UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 20-F
[ ] REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR 12(g) OF THE SECURITIES EXCHANGE ACT OF 1934
OR
[ X ] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year endedDecember 31, 2016
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ____________to ____________
OR
[ ] SHELL COMPANY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
Date of event requiring this shell company report _____________
Commission file number000-52326
HARD CREEK NICKEL CORPORATION
(Exact name of Registrant as specified in its charter)
Not Applicable
(Translation of Registrant’s name into English)
British Columbia, Canada
(Jurisdiction of incorporation or organization)
203– 700 West Pender Street Vancouver, British Columbia V6C 1G8 Canada
(Address of principal executive offices)
Copy of communications to:
Bernard Pinsky, Esq.
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Clark Wilson LLP
Barristers and Solicitors
Suite 800 – 885 West Georgia Street
Vancouver, British Columbia, Canada V6C 3H1
Telephone: 604-687-5700 Facsimile: 604-687-6314
Securities registered or to be registered pursuant to Section 12(b) of the Act.
| Title of Class | Name of each exchange on which registered |
| Not Applicable | Not Applicable |
Securities registered or to be registered pursuant to Section 12(g) of the Act.
Common Shares Without Par Value
(Title of Class)
Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act.
Not Applicable
(Title of Class)
Indicate the number of outstanding shares of each of the issuer’s classes of capital or common stock as of the close of the period covered by the annual report.
43,074,696 Common Shares without par value issued and outstanding as at December 31, 2016.
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.
YES [ ] NO [X]
If this report is an annual or transition report, indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934.
[ ] YES [X] NO
Note – Checking the box above will not relieve any registrant required to file reports pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 from their obligations under those Sections.
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
[X] YES [ ] NO
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).
[ ] YES [ ] NO
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Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act. (Check one):
| Large accelerated filer [ ] | Accelerated filer [ ] | Non-accelerated filer [X] |
Indicate by check mark which basis of accounting the registrant has used to prepare the financial statements included in this filing:
| U.S. GAAP [ ] | International Financial Reporting Standards as issued by the International
Accounting Standards Board [X] | Other [ ] |
If “Other” has been checked in response to the previous question, indicate by check mark which financial statement item the registrant has elected to follow.
[ ] ITEM 17 [X] ITEM 18
If this is an annual report, indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
[ ] YES [X] NO
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TABLE OF CONTENTS
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FORWARD-LOOKING STATEMENTS
Except for the statements of historical fact contained herein, some information presented in this annual report constitutes forward-looking statements. When used in this annual report, the words “estimate”, “project”, “believe”, “anticipate”, “intend”, “expect”, “predict”, “may”, “should”, the negative thereof or other variations thereon or comparable terminology are intended to identify forward-looking statements. Such forward-looking statements involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of our company to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements. Such factors include, among others, changes in project parameters as plans continue to be refined, future prices of nickel, as well as those factors discussed in the section entitled “Risk Factors” on page 8. Although our company has attempted to identify important factors that could cause actual results to differ materially, there may be other factors that cause actual results not to be as anticipated, estimated or intended. There can be no assurance that such statements will prove to be accurate as actual results and future events could differ materially from those anticipated in such statements. Accordingly, prospective investors should not place undue reliance on forward-looking statements. The forward-looking statements in this annual report speak only as to the date hereof. Our company does not undertake any obligation to release publicly any revisions to these forward-looking statements to reflect events or circumstances after the date hereof or to reflect the occurrence of unanticipated events.
Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future results, levels of activity, performance or achievements. Except as required by applicable law, including the securities laws of the United States, we do not intend to update any of the forward-looking statements to conform these statements to actual results.
As used in this annual report, the terms “we”, “us”, “our” and “Hard Creek” mean Hard Creek Nickel Corporation, unless otherwise indicated.
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CAUTIONARY NOTE TO UNITED STATES INVESTORS
Unless otherwise indicated, all mineral resource estimates included in this Annual Report on Form 20-F have been prepared in accordance with Canadian National Instrument 43-101 –Standards of Disclosure for Mineral Projects (“NI 43-101”), and the Canadian Institute of Mining, Metallurgy and Petroleum Definition Standards for Mineral Resources and Mineral Reserves (“CIM Definition Standards”). NI 43-101 is a rule developed by the Canadian Securities Administrators which establishes standards for public disclosure an issuer makes of scientific and technical information concerning mineral projects. NI 43-101 permits the disclosure of a historical estimate made prior to the adoption of NI 43-101 that does not comply with NI 43-101 using the historical terminology if the disclosure: (a) identifies the source and date of the historical estimate; (b) comments on the relevance and reliability of the historical estimate; (c) states whether the historical estimate uses categories other than those prescribed by NI 43-101 and, if so, includes an explanation of the differences; and (d) includes any more recent estimates or data available.
