTIES (cont’d...) Pulacayo Project, Bolivia (cont’d...) As the recoverable amount estimated with respect to the above was $31.4 million an impairment recovery of $13,708,200 was recorded during the year ended December 31, 2019. Triunfo Project, Bolivia On July 13, 2020, the Company announced that it had entered into an agreement (the “Triunfo Agreement”) with a private party (the “Triunfo Vendor”) for the right to conduct mining exploration activities (the “Exploration Right”) within the El Triunfo gold-silver-lead-zinc project in La Paz District, Bolivia (the “Triunfo Project”) and the right, at the Company’s election, to purchase the Triunfo Project for US$1,000,000 (the “Purchase Right”) and together with the Exploration Right, the “Triunfo Rights”). The Purchase Right can be exercised at any time after the Triunfo Vendor completes the required Bolivian administrative procedures for the Triunfo Project until July 13, 2025 or such further period as the parties may agree. To secure the Triunfo Rights, the Company paid the Triunfo Vendor US$100,000 upon execution of the Triunfo Agreement. Until the Company exercises its Purchase Right, beginning in 2021 the Company must pay the Triunfo Vendor US$50,000 on June 15 of each year to maintain the Triunfo Rights. The Company may elect to terminate the Triunfo Agreement at any time. If the Company exercises the Purchase Right, the Triunfo Vendor will maintain up to a 5% interest of the profits, net of taxes and royalties, derived from the sale of concentrate produced from the Triunfo Project (the “Residual Interest”). If the Company exercises the Purchase Right, the Company may reduce some or all of the Residual Interest at any time by making a lump sumpayment to the Triunfo Vendor at any time to reduce some or all of the Residual Interest as follows: ● the Residual Interest may be extinguished for US$300,000; ● the Residual Interest may be reduced to 4% for US$250,000; ● the Residual Interest may be reduced to 3% for US$200,000; ● the Residual Interest may be reduced to 2% for US$150,000; or ● the Residual Interest may be reduced to 1% for US$100,000. Sunawayo Project, Bolivia On September 7, 2020, the Company announced that it had entered into a binding sales and purchase agreement (the “SunawayoSPA”) with a private party (the “Sunawayo Vendor”) to acquire the Sunawayo silver-lead mining project (the “Sunawayo Project”). Subject to the provisions of the Sunawayo SPA, the Sunawayo Vendor agreed to irrevocably transfer the mining rights of the Sunawayo Project to the Company for consideration of US$6,500,000, which payment consists of US$300,000 paid on execution of the Sunawayo SPA, with the remaining US$6,200,000 to be paid in cash over a one-year period in twelve equal monthly installments, starting March 1, 2021. Previously Impaired Properties Chandgana Properties, Mongolia Chandgana Tal
In March 2006, the Company acquired a 100% interest in the Chandgana Tal property, a coal exploration property consisting of two exploration licenses located in the northeast part of the Nyalga coal basin, approximately 290 kilometers east of Ulaanbaatar, Mongolia. In March 2011, the Company obtained a mine permit from Ministry of Mineral Resources and Energy for the Chandgana Tal coal project. SILVER ELEPHANT MINING CORP.
(formerly Prophecy Development Corp.)
Notes to Annual Consolidated Financial Statements
For the years ended December 31, 2019, 2018 and 2017
(Expressed in Canadian Dollars)
14.
MINERAL PROPERTIES (cont’d...)
Previously Impaired Properties (cont’d...)
Khavtgai Uul Property, Mongolia
In 2007, the Company acquired a 100% interest in the Chandgana Khavtgai property, a coal exploration property consisting of one license located in the northeast part of the Nyalga coal basin. During the year ended December 31, 2017, the Company determined there were several indicators of potential impairment of the carrying value of the Chandgana Tal and Khavtgai Uul properties. As result, in accordance with IFRS 6, Exploration for and Evaluation of Mineral Resources and IAS 36, Impairment of Assets, at December 31, 2017, the Company assessed the recoverable amount of the Chandgana Properties deferred exploration costs and determined that its value in use is $nil. As at December 31, 2017, the recoverable amount of $nil resulted in an
SILVER ELEPHANT MINING CORP. Notes to Annual Consolidated Financial Statements For the years ended December 31, 2020, 2019 and 2018 (Expressed in Canadian Dollars)
14. MINERAL PROPERTIES (cont’d...) Previously Impaired Properties (cont’d...) Chandgana Properties, Mongolia (cont’d...) impairment charge of $14,733,067 against the value of the deferred exploration costs, which was reflected on the consolidated statement of operations. As at and for the year ended December 31, 2020 and as for years ended December 31, 2019 and 2018, there were no changes to the impairment assessment and accordingly all costs remain impaired. Titan Property, Ontario, Canada The Company has a 100% interest in the Titan property, a vanadium-titanium-iron project located in Ontario, Canada. In January 2010, the Company entered into an option agreement (the "Titan Agreement") with Randsburg International Gold Corp. (“ (“Randsburg”) whereby Thethe Company Resource Corp. had the right to acquire an 80% interest in the Titan property by paying Randsburg an aggregate of $500,000 (paid), and by incurring exploration expenditures of $200,000 by
December 31, 2010. Pursuant to the option agreement,Titan Agreement, Randsburg has the option to sell the remaining 20% interest in the Titan property to the Company for $150,000 cash or 400,000 Shares of the Company.Common Shares. At December 31, 2014, due to market conditions, the Company impaired the value of the property to $nil. On February 10, 2017, the Company negotiated with Randsburg to acquire the remaining 20% title interest of Randsburg in the Titan project by issuing to Randsburg 20,000 Common Shares at a value of $4.81 per Common Share. As there were no benchmark or market changes from January 1, 2015 to December 31, 2019, the impaired value of $nil for Titan property remains unchanged. Therefore, the Company recorded an impairment loss of $96,200 on the acquisition of the remaining title interest in the Titan property which was reflected on the consolidated statement of operations and comprehensive loss during the year ended December 31, 2017. As there were no benchmark or market changes from January 1, 2015,to December 31, 2020, the impaired value of $nil for Titan property remains unchanged. 15. ACCOUNTS PAYABLE AND ACCRUED LIABILITIES Accounts payable and accrued liabilities of the Company consist of amounts outstanding for trade and other purchases relating to development and exploration, along with administrative activities. The usual credit period taken for trade purchases is between 30 to 90 days. | | | | Trade accounts payable | $2,420,392 | $1,536,786 | $1,644,995 | Accrued liabilities | - | 100,000 | 250,988 | Lease liability | 32,285 | - | - | | $2,452,677 | $1,636,786 | $1,895,983 |
| | | | | | Trade accounts payable | $1,717,977 | $2,420,392 | $1,636,786 | Accrued liabilities | 41,186 | - | - | | $1,759,163 | $2,420,392 | $1,636,786 |
SILVER ELEPHANT MINING CORP. (formerly Prophecy Development Corp.)
Notes to Annual Consolidated Financial Statements For the years ended December 31, 2020, 2019 2018 and 20172018 (Expressed in Canadian Dollars)
As at December 31, 2019,2020, the Company recorded $52,818$20,533 of lease liability. The incremental borrowing rate for lease liability initially recognized as of January 1, 2019 was 10%.
Lease liability | | Initial recognition, January 1, 2019 | $81,617 | Cash flows: | | Lease payments for year | (36,528) | Non-cash changes: | | Accretion expenses for year | 7,729 | Balance at December 31, 2019 | $52,818 | | | Cash flows: | | Lease payments for year | (37,162) | Non-cash changes: | | Accretion expenses for year | 4,877 | Balance at December 31, 2020 | 20,533 |
The Company does not face a significant liquidity risk with regard to its lease liability. Lease liability is monitored within the Company treasury function. The non-current lease liability matures in 2021. There were no significant payments made for short-term or low value leases in the year ended December 31, 2020 (2019 - $nil). 17. PROVISION FOR CLOSURE AND RECLAMATION The Company’s closure and reclamation costs consists of costs accrued based on the current best estimate of mine closure and reclamation activities that will be required at the Ulaan Ovoo site upon completion of mining activity. These activities include costs for earthworks, including land re-contouring and re-vegetation, water treatment and demolition. The Company’s provision for future site closure and reclamation costs is based on the level of known disturbance at the reporting date, known legal requirements and estimates prepared by a third-party specialist. It is not currently possible to estimate the impact on operating results, if any, of future legislative or regulatory developments. Management used a risk-free interest rate of 1.72% (20181.14% (2019 – 1.98%1.72%, 20172018 – 2.23%1.98%) and a risk premium of 7% (20188.66% (2019 – 7%, 2017–2018– 7%) in preparing the Company’s provision for closure and reclamation. Although the ultimate amount of reclamation costs to be incurred cannot be predicted with certainty, the total undiscounted amount of estimated cash flows required to settle the Company’s estimated obligations is $444,000$4,951,000 over the next 621 years. The cash expenditures are expected to occur over a period of time extending several years after the projected mine closure of the mineral properties. | | | | Balance, beginning of year | $265,239 | $244,323 | $242,374 | Accretion | 1,551 | 20,916 | 1,949 | Balance, end of year | $266,790 | $265,239 | $244,323 |
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| | | | Balance, beginning of year | $266,790 | $265,239 | $244,323 | Change in estimate | 405,196 | - | - | Accretion | 23,271 | 1,551 | 20,916 | Balance, end of year | $695,257 | $266,790 | $265,239 |
SILVER ELEPHANT MINING CORP. (formerly Prophecy Development Corp.)
Notes to Annual Consolidated Financial Statements For the years ended December 31, 2020, 2019 2018 and 20172018 (Expressed in Canadian Dollars)
The Company’s operations are, in part, subject to foreign tax laws where interpretations, regulations and legislation are complex and continually changing. As a result, there are usually some tax matters in question that may, upon resolution in the future, result in adjustments to the amount of deferred income tax assets and liabilities, and those adjustments may be material to the Company’s financial position and results of operations. A reconciliation of income taxes at statutory rates with the reported taxes is as follows: | | | | | | | | | | Loss for the year | $17,513,854 | $(18,184,468) | $(18,592,981) | | Income (loss) for the year | | $(4,626,887) | $17,513,854 | $(18,184,469) | | | | Expected income tax (recovery) | $4,729,000 | $(4,910,000) | $(4,834,000) | $(1,249,000) | $4,729,000 | $(4,910,000) | Change in statutory, foreign tax, foreign exchange rates and other | (529,000) | 389,000 | 1,885,000 | 117,000 | (529,000) | 389,000 | Permanent differences | (4,861,000) | 3,833,000 | 450,000 | 269,000 | (4,861,000) | 3,833,000 | Share issue cost | (103,000) | (151,000) | (25,000) | (250,000) | (103,000) | (151,000) | Adjustment to prior years provision versus statutory tax returns and expiry of non-capital losses | 1,205,000 | 12,000 | (118,000) | 404,000 | 1,205,000 | 12,000 | Change in unrecognized deductible temporary differences | (441,000) | 827,000 | 2,642,000 | 709,000 | (441,000) | 827,000 | Total income tax expense (recovery) | $- | $- |
In September 2017, the British Columbia (BC) Government proposed changes to the general corporate income tax rate to increase the rate from 11% to 12% effective January 1, 2018 and onwards. This change in tax rate was substantively enacted on October 26, 2017. The relevant deferred tax balances have been remeasured to reflect the increase in the Company's combined Federal and Provincial (BC) general corporate income tax rate from 26% to 27%. The significant components of deductible and taxablethe Company’s temporary differences, unused tax lossescredits and unused tax creditslosses that have not been included on the consolidated statementsstatement of financial position are as follows: | | | | | | | Temporary Differences | | | | | | | Exploration and evaluation assets | $6,284,000 | No expiry date | $6,135,000 | No expiry date | $19,625,000 | No expiry date | Investment tax credit | 23,000 | 2029 | 23,000 | 2029 | 23,000 | 2029 | Property and equipment | 1,547,000 | No expiry date | 1,242,000 | No expiry date | 1,138,000 | No expiry date | Share issue costs | 1,212,000 | 2041 to 2044 | 747,000 | 2040 to 2043 | 644,000 | 2039 to 2042 | Asset retirement obligation | 695,000 | No expiry date | 267,000 | No expiry date | 265,000 | No expiry date | Allowable capital losses | 4,150,000 | No expiry date | 5,864,000 | No expiry date | 6,607,000 | No expiry date | Non-capital losses available for future periods | 30,569,000 | 2023 to 2040 | 27,024,000 | 2023 to 2039 | 24,109,000 | 2030 to 2038 | Canada | 30,015,000 | 2029 to 2040 | 26,980,000 | 2029 to 2039 | 21,402,000 | 2029 to 2038 | Mongolia | 554,000 | 2023 to 2028 | 44,000 | 2023 to 2027 | - | 2023 to 2026 |
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SILVER ELEPHANT MINING CORP. (formerly Prophecy Development Corp.)
Notes to Annual Consolidated Financial Statements For the years ended December 31, 2020, 2019 2018 and 20172018 (Expressed in Canadian Dollars)
The authorized share capital of the Company consists of an unlimited number of common shares without par value (the “Common Shares. At December 31, 2020, the Company had 180,518,828 (December 31, 2019 – 121,299,508; December 31, 2018 – 95,316,127) Common Shares”). There are no authorized preferred shares. issued and outstanding. On August 8, 2018, the Company completed a common share split on the basis of ten (10) new Common Shares, options and warrants for every one (1) old Share, option and warrant outstanding (the “Split”). All information with respect to the number of Common Shares and issuance prices for the time periods prior to the Split was restated to reflect the Common Share Consolidation and the Split. During the year ended December 31, 20192020 On May 1, 2020 and on May 20, 2020, the Company closed two tranches of a non-brokered private placement (the "May 2020 Private PlacementsPlacement") for aggregate gross proceeds of $1,930,500 and share compensation for services of $45,500 through the issuance of 15,200,000 units of the Company (each, a "Unit") at a price of $0.13 per Unit. Each Unit is comprised of one Common Share and one Common Share purchase warrant (each, a “Warrant”). Each Warrant entitles the holder to purchase one Common Share at an exercise price of $0.16 for a period of three years from the date of issuance. The Company paid $3,250 in cash and issued 156,900 Units as finder’s fees in connection with the May 2020 Private Placement. The Units issued as a finder's fee have been valued at $24,000 based on the offering price of the Units under the May 2020 Private Placement. The Company has recorded the fair value of the finder’s units as share issuance costs. The Company issued 1,601,000 Common Shares with a value of $640,400 as a bonus payment to certain directors, officers, employees, and consultants of the Company. On September 18, 2020, the Company issued 4,000,000 Common Shares at a value of $0.50 per Common Share in relation with purchase of Bisoni Project in Nevada, USA. On November 24, 2020, the Company closed its bought deal short form prospectus offering pursuant to which the Company has issued 23,000,000 Common Shares at a price of $0.40 per Common Share for aggregate gross proceeds of $9,200,000 (the “Offering”). Pursuant to the terms and conditions of the Underwriting Agreement, the Company paid a cash commission to the Underwriters of $534,000, additional fees of $391,544 and issued1,335,000 Share purchase warrants as a finder’s fee in relation with the Offering. The fair value of $226,917 of the issued warrants determined using the Black-Scholes option pricing model using the following assumptions: (1) a risk-free interest rate of 0.2%; (2) warrant expected life of one year; (3) expected volatility of 107%, and (4) dividend yield of nil.The Company has recorded the fair value of the finder’s units as share issuance costs. During the year ended December 31, 2020, the Company issued 1,233,750 Common Shares on the exercise of stock options for total proceeds of $299,812. During the year ended December 31, 2020, the Company issued 14,027,670 Common Shares on the exercise of warrants for aggregate gross proceeds of $3,072,194 and share compensation for services of $35,000. During the year ended December 31, 2019 On September 6, 2019, the Company closed its non-brokered private placement for $2,600,000 through the issuance of 13,000,000013,000,000 Common Shares at a price of $0.20 per Common Share. The Company paid $15,209 and issued 525,000 Common Shares as a finder’s fee valued at $105,000. $175,000 of the private placement was for prepaid consulting fees for the Company’s executive chairman, of which $35,000 is included in prepaid expenses as at December 31, 2019 and $41,503 for services. Included in accounts receivable as at December 31, 2019 is $30,497 of subscriptions receivable.
SILVER ELEPHANT MINING CORP. Notes to Annual Consolidated Financial Statements For the years ended December 31, 2020, 2019 and 2018 (Expressed in Canadian Dollars)
19. SHARE CAPITAL (cont’d…) (b) Equity issuances (cont’d…) During the year ended December 31, 2019(cont’d…) On October 18, 2019, the Company closed its non-brokered private placement for gross proceeds of $3,900,000 through the issuance of 9,750,000 Common Shares at a price of $0.40 per Share. Also, the Company issued 654,500 Common Shares as a finder’s fee valued at $261,800. Debt Settlement
On October 9, 2019, the Company issued 104,951 Common Shares with a value of $43,030, to its directors to settle director fees debts owing to them. Exercise of Stock Options and Warrants
During the year ended December 31, 2019, theThe Company issued 622,500 and 651,430 Common Shares on the exercise of stock options and warrants respectively for total proceeds of $424,822.
Share Bonus to Personnel
During the year ended December 31, 2019,The the Company issued 500,000 sign-on bonus Common Shares with a fair value of $0.23 per Share to an officer valued at $115,000.
Share Compensation for Services
On September 26, 2019, the Company issued 175,000 Common Shares valued at $59,500 for consulting services. During the year ended December 31, 2018 Private Placements
On August 14, 2018, the Company closed its non-brokered private placement for gross proceeds of $1,137,197 through the issuance of 4,061,417 units of Thethe Company. Each unit is comprised of one Common Share and one Common Share purchase warrant. Each warrant entitles the holder to purchase one additional Common Share of the Company at an exercise price of $0.40 for a period of three years from the closing of the first tranche of the placement. SILVER ELEPHANT MINING CORP.
(formerly Prophecy Development Corp.)
Notes to Annual Consolidated Financial Statements
For the years ended December 31, 2019, 2018 and 2017
(Expressed in Canadian Dollars)
19.
SHARE CAPITAL (cont’d…)
(b)
Equity issuances (cont’d…)
During the year ended December 31, 2018(cont’d…)
Short Form Prospectus Offering
On November 22, 2018, the Company closed its bought deal financing for gross proceeds of $5,520,000. The Company entered into an agreement with BMO Nesbitt Burns Inc. (“BMO”), under which BMO agreed to buy on a bought deal basis 12,000,000 Common Shares, at a price of $0.46 per share.Common Share. The shares were offered by way of a short form prospectus in each of the provinces and territories of Canada, except Québec. The Company incurred $560,576 in cash Shareshare issuance costs. Exercise of Stock Options and Warrants
During the year ended December 31, 2018, theThe Company issued 87,500 and 3,445,420 Shares on the exercise of stock options and warrants respectively for total proceeds of $1,362,317.
Share Bonus to Personnel
On October 10, 2018, the Company issued 1,000,000 Common Shares with a fair value of $0.35 per Share as a bonus to its new CEO included in Salaries and benefits. During the year ended December 31, 2017
Private Placements
On April 12, 2017, the Company closed a non-brokered private placement involving the issuance of 1,032,500 units (at a price of $0.40 per unit) for gross proceeds of $413,000. Each unit consists of one Share and one Share purchase warrant. Each Share purchase warrant entitles the holder to acquire an additional Share at a price of $0.50 per Share for a period of five years from the date of issuance. The Company paid in cash, finder’s fees totaling $1,280.
On September 20, 2017, the Company closed the first tranche of a non-brokered private placement involving the issuance of 6,679,680 units and 6,290,000 special warrants (the “Special Warrants”) at a price of $0.35 per each unit and Special Warrant and raised gross proceeds of $4,539,390. Each unit consisted of one Share and one half of one Share purchase warrant. Each first tranche warrant entitles the holder to purchase one additional Share at an exercise price of $0.40 for a period of three years from the date of closing of the first tranche of the placement. Each Special Warrant was exercisable for one unit at no additional cost to the holder. In connection with the first tranche of the placement, the Company paid finder’s fees of $30,606 and issued 870,130 finder’s Special Warrants,
which were exercisable on identical terms as those Special Warrants issued to subscribers through the first tranche of the placement.
On October 16, 2017, the Company closed the second and final tranche of the placement involving the issuance of 1,165,780 units and 4,143,710 Special Warrants at a price of $0.35 per each unit and Special Warrant and raised gross proceeds of $1,858,325. Each unit consists of one Share and one half of one warrant. Each second tranche warrant entitles the holder to purchase one additional Share of the Company at an exercise price of $0.40 for a period of three years from the date of closing of the second tranche of the placement. In connection with the second tranche of the placement, the Company paid finder’s fees of $56,020 and issued 93,270 finder’s Special Warrants, which were exercisable on identical terms as those Special Warrants issued to subscribers through the second tranche of the placement.
SILVER ELEPHANT MINING CORP.
(formerly Prophecy Development Corp.)
Notes to Annual Consolidated Financial Statements
For the years ended December 31, 2019, 2018 and 2017
(Expressed in Canadian Dollars)
The total subscription proceeds of $3,651,800, which were raised from the sale of the Special Warrants under the placement, were held in an escrow account with the Company’s Transfer Agent pending shareholder approval for the issuance of the Units underlying the Special Warrants. TSX and shareholder approval for the issuance of the
19.
SHARE CAPITAL (cont’d…)
(b)
Equity issuances (cont’d…)
During the year ended December 31, 2017(cont’d…)
Private Placements(cont’d…)
Units underlying the Special Warrants was obtained on December 15, 2017. On December 18, 2017, the Company issued 11,397,110 units underlying an equivalent number of Special Warrants previously issued under the placement. On December 18, 2017, the Special Warrants subscription proceeds, previously held in escrow, were released to the Company.
The finder’s Special Warrants have been valued at $0.35 each based upon the concurrent financing price of the placement to which they relate. The Company has recorded the fair value of the finder’s warrants as share issuance costs.
Debt Settlements
On January 12, 2017, the Company issued 3,000,000 Shares with a value of $1,599,000 to Mr. Lee pursuant a Debt Settlement Agreement with Linx to settle $900,000 of the outstanding balance owing by the Company to Linx under the Credit Facility. The Company recorded a loss of $699,000 to account for the difference in the fair value of the Company’s shares on the settlement date and the debt settled.
On June 13, 2017, the Company issued 596,590 units (“Debt Settlement Units1”) with a value of $267,869, to certain of its directors and officers to settle various debts owing to them totalling $238,636 pursuant to the terms of debt settlement agreements entered with those directors and officers. Each Debt Settlement Unit1 is comprised of one Share and one Share purchase warrant of the Company entitling the holder thereof to purchase, upon exercise of a warrant, one additional Share at a price of $0.50 per Share for a period of five years from the date of issuance of the Debt Settlement Units1. The Company recorded a loss of $29,233 to account for the difference in the fair value of the Company’s shares on the settlement date and the debt settled.
On December 18, 2017, the Company issued 422,540 units (“Debt Settlement Units2”) with a value of $172,400, to certain of its directors and officers to settle various debts owing to them totalling $147,891 pursuant to the terms of debt settlement agreements entered with those directors and officers. Each Debt Settlement Unit2 is comprised of one Share and one Share purchase warrant of the Company entitling the holder thereof to purchase, upon exercise of a warrant, one additional Share at a price of $0.40 per Share for a period of three years from the date of issuance of the Debt Settlement Units2. The Company recorded a loss of $24,509 to account for the difference in the fair value of the Company’s shares on the settlement date and the implied value from the debt settled.
Shares Issued for Mineral Properties
On February 10, 2017, the Company acquired the remaining 20% title interest of Randsburg (Note 13) in the patented claims that comprise the Titan project by issuing to Randsburg 200,000 Shares at a value of $0.48 per Share.
Share Bonus to Personnel
On January 12, 2017, the Company issued 390,000Shares with a fair value of $0.49 per Share as a bonus to its directors, officers and consultants.
Share Compensation for Services
On December 18, 2017, the Company issued 984,200 units with a fair value of $0.35 per unit, to Skanderbeg Capital Advisors Inc. (“Skanderbeg(the “SkanderbegUnits”). The Company entered into a consulting agreement with Skanderbeg to explore and evaluate strategic alternatives to maximize value for The Company’s non-core assets.
SILVER ELEPHANT MINING CORP.
(formerly Prophecy Development Corp.)
Notes to Annual Consolidated Financial Statements
For the years ended December 31, 2019, 2018 and 2017
(Expressed in Canadian Dollars)
19.
SHARE CAPITAL (cont’d…)
(b)
Equity issuances (cont’d…)
During the year ended December 31, 2017(cont’d…)
Share Compensation for Services (cont’d…)
Each Skanderbeg Unit consists of one Share and one half of one Share purchase warrant. Each warrant entitles the holder to acquire an additional Share at a price of $0.40 per Share for a period of three years from the date of issuance.
Exercise of Stock Options and Warrants
During the year ended December 31, 2017, the Company issued 126,870 and 150,000 Shares on the exercise of stock options and warrants respectively for total proceeds of $110,685.
(c) Share-based compensation plan The Company has a 20% fixed equity-based compensation plan in place, as approved by the Company’s shareholders on June 2, 2016 (the “2016 Plan”), amended on June 13, 2017 and subsequently amended at the Company’s annual general meeting of shareholders held on September 12, 2019 (the “Amended 2016 Plan”). Under the Amended 2016 Plan the Company may grant stock options, bonus shares or stock appreciation rights to acquire the equivalent of a maximum of 14,372,419 of the Company’s Common Shares. All stock options and other share-based awards granted by the Company, or to be granted by the Company, since the implementation of the Amended 2016 Plan will be issued under, and governed by, the terms and conditions of the Amended 2016 Plan. The stock option vesting terms are determined by the Board of Directors on the date of grant with a maximum term of 10 years. During the year ended December 31, 2020, the Company granted 3,820,000 incentive stock options to its directors, officers, employees and consultants.The options are exercisable at an exercise prices ranging from $0.22 to $0.50 per Common Share and expiry dates ranging from January 6, 2025 to August 17, 2025 and vest at 12.5% per quarter for the first two years following the date of grant. SILVER ELEPHANT MINING CORP. Notes to Annual Consolidated Financial Statements For the years ended December 31, 2020, 2019 and 2018 (Expressed in Canadian Dollars) 19. SHARE CAPITAL (cont’d…) (c) Share-based compensation plan (cont’d…) During the year ended December 31, 2019, the Company granted 3,965,000 incentive stock options to its directors, officers, employees and consultants. The options are exercisable at an exercise prices ranging from $0.20 to $0.44 per Common Share and expiry dates ranging from April 1, 2024 to November 15, 2024 and vest at 12.5% per quarter for the first two years following the date of grant. During the year ended December 31, 2018, the Company granted 4,040,000 incentive stock options to its directors, officers, employees and consultants. The options are exercisable at an exercise prices ranging from $0.22 to $0.65 per Common Share and expiry dates ranging from February 20, 2023 to November 14, 2023 and vest at 12.5% per quarter for the first two years following the date of grant. During the year ended December 31, 2017, the Company granted 4,080,000 incentive stock options to its directors, officers, employees and consultants. The options are exercisable at an exercise prices ranging from $0.33 to $0.49
per Share and expiry dates ranging from January 12, 2022 to November 6, 2022 and vest at 12.5% per quarter for the first two years following the date of grant.
The following is a summary of the changes in the Company’s stock options from December 31, 20162017 to December 31, 2019:2020: | | Weighted Average Exercise Price | Outstanding, December 31, 2018 | 9,591,000 | $0.34 | Granted | 3,965,000 | $0.31 | Expired | (315,000) | $0.65 | Cancelled | (2,247,000) | $0.32 | Forfeited | (794,000) | $0.54 | Exercised | (622,500) | $0.28 | Outstanding, December 31, 2019 | 9,577,500 | $0.31 | Granted | 3,820,000 | $0.28 | Expired | (90,000) | $0.50 | Cancelled | (1,801,250) | $0.30 | Exercised | (1,233,750) | $0.24 | Outstanding, December 31, 2020 | 10,272,500 | $0.31 |
[remainderAs of this page has been intentionally left blank]December 31, 2020, the following the Company stock options were outstanding:
| Expiry | | | | | Date | | $0.50 | August 17, 2025 | 720,000 | 90,000 | 630,000 | $0.22 | May 4, 2025 | 2,200,000 | 825,000 | 1,375,000 | $0.33 | November 15, 2024 | 100,000 | 62,500 | 37,500 | $0.50 | November 1, 2024 | 1,100,000 | 687,500 | 412,500 | $0.20 | July 29, 2024 | 1,475,000 | 1,106,250 | 368,750 | $0.33 | October 17, 2023 | 620,000 | 620,000 | - | $0.28 | April 6, 2023 | 612,500 | 612,500 | - | $0.31 | February 20, 2023 | 200,000 | 200,000 | - | $0.35 | September 1, 2022 | 880,000 | 880,000 | - | $0.33 | June 12, 2022 | 805,000 | 805,000 | - | $0.49 | January 12, 2022 | 620,000 | 620,000 | - | $0.20 | June 2, 2021 | 940,000 | 940,000 | - | | 10,272,500 | 7,448,750 | 2,823,750 |
SILVER ELEPHANT MINING CORP. (formerly Prophecy Development Corp.)
Notes to Annual Consolidated Financial Statements For the years ended December 31, 2020, 2019 2018 and 20172018 (Expressed in Canadian Dollars) 19. SHARE CAPITAL (cont’d…) (c) Share-based compensation plan (cont’d…)
| | Weighted Average Exercise Price | Outstanding, December 31, 2016 | 4,608,140 | $0.64 | Granted | 4,080,000 | $0.38 | Expired | (312,930) | $2.08 | Exercised | (126,870) | $0.40 | Outstanding, December 31, 2017 | 8,248,340 | $0.46 | Granted | 4,040,000 | $0.31 | Expired | (349,720) | $1.21 | Cancelled | (1,815,120) | $0.45 | Forfeited | (445,000) | $1.04 | Exercised | (87,500) | $0.28 | Outstanding, December 31, 2018 | 9,591,000 | $0.34 | Granted | 3,965,000 | $0.31 | Expired | (315,000) | $0.65 | Cancelled | (2,247,000) | $0.32 | Forfeited | (794,000) | $0.54 | Exercised | (622,500) | $0.28 | Outstanding, September 30, 2019 | 9,577,500 | $0.31 |
As of December 31, 2019, the following the Company stock options were outstanding:
Exercise | Expiry | | | | Price | Date | | | | | | | | | | | $0.33 | November 15, 2024 | 100,000 | - | 12,500 | 87,500 | $0.44 | November 1, 2024 | 1,610,000 | - | 201,250 | 1,408,750 | $0.20 | July 29, 2024 | 1,565,000 | - | 391,250 | 1,173,750 | $0.21 | April 1, 2024 | 500,000 | - | 187,500 | 312,500 | $0.65 | November 14, 2023 | - | 200,000 | - | - | $0.33 | October 17, 2023 | 705,000 | 940,000 | 352,500 | 352,500 | $0.26 | October 10, 2023 | - | 550,000 | - | - | $0.22 | July 23, 2023 | 400,000 | 400,000 | 250,000 | 150,000 | $0.31 | May 1, 2023 | 150,000 | 200,000 | 112,500 | 37,500 | $0.28 | April 6, 2023 | 862,500 | 1,225,000 | 646,875 | 215,625 | $0.31 | February 20, 2023 | 200,000 | 200,000 | 175,000 | 25,000 | $0.35 | September 1, 2022 | 980,000 | 1,250,000 | 980,000 | - | $0.33 | June 12, 2022 | 805,000 | 1,225,000 | 805,000 | - | $0.49 | January 12, 2022 | 620,000 | 820,000 | 620,000 | - | $0.20 | June 2, 2021 | 990,000 | 1,420,000 | 990,000 | - | $0.50 | June 22, 2020 | 30,000 | 311,000 | 30,000 | - | $0.50 | April 7, 2020 | 60,000 | 535,000 | 60,000 | - | $0.65 | May 1, 2019 | - | 315,000 | - | - | | | 9,577,500 | 9,591,000 | 5,814,375 | 3,763,125 |
SILVER ELEPHANT MINING CORP.
(formerly Prophecy Development Corp.)
Notes to Annual Consolidated Financial Statements
For the years ended December 31, 2019, 2018 and 2017
(Expressed in Canadian Dollars)
19.
SHARE CAPITAL (cont’d...)
(c)
Share-based compensation plan (cont’d…) Share-based payment expenses resulting from stock options are amortized over the corresponding vesting periods. During the yearyears ended December 31, 2020, 2019 2018 and 2017,2018, the share-based payment expenses were calculated using the following weighted average assumptions: | | | | | | | | | | Risk-free interest rate | 1.54% | 1.77% | 1.25% | 1.46% | 1.54% | 1.77% | Expected life of options in years | 4.45 | 4.40 | 4.4 | 4.06 | 4.45 | 4.4 | Expected volatility | 132.75% | 135.71% | 133.55% | 132.47% | 132.75% | 135.71% | Expected dividend yield | Nil | | | Expected forfeiture rate | 12% | 12% | | 12% | Weighted average fair value of options granted during the period | $0.31 | $0.32 | | Weighted average fair value of options granted during the year | | $0.30 | $0.31 | $0.32 |
The expected volatility used in the Black-Scholes option pricing model is based on the historical volatility of the Company’s shares. The expected forfeiture rate is based on the historical forfeitures of options issued. Share-based payments charged to operations and assets were allocated between deferred mineral properties, and general and administrative expenses. Share-based payments are allocated between being either capitalized to deferred exploration costs where related to mineral properties or expensed as general and administrative expenses where otherwise related to the general operations of the Company. For the year ended December 31, 2020, 2019, 2018, and 2017,2018, share-based payments were recorded as follows:
![](https://files.docoh.com/20-F/0001654954-20-003597/img004.jpg) | | | | | | Consolidated Statement of Operations | | | | Share based payments | 770,617 | 707,802 | 553,430 | | $770,617 | $707,802 | $553,430 | Consolidated Statement of Financial Position | | | | Gibellini exploration | 124,855 | 79,888 | 87,186 | Pulacayo exploration | 86,772 | 39,139 | 117,871 | | 211,627 | 119,027 | 205,057 | Total share-based payments | $982,244 | $826,829 | $758,487 |
On July 29, 2019, further to the voluntary forfeiture of share options held by certain directors, officers, and employees with expiry dates on April 7, 2020, June 22, 2020, and November 14, 2023, at exercise prices ranging from $0.50 to $0.65, the Company granted 1,275,000 new stock options to such individuals with an expiry date of July 29, 2024 at an exercise price of $0.20 per Common Share subject to a two-year vesting schedule whereby 12.5% vest per quarter following the date of grant. As atDuring the year ended December 31, 2019,2020, the re-issuing of these options had beenwas approved by the TSX but they had not been approvedand by the shareholders; consequently,shareholders. There was no increase to the incremental fair value of the share options as a result of these options were not valued. See Note 27.modifications. The impact of these modifications was calculated using the following weighted average assumptions: (1) a risk-free interest rate of 1.46%; (2) expected life of five years; (3) expected volatility of 133.89%, (4) forfeiture rate of 12%, and (5) dividend yield of nil. SILVER ELEPHANT MINING CORP. Notes to Annual Consolidated Financial Statements For the years ended December 31, 2020, 2019 and 2018 (Expressed in Canadian Dollars) 19. SHARE CAPITAL (cont’d...) (d) Share purchase warrants The following is a summary of the changes in The Company’s share purchase warrants from December 31, 20162017 to December 31, 2019:2020: SILVER ELEPHANT MINING CORP.
(formerly Prophecy Development Corp.)
Notes to Annual Consolidated Financial Statements
For the years ended December 31, 2019, 2018 and 2017
(Expressed in Canadian Dollars)
19.
SHARE CAPITAL (cont’d...)
(d)
Share purchase warrants (cont’d...)
| | Weighted Average Exercise Price | | Weighted Average Exercise Price | Outstanding, December 31, 2016 | 13,480,600 | $0.47 | | Issued | 12,453,680 | $0.41 | | Exercised | (150,000) | $0.40 | | Expired | (26,250) | $0.70 | | Outstanding, December 31, 2017 | 25,758,030 | $0.44 | | Issued | 5,061,417 | $0.40 | | Exercised | (3,445,420) | $0.39 | | Expired | (56,000) | $0.40 | | Outstanding, December 31, 2018 | 27,318,027 | $0.44 | 27,318,027 | $0.15 | Exercised | (651,430) | $0.38 | (651,430) | $0.38 | Outstanding, December 31, 2019 | 26,666,597 | $0.44 | 26,666,597 | $0.15 | Issued | | 16,691,900 | $0.18 | Expired | | (2,759,760) | $0.48 | Exercised | | (14,027,670) | $0.21 | Outstanding, December 31, 2020 | | 26,571,067 | $0.21 |
On February 15, 2018, the Company issued 500,000 Share purchase warrants as a part of consideration for mining claims acquisition (Note 13)14). The fair value of $89,944 of the issued warrants determined using the Black-Scholes option pricing model using the following assumptions: (1) a risk-free interest rate of 1.9%; (2) warrant expected life of three years; (3) expected volatility of 116%, and (4) dividend yield of nil. On April 23, 2018, the Company issued 500,000 Share purchase warrants as a part of consideration for services related to the Gibellini Project. The fair value of $92,000 of the issued warrants determined using the Black-Scholes option pricing model using the following assumptions: (1) a risk-free interest rate of 2%; (2) warrant expected life of three years; (3) expected volatility of 97.4%, and (4) dividend yield of nil. As of December 31, 2019,2020, the following The Company share purchase warrants were outstanding: | | Expiry Date | Number of warrants at December 31, 2020 | $0.40 | | November 24, 2021 | 1,335,000 | $0.16 | | May 20, 2023 | 4,962,000 | $0.16 | | May 1, 2023 | 4,994,900 | $0.26 | | June 13, 2022 | 521,590 | $0.26 | | April 12, 2022 | 1,032,500 | $0.26 | | January 13, 2022 | 499,990 | $0.26 | | August 29, 2021 | 1,013,670 | $0.26 | | August 13, 2021 | 198,237 | $0.26 | | July 6, 2021 | 3,863,180 | $0.26 | | June 2, 2021 | 7,500,000 | $0.26 | | January 25, 2021 | 650,000 | | | | | 26,571,067 | | Expiry Date | | | | | June 13, 2022 | 596,590 | | | April 12, 2022 | 1,032,500 | | | January 13, 2022 | 499,990 | | | August 29, 2021 | 1,013,670 | | | August 13, 2021 | 198,237 | | | July 6, 2021 | 3,863,180 | | | June 2, 2021 | 7,500,000 | | | April 23, 2021 | - | 100,000 | | | February 15, 2021 | 500,000 | | | January 25, 2021 | 650,000 | | | December 18, 2020 | 211,250 | | | November 13, 2020 | 625,000 | | | October 16, 2020 | 2,533,020 | | $0.70 | September 30, 2020 | 1,112,000 | | | September 20, 2020 | 3,983,490 | 4,534,920 | | | June 24, 2020 | 1,147,670 | | | May 22, 2020 | 1,200,000 | | | | 26,666,597 | 27,318,027 | |
SILVER ELEPHANT MINING CORP. (formerly Prophecy Development Corp.)
Notes to Annual Consolidated Financial Statements For the years ended December 31, 2020, 2019 2018 and 20172018 (Expressed in Canadian Dollars) 20. CAPITAL RISK MANAGEMENT Management considers its capital structure to consist of share capital, share purchase options and warrants. The Company manages its capital structure and makes adjustments to it, based on the funds available to, and required by the Company in order to support the acquisition, exploration and development of mineral properties. The Board of Directors does not establish quantitative returns on capital criteria for management. In order to facilitate the management of its capital requirement, the Company prepares annual expenditure budgets that are updated as necessary depending on various factors. The annual and updated budgets are approved by the Board of Directors. The properties, to which the Company currently has an interest in, are in the exploration stage; as such, Thethe Company is dependent on external financing to fund its activities. In order to carry out the planned exploration and development and pay for administrative costs, Thethe Company will spend its existing working capital and raise additional amounts as needed. There were no changes in managements approach to capital management during the year ended December 31, 2019.2020. Neither the Company nor its subsidiaries are subject to externally imposed capital requirements. 21. FAIR VALUE MEASUREMENTS AND FINANCIAL INSTRUMENTS Fair Value Measurements Fair value hierarchy Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The fair value hierarchy establishes three levels to classify the inputs to valuation techniques used to measure fair value. The Company utilizes a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value as follows: Level 1 – quoted prices (unadjusted) in active markets for identical assets or liabilities; Level 2 – inputs are quoted prices in markets that are not active, quoted prices for similar assets or liabilities in active markets, inputs other than quoted prices that are observable for the asset or liability (for example, interest rate and yield curves observable at commonly quoted intervals, forward pricing curves used to value currency and commodity contracts and volatility measurements used to value option contracts), or inputs that are derived principally from or corroborated by observable market data or other means;and Level 3 – inputs for the asset or liability that are not based on observable market data (unobservable inputs). The fair value hierarchy gives the highest priority to Level 1 inputs and the lowest priority to Level 3 inputs. The following table sets forth Thethe Company’s financial assets measured at fair value by level within the fair value hierarchy. | | | | | Financial assets | | | | | Cash and cash equivalents, December 31, 2019 | $3,017,704 | $- | $- | $3,017,704 | Cash and cash equivalents, December 31, 2018 | $5,304,097 | $- | $- | $5,304,097 | Cash and cash equivalents, December 31, 2017 | $4,100,608 | $- | $- | $4,100,608 |
| | | | | Financial assets | | | | | Cash, December 31, 2020 | $7,608,149 | $- | $- | $7,608,149 | Cash, December 31, 2019 | $3,017,704 | $- | $- | $3,017,704 | Cash, December 31, 2018 | $5,304,097 | $- | $- | $5,304,097 |
Categories of financial instruments The Company considers that the carrying amount of all its financial assets and financial liabilities measured at amortized cost approximates their fair value due to their short term nature. Restricted cash equivalents approximate fair value due to the nature of the instrument. The Company does not offset financial assets with financial liabilities. There were no transfers between Level 1, 2 and 3 for the year ended December 31, 2019. 2020. SILVER ELEPHANT MINING CORP. (formerly Prophecy Development Corp.)
Notes to Annual Consolidated Financial Statements For the years ended December 31, 2020, 2019 2018 and 20172018 (Expressed in Canadian Dollars)
The Company’s financial assets and financial liabilities are categorized as follows:
21. FAIR VALUE MEASUREMENTS AND FINANCIAL INSTRUMENTS (cont’d...) Fair Value Measurements (cont’d...) Categories of financial instruments (cont’d...) | | | | Fair value through profit or loss | | | | Cash | $3,017,704 | $5,304,097 | $4,100,608 | Fair value through other comprehensive income | | | | Marketable securities | $- | $- | $205,600 | Amortized cost | | | | Receivables | $246,671 | $36,399 | $34,653 | Restricted cash equivalents | $34,500 | $34,500 | $34,500 | | $3,298,875 | $5,374,996 | $4,375,361 | Amortized cost | | | | Accounts payable and accrued liabilities | $2,420,392 | $1,636,786 | $1,895,983 | Lease liability | $52,818 | $- | $- | | $2,473,210 | $1,636,786 | $1,895,983 |
The Company’s financial assets and financial liabilities are categorized as follows: | | | | Fair value through profit or loss | | | | Cash | $7,608,149 | $3,017,704 | $5,304,097 | Amortized cost | | | | Receivables | $75,765 | $246,671 | $36,399 | Restricted cash equivalents | $34,500 | $34,500 | $34,500 | | $7,718,414 | $3,298,875 | $5,374,996 | Amortized cost | | | | Accounts payable | $1,717,977 | $2,420,392 | $1,636,786 |
22. FINANCIAL RISK MANAGEMENT DISCLOSURES Liquidity risk is the risk that an entity will be unable to meet its financial obligations as they fall due. The Company manages liquidity risk by preparing cash flow forecasts of upcoming cash requirements. As at December 31, 2019, 2020, the Company had a cash and cash equivalents balance of $7,608,149 (December 31, 2019 – $3,017,704, (DecemberDecember 31, 2018 – $5,304,097, December 31, 2017 – $4,100,608)$5,304,097). As at December 31, 20192020 the Company had accounts payable and accrued liabilities of $2,452,677 (December$1,759,163 (December 31, 2019 - $2,420,392 December 31, 2018 - $1,636,786, December 31, 2017 - $1,895,983)$1,636,786), which have contractual maturities of 90 days or less. The Company has a planning and budgeting process in place by which it anticipates and determines the funds required to support normal operation requirements as well as the growth and development of its mineral property interests. The Company coordinates this planning and budgeting process with its financing activities through the capital management process in normal circumstances. The following table details the Company’s current and expected remaining contractual maturities for its financial liabilities with agreed repayment periods. The table is based on the undiscounted cash flows of financial liabilities. | | | | | | | Accounts payable and accrued liabilities | | | As at December 31, 2020 | | $1,759,163 | $- | $1,759,163 | As at December 31, 2019 | $2,452,677 | $- | $2,452,677 | $2,420,392 | $- | $2,420,392 | As at December 31, 2018 | $1,636,786 | $- | $1,636,786 | $1,636,786 | $- | $1,636,786 | As at December 31, 2017 | $1,895,983 | $- | $1,895,983 | | Lease liability as at December 31,2019 | $16,143 | $32,285 | |
Credit risk is the risk that one party to a financial instrument will fail to discharge an obligation and cause the other party to incur a financial loss. The Company is exposed to credit risk primarily associated to cash and cash equivalents, restricted cash equivalents and receivables, net of allowances. The carrying amount of financial assets included on the statements of financial position represents the maximum credit exposure.
SILVER ELEPHANT MINING CORP. (formerly Prophecy Development Corp.)
Notes to Annual Consolidated Financial Statements For the years ended December 31, 2020, 2019 2018 and 20172018 (Expressed in Canadian Dollars)
22. FINANCIAL RISK MANAGEMENT DISCLOSURES (cont’d...) Interest rate risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate due to changes in market interest rates. The Company’s cash and cash equivalents and restricted cash equivalents primarily include highly liquid investments that earn interest at market rates that are fixed to maturity. Due to the short‐ term nature of these financial instruments, fluctuations in market rates do not have significant impact on the fair values of the financial instruments as of December 31, 2019.2020. The Company manages interest rate risk by maintaining an investment policy that focuses primarily on preservation of capital and liquidity. (ii) Foreign currency risk The Company is exposed to foreign currency risk to the extent that monetary assets and liabilities held by the Company are not denominated in Canadian dollars. The Company has exploration and development projects in Mongolia and Bolivia and undertakes transactions in various foreign currencies. The Company is therefore exposed to foreign currency risk arising from transactions denominated in a foreign currency and the translation of financial instruments denominated in US dollars, Mongolian tugrik, and Bolivian boliviano into its functional and reporting currency, the Canadian dollar. Based on the above, net exposures as at December 31, 2019,2020, with other variables unchanged, a 10% (December 31, 20182019 – 10%, December 31, 20172018 – 10%) strengthening (weakening) of the Canadian dollar against the Mongolian tugrik would impact net loss with other variables unchanged by $144,000.$100,000. A 10% strengthening (weakening) of the Canadian dollar against the Bolivian boliviano would impact net loss with other variables unchanged by $2,000.$73,000. A 10% strengthening (weakening) of the US dollar against the Canadian dollar would impact net loss with other variables unchanged by $60,000.$28,000. The Company currently does not use any foreign exchange contracts to hedge this currency risk. (ii) (iii)
Commodity and equity price risk Commodity price risk is defined as the potential adverse impact on earnings and economic value due to commodity price movements and volatilities. Commodity prices fluctuate on a daily basis and are affected by numerous factors beyond the Company’s control. The supply and demand for these commodities, the level of interest rates, the rate of inflation, investment decisions by large holders of commodities including governmental reserves and stability of exchange rates can all cause significant fluctuations in prices. Such external economic factors are in turn influenced by changes in international investment patterns and monetary systems and political developments. The Company is also exposed to price risk with regards to equity prices. Equity price risk is defined as the potential adverse impact on the Company’s earnings due to movements in individual equity prices or general movements in the level of the stock market. The Company closely monitors commodity prices, individual equity movements and the stock market to determine the appropriate course of action to be taken by the Company. Fluctuations in value may be significant. 23. RELATED PARTY DISCLOSURES During the year ended December 31, 2019,2020, the Company had related party transactions with the following companies, related by way of directors and key management personnel: ● Linx Partners Ltd., a private company controlled by John Lee, Director, CEO and Executive Chairman of Prophecy, provides management and consulting services to the Company. ● MaKevCo Consulting Inc., a private company 50% owned by Greg Hall, Director of The Company, provides consulting services to the Company. SILVER ELEPHANT MINING CORP. (formerly Prophecy Development Corp.)
Notes to Annual Consolidated Financial Statements For the years ended December 31, 2020, 2019 2018 and 20172018 (Expressed in Canadian Dollars)
23. RELATED PARTY DISCLOSURES (cont’d...) ● Sophir Asia Ltd., a private company controlled by Masa Igata, Director of The Company, provides consulting services to the Company.Company. A summary of related party transactions by related party is as follows: | | | Related parties | | | | | | | Directors and officers | $1,685,242 | $1,265,152 | $307,425 | $1,536,167 | $1,685,242 | $1,265,152 | Linx Partners Ltd. | 371,000 | 401,044 | 363,781 | 740,000 | 371,000 | 401,044 | MaKevCo Consulting Inc. | 21,400 | 21,200 | 23,600 | 32,800 | 21,400 | 21,200 | Sophir Asia Ltd. | 19,600 | 19,100 | 19,700 | 26,100 | 19,600 | 19,100 | | $2,097,242 | $1,706,496 | $714,506 | $2,335,067 | $2,097,242 | $1,706,496 |
A summary of the transactions by nature among the related parties is as follows: | | | Related parties | | | | | | | Consulting and management fees | $218,500 | $268,456 | $247,525 | $370,000 | $218,500 | $268,456 | Directors' fees | 103,805 | 70,378 | 60,600 | 108,600 | 103,805 | 70,378 | Mineral properties | 1,171,585 | 631,610 | 201,875 | 1,387,067 | 1,171,585 | 631,610 | Salaries | 603,352 | 736,052 | 204,506 | 469,400 | 603,352 | 736,052 | | $2,097,242 | $1,706,496 | $714,506 | $2,335,067 | $2,097,242 | $1,706,496 |
As at December 31, 2019,2020, amounts due to related parties were $30,533$1,800 (December 31, 2019 - $30,533;December 31, 2018 - $4,634), (December 31, 2017 - $160,503) and included in accounts payable and accrued liabilities. During the years ended December 31, 2012 and 2013, the Company shared administrative assistance, office space, and management with Nickel Creek Platinum Corp. (“Nickel”) pursuant to a Service Agreement dated January 1, 2012, consisting of fixed monthly fees of $40,000. During the year ended December 31, 2018, the Company received $50,000 as a debt settlement in satisfaction of an amount owing from Nickel for services rendered to Nickel and expenses incurred on behalf of Nickel, which was reflected on the consolidated statement of operations.
24. KEY MANAGEMENT PERSONNEL COMPENSATION Key management personnel are those persons having authority and responsibility for planning, directing and controlling the activities of the Company, including directors of the Company. | | | Key Management Personnel | | | | | | | Salaries and short term benefits | $696,751 | $775,064 | $204,506 | $522,359 | $696,751 | $775,064 | Directors' fees | 103,805 | 70,378 | 60,600 | 108,600 | 103,805 | 70,378 | Share-based payments | 431,037 | 621,339 | 596,232 | 1,054,812 | 431,037 | 621,339 | | $1,231,593 | $1,466,781 | $861,338 | $1,685,771 | $1,231,593 | $1,466,781 |
SILVER ELEPHANT MINING CORP. (formerly Prophecy Development Corp.)
Notes to Annual Consolidated Financial Statements For the years ended December 31, 2020, 2019 2018 and 20172018 (Expressed in Canadian Dollars)
25. SUPPLEMENTAL CASH FLOW INFORMATION | | | | | | | | | | Supplementary information | | | Interest paid | $- | $21,066 | | Non-Cash Financing and Investing Activities | | | Shares issued to pay credit facility | $- | $900,000 | | Shares issued on acquisition of mineral property | $- | $96,200 | $2,000,000 | $- | Bonus shares and shares | $115,000 | $- | $190,320 | | Bonus shares | | $640,400 | $115,000 | $- | Shares for services | $241,003 | $- | $80,500 | $241,003 | $- | Shares issued to settle debt | $43,030 | $- | $386,527 | $- | $43,030 | $- | Shares issued recorded as prepaid expenses | $35,000 | $- | | Subscriptions receivable | $30,497 | $- | | Share issued recorded as prepaid expenses | | $- | $35,000 | $- | Subscription receivable | | $- | $30,497 | $- | Warrants issued for mineral property | $- | $181,944 | $- | $- | $181,944 | Finders units | | $24,000 | $- | Broker warrants | | $226,917 | $- | Depreciation included in mineral property | $3,487 | $27,387 | $216,653 | $46,932 | $3,487 | $27,387 | Equipment expenditures included in accounts payable | $472,213 | $489,890 | $580,634 | $- | $472,213 | $489,890 | Fair value loss/gain on marketable securities | $- | $12,160 | $- | $12,160 | Mineral property expenditures included in accounts payable | $1,252,796 | $1,067,747 | $753,248 | $681,781 | $1,252,796 | $1,067,747 | Share-based payments capitalized in mineral properties | $119,028 | $205,057 | $227,979 | $211,627 | $119,028 | $205,057 | Reclassification of contributed surplus on exercise of options | $153,845 | $15,350 | $14,567 | $272,848 | $153,845 | $15,350 | Reclassification of contributed surplus on exercise of warrants | $28,478 | $132,453 | $10,650 | $166,628 | $28,478 | $10,650 |
Except as disclosed elsewhere in these financial statements, the Company has the following financial obligations in the ordinary course of business:
| | | | | | | | | | Office Lease Obligations | $45,489 | $24,574 | $9,540 | $79,603 | | $45,489 | $24,574 | $9,540 | $79,603 |
ASC tax claim On January 2, 2015, the Company acquired ASC Holdings Limited and ASC Bolivia LDC (which together, hold ASC Bolivia LDC Sucursal Bolivia, which in turn, held Apogee Silver Ltd.’s (“Apogee”) joint venture interest in the Pulacayo Project) and Apogee Minerals Bolivia S.A. Pursuant to the terms of the Agreement, the Company agreed to assume all liabilities of these former Apogee subsidiaries, including legal and tax liabilities associated with the Pulacayo Project. During Apogee’s financial year ended June 30, 2014, it received notice from the Servicio de Impuestos Nacionales, the national tax authority in Bolivia, that ASC Bolivia LDC Sucursal Bolivia, now the Company’s wholly-owned subsidiary, owed approximately Bs42,000,000 in taxes, interest and penalties relating to a historical tax liability in an amount originally assessed at approximately $760,000 in 2004, prior to Apogee acquiring the subsidiary in 2011. Apogee disputed the assessment and disclosed to the Company that it believed the notice was improperly issued. The Company continued to dispute the assessment and hired local legal counsel to pursue an appeal of the tax authority’s assessment on both substantive and procedural grounds. The Company received a positive Resolution issued by the Bolivian Constitutional Court that among other things, declared null and void the previous Resolution of the Bolivian Supreme Court issued in 2011 (that imposed the tax liability on ASC Bolivia LDC Sucursal Bolivia) and sent the matter back to the Supreme court to consider and issue a new resolution. SILVER ELEPHANT MINING CORP.
(formerly Prophecy Development Corp.)
Notes to Annual Consolidated Financial Statements
For the years ended December 31, 2019, 2018 and 2017
(Expressed in Canadian Dollars)
27.
CONTINGENCIES (cont’d...)
ASC tax claim (cont’d...)
On November 18, 2019 the Company received Resolution No. 195/2018 issued by the Supreme Court of Bolivia which declared the tax claim brought by Bolivia’s General Revenue Authority against the Company’s Bolivian subsidiary as not proven. The Resolution is final and binding. Hence neither the Company nor the Company’s Bolivian subsidiaries owe any outstanding back taxes to the Bolivian General Revenue Authority. During the year ended December 31, 2019, the Company and legal counsel reassessed the status of tax rulings and determined that the probability of a re-issuance of a tax claim against the Company in connection with the above was remote. As a result, the Company has written off the tax liability and recorded a debt settlement gain in the amount of $7,952,700 on its consolidated statements of operations and comprehensive loss.
SILVER ELEPHANT MINING CORP. Notes to Annual Consolidated Financial Statements For the years ended December 31, 2020, 2019 and 2018 (Expressed in Canadian Dollars)
26. CONTINGENCIES (cont’d...) Red Hill tax claim During the year ended December 31, 2014, the Company’s wholly-owned subsidiary, Red Hill Mongolia LLC (“Red Hill”) was issued a letter from the Sukhbaatar District Tax Division notifying it of the results of the Sukhbaatar District Tax Division’s VAT inspection of Red Hill’s 2009-2013 tax imposition and payments that resulted in validating VAT credits of only MNT235,718,533 from Red Hill’s claimed VAT credit of MNT2,654,175,507. Red Hill disagreed with the Sukhbaatar District Tax Division’s findings as the tax assessment appeared to the Company to be unfounded. The Company disputed the Sukhbaatar District Tax Division’s assessment and submitted a complaint to the Capital City Tax Tribunal. On March 24, 2015, the Capital City Tax Tribunal resolved to refer the matter back to the Sukhbaatar District Tax Division for revision and separation of the action between confirmation of Red Hill’s VAT credit, and the imposition of the penalty/deduction for the tax assessment. Due to the uncertainty of realizing the VAT balance, the Company has recorded an impairment charge for the full VAT balance in the year ended December 31, 2015. In June 2019, the Company received a positive resolution issued from the City tax tribunal regarding the Company’s VAT dispute with the Mongolia tax office. The resolution, which is binding and final, affirmed Red Hill’s outstanding VAT credit of 1.169 billion MNT resulted from past mining equipment purchases. The VAT credit can be used to offset Red Hill’s taxes and royalty payments; or be refunded in cash by Mongolia’s Ministry of Finance within 12 to 24 months processing time. Due to the credit risk associated with the VAT credit, the Company has provided a full valuation provision against the balance. 28. 27.
EVENTS AFTER THE REPORTING DATE The following events occurred subsequent to December 31, 2019:2020: ● Effective January 6, 2020,On February 5, 2021, the Company engaged Mr. Ken Cotiamco to provide investor relations and shareholder communications services by entering into a consulting agreement whereby Ken Cotiamco would receive fromclosed its non-brokered private placement (the “February 2021 Placement”) through the Company renumerationissuance of $4,000 per month for a term of three months, which could be extended and also pursuant to the consulting agreement the Company granted 100,000 incentive stock options10,000,001 Common Shares at a price of $0.41 Share for a term$0.375 per Common Share. The February 2021 Placement raised gross cash proceeds of five years expiring on January 6, 2025;$3,750,000. The Company paid $73,875 in cash as finder’s fees.
● PursuantOn February 10, 2021, the Company acquired the Minago Nickel Project located in Manitoba, Canada (the “Minago Project”) (the “Minago Acquisition) by way of Asset Purchase Agreement (the “APA”) with Victory Nickel Inc. (“Victory Nickel”). Under the terms of the APA,the Company acquired the Minago Project for aggregate consideration of US$11,675,000, which consisted of a US$6,675,000 (“Property Payment”) credit against certain secured debt owed by Victory Nickel to the Company’s Share-Based Compensation Plan, on January 6, 2020,Company at closing and US$5,000,000 in the Company common shares (“Consideration Shares”)to be issued over a one-year period.
In satisfaction of the Consideration Share to be issued, an initial tranche of 5,363,630 Consideration Shares was issued on February9, 2021,a further US$2,000,000 worth of Consideration Shares will be issued on or before August 31, 2021, and a further US$1,000,000 worth of Consideration Shares on or before December 31, 2021. All Consideration Shares are subject to 4-month plus 1-day statutory hold period. The Property Payment was a credit in favour of Victory Nickel against an aggregate of 1,601,000 Shares as bonus paymentsapproximately US$12,056,307 owed by Victory Nickel pursuant a Secured Debt Facility (the “SDF”). Immediately prior to certain directors, officers, employeesacquiring the Minago Project, the Company acquired the SDF for US$6,675,000 in cash and consultants3 million of the Company; ●
On March 16, 2020,Company’s common share purchase warrants (the “Warrants”), each exercisable until February 8, 2023 at an exercise price of $0.4764 from an arms-length party pursuant to a Debt Purchase and Assignment Agreement (the “DPAA”) executed on January 15, 2021. The SDF has been restructured to bear zero percent interest and to expire on February 8, 2026, which will automatically be extended in 5-year increments. The Companywill credit the Company held its Special Meetingremaining balance under the SDF to Victory Nickel’s benefit, upon completion of Shareholders.an independent economic study proving positive net present value in respect of the Minago Projectduring the term of the SDF. The Company received shareholder approvalagreed to reimburse up to $200,000 of the following:
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changing its name to Silver Elephant Mining Corp.;
financial advisory services rendered by Red Cloud Securities Inc. SILVER ELEPHANT MINING CORP. (formerly Prophecy Development Corp.)
Notes to Annual Consolidated Financial Statements For the years ended December 31, 2020, 2019 2018 and 20172018 (Expressed in Canadian Dollars)
28. 27.
EVENTS AFTER THE REPORTING DATE (cont’d...) ➢
consolidationThe Company subscribed to 40,000,000 common shares of Victory Nickel (“VN share”) at a price per VN share of $0.025 for cash consideration of $1,000,000, which resulted in the Company owning approximately 29% of Victory Nickel post-investment on a non-diluted basis. Each VN share is subject to 4-month plus 1-day statutory hold period.Additionally, the Company agreed to issue to Victory Nickel $2,000,000 in Common Shares, upon the price of nickel exceeding US$10 per pound for 30 consecutive business days, at any time before December 31, 2023. The Companygranted Victory Nickel the right of first refusal exercisable until December 31, 2023 with respect to the exploration of the Company’s issued and outstanding sharessandstone (non-nickel bearing sulphides) resources for frac sand extraction at a ratio between one (1) new Common Share for every five (5) to ten (10) old Common Shares (the “2020 Consolidation”). The effective date of the Name Change and the 2020 Consolidation would be determined at a later date by the Board of the Company; and
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ratification of 1,275,000 stock options previously granted to certain directors, officers, employees and consultants of the Company on July 29, 2019 pursuant to the terms of the Company’s Share-Based Compensation Plan.
Minago Project. ● On March 16, 2020, the Company amended its Articles4,554,990 Common Share purchase warrants were exercised for total proceeds of $1,164,297 and changed its name to “Silver Elephant Mining Corp.”
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On March 19, 2020, the Company changed its’ symbol on the TSX from PCY to “ELEF”.
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On March 23, 2020, the Company changed its’ symbol on the OTCQX from PRPCF to “SILEF”.105,000 stock options were exercised for total proceeds of $28,825.
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In March 2020 the World Health Organization declared coronavirus COVID-19 a global pandemic. This contagious disease outbreak, which has continued to spread, and any related adverse public health developments, has adversely affected workforces, economies, and financial markets globally, potentially leading to an economic downturn. It is not possible for the Company to predict the duration or magnitude of the adverse results of the outbreak and its effects on the Company’s business or results of operations at this time.
(Formerly Prophecy Development Corp.)
Management’s Discussion and Analysis of Financial Condition and Results of Operations For the year ended December 31, 20192020 (Currency expressed in Canadian Dollars, except where indicated) SILVER ELEPHANT MINING CORP. (Formerly “Prophecy Development Corp.”) Management’s Discussion and Analysis of Financial Condition and Results of Operations For the year ended December 31, 20192020 (Expressed in Canadian Dollars, except where indicated) CONTENTS 1 | INTRODUCTION | 3 | INTRODUCTION | 3 | 2 | CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS | 4 | CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS | 5
| 3 | YEAR 2018 HIGHLIGHTS AND SIGNIFICANT EVENTS | 6
| YEAR 2018 HIGHLIGHTS AND SIGNIFICANT EVENTS | 6 | 4 | PROPERTY SUMMARY | 10
| PROPERTY SUMMARY | 11 | 5 | SELECTED ANNUAL FINANCIAL INFORMATION | 41
| SELECTED ANNUAL FINANCIAL INFORMATION | 54
| 6 | SUMMARY OF QUARTERLY RESULTS | 43 | SUMMARY OF QUARTERLY RESULTS | 55
| 7 | RESULTS OF OPERATIONS FOR THE YEAR ENDED DECEMBER 31, 2018 | 43 | RESULTS OF OPERATIONS FOR THE YEAR ENDED DECEMBER 31, 2018 | 55
| 8 | RESULTS OF OPERATIONS FOR THE FOURTH QUARTER 2018 | 45 | RESULTS OF OPERATIONS FOR THE FOURTH QUARTER 2018 | 57
| 9 | PROPOSED TRANSACTIONS | 46 | PROPOSED TRANSACTIONS | 58 | 10 | LIQUIDITY AND CAPITAL RESOURCES | 46 | LIQUIDITY AND CAPITAL RESOURCES | 59
| 11 | CONTINGENCIES | 49 | CONTINGENCIES | 62
| 12 | ENVIRONMENTAL REGULATIONS | 50
| ENVIRONMENTAL REGULATIONS | 63
| 13 | RELATED PARTY DISCLOSURES | 50
| RELATED PARTY DISCLOSURES | 63
| 14 | CRITICAL ACCOUNTING ESTIMATES AND JUDGMENTS | 52
| CRITICAL ACCOUNTING ESTIMATES AND JUDGMENTS | 64 | 15 | ACCOUNTING CHANGES AND RECENT ACCOUNTING PRONOUNCEMENTS | 55 | ACCOUNTING CHANGES AND RECENT ACCOUNTING PRONOUNCEMENTS | 68
| 16 | FINANCIAL INSTRUMENTS AND RELATED RISKS | 55 | FINANCIAL INSTRUMENTS AND RELATED RISKS | 69
| 17 | RISKS AND UNCERTAINTIES | 58 | RISKS AND UNCERTAINTIES | 71
| 18 | DISCLOSURE CONTROLS AND PROCEDURES | 58 | DISCLOSURE CONTROLS AND PROCEDURES | 72
| 19 | CHANGES IN INTERNAL CONTROL OVER FINANCIAL REPORTING | 59 | CHANGES IN INTERNAL CONTROL OVER FINANCIAL REPORTING | 73
| 20 | DISCLOSURE OF OUTSTANDING SHARE DATA | 60
| DISCLOSURE OF OUTSTANDING SHARE DATA | 73
| 21 | OFF-BALANCE SHEET ARRANGEMENTS | 60
| OFF-BALANCE SHEET ARRANGEMENTS | 73
|
SILVER ELEPHANT MINING CORP. (Formerly “Prophecy Development Corp.”) Management’s Discussion and Analysis of Financial Condition and Results of Operations For the year ended December 31, 20192020 (Expressed in Canadian Dollars, except where indicated) This Management’s Discussion and Analysis (“MD&A”) of Silver Elephant Mining Corp. (formerly “Prophecy Development Corp.”)and its subsidiaries (the “Company”) provides analysis of the Company’s financial results for the year ended December 31, 2019.2020. The following discussion of performance, financial condition and future prospects should be read in conjunction with the accompanying December 31, 20192020 audited consolidated financial statements and the notes to those financial statements (the “Annual Financial Statements”), prepared in accordance with International Financial Reporting Standards (“IFRS”), as issued by the International Accounting Standards Board, and the Company’s SEC Form 20-F Annual Report (“AR”) for the year ended December 31, 2019,2020 (the “2020 Annual Report”), all of which are available under the Company’s SEDAR profile at www.SEDAR.com. This MD&A is current as of March 30, 2020,12, 2021, was reviewed, approved, and authorized for issue by the Company’s Board of Directors. The information provided herein supplements but does not form part of the financial statements. Financial information is expressed in Canadian dollars, unless stated otherwise. All references to "$" or "dollars" in this MD&A refer to Canadian dollars. References to "US$" or "USD" in this MD&A refer to United States dollars. Readers are cautioned that this MD&A contains “forward-looking statements” and that actual events may vary from management’s expectations. Readers are encouraged to read the cautionary note contained herein regarding such forward-looking statements. Information on risks associated with investing in the Company’s securities, as well as information about mineral resources and reserves under National Instrument 43-101 – Standards of Disclosure for Mineral Projects (“NI 43-101”) are contained in the Company’s most recently filed AR2019 Annual Report which is available onunder the Company’s websiteSEDAR profile atwww.silverelef.comor on SEDAR atwww.sedar.com. www.sedar.com. Description of Business The Company amalgamated under the laws of the Province of British Columbia, Canada. The Company’s Common Shares (the “"Common Shares”, and each, a “Common Share”) are listed for trading on the Toronto Stock Exchange (the “TSX”) under the symbol “ELEF”, the OTCQX under the symbol “SILEF” and on the Frankfurt Stock Exchange under the symbol “1P2N” and are quoted on the OTCQX under the symbol “SILEF”. The Company is ana mineral exploration stage company specializing in mine permitting, construction, and operations.company. The Company holds a mining joint venture interest inCompany's principal projects are the Pulacayo Paca silver-lead-zinc property locatedproject in Bolivia (the “"Pulacayo Project”"). The Company also has a 100% interest in two vanadium projects in North America including and the Gibellini vanadium project which is comprised of the Gibellini and Louie Hill vanadium deposits and associated claims(the “Gibellini Project”) located in the State of Nevada, USAUSA. The Pulacayo Project comprises seven mining areas covering an area of approximately 3,560 hectares of contiguous areas centered on the historical Pulacayo mine and town site. The Pulacayo Project is located 18 kilometers east of the town of Uyuni in the Department of Potosí, in southwestern Bolivia. It is located 460 kilometers south-southeast of the national capital of La Paz and 150 kilometers southwest of the City of Potosí, which is the administrative capital of the department. The Pulacayo Project is fully permitted with secured social licenses for mining. The Pulacayo Project mining rights are recognized by two legally independent contractual arrangements, one covering all, except the Apuradita deposit, from a mining production contract (the “"Gibellini ProjectPulacayo MPC”") between the Company and the Titan vanadium-titanium-iron project comprisedCorporación Minera de Bolivia ("COMIBOL"), a Bolivian state mining company, and the original holder of the Titan vanadium-titanium-ironrights, executed on October 3, 2019. The Pulacayo MPC grants the Company the 100% exclusive right to develop and mine at the Pulacayo and Paca concessions for up to 30 years against certain royalty payments. It is comparable to a mining license in Canada or the United States. In connection with the Apuradita deposit, and related claims locatedits rights are covered by a second contractual arrangement, with the Bolivian Jurisdictional Mining Authority, acting for the Government of Bolivia, which is in process of formalization, as a mean of recognition of the acquired rights to what was originally the mining concession. Until such time as the contract is formalized, all mining rights, as recognized in the ProvinceBolivian Mining Law 535, can be exercised by the holder of Ontario, Canada (the “Titan Project)the ex-concession.. The Company also owncurrently holds, through leasehold assignments, a 100% interest in three coal propertiesthe claims comprising the Gibellini Project, which the Company aims to make the first operating primary vanadium mine in Mongolia which areNorth America, as well as a 100% interest in the Titan vanadium-titanium-iron property located in Ontario, Canada; a 100% interest in the Ulaan Ovoo coal property located in Selenge province, Mongolia; and a 100% interest in each of the Chandgana Tal coal property and the Khavtgai Uul coal property and the Chandgana Tal property. In addition, thelocated in Khentii province, Mongolia. The Company also hasholds the land use right and construction license for the Chandgana power plant project.600MW Coal-Fired Mine Mouth Power Plant project located in Khentil province, Mongolia. The Company’s business strategy focus is to develop the Pulacayo Project and make the Company’s Gibellini Project the first operating primary vanadium mine in North America. The vanadium resources are part of a portfolio of projects the Company is building, through their diversity of locations, commodities and products, reducing the Company’s exposure to adverse regulation and political climates and changes in specific commodity prices.
A diverse portfolio of projects from which a variety of minerals are mined and sold provides multiple opportunities to maintain revenue and is one facet of the Company’s efforts to attain the Company’s ultimate objective of stable positive cash flow.
SILVER ELEPHANT MINING CORP. (Formerly “Prophecy Development Corp.”) Management’s Discussion and Analysis of Financial Condition and Results of Operations For the year ended December 31, 20192020 (Expressed in Canadian Dollars, except where indicated) General Corporate Information: At December 31, 20192020 and March 30, 2020, The12, 2021, the Company had: (i) 121,299,508180,518,828 and 122,915,508200,542,449 Common Shares issued and outstanding, respectively; (ii) 9,577,50010,272,500 and 9,442,50010,167,500 stock options, each exercisable for Sharesthe purchase of one Common Share, outstanding, respectively; (iii) 26,666,59726,571,067 and 25,016,077 Common Share purchase warrants, each exercisable for Shares outstanding.the purchase of one Common Share, outstanding, respectively. | | Transfer Agent and Registrar Computershare Investor Services Inc. 3rd Floor, 510 Burrard Street, Vancouver, BC, Canada, V6C 3B9 Tel: +1 (604) 661-9400 | | | | Investor and Contact Information All financial reports, news releases and corporate information can be accessed by visiting the Company’s website at: www.silverelef.comwww.silverelef.com. Investor & Media requests and queries: Email: ir@silverelef.com | | Head Office and Registered Office Suite 1610 - 409 Granville Street, Vancouver, BC, Canada, V6C 1T2 Tel: +1 (604) 569-3661 |
Directors and Officers As at the date of this MD&A, The Company’s directors and officers were as follows: Directors | Officers | John Lee Executive Chairman | Michael Doolin, Chief(Chief Executive Officer & Chief Operating Officerand Executive Chairman) | Ronald Espell, Vice-President, Environment and Sustainability Danniel Oosterman, Vice-President, Exploration | Greg Hall | Joaquin Merino-Marquez, Vice-President, South American Operations | Masa Igata | Irina Plavutska, Chief Financial Officer | Masa IgataMarc Leduc David H. Smith | Ronald Espell, Vice-President, Environment and SustainabilityBrigitte McArthur, Corporate Secretary | Marc Leduc | Danniel Oosterman, Vice-President, Exploration | Ronald Clayton | Joaquin Merino-Marquez, Vice-President, South American Operations
| Audit Committee | Corporate Governance and Compensation Committee | Greg Hall (Chair) | Greg Hall (Chair) | Masa Igata | Masa Igata | Marc Leduc | Marc Leduc |
Qualified Persons Danniel Oosterman, B.Sc.(Hons), P.Geo., is a “qualified person” as defined underwithin the meaning of NI 43-101.43-101 (a "Qualified Person"). Mr. Oosterman serves as the Company’s Vice-President, Exploration and qualified person.Qualified Person. He is not considered independent of the Company given the large extent that his professional time is dedicated solely to the Company. Mr. Oosterman has reviewed and approved the technical and scientific disclosure regarding the mineral properties of the Company contained in this MD&A. SILVER ELEPHANT MINING CORP. Management’s Discussion and Analysis of Financial Condition and Results of Operations For the year ended December 31, 2020 (Expressed in Canadian Dollars, except where indicated) 2. CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS ThisCertain statements contained in this MD&A contains” forward-looking information” and “forward-looking statements”constitute "forward-looking statements" within the meaning of applicableUnited States securities laws and "forward-looking information" within the meaning of Canadian securities legislation concerninglaws and are intended to be covered by the safe harbors provided by such regulations (such forward-looking statements and forward-looking information are collectively referred to herein as "forward-looking statements"). These forward looking statements concerns matters anticipated developments in the Company’s continuing and future operations in the United States, Canada, Bolivia and Mongolia, and the adequacy of the Company’s financial resources and financial projections. Such forward-looking statements include but are not limited to statements regarding the permitting, feasibility, plans for development of the Gibellini Project; development of the Titan Project; development of the Pulacayo project; development and production of electricity from the Company’s Chandgana power plant, including finalizing of any power purchase agreement; the likelihood of securing project financing; estimated future coal production at the Chandgana project; and coal production at the Ulaan Ovoo coal property and the Chandgana project, and other information concerning possible or assumed future results of operations of the Company. See in particular, Section 4 – Property Summary.
SILVER ELEPHANT MINING CORP. (Formerly “Prophecy Development Corp.”)
Management’s Discussion and Analysis of Financial Condition and Results of Operations
For the year ended December 31, 2019
(Expressed in Canadian Dollars, except where indicated)
Forward-looking statements in this documentMD&A are frequently, but not always, identified by words such as “expects”"expects", “anticipates”"anticipates", “intends”"intends", “plans”"believes", “believes”"estimates", “estimates”, “potentially”"potentially" or similar expressions, or statements that events, conditions or results “will”"will", “may”"may", “would”"would", “could”, “should”"could" or "should" occur or are “to be”"to be" achieved, and statements related to matters which are not historical facts. Information concerning management’smanagement's expectations regarding the Company’sCompany's future growth, results of operations, performance, business prospects and opportunities may also be deemed to be forward-looking statements, as such information constitutes predictions based on certain factors, estimates and assumptions subject to significant business, economic, competitive and other uncertainties and contingencies, and involve known and unknown risks which may cause the actual results, performance, or achievements to be different from future results, performance, or achievements contained in suchthe forward- looking statements. Such forward-looking statements made by the Company. In making the forward-looking statements in this MD&A, the Company has made several assumptions that it believesinclude but are appropriate, including, but not limited to statements regarding the Company's planned and future exploration and/or development of the Pulacayo Project, the Gibellini Project and the Titan Project; permitting and feasibility of the Gibellini Project;the volatility of the novel coronavirus ("COVID-19") outbreak as a global pandemic;political instability and social unrest in Bolivia and other jurisdictions where the Company operates; the Revised Pulacayo Technical Report (as defined herein), including the anticipated filing thereof; the Company's goals regarding exploration, and development of, and production from its projects, and regarding raising capital and conducting further exploration and developments of its properties; the Company's future business plans;the Company's future financial and operating performance; the future price of silver, lead, zinc, vanadium and other metals; expectations regarding any environmental issues that may affect planned or future exploration and development programs and the potential impact of complying with existing and proposed environmental laws and regulations; the ability to obtain or maintain any required permits, licenses or other necessary approvals for the exploration or development of the Company's projects; government regulation of mineral exploration and development operations in Bolivia and other relevant jurisdictions;the Company's reliance on key management personnel, advisors and consultants; the volatility of global financial markets;the timing and amount of estimated future operating and exploration expenditures;the costs and timing of the development of new deposits;the continuation of the Company as a going concern;the likelihood of securing project financing;the impacts of changes in the legal and regulatory environment in which the Company operates;the timing and possible outcome of any pending litigation and regulatory matters;and other information concerning possible or assumed future results of the Company's operations, including development and production of electricity from the Company’s Chandgana power plant, including finalizing of any power purchase agreement; estimated future coal production at the Chandgana Tal, Ulaan Ovoo and Khavtgai Uul coal properties, and other information concerning possible or assumed future results of operations of the Company. Refer to Section 4 – Property Summary.
Statements relating to mineral resources are deemed to be forward-looking statements, as they involve the implied assessment, based on certain estimates and assumptions, that: all required third party contractual,that the mineral resources described exist in the quantities predicted or estimated and may be profitably produced in the future. Estimated values of future net revenue do not represent fair market value. There is no certainty that it will be commercially viable to produce any portion of the mineral resources. Forward-looking statements are not guarantees of future performance and are based upon a number of estimates and assumptions of management at the date the statements are made including, among other things, the following: timely receipt of regulatory and governmental approvals will be obtained(including licenses and permits) for the development, construction and production of the Company’sCompany's properties and the Chandgana power plant;projects; there being no significant disruptions affecting operations, whether due to labour disruptions, COVID 19 or other causes; currency exchange rates being approximately consistent with current levels; certain price assumptions for silver, lead, zinc, vanadium silver,and other metals and coal,metals; prices for and availability of fuel and electricity; parts and equipment and other key supplies remain consistent with current levels; production forecasts meeting expectations; the accuracy of the Company’s current mineral resource estimates; labour and materials costs increasing on a basis consistent with the Company’s current expectations; and any additional required financing will be available on reasonable terms; market developments and trends in global supply and demand for vanadium, silver, other metals, coal and energy meeting expectations. The Company cannot assure you that any of these assumptions will prove to be correct. Numerous factors could cause the Company’s actual results to differ materially from those expressed or implied in the forward-looking statements, including the following risks and uncertainties, which are discussed in greater detail under the heading “Risks and Uncertainties” in this MD&A and “Risk Factors” in the Company’s most recent AR as filedunder the Company’s SEDAR profile atwww.SEDAR.comand posted on the Company’s website: the Company’s history of net losses and lack of foreseeable positive cash flow; exploration, development and production risks, including risks related to the development of the Company’s mineral properties; the Company not having a history of profitable mineral production; commencing mine development without a feasibility study; the uncertainty of mineral resource and mineral reserve estimates; the capital and operating costs required to bring the Company’s projects into production and the resulting economic returns from its projects; foreign operations and political conditions, including the legal and political risks of operating in Bolivia and Mongolia, which are developing countries and being subject to their local laws; the availability and timeliness of various government approvals, permits and licenses; the feasibility, funding and development of the Company’s projects; protecting title to the Company’s mineral properties; environmental risks; the competitive nature of the mining business; lack of infrastructure; the Company’s reliance on key personnel; uninsured risks; commodity price fluctuations; reliance on contractors; the Company’s need for substantial additional funding and the risk of not securing such funding on reasonable terms or at all; foreign exchange risk; anti-corruption legislation; recent global financial conditions; the payment of dividends; the inability of insurance to cover all potential risks associated with mining operations; conflicts of interest; reliance on information systems with exposure to cyber-security risks, and global outbreaks, including the coronavirus.
In light of the risks and uncertainties inherent in all forward-looking statements, the inclusion or incorporation by reference of forward-looking statements in this MD&A should not be considered as a representation by the Company or any other person that the Company’s objectives or plans will be achieved.
These factors should be considered carefully, and readers should not place undue reliance on the Company’s forward-looking statements. The Company believes that the expectations reflected in the forward-looking statements contained in this MD&A and the documents incorporated by reference herein are reasonable, but no assurance can be given that these expectations will prove to be correct. In addition, although the Company has attempted to identify important factors that could cause actual actions, events or results to differ materially from those described in forward-looking statements, there may be other factors that cause actions, events or results not to be as anticipated, estimated or intended. The Company undertakes no obligation to publicly update any future revisions to forward-looking statements to reflect events or circumstances after the date of this MD&A or to reflect the occurrence of unanticipated events, except as expressly required by law.remaining
SILVER ELEPHANT MINING CORP. (Formerly “Prophecy Development Corp.”) Management’s Discussion and Analysis of Financial Condition and Results of Operations For the year ended December 31, 20192020 (Expressed in Canadian Dollars, except where indicated) consistent with current levels and prices; production forecasts meeting expectations; the accuracy of the Company's current mineral resource estimates and of any metallurgical testing completed to date; labour and materials costs increasing on a basis consistent with the Company's current expectations; any additional required financing being available on reasonable terms; market developments and trends in global supply and demand for silver, lead, zinc, vanadium and other metals meeting expectations; favourable operating conditions; political stability; access to necessary financing; stability of labour markets and in market conditions in general; and estimates of costs and expenditures to complete the Company's programs. The Company has no assurance that any of these assumptions will prove to be correct. Many of these assumptions are inherently subject to significant business, social, economic, political, regulatory, competitive and other risks and uncertainties, contingencies, and other factors that are not within the control of the Company and could thus cause actual performance, achievements, actions, events, results or conditions to be materially different from those projected in the forward-looking statements. Furthermore, such forward-looking statements involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of the Company to be materially different from those reflected in the forward-looking statements, whether expressed or implied. Such factors include, among others, the following: the Company is an exploration stage company; the cost, timing and amount of estimated future capital, operating exploration, acquisition, development and reclamation activities; the volatility of the market price of the Common Shares; judgment of management when exercising discretion in the use of proceeds from offerings of securities; sales of a significant number of Common Shares in the public markets, or the perception of such sales, could depress the market price of the Common Shares; potential dilution with the issuance of additional Common Shares; none of the properties in which the Company has a material interest have mineral reserves; estimates of mineral resources are based on interpretation and assumptions and are inherently imprecise; the Company has not received any material revenue or net profit to date; exploration, development and production risks; no history of profitable mineral production; actual capital costs, operating costs, production and economic returns may differ significantly from those the Company has anticipated; foreign operations and political condition risks and uncertainties; legal and political risk; amendments to local laws; the ability to obtain, maintain or renew underlying licenses and permits; title to mineral properties; environmental risks; competitive conditions in the mineral exploration and mining business; availability of adequate infrastructure; the ability of the Company to retain its key management and employees and the impact of shortages of skilled personnel and contractors; limits of insurance coverage and uninsurable risk; reliance on third party contractors; the availability of additional financing on reasonable terms or at all; foreign exchange risk; impact of anti-corruption legislation; recent global financial conditions; changes to the Company's dividend policy; conflicts of interest; cyber security risks; litigation and regulatory proceedings; the obligations which the Company must satisfy in order to maintain its interests in its properties; the influence of third-party stakeholders; the Company's relationships with the communities in which it operates; human error; the speculative nature of mineral exploration and development in general, including the risk of diminishing quantities or grades of mineralization; and other risks and the factors discussed under the heading "Key Information - Risk Factors" in the 2019 Annual Report and in analogous disclosure in other disclosure documents of the Company The foregoing list is not exhaustive and additional factors may affect any of the Company's forward-looking statements. Although the Company has attempted to identify important factors that could cause actual performance, achievements, actions, events, results or conditions to differ materially from those described in forward-looking statements, there may be other factors that cause performance, achievements, actions, events, results or conditions to differ from those anticipated, estimated or intended. The forward-looking statements contained herein are made as of the date of this MD&A and the Company disclaims any obligation to update or revise any forward-looking statements, whether as a result of new information, future events or results or otherwise, except as required by applicable law. There can be no assurance that forward-looking statements will prove to be accurate, as actual results and future events could differ materially from those anticipated in such statements. Accordingly, readers should not place undue reliance on forward-looking statements. All forward-looking statements attributable to the Company are expressly qualified by these cautionary statements. 3. YEAR 20192020 HIGHLIGHTS AND SIGNIFICANT EVENTS For further information please view the Company’s 20192020 news releases under the Company’s SEDAR profile at www.SEDAR.com. SILVER ELEPHANT MINING CORP. Management’s Discussion and Analysis of Financial Condition and Results of Operations For the year ended December 31, 2020 (Expressed in Canadian Dollars, except where indicated) Pulacayo Project ●
On September 30, 2019 the Company announced a 5,000-meter diamond drilling at its Pulacayo Project had started with first set of assay results expected in early November 2019.
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On October 3, 2019 the Pulacayo Mining Production Contract (“MPC”) was executed between the Company and the Corporación Minera de Bolivia (“COMIBOL”), a branch of the Bolivian Ministry of Mining and Metallurgy. Notification of the final government resolution approving the MPC was received on September 27, 2019. The MPC grants the Company the 100% exclusive right to develop and mine at the Pulacayo and Paca concessions for up to 30 years which is comparable to a mining license in Canada or the United States.
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On October 28, 2019 the Company announced the diamond drilling results from the Pulacayo Project, Paca part in the Potosi department of Bolivia. The phase 1 drill results are anticipated to increase the overall tonnage and upgrade the confidence level of the current NI 43-101 compliant resource estimate prepared independently by Mercator Geological Services Ltd. in 2017.
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On December 4, 2019 the Company announced that the Company had received on November 18, 2019 the Resolution No. 195/2018 issued by the Supreme Court of Bolivia, which declared that the tax claim brought by Bolivia’s General Revenue Authority against the Company’s Bolivian subsidiary was not proven. The Resolution is final and binding. Hence neither the Company nor the Company's Bolivian subsidiaries owe any outstanding back taxes to the Bolivian General Revenue Authority.
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On December 18, 2019, the Company announced that the phase two drilling had commence at the Pulacayo Project. It is a 5,000-meter program that will consist mainly of wide step-out drilling up to 1.5km west (Western Block) of the current 43-101 Pulacayo resource. That current Pulacayo resource covers 1.4 km in strike and represents only a small portion of the Tajo vein system which is over 3 km in strike and open to least 1,000 meters at depth, according to historical records of underground mining.
Gibellini Project
● On February 14, 2019 the Company announced that it had retained Amec Foster Wheeler E&C Services Inc. (“Wood”) to undertake updating of the mineral resource and mining section for the Company’s upcoming Feasibility Study to be completed to the standards of NI 43-101 for its Gibellini Project.
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On March 26, 2019 the Company announced its vanadium assay results from its fall 2018 exploration reconnaissance program on the Gibellini Project. The 155 assays were taken from three prospective exploration areas all within 5km to the existing Gibellini vanadium NI 43-101 compliant resource pit outline whereat 49.9 million lbs. measured, and 81.5 million lbs. indicated vanadium resource have already been identified (see Company’s news release dated May 29, 2018). Surface grab samples assay as high as 2% vanadium pentoxide (V2O5) and 75 samples (48% of total 155) have V2O5 grades greater than the Gibellini deposit’s cut-off grade of 0.101% V2O5 at $12.5/lb. V2O5; V2O5 currently trades at approximately $16/lb. The high vanadium assay results along the 5-kilometer northeast-southwest trend which line-up the Northeast Prospect, through Gibellini Hill, Louie Hill, Middle Earth Prospect, and Big Sky Prospect providing an indication of potential and possibly significant future expansion of vanadium mineralization along this corridor.
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On May 1, 2019 the Company announced that it had received guidance regarding expected permitting timelines following the Company meeting with regulators in late April 2019. The Company estimated that Q1In January 2020 as the target date for publication of the Notice of Intent (“NOI”) to prepare an Environment Impact Statement (“EIS”) in the Federal Register. Upon publication of the NOI the review process is mandated to be completed within a 12-month period under the US Department of the Interior’s Secretarial Order No. 3355. Based on this guidance, an EIS Record of Decision (“ROD”) would be expected no later than Q1 2021. Upon receipt of a positive ROD and issuance of Nevada State permits, the Company plans to start mine construction in 2021 and begin vanadium production by Q4 2022. The Company will be seeking project financing in the interim of this process.
SILVER ELEPHANT MINING CORP. (Formerly “Prophecy Development Corp.”)
Management’s Discussion and Analysis of Financial Condition and Results of Operations
For the year ended December 31, 2019
(Expressed in Canadian Dollars, except where indicated)
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On July 8, 2019 the Company announced that it had submitted its updated Plan of Operations (the “POO”) to the United States Department of the Interior, Bureau of Land Management, Mount Lewis Field Office (the “BLM”) and the Reclamation Permit Application to the Nevada Division of Environmental Protection, Bureau of Mining Regulation and Reclamation (the “BMRR”). The POO which was submitted on schedule and prepared under budget. The POO submission is the last major step before the publication of the NOI which will initiate the EIS process under the Secretary of Interior Order No. 3355 (Streamlining National Environmental Policy Reviews and Implementation of Executive Order 13807; see Company’s news release dated March 28, 2018).
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On July 19, 2019, the Company announced its objectives for the second half of 2019 for the Gibellini Project. The Company plans to submit the key Nevada state permit applications required for project construction by the end of the third quarter of 2019. It is anticipated that all approvals will be received by first quarter of 2021.
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On November 7, 2019 the Company announced that it had submitted, through its wholly owned US subsidiary Nevada Vanadium, the applications and Engineering Design Reports (“EDRs”) for the primary mining permits that govern project construction, operations and closure for the Gibellini Project to the Nevada Division of Environmental Protection (“NDEP”) with copies provided to the BLM and the EI contractor SWCA. The permit applications were submitted on October 31, 2019 for the Water Pollution Control Permit and the Class II Air Quality Permit. These Nevada state permits have been developed to provide construction level engineering that supports the mine plan previously submitted to the BLM in the Plan of Operations. Comments received from both the BLM and SWCA were used as guidance in the engineering design to ensure the State and Federal Permits are aligned and reflect the most current guidance provided by both the NDEP and BLM.
Corporate
Appointments:
During the year ended December 31, 2019 the Company experienced various changes in Directors, Officers and Management of the of the Company as follows:
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Gerald Panneton ceased to be the President, Chief Executive Officer and a Director on February 15, 2019;
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John Lee ceased to act as Head of International Affairs on February 15, 2019;
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Tony Wong ceased to act as Corporate Secretary on February 22, 2019;
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Louis Dionne ceased to be a Director on February 28, 2019;
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Rocio Echegaray was appointed Corporate Secretary on March 8, 2019;
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Michael Doolin was appointed Chief Operating Officer and Interim Chief Executive Officer on April 1, 2019;
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John Lee ceased to act as Interim President and Chief Executive Officer on April 1, 2019;
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Bekzod Kasimov ceased to act as Vice-President Business Development on July 1, 2019;
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Marc Leduc was appointed as a Director on July 22, 2019;
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Joaquin Merino-Marquez was appointed as Vice-President, South American Operation on November 1, 2019;
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Ronald Clayton was appointed as a Director on November 4, 2019;
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Michael Drozd ceased to act as Vice-President, Operations on November 7, 2019;
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Rocio Echegaray ceased to act as Corporate Secretary on November 15, 2019; and
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Brigitte McArthur was appointed Corporate Secretary on November 15, 2019.
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On July 29, 2019 the Company the Company granted in aggregate 1,685,000 incentive stock options to its directors, officer and employees of the Company. The options are exercisable at a price of $0.20 per Share for a term of five years expiring on November 1, 2024 and vest at 12.5% per quarter for the first two years following the date of grant.
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On August 19, 2019 the Company announced the formation of two wholly owned Canadian BC subsidiaries; Silver Elephant Mining Corp. (“Silver Elephant”) and Asia Mining Inc. (“Asia Mining”) in order to facilitate potential future spinoffs of the Company’s wholly owned Bolivian silver operation and Mongolian coal operation which was completed in September 2019.
SILVER ELEPHANT MINING CORP. (Formerly “Prophecy Development Corp.”)
Management’s Discussion and Analysis of Financial Condition and Results of Operations
For the year ended December 31, 2019
(Expressed in Canadian Dollars, except where indicated)
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On September 12, 2019, the Company reported that all proposed resolutions were approved at the Company’s Annual General Meeting of shareholders held on September 12, 2019 in Vancouver, British Columbia. The number of directors was set at 5 and all director nominees, as listed in the Management Information Circular dated July 25, 2019 were elected as directors of the Company at the meeting to serve for a one-year term and hold office until the next annual meeting of shareholders.
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On September 24, 2019 the Company issued 175,000 common shares with a four-month hold period to Mr. Bryan Slusarchuk, who provides consulting services to the Company.
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On October 9, 2019, the Company issued 104,951 Common Shares at a value of $43,060 to its directors to settle outstanding director fees.
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On November 1, 2019 the Company granted in aggregate 1,680,000 incentive stock options to its directors, officer and employees of the Company. The options are exercisable at a price of $0.44 per Share for a term of five years expiring on November 1, 2024 and vest at 12.5% per quarter for the first two years following the date of grant.
Financings:
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On September 6, 2019, the Company closed a non-brokered private placement previously announced on August 26, 2019. The placement raised gross proceeds of $2,600,000 through the issuance of 13,000,000 Shares at a price of $0.20 per Share. Also, the Company issued 525,000 Shares and paid $10,000 as finder’s fee. Proceeds of the placement were expected to be used to develop The Company’s mineral projects and for general working capital purposes.
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On October 21, 2019 the Company closed a non-brokered private placement announced on October 7, 2019. The placement raised gross cash proceeds of $3,900,000 through the issuance of 9,750,000 Shares at a price of $0.40 per Share. Mr. Eric Sprott, through 2176423 Ontario Ltd., a corporation that is beneficially owned by him, acquired 5,000,000 shares under the placement for a total consideration of $2,000,000. Following the completion of the private placement, Mr. Sprott’s holdings represented 9% of the issued and outstanding common shares of the Company at the time of the placement. Mr. Sprott beneficially owned 5,9000,000 common shares in the Company prior to this investment. The Company’s management and directors purchased 0.4 million Shares for proceeds of $160,000. The Company issued 654,500 Shares as finder’s fees to Mackie Research Capital Corp. All Shares were subject to a four-month-and-one-day hold period. Proceeds were expected to be used for the Company’s mineral project development and for general working capital purposes.
Other:
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On March 18, 2019, the Company announced Ulaan Ovoo in Mongolia mine start up in March and approximately 21,000 tonnes of coal production and sales.
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On July 9, 2019 the Company announced that the Company’s Ulaan Ovoo Mine achieved mine achieved monthly coal production of 37,800 tonnes in June 2019.
The Company further announced that a positive resolution was issued from the Mongolia city tax tribunal regarding the Company’s VAT dispute with the Mongolia tax office. The resolution, which is binding and final, affirmed the Company’s outstanding VAT credit of 1.169 billion MNT (USD 439,470 based on today’s exchange rate of 2,660 MNT to 1 USD) which resulted from past mining equipment purchases. The VAT credit can be used to offset the Company’s taxes and royalty payments; or be refunded in cash by Mongolia’s Ministry of Finance within 12 to 24 months processing time. n addition, the Company also reported that it had successfully converted its Chandgana Khavtgai coal exploration license to a mining license in central Mongolia. The Company forecasts minimal Chandgana coal sales to local residents for the 2019 winter season.
Subsequent Events to December 31, 2019
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On January 6, 2020 Silver Elephant Mining Corp., a wholly owned subsidiary of the Company, changed its name to Illumina Silver Mining Corp.
SILVER ELEPHANT MINING CORP. (Formerly “Prophecy Development Corp.”)