Canadian standards, including NI 43-101, differ significantly from the requirements of the Securities and Exchange Commission (the “SEC”), and reserve and resource information contained in this Annual Report on Form 20-F may not be comparable to similar information disclosed by U.S. companies. In particular, and without limiting the generality of the foregoing, the term “resource” does not equate to the term “reserves”. Under U.S. standards, mineralization may not be classified as a “reserve” unless the determination has been made that the mineralization could be economically and legally produced or extracted at the time the reserve determination is made. The SEC’s disclosure standards normally do not permit the inclusion of information concerning “measured mineral resources”, “indicated mineral resources” or “inferred mineral resources” or other descriptions of the amount of mineralization in mineral deposits that do not constitute “reserves” by U.S. standards in documents filed with the SEC. U.S. investors should also understand that “inferred mineral resources” have a great amount of uncertainty as to their existence and great uncertainty as to their economic and legal feasibility. It cannot be assumed that all or any part of an “inferred mineral resource” will ever be upgraded to a higher category. Under Canadian rules, estimated “inferred mineral resources” may not form the basis of feasibility or pre-feasibility studies except in rare cases. Investors are cautioned not to assume that all or any part of an “inferred mineral resource” exists or is economically or legally mineable. Disclosure of “contained ounces” in a resource is permitted disclosure under Canadian regulations; however, the SEC normally only permits issuers to report mineralization that does not constitute “reserves” by SEC standards as in-place tonnage and grade without reference to unit measures. The requirements of NI 43-101 for identification of “reserves” are also not the same as those of the SEC, and reserves reported by our company in compliance with NI 43-101 may not qualify as “reserves” under SEC standards. Accordingly, information concerning mineral deposits set forth herein may not be comparable with information made public by companies that report in accordance with U.S. standards.
PART I
FINANCIAL INFORMATION AND ACCOUNTING PRINCIPLES
The financial statements and summaries of financial information contained in this document are reported in Canadian dollars (“$”) unless otherwise stated. A “tonne” is one metric ton or 2,204.6 pounds.
FIRST TIME APPLICATION OF INTERNATIONAL FINANCIAL REPORTING STANDARDS
Effective from January 1, 2010, the Company adopted International Financial Reporting Standards (“IFRS”), as issued by the International Accounting Standards Board. Unless otherwise stated, all information presented herein has been prepared in accordance with IFRS and all prior period amounts have been reclassified to conform with IFRS. Please note that our prior annual financial statements were prepared in accordance with Canadian generally accepted accounting principles, which may not be comparable to IFRS.
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| Item 1 | Identity of Directors, Senior Management and Advisers |
Not required.
| Item 2 | Offer Statistics and Expected Timetable |
Not required.
| A. | Selected Financial Data |
The following financial data summarizes selected financial data for our company prepared in accordance with International Financial Reporting Standards (“IFRS”) as issued by the International Accounting Standards Board (“IASB”) for the three fiscal years ended December 31, 2016, 2015 and 2014. The information presented below for the three year period ended December 31, 2016, 2015 and 2014 is derived from our financial statements which were examined by our independent auditors. The information set forth below should be read in conjunction with our audited annual financial statements and related notes thereto included in this annual report, and with the information appearing under the heading “Item 5 – Operating and Financial Review and Prospects”.
Hard Creek Nickel Corporation
Selected Financial Data in accordance with IFRS for the years 2016, 2015 and 2014:
(Expressed in Canadian Dollars)
| | 2016 | | | 2015 | | | 2014 | |
Net operating revenues | $ | 0 | | | 0 | | | 0 | |
| | | | | | | | | |
Loss from continued operations | $ | 0 | | | 0 | | | 0 | |
Income from discontinued operations | $ | N/a | | | N/a | | | N/a | |
Net loss | $ | (224,112 | ) | | (10,230,524 | ) | | (22,803,513 | ) |
Comprehensive loss | $ | (224,112 | ) | | (10,230,524 | ) | | (22,803,513 | ) |
| | | | | | | | | |
Loss per share from continued operations | $ | (0.00 | ) | | (0.00 | ) | | (0.00 | ) |
Income per share from discontinued operations | $ | N/a | | | N/a | | | N/a | |
Income per share after discontinued operations | $ | N/a | | | N/a | | | N/a | |
| | | | | | | | | |
Share capital | $ | 48,887,797 | | | 48,642,413 | | | 48,642,413 | |
Common shares issued | | 43,074,696 | | | 18,074,696 | | | 90,373,493 | |
Weighted average shares outstanding | | 36,694,422 | | | 18,074,696 | | | 90,373,493 | |
| | | | | | | | | |
Total assets | $ | 302,889 | | | 239,665 | | | 10,480,933 | |
| | | | | | | | | |
Net assets (liabilities) | $ | 287,919 | | | 223,816 | | | 10,454,340 | |
| | | | | | | | | |
Convertible debentures (current and long term portions) | $ | N/a | | | N/a | | | N/a | |
| | | | | | | | | |
Cash dividends declared per common share | $ | 0 | | | 0 | | | 0 | |
Exchange rates (CDN$ to US$) period average | $ | 1.3248 | | | 1.2787 | | | 1.1045 | |
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Exchange rates (CDN$ to US$) for most recent six months | | | | | | |
| | Period High | | | Period Low | |
October 2016 | $ | 1.3411 | | | 1.3110 | |
November 2016 | $ | 1.3551 | | | 1.3305 | |
December 2016 | $ | 1.3555 | | | 1.3133 | |
January 2017 | $ | 1.3433 | | | 1.3012 | |
February 2017 | $ | 1.3281 | | | 1.3020 | |
March 2017 | $ | 1.3508 | | | 1.3299 | |
Exchange rate (CDN$ to US$) April 28, 2017 | $ | 1.3565 | | | 1.3273 | |
| B. | Capitalization and Indebtedness |
On July 14, 2015, the Company consolidated its common shares on a basis of one (1) new common share for five (5) old common shares held.