Management’s Discussion and Analysis of Financial Condition and Results of Operations
For the year ended December 31, 2019
(Expressed in Canadian Dollars, except where indicated)
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On January 8, 2020, the Company announced the following:
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a special meeting (the “Special Meeting”) of the shareholders to be held on March 16, 2020 to seek shareholder approval the following:
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changing the name of The Company Development Corp. to Silver Elephant Mining Corp. (the "Name Change");
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to consolidate the Company’s issued and outstanding shares at a ratio between one (1) new Common Share for every five (5) to ten (10) old Common Shares (the “2020 Consolidation”).
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The effective date of the Name Change and the 2020 Consolidation would be determined at a later date by the Board of the Company;
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proposed new symbol of “ELEF” for the trading of the Company’s Common Shares on the Toronto Stock Exchange (“TSX”); and
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ratification of 1,275,000 stock options previously granted to certain directors, officers, employees and consultants of the Company on July 29, 2019 pursuant to the terms of the Company’s Share-Based Compensation Plan.
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the engagement of Ken Cotiamco to provide investor relations and shareholder communications services effective January 6, 2020. The Company further announced that Ken Cotiamco entered into a consulting agreement whereby Ken Cotiamco would receive from the Company renumeration of $4,000 per month for a term of three months, which could be extended and also pursuant to the consulting agreement the Company granted 100,000 incentive stock options at a price of $0.41 per Share for a term of five years expiring on January 6, 2025;
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pursuant to the Company’s Share-Based Compensation Plan, the issuance of an aggregate of 1,601,000 Shares (subject to a minimum hold period of four months plus one date from the date of issuance) as 2019 bonus payments to certain directors, officers, employees and consultants of the Company;
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that further to the Company’s news release dated December 18, 2019, the Company had completed the first of 3 holes of the planned 17 drill holes at the Pulacayo Project;Project and
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the Company had has mobilized a second drilling rig to the Pulacayo Project and expects to complete the proposed 5,000 meter drill program in February 2020 with full assay results by March 2020;Project.
● On January 21, 2020, the Company announced the first step-out diamond drilling results from the Pulacayo property. Borehole PUD 267 intercepted 10 meters of mineralization grading 147 g/t silver, 9.8% zinc, and 2.0% lead (539 g/t AgEq) within 35.5 meter mineralization grading 230 g/t AgEq starting 31.5 meters downhole; ● On March 6, 2020, the Company released the results of its first 2,598 meters of drilling which focused on the western portion of the Pulacayo property;Project; ● On March 9, 2020, the Company announced a commencement district exploration program at the Pulacayo Project. The exploration team will be conducting geological mapping, with relevant sampling and possible trenching on the property. Induced polarization geophysics will be conducted in tandem with the field program, with 106 line-kilometers of survey having been outlined. The program is expected to be completed by June 2020, when the results will have been evaluated. The intention is to then generate drilling targets in the district. ● On March 16,July 20, 2020, the Company held its Special Meeting of Shareholders. The Company received shareholder approval ofannounced it had engaged Mercator Geological Services Limited (“Mercator”) to prepare an updated NI 43-101 compliant technical report for the following:Pulacayo Project. ➢●
changing its nameOn August 11, 2020, the Company announced diamond infill drilling results from the Pulacayo Project which demonstrated broad continuity of mineralization and grade starting from near-surface, consistent with historic Hochschild mining records, which indicated high grade mineralization with increasing depth to Silver Elephant Mining Corp.;more than 1,000 meters from surface.
➢● consolidationOn October 13, 2020, the Company announcedthe results of an NI 43-101 compliant mineral resource estimate for the Company’s issued and outstanding shares at a ratio between one (1) new Common Share for every five (5) to ten (10) old Common Shares (the “2020 Consolidation”). ThePulacayo Project prepared by Mercator. This mineral resource estimate has an effective date of October 13, 2020 and includes an indicated mineral resource of 106.7 million oz of silver, 1,384.7 million pounds of zinc, and 693.9 million pounds of lead, and an inferred mineral resource of 13.1 million oz of silver, 122.8 million pounds of zinc and 61.9 million pounds of lead. On October 26, 2020, the Name ChangeCompany filed an NI 43-101 compliant technical report titled "Mineral Resource Estimate Technical Report for the Pulacayo Project, Potosí Department, Antonnio Quijarro Province, Bolivia" prepared by Matthew Harrington, P. Geo, Michael Cullen, P. Geo, and Osvaldo Arce, P. Geo, of Mercator, with an effective date of October 13, 2020 and a report date of October 23, 2020 (the "Pulacayo Technical Report") with Canadian securities regulatory authorities. The Pulacayo Technical Report is available under the 2020 Consolidation would be determinedCompany’s SEDAR profile at www.sedar.com and is discussed in more detail below, under the heading "Property Summary – Pulacayo Project, Bolivia". The Company is in the process of finalizing a later daterevised version of the Pulacayo Technical Report (the "Revised Pulacayo Technical Report"), due to subsequent revisions to a number of sections of the Pulacayo Technical Report by the Boardauthors thereof; however, the Revised Pulacayo Technical Report will not contain any changes to the mineral resource estimates, the interpretation and conclusions, or the recommendations from those set out in the Pulacayo Technical Report. The Revised Pulacayo Technical Report will be filed by the Company with Canadian securities regulatory authorities in connection with the filing of the Company; and
➢
ratification of 1,275,000 stock options previously granted to certain directors, officers, employees and consultantsfinal short form prospectus of the Company on July 29, 2019 pursuantin relation to the termsOffering (as defined herein).
● On November 17, 2020 the Company announced that it had filed its independent amended technical report with a report date of November 12, 2020 and an effective date of October 13, 2020, titled "Mineral Resource Estimate Technical Report for the Pulacayo Project" (the "Report"). The Report was prepared by Mercator Geological Services Limited on the Company’s Share-Based Compensation Plan.Pulacayo project and has been filed under the Company’s profile on the System for Electronic Document Analysis and Retrieval at www.sedar.com. ● On November 30, 2020 the Company announced that it had received the complete assay results from the Company’s diamond drill program at the Paca silver-lead-zinc deposit (“Paca”) in Bolivia. Reported widths are intercepted core lengths and not true widths, as relationships with intercepted structures and contacts SILVER ELEPHANT MINING CORP. (Formerly “Prophecy Development Corp.”) Management’s Discussion and Analysis of Financial Condition and Results of Operations For the year ended December 31, 20192020 (Expressed in Canadian Dollars, except where indicated) vary. Based on core-angle measurements, true widths range from 77% to 86% of the reported core length. PND 114, 115, 118 drilled tested oblique structures parallel to the main east-west trend and discovered new mineralized zones. PND 114 intersected 16.5 meters of mineralization grading 55g/t silver equivalent that is to the north of the Paca north zone. PND 115 intercepted 66 meters of mineralization grading 75g/t silver equivalent between Paca main zone and Paca north zone, which are 250 meters apart. PND 118 was drilled at the eastern edge of the Paca main zone and intersected 112 meters of mineralization grading 50 g/t silver equivalent. Gibellini Project ● On July 16, 2020, the Company announced that the Notice of Intent (the “NOI”) to prepare an Environmental Impact Statement (the “EIS”) for the Gibellini Project was published on July 14, 2020, in the Federal Register. The NOI formally commenced the 12-month timeline to complete the National Environmental Policy Act (“NEPA”) review and the EIS preparation by the U.S. Department of the Interior Bureau of Land Management (the “BLM”). Acquisitions ● On July 13, 2020, the Company announced that it had entered into an agreement (the “Triunfo Agreement”) with a private party (the “Triunfo Vendor”) for the right to conduct mining exploration activities (the “Exploration Right”) within the El Triunfo gold-silver-lead-zinc project in La Paz District, Bolivia (the “Triunfo Project”) and the right, at the Company’s election, to purchase the Triunfo Project for US$1,000,000 (the “Purchase Right”, and together with the Exploration Right, the “Triunfo Rights”). The Purchase Right can be exercised at any time after the Triunfo Vendor completes the required Bolivian administrative procedures for the Triunfo Project, expected to occur no later than March 2021, until July 13, 2025 or such further period as the parties may agree. To secure the Triunfo Rights, the Company paid the Triunfo Vendor US$100,000 upon execution of the Triunfo Agreement. Until the Company exercises its Purchase Right, beginning in 2021 the Company must pay the Triunfo Vendor US$50,000 on June 15 of each year to maintain the Triunfo Rights. The Company may elect to terminate the Triunfo Agreement at any time. If the Company exercises the Purchase Right, the Triunfo Vendor will maintain up to a 5% interest of the profits, net of taxes and royalties, derived from the sale of concentrate produced from the Triunfo Project (the “Residual Interest”). If the Company exercises the Purchase Right, the Company may reduce some or all of the Residual Interest at any time by making a lump sum payment of up to US$300,000. On November 25, 2020 the Companyannounced that it had received the complete assay results from the Company’s first diamond drill program at the Triunfo Project. Borehole TR007 intercepted 48.9 meters of mineralization grading 0.42 g/t gold, 35.5 g/t silver, 1.17% zinc, and 0.83% lead (1.45 g/t AuEq) within 98.9 meters of mineralization grading 1.04 g/t AgEq starting 13.0 meters downhole. ● On August 19, 2020, the Company announced that it had received its first chip sampling results on the Triunfo Project.A total of 103 chip samples were collected from outcrops at surface and from underground adits and tunnels accessing the main east-west mineralized trend. The width of the samples varies from 1.0 to 5.3m, exhibiting anaverage width of 2.5m. 37 Triunfo samples assayed up to 8.3 g/t AuEg.These results confirmed the Triunfo Project exhibits near-surface Au-Ag-Pb-Zn mineralization. ● On September 8, 2020, the Company announced that it had entered into a binding sales and purchase agreement (the “SunawayoSPA”) with a private party (the “Sunawayo Vendor”) to acquire the Sunawayo silver-lead mining project (the “Sunawayo Project”) located immediately adjacent to the Malku Khota silver project in Bolivia. Subject to the provisions of the Sunawayo SPA, the Sunawayo Vendor agreed to irrevocably transfer the mining rights of the Sunawayo Project to the Company for consideration of US$6,500,000, which payment consists of US$300,000 paid on execution of the Sunawayo SPA, with the remaining US$6,200,000 to be paid in cash over a one-year period in twelve equal monthly installments, starting March 1, 2021. SILVER ELEPHANT MINING CORP. Management’s Discussion and Analysis of Financial Condition and Results of Operations For the year ended December 31, 2020 (Expressed in Canadian Dollars, except where indicated) ● On March16,September 28, 2020, the Company amended its Articlesannouncedthat all of the initial forty-eight chip and changed its namegrab samples collected from surface outcrops and adits at the Sunawayo Project returned anomalous Ag-Pb assayed values. Ten of the assayed samples contain either over 100g/t silver or 10% lead or both. The results exceeded the Company’s expectations and are an early indication of the potential for mineral discoveries at Sunawayo. The Company is mobilizing to “Silver Elephant Mining Corp.”start geological and structural mapping to ascertain the primary controls and trends for mineralization at Sunawayo. This work will lay the foundation for defining drill targets by year’s end. ● On September 18, 2020, the Company’swholly owned subsidiary Nevada Vanadium LLC(“Nevada Vanadium”) completed the acquisition of the Bisoni vanadium project (the "Bisoni Project") situated immediately southwest of the Gibellini Project pursuant to an Asset Purchase Agreement (the “Bisoni APA”) dated August 18, 2020, with Cellcube Energy Storage Systems Inc. (“Cellcube”).The Bisoni Project is comprised of 201 lode mining claims, along a 13.8-kilometer strike that covers an area of 16.5 square kilometers (1,656 hectares),easily accessed by a graded gravel road extending south from US Highway 50 and is about 25 miles south of the town of Eureka, Nevada. ● As consideration for the acquisition of the Bisoni Project under the Bisoni APA, the Company issued 4 million Common Shares (the "Bisoni APA Shares") and paid $200,000 cash to CellCube. The Bisoni APA Shares were subject to a Canadian statutory four month hold period that expired on January 19, 2021. Additionally, subject to TSX approval, if, on or before December 31, 2023, the price of European vanadium pentoxide on the Metal Bulletin (or an equivalent publication) exceeds US$12 a pound for 30 consecutive days, the Company will issue to CellCube additional Common Shares with a value of $500,000, calculated based upon the 5 day volume weighted average price of the Common Shares immediately following the satisfaction of the vanadium pentoxide pricing condition. Corporate ● During the year ended December 31, 2020 the Company experienced the following changes in Directors, Officers and Management as follows: o Michael Doolin ceased to act as Chief Executive Officer on July 17, 2020; o John Lee was appointed Interim Chief Executive Officer effective July 17, 2020; o Ronald Clayton resigned as a Director on July 31, 2020; and o David Smith was appointed as a Director on August 3, 2020. ● On March 19,January 6, 2020, pursuant to the Company’s Share-Based Compensation Plan, the issuance of an aggregate of 1,601,000 Common Shares as 2019 bonus payments to certain directors, officers, employees and consultants of the Company; ● On May 4, 2020, the Company changed its’ symbolhas granted in aggregate, 3,000,000 incentive stock options to certain directors, officers, employees and consultants of the Company. These options are exercisable at a price of $0.22 per Common Share for a term of five years expiring on May 4, 2025 and vest at 12.5% per quarter for the first two years following the date of grant. ● On July 7, 2020, the Company reportedthat all proposed resolutions were approved at the Company’s Annual General and Special Meeting of shareholders held on July 7, 2020. The Company had previously received conditional approval from the TSX to amend the exercise price of an aggregate of 24,318,927 previously issued Common Share purchase warrants (the “Original Warrants”) of the Company to an exercise price of $0.26 per Common Share (the “Amendment”) pending shareholder approval of the Amendment. Pursuant to the passing of the ordinary resolution approving the Amendment, the Original Warrants were cancelled and replaced with amended Common Share purchase warrants with an exercise price of $0.26 per Common Share (the “Amended Warrants”), which the Amendment becoming effective as of July 17, 2020. All other terms of the Amended Warrants were unchanged from PCYthe Original Warrants. ● On August 17, 2020, the Company has granted in aggregate, 720,000 incentive stock options to “ELEF”.certain directors, employees, and consultants of the Company. These options are exercisable at a price of $0.50 per Common Share for a term of five years expiring on August 17, 2025 and vest at 12.5% per quarter for the first two years following the date of grant.
SILVER ELEPHANT MINING CORP. Management’s Discussion and Analysis of Financial Condition and Results of Operations For the year ended December 31, 2020 (Expressed in Canadian Dollars, except where indicated) ● During the year ended December 31, 2020, 14,027,670 Common Share purchase warrants and 1,233,750 stock options were exercised for total proceeds of $3,407,006. Financings: ● On May 1, 2020 and on May 20, 2020, the Company closed two tranches of a non-brokered private placement (the "May 2020 Private Placement") for aggregate gross proceeds of $1,930,500 and share compensation for services of $45,500, through the issuance of 15,200,000 units of the Company (each, a "Unit") at a price of $0.13 per Unit. Each Unit is comprised of one Common Share and one Common Share purchase warrant (each, a “Warrant”). Each Warrant entitles the holder to purchase one Common Share at an exercise price of $0.16 for a period of three years from the date of issuance. The Company paid $3,250 in cash and issued 156,900 Units as finder’s fees in connection with the May 2020 Private Placement. The May 2020 Private Placement proceeds were expected to be used for the Company’s mineral project development and for general working capital purposes. ● On October 20, 2020, the Company announced that it had entered into an agreement with Mackie Research Capital Corporation as lead underwriter and sole bookrunner (the “Lead Underwriter”), on behalf of a syndicate of underwriters, including Canaccord Genuity Corp. and Sprott Capital Partners LP (collectively with the Lead Underwriter, the “Underwriters”), pursuant to which the Underwriters agreed to purchase, on a bought‐deal basis, 15,000,000 Common Shares of the Company at a price of $0.40 per Common Share for aggregate gross proceeds of $6,000,000 (the “Offering”). The Company also granted the Underwriters an option to increase the size of the Offering by up to an additional number of Common Shares that in aggregate would be equal to 15% of the total number of Common Shares to be issued under the Offering, at any time up to 30 days following the closing of the Offering. ● On March 23,October 21, 2020, the Company changed its’ symbolannounced that it had entered into an amended agreement with the Lead Underwriter to increase the size of the Offering to 20,000,000 Common Share at a price of $0.40 per Common Share for aggregate gross proceeds of $8,000,000. The other details of the Offering remained unchanged. ● On November 24, 2020, the Company announced the closing of the Offering to which the Company issued 23,000,000 Common Shares at a price of C$0.40 per Common Share, for aggregate gross proceeds of C$9,200,000, including the full exercise of the over-allotment option. The net proceeds from the Offering will be used for the exploration, development and/or improvement of the Company’s mineral properties and for working capital purposes. Subsequent Events to December 31, 2020
● On January 21, 2020, the Company announced completion of a 940 meter diamond drilling program at the Pero target within the Pulacayo Project and commencement of a 2,300 meter drilling program at the Sunawayo Project.
● On January 22, 2020, the Company announced entering into a binding definitive Asset Purchase Agreement (“APA”) with Victory Nickel Inc. (“Victory Nickel”) to acquire the Minago Nickel Project (“Minago Project”), located in Manitoba, Canada. ● On January 27, 2020, the Company announced the initial drill results from the Pero discovery within the Pulacayo Project. The Company plans to begin a geophysical survey over Pero in Q1 2021 to define potential anomalies in-and-around these newly discovered mineralized zones to help formulate the next set of drill targets on the OTCQX from PRPCF to “SILEF”.project. ● In March 2020 the World Health Organization declared coronavirus COVID-19 a global pandemic. This contagious disease outbreak, which has continued to spread, and any related adverse public health developments, has adversely affected workforces, economies, and financial markets globally, potentially leading to an economic downturn. It is not possible forOn February 5, 2021 the Company closed its non-brokered private placement (the “February 2021 Placement”) through the issuance of 10,000,001 Common Shares at a price of $0.375 per Common Share. The February 2021 Placement raised gross cash proceeds of $3,750,000. The Company paid $73,875 in cash as finder’s fees. The Common Shares are subject to predict the duration or magnitudea four month and one day hold period. Proceeds of the adverse resultsFebruary 2021 Placement are expected to be used for exploration, working capital and general corporate purposes which may include project evaluations and acquisitions.
SILVER ELEPHANT MINING CORP. Management’s Discussion and Analysis of Financial Condition and Results of Operations For the year ended December 31, 2020 (Expressed in Canadian Dollars, except where indicated) ● On February 10, 2021, the Companyhas acquired the Minago Project (the “Minago Acquisition) by way of Asset Purchase Agreement (the “APA”) with Victory Nickel Inc. (“Victory Nickel”). Under the terms of the outbreakAPA the Company acquired the Minago Project for aggregate consideration of US$11,675,000, which consisted of a US$6,675,000 (“Property Payment”) credit against certain secured debt owed by Victory Nickel to the Company at closing and its effectsUS$5,000,000 in the Company common shares (“Consideration Shares”)to be issued over a one-year period. In satisfaction of the Consideration Share to be issued, an initial tranche of 5,363,630 Consideration Shares was issued on February9, 2021,a further US$2,000,000 worth of Consideration Shares will be issued on or before August 31, 2021, and a further US$1,000,000 worth of Consideration Shares on or before December 31, 2021. All Consideration Shares are subject to 4-month plus 1-day statutory hold period. The Property Payment was a credit in favour of Victory Nickel against an aggregate of approximately US$12,056,307 owed by Victory Nickel pursuant a Secured Debt Facility (the “SDF”). Immediately prior to acquiring the Minago Project, the Company acquired the SDF for US$6,675,000 in cash and 3 million of the Company’s business or resultscommon share purchase warrants (the “Warrants”), each exercisable until February 8, 2023at an exercise price of operations$0.4764 from an arms-length party pursuant to a Debt Purchase and Assignment Agreement (the “DPAA”) executed on January 15, 2021. The SDF has been restructured to bear zero percent interest and to expire on February 8, 2026, which will automatically be extended in 5-year increments. The Companywill credit the remaining balance under the SDF to Victory Nickel’s benefit, upon completion of an independent economic study proving positive net present value in respect of the Minago Projectduring the term of the SDF. The Company agreed to reimburse up to $200,000 of financial advisory services rendered by Red Cloud Securities Inc. ● On February 24, 2021, the Company announced that the first drill hole at this time.the Sunawayo Project has intercepted 137 meters of mineralization grading 36 g/t silver, starting from zero meters-depts. The second drill hole intercepted 31 meters of mineralization grading 44 g/t silver, 0.39% lead, and 0.48% zinc from 1 meter-depth. Both drill holes (240 meters to the southeast of the former) feature near-uniform silver assays throughout the reported intervals, indicating that silver mineralization is highly likely to continue deeper.
DEFINITIONS AND INTERPRETATIONS This MD&A contains a number of technical terms relating to exploration and resource development that may be unfamiliar to a general reader. The following definitions are provided for reference and clarification, and reflect their common use and understanding in the mining industry: “deposit” means a mineral deposit which is a mineralized mass that may be economically valuable, but whose characteristics may require more detailed information. Mineral resources are calculated from geological data collected from deposits, however, deposits do not necessarily reflect the presence of mineral resources. “mineral resource” means a concentration or occurrence of natural, solid, inorganic, or fossilized organic material in or on the Earth’s crust in such form and quantity and of such a grade or quality that it has reasonable prospects for economic extraction. The location, quantity, grade, geological characteristics, and continuity of a mineral resource are known, estimated, or interpreted from specific geological evidence and knowledge. Mineral resources are sub-divided, in order of increasing geological confidence, into Inferred, Indicated, and Measured categories. Note that the confidence level in Inferred Mineral Resources is insufficient to allow the application of technical and economic parameters or to enable an evaluation of economic viability worthy of public disclosure. Regardless of category, a mineral resource is estimated through application of the guidelines of the Canadian Institute of Mining, Metallurgy and Petroleum Standards for Mineral Resources and Reserves: Definitions and Guidelines, as amended in 2014. A “historic” mineral resource estimate refers to a mineral resource estimate of the quantity, grade, or metal or mineral content of a deposit that the Company has not verified as current, and which was prepared before the Company acquired or entered into an agreement to acquire, an interest in the property that contains the deposit.
SILVER ELEPHANT MINING CORP. Management’s Discussion and Analysis of Financial Condition and Results of Operations For the year ended December 31, 2020 (Expressed in Canadian Dollars, except where indicated) “project”, as used in the context of the Pulacayo Project, the Gibellini Project, the Triunfo Project, the Sunawayo Project and the Titan Project defined in this MD&A, refers to a mineral project which, pursuant to NI 43-101, means any exploration, development or production activity, including a royalty or similar interest in these activities with respect to base metals, precious metals or industrial metals as it applies to the Company. “property” refers to land concessions for which the Company holds mineral rights to conduct its activities. “Qualified Person” means, pursuant to NI 43-101, an individual who is an engineer or geoscientist with at least five years experience in mineral exploration, mine development or operation, or mineral project assessment. This individual is a member or licensee in good standing of a professional association and has to have relevant experience of the subject matter of the mineral project and the technical report. PULACAYO PROJECT, BOLIVIA The scientific and technical information in this section of this MD&A that specifically relates to the current Pulacayo Project mineral resource estimates for the Pulacayo and Paca deposits has been extracted or summarized from the Pulacayo Technical Report. Additional information presented below that pertains to the Pulacayo Project but does not specifically appear in the Pulacayo Technical Report has been provided by the Company. The Pulacayo Technical Report is available under the Company’s SEDAR profile at www.sedar.com. The Company filed the Pulacayo Technical Report on October 26, 2020. The Company is in the process of finalizing the Revised Pulacayo Technical Report due to subsequent revisions to a number of sections of the Pulacayo Technical Report by the authors thereof; however, the Revised Pulacayo Technical Report will not contain any changes to the mineral resource estimates, the interpretation and conclusions, or the recommendations from those set out in the Pulacayo Technical Report. The Revised Pulacayo Technical Report will be filed by the Company with Canadian securities regulatory authorities in connection with the filing of the final short form prospectus of the Company in relation to the Offering. The Pulacayo Project consists of many licenses within which are located the Pulacayo and Paca mineral deposits, several areas of potential mineralization and historic tailings piles. The Pulacayo Project mining rights are recognized by two legally independent contractual arrangements, one covering all, except the Apuradita mining concession, from the Pulacayo MPC between the Company and COMIBOL, a Bolivian state mining company, and the original holder of the rights, executed on October 3, 2019. The Pulacayo MPC grants the Company the 100% exclusive right to develop and mine at the Pulacayo and Paca mineral deposits for up to 30 years against certain royalty payments. It is comparable to a mining license in Canada or the United States. In connection with the Apuradita mining concession, its rights are covered by a second contractual arrangement, with the Bolivian Jurisdictional Mining Authority, acting for the State, which is in process of formalization, as a mean of recognition of the acquired rights to what was originally the mining concession. Until such time as the contract is formalized, all mining rights, as recognized in the Bolivian Mining Law 535, can be exercised by the holder of the ex-concession. The Pulacayo Project comprises seven mining areas covering an area of approximately 3,560 hectares of contiguous areas centered on the historical Pulacayo mine and town site. The Pulacayo Project is located 18 kilometers east of the town of Uyuni in the Department of Potosí, in southwestern Bolivia. It is located 460 kilometers south-southeast of the national capital of La Paz and 150 kilometers southwest of the City of Potosí, which is the administrative capital of the department. The Pulacayo Project is fully permitted with secured social licenses for mining. Mineral Resources and Reserves The Pulacayo Technical Report describes mineral resources estimated following the guidelines of the Canadian Institute of Mining, Metallurgy and Petroleum Standards for Mineral Resources and Reserves: Definitions and Guidelines, as amended in 2014 (the “CIM Standards, 2014”). Two mineral resource estimates were disclosed according to the requirements of NI 43-101 for the Pulacayo Project, one for the Pulacayo deposit and one for the Paca deposit (the “Pulacayo MRE” and “Paca MRE”, respectively, and collectively referred to herein as the “Mineral Resource Estimate”).
SILVER ELEPHANT MINING CORP. Management’s Discussion and Analysis of Financial Condition and Results of Operations For the year ended December 31, 2020 (Expressed in Canadian Dollars, except where indicated) The Mineral Resource Estimate has an effective date of October 13, 2020 and includes an indicated mineral resource of 106.7 million oz of silver, 1,384.7 million pounds of zinc, and 693.9 million pounds of lead, and an inferred mineral resource of 13.1 million oz of silver, 122.8 million pounds of zinc and 61.9 million pounds of lead. Apogee Mineral Bolivia S.A., the Company’s wholly owned Bolivian subsidiary, has invested over US$30 million at the Pulacayo Project since 2006. The Mineral Resource Estimate was prepared by Mercator under the supervision of Matthew Harrington, P. Geo., who is an independent Qualified Person as defined under NI 43-101. A contained metal summary based on the Mineral Resource Estimate for the Pulacayo Project is reported below: Pulacayo Project Mineral Resource Estimate Summary of Total Contained Metal - Effective October 13, 2020** Zone | Category | Rounded Tonnes | Ag Moz | Zn Mlbs | Pb Mlbs | *AgEq Moz | Open Pit Constrained | Indicated | 47,380,000 | 101.0 | 1,365.0 | 687.5 | 202.0 | Inferred | 4,165,000 | 8.0 | 80.3 | 53.5 | 14.3 | Out-of-Pit | Indicated | 660,000 | 5.7 | 19.6 | 6.4 | 6.5 | Inferred | 900,000 | 5.2 | 42.4 | 8.3 | 7.4 | Total: | Indicated | 48,040,000 | 106.7 | 1,384.7 | 693.9 | 208.5 | Inferred | 5,065,000 | 13.1 | 122.8 | 61.9 | 21.7 |
**Notes: 1. The Mineral Resource Estimate was prepared in accordance with NI 43-101, the CIM Definition Standards (2014) and CIM MRMR Best Practice Guidelines (2019). 2. *Ag Eq. = silver equivalent (recovered) = (Ag g/t*89.2%)+((Pb%*(US$0.95/lb. Pb/14.583 Troy oz./lb./US$17 per Troy oz. Ag)*(10,000*91.9%))+((Zn%*(US$1.16/lb. Zn/14.583 Troy oz./lb./US$17 per Troy oz. Ag)*(10,000*82.9%)). Sulphide zone metal recoveries of 89.2% for Ag, 91.9% for Pb, and 82.9% for Zn were used in the silver equivalent (recovered) equation and reflect metallurgical testing results disclosed previously for the Pulacayo deposit. A metal recovery of 80% Ag was used for oxide zone mineral resources. 3. Metal prices of US$17/oz Ag, US$0.95/lb Pb, and US$1.16 Zn apply. A currency exchange rate of CDN$1.00 to US$0.75 applies. 4. Pit-constrained mineral resources are defined for each deposit within optimized pit shells with average pit slope angles of 45⁰. The Pulacayo MRE was optimized at a 12.3:1 strip ratio and the Paca MRE was optimized with at a 4.3: strip ratio. 5. Base-case sulfide zone pit optimization parameters include: mining at US$2.00 per tonne; combined processing and general and administrative (“G&A”) at US$12.50 per tonne processed; haulage at US$0.50 per tonne processed for the Pulacayo deposit and US$2.00 per tonne processed for the Paca deposit. 6. Base-case oxide zone pit optimization parameters include: mining at US$2.00 per tonne; combined processing and G&A at US$23.50 per tonne processed; haulage at US$0.50 per tonne processed for the Pulacayo deposit and US$2.00 per tonne processed for the Paca deposit. 7. Pit-constrained sulphide zone mineral resources are reported at a cut-off grade of 30 g/t ag eq. within the optimized pit shells and pit-constrained oxide zone mineral resources are reported at a cut-off grade of 50 g/t Ag within the optimized pit shells. Cut-off grades reflect total operating costs used in pit optimization and are considered to define reasonable prospects for eventual economic extraction by open pit mining methods. 8. Out of pit mineral resources are external to the optimized pit shells and are reported at a cut-off grade of 100 g/t Ag Eq. They are considered to have reasonable prospects for eventual economic extraction using conventional underground methods such as long hole stoping based on a mining cost of $35 per tonne and processing and G&A cost of $20 per tonne processed. 9. “Total” mineral resources for the Pulacayo MRE is the tonnage-weighted average summation of pit-constrained and out-of-pit Pulacayo deposit mineral resources. 10. “Total” mineral resources for the Mineral Resource Estimate is the tonnage-weighted average summation of the total Pulacayo MRE and Paca MRE. SILVER ELEPHANT MINING CORP. Management’s Discussion and Analysis of Financial Condition and Results of Operations For the year ended December 31, 2020 (Expressed in Canadian Dollars, except where indicated) 11. Mineral resources were estimated using ordinary Kriging methods applied to 1 m downhole assay composites capped at 2,300 g/t Ag, 13% Pb and 15% Zn. 12. Bulk density was interpolated using ordinary Kriging methods for Pulacayo MRE. An average bulk density of 2.32 g/cm3 or 2.24 g/cm3 was applied to Paca MRE, based on grade domain solid models. 13. Mineral resources may be materially affected by environmental, permitting, legal, title, taxation, sociopolitical, marketing, or other relevant issues. 14. Mineral resource tonnages have been rounded to the nearest 5,000; totals may vary due to rounding. The Mineral Resource Estimate is based on estimates of pit-constrained and out of pit mineral resources, details of which are presented in the following two tables for the Pulacayo and Paca deposits, respectively. The Pulacayo MRE incorporate 73,016 metres of diamond drilling (244 surface and 42 underground drill holes). The Paca MRE incorporates results of 104 diamond drill holes and 6 reverse circulation drill holes totaling 19,916 meters completed between 2002 and 2020. Geovia Surpac ® Version 2020 was used to create the Pulacayo Project block models, associated geological and grade solids, and to interpolate silver-zinc-lead grade. Geovia Whittle pit optimization software and the PseudoFlow algorithm were applied for pit shell optimization purposes. Pulacayo Deposit Combined Pit-Constrained and Out-of-Pit Mineral Resource Estimate – Effective Date October 13, 2020** Cut -off Grade | Zone | Category | Rounded Tonnes | Ag g/t | Zn % | Pb % | Ag Moz | Zn Mlbs | Pb Mlbs | *AgEq Moz | *AgEq g/t | 50 Ag g/t | Oxide In-Pit | Indicated | 1,090,000 | 125 | | | 4.4 | | | | | Inferred | 25,000 | 60 | | | 0.0 | | | | | 30 *AgEq g/t | Sulfide In-Pit | Indicated | 24,600,000 | 76 | 1.63 | 0.70 | 60.1 | 884.0 | 379.6 | 123.4 | 156 | Inferred | 745,000 | 82 | 1.79 | 0.61 | 2.0 | 29.4 | 10.0 | 3.9 | 164 | 100 *AgEq g/t | Sulfide Out-of-Pit | Indicated | 660,000 | 268 | 1.35 | 0.44 | 5.7 | 19.6 | 6.4 | 6.5 | 307 | Inferred | 900,000 | 179 | 2.14 | 0.42 | 5.2 | 42.4 | 8.3 | 7.4 | 257 | Total: | Indicated | 26,350,000 | | | | 70.2 | 903.7 | 386.0 | 133.4 | | Inferred | 1,670,000 | | | | 7.2 | 71.8 | 18.4 | 11.4 | |
Paca Deposit Pit-Constrained Mineral Resource Estimate – Effective Date October 13, 2020** Cut -off Grade | Zone | Category | Rounded Tonnes | Ag g/t | Zn % | Pb % | Ag Moz | Zn Mlbs | Pb Mlbs | *AgEq Moz | *AgEq g/t | 50 Ag g/t | Oxide In-Pit | Indicated | 1,095,000 | 185 | | | 6.5 | | | | | Inferred | 345,000 | 131 | | | 1.5 | | | | | 30 *AgEq g/t | Sulfide In-Pit | Indicated | 20,595,000 | 46 | 1.07 | 0.67 | 30.5 | 485.8 | 304.2 | 70.2 | 106 | Inferred | 3,050,000 | 46 | 0.76 | 0.65 | 4.5 | 51.1 | 43.7 | 9.2 | 94 | Total: | Indicated | 21,690,000 | | | | 37 | 485.8 | 304.2 | 70.2 | | Inferred | 3,395,000 | | | | 6 | 51.1 | 43.7 | 9.2 | |
**See detailed notes on the Mineral Resource Estimate parameters under preceding Table titled “Pulacayo Project Mineral Resource Estimate Summary of Total Contained Metal - Effective Date October 13, 2020” Pulacayo Deposit Sensitivity Analysis from October 13th, 2020 Mineral Resource Estimate The sensitivity analysis is shown in the following tables showing various pit-constrained grade-tonnage scenarios for the Pulacayo deposit based on a range of cut-off grades for the sulphide and oxide zones.
SILVER ELEPHANT MINING CORP. Management’s Discussion and Analysis of Financial Condition and Results of Operations For the year ended December 31, 2020 (Expressed in Canadian Dollars, except where indicated) Pulacayo Deposit Pit-Constrained Cut-Off Grade Sensitivity Report for Oxide Zone Cut -off Grade | Category | Rounded Tonnes | Ag g/t | Zn % | Pb % | Ag Moz | Zn Mlbs | Pb Mlbs | *AgEq Moz | AgEq g/t | 30 Ag g/t | Indicated | 1,760,000 | 92 | | | 5.2 | | | | | Inferred | 35,000 | 55 | | | 0.1 | | | | | 45 Ag g/t | Indicated | 1,220,000 | 116 | | | 4.6 | | | | | Inferred | 30,000 | 58 | | | 0.1 | | | | | 90 Ag g/t | Indicated | 615,000 | 171 | | | 3.4 | | | | | Inferred | | | | | 0 | | | | | 200 Ag g/t | Indicated | 185,000 | 250 | | | 1.5 | | | | | Inferred | | | | | 0 | | | | |
Note: Cut-off grade for pit-constrained oxide mineral resources is 50 g/t Ag. Pulacayo Deposit Pit-Constrained Cut-Off Grade Sensitivity Report for Sulfide Zone Cut -off Grade | Category | Rounded Tonnes | Ag g/t | Zn % | Pb % | Ag Moz | | Pb Mlbs | *AgEq Moz | AgEq g/t | 30 AgEq g/t | Indicated | 24,600,000 | 76 | 1.63 | 0.7 | 60.1 | | 379.6 | 123.4 | 156 | Inferred | 745,000 | 82 | 1.79 | 0.61 | 2 | 29.4 | 10 | 3.9 | 164 | 45 AgEq g/t | Indicated | 23,715,000 | 78 | 1.67 | 0.72 | 59.5 | | 376.4 | 122 | 160 | Inferred | 735,000 | 83 | 1.81 | 0.61 | 2 | 29.3 | 9.9 | 3.9 | 166 | 90 AgEq g/t | Indicated | 13,700,000 | 121 | 2.17 | 0.99 | 53.3 | | 299 | 100 | 227 | Inferred | 290,000 | 154 | 3.62 | 0.97 | 1.4 | 23.1 | 6.2 | 2.9 | 312 | 200 AgEq g/t | Indicated | 5,385,000 | 249 | 2.75 | 1.54 | 43.1 | | 182.8 | 66.3 | 383 | Inferred | 180,000 | 230 | 4.57 | 1.22 | 1.3 | 18.1 | 4.8 | 2.5 | 426 | 400 AgEq g/t | Indicated | 1,860,000 | 387 | 3.62 | 2.25 | 23.1 | | 92.3 | 33.8 | 565 | Inferred | 105,000 | 297 | 5.29 | 1.46 | 1 | 12.2 | 3.4 | 1.8 | 521 |
Note: Mineral resource estimate cut-off grade bolded. SILVER ELEPHANT MINING CORP. Management’s Discussion and Analysis of Financial Condition and Results of Operations For the year ended December 31, 2020 (Expressed in Canadian Dollars, except where indicated) The following table shows sensitivity analysis for the Pulacayo deposit for out-of-pit grade tonnage scenarios: Pulacayo Deposit Out-of-Pit Cut-Off Grade Sensitivity Report for Sulfide Zone Cut -off Grade | Category | Rounded Tonnes | Ag g/t | Zn % | Pb % | Ag Moz | Zn Mlbs | Pb Mlbs | *AgEq Moz | AgEq g/t | 100 AgEq g/t | Indicated | 660,000 | 268 | 1.35 | 0.44 | 5.7 | 19.6 | 6.4 | 6.5 | 307 | Inferred | 900,000 | 179 | 2.14 | 0.42 | 5.2 | 42.4 | 8.3 | 7.4 | 257 | 150 AgEq g/t | Indicated | 530,000 | 321 | 1.3 | 0.49 | 5.5 | 15.2 | 5.7 | 6 | 354 | Inferred | 680,000 | 220 | 2.25 | 0.46 | 4.8 | 33.7 | 6.9 | 6.6 | 300 | 200 AgEq g/t | Indicated | 435,000 | 359 | 1.41 | 0.53 | 5 | 13.5 | 5.1 | 5.5 | 394 | Inferred | 505,000 | 260 | 2.37 | 0.54 | 4.2 | 26.4 | 6 | 5.6 | 343 | 250 AgEq g/t | Indicated | 350,000 | 397 | 1.53 | 0.59 | 4.5 | 11.8 | 4.6 | 4.9 | 435 | Inferred | 375,000 | 309 | 2.14 | 0.64 | 3.7 | 17.7 | 5.3 | 4.6 | 381 | 300 Ag Eq g/t | Indicated | 290,000 | 429 | 1.63 | 0.64 | 4 | 10.4 | 4.1 | 4.4 | 468 | Inferred | 310,000 | 327 | 2.23 | 0.72 | 3.3 | 15.2 | 4.9 | 4 | 403 | 350 Ag Eq g/t | Indicated | 230,000 | 462 | 1.74 | 0.7 | 3.4 | 8.8 | 3.5 | 3.7 | 504 | Inferred | 225,000 | 358 | 2.18 | 0.85 | 2.6 | 10.8 | 4.2 | 3.1 | 434 | 400 Ag Eq g/t | Indicated | 180,000 | 490 | 1.93 | 0.74 | 2.8 | 7.7 | 2.9 | 3.1 | 538 | Inferred | 165,000 | 384 | 2.01 | 0.99 | 2 | 7.3 | 3.6 | 2.4 | 455 |
Note: Mineral resource estimate cut-off grade bolded. Paca Deposit Sensitivity Analysis from October 13th, 2020 MRE The Paca deposit is located 7 kilometers north of the Pulacayo deposit. Sensitivity analysis shown in the following two tables illustrates various pit-constrained grade-tonnage scenarios at the Paca deposit based on a range of cut-off grades. Paca Deposit Pit-Constrained Cut-Off Grade Sensitivity Report for Oxide Zone Cut -off Grade | Category | Rounded Tonnes | Ag g/t | Zn % | Pb % | Ag Moz | Zn Mlbs | Pb Mlbs | *AgEq Moz | AgEq g/t | 30 Ag g/t | Indicated | 1,805,000 | 128 | | | 7.4 | | | | | Inferred | 500,000 | 102 | | | 1.6 | | | | | 45 Ag g/t | Indicated | 1,225,000 | 170 | | | 6.7 | | | | | Inferred | 375,000 | 124 | | | 1.5 | | | | | 90 Ag g/t | Indicated | 800,000 | 231 | | | 5.9 | | | | | Inferred | 235,000 | 159 | | | 1.2 | | | | | 200 Ag g/t | Indicated | 420,000 | 311 | | | 4.2 | | | | | Inferred | 55,000 | 285 | | | 0.5 | | | | | 400 Ag g/t | Indicated | 80,000 | 493 | | | 1.3 | | | | | Inferred | 5,000 | 459 | | | 0.1 | | | | |
Note: Cut-off grade for pit-constrained oxide mineral resources is 50 g/t Ag.
SILVER ELEPHANT MINING CORP. Management’s Discussion and Analysis of Financial Condition and Results of Operations For the year ended December 31, 2020 (Expressed in Canadian Dollars, except where indicated) Paca Deposit Pit-Constrained Cut-Off Grade Sensitivity Report for Sulfide Zone Cut -off Grade | Category | Rounded Tonnes | Ag g/t | Zn % | Pb % | Ag Moz | Zn Mlbs | Pb Mlbs | *AgEq Moz | AgEq g/t | 30 AgEq g/t | Indicated | 20,595,000 | 46 | 1.07 | 0.67 | 30.5 | 485.8 | 304.2 | 70.2 | 106 | Inferred | 3,050,000 | 46 | 0.76 | 0.65 | 4.5 | 51.1 | 43.7 | 9.2 | 94 | 45 AgEq g/t | Indicated | 19,315,000 | 48 | 1.11 | 0.69 | 29.8 | 472.7 | 293.8 | 68.3 | 110 | Inferred | 2,650,000 | 51 | 0.81 | 0.7 | 4.4 | 47.3 | 40.9 | 8.7 | 102 | 90 AgEq g/t | Indicated | 8,600,000 | 87 | 1.38 | 0.95 | 24.1 | 261.6 | 180.1 | 45.4 | 164 | Inferred | 950,000 | 114 | 0.94 | 0.95 | 3.5 | 19.7 | 19.9 | 5.2 | 171 | 200 AgEq g/t | Indicated | 1,810,000 | 256 | 1.22 | 1.22 | 14.9 | 48.7 | 48.7 | 18.5 | 318 | Inferred | 190,000 | 338 | 0.61 | 0.98 | 2.1 | 2.6 | 4.1 | 2.2 | 360 | 400 AgEq g/t | Indicated | 300,000 | 490 | 1.38 | 1.47 | 4.7 | 9.1 | 9.7 | 5.2 | 542 | Inferred | 50,000 | 545 | 0.39 | 0.82 | 0.9 | 0.4 | 0.9 | 0.9 | 530 |
Note: Mineral resource estimate cut-off grade bolded. Recent Activities & Updates 2017 During the year ended December 31, 2017, the Company updated mining scenarios and budgets, negotiated to resolve legacy financial obligations, and engaged in deliberations to obtain permission to restart operations at the Pulacayo Project. The Company has worked with government officials to obtain assurances that its investments in exploration and its work toward a production profile at the Pulacayo Project are financially safe and legally protected. Such efforts included a meeting with Bolivia’s Minister of Mining and Metallurgy, César Navarro, and other mine operators in Bolivia. 2018 During the year ended December 31, 2018, the Company determined there were several indicators of potential impairment of the carrying value of the Pulacayo Project, including the shift at the time of the Company’s primary focus to the Gibellini Project. While management believed and continues to believe that the Pulacayo Project is a property of merit and warrants continued development, a write down in accordance with IFRS 6 Exploration for and Evaluation of Mineral Resources and IAS 36, Impairment of Assets of $13,708,200 of previously capitalized deferred exploration costs to $nil and an impairment charge of $335,181 on the mining equipment at the Pulacayo Project has been recognized. This non-cash accounting charge does not impact the Company’s financial liquidity, or any future operations and management believes the adjustment to the book value of this long-lived asset more accurately reflects the Company’s current market capitalization. 2019 In September of 2019 the Company initiated its first drilling program at the Paca deposit area. The program was completed in October of 2019 and consisted of 7 drill holes. The complete detailed composited drill intersections of mineralization are tabulated in the following table: SILVER ELEPHANT MINING CORP. Management’s Discussion and Analysis of Financial Condition and Results of Operations For the year ended December 31, 2020 (Expressed in Canadian Dollars, except where indicated)
Hole | From(m) | To (m) | Length | Ag (g/t) | Zn % | Pb % | AgEq | (m) | PND107 | Interval: | 55 | 109 | 54 | 151 | 1.01 | 1.17 | 238 | including … | 70 | 77 | 7 | 178 | 0.97 | 1.37 | 271 | and … | 70 | 109 | 39 | 180 | 1.2 | 1.34 | 283 | and … | 87 | 109 | 22 | 240 | 1.23 | 1.65 | 355 | PND108 | | 15 | 65 | 50 | 135 | 0.4 | 1.42 | 208 | including … | 33 | 57 | 24 | 200 | 0.6 | 2.12 | 307 | and … | 33 | 43 | 10 | 257 | 0.41 | 1.49 | 333 | Interval: | 94 | 96 | 2 | 160 | 0.94 | 0.52 | 220 | PND109 | Interval: | 15 | 43 | 28 | 242 | 0.27 | 0.69 | 281 | including … | 20 | 29 | 9 | 391 | 0.26 | 1.1 | 445 | and … | 24 | 26 | 2 | 1223 | 0.42 | 3.2 | 1365 | and … | 37 | 43 | 6 | 282 | 0.31 | 0.52 | 315 | | 75 | 173 | 98 | 15 | 2.47 | 1.28 | 168 | including … | 93 | 94 | 1 | 167 | 3.64 | 1.24 | 367 | PND110 | Interval: | 9 | 182 | 173 | 95 | 1.63 | 1.4 | 273 | including… | 9 | 98 | 89 | 279 | 1.28 | 1.17 | 378 | and… | 9 | 28 | 19 | 718 | 0.05 | 0.74 | 749 | and… | 9 | 12 | 3 | 145 | 0.07 | 0.9 | 183 | and… | 16 | 28 | 12 | 1085 | 0.04 | 0.71 | 1115 | and… | 44 | 180 | 138 | 87 | 1.59 | 2.01 | 233 | and… | 44 | 46.5 | 2.5 | 111 | 0.61 | 1.09 | 179 | and… | 44 | 98 | 54 | 98 | 2.03 | 1.52 | 343 | and… | 52 | 54 | 2 | 115 | 1.61 | 1.33 | 234 | and… | 60 | 82 | 22 | 328 | 1.98 | 1.43 | 466 | and… | 61 | 65 | 4 | 1248 | 1.93 | 2.88 | 1441 | and… | 86 | 94 | 8 | 270 | 2.83 | 2.74 | 495 | and… | 97 | 98 | 1 | 155 | 3.26 | 3.03 | 409 | PND111 | Interval: | 0 | 2.4 | 2.4 | 110 | 0.16 | 0.58 | 139 | PND112 | Interval: | 12 | 28 | 16 | 154 | 0.08 | 0.39 | 173 | including… | 21 | 22 | 1 | 890 | 0.05 | 0.31 | 904 | Interval: | 33 | 36 | 3 | 120 | 0.07 | 2.4 | 216 | Interval: | 43 | 44.6 | 1.6 | 100 | 0.23 | 1.58 | 171 | PND113 | Interval: | 3 | 28 | 25 | 196 | 0.04 | 0.29 | 209 | including… | 3 | 17 | 14 | 185 | 0.04 | 0.38 | 202 | and… | 21 | 28 | 7 | 310 | 0.04 | 0.19 | 320 |
SILVER ELEPHANT MINING CORP. Management’s Discussion and Analysis of Financial Condition and Results of Operations For the year ended December 31, 2020 (Expressed in Canadian Dollars, except where indicated) Reported widths are intercepted core lengths and not true widths, as relationships with intercepted structures and contacts vary. Based on core-angle measurements, true widths are estimated at approximately 77% of reported core lengths. Silver equivalents reported are calculated above do not assume metallurgical recoveries and were calculated using AgEg. (g/t) = Ag (g/t) % + (Pb% *(US$0.94/lb. Pb /14.583 Troy oz./lb./US$16.50 per Troy oz. Ag)*10,000) + (Zn% *(US$1.00/lb. Zn/14.583 Troy oz./lb./US$16.50 per Troy oz. Ag)*10,000). Metal prices used in this silver equivalent calculation are US$16.50/Troy oz. Ag, US$0.94/lb. Pb and US$1.00/lb. Zn. During the year ended December 31, 2019, the Company assessed whether there was any indication that the previously recognized impairment loss in connection with the Pulacayo Project may no longer exist or may have decreased. The Company noted the following indications that the impairment may no longer exist: ● the Company signed the Pulacayo MPC granting the Company the 100% exclusive right to develop and mine at the Pulacayo Project; ● the Company shifted its exploration focus to develop the Pulacayo Project in the during the year ended December 31, 2019; ● the Company re-initiated active exploration and drilling programs on the Pulacayo Project; and ● a tax dispute in Bolivia was settled in the Company’s favour. As the Company identified these indications that the impairment may no longer exist, the Company completed an assessment to determine the recoverable amount of the Pulacayo Project. In order to estimate the fair-value of the property the Company engaged a third-party valuation consultant and also utilized level 3 inputs on the fair value hierarchy to estimate the recoverable amount based on the property’s fair value less costs of disposal determined with reference to dollars per unit of metal in-situ. With reference to metal in-situ, the Company applied US$0.79 per ounce of silver resource to its 36.8 million ounces of silver resources and US$0.0136 per pound of zinc or lead in resource to its 303 million pounds of zinc and lead. The Company also considered data derived from properties similar to the Pulacayo Project. This data consisted of property transactions and market valuations of companies holding comparable properties, adjusted to reflect the possible impact of factors such as location, political jurisdiction, commodity, geology, mineralization, stage of exploration, resources, infrastructure and property size. As the recoverable amount estimated with respect to the above was $31.4 million, an impairment recovery of $13,708,200 was recorded during the year ended December 31, 2019. 2020 Drilling that began at the Pulacayo deposit in December of 2019 was completed in February of 2020. The Company announced its first set of results on January 21, 2020, from borehole PUD 267 which intercepted 10 meters of mineralization grading 147 g/t silver, 9.8% zinc, and 2.0% lead (539 g/t AgEq) within 35.5 meter mineralization grading 230 g/t AgEq starting 31.5 meters downhole.
SILVER ELEPHANT MINING CORP. Management’s Discussion and Analysis of Financial Condition and Results of Operations For the year ended December 31, 2020 (Expressed in Canadian Dollars, except where indicated) On March 6, 2020, the Company released additional results from its first 2,598 meters of drilling, which focused on the western portion of the Pulacayo Project and on August 11, 2020, the Company announced further diamond infill drilling results from the Pulacayo Project. Complete results of all first phase 2020 drilling are tabulated below: Hole ID | From (m) | To (m) | Interval (m) | Ag (g/t) | Zn (%) | Pb (%) | AgEq | PUD267* | 31.5 | 67 | 35.5 | 54.3 | 4.31 | 0.92 | 229.6 | including… | 117 | 123 | 6 | 47.8 | 1.11 | 0.25 | 89.7 | PUD268 | 21 | 23 | 2 | 20 | 1.34 | 0.77 | 92.6 | PUD274 | 75 | 77 | 2 | 93.5 | | 0.42 | 98.8 | PUD274 | 82 | 83 | 1 | 83 | | 0.09 | 77.4 | PUD283 | 248 | 350 | 102 | 145 | 2.56 | 1.05 | 255 | including.. | 248 | 282 | 34 | 9 | 1.05 | 0.22 | 52 | and… | 282 | 297 | 15 | 35 | 2.99 | 0.4 | 148 | and… | 297 | 310 | 13 | 157 | 5.15 | 1.47 | 370 | and… | 310 | 317 | 7 | 225 | 3.74 | 1.15 | 371 | and… | 317 | 322 | 5 | 1565 | 3.85 | 8.25 | 1825 | and… | 322 | 329 | 7 | 134 | 1.73 | 1.18 | 222 | and… | 329 | 350 | 21 | 76 | 2.65 | 0.82 | 188 | PUD284 | 30.5 | 204.2 | 173.7 | 15 | 0.67 | 0.28 | 46 | including… | 30.5 | 55 | 24.5 | 3 | 2.45 | 0.1 | 20 | and… | 55 | 65 | 10 | 113 | 2.11 | 1.93 | 243 | and… | 65 | 79 | 14 | 13 | 1.2 | 0.44 | 69 | and… | 79 | 101 | 22 | 4 | 0.36 | 0.11 | 20 | and… | 101 | 204.2 | 103.2 | 10 | 0.59 | 0.18 | 36 | PUD284 | 206.3 | 273 | 66.7 | 112 | 1.94 | 0.46 | 182 | Interval: | 206.3 | 240 | 33.7 | 46 | 2.12 | 0.41 | 129 | Interval: | 240 | 256 | 16 | 79 | 2.7 | 0.72 | 189 | Interval: | 256 | 273 | 17 | 274 | 1.13 | 0.33 | 295 | PUD284 | 282 | 318 | 36 | 26 | 1.01 | 0.34 | 70 | including… | 282 | 288 | 6 | 13 | 0.94 | 0.27 | 54 | and… | 288 | 300 | 12 | 60 | 1.48 | 0.61 | 127 | and… | 300 | 318 | 18 | 7 | 0.72 | 0.18 | 38 |
Reported widths are intercepted core lengths and not true widths, as relationships with intercepted structures and contacts vary. Based on core-angle measurements, true widths are estimated at approximately 61% of reported core lengths. Silver equivalent is calculated as follows: Ag Eq. (g/t) = Ag (g/t)*89.2% + (Pb% *(US$0.94/ lb. Pb /14.583 Troy oz/lb./US$16.50 per Troy oz. Ag)*10,000*91.9%) + (Zn% *(US$1.00/lb. Zn/14.583 Troy oz/lb./US$16.50 per Troy oz. Ag)*10,000*82.9). This calculation incorporates metallurgical recoveries from test work completed for Pulacayo in 2013 by Universidad Tecnica de Oruro (UTO), in Oruro and La Paz, Bolivia as well as at Maelgwyn Mineral Services Africa (MMSA) in Roodeporrt, South Africa. The Company adopts industry recognized best practices in its implementation of QA/QC methods. A geochemical standard control sample and one blank sample is inserted into the sample stream every 20th sample. Duplicates are taken at every 40th sample. Standards and duplicates including lab duplicates and standards and are analyzed using Thompson-Howarth plots. Samples are shipped to ALS Global Laboratories in Ururo, Bolivia for preparation, and then shipped to ALS Global laboratories for analysis in Lima, Peru. Samples were analyzed using intermediate level four acid digestion. Silver overlimits are analyzed using fire assay with a gravimetric finish. ALS Laboratories sample management system meets all requirements of International Standards ISO/IEC 17025:2017 and ISO 9001:2015. All ALS geochemical hub laboratories are accredited to ISO/IEC 17025:2017 for specific analytical procedures.
SILVER ELEPHANT MINING CORP. Management’s Discussion and Analysis of Financial Condition and Results of Operations For the year ended December 31, 2020 (Expressed in Canadian Dollars, except where indicated) All samples are taken from HQ-diameter core which split in half by a diamond-blade masonry saw. One-half of the core is submitted for laboratory analysis and the other half is preserved on the Company’s secured core facility for reference. All core is geotechnically analyzed, photographed and then logged by geologists prior to sampling. On November 30, 2020, the Company announced that further to the news release dated October 14, 2020, it has received the complete assay results from the Company’s diamond drill program at the Paca deposit. All 5 drill holes intersected mineralization, with the results shown in the following table: Hole ID | From | To | Length (m) | Ag g/t | Zn % | Pb % | AgEq* | PND114 | 1.5 | 18.0 | 16.5 | 43 | 0.11 | 0.36 | 55 | PND115 | 3.0 | 69.0 | 66.0 | 48 | 0.10 | 0.80 | 75 | PND116 | 7.0 | 37.0 | 30.0 | 23 | 0.15 | 0.42 | 41 | PND117 | 51.0 | 82.0 | 31.0 | 3 | 0.45 | 0.31 | 31 | PND118 | 18.0 | 38.0 | 20.0 | 25 | 0.09 | 0.09 | 29 | PND118 | 67.0 | 179.0 | 112.0 | 15 | 0.50 | 0.48 | 50 | including… | 133.0 | 143.0 | 10.0 | 61 | 0.65 | 0.37 | 93 |
(*) Silver equivalent (“AgEq”) calculation is based on NI43-101 compliant 2020 resource report completed for the Paca deposit by Mercator Geological Services (see Company’s press release dated October 13th, 2020). Silver equivalent is calculated as follows: Ag Eq. = Silver Equivalent (Recovered) = (Ag g/t*89.2%)+((Pb%*(US$0.95/lb. Pb/14.583 Troy oz./lb./US$17 per Troy oz. Ag)*(10,000*91.9%))+((Zn%*(US$1.16/lb. Zn/14.583 Troy oz./lb./US$17 per Troy oz. Ag)*(10,000*82.9%)) and assumed metallurgical recoveries. Metal prices of US$17/oz Ag, US$0.95/lb Pb, and US$1.16/lb Zn apply. Reported widths are intercepted core lengths and not true widths, as relationships with intercepted structures and contacts vary. Based on core-angle measurements, true widths range from 77% to 86% of the reported core length. PND 114, 115, 118 drilled tested oblique structures parallel to the main east-west trend and discovered new mineralized zones. PND 114 intersected 16.5 meters of mineralization grading 55g/t silver equivalent that is to the north of the Paca north zone. PND 115 intercepted 66 meters of mineralization grading 75g/t silver equivalent between Paca main zone and Paca north zone, which are 250 meters apart. PND 118 was drilled at the eastern edge of the Paca main zone and intersected 112 meters of mineralization grading 50 g/t silver equivalent. The Company is integrating the drill results to the recently completed geomodelling.Commencement of next round of Paca drilling is tentatively scheduled for the first half of 2021. In March 2020 the Company further announced that it had commenced district exploration program at its Pulacayo project. The Company would be conducting geological mapping, with relevant sampling and possible trenching on the property. Induced polarization geophysics would also be conducted in tandem with the field program, with 106 line-kilometers of survey having been outlined. In July 2020, the Company announced results of rock chip samples taken from the San Leon underground tunnel. This geological sampling and mapping program are part of an ongoing district exploration program announced on March 9, 2020, at the Company’s Pulacayo Silver Project in Bolivia. A total of 113 chip samples were collected at intervals of from 0.85 to 3.0 meters to better characterize the geology and alteration of the San Leon tunnel, which continues for 3km to the south of the mapping area, passing through the Company’s existing NI43-101 Pulacayo resource and connects to the town of Pulacayo. The tunnel also extends to the north for 1 km where historically the Pulacayo mine’s ore was carted for smelting during the 1800’s. Sample results are tabulated below: SILVER ELEPHANT MINING CORP. Management’s Discussion and Analysis of Financial Condition and Results of Operations For the year ended December 31, 2020 (Expressed in Canadian Dollars, except where indicated) Sample ID | TYPE | Azimuth | WIDTH (m) | Ag ppm | Pb % | Zn % | Ag Eq. ppm | Structure | DIP_DIR | DIP | 3879 | Chip | 350 | 1.5 | 400 | 0.876 | 0.929 | 420 | Breccia | 20 | 80 | 3883 | Chip | 350 | 0.9 | 77 | 0.342 | 0.287 | 91 | Fault | 0 | 72 | 3881 | Chip | 7 | 1.8 | 25 | 0.137 | 0.127 | 32 | Contact | 345 | 78 | 3878 | Chip | 13 | 0.9 | 5 | 0.306 | 0.399 | 29 | Veinlets | 0 | 85 | 3882 | Chip | 338 | 1.8 | 17 | 0.18 | 0.074 | 24 | Veinlets | 350 | 65 | 3880 | Chip | 5 | 1.9 | 6 | 0.132 | 0.102 | 14 | Veinlets | 345 | 65 |
Mapping identified a vein system trending in a roughly east-west direction at the Pacamayo zone (“Veta Pacamayo”). The vein system measures approximately 175 meters in width south to north in the tunnel and is situated 1.3 kilometers north of the Pulacayo resource and 5km south of Paca resource. Highlights of the tunnel chip samples taken in Veta Pacamayo include 420g/t AgEq* over 1.5 meters and 91g/t AgEq over 0.9 meters. The Pulacayo Tajo vein system (Veta Pulacayo) that hosts the Company’s indicated silver resource of 30.4 million oz @ 455g/t and inferred resource of 6.3 million oz at 406 g/t likewise trends roughly east-west, indicating that the Veta Pacamayo represents a parallel system that has seen very little exploration to date. Geological mapping also identified a transition in the intensity of alteration (argillic-style) along the San Leon tunnel. Highest intensity alteration occurs in the Veta Pulacayo, and Veta Pacamayo areas and coincides with the highest observed chip sample silver values. (*) Silver equivalent is calculated as follows: Ag Eq.(g/t) = Ag (g/t)*89.2%+(Pb% *(US$0.94/ lb. Pb /14.583 Troy oz/lb./US$16.50 per Troy oz. Ag)*10,000*91.9%) + (Zn% *(US$1.00/lb. Zn/14.583 Troy oz/lb./US$16.50 per Troy oz. Ag)*10,000*82.9). This calculation incorporates metallurgical recoveries from test work completed for the Pulacayo project in 2013. In September 2020 geological mapping was conducted in the Pero area of the Pulacayo Project. Pero is located to the southeast of the Tajo Vein system that hosts the Pulacayo deposit. Geological mapping and surface sampling identified an area of silver bearing surface mineralization of up to 200 g/t silver several hundreds of meters south of the projected east-west Tajo Vein system trend, suggesting that the Tajo Vein system was offset southward in this portion of the system where strong alteration can be observed at surface covering 250 meters by 100 meters wide. This reinterpreted surface projection of the Tajo Vein system coincides with some historic Spanish workings in that area of property that date back to the 16th Century. Highlights of assay results from recent surface samples at Pero are tabulated below: Sample ID | Type | Azimuth | Width (m) | Ag (g/t) | Zn% | Pb% | 1313 | Chip | 210 | 3 | 200 | 0.1 | 0.1 | 1314 | Chip | 195 | 1.2 | 200 | 0.1 | 0.01 | 1295 | Chip | 340 | 3 | 164 | 0.0164 | 0.0164 | 1297 | Chip | 320 | 1.4 | 132 | 0.0132 | 0.0132 | 1315 | Chip | 200 | 2.9 | 100 | 0.01 | 0.01 | 1301 | Chip | 240 | 4 | 72 | 0.0072 | 0.0072 | 1303 | Chip | 200 | 6.4 | 67 | 0.0067 | 0.0067 | 1323 | Chip | 20 | 4 | 50 | 0.005 | 0.005 | 1304 | Chip | 150 | 3.7 | 46 | 0.0046 | 0.0046 |
SILVER ELEPHANT MINING CORP. Management’s Discussion and Analysis of Financial Condition and Results of Operations For the year ended December 31, 2020 (Expressed in Canadian Dollars, except where indicated) In December 2020 the Company commenced a 940 meter diamond drilling program at the Pero target within its Pulacayo Project in Bolivia. Pero is located at the easternmost portion of the Pulacayo deposit and is the least understood area geologically. Field work in 2020 identified potential structural remobilization in this area that might explain the erratic nature of mineralization within the Tajo Vein System as it occurs in this area of the property. A summary of results from this drilling is tabulated below: BHID | From (m) | To (m) | Length (m) | Ag (g/t) | Pb % | Zn % | AgEq* (g/t) | PUD285 | 30.6 | 44.6 | 14.0 | 43 | 0.19 | 0.02 | 46 | PUD 285 | 143.0 | 191.0 | 48.0 | 10 | 0.11 | 0.17 | 23 | PUD 286 | 99.0 | 124.0 | 25.0 | 18 | 0.33 | 0.09 | 32 | PUD 286 | 148.0 | 152.0 | 4.0 | 393 | 3.79 | 0.88 | 518 | PUD 286 | 174.0 | 183.0 | 9.0 | 20 | 0.13 | 0.05 | 25 | PUD 287 | 56.0 | 78.0 | 22.0 | 43 | 0.23 | 0.02 | 48 | PUD 287 | 127.0 | 139.0 | 12.0 | 15 | 0.01 | 0.01 | 15 |
*Ag Eq. = Silver Equivalent (Recovered) = (Ag g/t*89.2%)+((Pb%*(US$0.95/lb. Pb/14.583 Troy oz./lb./US$17 per Troy oz. Ag)*(10,000*91.9%))+((Zn%*(US$1.16/lb. Zn/14.583 Troy oz./lb./US$17 per Troy oz. Ag)*(10,000*82.9%)). Sulphide zone metal recoveries of 89.2% for Ag, 91.9% for Pb, and 82.9% for Zn were used in the Silver Equivalent (Recovered) equation and reflect metallurgical testing results disclosed previously for the Pulacayo Deposit. Reported widths are intercepted core lengths and not true widths, as relationships with intercepted structures and contacts vary. Based on core-angle measurements, true widths range from 75% to 85% of the reported core length. During the year ended December 31, 2020, the Company incurred total costs of $2,357,534 (2019 - $1,474,026; 2018 - $898,650) for the Pulacayo Project including $1,767,089 (2019 - $964,716; 2018 - $51,112) for geological and engineering services, $584,712 (2019 - $503,071; 2018 - $847,538) for personnel, legal, general and administrative expenses and $5,733 (2019 - $6,239, 2018 - $Nil) for fees and permits. The Company also reports that the national COVID-19 quarantine in Bolivia was lifted in late-June of 2020. The Company has resumed its work schedule and commenced an exploration program at the Pulacayo Project consisting of geological mapping of the property. Work will continue as planned; however the Company will follow the guidance of federal and local authorities in Bolivia with regards to COVID-19. 2021 Outlook The Company’s 2021 Pulacayo objectives are: ● Complete district geological mapping over entire property ● Complete induced polarization (geophysics) survey over the entire property ● Evaluate field data to generate drilling targets over property ● Commence diamond drilling program testing priority targets on property SILVER ELEPHANT MINING CORP. Management’s Discussion and Analysis of Financial Condition and Results of Operations For the year ended December 31, 2020 (Expressed in Canadian Dollars, except where indicated) Sunawayo Project, Bolivia | On September 8, 2020, the Company announced that it has entered into the Sunawayo SPA, a binding sales and purchase agreement with the Sunawayo Vendor to acquire the Sunawayo Project, a silver-lead mining project located immediately adjacent to the Malku Khota silver project in Bolivia. The Sunawayo Project is patented land which the Company has secured rights to explore through the Sunawayo SPA, whereas Malku Khota is unpatented land administered by COMIBOL. In January of 2020, the Company applied for a mining production contract with COMIBOL that would give it the rights to mine and explore Malku Khota. The application was received by COMIBOL and is currently under review. While the Company is engaging with COMIBOL to advance this process, the Company has not been provided with any timelines for any eventual approval. |
The purchase agreement of the Sunawayo Project includes a fully permitted 100 ton-per-day open-pit mining operation that produces lead concentrate. The Sunawayo Project has a strike of 17 kilometers which covers 59.5 square kilometers of prospective area. The Sunawayo Project has ready access to water and power and is located 165 kilometers by road from Bolivia’s 5th largest city, Oruro. Forty-eight samples, spanning 11 kilometers, were taken at the Sunawayo Project, where visible mineralization were observed during a recent site visit conducted in August 2020 by Company geologists who collected the samples during their visit. Four priority targets were identified during this site visit: Caballo Uma, Pujiuni, Mine Area, and Malku Khota border. Sample ID | Area | Type | Ag (g/t) | Pb % | Zn % | AgEq (g/t) | 93323 | Caballo Uma | CHIP | 397 | 2.63 | 0.67 | 475 | 93329 | Caballo Uma | CHIP | 293 | 4.26 | 2.04 | 448 | 93327 | Caballo Uma | GRAB | 289 | 1.92 | 0.44 | 344 | 93324 | Caballo Uma | GRAB | 288 | 0.27 | 0.01 | 294 | 93303 | Caballo Uma | CHIP | 169 | 12.55 | 0.26 | 452 | 93321 | Caballo Uma | GRAB | 158 | 20 | 0.01 | 597 | 93337 | Pijiuni | CHIP | 477 | >20 | 0.02 | 916 | 93334 | Pijiuni | CHIP | 37 | 4.28 | 0.03 | 132 | 93336 | Pijiuni | CHIP | 35 | 0.59 | 0.13 | 52 | 93347 | Mine Area | GRAB | 3 | >20 | 0.01 | 442 | 93346 | Mine Area | GRAB | 1 | 14.2 | 0.25 | 320 | 93310 | MK Border | GRAB | 8 | 0.05 | 0.17 | 14 | 93309 | MK Border | GRAB | 8 | 0.01 | 0.1 | 11 |
SILVER ELEPHANT MINING CORP. Management’s Discussion and Analysis of Financial Condition and Results of Operations For the year ended December 31, 2020 (Expressed in Canadian Dollars, except where indicated) Silver equivalent calculation uses a silver price of $25.00/oz, a zinc price of $1.10/lb., a lead price of $0.80/lb. (all USD), and assumes a 100% metallurgical recovery. Silver equivalent values can be calculated using the following formula: AgEq = Ag g/t + (Zn % x 30.1644 ) + (Pb % x 21.9377). Samples indicating >20% Pb are calculated using 20% Pb 2021 The Company commenced the maiden drilling program for the Sunawayo project in January 2021. The first 2 drillhole results were received in February 2021, and announced on February 24th, 2021. The first drill hole intercepted 137 meters of mineralization grading 36 g/t silver, starting from 0 meters-depth. The second drill hole intercepted 31 meters of mineralization grading 44 g/t silver, 0.39% lead, and 0.48% zinc from 1 meter-depth. Both SWD001 and SWD002 (240 meters to the southeast of the former) feature near-uniform silver assays throughout the reported intervals. Composited results for SWD001 and SWD002 are tabulated below: Hole ID | From | To | Length (m) | Ag (g/t) | Pb % | Zn % | AgEq* (g/t) | SWD001 | 0.0 | 137.0 | 137.0 | 36 | 0.12 | 0.02 | 39 | SWD002 | 1.0 | 32.0 | 31.0 | 44 | 0.39 | 0.48 | 67 | incl… | 21.0 | 30.0 | 9.0 | 48 | 0.73 | 1.57 | 112 |
Reported widths are intercepted core lengths and not true widths, as relationships with intercepted structures and contacts vary. Based on core-angle measurements, true widths range from 80% to 85% of reported core length. (*)Silver equivalent calculation uses a silver price of $25.00/oz, a zinc price of $1.10/lb., and a lead price of $0.80/lb. (all USD) and assumes a 100% metallurgical recovery. Silver equivalent values can be calculated using the following formula: AgEq = Ag g/t + (Zn % x 30.1644 ) + (Pb % x 21.9377). These 2 holes were the first results from 15 planned drillholes. Summary of the Acquisition of the Sunawayo Project Subject to the provisions of the Sunawayo SPA, the Sunawayo Vendor agreed to transfer the mining rights of the Sunawayo Project to the Company upon the Company paying it US$6,500,000. That payment consists of US$300,000 that was paid to the Sunawayo Vendor upon execution of the Sunawayo SPA with the remaining US$6,200,000 to be paid in cash over a one-year period in twelve equal monthly installments, starting March 1, 2021. As with the Pulacayo Project, the Company’s objectives for the remainder of 2020 and 2021 are to identify exploration targets and to test those targets that meet the criteria for drilling with an aim to make new discoveries. More specifically, the Company’s goal is to explore near the southeast border of the Sunawayo Project, in and around the existing open pit mine, and along the 8 kilometer Malku Khota lithological trend within sandstone units. The Company anticipates it will take three to four months to achieve this goal. The Company will continue to simultaneously advance a mining production contract application with COMIBOL for the rights to mine and explore the adjacent Malku Khota project. This application process is anticipated to last six to twelve months. During the year ended December 31, 2020, the Company incurred total costs of $513,088 (2019 -$Nil; 2018 - $Nil) for the Sunawayo Project including for $116,152 (2019 - $Nil; 2018 - $Nil) for geological and engineering services and $396,936 of acquisition cost. The Company’s 2021 Sunawayo objectives are: ● Complete maiden drilling program on property; ● Complete due diligence evaluation by March, 2021; ● Complete induced polarization (geophysics) south portion of property; ● Continue geological and structural mapping; ● Evaluate field data for additional target generation; ● Commence 2nd drill campaign on property testing targets generated from field work SILVER ELEPHANT MINING CORP. Management’s Discussion and Analysis of Financial Condition and Results of Operations For the year ended December 31, 2020 (Expressed in Canadian Dollars, except where indicated) Triunfo Project, Bolivia On July 13, 2020 the Company executed the Triunfo Agreement with the Triunfo Vendor. The Triunfo Agreement provides the Company with the Triunfo Rights (consisting of the Exploration Right and the Purchase Right) with respect to the Triunfo Project. The Purchase Right can be exercised at any time after the Triunfo Vendor completes the required Bolivian administrative procedures for the Triunfo Project (expected to occur no later than March 2021) until July 13, 2025, or such further period as the parties may agree. To secure the Triunfo Rights, the Company paid the Triunfo Vendor US$100,000 upon execution of the Triunfo Agreement. Until the Company exercises its Purchase Right, beginning in 2021 the Company must pay the Triunfo Vendor US$50,000 on June 15 of each year to maintain the Triunfo Rights. The Company may elect to terminate the Triunfo Agreement at any time. If the Company exercises the Purchase Right, the Triunfo Vendor will maintain the Residual Interest. Upon exercise of the Purchase Right, the Company may make a lump sum payment to the Triunfo Vendor at any time to reduce some or all of the Residual Interest as follows: ● the Residual Interest may be extinguished for US$300,000; ● the Residual Interest may be reduced to 4% for US$250,000; ● the Residual Interest may be reduced to 3% for US$200,000; ● the Residual Interest may be reduced to 2% for US$150,000; or ● the Residual Interest may be reduced to 1% for US$100,000. Triunfo Project Summary The Triunfo Project area covers approximately 256 hectares located in the La Paz Department, which is located about 75 kilometers to the east of the city of La Paz, Bolivia. The Triunfo Project has access to power and water and is accessible by road year-round. The Triunfo Vendor maintains a positive relationship with the local community. Exploration was conducted in 2005 through 2007 by Solitario Resources, which made 3 drill holes, all of which intercepted mineralization. Only 20% of the Triunfo Project was explored by Solitario. The mineralization is characterized by pyrite, arsenopyrite, galena, and sphalerite and carries gold, silver, and zinc and lead in various proportions. Mineralization outcrops at the surface and continues for at least 750 meters in three discrete blocks, known as A, B, and C. The mineralized blocks have widths varying from 20 meters to 150 meters and are locally displaced for several meters by north-east trending faults. In the past decade, some artisanal mining has been developed where gold mineralization has been identified. Those areas have been principally mined for gold. The Triunfo Project contains polymetallic vein-style mineralization hosted in metasediments of the Silurian and Devonian periods. The metasediments were intruded by nearby plutonic batholiths which are likely related to the mineralizing event. This style of mineralization is well documented in Bolivia. Examples include Cerro Rico and Porco, located in and around Potosi. Several dozen chip samples were taken from the surface and tunnels at Triunfo in late-May 2020. The sampling returned significant results from both blocks. The following table shows the assay results, equal to and over 1.0 g/t Au Equivalent which represent over 36% of the samples (37 / 103). SILVER ELEPHANT MINING CORP. Management’s Discussion and Analysis of Financial Condition and Results of Operations For the year ended December 31, 2020 (Expressed in Canadian Dollars, except where indicated) El Triunfo Chip Channel Results Returning 1g/t AuEq* or greater ID | BLOCK | Type | WIDTH | Au | Ag | Pb | Zn | AuEq | AgEq | (m) | (g/t) | (g/t) | (%) | (%) | (g/t) | (g/t) | 46506 | A | chip channel | 3.9 | 2 | 113 | 3.46 | 0.12 | 8 | 814 | 46505 | A | chip channel | 2 | 4 | 29 | 1.34 | 0.06 | 8 | 806 | 46504 | A | chip channel | 2.1 | 1 | 69 | 2.52 | 1.82 | 6 | 547 | 46503 | A | chip channel | 2.2 | 1 | 64 | 1.93 | 0.13 | 5 | 465 | 46502 | A | chip channel | 3.8 | 1 | 55 | 2.34 | 1.08 | 4 | 415 | 46501 | A | chip channel | 2.3 | 0 | 75 | 2.61 | 1.29 | 4 | 406 | 46299 | A | chip channel | 2.8 | 2 | 25 | 0 | 0.02 | 4 | 385 | 46298 | A | chip channel | 2.3 | 1 | 35 | 1.42 | 1.76 | 4 | 366 | 46297 | A | chip channel | 2 | 2 | 40 | 0 | 0.01 | 4 | 358 | 46296 | A | chip channel | 2.4 | 1 | 96 | 0 | 0.01 | 3 | 304 | 46295 | A | chip channel | 2.1 | 2 | 6 | 0 | 0 | 3 | 293 | 46294 | A | chip channel | 3 | 0 | 46 | 2.88 | 0.14 | 3 | 289 | 46293 | A | chip channel | 1.3 | 1 | 15 | 0.34 | 0.03 | 3 | 284 | 46292 | A | chip channel | 2.6 | 1 | 75 | 0 | 0.04 | 3 | 270 | 46291 | A | chip channel | 2 | 0 | 42 | 1.88 | 0.45 | 3 | 265 | 46290 | A | chip channel | 2 | 0 | 47 | 1.76 | 0.1 | 3 | 251 | 46289 | A | chip channel | 1 | 1 | 31 | 0.54 | 0.02 | 2 | 238 | 46288 | A | chip channel | 1.7 | 0 | 20 | 0.53 | 2.23 | 2 | 218 | 46287 | A | chip channel | 1 | 1 | 30 | 0.35 | 0.11 | 2 | 210 | 46286 | A | chip channel | 3.4 | 1 | 14 | 0 | 0 | 2 | 209 | 46285 | A | chip channel | 3 | 1 | 5 | 0 | 0 | 2 | 207 | 46284 | A | chip channel | 2 | 0 | 25 | 1.02 | 0.37 | 2 | 206 | 46283 | A | chip channel | 2.2 | 1 | 6 | 0 | 0 | 2 | 178 | 46282 | A | chip channel | 1.3 | 1 | 2 | 0 | 0 | 2 | 175 | 46281 | A | chip channel | 1.5 | 0 | 42 | 0 | 0.01 | 2 | 168 | 46279 | A | chip channel | 2.4 | 1 | 14 | 0 | 0 | 2 | 164 | 46278 | A | chip channel | 2 | 0 | 17 | 0.59 | 0.41 | 2 | 151 | 46277 | A | chip channel | 2.1 | 1 | 26 | 0 | 0 | 2 | 149 | 46276 | A | chip channel | 2 | 0 | 16 | 0.54 | 0.23 | 1 | 126 | 46275 | A | chip channel | 2 | 0 | 6 | 0.25 | 0.23 | 1 | 126 | 46274 | A | chip channel | 4 | 1 | 2 | 0 | 0 | 1 | 118 | 46273 | A | chip channel | 2.3 | 1 | 4 | 0 | 0 | 1 | 114 | 46272 | A | chip channel | 2.9 | 1 | 4 | 0 | 0.01 | 1 | 109 | 46271 | A | chip channel | 2 | 0 | 11 | 0.3 | 0.36 | 1 | 102 | 46270 | A | chip channel | 2.4 | 0 | 9 | 0.02 | 0.02 | 1 | 97 | 46269 | A | chip channel | 2.5 | 0 | 23 | 0.25 | 0.46 | 1 | 95 |
SILVER ELEPHANT MINING CORP. Management’s Discussion and Analysis of Financial Condition and Results of Operations For the year ended December 31, 2020 (Expressed in Canadian Dollars, except where indicated) (*) Gold equivalent calculation uses a gold price of $1,795, a zinc price of $0.93, a lead price of $0.80, and a silver price of $18.30 (all USD), and assumes a 100% metallurgical recovery. Gold equivalent values can be calculated using the following formula: AuEq = Au g/t + (Ag g/t x 0.0102) + (Zn % x 0.3551) + (Pb % x 0.3055). Silver equivalent calculation uses a silver price of $25.00/oz, a zinc price of $1.10/lb., a lead price of $0.80/lb. (all USD), and assumes a 100% metallurgical recovery. Silver equivalent values can be calculated using the following formula: AgEq = Ag g/t + (Zn % x 30.1644 ) + (Pb % x 21.9377). Denser sets of veins and veinlets hosted by shales and quartzites appear to correlate with higher grades. The strike lengths of these mineralized trends have been recognized as continuing along several hundreds of meters at surface. As with the Pulacayo Project and Sunawayo Project, the Company’s objectives for the remainder of 2020 and 2021 is to identify exploration targets and to test those targets that meet the criteria for drilling with an aim to make new discoveries. More specifically, the Company’s initial drill program entails 5 holes for up to 1,000 meters that may be expanded. The drilling will step out to the east and west of historic drill hole TR001 on Block B. District geological mapping and geophysics is also planned, as the host and accessory mineral properties associated with the mineralization at El Triunfo can be detected by geophysical imaging methods such as induced polarization (IP).
The mineralization is characterized by multiple veins (up to 1.0m wide) and veinlets. They are emplaced along fractures and faults that have developed on the flanks of an east-west trending anticlinal-synclinal sequence. Mineralization is also noted to occur in the sedimentary planes between slate layers. The slate layers can manifest as stockwork-style mineralization which tends to be elongated parallel to the anticlinal axis. On November 25, 2020, the Company announced that further to the news release dated August 19, 2020, it has received the complete assay results from the Company’s first diamond drill program at its 100%-controlled El Triunfo Au-Ag-Zn-Pb project in Bolivia. SILVER ELEPHANT MINING CORP. Management’s Discussion and Analysis of Financial Condition and Results of Operations For the year ended December 31, 2020 (Expressed in Canadian Dollars, except where indicated) Borehole TR007 intercepted 48.9 meters of mineralization grading 0.42 g/t gold, 35.5 g/t silver, 1.17% zinc, and 0.83% lead (1.45 g/t AuEq) within 98.9 meters of mineralization grading 1.04 g/t AgEq starting 13.0 meters downhole. Notable highlights include Hole ID | From | To | Length (m) | Au (g/t) | Ag (g/t) | Zn % | Pb % | AuEq* (g/t) | TR006 | 40.0 | 76.0 | 36.0 | 0.49 | 15.46 | 0.54 | 0.44 | 0.97 | including… | 58.0 | 72.0 | 14.0 | 0.48 | 20.23 | 0.76 | 0.66 | 1.16 | TR007 | 13.0 | 111.9 | 98.9 | 0.37 | 22.71 | 0.74 | 0.58 | 1.04 | including… | 63.0 | 111.9 | 48.9 | 0.42 | 35.49 | 1.17 | 0.83 | 1.45 | TR008 | 6.8 | 84.0 | 77.3 | 0.31 | 17.65 | 0.57 | 0.53 | 0.85 | including… | 45.0 | 51.4 | 6.4 | 1.60 | 56.49 | 1.66 | 0.94 | 3.05 |
(*) Gold equivalent calculation uses a gold price of $1,795, a zinc price of $0.93, a lead price of $0.80, and a silver price of $18.30 (all USD), and assumes a 100% metallurgical recovery. Gold equivalent values can be calculated using the following formula: AuEq = Au g/t + (Ag g/t x 0.0102) + (Zn % x 0.3551) + (Pb % x 0.3055). Mineralization is hosted in altered black shales exhibiting hydrothermal sheeted quartz-carbonate vein sets that are concentrated along the axes of regional anticlinal fold structures. Assay results are detailed in the table below: Hole ID | From | To | Length (m) | Au (g/t) | Ag (g/t) | Zn % | Pb % | AuEq* (g/t) | TR004 | 14.0 | 15.0 | 1.0 | 0.24 | 18.85 | 0.21 | 0.65 | 0.70 | 17.0 | 18.0 | 1.0 | 0.74 | 2.21 | 0.03 | 0.04 | 0.78 | 71.0 | 74.0 | 3.0 | 1.11 | 5.01 | 0.00 | 0.00 | 1.16 |
Hole ID | From | To | Length (m) | Au (g/t) | Ag (g/t) | Zn % | Pb % | AuEq* (g/t) | TR005 | 61.0 | 62.0 | 1.0 | 0.59 | 8.00 | 0.00 | 0.01 | 0.67 | 122.0 | 124.0 | 2.0 | 0.50 | 2.29 | 0.01 | 0.02 | 0.53 | TR006 | 5.0 | 6.0 | 1.0 | 0.73 | 3.19 | 0.10 | 0.13 | 0.84 | 20.0 | 21.0 | 1.0 | 0.15 | 11.10 | 0.35 | 0.29 | 0.48 | 40.0 | 76.0 | 36.0 | 0.49 | 15.46 | 0.54 | 0.44 | 0.97 | including… | 58.0 | 72.0 | 14.0 | 0.48 | 20.23 | 0.76 | 0.66 | 1.16 | TR006 | 94.5 | 101.5 | 7.0 | 0.56 | 23.21 | 0.82 | 0.56 | 1.26 | 106.5 | 107.4 | 0.8 | 0.32 | 12.70 | 0.25 | 0.01 | 0.54 | 120.0 | 121.0 | 1.0 | 0.07 | 15.90 | 0.50 | 0.67 | 0.62 | 142.8 | 143.3 | 0.5 | 0.60 | 0.43 | 0.00 | 0.00 | 0.61 | 190.0 | 191.3 | 1.3 | 0.72 | 89.58 | 2.07 | 0.16 | 2.42 | TR007 | 13.0 | 111.9 | 98.9 | 0.37 | 22.71 | 0.74 | 0.58 | 1.04 | including… | 63.0 | 111.9 | 48.9 | 0.42 | 35.49 | 1.17 | 0.83 | 1.45 | TR007 | 118.5 | 119.5 | 1.0 | 0.03 | 4.55 | 0.17 | 0.53 | 0.30 | 121.5 | 122.5 | 1.0 | 0.30 | 3.69 | 0.07 | 0.46 | 0.50 | 125.5 | 126.3 | 0.8 | 0.56 | 3.18 | 0.09 | 0.03 | 0.63 | 179.0 | 181.0 | 2.0 | 1.05 | 1.38 | 0.01 | 0.01 | 1.07 | 185.6 | 186.2 | 0.6 | 0.44 | 5.69 | 0.02 | 0.01 | 0.51 | 196.0 | 197.0 | 1.0 | 0.74 | 1.46 | 0.00 | 0.00 | 0.76 | TR008 | 6.8 | 84.0 | 77.3 | 0.31 | 17.65 | 0.57 | 0.53 | 0.85 | including… | 45.0 | 51.4 | 6.4 | 1.60 | 56.49 | 1.66 | 0.94 | 3.05 | TR008 | 138.1 | 139.1 | 1.0 | 0.71 | 0.90 | 0.01 | 0.00 | 0.72 | 149.0 | 151.0 | 2.0 | 0.10 | 22.73 | 0.78 | 0.03 | 0.61 | 156.0 | 157.0 | 1.0 | 0.74 | 1.33 | 0.02 | 0.01 | 0.76 | 183.0 | 183.6 | 0.6 | 1.65 | 2.62 | 0.02 | 0.01 | 1.69 | 231.6 | 232.6 | 1.0 | 0.41 | 4.50 | 0.00 | 0.00 | 0.46 | 247.5 | 250.0 | 2.5 | 1.64 | 35.99 | 0.00 | 0.00 | 2.01 | 257.0 | 258.0 | 1.0 | 0.78 | 2.15 | 0.00 | 0.00 | 0.80 |
SILVER ELEPHANT MINING CORP. Management’s Discussion and Analysis of Financial Condition and Results of Operations For the year ended December 31, 2020 (Expressed in Canadian Dollars, except where indicated) *See Notes on gold equivalent (AuEq) calculations and metals prices above. Reported widths in all tables are intercepted core lengths and not true widths, as relationships with intercepted structures and contacts vary. Based on core-angle measurements, true widths range from 54% to 65% of reported core length. As the next step, the Company will integrate those results with planneddistrict geological mapping and geophysics such as induced polarization (IP).Commencement of next round of El Triunfo drilling is tentatively scheduled for first half of 2021. During the year ended December 31, 2020, the Company incurred total costs of $463,665 (2019 -$Nil; 2018 - $Nil) for the Triunfo Project including $327,989 (2019 - $Nil; 2018 - $Nil) for geological and engineering services, and $135,676 (2019 -$Nil; 2018 - $Nil) of acquisition cost. The Company’s 2021 Triunfo objectives are: ● Conduct geological and structural mapping over the property; ● Complete induced polarization (geophysics) survey over the property; ● Generate drilling targets from ground work; and ● Test targets with diamond drilling program. Gibellini Project, Nevada, USA TheOne of the Company’s principal assetassets is its interest in the Gibellini Project. The Company holds a 100% interest in the properties by way of a lease agreement and staked claims. Claims are in the name of the Company’s indirect, wholly-owned Nevada subsidiaries, VC Exploration (US), Inc. (“VC Exploration”) and Nevada Vanadium, LLC (“Nevada Vanadium”).
The Gibellini Project consists of a total of 354555 unpatented lode mining claims that include:includes: 40 "Deitrich" claims under the GibelliniDeitrich Lease Agreement as amended on April 19, 2018, the Nevada Vanadium group of 40450 Gibellini claims and 100% interest of the Bisoni deposit claims, and the VC Exploration group of 105 claims,claims. The Gibellini, VC Exploration and the Company group of 209 claims. The Gibellini group of claims is referred to by the Company as a “project”. All the claims are located in Eureka County, Nevada, as well as 28 of the Bisoni group of claims, with the remaining 173 claims extending southwest into Nye County, Nevada. They are located approximately 25 miles south of the town of Eureka and are easily accessed from US Highway 50 to a paved road that becomes a graded, gravel road. | The Gibellini Project is situated on the south east flank of the Fish Creek Range in the Fish Creek Mining District, about 25 miles south of Eureka, Nevada and is accessed by dirt road extending westward from State Route 379. SILVER ELEPHANT MINING CORP. Management’s Discussion and Analysis of Financial Condition and Results of Operations For the year ended December 31, 2020 (Expressed in Canadian Dollars, except where indicated) | The Gibellini group of claims were acquired on June 22, 2017, through leaseleasehold assignments from the claimant and current holderthen-holder of the Gibellini mineral claims (the “Gibellini Lessor”) and includes an area of approximately 771 acres. Under the Gibellini mineral lease agreement dated June 22, 2017 (the “Gibellini MLA”), Thethe Company leased the Gibellinithis core group of claims, which originally constituted the entire Gibellini Project, by, among other things, agreeing to pay to the Gibellini Lessor annual advance royalty payments. These payments which will beare tied, based on an agreed formula (notnot to exceed USD$US$120,000 per year),year, to the average vanadium pentoxide price of the prior year.year (each an "Advance Royalty Payment"). Upon commencement of production, Thethe obligation to make Advance Royalty Payments will cease and the Company will instead maintain its acquisition through lease of the Gibellini group of claims by paying to the Gibellini Lessor, a 2.5% net smelter return royalty (the “Gibellini NSR Payments”) until a total of USD$US$3 million is paid. Thereafter, the Gibellini NSR will be reduced to 2% over the remaining life of the mine (and referred to thereafter, as “Production Royalty Payments”). All advance royalty paymentsUpon commencement of production, any Advance Royalty Payments that have been made will be deducted as credits against futurethe Gibellini NSR Payments or Production Royalty Payments.Payments, as applicable. The lease is for a term of 10 years, expiring on June 22, 2027, which can be extended for an additional 10 years, at the Company’s option. |
SILVER ELEPHANT MINING CORP. (Formerly “Prophecy Development Corp.”)
Management’s Discussion and Analysis of Financial Condition and Results of Operations
For the year ended December 31, 2019
(Expressed in Canadian Dollars, except where indicated)
On April 19, 2018, the Gibellini MLA was amended to grant the Company the option, at any time during the term of the agreement,Gibellini MLA, which ends on June 22, 2027, to require the Gibellini Lessor to transfer their title over all of the leased mining claims (excluding four claims which will be retained by the Gibellini Lessor and which contain minimal resource) to the Company in exchange for USD1,000,000, towhich will be paid asdeemed an advance royalty payment.Advance Royalty Payment. On July 10, 2017, theThe Company acquired (through lease) from the holders (the “Former Louie Hill Lessors”) also entered into a lease agreement to acquire 10 unpatented lode claims totaling approximately 207 gross acres that comprised the(the “Former Louie Hill group of claimsClaims”) from their holders (the “Former Louie Hill Lessors”) on July 10, 2017 (the “Louie Hill MLA”). The Former Louie Hill Claims were located approximately 500 meters1600 feet south of the Gibellini group of claims. These claimsThe Former Louie Hill Claims were subsequently abandoned by the Former Louie Hill Lessors, and on March 11 and 12, 2018, the Company staked the area within and under 17 new claims totaling approximately 340 gross acres, which now collectively comprise the expanded Louie Hill group of claims.claims (the “Current Louie Hill Claims”).
On October 22, 2018, the Company entered into a royalty agreement (the “Royalty Agreement”) with the Former Louie Hill Lessors to replacethat replaced, on substantially similar terms, the former Louie Hill Mineral LeaseMLA. The Royalty Agreement dated July 10, 2017, whereinprovides for payment by the Company will pay anto the Former Louie Hill Lessors of both advance royalty payments and a net smelter return royalty payments. As with the Gibellini MLA, the advance royalty payments are calculated based on an agreed formula relative to the average vanadium pentoxide price for the prior year, for a total amount not to exceed US$28,000 per year (the “Louie Hill Advance Royalty Payments”). Upon commencement of production, the obligation to make Louie Hill Advance Royalty Payments will be replaced by a 2.5% net smelter return royalty (the “Louie Hill NSR”) payable on vanadium pentoxide produced from the area of the 10 unpatented lode claims originally acquired through lease from the Former Louie Hill Lessors that is nowClaims contained within 17 lode claims since staked by the Company’s subsidiaries. The annual advance royalty payments will be tied, based on an agreed formula (the total amount not to exceed USD$28,000 per year), to the average vanadium pentoxide price for the prior year.Current Louie Hill Claims. Upon commencementSILVER ELEPHANT MINING CORP. Management’s Discussion and Analysis of production,Financial Condition and Results of Operations For the year ended December 31, 2020 (Expressed in Canadian Dollars, except where indicated) The Company will pay tomay purchase three-fifths of the Former Louie Hill Lessors, a 2.5% NSR of which, 1.5% of the NSR may be purchased at any time by the Company for USD$US$1 million, leaving the total Louie Hill NSR to be reduced to 1% overpayable by the Company at 1.0% for the remaining life of the mine (and referred to thereafter, as “Productionmine. Any Louie Hill Advance Royalty Payments”). All advance royalty payments that have been made at the time of the commencement of production will be deducted as credits against future Production Royalty Payments.payments under the Louie Hill NSR. The payments under the Royalty Agreement shall bewill continue for an indefinite period and shallwill be valid and in full force and effect forpayable as long as the Company, its subsidiaries, or any of their permitted successors or assigns holds a valid and enforceable mining concession over the area. On December 5, 2017, the Company announced that it had significantly expanded the land position at the Gibellini Project, by staking a total of 198 new claims immediately adjacent to the Gibellini Projectclaim group covering 4091 acres that are sufficient to enable future vanadium mining, processing and extraction. On November 20, 2017, the Company filed an independent technical report titled “Gibellini Project Nevada, USA NI 43-101 Technical Report” with an effective date of November 10, 2017 (the ”2017 Gibellini Report”) prepared by the Wood Group. The 2017 Gibellini Report was filed with Canadian securities regulatory authorities and is available under the Company’s SEDAR profile at www.sedar.com. On February 15, 2018, the Company indirectly acquiredan additional 105 unpatented lode mining claims located adjacent to its existing Gibellini Projectin Nevada, USA through the indirect acquisition of VC Exploration (US) Inc, by paying a total of $335,661 in cash and issuing the equivalent of 500,000 Common Share purchase warrants to arm’s-length, private partiesparties. On June 25, 2018, the Company filed a technical report titled “Gibellini Project Eureka County, Nevada, NI 43-101 Technical Report on Preliminary Economic Assessment” prepared by Mr. Kirk Hanson, P.E., Technical Director, Open Pit Mining; Mr. Edward J.C. Orbock III, RM SME, Principal Geologist and US Manager of Consulting; Mr. Edwin Peralta, P.E., Senior Mining Engineer; and Mr. Lynton Gormely, P.Eng., Consultant Metallurgist of Wood Group (the “2018 Gibellini PEA”). The 2018 Gibellini PEA has an effective date of May 29, 2018 and is available under the Company’s SEDAR profile at www.sedar.com. Each of the authors of the 2018 Gibellini PEA are "independent" Qualified Persons within the meaning of NI 43-101. On August 24, 2020, the Company announced it had commenced the acquisition of the Bisoni Project from CellCube. As consideration for the acquisition of the Bisoni Project under the Bisoni APA, the Company issued 4 million the Bisoni APA Shares and paid $200,000 cash to Cellcube. The Bisoni APA Shares are subject to a statutory four month hold period expiring on January 19, 2021. Additionally, subject to TSX approval, if, on or before December 31, 2023, the price of European vanadium pentoxide on the Metal Bulletin (or an equivalent publication) exceeds US$12 a pound for 30 consecutive days, the Company will issue to Cellcube additional Common Shares with a value of $500,000, calculated based upon the 5 day volume weighted average price of the Common Shares immediately following the satisfaction of the vanadium pentoxide pricing condition. The acquisition of the Bisoni Project was completed on September 18th, 2020. The expanded Bisoni group of claims is located within the same formation and lithologic units as the Gibellini group of claims. The general geology in this area is considered to be similar to the Gibellini group of claims. In the three months ended September 30, 2020, the Company expanded the land position at the Gibellini Project, by staking a total 32 new claims adjacent to the project. The Gibellini Project is situated entirely on public lands that are administered by the BLM. No easements or rights of way are required for access over public lands. Rights-of-way would need to be acquired for future infrastructure requirements, such as pipelines and powerlines. On November 20, 2017, the Company received an independent technical report titled “Gibellini Vanadium Project Nevada, USA NI 43-101 Technical Report” with an effective date of November 10, 2017 (the ”Gibellini Report”) prepared by Wood TheDeposit Mineral Resource Estimate and 2018 Gibellini Report was filed with Canadian securities regulatory authorities on SEDAR (available at www.sedar.com).PEA
On June 25, 2018, the Company releasedfiled the “Gibellini Vanadium Project, Eureka County, Nevada, NI 43-101 Technical Report on Preliminary Economic Assessment” (the “2018 Gibellini PEA,”), with which provides an effective date of May 29, 2018 and signed June 25, 2018 authored by Independent Qualified Persons Kirk Hanson, P.E.; Edward J.C. Orbock III, RM SME; Edwin Peralta, P.E.; and Dr. Lynton Gormely, P. Eng. of Wood and is in accordance with NI 43-101. The PEA was filed with Canadian securities regulatory authorities on SEDAR (available at www.sedar.com).updated mineral resource estimate for the Gibellini Project. SILVER ELEPHANT MINING CORP. (Formerly “Prophecy Development Corp.”) Management’s Discussion and Analysis of Financial Condition and Results of Operations For the year ended December 31, 20192020 (Expressed in Canadian Dollars, except where indicated) Gibellini Deposit
On May 29,The 2018 the Company received an independent technical report providing an updated the resource on the Gibellini project. The report is titled “Gibellini Vanadium Project Eureka County, Nevada, NI 43-101 Technical Report on Preliminary Economic Assessment” prepared by Mr. Kirk Hanson, P.E., Technical Director, Open Pit Mining; Mr. Edward J.C. Orbock III, RM SME, Principal Geologist and US Manager of Consulting; Mr. Edwin Peralta, P.E., Senior Mining Engineer; and Mr. Lynton Gormely, P.Eng., Consultant Metallurgist of Wood. The report has an effective date of May 29, 2018.