| C. | Reasons for the Offer and Use of Proceeds |
Not required.
This Annual Report contains forward-looking statements which relate to future events or our future performance, including our future financial performance. In some cases, you can identify forward-looking statements by terminology such as “may”, “should”, “expects”, “plans”, “anticipates”, “believes”, “estimates”, “predicts”, or “potential” or the negative of these terms or other comparable terminology. These statements are only predictions and involve known and unknown risks, uncertainties and other factors, including the risks in enumerated in this section entitled “Risk Factors”, that may cause our company’s or our industry’s actual results, levels of activity, performance or achievements to be materially different from any future results, levels of activity, performance or achievements expressed or implied by these forward-looking statements.
While these forward-looking statements, and any assumptions upon which they are based, are made in good faith and reflect our current judgment regarding the direction of our business, actual results will almost always vary, sometimes materially, from any estimates, predictions, projections, assumptions or other future performance suggested in this Annual Report. Except as required by applicable law, including the securities laws of the United States, we do not intend to update any of the forward-looking statements to conform these statements to actual results.
An investment in our common stock involves a number of very significant risks. You should carefully consider the following risks and uncertainties in addition to other information in this annual report in evaluating our company and our business before purchasing shares of our company’s common stock. Our business, operating results and financial condition could be seriously harmed due to any of the following risks. You could lose all or part of your investment due to any of these risks.
Risks Associated with Mining
The Company is engaged in the business of acquiring and exploring mineral properties in the expectation of locating mineral reserves. The Company’s property interests are in the exploration stageonly and are without a known body of commercial ore. Accordingly, there is little likelihood that the Company will realize any profits in the short to medium term. Any profitability in the future from theCompany’s business will be dependent upon locating mineral reserves, which itself is subject tonumerous risk factors. If we do not discover any mineral resource in a commercially exploitable quantity, our business will fail and investors may lose all of their investment in our company.
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The business of exploring for minerals and mining involves a high degree of risk. Few properties that are explored are ultimately developed into producing, profitable mines. In developing its mineral deposits, the Company will be subjected to an array of complex economic factors and accordingly there is no assurance that a positive feasibility study or any projected results contained in a feasibility study of a mineral deposit will be attained. Additional potential problems that may prevent us from discovering any reserves of minerals on our property include, but are not limited to, unanticipated problems relating to exploration and additional costs and expenses that may exceed current estimates. Most of these factors are beyond our control, and any of them could increase costs and make extraction of any identified mineral resource unprofitable.
If we are unable to establish the presence of commercially exploitable reserves of minerals on our property, our ability to fund future exploration activities will be impeded, we will not be able to operate profitably and investors may lose all of their investment in our company.
We face intense competition in the mineral exploration and exploitation industry and we compete with our competitors for financing, for new mineral resource properties and for qualified managerial and technical employees. If we are unable to obtain the financing, new mineral properties or qualified personnel that we require, then we will likely have to cease operations and investors will lose all of their investment in our company.
Our competition includes large established mining companies with substantial capabilities and with greater financial and technical resources than we have. As a result of this competition, we may have to compete for financing and we may be unable to acquire financing on terms we consider acceptable. Our competition could adversely affect our ability to acquire suitable prospects for exploration in the future. We may also have to compete with the other mining companies in the recruitment and retention of qualified managerial and technical employees. If we are unable to successfully compete for financing, mineral properties or qualified employees, we will likely have to cease operations. If we are unable to successfully compete for the acquisition of suitable prospects or interest for exploration in the future, we will not acquire any interest in additional mineral resource properties and have no further chance of discovering minerals. The occurrence of any of these things would likely cause us to cease operations and investors would lose their entire investment in our company.