The PEA replaces the technical report entitled “Gibellini Vanadium Project, Nevada, USA, NI 43-101 Technical Report”, effective November 10, 2017 and filed November 20, 2017.Gibellini Report. The 2018 Gibellini PEA is preliminary in nature and includes inferred mineral resources that are too speculative geologically to have economic considerations applied to them that would enable them to be categorized as mineral reserves. There is no certainty that the 2018 Gibellini PEA results will be realized. Mineral resources are not mineral reserves and do not have demonstrated economic viability.
The 2018 Gibellini PEA disclosed an estimated 7.94 million tons at a weighted average grade of 0.314% vanadium pentoxide (“V2O5”) in the Measuredmeasured category and 15.02 million tons at a weighted average grade of 0.271% V2O5 in the Indicated category leading to a total combined Measuredmeasured and Indicated Mineral Resourceindicated mineral resource of 22.95 million tons at a weighted average grade of 0.286% V2O5. Total contained metal content of the Measuredmeasured and Indicated Mineral Resourcesindicated mineral resources is 131.34 million pounds V2O5. The Inferred Mineral Resourceinferred mineral resource estimate is 14.97 million tons at a weighted average grade of 0.175% V2O5. The total contained metal content of the Inferred Mineral Resourceinferred mineral resource estimate is 52.30 million pounds V2O5. The table below contains a summary of the Gibellini deposit mineral resource estimate:estimate (the "Gibellini Deposit Mineral Resource Estimate"), which is derived from the 2018 Gibellini PEA: Table 1:Gibellini Deposit Mineral Resource Statement, GibelliniEstimate***
Confidence Category | Domain | Cut-offV2O5 (%) | Tons(Mt) | GradeV2O5(%) | ContainedV2O5 (Mlb) | Measured | Oxide | 0.101 | 3.96 | 0.251 | 19.87 | Transition | 0.086 | 3.98 | 0.377 | 29.98 | Indicated | Oxide | 0.101 | 7.83 | 0.222 | 34.76 | Transition | 0.086 | 7.19 | 0.325 | 46.73 | Total Measured and Indicated | | | 22.95 | 0.286 | 131.34 | Inferred | Oxide | 0.101 | 0.16 | 0.170 | 0.55 | Transition | 0.086 | 0.01 | 0.180 | 0.03 | Reduced | 0.116 | 14.80 | 0.175 | 51.72 | Total Inferred | | | 14.97 | 0.175 | 52.30 |
***Notes: Notes to accompany Mineral Resource table for Gibellini:
1.
The1.The Qualified Person for the estimateGibellini Deposit Mineral Resource Estimate is Mr. E.J.C. Orbock III, RM SME, aan employee of the Wood Group of companies employee.companies. The Gibellini Deposit Mineral Resources haveResource Estimate has an effective date of May 29, 2018.
2.
Mineral Resources2.Mineral resources that are not Mineral Reservesmineral reserves do not have demonstrated economic viability.
3.
Mineral Resources3.Mineral resources are reported at various cut-off grades for oxide, transition, and reduced material.
4.
Mineral Resources4.Mineral resources are reported within a conceptual pit shell that uses the following assumptions: Mineral Resourcemineral resource V2O5 price: $14.64/lb;lb.; mining cost: $2.21/ton mined; process cost: $13.62/ton; general and administrative (“G&A”) cost: $0.99/ton processed; metallurgical recovery assumptions of 60% for oxide material, 70% for transition material and 52% for reduced material; tonnage factors of 16.86 ft3/ton for oxide material, 16.35 ft3/ton for transition material and 14.18 ft3/ton for reduced material; royalty: 2.5% net smelter return (NSR); shipping and conversion costs: $0.37/lb. An overall 40º pit slope angle assumption was used.
SILVER ELEPHANT MINING CORP. (Formerly “Prophecy Development Corp.”)
Management’s Discussion and Analysis of Financial Condition and Results of Operations
For the year ended December 31, 2019
(Expressed in Canadian Dollars, except where indicated)
5.
Rounding5.Rounding as required by reporting guidelines may result in apparent summation differences between tons, grade and contained metal content. Tonnage and grade measurements are in US units. Grades are reported in percentages.
SILVER ELEPHANT MINING CORP. Management’s Discussion and Analysis of Financial Condition and Results of Operations For the year ended December 31, 2020 (Expressed in Canadian Dollars, except where indicated) Louie Hill Deposit The Louie Hill deposit lies approximately 1,600 ft south of the Gibellini deposit. The 2018 Gibellini Technical ReportPEA provides an Inferred Mineral Resourceinferred mineral resource of 7.52 million tons at a weighted average grade of 0.276% vanadium pentoxide (V2O5). The oxidation domains were not modeled. The total contained metal content of the estimate is 41.49 million pounds V2O5. The table below summarizes the Louie Hill deposit mineral resource estimate:estimate (the "Louie Hill Deposit Mineral Resource Estimate"): Table 2:Louie Hill Deposit Mineral Resources Statement, Louie HillResource Estimate***
Confidence Category | Cut-offV2O5 (%) | Tons(Mt) | GradeV2O5 (%) | ContainedV2O5 (Mlb) | Inferred | 0.101 | 7.52 | 0.276 | 41.49 |
Notes to accompany Mineral Resource table for Louie Hill:***Notes:
1.
The1.The Qualified Person for the estimateLouie Hill Deposit Mineral Resource Estimate is Mr. E.J.C. Orbock III, RM SME, an employee of the a Wood Group of companies employee.. The Louie Hill Deposit Mineral Resources haveResource Estimate has an effective date of May 29, 2018. The resource model was prepared by Mr. Mark Hertel, RM SME.
2.
Mineral Resources2.Mineral resources that are not Mineral Reservesmineral reserves do not have demonstrated economic viability.
3.
Oxidation3.Oxidation state was not modeled.
4.
Mineral Resources4.Mineral resources are reported within a conceptual pit shell that uses the following assumptions: Mineral Resourcemineral resource V2O5 price: $14.64/lb; mining cost: $2.21/ton mined; process cost: $13.62/ton; general and administrative (G&A)G&A cost: $0.99/ton processed; metallurgical recovery assumptions of 60% for mineralized material; tonnage factors of 16.86 ft3/ton for mineralized material, royalty: 2.5% net smelter return (NSR); shipping and conversion costs: $0.37/lb. For the purposes of the resource estimate,Louie Hill Deposit Mineral Resource Estimate, an overall 40º slope angle assumption was used.
5.
Rounding5.Rounding as required by reporting guidelines may result in apparent summation differences between tons, grade and contained metal content. Tonnage and grade measurements are in US units. Grades are reported in percentages.
A total of 280 drill holes (about 51,265 ft) have been completed on the Gibellini Project since 1946, comprising 16 core holes (4,046 ft), 169 rotary drill holes (25,077 ft; note not all drill holes have footages recorded) and 95 reverse circulation holes (22,142 ft). The vanadium-hosted argillite unit ranges from 175 to over 300 ft thick and overlies gray mudstone and black shales. The argillite has been oxidized to various hues of yellow and orange to a depth of 100 ft and is believed to have been part an overall homogenous black shale unit. Alteration (oxidation) of the rocks is classified as one of three oxide codes: oxidized, transitional, and reduced. No significant work has been conducted on the Gibellini Project since 20112015, with some minor prospecting completed in October of 2018. The Company has not completed trenching or drilling activities since its acquisition of the Gibellini Project acquisition.Project. The power supply for the Gibellini Project site is assumed to be at 24.9 kV and supplied from a planned substation to be located near Fish Creek Ranch. This substation would tap and step-down the 69kV supply carried by the line to the nearby Pan Mine to 24.9kV and place it on a line to the Gibellini Project. Negotiations with the power utility, Mt. Wheeler Power, will need to be undertaken to secure any future power supply contract and transmission line to the site. On May 9, 2018,In conformance with BLM permitting requirements and Secretarial Order 3355, the Company submitted its Management’s plana package of operationsenhanced baseline reports (the "Enhanced Baseline Reports") on March 22, 2019. Following the BLM review of the baseline reports, the Company submitted the Gibellini Mine Plan of Operations (the “Gibellini MPO”) to the Battle Mountain District office of the BLM and the Reclamation Permit Applicationapplication to the BMRR. On July 8t, 2019 the Company announced it submitted an enhanced mining PlanState of Operations that is designed to meet the needs set out by Secretarial Order 3355.Nevada Division of Environmental Protection Bureau of Mining Regulation and Reclamation on June 28, 2019.
SILVER ELEPHANT MINING CORP. (Formerly “Prophecy Development Corp.”) Management’s Discussion and Analysis of Financial Condition and Results of Operations For the year ended December 31, 20192020 (Expressed in Canadian Dollars, except where indicated) The Enhanced Baseline Reports were completed using data primarily collected by the previous operator between 2010 and 2012, and included studies of biological resources, air resources, cultural resources, surface water resources, ground water resources, noise, wild horses, paleontological resources, geological resources, socioeconomic and environmental justice, soil resources, visual resources, wetlands and riparian resources, and geochemical characterization for ore and overburden. The baseline data was updated with data collection completed in 2019 that validated the previous data. The reports included a review of potential environmental impacts and proposed environmental protection measures to avoid or minimize these impacts. The Gibellini MPO was then prepared by SRK Consulting (U.S.) Inc. withintegrating the information developed in the baseline reports to guide the Gibellini Project design to avoid or minimize potential environmental impacts. The Gibellini MPO includes over 1,100 pages of detailed development plans for the Gibellini Project exploration activities, open pit mining operations and processing facilities to extract and recover vanadium from the Gibellini Projectdeposit with stated average mine production during the seven-year mine life of 15.7 million tons of ore material containing 120.5 million pounds of vanadium. The primary facilities include the: pit, waste rock disposal facility, mine office, auxiliary facilities such as water and power, crushing facilities and stockpile, heap leach pad, process facility, water ponds, borrow areas, and mine and access roads. A map of the proposed facilities is available at www.silverelef.com.
In addition, the Gibellini MPO includes the following designs along with associated environmental baselinemanagement plans and engineering studies: 1.Quality Assurance Plan quality assurance plan; 2.Storm Water Management Plan storm water management plan; 3.Adaptive Waste Rock Management Plan adaptive waste rock management plan; 4.Monitoring Plan monitoring plan; 5.Noxious Weed Management Plan noxious weed management plan; 6.Spill Contingency Plan spill contingency plan; 7.Feasibility Study Level Pit Slope Design feasibility study level pit slope design; 8.Heap Leach and Waste Rock Dump Facility Stability Report 9.Geochemical Characterization Report
10.Water Management Plan
11.Closure and Reclamation Plan
12.Transportation Plan
13.Standardized Reclamation Cost Estimate
The baseline studies supplementing the MPO were completed by the previous operator between 2010 and 2012, and included studies of biological resources, cultural resources, surface water resources, ground water resources,heap leach and waste rock geochemical characterization.dump facility stability report;
10. water management plan; 13. radiation protection plan; 14. climate data and surface water hydrology; 15. seismic hazard analyses; and 16. engineering design criteria. In August 2018, the Company engaged NewFields, an environmental, engineering, and construction management consulting firm to advance EIS preparation for the Gibellini Project. NewFields completed the Gibellini heap leach pad and waste dump designs (over 40 pages) as part of an overall basic engineering design leadled by Scotia International of Nevada, Inc. in 2014. NewFields’ familiarity with the project should help to expedite permitting efforts at Gibellini.M3 Engineering and Technology Corp On October 31, 2019, the water pollution control permit and air permit applications were submitted to the Nevada Division of Environmental Protection (“NDEP “) incorporating the Newfields and M3 Engineering design packages. The draft air permit was posted for public comment on July 13, 2020. 2018 Gibellini PEA On May 29, 2018, the Company received results of athe 2018 Gibellini PEA for the Gibellini Project. The 2018 Gibellini PEA reported an after taxafter-tax cumulative cash flow of $601.5 million, an internal rate of return of 50.8%, a net present value of $338.3 million at a 7% discount rate and a 1.72 years payback on investment from start-up assuming an average vanadium pentoxide price of $12.73 per pound. As of May 29, 2018, the price of vanadium pentoxide iswas $14.20 per pound according to www.asianmetal.com. The 2018 Gibellini PEA was prepared by Amec Foster Wheeler E&C Services Inc, part of the Wood Group, and is based on the NI 43-101 compliant resource calculations reported above. SILVER ELEPHANT MINING CORP. (Formerly “Prophecy Development Corp.”) Management’s Discussion and Analysis of Financial Condition and Results of Operations For the year ended December 31, 20192020 (Expressed in Canadian Dollars, except where indicated) Table 3: Highlights of the 2018 Gibellini PEA (after tax)
All dollar values are expressed in US dollars unless otherwise noted
Internal rate of return | 50.8% | Net present value (“NPV”) | $US$338.3 million at 7% discount rate | Payback period | 1.72 years | Average annual production | 9.65 million lbs V2O5 | Average V2O5 selling price | $US$12.73 per lb | Operating cash cost | $US$4.77 per lb V2O5
| All-in sustaining costs* | $US$6.28 per lb V2O5
| Breakeven price** | $US$7.76 per lb V2O5
| Initial capital cost including 25% contingency | $US$116.76 million | Average grade | 0.26% V2O5 | Strip ratio | 0.17 waste to leach material | Mining operating rate | 3.4 million tons (leach material and waste) per year | Average V2O5 recovery through Direct Heap Leaching | 62% | Life of mine | 13.5 years |
*includes selling costs, royalties, operating cash cost, reclamation, exploration and sustaining capital costs. **includes selling costs, royalties, operating cash costs, taxes (local, state, and federal), working capital, and sustaining and capital costs. The 2018 Gibellini PEA is preliminary in nature and includes inferred mineral resources that are considered too speculative geologically to have the economic considerations applied to them that would enable them to be categorized as mineral reserves, and there is no certainty that the 2018 Gibellini PEA will be realized. Mineral resources are not mineral reserves and do not have demonstrated economic viability. Sensitivity Analysis The tables below show the sensitivity analysis to the vanadium pentoxide price, grade, and to the 2018 Gibellini PEA capital cost and operating costs. This sensitivity analysis indicates strong project economics even in very challenging conditions, and that the project is well positioned to benefit from the current rising vanadium price environment. A 20% increase in the vanadium price relative to the base case translates to a USD$US$491.3 million after-tax NPV at a 7% discount rate. SILVER ELEPHANT MINING CORP. (Formerly “Prophecy Development Corp.”) Management’s Discussion and Analysis of Financial Condition and Results of Operations For the year ended December 31, 20192020 (Expressed in Canadian Dollars, except where indicated) Table 4: Sensitivity Analysis
All dollar values are expressed in US dollars unless otherwise notedV2O5 price change | V2O5 price US$/lb | After-taxIRR | After-tax NPVUS$M @ 7% | After-taxcashflowUS$M | 30% | 16.55 | 69% | 568.0 | 996.0 | 20% | 15.28 | 63% | 491.3 | 864.4 | 10% | 14.00 | 57% | 415.2 | 733.2 | Base price | 12.73 | 51% | 338.3 | 600.4 | -10% | 11.46 | 44% | 261.0 | 467.2 | -20% | 10.18 | 36% | 183.1 | 333.2 | -30% | 8.91 | 26% | 103.9 | 196.9 |
V2O5 price change | V2O5 price USD$/lb | After-taxIRR | After-tax NPVUSD$M @ 7% | After-taxcashflowUSD$M | | V2O5 gradechange | | V2O5grade | After-taxIRR | After-tax NPVUS$M @ 7% | After-taxcashflowUS$M | 30% | 16.55 | 69% | 568.0 | 996.0 | 0.34% | 68% | 554.4 | 972.8 | 20% | 15.28 | 63% | 491.3 | 864.4 | 0.31% | 63% | 482.4 | 849.0 | 10% | 14.00 | 57% | 415.2 | 733.2 | 0.28% | 57% | 410.7 | 725.4 | Base price | 12.73 | 51% | 338.3 | 600.4 | | Base grade | | 0.26% | 51% | 338.3 | 600.4 | -10% | 11.46 | 44% | 261.0 | 467.2 | 0.23% | 44% | 265.6 | 475.0 | -20% | 10.18 | 36% | 183.1 | 333.2 | 0.21% | 37% | 192.2 | 348.9 | -30% | 8.91 | 26% | 103.9 | 196.9 | 0.18% | 28% | 118.3 | 221.6 |
V2O5 gradechange | V2O5grade | After-taxIRR | After-tax NPVUSD$M @ 7% | After-taxcashflowUSD$M | 30% | 0.34% | 68% | 554.4 | 972.8 | 20% | 0.31% | 63% | 482.4 | 849.0 | 10% | 0.28% | 57% | 410.7 | 725.4 | Base grade | 0.26% | 51% | 338.3 | 600.4 | -10% | 0.23% | 44% | 265.6 | 475.0 | -20% | 0.21% | 37% | 192.2 | 348.9 | -30% | 0.18% | 28% | 118.3 | 221.6 |
Capexchange | CapexUSD$M | After-taxIRR | After-tax NPVUSD$M @ 7% | After-taxcashflowUSD$M | CapexUS$M | After-taxIRR | After-tax NPVUS$M @ 7% | After-taxcashflowUS$M | 30% | 151.8 | 40% | 307.2 | 564.3 | 151.8 | 40% | 307.2 | 564.3 | 20% | 140.1 | 43% | 317.6 | 576.3 | 140.1 | 43% | 317.6 | 576.3 | 10% | 128.4 | 47% | 328.0 | 588.4 | 128.4 | 47% | 328.0 | 588.4 | Base Capex | 116.8 | 51% | 338.3 | 600.4 | 116.8 | 51% | 338.3 | 600.4 | -10% | 105.1 | 55% | 348.6 | 612.5 | 105.1 | 55% | 348.6 | 612.5 | -20% | 93.4 | 61% | 358.9 | 624.6 | 93.4 | 61% | 358.9 | 624.6 | -30% | 81.7 | 67% | 369.3 | 636.8 | 81.7 | 67% | 369.3 | 636.8 |
SILVER ELEPHANT MINING CORP. (Formerly “Prophecy Development Corp.”) Management’s Discussion and Analysis of Financial Condition and Results of Operations For the year ended December 31, 20192020 (Expressed in Canadian Dollars, except where indicated) Opexchange | OpexUSD$M | After-taxIRR | After-tax NPVUSD$M @ 7% | After-taxcashflowUSD$M | OpexUS$M | After-taxIRR | After-tax NPVUS$M @ 7% | After-taxcashflowUS$M | 30% | 6.20 | 45% | 257.9 | 450.2 | 6.20 | 45% | 257.9 | 450.2 | 20% | 5.72 | 47% | 284.8 | 500.3 | 5.72 | 47% | 284.8 | 500.3 | 10% | 5.25 | 49% | 311.6 | 550.4 | 5.25 | 49% | 311.6 | 550.4 | Base Capex | 4.77 | 51% | 338.3 | 600.4 | 4.77 | 51% | 338.3 | 600.4 | -10% | 4.29 | 53% | 364.8 | 650.0 | 4.29 | 53% | 364.8 | 650.0 | -20% | 3.82 | 55% | 390.7 | 698.4 | 3.82 | 55% | 390.7 | 698.4 | -30% | 3.34 | 56% | 416.0 | 745.4 | 3.34 | 56% | 416.0 | 745.4 |
Mining & Processing Mining at the Gibellini and Louie Hill projectsdeposits is planned to be a conventional open pit mine utilizing a truck and shovel fleet comprised of 100-ton trucks and front endfront-end loaders. Average mine production during the 13.5 year mine life is 3.4 million tons of leach material (3 million tons) and waste (0.4 million tonnes) per year at a strip ratio of 0.17. Mining is to be completed either in-house or through contract, with the Company’s mining staff overseeing the contracted mining operation and performing the mine engineering and survey work. Table 5work if contract mining is selected.
| Oxide‘000 tons | Transition‘000 tons | Reduced‘000 tons | Grade% V2O5 | Metal containedV2O5 (Mlb) | Metal ProducedV2O5 (Mlb) | YR 1 | 2,600 | 400 | — | 0.291 | 17.440 | 10.633 | YR 2 | 2,400 | 600 | — | 0.278 | 16.690 | 10.480 | YR 3 | 1,760 | 1,240 | — | 0.310 | 18.580 | 12.067 | YR 4 | 650 | 2,350 | — | 0.372 | 22.320 | 15.217 | YR 5 | 310 | 2,680 | 10 | 0.366 | 21.950 | 15.185 | YR 6 | 2,240 | 750 | 10 | 0.315 | 18.920 | 11.928 | YR 7 | 3,000 | — | — | 0.316 | 18.980 | 11.394 | YR 8 | 1,910 | 700 | 380 | 0.189 | 11.310 | 7.085 | YR 9 | 690 | 1,220 | 1,090 | 0.216 | 12.940 | 8.023 | YR 10 | 110 | 370 | 2,520 | 0.208 | 12.480 | 6.898 | YR 11 | 450 | 360 | 2,180 | 0.182 | 10.910 | 6.103 | YR 12 | 50 | 140 | 2,820 | 0.166 | 9.980 | 5.349 | YR 13 | 390 | 10 | 2,600 | 0.183 | 10.970 | 5.839 | YR 14 | 1,710 | — | — | 0.195 | 6.670 | 4.096 | Totals: | 18,290 | 10,830 | 11,590 | 0.258 | 210.15 | 130.297 |
SILVER ELEPHANT MINING CORP. (Formerly “Prophecy Development Corp.”) Management’s Discussion and Analysis of Financial Condition and Results of Operations For the year ended December 31, 20192020 (Expressed in Canadian Dollars, except where indicated) The processing method envisioned for the Gibellini Project will be to feed leach material from the mine via loader to a hopper that feeds the crushing plant. The leach material will then be fed to an agglomerator where sulfuric acid, flocculent and water will be added to achieve adequate agglomeration. The agglomerated leach material will be transported to a stacker on the leach pad, which will stack the material to a height of 15 feet. Once the material is stacked, solution will be added to the leach heap at a rate of 0.0025 gallons per minute per square foot. The solution will be collected in a pond and this pregnant leach solution will be sent to the process building for metal recovery where it will go through solvent extraction and stripping processes to produce the vanadium pentoxide.pentoxide and a secondary yellowcake uranium. Vanadium Recoveries and Metallurgical Testing Approximately 130.3 million pounds of V2O5 and 336,000 pounds of uranium is expected to be produced from the Gibellini and Louie HillProject heap leaching operations at an average vanadium recovery of 62% (oxide: 60%, transition: 70% and reduced: 52%). The heap leaching is performed at ambient temperature and atmospheric pressure without pre-roasting or other beneficiation process. The pregnant leach solution is continuously collected with leach material undergoing, on average, a 150-day heap-leaching cycle. Table 6The table below summarizes the projected metallurgical recoveries used in the 2018 Gibellini PEA for the three defined oxidation-type domains. Table 6
Mill Feed Material Type | Direct Leaching Recovery | Oxide | 60% | Transition | 70% | Reduced | 52% |
The direct heap leach vanadium recovery estimates used in the 2018 Gibellini PEA were based on extensive metallurgical testing work performed by SGS Lakefield Research Laboratories, Dawson Minerals Laboratories, and McClelland Laboratories.Laboratories ("McClelland"). Samples were selected from a range of depths within the deposit, representative of the various types and styles of mineralization. Samples were obtained to ensure that tests were performed on a sufficient sample mass. The end results demonstrated low acid consumption (less than 100 lb acid consumption per ton leached) and high recovery through direct leaching. Notable test results included the following: Acid Heap Leach Testing of a Gibellini Bulk Sample, McClelland, Laboratories, September 4, 2013 A series of trenches were excavated and approximately 18 tons of material were sent to McClelland Laboratories for pilot testing. The material was air dried and stage crushed to 2” where a column sample was cut for 12” columns and then the leach material was crushed to – ½”. A head sample was taken and material for bench marking columns, and a bottle roll test was also taken. The results of the pilot plant testing are shown in Table 7: SILVER ELEPHANT MINING CORP. (Formerly “Prophecy Development Corp.”)
Management’s Discussion and Analysis of Financial Condition and Results of Operations
For the year ended December 31, 2019
(Expressed in Canadian Dollars, except where indicated)
Table 7
Crush Size 100%Passing | Test Type | Time (Days) | Head Grade%V* | % VanadiumRecovery | AcidConsumptionlbs/st | 50 mm (2”) | Column, open circuit | 123 | 0.299 | 76.6% | 88 | 12.5 mm (1/2”) | Column, open circuit | 123 | 0.313 | 80.2% | 72 | 12.5 mm (1/2”) | Column, closed circuit | 199 | 0.284 | 68.3% | 84 | 12.5 mm (1/2”) | Column, closed circuit | Column, closed circuit | 0.313 | 74.0% | 96 | 12.5 mm (1/2”) | Bottle Roll | 4 | 0.286 | 67.1% | 74 | 1.7 mm (-10m) | Bottle Roll | 4 | 0.286 | 66.3% | 66 | -75µ | Bottle Roll | 4 | 0.279 | 67.6% | 62 | -75µ | Bottle Roll | 30 | 0.298 | 74.2% | 54 |
*to convert V to V2O5, multiply V by 1.7852.
Solvent Extraction (SX) Test Work The design parameters from this test work are: ● SX Extraction pH Range 1.8 to 2.0 ● ●Di-2-Ethyl Hexyl Phosphoric Acid Concentration 0.45 M (~17.3% by weight) Cytec
● ●923 Concentration 0.13 M (~5.4% by weight)
● ●The Organic Diluent is Orform SX-12 (high purity kerosene)
● ●SO2 addition of 1.0 to 1.5 g/l
● Strip Solution Sulfuric Acid Concentration 225 to 250 g/l SX ● ●Extraction Efficiency ~97%
● ●SX Strip Efficiency ~98%
Pilot Scale Solvent Extraction Testing on Vanadium Bearing Solutions from Two Gibellini Project Column Leach Tests, McClelland, Laboratories, September 16, 2013 SILVER ELEPHANT MINING CORP. Management’s Discussion and Analysis of Financial Condition and Results of Operations For the year ended December 31, 2020 (Expressed in Canadian Dollars, except where indicated) Solvent extraction (“SX”) processing was conducted to recover vanadium from sulfuric acid pregnant leach solution (“PLS”) generated during pilot column testing on bulk leach samples from the Gibellini project.Project. Laboratory scale testing was conducted on select solutions generated during the pilot SX processing, to optimize the SX processing conditions. Additional laboratory scale testing was conducted on the loaded strip solution generated during the pilot SX testing, to evaluate methods for upgrading and purifying it to levels that may be required for sale of a final vanadium bearing product. The final pregnant strip solution was 6.1% vanadium, 250 g/l sulfuric acid with approximately 2% Fe and Al. The solution was suitable for oxidation using sodium chlorate to convert the V+4 to V+5 which was then precipitated using ammonia to make ammonium metavanadate (“AMV”). To make a vanadium product for the steel industry, this AMV is calcined (ammonia driven off) and heated to above 700°C (the fusion temperature of V2O5). This fused V2O5 would then be cooled on a casting wheel, pulverized and packaged. Additionally, using ion exchange resins in conjunction with solvent extraction, strip solution was produced which met or exceeded specifications of electrolyte for vanadium flow batteries.
SILVER ELEPHANT MINING CORP. (Formerly “Prophecy Development Corp.”)
Management’s Discussion and Analysis of Financial Condition and Results of Operations
For the year ended December 31, 2019
(Expressed in Canadian Dollars, except where indicated)
In August of 2018, the Company received metallurgical results from its technology partner, Northwest Non-Ferrous Metals Mining and Geology Group Co., Ltd, (‘NWME”) from samples collected during a site visit in March of 2018. Tests were performed at it’sits laboratory testing facilities located in Xi’an, China. NWME utilized a SX processing method to recover vanadium from sulfuric acid PLS generated by bottle roll and column test acid leaching on Gibellini samples. The solution was reduced and then precipitated using ammonia to make AMV. The AMV was calcined and heated then cooled and pulverized. A vanadium pentoxide with 98.56 % purity content was produced. The assay for this work is shown below: Table 8
V2O5 % | SI % | Fe % | P % | S % | As % | Na2O % | K2O % | Al % | U % | 98.56 | 0.0078 | 0.88 | 0.058 | 0.47 | 0.0026 | 0.43 | 0.052 | 0.22 | 0.0001 |
Uranium content is less than 0.0001% which does not affect the marketability of the product. The PLS was produced with very low deleterious elements which enabled using an efficient SX process. The PLS V2O5 concentration was 1.15 gram per liter and the Pregnant Strip Solution V2O5 concentration was 39.61 grams per liter. Capital and Operating Costs The projected capital costs for the Gibellini vanadium projectProject over a 1 ½one and a half year construction period and mine life average operating costs are summarized in Tables 9 and 10the two tables below. The capital cost includes 25% contingency or USD23.4 million. SILVER ELEPHANT MINING CORP. (Formerly “Prophecy Development Corp.”) Management’s Discussion and Analysis of Financial Condition and Results of Operations For the year ended December 31, 20192020 (Expressed in Canadian Dollars, except where indicated) Table 9: Pre-Production Capital Cost
All dollar values are expressed in US dollars unless otherwise noted
Cost Description | Total(USD$Total (US$000s) | Open Pit Mine | Open pit mine development | 1,412 | Gibellini incremental WRSF | 212 | Mobile equipment | 111 | Infrastructure-On Site | Site prep | 2,431 | Roads | 1,391 | Water supply | 2,007 | Sanitary system | 61 | Electrical – on site | 2,052 | Communications | 165 | Contact water ponds | 174 | Non-process facilities – buildings | 7,583 | Process Facilities | Mill feed handling | 15,380 | Heap leach system | 20,037 | Process plant | 14,441 | Off-Site Infrastructure | Water system | 4,495 | Electrical supply system | 3,227 | First fills | 860 | Subtotal Total Direct Cost | 76,039 | Construction indirect costs | 4,254 | Sales tax / OH&P | 4,236 | EPCM | 8,879 | Total Before Contingency | 93,409 | Contingency (25%) | 23,352 | Total Project Cost | 116,761 |
SILVER ELEPHANT MINING CORP. (Formerly “Prophecy Development Corp.”) Management’s Discussion and Analysis of Financial Condition and Results of Operations For the year ended December 31, 20192020 (Expressed in Canadian Dollars, except where indicated) Table 10: Operating Costs
Total Cash Operating Cost | USD$ per Ton Leached | USD$ per lb of V2O5 Produced | G&A | 0.99 | 0.31 | Mining Cost | 2.72 | 0.85 | Total Processing Cost | 11.54 | 3.61 | Total | 15.26 | 4.77 |
(All dollar values are expressed in US dollars unless otherwise noted)Total Cash Operating Cost | US$ per Ton Leached | US$ per lb of V2O5 Produced | G&A | 0.99 | 0.31 | Mining Cost | 2.72 | 0.85 | Total Processing Cost | 11.54 | 3.61 | Total | 15.26 | 4.77 |
The cash operating costs in the first half of the project covering years 1-7 is USD$US$3.59 per lb of V2O5 produced and for the years 8-14 is USD$US$7.12 per lb of V2O5 produced, resulting in the weighted average cash cost of USD$US$4.77 per lb of V2O5 produced. The cash operating cost is lower in the first half of the project due to processing higher grade material. Permitting
Vanadium has been listed as one of 23 metals critical to the US economy by the U.S Geological Survey since December 2017. There are currently no active primary vanadium mines in North America. As a result of direction from Secretary of the Interior Order No. 3355 (Streamlining National Environmental Policy Reviews and Implementation of Executive Order 13807) the Company anticipates the Gibellini EIS will not be more than 150 pages (excluding appendices) and the BLM to complete the Gibellini final EIS within one year from the issuance of the NOI
On June 19, 2019, the Company announced the appointment of a third party NEPA contractor and SWCA Environmental Consultants to work under the direction of the BLM per the provisions of a Memorandum of Understanding between SWCA Environmental Consultants, BLM and the Company to prepare the EIS for the and assist the BLM in the maintenance of the administrative record.
The Gibellini EIS will be one of the first mining EIS’s done under Secretarial Order 3355 (“SO 3355”) that mandates the Final EIS cannot exceed 150 pages in length and must be completed within one year of the publication date of the NOI for the EIS in the Federal Register. A project schedule has been developed with the BLM that targets the first quarter of 2020 for the NOI to be published and the EIS formally started.
Appointment of the EIS contractor allows the contractor to participate in the review of the Enhanced Baseline Reports, the Mine Plan of Operations and all relevant data and project information that will serve as the foundation for the NEPA review. This early start by the BLM EIS contractor will ensure a streamlined EIS process once the formal NEPA process begins after the publication of the NOI in the Federal Register.
On July 8, 2019, the Company announced that it submitted an enhanced mining Plan of Operations (“POO”) in June 2019 to the BLM and Reclamation Permit Application to the BMRR. This enhanced POO conforms to requirements that are aimed to satisfy timelines set out by Federal Secretarial Order 3355, which is a key difference from this POO and the POO that was submitted in 2018 (see Company’s news release dated May 9, 2019,The POO which was submitted on schedule and prepared under budget, incorporated data and information from a number of consulting companies that are working on the project. Having submitted all the requisite environmental baseline studies, the Company’s POO submission is the last major step before the publication of the NOI which will initiate the EIS process under the Secretary of Interior Order No. 3355 (Streamlining National Environmental Policy Reviews and Implementation of Executive Order 13807; see the Company’s press release dated March 28, 2018). The streamlined EIS process from NOI to the record of decision (“ROD”) is one year.Upon receipt of a positive ROD and issuance of Nevada State permits, the Company plans to start mine construction in 2021 subject to project financing completion and begin vanadium production by Q4 2022.
SILVER ELEPHANT MINING CORP. (Formerly “Prophecy Development Corp.”)
Management’s Discussion and Analysis of Financial Condition and Results of Operations
For the year ended December 31, 2019
(Expressed in Canadian Dollars, except where indicated)
This POO details the development plans for the open pit mining operations and processing facilities to extract and recover vanadium from the Gibellini Project with stated average mine production during the seven-year mine life of 15.7 million tons of materialized resource containing 120.5 million pounds of vanadium. The POO also includes an exploration plan to fully define all the additional mineralized target areas within the Project claim block. The primary facilities include the: pit, waste rock disposal facility, mine office, auxiliary facilities such as water and power, crushing facilities and stockpile, heap leach pad, process facility, water ponds, borrow areas, and mine and access roads.
Engineering Procurement Construction Management: On August 15, 2018, the Company issued a request for proposal (the “RFP”) for engineering, procurement, construction and management services ("EPCM") from qualified bidders. In December of 2018, the Company selected M3 Engineering & Technology Corporation (“M3”) of Tucson, Arizona to provide engineering, procurement, construction and management services (EPCM)EPCM for itsthe Gibellini Vanadium Project in response to its Request for Proposal.the RFP. M3 was selected for its specific experience in heap leach engineering, and construction expertise in arid environments such as Nevada and Arizona. The EPCM consists of three phases: ●
phases. Phase 1 includes updating and simplifying previous basic engineering designs from producing delicate vanadium battery electrolyte to producing standard vanadium pentoxide off take product. The other parts of the design suchas well as mine design, waste dump design, road design, borrow pit design, buildings and infrastructure designs will not be substantially changed. ●
Phase 2 will consist of procurement of the required equipment, services and developing the detailed engineering design required to build the project facilities. ●
Phase 3 will outline construction management services to build the facilities to accomplish the actual work. The Company expects Phase 1 of the EPCM to be completed in 2020;2020, and to date this schedule has not been impacted by the COVID-19 pandemic. Phase 2 is anticipated to be completed in 2021;2021, Phase 3 to commence in 2021,be completed in 2022 and the Gibellini Project wet commissioning is expected to occur in 2023. These timelines remain provisional and will be in 2022.revised as necessary should they materially change. To try to minimize technical and implementation risk, the Company is working closely with its chosen technology partner, NWME, to fine tune metallurgy, process design and engineering, and ensure maximum vanadium recovery and high-grade vanadium pentoxide commercial product on site. NWME owns and is currently operating the world’s largest black-shale vanadium mine in China with an environmentally friendly, hydrometallurgical leach processing technology without the need of a pre-roasting step (see the Company’s news release dated March 12, 2018, for more details.details). NWME conducted a Gibellini site visit of the Gibellini Project in March 2018 and analyzed samples from the Gibellini samplesProject in its laboratories. The results of this work are discussed in the following section. Test Results Samples collected by NWME’s technical team during their visit to the Gibellini Project’s site in February 2018 were analyzed at NWME’s facility in Xi’an, China. Approximately 250 kg of material was submitted for analysis. The results are described herein.below. 98.6% V2O5 Produced on the 1st Run with Simple Conventional Flowsheet NWME used SX processing method to recover vanadium from sulfuric acid PLS generated by bottle roll and column test acid leaching on Gibellini samples. The solution was reduced and then precipitated using ammonia to make AMV. The AMV was calcined and heated then cooled and pulverized. A vanadium pentoxide with 98.56 % purity content was produced. The assay for this work is shown in Table 11table below: SILVER ELEPHANT MINING CORP. (Formerly “Prophecy Development Corp.”) Management’s Discussion and Analysis of Financial Condition and Results of Operations For the year ended December 31, 20192020 (Expressed in Canadian Dollars, except where indicated) Table 11:Gibellini Vanadium Pentoxide Assay
V2O % | SI % | Fe % | P % | S % | As % | Na2O % | K2O % | Al % | U % | 98.56 | 0.0078 | 0.88 | 0.058 | 0.47 | 0.0026 | 0.43 | 0.052 | 0.22 | 0.0001 |
Uranium content is less than 0.0001% which does not affect the marketability of the product. The PLS was produced with very low deleterious elements which enabled using an efficient SX process. The PLS V2O5 concentration was 1.15 gram per liter and the Pregnant Strip Solutionpregnant strip solution V2O5 concentration was 39.61 grams per liter. Overall Vanadium Recovery of Over 60% and Low Acid Consumption PLS was produced from both bottle roll and column tests. Sulfuric acid was added to the feed material with the bottle rolling for 1 hour, then the open bottle was allowed to cure for 24 hours and water was added to the bottle to attain the desired density (40%). Initial samples were taken at 6 hours, 12 hours, 24 hours, 36 hours, 48 hours and then once a day until the bottle roll was completed. In column tests, sulfuric acid was added to the feed material and the material was allowed to cure for 24 hours before initiating the leaching. Leaching was conducted by applying 108 grams per liter acid solution over the material. PLS was collected every 24 hours and samples were taken for vanadium analysis. All the tests were performed at room temperature and at atmospheric pressure. The results of the tests are given in Table 12: Table 12below:
Test | Leach Time | Vanadium Recovery % | Sulfuric Acid Consumed kg/t | Column Test | 21 days | 70.74 | 100 | Bottle Roll Test - investigate the effect of the curing method and increase of sulfuric acid addition on the vanadium recovery | 50 hours | 62.8 | 150 | Bottle Roll Test - investigate addition of NWME prepared leaching agent on the vanadium recovery | 144 hours | 66.5 | 100 | Bottle Roll Test - investigate the leaching of coarse feed (2mm) on the vanadium recovery | 216 hours | 63.7 | 100 |
The results of the bottle roll and column leach tests performed by NWME largely validate the results of previous tests performed by McClelland Laboratories on the Gibellini bulk sample in 2013 (18 tons of material). The NWME test samples were not agglomerated and were on short leach time of 21 days for column tests and 5 days for bottle roll tests. The Company studied both the NWME test and McCllelandMcClelland test in detail and believe the results were consistent, whereby 70% recovery can be achieved with longer leach cycle (over 100 days McClelland Laboratories vs 21 days NWME) and less acid consumption (50 kg of acid per tonne of material McClelland Laboratories vs 100 kg of acid per tonne of material NWME). A summary of acid heap leach tests of a Gibellini bulk sample, completed at McClelland Laboratories, September 4, 2013 is tabulated in Table 13 below:
SILVER ELEPHANT MINING CORP. (Formerly “Prophecy Development Corp.”) Management’s Discussion and Analysis of Financial Condition and Results of Operations For the year ended December 31, 20192020 (Expressed in Canadian Dollars, except where indicated) Table 13A summary of acid heap leach tests of a Gibellini bulk sample, completed at McClelland, September 4, 2013 is tabulated below:
Size | Test Type | Time (Days) | Vanadium Recovery % | Head Grade % V2O5 | Sulfuric Acid Consumed kg/t | |
| |
| Test Type | Time (Days) | Vanadium Recovery % | Head Grade % V2O5 | Sulfuric Acid Consumed kg/t | 50 mm (2”) | Column, open circuit | 123 | 76.6 | 0.53 | 39.9 | Column, open circuit | 123 | 76.6 | 0.53 | 39.9 | 12.5 mm (1/2”) | Column, open circuit | 123 | 80.2 | 0.56 | 32.7 | Column, open circuit | 123 | 80.2 | 0.56 | 32.7 | 12.5 mm (1/2”) | Column, closed circuit | 230 | 68.3 | 0.51 | 38.1 | Column, closed circuit | 230 | 68.3 | 0.51 | 38.1 | 12.5 mm (1/2”) | Column, closed circuit | 198 | 74.0 | 0.56 | 43.5 | Column, closed circuit | 198 | 74 | 0.56 | 43.5 | 12.5 mm (1/2”) | Bottle Roll | 4 | 67.1 | 0.51 | 33.6 | Bottle Roll | 4 | 67.1 | 0.51 | 33.6 | 1.7 mm (-10m) | Bottle Roll | 4 | 66.3 | 0.51 | 29.9 | Bottle Roll | 4 | 66.3 | 0.51 | 29.9 | -75µ | Bottle Roll | 4 | 67.6 | 0.50 | 28.1 | Bottle Roll | 4 | 67.6 | 0.5 | 28.1 | -75µ | Bottle Roll | 30 | 74.2 | 0.53 | 24.5 | Bottle Roll | 30 | 74.2 | 0.53 | 24.5 |
Representative Feed Grade with Benign Test Conditions that Can be Replicated in Commercial Setting The leaching bottle roll and column tests were performed at room temperature and at atmospheric pressure based on Gibellini’s representative grade from grab sampling method across the width of the mineralization at various locations of the Project. These samples are characterized in Table 14: Table 14table below:
Sample Number | Sample ID | Weight kg | Head Grade V2O5 (%) | 1 | 18-L6-28 | 17.0 | 0.665 | 2 | 18-L6-29 | 17.0 | 0.885 | 3 | 18-L6-30 | 12.5 | 0.370 | 4 | 18-L6-31 | 18.0 | 0.210 | 5 | 18-L6-32 | 13.5 | 0.420 | 6 | 18-L6-33 | 22.5 | 0.280 | 7 | 18-L6-34 | 19.0 | 0.315 | 8 | 18-L6-35 | 20.0 | 0.185 | 9 | 18-L6-36 | 18.0 | 0.165 | 10 | 18-L6-37 | 20.0 | 0.195 | Total | | 177.5 | |
For the purpose of metallurgical testing, the samples were mixed to produce a composite material with the average grade of 0.30% V2O5 which is representative of Gibellini resource grade. The composite material was ground to -75 lm feed. The Company believesbelieves the test conditions can easily be replicated in a commercial heap leach setting with low technical and implementation risk. Unique Vanadium Mineralogy in Achieving RemarkableAchieves Recovery at Room Temperature and Atmospheric Pressure
NWME performed detailed mineralogical analysis which included microscope identification using a Carl Zeiss Axioskop, XRD analysis on Bruker D8-A25 XRD, multi-element analysis, electron probe X-ray microanalysis on JEOL JXA 8230, scanning electron microscopy/energy dispersive X-ray spectroscopy analysis on Mineral Liberation Analizer 650 and V element phase analysis. This mineralogical analysis confirmed that the Gibellini resource has a high percentage of independent vanadium minerals (“IVM”) such as kazakhstanite, shubnelite, sherwoodite, bokite, which can be leached easily at room temperature and atmospheric pressure within a short time frame. SILVER ELEPHANT MINING CORP. Management’s Discussion and Analysis of Financial Condition and Results of Operations For the year ended December 31, 2020 (Expressed in Canadian Dollars, except where indicated) NWME noted the unique nature of the Gibellini samples with over 45% IVM versus numerous other typical black shale deposits which they have encountered containing less than 10% IVM. All of the test work carried out on the material from the Gibellini Project indicate that there is a two-stage leaching phenomenon in Gibellini ore - approximately 50% of the vanadium leaches in the first 96 hours (independent vanadium minerals), and the remaining leaching approximately 15 to 20% occurs over a longer time horizon. Heap leaching is the lowest-cost recovery method compared to roasting, and pressured container VAC leaching; whereby capital costs can compound to multiple times greater for the same throughput. Gibellini’s high IVM content is a key competitive differentiator which places the deposit in the top tier of black shale deposits in terms of pre-production capital cost required based on NWME’s research. The mineralogical results of the Gibellini ore as characterized by NWME’s test work is shown in Table 15: Table 15table below:
Mineral composition | Mineral content % | V content in minerals % | V distribution % | Independent vanadium minerals 45.2% of vanadium content | Kazakhstanite | 0.15 | 40.91 | 19.77 | Shubnelite | 0.13 | 27.86 | 11.67 | Sherwoodite | 0.08 | 34.54 | 8.90 | Bokite | 0.03 | 36.51 | 3.53 | Melanovanadite | 0.01 | 41.27 | 1.33 | Vanadium-bearing layered aluminosilicate minerals 20.8% of vanadium content | Sericite | 8.59 | 0.57 | 14.63 | Illite | 5.58 | 0.28 | 5.03 | Chlorite | 0.81 | 0.44 | 1.14 | Nacrite-palygorskite | 0.70 | - | - | Vanadium-bearing layered iron oxide, sulfate 34% of vanadium content | Limonite | 1.76 | 5.48 | 31.07 | Strengite | 0.64 | 0.49 | 1.01 | Jarosite | 0.48 | 1.24 | 1.92 | Gangue | Quartz | 75.88 | - | - | Apatite | 2.83 | - | - | Potassium feldspar | 0.73 | - | - | Dolomite | 0.66 | - | - | Carbonaceous | 0.45 | - | - | Rutile | 0.25 | - | - | Barite | 0.04 | - | - | Pyrite | 0.20 | - | - | Total | 100.00 | | 100.00 |
SILVER ELEPHANT MINING CORP. (Formerly “Prophecy Development Corp.”)