Because of the inherent dangers involved in mineral exploration and exploitation, there is a risk that we may incur liability or damages as we conduct our business. If we are liable to pay for any damages resulting from the conduct of our business, our financial position could be adversely affected and we may have to slow down or cease operations and investors could lose their investment in our company.
The search for valuable minerals involves numerous hazards. As a result, we may become subject to liability for such hazards, including pollution, cave-ins and other hazards against which we cannot insure against or which we may elect not to insure. At the present time we have no coverage to insure against these hazards. The payment of such liabilities may have a material adverse effect on our financial position. If so, we may have to slow down or cease operations and investors could lose their investment in our company.
Mineral operations are subject to government regulations which could have the effect of preventing us from exploiting any possible mineral reserves on our properties. If this occurs, we may have to cease operations and investors could lose their investment in our company.
Exploration activities are subject to national and local laws and regulations governing prospects, taxes, labor standards, occupational health, land use, environmental protection, mine safety and others which may in the future have a substantial adverse impact on our company’s prospects. In order to comply with applicable laws, we may be required to make capital expenditures until a particular problem is remedied. Existing and possible future environmental legislation, regulation and action could cause additional expense, capital expenditure, restriction and delay in the activities of our company, the extent of which cannot be reasonably predicted. If we violate any applicable law or regulation, we could be forced to stop work and we could be fined. If we are forced to suspend our activities or if we are required to pay a large fine for a violation of these applicable laws and regulations, our business could be adversely affected and investors could lose their investment in our company.
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Our operations are subject to environmental regulations, which require us to obtain permits and pay bonds and may result in the imposition of fines and penalties. If we are unable to obtain the permits or pay the bonds that we require in the future, we will have to cease the exploration activity in question. Ceasing such exploration activities could reduce our chances of ever discovering mineral resources on our properties. Environmental fines or liability could cause expenses for us, reducing the funds we have for our exploration program and potentially causing us to cease operations. If this happens, investors may lose their entire investment in our company.
Our operations are subject to environmental regulations promulgated by government agencies. Environmental legislation provides for restrictions and prohibitions on spills, releases or emissions of various substances produced in association with certain mining industry operations, such as seepage from tailings disposal areas, which would result in environmental pollution. A breach of such legislation may result in the imposition of fines and penalties. Environmental legislation is evolving in a manner which means stricter standards, and enforcement; fines and penalties for non-compliance may become more stringent. Environmental assessments of proposed projects carry a heightened degree of responsibility for companies and directors, officers and employees. Prior to conducting exploration involving surface disturbance in British Columbia, we are required to obtain a Work Permit from the Ministry of Energy, Mines and Petroleum Resources. Where significant surface disturbance through road building and drill site preparation is planned, the Ministry requires a Reclamation Bond to cover the estimated reclamation costs if we fail to complete the reclamation. The cost of compliance with governmental regulations, permits and bond requirements has the potential to reduce the profitability of operations by curtailing our exploration activities.
We are not aware of any existing environmental liability associated with any of our exploration properties but if such liability should arise, we may incur costs, which would reduce the amount of money we have available to spend on exploration and could cause our company to suspend operations. Our potential exposure to liability for environmental damage is high and we have no reserves established to pay for such liability. If we are found to be liable for a large amount of environmental damage, we are likely to cease operations. If that happens, investors are likely to lose all of their investment in our company.
Please see the section entitled “Governmental Regulations” on page 17 of this annual report for more information.
Risks Related To Our Company
We have a limited operating history and have not generated any operating revenues since our incorporation. This raises substantial doubt about our ability to continue as a going concern anddoes not provide a meaningful basis for an evaluation of our prospects. If we are unable to generate revenue from our business, we may be forced to delay, scale back, or cease our exploration activities. If any of these actions were to become necessary, we may not be able to continue to explore our properties or operate our business and there is a substantial risk our business would fail, causing investors to lose all of their investment in our company.
We have not generated any operating revenues since our incorporation and we will, in all likelihood, continue to incur operating expenses without revenues until our mining properties are fully developed and in commercial production, which may never happen. We had cash in the amount of $85,758 and receivables of $10,504 as of December 31, 2016. We estimate our average monthly operating expenses to be approximately $15,000. We cannot provide assurances that we will be able to successfully explore and develop our mining properties or assure that viable mineral reserves exist on our properties for extraction. It is unlikely that we will generate any funds internally unless we discover commercially viable quantities of ore. If we are unable to generate revenue from our business during the fiscal year 2017, we may be forced to delay, scale back, or eliminate our exploration activities. If any of these actions were to become necessary, we may not be able to continue to explore our properties or operate our business and if either of those events happen, then there is a substantial risk our business would fail and investors would lose their investment in our company.
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We have not generated any revenue from our business and we will need to raise additional funds in the near future. If we are not able to obtain future financing when required, we might be forced to discontinue our business.
Because we have not generated any revenue from our business and we cannot anticipate when we will be able to generate revenue from our business, we will need to raise additional funds for the further exploration and future development of our mining claims and to respond to unanticipated requirements or expenses. We anticipate that we do not have sufficient funds to cover administrative expenses for the 12 month period ending December 31, 2017 or for continued exploration. The Company is currently looking for a partner to take the Turnagain project to the feasibility level as well as raising additional working capital through the issuance of shares and or debt. We have also identified a PGE exploration program on the Turnagain property that will require the Company to seek additional financing or a joint venture partnership. We do not currently have any arrangements for financing or joint venture partnerships and may not be able to find such if required. Although we have been successful in the past in obtaining financing through the sale of equity securities, it is possible that we will not be able to obtain adequate financing in the future or that the terms of such financing will be unfavorable and unacceptable to us. Failure to obtain such additional financing is likely to result in a delay or indefinite postponement of further exploration and development of our projects and possible loss of our properties, in which case our company’s securities would never increase in value and investors would lose their entire investment.
Our Articles of Incorporation indemnify our officers and directors against all costs, charges and expenses incurred by them, which may discourage suits against directors or officers for breaches of fiduciary duties even though such suits, if successful, could benefit our company and our shareholders.
Our Articles of Incorporation contain provisions limiting the liability of our officers and directors for their acts, receipts, neglects or defaults and for any other loss, damage or expense incurred by our company which occurs in the execution of the duties of such officers or directors, unless the officers or directors did not act honestly and in good faith with a view to the best interests of our company. Such limitations on liability may reduce the likelihood of derivative litigation against our officers and directors and may discourage or deter our shareholders from suing our officers and directors based upon breaches of their duties to our company, though such an action, if successful, might otherwise benefit our company and our shareholders.
Risks Relating to our Securities
Trading in our common shares on the Toronto Stock Venture Exchange is limited and sporadic, making it difficult for our shareholders to sell their shares or liquidate their investments.
Our common shares are currently listed on the TSX Venture Exchange under the symbol ‘HNC’. The trading price of our common shares has been and may continue to be subject to wide fluctuations. Trading prices of our common shares may fluctuate in response to a number of factors, many of which are beyond our control. In addition, the stock market in general, and the market for base metal exploration companies, including companies exploring for nickel in particular, has experienced extreme price and volume fluctuations that have often been unrelated or disproportionate to the operating performance of such companies. These broad market and industry factors may adversely affect the market price of our shares, regardless of our operating performance. If you invest in our common shares, you could lose some or all of your investment.
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In the past, following periods of volatility in the market price of a company’s securities, securities class-action litigation has often been instituted. Such litigation, if instituted, could result in substantial costs and a diversion of management’s attention and resources.
Investors will suffer dilution in their net book value per share if we issue additional shares, raise funds through the sale of equity securities or issue employee/director or consultant options.
We are currently without a source of revenue and will most likely be required to issue additional shares to finance our operations and, depending on the outcome of our exploration programs, may issue additional shares to finance additional exploration programs of any or all of our projects or to acquire additional properties or through the exercise of options by our employees, directors and consultants. If we are required to issue additional shares to raise funds, our current shareholders’ interests in our company will be diluted and our current shareholders may suffer dilution in their net book value per share depending on the price at which such securities are sold. As at April 26, 2017, there were outstanding an aggregate number of common share purchase warrants and share purchase options as, upon exercise, would result in the issue of an additional 30,168,293 of our common shares which, if exercised, would represent approximately 41 % of our issued and outstanding common shares. If all of these share purchase warrants and share purchase options are exercised and these common shares are issued, such issuance also will cause a reduction in the proportionate ownership and voting power of all other shareholders. The dilution may result in a decline in the market price of our common shares.
We do not expect to declare or pay any dividends for the foreseeable future, so investors will realize a return on their investment only if the price of shares of our stock increases. There are no guarantees that this will ever happen and investors may lose their entire investment in our company.
We have not declared or paid any dividends on our Common Shares since our inception, and we do not anticipate paying any such dividends for the foreseeable future. Therefore, investors will only realize a return on their investment if the price of our stock increases. There are no guarantees that will ever happen and investors may never realize a return on their investment in our company and may lose their entire investment.