Management’s Discussion and Analysis of Financial Condition and Results of Operations
For the year ended December 31, 2019
(Expressed in Canadian Dollars, except where indicated)
Low Carbonate Content Results in Exceptional Low Acid ConsumptionConsumption. NWME detailed mineralogical analysis which included microscope identification using a Carl Zeiss Axioskop, XRD analysis on Bruker D8-A25 XRD, multi-element analysis, electron probe X-ray microanalysis on JEOL JXA 8230, scanning electron microscopy/energy dispersive X-ray spectroscopy analysis on Mineral Liberation Analyzer 650 and V element phase analysis, confirmed the extremely low carbonaceous content of Gibellini’s oxide and transition samples. This explains the low acid consumption (less than 50 kg per tonne) compared to other average black shale deposits of 200 kg to 300 kg per tonne based on extensive NWME data compilation. Given acid cost accounts for approximately 50% of the Project’s operating expenses, Gibellini’s low carbon content is a key competitive differentiator which places it in the top tier of black shale deposits in terms of processing cost based on NWME’s findings. SILVER ELEPHANT MINING CORP. Management’s Discussion and Analysis of Financial Condition and Results of Operations For the year ended December 31, 2020 (Expressed in Canadian Dollars, except where indicated) The following table is a generalized comparison of Gibellini’s deposit to a composite of typical black shale vanadium deposits: Table 16
| Gibellini Vanadium Deposit | Black Shale Series Vanadium Deposits | Host Rock | Silica State | Carbon Siliceous Rocks with Mudstone | The Mineral Composition | High Silica, Low Aluminium and Low Carbonaceous. SiO2-78.40%; Al2O3 - 4.13%;T(C) - 0.47% | High Silica, High Aluminum and High Carbonaceous. SiO2-62-93%; Al2O3 > 7%;T(C) > 10% |
The next step for NWME will be to investigate the application of NWME’s proprietary technology to Gibellini mineral to produce a high purity vanadium pentoxide product with 99.5% V2O5content. During the Company’s team visit to NWME’s processing facilities in China in June 2018, NWME commented that its own black-shale vanadium mine produces exclusively 99.5% V2O5which commands a 15 to 25% pricing premium (compared to benchmark 98% purity) to supply to the vanadium battery, chemical, and aerospace industries. The Company delivered the representative samples from the Project with a total weight of approximately 1 tonne to NWME in China and the test has begun. The Company expects to receive the results from the second phase of metallurgical testing by NWME in the second half of 2019.
On March 26, 2019, the Company announced via news release available on SEDAR vanadium assay results from its Fall 2018 exploration reconnaissance program on the Gibellini Project. The 155 assays are taken from three prospective exploration areas all within 5km5 kilometers to existing Gibellini vanadium NI43-101NI 43-101 compliant resource pit outline. Surface grab samples assay as high as 2% vanadium pentoxide (V2O5) and 75 samples (48% of total 155) have V2O5 grades greater than the Gibellini deposit’s cut-off grade of 0.101% V2O5 at $12.5/lb V2O5; V2O5 currently trades at approximately $16/lb. V2O5. The high vanadium assay results along the 5-kilometer northeast-southwest trend which line-up the Northeast Prospect, through Gibellini Hill, Louie Hill, Middle Earth Prospect,prospect, and Big Sky Prospectprospect providing an indication of potential and possibly significant future expansion of vanadium mineralization along this corridor. Detailed maps are available at www.silverelef.com.
Big Sky Prospect (300m by 50m) The Big Sky prospect occurs 3.1 kmkilometers southwest of the Gibellini Hill measured and indicated resource and 1.8 kmkilometers southwest of the Louie Hill inferred resource. A total of 62 samples were taken, of which 40% (n=25) returned assays greater than Gibellini cut-off grade. Sixteen (16) samples returned assays >0.200 V2O5. The distribution of samples occurs along a 300 meter300-meter exposure of the Woodruff Formation. Assays showing >0.200 V2O5 are shown in Table 17.table below. V2O5% grab sample assay results at Big Sky prospect for samples with >0.200% SAMPLE ID | Prospect | V2O5 % | 301910 | Big Sky | 0.261 | 301913 | Big Sky | 0.223 | 301915 | Big Sky | 0.346 | 301916 | Big Sky | 0.400 | 301918 | Big Sky | 0.712 | 301920 | Big Sky | 0.264 | 301926 | Big Sky | 0.580 | 301927 | Big Sky | 2.008 | 301928 | Big Sky | 0.848 | 301944 | Big Sky | 0.264 | 301946 | Big Sky | 0.280 | 301947 | Big Sky | 0.218 | 301950 | Big Sky | 0.261 | 302050 | Big Sky | 0.214 | 302054 | Big Sky | 0.787 | 302055 | Big Sky | 1.982 |
SILVER ELEPHANT MINING CORP. (Formerly “Prophecy Development Corp.”) Management’s Discussion and Analysis of Financial Condition and Results of Operations For the year ended December 31, 20192020 (Expressed in Canadian Dollars, except where indicated) Table 17. V2O5% grab sample assay results at Big Sky prospect for samples with >0.200%
SAMPLE ID | Prospect | V2O5 % | 301910 | Big Sky | 0.261 | 301913 | Big Sky | 0.223 | 301915 | Big Sky | 0.346 | 301916 | Big Sky | 0.400 | 301918 | Big Sky | 0.712 | 301920 | Big Sky | 0.264 | 301926 | Big Sky | 0.580 | 301927 | Big Sky | 2.008 | 301928 | Big Sky | 0.848 | 301944 | Big Sky | 0.264 | 301946 | Big Sky | 0.280 | 301947 | Big Sky | 0.218 | 301950 | Big Sky | 0.261 | 302050 | Big Sky | 0.214 | 302054 | Big Sky | 0.787 | 302055 | Big Sky | 1.982 |
Middle Earth Prospect (200m by 70m) ��
The Middle Earth prospect occurs 1.7 kmkilometers southeast of the Gibellini Hill deposit and 300 meters south of the Louie Hill deposit. A total of 50 samples were collected of which 68% (n=34) returned assays >0.101% V2O5 or the Gibellini cut-off grade. Twenty-seven (27) samples returned assays >0.200 V2O5. The samples are distributed over 3 road cuts of exposed Woodruff Formation making up a 200 meter by 70-meter areal footprint. Assays showing >0.200 V2O5 are shown in Table 18.the following table. SILVER ELEPHANT MINING CORP. (Formerly “Prophecy Development Corp.”)
Management’s Discussion and Analysis of Financial Condition and Results of Operations
For the year ended December 31, 2019
(Expressed in Canadian Dollars, except where indicated)
Table 18.V2O5% grab sample assay results at Middle Earth prospect for samples with >0.200%
SAMPLE ID | Prospect | V2O5 % | 301951 | Middle Earth | 0.350 | 301952 | Middle Earth | 0.482 | 301968 | Middle Earth | 0.628 | 301969 | Middle Earth | 0.605 | 301970 | Middle Earth | 0.634 | 301972 | Middle Earth | 0.252 | 301973 | Middle Earth | 0.687 | 301974 | Middle Earth | 0.470 | 301975 | Middle Earth | 0.612 | 301976 | Middle Earth | 0.637 | 301978 | Middle Earth | 0.559 | 301979 | Middle Earth | 0.557 | 301980 | Middle Earth | 0.259 | 301981 | Middle Earth | 0.405 | 301983 | Middle Earth | 0.255 | 301984 | Middle Earth | 0.303 | 301985 | Middle Earth | 0.434 | 301987 | Middle Earth | 0.291 | 301988 | Middle Earth | 1.294 | 301989 | Middle Earth | 0.261 | 301991 | Middle Earth | 0.314 | 301992 | Middle Earth | 0.457 | 301993 | Middle Earth | 0.380 | 301995 | Middle Earth | 0.302 | 301998 | Middle Earth | 0.539 | 301999 | Middle Earth | 0.618 | 302000 | Middle Earth | 0.532 |
Northeast Trench Prospect (500m by 300m) The Northeast Trench prospect occurs 1.2 kmkilometers northeast of the Gibellini Hill deposit and 2.5 kmkilometers northeast of the Louie Hill deposit. A total of 43 samples were collected of which 37% (n=16) returned assays >0.101% V2O5 or the Gibellini cut-off grade. Three (3) samples returned assays >0.200 V2O5. The samples are distributed through road cuts (“trenches”) and dry gulches of exposed Woodruff Formation making up a 500 meter by 350-meter areal footprint. The exposure at the Northeast Trench is greatly obscured by colluvium material however the extent where it is exposed might indicate a large volume of Woodruff Formation yet to be explored. Assays showing >0.200 V2O5 are shown in Table 19.the following table. SILVER ELEPHANT MINING CORP. (Formerly “Prophecy Development Corp.”) Management’s Discussion and Analysis of Financial Condition and Results of Operations For the year ended December 31, 20192020 (Expressed in Canadian Dollars, except where indicated) Table 19.V2O5% grab sample assay results at Northeast Trench prospect for samples with >0.200%
SAMPLE ID | Prospect | V2O5 % | 302004 | NE Trench | 0.239 | 302005 | NE Trench | 0.380 | 302016 | NE Trench | 0.303 |
Water supply On August 20, 2018, the Company secured water supply for the Gibellini Project construction and operation. The Company signed a 10-year agreement (the "Water Supply Agreement") with the owner of a private ranch, located approximately 14.5 kmkilometers from the Gibellini Project. The Water Supply Agreement can be extended for any number of additional 7-year terms, not to exceed (with the primary term) a total of 99 years. PerUnder the terms of the Water Supply Agreement, the lessor granted to the Company the rights to 805 acre-feet (approximately 262.4 million gallons) of water per year for the Gibellini Project, at a minimum flow rate of 500 gallons per minute (“gpm”) from its year-round springs surface water stream. The water flow rate was measured at the ranch springs in 1965, in 1981, from December 2011 to September 2013, and most recently, in 2017. The water flow rate ranges from 1,000 to 3,900 gpm with an average flow rate of 2,690 gpm, which exceeds the project’s maximum water operational requirement of 420 gpm based on the process engineering design prepared by Scotia International of Nevada, Inc. as a part of engineering, procurement, construction and management work done in 2014.license2014.license.
The Gibellini Project completed water-related baseline studies including the drilling of water-test wells, water source data collection, characterization, flow rate testing and modeling. Due to the fact that the Water Supply Agreement provides a source of water from surface springs located on a private ranch and baseline studies related to it have been completed, the Company expects to significantly expedite the permitting process by eliminating the need to appropriate water rights from the Nevada Division of Water Resources. Bisoni-McKay Claims and Historical Deposit On August 24, 2020 the Company announced it had commenced the acquisition of the Bisoni-McKay Project from CellCube. This transaction was successfully completed and announced on September 18, 2020. The Bisoni group of claims is host to a historic resource known as the Bisoni-McKay deposit. The resource was calculated in 2016 by Edwin Ulmer and Edwin H. Bentzen III. A summary of the historic resource is tabulated below: Bisoni-McKay Deposit Historic Category | V2O5 Mt | V2O5 Grade % | Mlbs Contained V2O5 |
| Indicated | 11.88 | 0.397 | 94.41 | Inferred | 7.05 | 0.427 | 60.12 |
The historic resource calculation adopted a 0.2% V2O5 cutoff grade. A Qualified Person has not done sufficient work to classify the historical estimate as current mineral resources or mineral reserves. The Company is not treating the historical estimate as current mineral resources or mineral reserves. The Bisoni Project was drilled in the 1970s by Hecla, and more recently by Stina Resources (“DWR”).(now Cellcube) in 2004, 2005, and 2007. Historic 2005 drill result highlights include: ● BMK 05-01 – 98.5 meters grading 0.46% V2O5 from surface, including 36.0 meters grading 0.76% V2O5 ● BMK 05-02 – 98.1 meters grading 0.53% V2O5 from near surface, including 40.2 meters grading 0.88% V2O5 ● BMK 05-03 – 105.2 meters of 0.49% V2O5. SILVER ELEPHANT MINING CORP. Management’s Discussion and Analysis of Financial Condition and Results of Operations For the year ended December 31, 2020 (Expressed in Canadian Dollars, except where indicated) Compiled historic results are tabulated below: From (m) | To (m) | Downhole Interval | Approx. true width | V(ppm) | V2O5(ppm) | V2O5 (%) | Hole No. DDH BMK 05-01 | Total depth 98.5m | 0.0 | 22.9 | 22.9 | 79.2 | 1,395 | 2,491 | 0.25 | 22.9 | 62.5 | 39.6 | 1,693 | 3,023 | 0.3 | 62.5 | 98.5 | 36.0 | 4,623 | 7,610 | 0.76 | 0.0 | 98.5 | 98.5 | 2,563 | 4,575 | 0.46 | Hole No. DDH BMK 05-02 | Total depth: 105.0m | 7.0 | 36.3 | 29.3 | n/a | 1,630 | 2,909 | 0.29 | 36.3 | 64.9 | 28.7 | 1,635 | 2,919 | 0.29 | 64.9 | 105.2 | 40.2 | 4,944 | 8,825 | 0.88 | 7.0 | 105.2 | 98.1 | 2990 | 5337 | 0.53 | Hole No. DDH BMK 05-03 | Total depth: 105.2m | 4.0 | 25.3 | 21.3 | n/a | 1,501 | 2,680 | 0.27 | 25.3 | 69.2 | 43.9 | 2,771 | 4,952 | 0.5 | 69.2 | 130.5 | 62.3 | 2,761 | 4,929 | 0.49 | 25.3 | 130.5 | 105.2 | 2,766 | 4,938 | 0.49 |
These drill results are “historic” as defined by NI 43-101 and have not been independently verified. Truth widths are unknown except where indicated. The host rocks carrying vanadium mineralization at both the Gibellini Project and Bisoni Project belong to the same Gibellini facies of the Woodruff Shale Formation. There exist several highly prospective exploration targets in between and around the Gibellini and Bisoni McKay deposits (the two are 14 kilometers apart) along the northeast – southwest corridor such as the Big Sky prospect, the Middle Earth prospect and the North East prospect (from Gibellini Project) and BMK and BR zones (from the Bisoni Project) all with outcropping surface vanadium mineralization that could potentially ultimately lead to additional vanadium mineral discoveries. Offtake and project financingProject Financing The Company has received unsolicited expressions of interest from various potential investment sources and is currently engaged in discussions with potential cornerstone investors, vanadium product off-takers and banks on potential equity, debt and prepaid off-take financing possibilities. The Company expects to report material progress in due course. Permitting On October 31, 2019, the Company submitted permit applications for the Water Pollution Control Permit and the Class II Air Quality Permit. These Nevada state permits have been developed to provide construction level engineering that supports the mine plan previously submitted to the BLM in the Plan of Operations. Comments received from both the BLM and SWCA were used as guidance in the engineering design to ensure the State and Federal Permits are aligned and reflect the most current guidance provided by both the NDEP and BLM. SILVER ELEPHANT MINING CORP. Management’s Discussion and Analysis of Financial Condition and Results of Operations For the year ended December 31, 2020 (Expressed in Canadian Dollars, except where indicated) NDEP Water Pollution Control Permit Mining in Nevada is regulated under the authority of the Nevada Revised Statutes (NRS) 445A.300-NRS 445A.730 and the Nevada Administrative Code (NAC) 445A.350-NAC 445A.447. Water Pollution Control Permits (WPCP)("WPCP") are issued to an operator prior to the construction of any mining, milling, or other beneficiation process activity. Facilities utilizing chemicals for processing ores are required to meet a zero-discharge performance standard such that Waterswaters of the State will not be degraded. The engineering design for heap leaching, the processing facility, and the mine design (M3 Engineering and Newfields Companies, LLC) was integrated into to the site Closure Planclosure plan that was also submitted as part of the WPCP application. This design will facilitate concurrent closure of the heap as each heap cell is finished leaching. This will allow the Closure Planclosure plan to be initiated during operations. At the end of active mining, the site can be closed at minimal technical risk. This reduces the closure duration and liability and the commensurate reclamation bond. SILVER ELEPHANT MINING CORP. (Formerly “Prophecy Development Corp.”)
Management’s Discussion and Analysis of Financial Condition and Results of Operations
For the year ended December 31, 2019
(Expressed in Canadian Dollars, except where indicated)
Air Quality Class II Permit The Nevada Bureau of Air Pollution Control issues air quality operating permits to stationary and temporary mobile sources that emit regulated pollutants to ensure that these emissions do not harm public health or cause significant deterioration in areas that presently have clean air. This is achieved by stipulating specific permit conditions designed to limit the amount of pollutants that sources may emit into the air as a regular part of their business processes. Any process/activity that is an emission source requires an air quality permit. Nevada Revised Statute (NRS) 445B.155 defines an emission source as “any property, real or personal, which directly emits or may emit any air contaminant.” The Class II Permit for Gibellini is for facilities that emit less than 100 tons per year for any one regulated pollutant. Since the vanadium processing will utilize a heap leach, the emissions will be under the threshold for more complex air permits. The engineering design incorporates stringent emission control technology to minimize emissions. The modeled emissions from the entire Gibellini Project are well below the National Ambient Air Quality Standards (NAAQS)(“NAAQS”). The Enhanced Baseline Reports (EBR’s)(“EBR’s”) were extensively used in the Project engineering design to ensure that potential environmental impacts identified in the EBR’s would be avoided or minimized by facility design. These engineering controls help ensure that avoidance of potential environmental impacts is “built into” the project from the start of the design process. Doing so will allow Environmental Protection Measuresenvironmental protection measures to be taken to minimize the risk of impacts that cannot be completely avoided in the design and ensure up-front project planning that is sensitive to all environmental resources. Integration with BLM 12-month 3355 EISEnvironmental Impact Statement Process The Nevada state permit applications were brought forward in the permitting process to identify any issues resulting from NDEP review that could affect the project design in the Planplan of Operationsoperations early. By resolving the State permitting issues prior to the start of the EIS, it will help ensure that the 12-month schedule mandated by the BLM Secretarial Order 3355 (S.O. 3355) can be met and interruptions to the schedule can be avoided. On July 14, 2020, the NOI to prepare the EIS was published in the Federal Register. The NOI formally commences the 12-month timeline to complete the National Environmental Policy Act review and EIS preparation by the BLM. The NEPA process is designed to help public officials complete permitting decisions that are protective of the environment and includes a public engagement process. A news release dated July 16, 2020 from the BLM Mount Lewis Office stated the following: “If approved, this project would provide hundreds of jobs and will contribute to the nation’s domestic source of critical minerals,” said Doug Furtado, Battle Mountain District Manager. “The Gibellini mine would also be the first vanadium mine in the U.S. and, in accordance with Secretarial Order 3355, we anticipate having a record of decision in 12 months. SILVER ELEPHANT MINING CORP. Management’s Discussion and Analysis of Financial Condition and Results of Operations For the year ended December 31, 2020 (Expressed in Canadian Dollars, except where indicated) As there is currently no primary domestic production of vanadium, the United States is dependent on foreign sources of vanadium; this creates a strategic vulnerability for both the economy and military to adverse government action or other events that can disrupt the supply of this key mineral.” The Company continues with its EPCM work and expects Phase 1 of the EPCM, updating basic engineering design, to be completed by 2020; Phase 2, equipment procurement and detailed engineering design, to be completed in 2021; Phase 3, facilities construction, to start in 20212022 and be completed in 20222023 with the Gibellini Project wet commissioning expected to be in 2022.2023. During the year ended December 31, 2019,2020, the Company incurred total costs of $4,956,938 (same period$2,435,857 (2019 -$4,956,939; 2018 - $2,727,759) for the Gibellini Project including for $3,200,773 (2018$897,085 (2019 - $3,200,773; 2018 - $1,509,587) for geological and engineering services, $1,470,007 (2018$1,190,607 (2019 - $1,470,007; 2018 - $831,023) for personnel, legal, general and administrative expenses and $286,158 (2018$348,165 (2019 -$286,158; 2018 - $387,149) for royalties, fees and taxes. Also, during the year ended December 31, 2020, the Company incurred total costs of $2,237,077 (2019 -$Nil; 2018 - $Nil) for the Bisoni claims and 16,489 (2019 - $Nil, 2018 - $Nil) for the Gibellini claims. 20202021 Outlook
The Company intends to spendcontinue with the available funds as set forth above based on annual budgets approved bypermitting process in order to obtain necessary permits and authorizations prior to conducting Project-related activities to ensure compliance with all applicable regulatory requirements. The permits the Board of Directors consistent with established internal control guidelines, and programs recommendedCompany expects to receive are presented in the Gibellini PEA. However, there may be circumstances where, for sound business reasons, a reallocation of the net proceeds may be necessary. The actual amount that the Company spends in connection with each of the intended uses of proceeds may vary significantly from the amounts specified above and will depend on a number of factors, including those referred to under “Risk Factors”.following table: The Company’s 2020Required Permits and Regulatory Authorizations for Gibellini objectives are:Project
●Permits and Authorizations | Regulatory Agency | Plan of Operations/Record of Decision | Bureau of Land Management | Explosives Permit | U.S. Department of the Treasury, Bureau of Alcohol, Tobacco, and Firearms | Surface Disturbance Permit and Class II Air Quality Operating Permit | Nevada Department of Conservation and Natural Resources, Division of Environmental Protection, Bureau of Air Quality | Water Pollution Control Permit | Nevada Department of Conservation and Natural Resources, Division of Environmental Protection, Bureau of Mining Regulation and Reclamation | Mining Reclamation Permit | Nevada Department of Conservation and Natural Resources, Division of Environmental Protection, Bureau of Mining Regulation and Reclamation | Industrial Artificial Pond Permit | Nevada Department of Conservation and Natural Resources, Nevada Department of Wildlife (NDOW) | Class III Waiver Landfill Permit | Nevada Department of Conservation and Natural Resources, Division of Environmental Protection, Bureau of Solid Waste | General Discharge Permit (Stormwater) | Nevada Department of Conservation and Natural Resources, Division of Environmental Protection, Bureau of Water Pollution Control | Hazardous Materials Storage Permit | State of Nevada, Fire Marshall Division | Hazardous Waste Identification Number | United States Environmental Protection Agency | Septic Treatment Permit Sewage Disposal System Permit | Nevada Department of Conservation and Natural Resources, Division of Environmental Protection, Bureau of Water Pollution Control | Potable Water System Permit | Nevada Department of Conservation and Natural Resources, Division of Environmental Protection, Bureau of Safe Drinking Water | Radioactive Materials License | Nevada Department of Health and Human Services, Nevada State Health Division, Radiological Health Section | Dam Safety Permit | State of Nevada Division of Water Resources | Local Permits | County Road Use and Maintenance Permit/Agreement | Eureka County Building Planning Department |
Trigger EIS NOI by end of quarter 1, 2020;
●
Develop strategy with State of Nevada to potentially fill US Critical Mineral Inventory;
●
Explore off-take options for vanadium products; and
●
Complete all Nevada permits.
SILVER ELEPHANT MINING CORP. (Formerly “Prophecy Development Corp.”) Management’s Discussion and Analysis of Financial Condition and Results of Operations For the year ended December 31, 20192020 (Expressed in Canadian Dollars, except where indicated) Pulacayo-Paca Property, Bolivia
On January 2, 2015, pursuant to the terms of the acquisition agreement entered into between the CompanyExpected costs associated with this process fall under General and Apogee Silver Ltd. (“Apogee”), the Company acquired the Pulacayo Project in Bolivia through the acquisition of the issued and outstanding shares of ASC Holdings Limited and ASC Bolivia LDC, which together, hold the issued and outstanding shares of ASC Bolivia LDC Sucursal Bolivia. ASC Bolivia LDC Sucursal Bolivia controls the mining rights to the concessions through a separate joint venture agreement with the Pulacayo Ltda. Mining Cooperative who hold the mining rights through a lease agreement with state owned Mining Corporation of Bolivia, COMIBOL.
The Pulacayo Project comprises seven concessions covering an area of approximately 3,550 hectares of contiguous mining concessions centered on the historical Pulacayo mine and town site. The Pulacayo Project is located 18 km east of the town of Uyuni in the Department of Potosi in southwestern Bolivia. The Project is also located 107 km northeast of Sumitomo Corporation’s San Cristobal silver mine, 185 km southwest of Coeur Mining, Inc.’s San Bartolome silver mine, and 139 km north of Pan American Silver Corp.’s San Vicente silver mine.
On October 7, 2019, the Company announced that the Pulacayo Mining Production Contract (“MPC”) between the Company and COMIBOL which was executed on October 3, 2019. The MPC grants the Company the 100% exclusive right to develop and mine at the Pulacayo and Paca concessions for up to 30 years.It is comparable to a mining license in Canada or the United States.
In November 2017, the Company received an independent technical report with an effective date of October 20, 2017 titled “Updated Mineral Resource Estimate and Technical ReportAdministrative costs for the Pulacayo Project” (the “Report”).Company. The Report was prepared by Mercator Geological Services Limited (“Mercator”) on the Company’s Pulacayo Project and has been filed under the Company’s profile on the System for Electronic Document Analysis and Retrieval (“SEDAR”) at www.sedar.com.
The Report describes resources estimated following the guidelines of the CIM Definition Standards for Mineral Resources and Mineral Reserves.
Two mineral resource estimates were disclosed according to the requirements NI 43-101. The first for the Pulacayo deposit and the second for the Paca deposit.
SILVER ELEPHANT MINING CORP. (Formerly “Prophecy Development Corp.”)
Management’s Discussion and Analysis of Financial Condition and Results of Operations
For the year ended December 31, 2019
(Expressed in Canadian Dollars, except where indicated)
Pulacayo Deposit
Results of the mineral resource estimate prepared by Mercator for the Pulacayo deposit are presented below in Table 20 and filed via SEDAR at www.sedar.com.
The Report outlined 2.08 million tonnes at a weighted average grade of Ag 455 g/t, Pb 2.18%, Zn 3.19% (Ag Eq. 594 g/t) in the indicated category and 0.48 million tonnes at a weighted average grade of Ag 406 g/t, Pb 2.08%, Zn 3.93% (Ag Eq. 572 g/t) in the inferred category. The contained metal content estimated by the Company of the indicated category resources is 30.4 million ounces of silver, 100.0 million pounds of lead, 146.3 million pounds of zinc. The contained metal content estimated by the Company, of the inferred category resource is 6.3 million ounces of silver, 22.0 million pounds of lead, and 41.6 million pounds of zinc (more resource details in the table below).
Table 20. Pulacayo Indicated and Inferred Mineral Resource Statement Details
Pulacayo Mineral Resource Statement – Effective October 20, 2017 | Ag Eq. Cut-Off (g/t) | Category | Tonnes* | Ag (g/t) | Pb (%) | Zn (%) | Ag Eq. (g/t) | 400 | Indicated | 2,080,000 | 455 | 2.18 | 3.19 | 594 | Inferred | 480,000 | 406 | 2.08 | 3.93 | 572 |
Notes:
(1)
Mineral resources are estimated in conformance with the CIM Standards referenced in NI 43-101.
(2)
Raw silver assays were capped at 1,700 g/t, raw lead assays were capped at 15% and raw zinc assays were capped at 15%.
(3)
Silver equivalent Ag Eq. (g/t) = Ag (g/t)*89.2% + (Pb% *(US$0.94/ lb. Pb /14.583 Troy oz./lb./US$16.50 per Troy oz. Ag)*10,000*91.9%) + (Zn% *(US$1.00/lb. Zn/14.583 Troy oz./lb./US$16.50 per Troy oz. Ag)*10,000*82.9%)
(4)
Metal prices used in the silver equivalent calculation are US$16.50/Troy oz. Ag, US$0.94/lb Pb and US$1.00/lb. Zn. Metal recoveries used in the silver equivalent equation reflect historic metallurgical results disclosed by Apogee Silver Ltd. (Porter et al., 2013).
(5)
Metal grades were interpolated within wire-framed, three-dimensional silver domain solids using Geovia-Surpac Ver. 6.6.1 software and inverse distance squared interpolation methods. Block size is 10m(X) by 10m(Z) by 2m(Y). Historic mine void space was removed from the model prior to reporting of resources.
(6)
Block density factors reflect three-dimensional modeling of drill core density determinations.
(7)
Mineral resources are considered to have reasonable expectation for economic development using underground mining methods based on the deposit history, resource amount and metal grades, current metal pricing and comparison to broadly comparable deposits elsewhere.
(8)
Rounding of figures may result in apparent differences between tonnes, grade and contained ounces.
(9)
Mineral resourcesdoes not anticipate that are not mineral reserves do not have demonstrated economic viability.
(10)
Tonnes are rounded to nearest 10,000.
The contained metals estimated by the Company based on in the October 20, 2017 resource estimate by Mercator are presented in Table 21.
Table 21: Contained Metals Based on October 20, 2017 Pulacayo Deposit** Mineral Resource Estimate
Metal | Indicated Resource | Inferred Resource | Silver | 30.4 million oz. | 6.3 million oz. | Lead | 100.0 million lbs. | 22.0 million lbs. | Zinc | 146.3 million lbs. | 41.6 million lbs. |
SILVER ELEPHANT MINING CORP. (Formerly “Prophecy Development Corp.”)
Management’s Discussion and Analysis of Financial Condition and Results of Operations
For the year ended December 31, 2019
(Expressed in Canadian Dollars, except where indicated)
**Based on the resource estimate Ag Eq. cut-off value of 400 g/t and 100% recovery; figures are rounded to the nearest 100,000thincrement
Between 2006 and 2012, a total of 69,739 metres of diamond drilling (226 surface and 42 underground drill holes) was conducted at Pulacayo, results of which support the mineral resource estimate reported in this news release. The Pulacayo site is currently permitted for production at a milling rate of 560 tonnes per day and no known legal, political, environmental,there will be any deficiencies or other risks that would materially affect potential future development have been identified by the Company at the effective date of the current (October 20, 2017) mineral resource estimate.
Approximately 85% of the resource tonnage identified at the 400 g/t Ag Eq. cut-off value occurs within 150 meters vertical distance from the main San Leon tunnel, which may facilitate future mineral extraction.
Paca Deposit
The Paca deposit is located in Bolivia approximately 7 km north of the Pulacayo deposit.
Results of the mineral resource estimate prepared by Mercator for the Paca deposit are presented below in Table 3. The Report described previously and filed on SEDAR documents the resource estimate.
The Report outlined 2.54 million tonnes at a weighted average grade of Ag 256 g/t, Pb 1.03%, Zn 1.10% (Ag Eq. 342 g/t) in the inferred category. The contained metal content estimated by the Company, of the inferred category resources is 20.9 million ounces of silver, 57.7 million pounds of lead, 61.6 million pounds of zinc. (more resource details in the table below).
Table 22. Paca Inferred Mineral Resource Statement Details
Paca Mineral Resource Statement – Effective October 20, 2017 | Ag Eq. Cut-Off (g/t) | Category | Tonnes* | Ag (g/t) | Pb (%) | Zn (%) | Ag Eq. (g/t) | 200 | Inferred | 2,540,000 | 256 | 1.03 | 1.10 | 342 |
Notes
(1)
Mineral resources are estimated in conformance with the CIM Standards referenced in NI 43-101.
(2)
Raw silver assays were capped at 1,050 g/t, raw lead assays were capped at 5% and raw zinc assays were capped at 5%.
(3)
Silver equivalent Ag Eq. (g/t) = Ag (g/t) + (Pb% *(US$0.94/ lb. Pb /14.583 Troy oz./lb./US$16.50 per Troy oz. Ag)*10,000) + (Zn% *(US$1.00/lb. Zn/14.583 Troy oz./lb./US$16.50 per Troy oz. Ag)*10,000). 100 % metal recoveries are assumed based on lack of comprehensive metallurgical results.
(4)
Metal prices used in the silver equivalent calculation are US$16.50/Troy oz. Ag, US$0.94/lb Pb and US$1.00/lb Zn and reflect those used for the Pulacayo deposit mineral resource estimate reported above.
(5)
Metal grades were interpolated within wire-framed, three-dimensional solids using Geovia-Surpac Ver. 6.7 software and inverse distance squared interpolation methods. Block size is 5m (X) by 5m (Z) by 2.5m (Y). Historic mine void space was removed from the model prior to reporting resources.
(6)
A block density factor of 2.26g/cm³ was used and reflects the average of 799 density measurements.
(7)
Mineral resources are considered to have reasonable expectation for economic development using combined underground and open pit methods based on the deposit history, resource amount and metal grades, current metal pricing and comparison to broadly comparable deposits elsewhere.
(8)
Mineral resources that are not mineral reserves do not have demonstrated economic viability.
(9)
Tonnes are rounded to nearest 10,000.
The contained metals estimated by the Company based on the October 20, 2017 resource estimate by Mercator are presented in Table 23.
SILVER ELEPHANT MINING CORP. (Formerly “Prophecy Development Corp.”)
Management’s Discussion and Analysis of Financial Condition and Results of Operations
For the year ended December 31, 2019
(Expressed in Canadian Dollars, except where indicated)
Table 23. Contained Metals Based on October 20, 2017 Paca Deposit** Mineral Resource Estimate
Metal | Inferred Resource | Silver | 20.9 million oz. | Lead | 57.7 million lbs. | Zinc | 61.6 million lbs. |
**Based on the resource estimate Ag Eq. cut-off value of 200 g/t and 100% recovery; figures are rounded to the nearest 100,000th increment.
The resource estimate is based on results of 97 diamond drill holes and 1 reverse circulation drill hole totaling 18,160 meters completed between 2002 and 2007.
The geology of the Paca deposit includes a core zone of feeder-style mineralization associated predominantly with brecciated andesite, plus additional zones of shallowly dipping mantos-style mineralization that are hosted by the surrounding volcano-sedimentary sequence. The Paca deposit remains open at depth and along strike.
The Paca mineralization starts from surface and the deposit may be amenable to open-pit mining and this will be evaluated further in the future.
The Company’s research has shown that relatively few silver open pit deposits have been defined at resource cut-off values of 200 g/t Ag Eq. or more.
Permitting and Licensing
Pulacayo MPC between the Company and COMIBOLwas executed on October 3, 2019.
The Company was notified of final government resolution approving the MPC on September 27, 2019. The MPC grants the Company the 100% exclusive right to develop and mine at the Pulacayo and Paca concessions for up to 30 years. It is comparable to a mining license in Canada or the United States.
Exploration
On September 30, 2019, the Company announced a 5,000-meter diamond drilling at Pulacayo has started with first set of assay results reported in November 2019. Pictures of core samples are available on the Company’s website atwww.silverelef.com.
Phase 1 drillingis comprised of surface drilling to expand the NI43-101 compliant Paca resource (see the Company’s news release dated November 22, 2017) in the northern and eastern directions where previous drill holes encountered high grade surface intercepts, including PND-062, which included 42 meters of 406 g/t Ag located on the edge of the resource envelope. The Company will also evaluate upgrading the Paca resource from an Inferred category to Measured and Indicated categories through infill drilling. Some of the high-grade zone extensions being explored are shown below:
Table 24
hole Nº | from – to (m) | int (m) | Ag(g/t) | Pb(%) | Zn | PND008 | 18.0 – 33.5 | 15.5 | 314 | 1.0 | 0.4 | PND029 | 12.0 – 22.3 | 10.3 | 436 | 0.0 | 0.0 | PND062 | 10.0 – 52.0 | 42.0 | 406 | 0.8 | 0.1 | ESM2 | 0.0 – 38.0 | 38.0 | 411 | 1.4 | 1.2 |
SILVER ELEPHANT MINING CORP. (Formerly “Prophecy Development Corp.”)
Management’s Discussion and Analysis of Financial Condition and Results of Operations
For the year ended December 31, 2019
(Expressed in Canadian Dollars, except where indicated)
The geology of the Paca deposit includes a core zone of feeder-style mineralization associated predominantly with brecciated andesite, plus additional zones of shallowly dipping mantos-style mineralization that are hosted by the surrounding volcano-sedimentary sequence. The Paca deposit remains open at depth and along strike. The Paca mineralization starts from surface, and the deposit may be amenable to open-pit mining which will be evaluated in the future.
Phase 2 drillingcommenced in December 2019. The plan was to expand the Pulacayo resource base along strike from 1km to 3km and at depth from 300m to 600m. There will also be infill drilling to confirm the geological model and test continuity of shallow high grade indicated resource blocks that are near the San Leon tunnel and accessible through the existing adit. Some of the high-grade zone extensions being explored are shown in Table 25.
Table 25
hole Nº | from – to (m) | int (m) | Ag(g/t) | Pb(%) | Zn % | Distancefrom adit (m) | PUD005 | 96.2 – 108.0 | 11.9 | 689 | 1.9 | 1.4 | -67.5 | PUD007 | 70.0 – 96.8 | 26.8 | 517 | 2.3 | 4.2 | -44.5 | PUD057 | 374.0 – 378.0 | 4.0 | 1,184 | 0.8 | 2.3 | -137.5 | PUD069 | 281.0 – 294.0 | 13.0 | 624 | 2.1 | 4.2 | -46.0 | PUD109 | 293.6 – 298.4 | 4.8 | 3,607 | 3.8 | 4.1 | -30.4 | PUD118 | 174.0 – 184.0 | 10.0 | 1,248 | 1.7 | 2.6 | -93.9 | PUD134 | 128.2 – 151.5 | 23.3 | 514 | 1.3 | 1.9 | -55.7 | PUD150 | 290.0 – 302.0 | 11.2 | 882 | 0.4 | 0.6 | -75.2 | PUD159 | 343.0 – 354.0 | 11.0 | 790 | 0.6 | 0.6 | -116.6 | PUD170 | 237.0 – 239.0 | 2.0 | 3,163 | 0.1 | 0.9 | -32.5 |
On October 28, 2019, the Company announced the diamond drilling results from Phase 1 drilling at Paca. Borehole PND 110 intersected 89 meters grading 378 g/t Ag-Equivalent (“AgEq;” 279 g/t Ag, 1.28% Zn, 1.17% Pb) starting from 9 meters downhole, including 12 meters grading 1,085 g/t Ag starting at just 16 meters downhole.
Phase 1 Drill highlights included:
●
PND107: 54.0 meters of 238 g/t AgEq (151 g/t Ag, 1.01% Zn, 1.17% Pb) from 55.0 to 109.0 meters;
●
PND108: 24.0 meters of 307 g/t AgEq (200 g/t Ag, 0.60% Zn, 2.12% Pb) from 33.0 to 57.0 meters;
●
PND109: 28.0 meters of 281 g/t AgEq (242 g/t Ag, 0.27% Zn, 0.69% Pb) from 15.0 to 43.0 meters;
●
PND110: 89.0 meters of 378 g/t AgEq (279 g/t Ag, 1.28% Zn, 1.17% Pb) from 9.0 to 98.0 meters;
●
PND112: 1.0 meters of 904 g/t AgEq (890 g/t Ag, 0.05% Zn, 0.31% Pb) from 21.0 to 22.0 meters;
●
PND 113: 25.0 meters of 209 g/t AgEq (196 g/t Ag, 0.04% Zn, 0.29% Pb) from 3.0 to 28.0 meters.
Reported widths are intercepted core lengths and not true widths, as relationships with intercepted structures and contacts vary. Based on core-angle measurements, true widths are estimated at approximately 77% of reported core lengths.
Silver equivalent (“AgEq”) calculation is based on NI43-101 compliant 2017 resource report completed for the Paca deposit by Mercator Geological Services (see the Company’s news release dated November 22, 2017). Silver equivalent is calculated as follows: Ag Eq. (g/t) = Ag (g/t) + (Pb% *(US$0.94/ lb. Pb /14.583 Troy oz./lb./US$16.50 per Troy oz. Ag)*10,000) + (Zn% *(US$1.00/lb. Zn/14.583 Troy oz./lb./US$16.50 per Troy oz. Ag)*10,000). 100 % metal recoveries are assumed based on lack of comprehensive metallurgical results
SILVER ELEPHANT MINING CORP. (Formerly “Prophecy Development Corp.”)
Management’s Discussion and Analysis of Financial Condition and Results of Operations
For the year ended December 31, 2019
(Expressed in Canadian Dollars, except where indicated)
PUD110 reported the highest silver width-grade intercept at the Paca project to date, which now has over 19,000 drill meters completed between the Company and the previous operator since 2002. These Phase 1 drill results are anticipated to increase the overall tonnage and upgrade the confidence level of the current NI43-101 compliant resource estimate prepared independently by Mercator in 2017 (Effective from October 20th, 2017; available onwww.SEDAR.com):
Table 26.Paca Inferred Mineral Resource Statement Details
Paca Mineral Resource Statement – Effective October 20, 2017 | Ag Eq. Cut-Off (g/t) | Category | Tonnes* | Ag (g/t) | Pb (%) | Zn (%) | Ag Eq. (g/t) | 200 | Inferred | 2,540,000 | 256 | 1.03 | 1.10 | 342 | Contained Metals(million oz,lb,lb) | | | 20.9 | 57.7 | 61.6 | |
Notes:
(1)
Mineral resources are estimated in conformance with the CIM Standards referenced in NI 43-101.
(2)
Raw silver assays were capped at 1,050 g/t, raw lead assays were capped at 5% and raw zinc assays were capped at 5%.
(3)
Silver equivalent Ag Eq. (g/t) = Ag (g/t) + (Pb% *(US$0.94/ lb. Pb /14.583 Troy oz./lb./US$16.50 per Troy oz.Ag)*10,000) + (Zn% *(US$1.00/lb. Zn/14.583 Troy oz./lb./US$16.50 per Troy oz. Ag)*10,000). 100 % metal recoveries are assumed based on lack of comprehensive metallurgical results.
(4)
Metal prices used in the silver equivalent calculation are US$16.50/Troy oz. Ag, US$0.94/lb Pb and US$1.00/lb Zn and reflect those used for the Pulacayo deposit mineral resource estimate reported above.
(5)
Metal grades were interpolated within wire-framed, three-dimensional solids using Geovia-Surpac Ver. 6.7 software and inverse distance squared interpolation methods. Block size is 5m (X) by 5m (Z) by 2.5m (Y). Historic mine void space was removed from the model prior to reporting resources.
(6)
A block density factor of 2.26g/cm³ was used and reflects the average of 799 density measurements.
(7)
Mineral resources are considered to have reasonable expectation for economic development using combined underground and open pit methods based on the deposit history, resource amount and metal grades, current metal pricing and comparison to broadly comparable deposits elsewhere.
(8)
Mineral resources that are not mineral reserves do not have demonstrated economic viability.
(9)
Tonnes are rounded to nearest 10,000.
(10)
Contained Metals Based on October 20, 2017 Paca Deposit Mineral Resource Estimate.
(11)
Based on the resource estimate Ag Eq. cut-off value of 200 g/t and 100% recovery; figures are rounded to the nearest 100,000th increment.
(12)
The resource estimate is based on results of 97 diamond drill holes and 1 reverse circulation drill hole totaling 18,160 meters completed between 2002 and 2007.
On December 18, 2019, the Company announced that phase two drilling which is a 5,000-meter programfactors that will consist mainlydelay or prevent receipt of wide step-out drilling up to 1.5km west (Western Block) of the current 43-101 Pulacayo resource, has started the Pulacayo Project. That current Pulacayo resource covers 1.4 km in strike and represents only a small portion of the Tajo vein system which is over 3 km in strike and open to least 1,000 meters at depth, according to historical records of underground mining.
The complete detailed composited drill intersections of mineralization are tabulated as below:
SILVER ELEPHANT MINING CORP. (Formerly “Prophecy Development Corp.”)
Management’s Discussion and Analysis of Financial Condition and Results of Operations
For the year ended December 31, 2019
(Expressed in Canadian Dollars, except where indicated)
Table 27
Hole | From(m) | To (m) | Length(m) | Ag (g/t) | Zn % | Pb % | AgEq | PND107 | | | 55.0 | 109.0 | 54.0 | 151 | 1.01 | 1.17 | 238 | incl … | 70.0 | 77.0 | 7.0 | 178 | 0.97 | 1.37 | 271 | and … | 70.0 | 109.0 | 39.0 | 180 | 1.20 | 1.34 | 283 | and … | 87.0 | 109.0 | 22.0 | 240 | 1.23 | 1.65 | 355 | PND108 | | | 15.0 | 65.0 | 50.0 | 135 | 0.40 | 1.42 | 208 | incl … | 33.0 | 57.0 | 24.0 | 200 | 0.60 | 2.12 | 307 | and … | 33.0 | 43.0 | 10.0 | 257 | 0.41 | 1.49 | 333 | | 94.0 | 96.0 | 2.0 | 160 | 0.94 | 0.52 | 220 | PND109 | | | 15.0 | 43.0 | 28.0 | 242 | 0.27 | 0.69 | 281 | incl … | 20.0 | 29.0 | 9.0 | 391 | 0.26 | 1.10 | 445 | and … | 24.0 | 26.0 | 2.0 | 1223 | 0.42 | 3.20 | 1365 | and … | 37.0 | 43.0 | 6.0 | 282 | 0.31 | 0.52 | 315 | | 75.0 | 173.0 | 98.0 | 15 | 2.47 | 1.28 | 168 | incl … | 93.0 | 94.0 | 1.0 | 167 | 3.64 | 1.24 | 367 | PND110 | | | 9.0 | 182.0 | 173.0 | 95 | 1.63 | 1.40 | 273 | incl… | 9.0 | 98.0 | 89.0 | 279 | 1.28 | 1.17 | 378 | and… | 9.0 | 28.0 | 19.0 | 718 | 0.05 | 0.74 | 749 | and… | 9.0 | 12.0 | 3.0 | 145 | 0.07 | 0.90 | 183 | and… | 16.0 | 28.0 | 12.0 | 1085 | 0.04 | 0.71 | 1115 | and… | 44.0 | 180.0 | 138.0 | 87 | 1.59 | 2.01 | 233 | and… | 44.0 | 46.5 | 2.5 | 111 | 0.61 | 1.09 | 179 | and… | 44.0 | 98.0 | 54.0 | 98.0 | 2.03 | 1.52 | 343 | and… | 52.0 | 54.0 | 2.0 | 115 | 1.61 | 1.33 | 234 | and… | 60.0 | 82.0 | 22.0 | 328 | 1.98 | 1.43 | 466 | and… | 61.0 | 65.0 | 4.0 | 1248 | 1.93 | 2.88 | 1441 | and… | 86.0 | 94.0 | 8.0 | 270 | 2.83 | 2.74 | 495 | and… | 97.0 | 98.0 | 1.0 | 155 | 3.26 | 3.03 | 409 | PND111 | | | 0.0 | 2.4 | 2.4 | 110 | 0.16 | 0.58 | 139 | PND112 | | | 12.0 | 28.0 | 16.0 | 154 | 0.08 | 0.39 | 173 | incl… | 21.0 | 22.0 | 1.0 | 890 | 0.05 | 0.31 | 904 | | 33.0 | 36.0 | 3.0 | 120 | 0.07 | 2.40 | 216 | | 43.0 | 44.6 | 1.6 | 100 | 0.23 | 1.58 | 171 | PND113 | | | 3.0 | 28.0 | 25.0 | 196 | 0.04 | 0.29 | 209 | incl… | 3.0 | 17.0 | 14.0 | 185 | 0.04 | 0.38 | 202 | and… | 21.0 | 28.0 | 7.0 | 310 | 0.04 | 0.19 | 320 |
SILVER ELEPHANT MINING CORP. (Formerly “Prophecy Development Corp.”)
Management’s Discussion and Analysis of Financial Condition and Results of Operations
For the year ended December 31, 2019
(Expressed in Canadian Dollars, except where indicated)
Reported widths are intercepted core lengths and not true widths, as relationships with intercepted structures and contacts vary. Based on core-angle measurements, true widths are estimated at approximately 77% of reported core lengths.
The Company adopts industry recognized best practices in its implementation of QA/QC methods. A geochemical standard control sample and one blank sample is inserted into the sample stream every 20th sample. Duplicates are taken at every 40th sample. Standards and duplicates including lab duplicates and standards and are analyzed using Thompson-Howarth plots. Samples are shipped to ALS Global Laboratories in Ururo, Bolivia for preparation, and then shipped to ALS Global laboratories for analysis in Lima, Peru. Samples were analyzed using Intermediate Level Four Acid Digestion. Silver overlimits (“ore grade”) are analyzed using fire assay with a gravimetric finish. ALS Laboratories sample management system meets all requirements of International Standards ISO/IEC 17025:2017 and ISO 9001:2015. All ALS geochemical hub laboratories are accredited to ISO/IEC 17025:2017 for specific analytical procedures.
All samples are taken from HQ-diameter core which split in half by a diamond-blade masonry saw. One-half of the core is submitted for laboratory analysis and the other half is preserved on the Company’s secured core facility for reference. All core is geotechnically analyzed, photographed and then logged by geologists prior to sampling.
During the year ended December 31, 2019, the Company incurred total costs of $1,474,026 (same period 2018 - $898,650) for the Pulacayo Project including for $970,955 (2018 - $51,112) for geological and engineering services, $503,071 (2018 - $847,538) for personnel, legal, general and administrative expenses.