All of our directors, officers and control persons live outside of the U.S. and. investors may not be able to enforce their civil liabilities against us, our directors officers or control persons. Therefore, investors may be discouraged from bringing suits against our directors and officers or may be unsuccessful even if they bring such suits. Suits against directors or officers for breaches of fiduciary duties may be discouraged, even though such suits, if successful, could benefit our company and our shareholders.
It may be difficult to bring and enforce suits against us or our directors, officers and control persons. We were incorporated under theCompany Act (British Columbia) and transitioned under theBusiness Corporations Act (British Columbia) in June of 2004. All of our directors and officers are residents of countries other than the United States and all of our assets are located outside of the United States. Consequently, there is a risk that Canadian courts may not enforce the judgments of U.S. courts or enforce, in an original action, liabilities predicated on the U.S. federal laws directly.Therefore, investors may be discouraged from bringing suits or may be unsuccessful even if they do try.
Some of our directors and officers are employed elsewhere and their time and efforts will not be devoted to our company full-time.
Some of our directors and officers are employed in other positions with other companies. They will manage our company on a part-time basis. Because of this fact, the management of our company may suffer and our company could under-perform or fail. Mark Jarvis, our CEO, President and director, will devote approximately 25% of his working hours to the management of the Company, Brian Fiddler, our Controller and Chief Financial Officer, will devote approximately 10 hours per week, which is approximately 25% of his working hours, to the management of our company. Lyle Davis, a director of our company, will devote approximately 4 hours per week, which is approximately 10% of his working hours, to the management of our company. Tom Milner a director of our company, will devote approximately 4 hours per week, which is approximately 10% of his working hours, to the management of our company. Leslie Young, the Corporate Secretary of our company, will devote approximately 10 hours per week, which is approximately 25% of her working hours, to the management of our company.
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Trading of our stock may be restricted by the SEC's penny stock regulations, which may limit a shareholder's ability to buy and sell our stock.
The Securities and Exchange Commission has adopted regulations which generally define "penny stock" to be any equity security that has a market price (as defined) less than $5.00 per share or an exercise price of less than $5.00 per share, subject to certain exceptions. Our securities are covered by the penny stock rules, which impose additional sales practice requirements on brokers or dealers who sell to persons other than established customers and "accredited investors". The term "accredited investor" refers generally to institutions with assets in excess of $5,000,000 or individuals with a net worth in excess of $1,000,000 or annual income exceeding $200,000 or $300,000 jointly with their spouse. The penny stock rules require a broker or dealer, prior to a transaction in a penny stock not otherwise exempt from the rules, to deliver a standardized risk disclosure document in a form prepared by the SEC, which provides information about penny stocks and the nature and level of risks in the penny stock market. The broker or dealer also must provide the customer with current bid and offer quotations for the penny stock, the compensation of the broker or dealer and its salesperson in the transaction and monthly account statements showing the market value of each penny stock held in the customer's account. The bid and offer quotations, and the broker or dealer and salesperson compensation information, must be given to the customer orally or in writing prior to effecting the transaction and must be given to the customer in writing before or with the customer's confirmation. In addition, the penny stock rules require that prior to a transaction in a penny stock not otherwise exempt from these rules, the broker or dealer must make a special written determination that the penny stock is a suitable investment for the purchaser and receive the purchaser's written agreement to the transaction. These disclosure requirements may have the effect of reducing the level of trading activity in the secondary market for the stock that is subject to these penny stock rules. Consequently, these penny stock rules may affect the ability of brokers or dealers to trade our securities. We believe that the penny stock rules discourage investor interest in and limit the marketability of our common stock. This may limit your ability to buy and sell our stock and cause the price of the shares to decline
NASD sales practice requirements may also limit a shareholder's ability to buy and sell our stock.
In addition to the "penny stock" rules described above, the National Association of Securities Dealers (NASD) has adopted rules that require that in recommending an investment to a customer, a broker or dealer must have reasonable grounds for believing that the investment is suitable for that customer. Prior to recommending speculative low priced securities to their non-institutional customers, brokers or dealers must make reasonable efforts to obtain information about the customer's financial status, tax status, investment objectives and other information. Under interpretations of these rules, the NASD believes that there is a high probability that speculative low priced securities will not be suitable for at least some customers. The NASD requirements make it more difficult for brokers or dealers to recommend that their customers buy our common stock, which may prevent you from reselling your shares and may cause the price of the shares to decline.
U.S. investors could suffer adverse tax consequences if we are characterized as a passive foreign investment company.
We may be treated as a passive foreign investment company, or PFIC, for United States federal income tax purposes during the 2003 tax year or in subsequent years. We may be deemed a PFIC because previous financings combined with proceeds of future financings may produce, or be deemed to be held to produce, passive income. Additionally, U.S. citizens should review the section entitled “Taxation-U.S. Federal Income Taxation - Passive Foreign Investment Companies” contained in this Annual Report for a more detailed description of the PFIC rules and how those rules may affect their ownership of our capital shares.
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If we are or become a PFIC, our U.S. shareholders may be subject to the following adverse tax consequences:
| • | they will be taxed at the highest ordinary income tax rates in effect during their holding period on certain distributions on our capital shares, and gains from the sale or other disposition of our capital shares; |
| | • | they will be required to pay interest on taxes allocable to prior periods; and |
| • | the tax basis of our capital shares will not be increased to fair market value at the date of their date. |
| Item 4 | Information on our Company |
| A. | History and Development of our Company |
We were originally incorporated in British Columbia Canada under theCompany Act (British Columbia) on January 17, 1983, under the name “Bren-Mar Resources Limited”, with an authorized capital of50,000,000 Common Shares without par value. On March 15, 2000, we changed our name to “Bren-Mar Minerals Ltd.” to reflect our change in business to strictly exploration mining and consolidated our then issued and outstanding common shares on the basis of 1 post-consolidation common share for 5 pre-consolidation common shares, and we increased our post-consolidation authorized capital to 50,000,000 common shares. There were no changes in our directors or management. On November 22, 2000, we changed our name to “Canadian Metals Exploration Ltd.” to reflect the Company’s focus on mineral exploration in Canada, there were no changes in directors or management.
TheBusiness Corporations Act (British Columbia) came into force on March 29, 2004, repealing theCompany Act(British Columbia.) Our company now operates under theBusiness Corporations Act (British Columbia). On June 25, 2004, we changed our name to “Hard Creek Nickel Corporation” to reflect the primary type of mineral exploration the Company is engaged in, altered our authorized capital to comprise an unlimited number of common shares and an unlimited number of Class A preferred shares, and adopted our current Articles of Incorporation, which are attached as an exhibit to this form. The previous directors and management were replaced by Mark Jarvis as CEO, President and Director , Brian Fiddler as CFO, Leslie Young as Corporate Secretary, George Sookochoff as Director, Tom Milner as Director and Lyle Davis as Director.
We have our head office and principal place of business at Suite 203 – 700 West Pender Street, Vancouver, British Columbia V6C 1G8 Canada (Telephone: 604.681.2300) . We do not have an agent in the United States.
Our common shares are listed on the TSX Venture Exchange under the symbol “HNC”.
Since inception, we have been engaged in natural resource exploration and development primarily in British Columbia and, since 1996, have focused on the Turnagain Property in the Liard Mining Division of northern British Columbia. We first acquired the mineral claims on the Turnagain Property in 1996 under an option agreement with John Schussler and Ernie Hatzl. The original option agreement gave us the right to earn a 100% interest in the mineral claims on the Turnagain Property in exchange for the issuance of 200,000 of our common shares and the expenditure of CAN$1,000,000 on exploration of the property within 5 years of acquisition. We have now earned the 100% interest and it is subject to a 4% net smelter royalty on possible future production from claim 511330. We have the right to pay out the net smelter royalty by paying CAN$1,000,000 for each 1% of the royalty. To pay out the entire 4% royalty, we would be required to pay CAN$4,000,000.
On November 28, 2002, we entered into an agreement with John Schussler and Ernie Hatzl to acquire an additional 34 mineral claims, adjacent to the Turnagain Property, Laird Mining Division, British Columbia, in exchange for an aggregate total of 100,000 common shares.
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Between November, 2003 and March, 2005 we staked additional claims, enlarging the Turnagain property from 3,700 hectares to approximately 27,500 hectares. With claim conversions in April 2005 and November 2007, and additional staking in 2009, the Turnagain property now covers 33,220 hectares.
Present Operations of Our Company
Turnagain Property Project
Our current mineral exploration activities on the Turnagain Property include core drilling, geological mapping, geochemical surveying, airborne geophysical survey, downhole geophysical surveying, baseline environmental and engineering studies, and metallurgical testing. From 2001 to December 31, 2016, we have drilled 273 core holes for a total depth of 76,367m (250,548 feet). Approximate total exploration expenditures from January 1, 2014 to December 31, 2016 was CDN$191,000.
As of December 31, 2016, we had approximately $89,698 in working capital, which is not sufficient to cover our operating costs for the next twelve months at $15,000 per month. To make up the shortfall, the Company will have to raise additional funds by issuing shares or debt. If the Company is to carry out a 2017 exploration program, we will be required to obtain additional equity funding or secure a joint venture partner to provide funding to cover 100% of the anticipated costs.