During the year ended December 31, 2019, the Company assessed whether there was any indication that the previously recognized impairment loss in connection with the Pulacayo Paca property may no longer exist or may have decreased. The Company noted the following indications that the impairment may no longer exist:
●
The Company signed a mining production contract granting the Company the 100% exclusive right to develop and mine at the Pulacayo Paca property;
●
The Company renewed its exploration focus to develop the Pulacayo Paca property in the current year;
●
The Company re-initiated active exploration and drilling program on the property;
●
Completed a positive final settlement of Bolivian tax dispute.
As the Company identified indications that the impairment may no longer exist, the Company completed an assessment to determine the recoverable amount of the Pulacayo Paca property.
In order to estimate the fair-value of the property the Company engaged a third-party valuation consultant and also utilized level 3 inputs on the fair value hierarchy to estimate the recoverable amount based on the property’s fair value less costs of disposal determined with reference to dollars per unit of metal in-situ.
With reference to metal in-situ, the Company applied US$0.79 per ounce of silver resource to its 36.8 million ounces of silver resources and US$0.0136 per pound of zinc or lead in resource to its 303 million pounds of zinc and lead.
The Company also considered data derived from properties similar to the Pulacayo Paca Property. The data consisted of property transactions and market valuations of companies holding comparable properties, adjusted to reflect the possible impact of factors such as location, political jurisdiction, commodity, geology, mineralization, stage of exploration, resources, infrastructure and property size.
As the recoverable amount estimated with respect to the above was $31.4 million an impairment recovery of $13,708,200 was recorded during the year ended December 31, 2019.
2020
In January 2020, the Companyhas completed the first 3 holes of the planned 17 drill holes at the Pulacayo Project. These step-out drill holes are located 25-, 50- and 115 meters west of the existing Pulacayo resource model. The Company has also mobilized a second drilling rig to Pulacayo and expects to complete the proposed 5,000 meter drill program in February with full assay results available by March 2020. The remainder step out drill holes are collared up to 2km west from the existing resource model.
On January 21, 2020, the Company announced the first step-out diamond drilling results. Borehole PUD 267 intercepted 10 meters of mineralization grading 147 g/t silver, 9.8% zinc, and 2.0% lead (539 g/t AgEq) within 35.5 meter mineralization grading 230 g/t AgEq starting 31.5 meters downhole.
SILVER ELEPHANT MINING CORP. (Formerly “Prophecy Development Corp.”)
Management’s Discussion and Analysis of Financial Condition and Results of Operations
For the year ended December 31, 2019
(Expressed in Canadian Dollars, except where indicated)
PUD 267 marks the Company’s first Pulacayo drill hole of the 2020 drilling campaign and the first drilling to be conducted on the property since 2012. A total of 268 historic Pulacayo drill holes were completed between 2008 and 2012 by the previous operator. The results of PUD 267 comes on the back of the success of the Company’s first drill campaign at Paca (7km north of Pulacayo), where PND 110 intersected highest-ever grade at Paca of 12 meters of mineralization grading 1,085g/t silver, starting 16 meters downhole (see the Company’s news release dated October 28, 2019). These near-surface, high-grade intersections contribute positively to a potential district-style project economic assessment with consideration of open-pit mining scenarios. There are several other targets controlled by the Company within the district that are yet to be drilled but highly promising (e.g., Pacamayo, Al Abra, and Pero).
PUD 267 intercepted the Tajo vein system 83 meters west from PUD 041 which intersected 20 meters of mineralization grading 15.1g/t Ag, 2.43%Zn, 0.76% Pb at a similar depth to the mineralization encountered at PUD 267. PUD 041 (drilled in 2008) represents the westernmost drillhole that comprises the Company’s 2017 NI43-101 compliant Pulacayo resource (“Eastern Block”). These results confirm that the Tajo vein system extends westward and occurs near-surface, with a probable thickening component for a minimum 83-meter extension to the west of the Eastern Block.
The Eastern Block spans 1.4 km in strike, roughly 300 meters of vertical section and contains 30.4 million indicated silver oz and 6.4 million inferred silver oz estimated in the independent NI 43-101 report by Mercator of October 2017 (see the Company’s news release dated November 22, 2017).
PUD 267 was planned based on a vertical projection of Pulacayo’s historic underground workings which followed the Tajo vein system. These workings exist between 400 meters and 1,000 meters from the surface with mined grades of 10% to 25% Zn and 300g/t to 800g/t Ag (according to Hochschild mining records from 1914 to 1960). The results of PUD 267 reveal strong potential for existing mineralization from near-surface in the intervening depths to the workings approximately 400 meters below.
On March 6th, 2020, the Company released the results of its first 2,598 meters of drilling which focused on the western portion of the Pulacayo property.
Complete composited drill intersections of mineralization (in meters) for this portion of the program are tabulated below:
Table 28
Hole ID | From (m) | To (m) | Interval (m) | Ag (g/t) | Zn (%) | Pb (%) | AgEq | Target | PUD267* | 31.5 | 67 | 35.5 | 54.3 | 4.31 | 0.92 | 229.6 | West | | 117 | 123 | 6.0 | 47.8 | 1.11 | 0.25 | 89.7 | West | PUD268 | 21 | 23 | 2 | 20 | 1.34 | 0.77 | 92.6 | West | PUD274 | 75 | 77 | 2 | 93.5 | | 0.42 | 98.8 | East | PUD274 | 82 | 83 | 1 | 83 | | 0.09 | 77.4 | East |
Reported widths are intercepted core lengths and not true widths, as relationships with intercepted structures and contacts vary. Based on core-angle measurements, true widths are estimated at approximately 61% of reported core lengths.
Silver equivalent is calculated as follows: Ag Eq. (g/t) = Ag (g/t)*89.2% + (Pb% *(US$0.94/ lb. Pb /14.583 Troy oz/lb./US$16.50 per Troy oz. Ag)*10,000*91.9%) + (Zn% *(US$1.00/lb. Zn/14.583 Troy oz/lb./US$16.50 per Troy oz. Ag)*10,000*82.9). This calculation incorporates metallurgical recoveries from test work completed for Pulacayo in 2013.
SILVER ELEPHANT MINING CORP. (Formerly “Prophecy Development Corp.”)
Management’s Discussion and Analysis of Financial Condition and Results of Operations
For the year ended December 31, 2019
(Expressed in Canadian Dollars, except where indicated)
Table 29Header information for Drillhole
Hole ID | Azimuth | Dip | Depth (m) | Easting | Northing | AMSL | PUD267 | 180 | -45 | 180 | 739823.4 | 7744735 | 4336 | PUD268 | 180 | -45 | 192 | 739866 | 7744723 | 4366 | PUD269 | 180 | -45 | 210 | 739750 | 7744727 | 4321 | PUD270 | 0 | -45 | 201 | 739626 | 7744618 | 4284 | PUD271 | 180 | -45 | 156 | 739670 | 7744655 | 4293 | PUD272 | 180 | -45 | 300 | 739540 | 7744860 | 4329 | PUD273 | 180 | -45 | 201 | 739343 | 7744869 | 4385 | PUD274 | 200 | -65 | 95 | 741031 | 7744391 | 4237 | PUD275 | 180 | -45 | 161 | 739481 | 7744625 | 4357 | PUD276 | 0 | -45 | 201 | 739467 | 7744416 | 4267 | PUD277 | 21 | -55 | 72 | 741196 | 7744229 | 4181 | PUD278 | 0 | -45 | 120 | 739170 | 7744599 | 4317 | PUD279 | 180 | -45 | 130 | 737933 | 7744679 | 4346 | PUD280 | 0 | -45 | 113 | 739024 | 7744538 | 4344 | PUD281 | 0 | -45 | 180 | 739661 | 7745113 | 4396 | PUD282 | 0 | -45 | 86.4 | 739180 | 7744380 | 4296 |
Complete drill map and result cross sections can be accessed at www.silverelef.com/company-presentation and https://www.silverelef.com/projects/pulacayo-silver-lead-zinc/.
2020 Outlook
The Company’s objectives in 2020 is to drill and expand the Pulacayo silver resource base which open to the west and at depth, as well as drill district-scale targets (Paca, Al Abra, Pero, Pacamayo) and to increase investor awareness.
The Company’s goals for 2020 include:
●
Refurbish portions of the existing mine workings
●
Expand the Pulacayo resource footprint
●
Test surface targets adjacent to existing workings
●
Test depth of mineralization with initial deep fan
●
Compile a production profile for Pulacayo
●
Expand the Paca resource footprint
●
Test extent of manto/conglomerate formation
●
Update Pulacayo/Paca Technical Report
these permits. Ulaan Ovoo Coal Property, Mongolia The Company acquired a 100% interest in the Ulaan Ovoo Property located in the territory of Tushig soum of Selenge aimag province in Northern Mongolia in 2010 from a private Mongolian company. On November 9, 2010, the Company received the final permit to commence mining operations at the Ulaan Ovoo Property. The focus of the Ulaan Ovoo PFS was for the development of low ash coal reserves in the form of a starter pit. During 2014, the Company faced challenges, such as significant dewatering of the resource, lack of demand, depressed coal sales prices, and higher than expected operating/transportation costs, resulting in limited production throughout the period. Pit dewatering has become a significant impediment to achieving consistent production, especially following mine standby during the periods of low market demand. The mine was placed on standby in Spring 2014 but continued coal loading and sales from the existing stockpiles. Due to the lack of sustained production, management has not sufficiently tested the mine plant and equipment to conclude that the mine has reached the commercial production stage. During the beginning of 2015, due to minimal increase in coal prices and decreased demand because of a mild winter, the Company decided to maintain the operations on standby though coal loading and sales from existing stockpiles continued to customers. The Company decided to sell the mining equipment to generate cash so that operations may continue. In April 2015, the Company, through its wholly-owned subsidiary, Red Hill, entered into a purchase agreement with an arm’s-length party in Mongolia to sell substantially all of its mining and transportation equipment at the Ulaan Ovoo Property for total proceeds of approximately $2.34 million. The sale of equipment was completed in June 2015. Total proceeds (including the sale of equipment to other arm’s-length parties) amounted to $2.9 million in cash. The Ulaan Ovoo Property ceased pre-commercial operations in June 2015, The Company continued to maintain the Ulaan Ovoo Property operations on standby, incurring minimal general and administrative costs. On October 16,10, 2018, the Company announced that it had executed a lease agreement (the “Lease”“Lease”) with an arms-length private Mongolian company (the “Lessee”“Lessee”) whereby the Lessee plans to perform mining operations at the Company’s Ulaan Ovoo coal mineProperty and will pay the Company USD$2.00 (the “Production Royalty”“Production Royalty”) for every tonne of coal shipped from the Ulaan Ovoo Property’s site premises. The Lessee has paid the Company USD$100,000 in cash, as a non-refundable advance royalty payment and is preparing, at its own and sole expense, to restart and operate the Ulaan Ovoo mineProperty with its own equipment, supplies, housing and crew. The Lessee will pay all government taxes and royalties related to its proposed mining operation. SILVER ELEPHANT MINING CORP. (Formerly “Prophecy Development Corp.”)
Management’s Discussion and Analysis of Financial Condition and Results of Operations
For the year ended December 31, 2019
(Expressed in Canadian Dollars, except where indicated)
The Lease is valid for 3 years with an annual advance royalty payment (“ARP”) for the first year of $100,000 (paid),USD$100,000 which was due and paid upon signing, and USD$150,000 and USD$200,000 due on the 1st and 2nd anniversary of the Lease, respectively. The ARP can be credited towards the USD$2.00 per tonne Production Royalty payments to be made to the Company as the Lessee starts to sell Ulaan Ovoo coal.The 3-year Lease can be extended upon mutual agreement.The first and second anniversary payments due have not been collected and the Company has recorded a full provision in the amount of $470,278 (US$350,000) due to uncertainty of their collection. TheSince the signing of the Lease, the Lessee has spent approximately USD$700,000 on supplies, housing and crew and restarted Ulaan Ovoo mine was commissionedProperty with its own equipment in March 2018 reporting approximately 21,000 tonnes of coal production and sales. In June 2019 the Ulaan Ovoo Property achieved record monthly coal production of 37,800 tonnes, however the operation was stopped in April and May due to the late approval of 2019 environmental plan. The approval was issued in June 2019.
On July 9, 2019,During 2020, even with the Company announced thatnationwide COVID-19 restriction the Lessee mined approximately 82,000 tonnes of coal production and sales. The Lessee continues to mine with its own equipment and has exported its first wagon of coal to China in 2020.
In accordance with relevant laws and regulations, mining feasibility study and detailed environmental impact assessment had to be updated for the Ulaan Ovoo mine achieved record monthly coal productionProperty. With the COVID-19 restriction, the approval was delayed but the update of 37,800 tonnesthe Ulaan Ovoo feasibility study was approved by the Minerals Resource Council on April 22, 2020, and by the Minerals Resource and Petroleum Authority on November 2, 2020. The Company is working to get approval for the update to the detailed environmental impact assessment for the Ulaan Ovoo Property. SILVER ELEPHANT MINING CORP. Management’s Discussion and Analysis of Financial Condition and Results of Operations For the year ended December 31, 2020 (Expressed in June 2019.Canadian Dollars, except where indicated) Chandgana Coal Properties, Mongolia For more information aboutThe Chandgana Project consist of the Chandgana Tal property and the Khavtgai Uul which are within nine kilometres of each other in the Nyalga Coal Basin in east central Mongolia and approximately 280 kilometres east of Ulaanbaatar. On November 22, 2006 the Company entered into a letter agreement with a private Mongolian company that set out the terms to acquire a 100% interest in the Chandgana Tal property. On August 7, 2007, the Company entered into a letter agreement with another private Mongolian company that set out the terms to acquire a 100% interest in the Khavtgai Uul property. Under the terms of the Chandgana Khavtgai agreement, the Company paid a total of USD$570,000. On February 8, 2011, the Company received a full mining license from the Mineral Resources Authority of Mongolia for the Chandgana Tal property. The license can be updated to allow mining of 3.5 million tonnes per year to meet the demand of the Chandgana Power Plant within 90 days.
During 2007, the Company performed geologic mapping, drilling and geophysical surveys of the Chandgana Tal and Khavtgai Uul properties. During June, 2010, The Company completed a 13 drill hole, 2,373 metre resource expansion drilling program on the Khavtgai Uul property, including 1,070 metres of core drilling, and five lines of seismic geophysical survey for a total of 7.4 line kilometres. The Company completed a 15 drill hole program during June-July 2011 to better define the coal propertiesresource of the Chandgana Tal licenses. The Chandgana Tal property has been mined previously and power plant project, please referoccasionally during the Company’s tenure to meet local demand. The Company decided not to mine during the 2017- 2018 heating season because of insufficient demand. A dry lake was determined by the Ministry of Environment to overlap onto one of the Chandgana Tal licenses as determined under the Mongolian Law to Prohibit Mineral Exploration and Mining Operations at Headwaters of Rivers, Protected Zones of Water Reservoirs and Forested Areas (the “Long Named Law”) but was resolved without loss to the relevant sectionsCompany. The Khavtgai Uul property has never been mined. The Ministry of Environment determined that a dry lake overlapped the Khavtgai Uul license as defined under the Long Named Law. This was resolved by removing the lake area from the license while not affecting the coal resource and mineability. The Company will continue to monitor the developments and ensure that it follows the necessary steps in the Amended Law on Implementation to secure its operations and licenses and is fully compliant with Mongolian law. During 2017, preparatory work to convert the Khavtgai Uul exploration license to a mining license was completed. The Company engaged a contractor to prepare the required documents to convert the license to a mining license under which the right to explore is permanent. In 2017, as preparatory work to convert the Khavtgai Uul exploration license to a mining license necessary laboratory analysis work was done such as coal chemical, mineral and element analysis of duplicates of coal samples taken as a result of drilling work in past years as well as radiation analysis of coal ash. A report describing the results of geological and exploration work completed during 2017 was delivered to Geological division of Mineral Resources and Petroleum Authority of Mongolia (the former Mineral Resources Authority of Mongolia (MRAM)). Based on previous years of work a report of the Company’s Annual Report on Form 20-F forreserves of the year ended December 31, 2019. Thelicensed area was prepared, and an official letter requesting an expert be appointed were submitted to the Mineral Resources Professional Council in January 2018. During 2018, the Company has successfully converted its Chandganacompleted converting the Khavtgai (Khavtgai Uul) coalUul exploration license to a mining license.
During 2017 activities for the Chandgana Tal project included payment of license fees and environmental sampling and reporting. No exploration was completed on the Chandgana Tal licenses. The Company assessed the local market for coal and found there was not sufficient demand to warrant mining during the 2017-2018 heating seasons. Thus, the annual mining and environmental plans were not filed. During 2020, the Company successfully got the approval of the feasibility study for the Khavtgai Uul project and intends to get approval for its detailed environmental impact assessment with the relevant ministries and complete the requirements to maintain the licenses. For the Chandgana Tal project, the Company intends to discuss the need to update the detailed environmental impact assessment and mining feasibility study and report to certify land quality and characterization with the relevant ministries and complete the requirements to maintain the licenses. SILVER ELEPHANT MINING CORP. Management’s Discussion and Analysis of Financial Condition and Results of Operations For the year ended December 31, 2020 (Expressed in Canadian Dollars, except where indicated) 5. SELECTED ANNUAL FINANCIAL INFORMATION The table below contains selected financial data from the audited consolidated financial statements of the Company for the three most recently completed financial years and was prepared in accordance with IFRS. Selected Annual Financial Data | | | | | | | | | | | Operating expense | $(3,505,562) | $(3,298,383) | $(2,381,365) | Other items | 21,019,416 | (14,886,085) | (16,211,616) | Net gain/(loss) | 17,513,854 | (18,184,468) | (18,592,981) | Comprehensive gain/(loss) | 17,513,854 | (18,196,628) | (18,580,821) | | | | | Share Information: | | | | Gain/(loss) per share, basic | $0.17 | $(0.23) | $(0.33) | Gain/(loss) per share, diluted | 0.17 | (0.23) | (0.33) | Weighted average number of common shares outstanding, basic diluted
| 102,208,111 | 78,445,396 | 55,760,700 | | | | | Financial Position: | | | | Current assets | 3,400,142 | 5,463,768 | 4,481,471 | Equipment | 159,484 | 101,162 | 531,911 | Mineral properties | 23,782,884 | 3,643,720 | 13,299,906 | Total assets | 27,448,088 | 9,264,205 | 18,368,843 | Total liabilities | 2,740,000 | 10,023,943 | 9,681,322 | Dividends | $- | $- | $- |
SILVER ELEPHANT MINING CORP. (Formerly “Prophecy Development Corp.”)
Management’s Discussion and Analysis of Financial Condition and Results of Operations
For the year ended December 31, 2019
(Expressed in Canadian Dollars, except where indicated)
| | | | | | | | | | | Operating expense | $(3,394,116) | $(3,505,562) | $(3,298,383) | Other items | (1,232,771) | 21,019,416 | (14,886,085) | Net gain/(loss) | (4,626,887) | 17,513,854 | (18,184,468) | Comprehensive gain/(loss) | (4,626,887) | 17,513,854 | (18,196,628) | | | | | Share Information: | | | | Gain/(loss) per share, basic | $(0.03) | $0.17 | $(0.23) | Gain/(loss) per share, diluted | $(0.03) | $0.17 | $(0.23) | Weighted average number of common shares outstanding, basic | 137,901,802 | 102,208,111 | 78,445,396 | diluted | 137,901,802 | 102,398,145 | 78,443,396 | Financial Position: | | | | Current assets | 7,798,631 | 3,400,142 | 5,463,768 | Equipment | 153,800 | 159,484 | 101,162 | Mineral properties | 31,806,594 | 23,782,884 | 3,643,720 | Total assets | 39,833,010 | 27,448,088 | 9,264,205 | Total liabilities | 2,474,953 | 2,740,000 | 10,023,943 | Dividends | $- | $- | $- |
Year Ended December 31,2020 compared to year 2019 compared with the same period in 2018. The Company’s annual operating expenses increased by $207,179 from $3.3for the years 2020, 2019, and 2018 remain close. The Company reported a net loss of $4.6 million ($0.03 per Common Share) for the year 2018ended December 31, 2020, which represents an increased loss of $22 million when compared to $3.5the year ended December 31, 2019 (a net gain of $17.5 million, $0.17 gain per Common Share). The increase of net loss was primarily due to an impairment reversal of 13.7 million for Pulacayo property and a write-off the Bolivian tax liability of $8 million in the year 2019.2019 compared to $Nil similar costs in the year 2020. The total assets increased by $12.4 million from $27.5 million in the year 2019 to $39.8 million in the year 2020. The increase was mainly due to an increase in mineral property exploration and properties acquisitions. Current assets increased by $4.4 million from $3.4 million in the year 2019 to $7.8 million in the year 2020. The increase was mainly due to an increase in cash of $4.6 million. The Company’s total liabilities decreased by $0.2 million from $2.7 million in the year 2019 to $2.5 million in the year 2020. Year 2019 compared to year 2018 The Company reported a net gain of $17.5 million ($0.17 gain per Common Share) for the year ended December 31, 2019, which represents a decreased loss of $35.7 million when compared to the year 2018 ($0.23 loss per Common Share). The decrease in net loss was primarily due to an impairment reversal of 13.7 million for Pulacayo property and a write-off the Bolivian tax liability of $8 million in the year 2019 compared to impairment charges of $18.2 million in the year 2018. SILVER ELEPHANT MINING CORP. Management’s Discussion and Analysis of Financial Condition and Results of Operations For the year ended December 31, 2020 (Expressed in Canadian Dollars, except where indicated) The total assets increased by $18.2 million from $9.3 million in the year 2018 to $27.5 million in the l year 2019. The increase was mainly due to an impairment reversal for Pulacayo property and an increase in mineral property exploration.exploration in the year 2019. Current assets decreased by $2.3 million from $5.5 million in the year 2018 to $3.2 million in the year 2019. The decrease was mainly due to a decrease in cash of $2.3 million. The Company’s total liabilities decreased by $7.3 million since December 31, 2018. The decrease in total liabilities was mainly due to a write-off the Bolivian tax liability. Year Ended December 31, 2018 compared with the same period in 2017.
The Company’s annual operating expenses increased by $0.9 million from $2.4 million for the year 2017 to $3.3 million for the year 2018. The increase was due to increased activities related to the acquisition and exploration of the Gibellini Project in Nevada and equity financings.
The Company reported a net loss of $18.2 million ($0.23 loss per Share) for the year ended December 31, 2018, which represents a decreased loss of $0.4 million when compared to the year 2017 ($0.33 loss per Share). The decrease in net loss was primarily due to a lesser amount of impairment charges in the year 2018 ($14.5 million) compared to the previous year ($15.1 million), offset by increase in operating expenses and a foreign exchange loss.
The total assets decreased by $9.1 million from $18.4 million in the year 2017 to $9.3 million in the year 2018. The decrease was mainly due to a write-off the Pulacayo property and its mining equipment. Current assets increased by $1 million from $4.5 million in the year 2017 to $5.5 million in the year 2018. The increase was mainly due to the $5.2 million net proceeds received from the bought deal financing in Q4 2018.
The Company’s total liabilities at December 31, 2018 were $10 million compared to $9.7 million at December 31, 2017. The increase in liabilities was mainly due to a foreign exchange fluctuation of Canadian Dollar against Bolivian Boliviano related to Bolivian tax provision.
The Company’s total liabilities increased by $0.45 million from $ 9.7 million at December 31, 2017 to $10.1 million at December 31, 2018 due to increased Bolivian tax provision (due to fall of Canadian Dollar) and offset by a decrease in trade accounts payable.
SILVER ELEPHANT MINING CORP. (Formerly “Prophecy Development Corp.”)
Management’s Discussion and Analysis of Financial Condition and Results of Operations
For the year ended December 31, 2019
(Expressed in Canadian Dollars, except where indicated)
6. SUMMARY OF QUARTERLY RESULTS Table below presents summarizedTo date, COVID-19 has not significantly impacted the Company’s operations. Silver Elephant has implemented extensive preventative measures across its offices and operations in order to safeguard the health of its employees, while continuing to operate safely and responsibly maintain employment and economic activity.
The following table summarizes selected consolidated financial information prepared in accordance with IFRS for the eight most recently completed quarters: | | | | Q4 | Q3 | Q2 | Q1 | Q4 | Q3 | Q2 | Q1 | | | | Operating expense | $(1,175,096) | $(715,475) | $(820,893) | $(794,098) | $(809,912) | $(853,332) | $(592,874) | $(1,137,998) | Net gain/(loss) | 12,475,952 | (1,019,268) | 6,966,029 | (908,859) | (2,259,661) | (1,037,332) | (389,770) | (940,124) | Net loss per share, basic and diluted | $0.11 | $(0.01) | $0.07 | $(0.01) | $(0.01) | Comprehensive gain/(loss ) | 12,475,952 | (1,019,268) | 6,966,029 | (908,859) | (2,259,661) | (1,037,332) | (389,770) | (940,124) | Comprehensive gain/(loss)per share, basic and diluted | $0.11 | $(0.01) | $0.07 | $(0.01) | $(0.01) |
| | | | Q4 | Q3 | Q2 | Q1 | Q4 | Q3 | Q2 | Q1 | | | | Operating expense | $(1,318,475) | $(636,172) | $(780,818) | $(562,918) | $(1,175,096) | $(715,475) | $(820,893) | $(794,098) | Net loss | (16,044,665) | (634,337) | (916,247) | (589,219) | 12,475,952 | (1,019,268) | 6,966,029 | (908,859) | Net loss per share, basic and diluted | $(0.20) | $(0.01) | $0.11 | $(0.01) | $0.07 | $(0.01) | Comprehensive loss | (15,975,825) | (610,797) | (966,787) | (643,219) | 12,475,952 | (1,019,268) | 6,966,029 | (908,859) | Comprehensive loss per share, basic and diluted | $(0.20) | $(0.01) | $0.11 | $(0.01) | $0.07 | $(0.01) |
Significant variances in the Company’s reportedThe fluctuation on quarterly net loss from quarter to quarter most commonly arise from several factors: (i) level of exploration and project evaluations expenses incurred, (ii) decisions to write off acquisition and exploration costs when management concludes there has been an impairment in the carrying value of a mineral property, or to reverse impairment chargesis primarily due to indicators of impairment reversal, and (iii) the vesting of incentiveCommon Share-based compensation expenses recognized as stock options which results ingranted to directors, officers, employees and consultants of the recording of amounts for share-based compensation expense that can be quite large in relation to other generalCompany are earned, advertising and administrativepromotion expenses, incurred in any given quarter.the impairment losses recognized on resource properties, and debt settlements.
7. RESULTS OF OPERATIONS FOR THE YEAR ENDED DECEMBER 31, 20192020 All of the information described below is accounted for in accordance with IFRS. The reader is encouraged to refer to Note 6 of the Company’s Annual Financial Statements for the year ended December 31, 20192020 for the Company’s IFRS accounting policies. The Company reported a net gain of $17.5 million ($0.17 gain per basic Share) for the year ended December 31, 2019, which represents a decreased loss of $35.7 million when compared to the year 2018 ($0.23 loss per basic Share). The decrease in net loss was primarily due to an impairment reversal of 13.7 million for Pulacayo property and a write-off the Bolivian tax liability of $8 million in 2019 compared to impairment charges of $18.2 million in 2018.
For the year ended December 31, 2019, the Company incurred operating expenses of $3,505,562 compared to $3,298,383 for 2018 and $2,381,365 for 2017.
Operating Expenses | | | | | | Advertising and promotion | $794,182 | $471,230 | $101,512 | Consulting and management fees | 251,552 | 255,610 | 751,612 | General and administrative expenses | 1,286,617 | 1,357,724 | 635,736 | Professional fees | 228,594 | 428,884 | 194,912 | Share-based payments | 707,802 | 553,430 | 599,117 | Travel and accommodation | 236,815 | 231,505 | 98,476 | | $3,505,562 | $3,298,383 | $2,381,365 |
SILVER ELEPHANT MINING CORP. (Formerly “Prophecy Development Corp.”) Management’s Discussion and Analysis of Financial Condition and Results of Operations For the year ended December 31, 20192020 (Expressed in Canadian Dollars, except where indicated) Operating Expenses | | | | | | Advertising and promotion | $541,029 | $794,182 | $471,230 | Consulting and management fees | 570,356 | 251,552 | 255,610 | General and administrative expenses | 1,097,436 | 1,286,617 | 1,357,724 | Professional fees | 321,355 | 228,594 | 428,884 | Share-based payments | 770,617 | 707,802 | 553,430 | Travel and accommodation | 93,323 | 236,815 | 231,505 | | $3,394,116 | $3,505,562 | $3,298,383 |
The $207,179 increaseCompany had an operating loss of $3,394,116 for the year ended December 31, 2020, compared with an operating loss of $3,505,562 for the year ended December 31, 2019. In late January 2020, in operating expenses when comparedresponse to the reported spread of COVID-19 the Company implemented measures, including travel restrictions, remote work, and supplemental health care, for the Company’s Canadian head office staff, as well as our Bolivian, Mongolian, and US-based staff. These measures had no material impact on the Company’s costs, nor did COVID-19 cause any significant disruptions to the Company’s operations. Of note for the year 2018 was the net result of changes to a number ofended December 31, 2020, are the following items: ● advertising and promotion expenses decreased by $253,153 from $794,182 in the year 2019, to $541,029 in the year 2020, due to decreased promotional activities and restricted travels during the COVID-19 pandemic; ● consulting and management fees increased by $322,952 due to increased promotion efforts$318,804 from $251,552 in the US and Europeyear 2019, to raise market awareness and to raise equity financing. The Company incurred higher marketing costs because$570,356 in the Company is working with the financial community to make its projects known. Investor relations remains a priorityyear 2020, due to the ongoing needissuance of a bonus in the amount of $324,000 to attract investment capital;management/consultants of the Company, which was paid by the issuance of Common Shares at a value of $0.40 per share; ● general and administrative costs comprising headfees consisted of general office costs including salaries, directors’ fees, insuranceexpenses and costsadministrative services related to maintaining the Company’s exchange listings and complying with securities regulations.regulations and also included insurance, salaries and directors’ fees. General and administrative expenses decreased by $71,107$189,180 from $1,286,617 in the year 2019, compared to $1,097,436 in the year 2018;2020. The decrease is a result of cost cutting initiatives across the Company; ● professional fees decreasedincreased by $200,290. The decrease was mainly$92,761, from $228,594 in the year 2019, to $321,355 in the year 2020, due to reducedincreased legal fees;fees associated with the Offering and properties acquisitions; ● share-based payments costs are non-cash charges which reflect the estimated value of stock options granted. The Company uses the fair value method of accounting for stock options granted to directors, officers, employees and consultants whereby the fair value of all stock options granted is recorded as a charge to operations over the period from the grant date to the vesting date of the option.options. The fair value of common share options granted is estimated on the date of grant using the Black-Scholes option pricing model. The increase Share-based payments increased in share-based payments in 2019the year 2020, by $154,372$62,815 compared to 2018the year 2019. The increase was primarily related to the increase in the number of options earned during the year 20192020, compared to the year 2018;2019; and
● travel and accommodation expenses slightly increaseddecreased by $5,310. The Company incurred additional travel expenses as it actively pursues$143,492 from $236,815 in the Pulacayoyear 2019, to $93,323 in the year 2020, due to decreased property site visits and Gibellini projects moving toward production and seeks financing.restricted travels during the COVID-19 pandemic. For the year ended December 31, 2019, the Company incurred other expenses classified as “Other Items” amounting to a gain of $21,019,416 compared to a loss of $14,866,085 for the year 2018, and a loss of $16,211,616 for the year 2017.
Other Items | | | | | | Costs in excess of recovered coal | $120,354 | $94,335 | $109,187 | Finance cost | - | - | 8,111 | Foreign exchange (gain)/loss | 443,203 | 412,663 | 188,464 | Impairment/(recovery) of mineral property | (13,708,200) | 13,994,970 | 14,829,267 | Impairment of prepaid expenses | 51,828 | 26,234 | 57,420 | Impairment of equipment | - | 425,925 | 159,666 | Impairment of receivables | 16,304 | 21,004 | 61,202 | Interest expense | - | - | 21,066 | Loss/(gain) on sale of marketable securities | - | 91,890 | 22,810 | Loss on sale of equipment | 9,795 | - | 1,681 | Loss/(gain) on debt settlement | (7,952,700) | (50,000) | 752,742 | Other income | - | (130,936) | - | | $(21,019,416) | $14,886,085 | $16,211,616 |
SILVER ELEPHANT MINING CORP. (Formerly “Prophecy Development Corp.”) Management’s Discussion and Analysis of Financial Condition and Results of Operations For the year ended December 31, 20192020 (Expressed in Canadian Dollars, except where indicated) For the year ended December 31, 2020, the Company’s “Other Items” amounted to a loss of $1,232,771 compared to a gain of $21,019,416 in the year ended December 31, 2019. | | Other Items | 2,020 | 2,019 | 2,018 | Costs in excess of recovered coal | $590,204 | $120,354 | $94,335 | Foreign exchange loss | 64,841 | 443,203 | 412,663 | Impairment/(recovery) of mineral property | - | (13,708,200) | 13,994,970 | Impairment of prepaid expenses | 121,125 | 51,828 | 26,234 | Impairment of equipment | - | - | 425,925 | Impairment of receivables | 470,278 | 16,304 | 21,004 | Loss on sale of marketable securities | - | - | 91,890 | Loss/(gain) on sale of equipment | (13,677) | 9,795 | - | Gain on debt settlement | - | (7,952,700) | (50,000) | Other income | - | - | (130,936) | | $1,232,771 | $(21,019,416) | $14,886,085 |
The decreaseincrease in loss of Other Items by $35,905,501$22,252,187 in the year 20192020 compared to the year 20182019 was the net result of changes to a number of the following items: ● in the year 20192020 costs in excess of recovered coal for Ulaan Ovoo increased by $26,019$469,850 compared to the year 20182019.This increase was mainly due to increased activities atthe change in estimate reclamation provision for Ulaan Ovoo coal mine in Mongolia; ● foreign exchange loss increaseddecreased by $30,540$378,362 due to fluctuations in the value of the Canadian dollar compared to the United States dollar, Bolivian boliviano and Mongolian tugrik; ● in the year 2020, the Company recorded an impairment of prepaid expenses of $121,125 compared to $51,828 in the year 2019; ● in the year 2020, the Company recorded an impairment of receivables of $470,278 compared to $16,304 in the year 2019; ● in the year 2020, the Company recorded a gain on sale of equipment of $13,677 compared to a loss of 9,795 in the year 2019; ● also, in the year 2019, the Company recorded an impairment recovery of $13,708,200 on its Pulacayo property and impairment charges of $51,828 and $16,304 on prepaid expenses and receivables respectively. In the year 2018, the Company recorded a total of $13,994,970 impairment charges on its Pulacayo property and Chandgana Coal property incurred expenses, an impairment charge of $425,925 on Bolivian mining equipment, and impairment charges of $26,234 and $21,004 on prepaid expenses and receivables respectively.
In the year 2017, the Company recorded an impairment charge of $14,829,267 on its non-core Mongolian coal properties, an impairment charge of $57,420 on prepaid expenses related to the impaired Mongolian properties, an impairment charge of $159,666 on equipment, and an impairment charge of $61,202 on receivables.
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in the year 2018, the Company sold 2.7 million shares of a public company for a realized loss of $91,890. In the year 2017, the Company sold of 2.2 million Lorraine Copper Corp. shares for a realized loss of $22,810.
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in the year 2019, the Company recorded a writewrote off Bolivian tax liabilities of $7,952,700 due to the decision of the Supreme Court of Bolivia to discharge the Company of the tax claim.
In the year 2018, the Company earned $50,000 from a debt settlement with Nickel Creek Platinum Corp. and $130,936 from advance royalty payment.
In the year 2017, the Company recorded a loss on debt settlements with certain of its directors and officers of $752,742 to account for the difference in the fair value of the Shares on the settlement date and the implied value from the debt settled.
8. RESULTS OF OPERATIONS FOR THE FOURTH QUARTER 20192020 A summary of the Company’s consolidated operating expenses results for the three months ended December 31, 2020, 2019 2018 and 20172018 provided below: Operating Expenses | Three Months Ended December 31, | Three Months Ended December31, | | | | | | | | Advertising and promotion | $237,556 | $107,296 | $53,362 | $184,175 | $237,556 | $107,296 | Consulting and management fees | 85,500 | 63,455 | 613,992 | 77,856 | 85,500 | 63,455 | General and administrative expenses | 256,452 | 726,257 | 239,023 | 258,092 | 256,452 | 726,257 | Professional fees | 46,443 | 204,162 | 143,661 | 103,008 | 46,443 | 204,162 | Share-based payments | 475,200 | 135,848 | 213,201 | 176,224 | 475,200 | 135,848 | Travel and accommodation | 73,945 | 81,457 | 14,268 | 10,557 | 73,945 | 81,457 | | $1,175,096 | $1,318,475 | $1,277,507 | $809,912 | $1,175,096 | $1,318,475 |
SILVER ELEPHANT MINING CORP. (Formerly “Prophecy Development Corp.”) Management’s Discussion and Analysis of Financial Condition and Results of Operations For the year ended December 31, 20192020 (Expressed in Canadian Dollars, except where indicated) A decreaseThe Company had an operating loss of operating expenses by $143,379 in$809,912 for the year 2019three months ended December 31, 2020, compared to an operating loss of $1,175,096 for the year wasthree months ended December 31, 2019.
Of note are the net result of changesfollowing items: ● advertising and promotion expenses increaseddecreased by $130,260$53,381 from $237,556 in the three months ended December 31, 2020, to $184,175 in the three months ended December 31, 2020, due to increaseddecreased promotion efforts in the US and Europeactivities due to raise market awareness and to raise equity financing;COVID-19; ● consulting and management fees increased by $22,045 duein the three months ended December 31, 2020, remain close to increased consulting services usedfees incurred in Q4 2019 compared to Q4 2018;the three months ended December 31, 2019; ● general and administrative fees consisted of general office expenses decreased by $469,806 due primarilyand administrative services related to decreasedmaintaining the Company’s exchange listings and complying with securities regulations and also included insurance, salaries and transfer agentdirectors’ fees. General and stock exchange filingadministrative expenses in the three months ended December 31, 2020 remain close to fees related to equity financing;incurred in the three months ended December 31, 2019; ● professional fees decreasedincreased by $157,719$56,565, from $46,443 in the three months ended December 31, 2019, to $103,008 in the three months ended December 31, 2020 due to decreased legal services;fees related to the Offering; ● non-cash Share-basedshare-based payments increaseddecreased in the three months ended December 31, 2020, by $339,352 due to a larger number of outstanding stock options vesting during the Q4 2019$298,976 compared to the Q4 2018; andthree months ended December 31, 2019. The decrease was related to the decrease in the number of options earned during the three months ended December 31, 2020, compared to the three months ended December 31, 2019;
● travel and accommodation expenses decreased by $7,512$63,388 from $73,945in the three months ended December 31, 2019, to $10,557 in the three months ended December 31, 2020, due to decreased property site visits and restricted travels during the Q4 2019 compared to the Q4 2018.COVID-19 pandemic; For the three months ended December 31, 2019,2020, the Company’s “Other Items” amounted to a loss of $1,449,749 compared to a gain of $13,651,048 compared to a loss of $14,726,190 forin the same quarter in 2018. The decrease in other items loss was mainly due to a lesser number of impairment charges recorded in in Q4three months ended December 31, 2019 compared to Q4 2018.. Other Items | Three Months Ended December 31, | | | | | | | | | Costs in excess of recovered coal | $(30,584) | $(33,566) | $4,367 | $590,204 | $120,354 | $94,335 | Foreign exchange (gain)/loss | 731,187 | 372,427 | 822,284 | | Foreign exchange loss | | 64,841 | 443,203 | 412,663 | Impairment/(recovery) of mineral property | (14,429,578) | 13,953,212 | 14,733,067 | - | (13,708,200) | 13,994,970 | Impairment of prepaid expenses | 51,828 | 26,234 | 57,420 | 121,125 | 51,828 | 26,234 | Impairment of equipment | - | 425,925 | 159,666 | - | 425,925 | Impairment of receivables | 16,304 | 21,004 | 61,202 | 470,278 | 16,304 | 21,004 | Loss/(gain) on sale of marketable securities | - | 91,890 | - | | Loss on sale of equipment | - | 1,681 | | Loss/(gain) on debt settlement | 9,795 | - | 752,742 | | Loss on sale of marketable securities | | - | 91,890 | Loss/(gain) on sale of equipment | | (13,677) | 9,795 | - | Gain on debt settlement | | - | (7,952,700) | (50,000) | Other income | - | (130,936) | - | - | (130,936) | | $(13,651,048) | $14,726,190 | $16,592,429 | $1,232,771 | $(21,019,416) | $14,886,085 |
As at the date of this MD&A, there are no proposed asset or business acquisition or dispositiontransactions where the Board of Directors or senior management believes that confirmation of the decision by the Board of Directors is probable or with which the Board of Directors and senior management have decided to proceed. SILVER ELEPHANT MINING CORP. Management’s Discussion and Analysis of Financial Condition and Results of Operations For the year ended December 31, 2020 (Expressed in Canadian Dollars, except where indicated) 10. LIQUIDITY AND CAPITAL RESOURCES Working Capital The Company utilizes existing cash received from prior issuances of equity instruments to provide liquidity to the Company and finance exploration projects.
At December 31, 2020, the Company had cash flow of $7,608,149, representing an increase of $4,590,445 from $3,017,704 as at December 31, 2019. The Company’s working capital at December 31, 2020, was $6,018,935 compared to working capital of $947,465 at December 31, 2019. On May 1, 2020 and on May 20, 2020, the Company closed the May 2020 Private Placement for aggregate gross proceeds of $1,930,500 and share compensation for services of $45,500, through the issuance of 15,200,000 units of the Company at a price of $0.13 per Unit. Each Unit is comprised of one Common Share and one Warrant. Each Warrant entitles the holder to purchase one Common Share at an exercise price of $0.16 for a period of three years from the date of issuance. The Company paid $3,250 in cash and issued 156,900 Units as finder’s fees in connection with the May 2020 Private Placement. The net proceeds of the May 2020 Private Placement were expected to be used for the Company’s mineral project development and for general working capital purposes. The following table compares the estimated use of net proceeds from the May 2020 Private Placement and the actual use of proceeds as of December 31, 2020. Description of expenditure | Originally proposed use of proceeds | Actual use of proceeds as of December 31, 2020 | Development of mineral properties | $1,676,838 | $1,629,546 | General and administrative expenses | $250,412 | $297,704 | | $1,927,250 | $1,927,250 |
As of December 31, 2020, the net proceeds from the May 2020 Private Placement were fully applied. On November 24, 2020, the Company closed its bought deal short form prospectus offering pursuant to which the Company has issued 23,000,000 Common Shares at a price of $0.40 per Common Share for aggregate gross proceeds of $9,200,000. Pursuant to the terms and conditions of the Underwriting Agreement, the Company paid a cash commission to the Underwriters of $534,000, additional fees of $391,545 and issued 1,335,000 Share purchase warrants as a finder’s fee in relation with the Offering.The net proceeds from the Offering will be used for the exploration, development and/or improvement of the Company’s mineral properties and for working capital purposes. The following table compares the estimated use of net proceeds from the November 2020 Offering and the actual use of proceeds as of December 31, 2020. Description of expenditure | Originally proposed use of proceeds | Actual use of proceeds as of December 31, 2020 | Expoloration - Phase 1 of Pulacayo Project | $3,240,000 | $663,100 | Expoloration - Triunfo Project | $980,000 | $48,741 | Expoloration - Sunawayo Project | $1,700,000 | $51,604 | Working capital and general corporate purposes | $1,300,000 | $190,568 | Total | $7,220,000 | $954,013 |
During the year ended December 31, 2020, 14,027,670 Common Share purchase warrants and 1,233,750 stock options were exercised for aggregate proceeds of $3,407,006. Subsequent to the year end, and as at the date of this MD&A, 4,554,990 Common Share purchase warrants were exercised for aggregate proceeds of $1,164,297. SILVER ELEPHANT MINING CORP. (Formerly “Prophecy Development Corp.”) Management’s Discussion and Analysis of Financial Condition and Results of Operations For the year ended December 31, 20192020 (Expressed in Canadian Dollars, except where indicated) Subsequent to the year ended December 31, 2020, the Company closed the February 2021 Placement through the issuance of 10,000,001 Common Shares at a price of $0.375 per Common Share. The businessFebruary 2021 Placement raised gross cash proceeds of mineral exploration involves a high degree of risk and there can be no assurance that the Company’s current operations, including exploration programs, will result$3,750,000. The Company paid $73,875 in profitable mining operations. The recoverabilitycash as finder’s fees. Proceeds of the carrying valueFebruary 2021 Placement are expected to be used for exploration, working capital and general corporate purposes which may include project evaluations and acquisitions. As at the date of mineral properties, and property and equipment intereststhis MD&A, the Company has cash flow of $1 million and the Company’s continued on going existenceworking capital is dependent upon$0.7 million. The Company’s cash flow highlights for the preservation of its interestyear ended December 31, 2020, are presented in the underlying properties, the discovery of economically recoverable reserves, the achievement of profitable operations, the ability of the Company to raise additional sources of funding, and/or, alternatively, upon the Company’s ability to dispose of some or all of its interests on an advantageous basis. Additionally, the current capital markets and general economic conditions are significant obstacles to raising the required funds. These conditions may cast significant doubt upon the Company’s ability to continue as a going concern.table below. At December 31, 2019, the Company had cash flow of $3 million representing a decrease of $2.3 million from $5.3 million held at December 31, 2018. The Company’s working capital at December 31, 2019 was $1 million compared to working capital of $3.8 million at December 31, 2018. The Company’s working capital decrease by $2.8 million resulting from the increase in current liabilities and decrease in current assets.
Sources and Use of Cash | | | | | | Cash Used in Operating Activities | $(2,549,042) | $(2,675,513) | $(2,626,687) | Cash Used in Investing Activities | (6,397,063) | (6,236,965) | (3,628,762) | Cash Provided by Financing Activities | 13,536,550 | 6,626,085 | 7,458,938 | Net Decrease in Cash | 4,590,445 | (2,286,393) | 1,203,489 | Cash - beginning of year | 3,017,704 | 5,304,097 | 4,100,608 | Cash - end of year | $7,608,149 | $3,017,704 | $5,304,097 |
| | | | | | Cash Used in Operating Activities | $(2,675,513) | $(2,626,687) | $(707,231) | Cash Used in Investing Activities | (6,236,965) | (3,628,762) | (1,988,566) | Cash Provided by Financing Activities | 6,626,085 | 7,458,938 | 6,774,757 | Net Decrease in Cash | (2,286,393) | 1,203,489 | 4,078,960 | Cash - beginning of period | 5,304,097 | 4,100,608 | 21,648 | Cash - end of period | $3,017,704 | $5,304,097 | $4,100,608 |
2020Operating activities: During the year ended December 31, 2020, cash used in operating activities was $2,549,042 compared to $2,675,513 during the year ended December 31, 2019 (2018 - $2,626,687). The decreased outflows in 2020 year related to decreased activities of the Company due to the COVID-19 pandemic. Investing activities: During the year ended December 31, 2020, the Company used $6,397,063 in investing activities (2019 - $6,236,965. 2018 - $3,628,762). During the year ended December 31, 2020, the Company spent $6,336,166 (2019 - $6,126,401, 2018 - $3,609,896) on its mineral projects exploration activities and $111,592 (year 2019 - $113,564, 2018 - $120,416) on purchase of equipment and received $50,695 on sale of equipment 2019 - $Nil, 2018 - $Nil). Financing activities: During the year ended December 31, 2020, a total of $13,536,550 was provided by financing activities (2019 – $6,626,085, 2018 - $7,458,938) including net proceeds from private placements of $10,201,706 (2019 - $6,237,791, 2018 - $6,096,621), $299,812 from exercise of stock options (2019 - $174,250, 2018 - $24,150), $3,072,194 from exercise of warrants (2019 - $250,572, 2018 - $1,338,167). The Company also spent $37,162 (2019 - $36,528) for corporate office lease payments. 2019 During the year ended December 31, 2019, cash used in operating activities was $2,675,513 compared to $2,626,687 cash used during the prior year. The increased outflows in 2019 primarily related to increased activities of the Company to develop the Pulacayo Project and the Gibellini Project. The year over year increase in cash used by operating activities is due to increased funds required for working capital changes. The Company has increased its efforts in managing operating costs in advance of cash flows from operations but will require financing in the near term to fund operations. During the year ended December 31, 2019, the Company used $6,236,965 in investing activities (2018 – $3,628,762). The Company used $113,564 (2018 - $120,416) on purchase of property and equipment, $6,123,401 (2018 - $3,609,896) on mineral property expenditures. During the year ended December 31, 2019, a total of $6,626,085 was provided by financing activities including net proceeds from the Company’s share issuance of $6,237,791, an additional $174,250 from exercise of stock options, and $250,572 from the exercise of warrants to purchase the common shares of the Company. The Company spent $36,528 for lease payments. SILVER ELEPHANT MINING CORP. Management’s Discussion and Analysis of Financial Condition and Results of Operations For the year ended December 31, 2020 (Expressed in Canadian Dollars, except where indicated) 2018 During the year ended December 31, 2018, cash used in operating activities was $2,626,687 compared to $707,231 cash used during the prior year. The increased outflows in 2018 primarily related to increased activities of the Company to develop the Gibellini Project. The year over year increase in cash used by operating activities is due to increased funds required for working capital changes. During the year ended December 31, 2018, the Company used $3,628,762 in investing activities (2017 – $1,988,566). The Company received net proceeds of $101,550 from selling its marketable securities, used $120,416 (2017 - $515,609) on purchase of property and equipment, $425,605 (2017 - $58,790) on the acquisition of the Gibellini claims, and $3,184,294 (2017 - $1,339,417) on mineral properties expenditures. SILVER ELEPHANT MINING CORP. (Formerly “Prophecy Development Corp.”)
Management’s Discussion and Analysis of Financial Condition and Results of Operations
For the year ended December 31, 2019
(Expressed in Canadian Dollars, except where indicated)
During the year ended December 31, 2018, a total of $7,458,938 was provided by financing activities including net proceeds from The Company’s share issuance of $6,096, 621, $24,150 from exercise of stock options, and $1,338,167 from the exercise of warrants to purchase the common shares of the Company. During the year ended December 31, 2017, cash used in operating activities was $707,231 compared to $453,600 cash used in the prior year. The increased outflows in 2017 primarily related to Gibellini project activities.
2017
During the year ended December 31, 2017, the Company used $1,988,566 in investing activities (2016 – $606,372). The Company spent $34,500 investing in GIC, $58,790 on the acquisition of the Gibellini Project, and $1,339,417 (2016 - $712,901) on mineral properties expenditures. In 2017, the Company spent $193,440 and received $153,190 (2016 - $59,698) from the purchase and sale of available-for-sale investments respectively.
A total of $6,774,757 was provided by financing activities during the year ended December 31, 2017 (2016 – $1,048,078). The Company fully repaid and closed out the Credit Facility by issuing 300,000 Shares to John Lee in satisfaction of $900,000 worth of indebtedness owing by the Company to Mr. Lee’s personal holding company, Linx, under the Credit Facility and making cash payments totaling $364,142. Funds borrowed under the Credit Facility in the year 2017 were $163,405 (2016 - $341,116). During the year ended December 31, 2017, the Company received net proceeds of $6,864,809 (2016 - $952,929) from issuing units pursuant to private placements, $50,685 (2016 - $Nil) from exercise of stock options, and $60,000 (2016 - $Nil) from exercise of Share purchase warrants.
Capital Resources As an exploration and development company, Thethe Company has no regular cash in-flow from operations, and the level of operations is principally a function of availability of capital resources. The Company’s capital resources are largely determined by the strength of the junior resource markets and by the status of the Company’s projects in relation to these markets, and its ability to compete for investor support of its projects. See Sectionthe disclosure under the heading “Key Information - Risk Factors” set out in the Company’s AR.2020 Annual Report. To date, the principal sources of funding have been equity and debt financing. Many factors influence the Company’s ability to raise funds, and there is no assurance that the Company will be successful in obtaining adequate financing andwith favourable terms, or at favourable termsall, for these or other purposes including general working capital purposes. For the foreseeable future, as existing properties are explored, evaluated and developed, the Company will continue to seek capital through the issuance of equity, strategic alliances or joint ventures, and debt, of which the Company currently has none. The Company expects to continue requiring cash for operations and exploration and evaluation activities as expenditures are incurred while no revenues are generated. Therefore, its continuance as a going concern is dependent upon its ability to obtain adequate financing to fund future exploration, evaluationoperations based on annual budgets approved by the Company's board of directors, consistent with established internal control guidelines, and development ofprograms recommended in the Gibellini Project and the potential construction of a mine, in order to reach profitable levels of operation.Pulacayo Technical Report. The Company has managed its working capital by controlling its spending on its properties and operations. Due to the ongoing planned advancement of project milestones for the Gibellini Project and for the Pulacayo Project milestones, the Company will continue to incur costs associated with exploration, evaluation and development activities, while no revenues are being generated. In response to the COVID-19 pandemic, exploration in Bolivia may be impacted by government restrictions on the Company’s operations. Potential stoppages on exploration activities could result in additional costs, project delays, cost overruns, and operational restart costs. The total amount of funds that the Company needs to carry out its proposed operations may increase from these and other consequences of the COVID-19 pandemic. The actual amount that the Company spends in connection with each of the intended uses of proceeds may vary significantly and will depend on a number of factors, including those referred to under "Risk Factors". On September 6, 2019, the Company closed a non-brokered private placement and raised gross proceeds of $2,600,000 through the issuance of 13,000,000 Shares at a price of $0.20 per Share.
On October 21, 2019 the Company closed a non-brokered private placement and raised gross cash proceeds of $3,900,000 through the issuance of 9,750,000 Shares at a price of $0.40 per Share. Proceeds were expected to be used for the Company’s mineral project development and for general working capital purposes.
The consolidated financial statementsOur Annual Financial Statements have been prepared on a going concern basis which assumes that the Companywe will be able to realize itsour assets and discharge itsour liabilities in the normal course of business for the foreseeable future. The Company’sOur ability to continue as a going concern is dependent upon the continued support from itsour shareholders, the discovery of economically recoverable reserves, and theour ability of the Company to obtain the financing necessary to complete development and achieve profitable operations in the future. The outcome of these matters cannot be predicted at this time.
SILVER ELEPHANT MINING CORP.
(Formerly “Prophecy Development Corp.”)
Management’s Discussion and Analysis of Financial Condition and Results of Operations
For the year ended December 31, 2019
(Expressed in Canadian Dollars, except where indicated)
Contractual Commitments The Company’s commitments related to mineral properties are disclosed in Note 14 to the Annual Financial Statements. The Company has no commitments for capital expenditures. The Company’s other commitments include a rental commitment on Vancouver and Nevada office premises: | | | | | | | | | | Office Lease Obligations | $45,489 | $24,574 | $9,540 | $79,603 | | $45,489 | $24,574 | $9,540 | $79,603 |
SILVER ELEPHANT MINING CORP. Management’s Discussion and Analysis of Financial Condition and Results of Operations For the year ended December 31, 2020 (Expressed in Canadian Dollars, except where indicated) Capital Risk Management The Company considers its capital structure to consist of Share capital,Common Shares, stock options and Common Share purchase warrants. The Company manages its capital structure and makes adjustments to it, based on the funds available to the Company, in order to support the exploration and development of its projects and to pursue and support growth opportunities. The Board of Directors does not establish quantitative returns on capital criteria for management. The Company is not subject to externally imposed capital requirements. There has been no change in the Company’s approach to capital management during the year ended December 31, 2019.2020. Management is aware that market conditions, driven primarily by vanadium, silver, other metal and coal prices, may limit the Company’s ability to raise additional funds. These factors, and others, are considered when shaping the Company’s capital management strategy. The Company’s business could be adversely impacted by the effects of the COVID-19 coronavirus. The extent to which COVID-19 may impact the Company’s business, including its operations and the market for its securities, will depend on future developments which cannot be predicted, and include the duration, severity and scope of the outbreak and the actions taken to contain or treat the outbreak. The Company accrues for liabilities when they are probable and the amount payable can be reasonably estimated. ASC Tax Claim On January 2, 2015, the Company acquired ASC Holdings Limited and ASC Bolivia LDC (which together, hold ASC Bolivia LDC Sucursal Bolivia, which in turn, held Apogee Silver Ltd.’s (“Apogee”) then joint venture interest in the Pulacayo Project) and Apogee Minerals Bolivia S.A. Pursuant to the terms of the Definitive Agreement Prophecydated November 3, 2014 between the Company and Apogee, the Company agreed to assume all liabilities of these former Apogee subsidiaries, including legal and tax liabilities associated with the Pulacayo Project. During Apogee’s financial year ended June 30, 2014, it received notice from the Servicio de Impuestos Nacionales, the national tax authority in Bolivia, that ASC Bolivia LDC Sucursal Bolivia, now the Company’s wholly-owned subsidiary, owed approximately Bs42,000,00042,000,000 Bolivian boliviano in taxes, interest and penalties relating to a historical tax liability in an amount originally assessed at approximately $760,000 in 2004, prior to Apogee acquiring the subsidiary in 2011. Apogee disputed the assessment and disclosed to the Company that it believed the notice was improperly issued. The Company continued to dispute the assessment and hired local legal counsel to pursue an appeal of the tax authority’s assessment on both substantive and procedural grounds. The Company received a positive Resolution issued by the Bolivian Constitutional Court that, among other things, declared null and void the previous Resolution of the Bolivian Supreme Court issued in 2011, (thatthat imposed the tax liability on ASC Bolivia LDC Sucursal Bolivia)Bolivia, null and void and sent the matter back to the Supreme courtCourt of Bolivia to consider and issue a new resolution.Resolution. On November 18, 2019, the Company received Resolution No. 195/2018 issued by the Supreme Court of Bolivia which declared the tax claim brought by Bolivia’s General Revenue Authority the national tax authority in Bolivia against the Company’s Bolivian subsidiary as not proven. The This Resolution is final and binding. Hencebinding, hence neither Prophecythe Company nor Prophecy’sthe Company’s Bolivian subsidiaries owe any outstanding back taxes to the Bolivian General Revenue Authority.
SILVER ELEPHANT MINING CORP. (national tax authority in BoliviaFormerly “Prophecy Development Corp.”).
Management’s Discussion and Analysis of Financial Condition and Results of Operations
For the year ended December 31, 2019
(Expressed in Canadian Dollars, except where indicated)
During the year ended December 31, 2019, the Company and legal counsel reassessed the status of tax rulings and determined that the probability of a re-issuance of a tax claim against the Company in connection with the above was remote. As a result, the Company has written off the tax liability and recorded a debt settlement gain in the amount of $7,952,700 on its consolidated statements of operations and comprehensive loss. SILVER ELEPHANT MINING CORP. Management’s Discussion and Analysis of Financial Condition and Results of Operations For the year ended December 31, 2020 (Expressed in Canadian Dollars, except where indicated) Red Hill Tax Claimtax claim During the year ended December 31, 2014, the Company’s wholly-owned subsidiary, Red Hill Mongolia LLC (“Red Hill”) was issued a letter from the Sukhbaatar District Tax Division in Mongolia, notifying it of the results of the Sukhbaatar District Tax Division’s value added tax ("VAT") inspection of Red Hill’s 2009-2013 tax imposition and payments that resulted in validating VAT credits of only MNT235,718,533235,718,533 Mongolian tugrik from Red Hill’s claimed VAT credit of MNT2,654,175,507.2,654,175,507 Mongolian tugrik. Red Hill disagreed with the Sukhbaatar District Tax Division’s findings as the tax assessment appeared to the Company to be unfounded. The Company disputed the Sukhbaatar District Tax Division’s assessment and submitted a complaint to the Capital City Tax Tribunal. On March 24, 2015, the Capital City Tax Tribunal resolved to refer the matter back to the Sukhbaatar District Tax Division for revision and separation of the action between confirmation of Red Hill’s VAT credit, and the imposition of the penalty/deduction for the tax assessment. Due to the uncertainty of realizing the VAT balance, the Company has recorded an impairment charge for the full VAT balance in the year ended December 31, 2015. In June 2019, the Company received a positive resolution issued from the Capital City Tax Tribunal regarding the Company’s VAT dispute with the Mongolia tax office. The resolution, which is binding and final, affirmed Red Hill’s outstanding VAT credit of 1.169 billion MNTMongolian tugrik resulted from past mining equipment purchases. The VAT credit can be used to offset Red Hill’s taxes and royalty payments; or be refunded in cash by Mongolia’s Ministry of Finance within 12 to 24 months processing time.months. Due to the credit risk associated with the VAT credit, the Company has provided a full valuation provision against the balance. 12. ENVIRONMENTAL REGULATIONS The Company’s exploration activities are subject to various government regulation in the United States, Canada, Mongolia and Bolivia. These laws and regulations are continually changing and are generally becoming more restrictive. The Company conducts its operations so as to protect public health and the environment, and believes its operations are materially in compliance with all applicable laws and regulations. The Company has made, and expects to continue to make in the future, filings and expenditures to comply with such laws and regulations. 13. RELATED PARTY DISCLOSURES Balances and transactions between the Company and its subsidiaries have been eliminated on consolidation and are not disclosed here. The Company had related party transactions with the following companies, related by way of directors and key management personnel:
● Linx Partners Ltd., a private company controlled by John Lee, Director, CEOChief Executive Officer and Executive Chairman of Prophecy,the Company, provides management and consulting services to the Company. ● MaKevCo Consulting Inc., a private company 50% owned by Greg Hall, a director of the Company, provides consulting services to the Company. ● Sophir Asia Ltd., a private company controlled by Masa Igata, a director of the Company, provides consulting services to the Company. A summary of amounts paid or accrued to related parties is as follows: | | Related parties | | | | Directors and officers | $1,536,167 | $1,685,242 | $1,265,152 | Linx Partners Ltd. | 740,000 | 371,000 | 401,044 | MaKevCo Consulting Inc. | 32,800 | 21,400 | 21,200 | Sophir Asia Ltd. | 26,100 | 19,600 | 19,100 | | $2,335,067 | $2,097,242 | $1,706,496 |
SILVER ELEPHANT MINING CORP. (Formerly “Prophecy Development Corp.”) Management’s Discussion and Analysis of Financial Condition and Results of Operations For the year ended December 31, 20192020 (Expressed in Canadian Dollars, except where indicated) A summary of amounts paid to related parties is as follows: | | Related parties | | | | Directors and officers | $1,685,242 | $1,265,152 | $307,425 | Linx Partners Ltd. | 371,000 | 401,044 | 363,781 | MaKevCo Consulting Inc. | 21,400 | 21,200 | 23,600 | Sophir Asia Ltd. | 19,600 | 19,100 | 19,700 | | $2,097,242 | $1,706,496 | $714,506 |
A summary of the expensestransactions by nature among the related parties is as follows:
| | | Related parties | | | | | | | Consulting and management fees | $218,500 | $268,456 | $247,525 | $370,000 | $218,500 | $268,456 | Directors' fees | 103,805 | 70,378 | 60,600 | 108,600 | 103,805 | 70,378 | Mineral properties | 1,171,585 | 631,610 | 201,875 | 1,387,067 | 1,171,585 | 631,610 | Salaries | 603,352 | 736,052 | 204,506 | 469,400 | 603,352 | 736,052 | | $2,097,242 | $1,706,496 | $714,506 | $2,335,067 | $2,097,242 | $1,706,496 |
Transactions with related parties have been measured at the fair value of services rendered. Transactions between the Company and its subsidiaries are eliminated on consolidation; therefore, they are not disclosed as related party transactions.
As at December 31, 2019,2020, amounts due to related parties weretotaled $1,800 (as at December 31, 2019 – $30,533, (2018as at December 31, 2018 - $4,634; 2017 - $160,503)$4,634). On October 10, 2018, the Company announced the appointment of Gerald Panneton as the Company’s President and new Chief Executive Officer, replacing John Lee, who remains as Chairman of the Board. Pursuant to the terms of Mr. Panneton’s employment agreement with the Company, the Company has granted to Mr. Panneton 1,000,000 with a fair value of $0.35 per Share of bonus shares and 500,000 incentive stock options exercisable at a price of $0.26 per Common share for a term of five years expiring on October 10, 2023 and which vest at 12.5% per quarter for the first two years following the date of grant. During the years ended December 31, 2012 and 2013, the Company shared administrative assistance, office space, and management with Nickel Creek Platinum Corp. (“Nickel”) pursuant to a Service Agreement dated January 1, 2012, consisting of fixed monthly fees of $40,000. During the year ended December 31, 2018, the Company received $50,000 as a debt settlement in satisfaction of an amount owing from Nickel for services rendered to Nickel and expenses incurred on behalf of Nickel, which was reflected on the consolidated statement of operations.
Key management personnel are those persons having authority and responsibility for planning, directing and controlling the activities of the Company, including directors of the Company. The amounts due to related parties is as follows: | | Key Management Personnel | | | | Salaries and short term benefits | $696,751 | $775,064 | $204,506 | Directors' fees | 103,805 | 70,378 | 60,600 | Share-based payments | 431,037 | 621,339 | 596,232 | | $1,231,593 | $1,466,781 | $861,338 |
SILVER ELEPHANT MINING CORP. (Formerly “Prophecy Development Corp.”)
Management’s Discussion and Analysis of Financial Condition and Results of Operations
For the year ended December 31, 2019
(Expressed in Canadian Dollars, except where indicated)
| | Key Management Personnel | | | | Salaries and short term benefits | $522,359 | $696,751 | $775,064 | Directors' fees | 108,600 | 103,805 | 70,378 | Share-based payments | 1,054,812 | 431,037 | 621,339 | | $1,685,771 | $1,231,593 | $1,466,781 |
14. CRITICAL ACCOUNTING ESTIMATES AND JUDGMENTS Critical accounting estimates used in the preparation of the Annual Financial Statements include determining the carrying value of mineral properties exploration and evaluation projects and property and equipment, assessing the impairment of long-lived assets, determination of environmental obligation provision for closure and reclamation, determining deferred income taxes, and the valuation of Share-based payments. These estimates involve considerable judgment and are, or could be, affected by significant factors that are out of the Company’s control. Readers are encouraged to read the significant accounting policies and estimates as described in the Company’s Annual Financial Statements for the year ended December 31, 20192020 (Refer to Notes 4, 5, and 6 to the Annual Financial Statements). The Company’s Annual Financial Statements have been prepared using the going concern assumption. Significant Accounting Judgments and Estimates The Company bases its estimates and assumptions on current and various other factors that it believes to be reasonable under the circumstances. Management believes the estimates are reasonable; however, actual results could differ from those estimates and could impact future results of operations and cash flows. The areas which require management to make significant judgements, estimates and assumptions in determining carrying values include, but are not limited to: SILVER ELEPHANT MINING CORP. Management’s Discussion and Analysis of Financial Condition and Results of Operations For the year ended December 31, 2020 (Expressed in Canadian Dollars, except where indicated) The significant judgments that the Company’s management has made in the process of applying the Company’s accounting policies, apart from those involving estimation uncertainties (Annual financial statements 5.2)(Note 5 to the Annual Financial Statements), that have the most significant effect on the amounts recognized in the Annual Financial Statements include, but are not limited to: (a) Functional currency determination The functional currency for each of the Company’s subsidiaries is the currency of the primary economic environment and the Company reconsiders the functional currency of its entities if there is a change in events and conditions which determined the primary economic environment. Management has determined the functional currency of all entities to be the Canadian dollar. (b) Economic recoverability and probability of future economic benefits of exploration, evaluation and development costs Management has determined that exploratory drilling, evaluation, development and related costs incurred which have been capitalized are economically recoverable. Management uses several criteria in its assessments of economic recoverability and probability of future economic benefit including geologic and metallurgic information, history of conversion of mineral deposits to proven and probable reserves, scoping, prefeasibility and feasibility studies, assessable facilities, existing permits and life of mine plans. Management has determined that during the year ended December 31, 2019,2020, none of the Company’s silver and vanadium projects have reached technical feasibility and commercial viability and therefore remain within Mineral Properties on the Statement of Financial Position. (c) Impairment (recovery) assessment of deferred exploration interests The Company considers both external and internal sources of information in assessing whether there are any indications that mineral property interests are impaired. External sources of information the Company considers include changes in the market, economic and legal environment in which the Company operates that are not within its control and affect the recoverable amount of mineral property interest. Internal sources of information the Company considers include the manner in which mineral properties and plant and equipment are being used or are expected to be used and indications of economic performance of the assets.
SILVER ELEPHANT MINING CORP. (Formerly “Prophecy Development Corp.”)
Management’s Discussion and Analysis of Financial Condition and Results of Operations
For the year ended December 31, 2019
(Expressed in Canadian Dollars, except where indicated)
(d) Deferred Tax Liabilitytax assets and liabilities Judgement is required to determine which typesThe measurement of arrangements are considered to be a tax on income in contrast to an operating cost. Judgement is also required in determining whetherthe deferred tax liabilities are recognisedprovision is subject to uncertainty associated with the timing of future events and changes in legislation, tax rates and interpretations by tax authorities. The estimation of deferred taxes includes evaluating the statementrecoverability of financial position. Deferred tax liabilities, including those arising from un-utilised tax gains, require management to assess the likelihood that the Company will generate sufficient taxable losses in future periods, in order to offset recognised deferred tax liabilities. Assumptions aboutassets based on an assessment of the Company’s ability to utilize the underlying future tax deductions against future taxable income prior to expiry of those deductions For deferred tax calculation purposes, Management assesses whether it is probable that some or all of the deferred income tax assets will not be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable losses depend on management’s estimatesincome, which in turn is dependent upon the successful discovery, extraction, development and commercialization of future cash flows. These estimates of future taxable losses are based on forecast cash flows from operations (which are impacted by production and sales volumes, commodity prices, reserves, operating costs, closure and rehabilitation costs, capital expenditure, and other capital management transactions) and judgement about the application of existing tax laws in each jurisdiction.mineral reserves. To the extent that future cash flows and taxable losses differ significantly from estimates, the abilitymanagement’s assessment of the Company’s ability to utilize future tax deductions changes, the Company would be required to offset the netrecognize more or fewer deferred tax liabilities recorded at the reporting dateassets, and future tax provisions or recoveries could be impacted.affected.
The recoverability of the carrying value of the mineral properties is dependent on successful development and commercial exploitation, or alternatively, sale of the respective areas of interest. SILVER ELEPHANT MINING CORP. Management’s Discussion and Analysis of Financial Condition and Results of Operations For the year ended December 31, 2020 (Expressed in Canadian Dollars, except where indicated) Significant judgment is involved in the determination of useful life and residual values for the computation of depreciation, depletion and amortization and no assurance can be given that actual useful lives and residual values will not differ significantly from current assumptions. The carrying value of long-lived assets are reviewed each reporting period to determine whether there is any indication of impairment. If the carrying amount of an asset exceeds its recoverable amount, the asset is impaired, and an impairment loss is recognized in the consolidated statement of operations. The assessment of fair values, including those of the cash generating units (the smallest identifiable group of assets that generates cash inflows that are largely independent of the cash inflow from other assets or groups of assets) (“CGUs”) for purposes of testing goodwill,impairment, require the use of estimates and assumptions for recoverable production, long-term commodity prices, discount rates, foreign exchange rates, future capital requirements and operating performance. Changes in any of the assumptions or estimates used in determining the fair value of goodwill or otherlong-lived assets could impact the impairment analysis. (h) Allowance for doubtful accounts, and the recoverability of receivables and prepaid expense amounts.amounts Significant estimates are involved in the determination of recoverability of receivables and no assurance can be given that actual proceeds will not differ significantly from current estimations. Similarly, significant estimates are involved in the determination of the recoverability of services and/or goods related to the prepaid expense amounts, and actual results could differ significantly from current estimations. (i) Provision for closure and reclamation The Company assesses its mineral properties’ rehabilitation provision at each reporting date or when new material information becomes available. Exploration, development and mining activities are subject to various laws and regulations governing the protection of the environment. In general, these laws and regulations are continually changing, and the Company has made, and intends to make in the future, expenditures to comply with such laws and regulations. Accounting for reclamation obligations requires management to make estimates of the future costs that the Company will incur to complete the reclamation work required to comply with existing laws and regulations at each location. Actual costs incurred may differ from those amounts estimated.
SILVER ELEPHANT MINING CORP. (Formerly “Prophecy Development Corp.”)
Management’s Discussion and Analysis of Financial Condition and Results of Operations
For the year ended December 31, 2019
(Expressed in Canadian Dollars, except where indicated)
Also, future changes to environmental laws and regulations could increase the extent of reclamation and remediation work required to be performed by the Company. Increases in future costs could materially impact the amounts charged to operations for reclamation and remediation. The provision represents management’s best estimate of the present value of the future reclamation and remediation obligation. The actual future expenditures may differ from the amounts currently provided. (f)(j)
Share-based payments Management uses valuation techniques in measuring the fair value of share purchase options granted. The fair value is determined using the Black Scholes option pricing model which requires management to make certain estimates, judgement, and assumptions in relation to the expected life of the share purchase options and shareCommon Share purchase warrants, expected volatility, expected risk-free rate, and expected forfeiture rate. Changes to these assumptions could have a material impact on the Annual Financial Statements. The assessment of contingencies involves the exercise of significant judgment and estimates of the outcome of future events. In assessing loss contingencies related to legal proceedings that are pending against the Company and that may result in regulatory or government actions that may negatively impact the Company’s business or operations, the Company and its legal counsel evaluate the perceived merits of the legal proceeding or unasserted claim or action as well as the perceived merits of the nature and amount of relief sought or expected to be sought, when determining the amount, if any, to recognize as a contingent liability or when assessing the impact on the carrying value of the Company’s assets. Contingent assets are not recognized in the Annual Financial Statements. SILVER ELEPHANT MINING CORP. Management’s Discussion and Analysis of Financial Condition and Results of Operations For the year ended December 31, 2020 (Expressed in Canadian Dollars, except where indicated) (l) Fair value measurement The Company measures financial instruments at fair value at each reporting date. The fair values of financial instruments measured at amortized cost are disclosed in Note 20.21 to the Annual Financial Statements. Also, from time to time, the fair values of non-financial assets and liabilities are required to be determined, e.g.,for example when the entity acquires a business, completes an asset acquisition or where an entity measures the recoverable amount of an asset or cash-generating unit at fair value less costs of disposal. Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The fair value of an asset or a liability is measured using the assumptions that market participants would use when pricing the asset or liability, assuming that market participants act in their economic best interest. A fair value measurement of a non-financial asset takes into account a market participant’s ability to generate economic benefits by using the asset in its highest and best use or by selling it to another market participant that would use the asset in its highest and best use. The Company uses valuation techniques that are appropriate in the circumstances and for which sufficient data are available to measure fair value, maximising the use of relevant observable inputs and minimising the use of unobservable inputs. Changes in estimates and assumptions about these inputs could affect the reported fair value. COVID-19 An emerging risk is a risk not well understood at the current time and for which the impacts on strategy and financial results are difficult to assess or are in the process of being assessed. Since December 31, 2019, the outbreak of COVID-19 has resulted in governments worldwide enacting emergency measures to combat the spread of the virus. These measures, which include the implementation of travel bans, self-imposed quarantine periods and social distancing, have caused material disruption to businesses globally, resulting in an economic slowdown. Global equity markets have experienced significant volatility and weakness. Governments and central banks have reacted with significant monetary and fiscal interventions designed to stabilize economic conditions. The duration and impact of the COVID-19 outbreak is unknown at this time, as is the efficacy of the government and central bank interventions. It is not possible to reliably estimate the length and severity of these developments and the impact on the financial results and condition of the Company and its operating subsidiaries in future periods. COVID-19 may impact Company operations, and consequently, the nature and amounts and disclosures in the financial statements. Some of the specific areas impacted by COVID-19 include, but are not limited to: ● Going concern assessments; ● Evaluation of subsequent events; ● Impairment and recovery of mineral assets; ● Fair value measurements; ● Employee termination benefits; and ● Financial statement and Management Discussion & Analysis disclosures. As at the date of this MD&A the COVID-19 pandemic has not affected the Company’s critical accounting policies. Same accounting policies as annual audited consolidated financial statements The Company followed the same accounting policies and methods of computation in the Annual Financial Statements for the year ended December 31, 20192020 as followed in the consolidated financial statements for the year ended December 31, 2018.2019. The Company describes its significant accounting policies as well and changes in accounting policies in Notes 4 and 6 of Annual Financial Statements. No significant changes in accounting policies have occurred other that the implantation of a new IFS as issued by the IASB. SILVER ELEPHANT MINING CORP. Management’s Discussion and Analysis of Financial Condition and Results of Operations For the year ended December 31, 2020 (Expressed in Canadian Dollars, except where indicated) Basis of consolidation The Annual Financial Statements include the accounts of the Company and its controlled subsidiaries. All material intercompany balances and transactions have been eliminated. The Company’s the significant subsidiaries at the date of these MD&A are presented in the table belowbelow:
SILVER ELEPHANT MINING CORP. (Formerly “Prophecy Development Corp.”)
Management’s Discussion and Analysis of Financial Condition and Results of Operations
For the year ended December 31, 2019
(Expressed in Canadian Dollars, except where indicated)
Subsidy | Location | Ownership interest | Projects Owned | Nevada Vandium LLC | USA | 100% | Gibellini project | VC Exploration (US) Inc. | USA | 100% | Gibellini project | Apogee Minerals Bolivia S.A. | Bolivia | 98% | Pulacayo project | ASC Holdings Limited | Bolivia | 100% | Pulacayo project | Red Hill Mongolia LLC | Mongolia | 100% | Ulaan Ovoo mine | Chandgana Coal LLC | Mongolia | 100% | Chandgana project |
15. ACCOUNTING CHANGES AND RECENT ACCOUNTING PRONOUNCEMENTS Amendment to IFRS 16, COVIDEffective‐19‐Related Rent Concessions In May 2020, the International Accounting Standards Board (“IASB”) issued an amendment to permit lessees, as a practical expedient, not to assess whether particular rent concessions that reduce lease payments occurring as a direct consequence of the COVID‐19 pandemic are lease modifications and instead to account for those rent concessions as if they are not lease modifications. The amendment is effective for annual reporting periods beginning on or after June 1, 2020, with earlier application permitted. The adoption of this amendment is not expected to have an impact on the financial statements. Amendments to IAS 1 and IAS 8: Definition of Material In October 2018, the IASB issued amendments to IAS 1, Presentation of Financial Statements, and IAS 8, Accounting Policies, Changes in Accounting Estimates and Errors, to align the definition of “material” across the standards and to clarify certain aspects of the definition. The new definition states that, “Information is material if omitting, misstating or obscuring it could reasonably be expected to influence decisions that the primary users of general purpose financial statements make on the basis of those financial statements, which provide financial information about a specific reporting entity.” These amendments are effective for annual periods beginning on or after January 1, 2019, the Company, for the first time, has applied IFRS 16 Leases (as issued by the IASB in January 2016) effective January 1, 2019, using the modified retrospective approach.2020. The modified retrospective approach does not require restatement of prior period financial information and continues to be reported under IAS 17, Leases and IFRIC 4, Determining Whether an Arrangement Contains a Lease. IFRS 16 introduces new or amended requirements with respect to lease accounting. It introduces changesamendments to the lessee accounting by removingdefinition of material did not have a significant impact on the distinction between operating and finance leases and requiring the recognition of a right-of-use asset and a lease liability at the lease commencement for all leases, except for short-term leases and leases of low value assets. In contrast to lessee accounting, the requirements for lessor accounting have remained largely unchanged.Annual Financial Statements. Future Accounting Pronouncements The Company’s leases consistCompany has not early adopted any standard, interpretation or amendment that has been issued but is not yet effective. Amendments to IAS 16: Property, Plant and Equipment: Proceeds before Intended Use. In May 2020, the IASB issued amendments to IAS 16, Property, Plant and Equipment (IAS 16). The amendments prohibit a company from deducting from the cost of corporate office lease arrangements.property, plant and equipment amounts received from selling items produced while the company is preparing the asset for its intended use. Instead, a company will recognize such sales proceeds and related costs in profit (loss). An entity is required to apply these amendments for annual reporting periods beginning on or after January 1, 2022. The Company, on adoptionamendments are applied retrospectively only to items of IFRS 16, recognized lease liabilities in relation to office leases which had previously been classified as operating leases underproperty, plant and equipment that are available for use after the principles of IAS 17. In relation, under the principlesbeginning of the new standard these leasesearliest period presented in the financial statements in which the entity first applies the amendments. We are measuredcurrently assessing the effect of this amendment on our financial statements. SILVER ELEPHANT MINING CORP. Management’s Discussion and Analysis of Financial Condition and Results of Operations For the year ended December 31, 2020 (Expressed in Canadian Dollars, except where indicated) Amendments to IAS 1: Classification of Liabilities as leaseCurrent or Non‐Current and Deferral of Effective Date. In January 2020, the IASB issued amendments to IAS 1, Presentation of Financial Statements, to provide a more general approach to the presentation of liabilities as current or non‐current based on contractual arrangements in place at the present value ofreporting date. These amendments: − specify that the remaining lease payments, discounted using the Company’s incremental borrowing rate asrights and conditions existing at January 1, 2019. The associated right-of-use asset has been measured at the amount equal to the lease liability on January 1, 2019. The right-of-use asset is subsequently depreciated from the commencement date to the earlier of the end of the lease term, orreporting period are relevant in determining whether the endCompany has a right to defer settlement of a liability by at least twelve months; − provide that management’s expectations are not a relevant consideration as to whether the Company will exercise its rights to defer settlement of a liability; and − clarify when a liability is considered settled. On July 15, 2020, the IASB issued a deferral of the useful life ofeffective date for the asset (refernew guidance by one year to Note 12 and Note 16). Furthermore, the right-of-use asset may be reduced due to impairment losses.
The following table reconciles the Company’s operating lease commitments at December 31, 2018, as previously disclosed in the Company’s Annual Financial Statements, to the lease liability recognizedannual reporting periods beginning on adoption of IFRS 16 ator after January 1, 2019:
For more details please refer2023 and is to Notes 6, 12 and 16 tobe applied retrospectively. The Company has not yet determined the Company’s Annual Financial Statements.impact of these amendments on its financial statements.
16. FINANCIAL INSTRUMENTS AND RELATED RISKS The Board, of Directors, through theits Audit Committee, is responsible for identifying the principal risks of the Company and ensuring that risk management systems are implemented. The Company manages its exposure to financial risks, including liquidity risk, foreign exchange rate risk, interest rate risk, and credit risk in accordance with its risk management framework. The Company’s Boardboard of Directorsdirectors’ reviews Thethe Company’s policies on an ongoing basis. Financial Instruments (Note 21 to the Annual Financial Statements) The following table sets forth the Company’s financial assets that are measured at fair value on a recurring basis by level within the fair value hierarchy. The fair value hierarchy gives the highest priority to Level 1 inputs and the lowest priority to Level 3 inputs. Table 35below sets forth The Company’s financial assets measured at fair value by level within the fair value hierarchy. SILVER ELEPHANT MINING CORP. (Formerly “Prophecy Development Corp.”)
Management’s Discussion and Analysis of Financial Condition and Results of Operations
For the year ended December 31, 2019
(Expressed in Canadian Dollars, except where indicated)
| | | | | Financial assets | | | | | Cash, December 31, 2020 | $7,608,149 | $- | $- | $7,608,149 | Cash, December 31, 2019 | $3,017,704 | $- | $- | $3,017,704 | Cash, December 31, 2018 | $5,304,097 | $- | $- | $5,304,097 |
| | | | | Financial assets | | | | | Cash and cash equivalents, December 31, 2019 | $3,017,704 | $- | $- | $3,017,704 | Cash and cash equivalents, December 31, 2018 | $5,304,097 | $- | $- | $5,304,097 | Cash and cash equivalents, December 31, 2017 | $4,100,608 | $- | $- | $4,100,608 |
Categories of financial instruments The Company considers that the carrying amount of all its financial assets and financial liabilities measure at amortized cost approximates their fair value due to their short term nature. Restricted cash equivalents approximate fair value due to the nature of the instrument. The Company does not offset financial assets with financial liabilities. There were no transfers between Level 1, 2 and 3 for the year ended December 31, 2019.2020. The Company’s financial assets and financial liabilities are categorized as follows: | | | | | | | Fair value through profit or loss | | | Cash | $3,017,704 | $5,304,097 | $4,100,608 | $7,608,149 | $3,017,704 | $5,304,097 | Fair value through other comprehensive income | | | Marketable securities | $- | $205,600 | | Amortized cost | | | Receivables | $246,671 | $36,399 | $34,653 | $75,765 | $246,671 | $36,399 | Restricted cash equivalents | $34,500 | $34,500 | | $3,298,875 | $5,374,996 | $4,375,361 | $7,718,414 | $3,298,875 | $5,374,996 | Amortized cost | | | Accounts payable and accrued liabilities | $2,420,392 | $1,636,786 | $1,895,983 | | Lease liability | $ 52,818 | $ - | | | $2,420,392 | $1,636,786 | $1,895,983 | | Accounts payable | | $1,717,977 | $2,420,392 | $1,636,786 |
SILVER ELEPHANT MINING CORP. Management’s Discussion and Analysis of Financial Condition and Results of Operations For the year ended December 31, 2020 (Expressed in Canadian Dollars, except where indicated) Related Risks Liquidity risk is the risk that an entity will be unable to meet its financial obligations as they fall due. The Company manages liquidity risk by preparing cash flow forecasts of upcoming cash requirements. As at December 31, 2019,2020, the Company had a cash balance of $7,608,149 (as at December 31, 2019 – $3,017,704, (2018 – $5,304,097; 2017 – $4,100,608)as at December 31, 2018 - $5,304,097). As at December 31, 20192020, the Company had currentaccounts payable and accrued liabilities of $2,452,677 (2018$1,759,163 (as at December 31, 2019 - $1,636,786; 2017$2,420,392, as at December 31, 2018 - $1,895,983)$1,636,786), which have contractual maturities of 90 days or less. The Company has a planning and budgeting process in place by which it anticipates and determines the funds required to support normal operation requirements as well as the growth and development of its mineral property interests. The Company coordinates this planning and budgeting process with its financing activities through the capital management process in normal circumstances.
Credit risk is the risk that one party to a financial instrument will fail to discharge an obligation and cause the other party to incur a financial loss. The Company is exposed to credit risk primarily associated to cash and restricted cash equivalents and receivables, net of allowances. Management believes that the credit risk concentration with respect to these financial instruments is remote as the balances primarily consist of amounts on deposit with a major financial institution and amounts receivable from the Government of Canada. The carrying amount of assets included on the statements of financial position represents the maximum credit exposure.
SILVER ELEPHANT MINING CORP. (Formerly “Prophecy Development Corp.”)
Management’s Discussion and Analysis of Financial Condition and Results of Operations
For the year ended December 31, 2019
(Expressed in Canadian Dollars, except where indicated)
The significant market risks to which the Company is exposed are interest rate risk, foreign currency risk, and commodity and equity price risk. The objective of market risk management is to manage and control market risk exposures within acceptable limits, while maximizing returns. Interest rate risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate due to changes in market interest rates. The Company’s cash and restricted cash equivalents primarily include highly liquid investments that earn interest at market rates that are fixed to maturity. Due to the short‐short‐ term nature of these financial instruments, fluctuations in market rates do not have significant impact on the fair values of the financial instruments as of December 31, 2019. The Company manages interest rate risk by maintaining an investment policy that focuses primarily on preservation of capital and liquidity.2020 (ii)(e)
Foreign currency risk The Company is exposed to foreign currency risk to the extent that monetary assets and liabilities held by the Company are not denominated in Canadian dollars.
The Company has exploration and development projects in the United States, Mongolia and Bolivia and undertakes transactions in various foreign currencies. The Company is therefore exposed to foreign currency risk arising from transactions denominated in a foreign currency and the translation of financial instruments denominated in USUnited States dollars, Mongolian tugrik, and Bolivian boliviano into its functional and reporting currency, the Canadian dollar. Based on the above, net exposures as at December 31, 2019,2020, with other variables unchanged, a 10% (2018(as at December 31, 2019 – 10%; 2017, as at December 31, 2018 – 10%) strengthening (weakening) of the Canadian dollar against the Mongolian tugrik would impact net loss with other variables unchanged by $144,000.$100,000. A 10% strengthening (weakening) of the Canadian dollar against the Bolivian boliviano would impact net loss with other variables unchanged by $2,000.$73,000. A 10% strengthening (weakening) of the US dollar against the Canadian dollar would impact net loss with other variables unchanged by $60,000.$28,000. The Company currently does not use any foreign exchange contracts to hedge this currency risk. (iii)(f)
Commodity and equity price risk Commodity price risk is defined as the potential adverse impact on earnings and economic value due to commodity price movements and volatilities. Commodity prices fluctuate on a daily basis and are affected by numerous factors beyond the Company’s control. The supply and demand for these commodities, the level of interest rates, the rate of inflation, investment decisions by large holders of commodities including governmental reserves and stability of exchange rates can all cause significant fluctuations in prices. Such external economic factors are in turn influenced by changes in international investment patterns and monetary systems and political developments. SILVER ELEPHANT MINING CORP. Management’s Discussion and Analysis of Financial Condition and Results of Operations For the year ended December 31, 2020 (Expressed in Canadian Dollars, except where indicated) The Company is also exposed to price risk with regards to equity prices. Equity price risk is defined as the potential adverse impact on the Company’s earning due to movements in individual equity prices or general movements in the level of the stock market. The Company closely monitors commodity prices, individual equity movements and the stock market to determine the appropriate course of action to be taken by the Company. Fluctuations in value may be significant.
SILVER ELEPHANT MINING CORP. (Formerly “Prophecy Development Corp.”)
Management’s Discussion and Analysis of Financial Condition and Results of Operations
For the year ended December 31, 2019
(Expressed in Canadian Dollars, except where indicated)
17. RISKS AND UNCERTAINTIES The Company’s business is the exploration, evaluation and development of mining properties. Thus, the Company’s operations are speculative due to the high-risk nature of its business. The following list details existing and future material risks to the Company. The risks describedlisted below are not listedarranged in any particular order and are not meant to be exhaustive. Additional risks and uncertainties not currently known to the Company, or those that it currently deems to be immaterial, may become material and adversely affect the Company. The realization of any of these risks may materially and adversely impact the Company’s business, financial condition or results of operations and/or the market price of the Company’s securities. Each of these risk factors is discussed in more detail under “Risk Factors”the heading “Key Information - Risk Factors” in the Company’s AR for the year ended December 31, 2019,2020 Annual Report, which is available under the Company’s SEDAR profile at www.sedar.com.www.sedar.com. ● GlobalThe COVID-19 global pandemic and the risk of other similar outbreaks including coronavirus;and pandemics;
● HistoryThe Company's history of net losses;
● Capital costs, operating costs, production and economic returns; ● Exploration and development risks; ● NoThe Company has no history of profitable mineral production;
● MineralThe risks inherent to the estimation of mineral reserves /and mineral resources;
● Foreign operations;operations risks; ● ReformThe reform of the mining laws, including the General Mining LawAct of 1872 in the U.S;
● Government approvals and permits; ● PropertyRisks associated with the Company's property and mining interests;
● MineralRisks associated with the Company's mineral claims, mining leases, licenses and permitting;permits;
● Risks associated with claims from First Nation;Nations and other Aboriginal or community groups; ● Competition;Risks associated with competition;
● RelianceThe Company's reliance on key personnel;
● VolatilityThe volatility of mineral prices,
● Global, national and local financial conditions; ● Third-partyRisks associated with third-party contractors;
● Andy-bribery legislations;Anti-bribery legislation;
● NoThe Company has no history of making dividend payments;
● Related party transactions; ● Litigation and regulatory proceedings; ● Cyber security;security risks; ● ForeignRisks associated with being a foreign private issuer;
● Non-CanadianRisks associated with non-Canadian investors;
● Emerging growing company;Risks associated with the Company's operations in emerging markets; and
● Additional risks.Emerging risks, as described below.
SILVER ELEPHANT MINING CORP. Management’s Discussion and Analysis of Financial Condition and Results of Operations For the year ended December 31, 2020 (Expressed in Canadian Dollars, except where indicated) An emerging risk is a risk not well understood at the current time and for which the impacts on strategy and financial results are difficult to assess or are in the process of being assessed. Since December 31, 2019, the COVID-19 global pandemic, has resulted in governments worldwide enacting emergency measures to combat the spread of the virus. These measures, which include the implementation of travel bans, self-imposed quarantine periods and social distancing, have caused material disruption to businesses globally, resulting in an economic slowdown. Global equity markets have experienced significant volatility and weakness. Governments and central banks have reacted with significant monetary and fiscal interventions designed to stabilize economic conditions. The duration and impact of the COVID-19 outbreak is unknown at this time, as is the efficacy of the government and central bank interventions. It is not possible to reliably estimate the length and severity of these developments and the impact on the financial results and condition of the Company and its operating subsidiaries in future periods. 18. DISCLOSURE CONTROLS AND PROCEDURES Disclosure controls and procedures are designed to provide reasonable assurance that information required to be disclosed by The Company 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 the securities legislation and include controls and procedures designed to ensure that information required to be disclosed by the Company in its annual filings, interim filings or other reports filed or submitted under securities legislation is accumulated and communicated to the Company’s management, including its Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure. SILVER ELEPHANT MINING CORP. (Formerly “Prophecy Development Corp.”)
Management’s Discussion and Analysis of Financial Condition and Results of Operations
For the year ended December 31, 2019
(Expressed in Canadian Dollars, except where indicated)
The Company’s disclosure committee is comprised of the Chief Executive Officer and senior members of management. The disclosure committee’s responsibilities include determining whether information is material and ensuring the timely disclosure of material information in accordance with securities laws. The Board of Directors is responsible for reviewing the Company’s disclosure policy, procedures and controls to ensure that it addresses the Company’s principal business risks, and changes in operations or structure, and facilitates compliance with applicable legislative and regulatory reporting requirements. The Chief Executive Officer and Chief Financial Officer, after participating with the Company’s management in evaluating the effectiveness of the Company’s disclosure controls and procedures have concluded that the Company’s disclosure controls and procedures were effective during the year ended December 31, 2019.2020. Design of Internal Controls over Financial Reporting The Company’s management, with the participation of the Chief Executive Officer and Chief Financial Officer, is responsible for establishing and maintaining adequate internal control over financial reporting. The Company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with IFRS. The Company’s internal control over financial reporting includes those policies and procedures that: ● pertain to the maintenance of records that, in reasonable detail accurately and fairly reflect the transactions, acquisition and disposition of assets and liabilities; ● provide reasonable assurance that transactions are recorded as necessary to permit preparation of the financial statements in accordance with IFRS and that receipts and expenditures are being made only in accordance with the authorization of management and directors of The Company; and ● provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of assets, and incurrence of liabilities, that could have a material effect on the financial statements. The Company’s management, with the participation of the Chief Executive Officer and Chief Financial Officer, assessed the effectiveness of the Company’s internal control over financial reporting using the criteria set forth in the Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on this assessment, management concluded that the Company’s internal control over financial reporting was effective during the year ended December 31, 2019.2020. SILVER ELEPHANT MINING CORP. Management’s Discussion and Analysis of Financial Condition and Results of Operations For the year ended December 31, 2020 (Expressed in Canadian Dollars, except where indicated) 19. CHANGES IN INTERNAL CONTROL OVER FINANCIAL REPORTING ThereDuring the year ended December 31, 2020, the Company’s employees began working remotely due to the COVID-19 pandemic. This has required certain processes and controls that were previously done or documented manually to be completed and retained in electronic form. Despite this, there were no changes to the Company’s internal control over financial reporting during the year ended December 31, 2019,2020, that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.
Limitations of controls and procedures The Company’s management, including the Chief Executive Officer and the Chief Financial Officer, believe that any disclosure controls and procedures or internal controls over financial reporting, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, they cannot provide absolute assurance that all control issues and instances of fraud, if any, within the Company have been prevented or detected. These inherent limitations include the realities that judgements in decision-making can be faulty, and that breakdowns can occur because of simple error or mistake. Additionally, controls can be circumvented by the individual acts of some persons, by collusion of two or more people, or by unauthorized override of the control. The design of any systems of controls also is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions. Accordingly, because of the inherent limitations in a cost-effective control system, misstatements due to error or fraud may occur and not be detected.
SILVER ELEPHANT MINING CORP. (Formerly “Prophecy Development Corp.”)
Management’s Discussion and Analysis of Financial Condition and Results of Operations
For the year ended December 31, 2019
(Expressed in Canadian Dollars, except where indicated)
20. DISCLOSURE OF OUTSTANDING SHARE DATA As at the date of this MD&A, the Company had a total of: ● 122,915,508200,542,449 Common Shares outstanding with a recorded value of $181,722,412;$205,001,744;
● 9,442,50010,167,500 stock options outstanding with a weighted average exercise price the equivalent of $0.30. The options are$0.31. Each option is exercisable to purchase one Common Share at prices ranging from the equivalent of $0.20 to $0.50$0.49 per share and expire between April 2020June 2021 and JanuaryAugust 2025; and
● 26,666,59725,016,077 Common Share purchase warrants outstanding with a weighted average exercise price the equivalent of $0.44. The$0.25. Each Common Share purchase warrants arewarrant is exercisable to purchase one Common Share at prices ranging from the equivalent of $0.40$0.16 to $0.70$0.48 and expire between June 2021 and May 2020 and June 2022.2023.
21. OFF-BALANCE SHEET ARRANGEMENTS During the year ended December 31, 2019,2020, The Company was not a party to any off-balance-sheet arrangements that have, or are reasonably likely to have, a current or future effect on the results of operations, financial condition, revenues or expenses, liquidity, capital expenditures or capital resources of The Company.
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