Nature of Operations and Principal Activities
We are in the mineral resource business. This business generally consists of three stages: exploration, development and production. We are a mineral resource company in the exploration stage because we have not yet found mineral resources in commercially exploitable quantities, and are engaged in exploring land in an effort to discover them. Mineral resource companies that have located a mineral resource in commercially exploitable quantities and are preparing to extract that resource are in the development stage, while those engaged in the extraction of a known mineral resource are in the production stage.
Mineral resource exploration can consist of several stages. The earliest stage usually consists of the identification of a potential prospect through either the discovery of a mineralized showing on that property or as the result of a property being in proximity to another property on which exploitable resources have been identified, whether or not they are or have in the past been extracted.
After the identification of a property as a potential prospect, the next stage would usually be the acquisition of a right to explore the area for mineral resources. This can consist of the outright acquisition of the land or the acquisition of specific, but limited, rights to the land (e.g., a license, lease or concession). After acquisition, exploration would probably begin with a surface examination by a prospector or professional geologist with the aim of identifying areas of potential mineralization, followed by detailed geological sampling and mapping of this showing with possible geophysical and geochemical grid surveys to establish whether a known trend of mineralization continues underground, possibly trenching in these covered areas to allow sampling of the underlying rock. Exploration also commonly includes systematic regularly spaced drilling in order to determine the extent and grade of the mineralized system at depth and over a given area, as well as gaining underground access by ramping or shafting in order to obtain bulk samples that would allow one to determine the ability to recover various commodities from the rock. If minerals are found, exploration might culminate in a feasibility study to ascertain if the mining of the minerals would be economic. A feasibility study is a study that reaches a conclusion with respect to the economics of bringing a mineral resource to the production stage.
Our primary natural resource property is the Turnagain Property, located in the Liard Mining Division of northern British Columbia. We have not identified the existence of any commercially viable mineral deposits at any of our mineral properties.
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It is unlikely that a commercially viable mineral deposit exists on any of our properties, and further exploration is required before we can evaluate whether any exist and, if so, whether it would be economically and legally feasible to develop or exploit those resources. Even if we complete our current exploration program and we are successful in identifying a mineral deposit, we would be required to spend substantial funds on further drilling and engineering studies before we could know whether that mineral deposit will constitute a reserve (a reserve is a commercially viable mineral deposit). Please refer to the section entitled “Risk Factors”, beginning on page 10 of this annual report for additional information about the risks of mineral exploration.
Revenues
To date we have not generated any revenues from any of our properties.
Principal Market
We do not currently have any market, as we have not yet identified any mineral resource on any of our properties that is of a commercially exploitable quantity. If we succeed in identifying a mineral resource in commercially exploitable quantities, our principal markets would consist of metals refineries and base metal traders and dealers.
Seasonality of our Business
Our mineral exploration activities are subject to seasonal variation due to the winter season in northern British Columbia. Field work is best carried out between mid-May and late-November when day time temperatures average 10 to 15 degrees Celsius. Our other operations, such as metallurgical review and analysis of geochemical survey results, can be carried out all year round.
Sources and Availability of Raw Materials
Other than a paved highway and the small community of Dease Lake, located 70km west of the Turnagain property, there is no infrastructure close to the Turnagain property. A small amount of hydroelectric power is generated near Dease Lake, to supply the town, but there is little excess capacity. The closest suitable source of hydroelectric power for mine development is the completed Northwest Transmission Line at Bob Quinn Lake, 207km south along the highway. If a mineral resource is found on our Turnagain property, power generation would be required.
Patents and Licenses; Industrial, Commercial and Financial Contracts; and New Manufacturing Processes
In conducting our business operations, we are not dependent on any patented or license processes, technology, industrial, commercial or financial contract or new manufacturing processes.
Competitive Conditions
The mineral exploration industry is highly competitive. We compete with other mining companies, some of which have greater financial resources and technical facilities, for the acquisition of mineral interests, as well as for the recruitment and retention of qualified employees. We compete for qualified employees with Vancouver based companies, including Hunter Dickenson Inc., Equity Engineering and Ivanhoe Mines, and international mining companies, including Billiton-BHP, Rio Tinto and Anglo American, among others.
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Governmental Regulations
Mining operations are subject to a wide range of national and provincial government regulations such as restrictions on production, price controls, tax increases, expropriation of property, environmental protection, and protection of agricultural territory or changes in conditions under which minerals may be marketed. Mining operations may also be affected by claims of native peoples, any of which could have the effect of reducing or preventing us from exploiting any of our properties.
Mineral claims in British Columbia are of two types. Cell mineral claims are established by electronically selecting the desired land on government claim maps, where the available land is displayed as a grid pattern of open cells, each of approximately 450-500 hectares. Payment of the required recording fees is also conducted electronically. This process for claim staking has been in effect since January, 2005, and is now the only way to stake claims in British Columbia. Prior to January, 2005, legacy claims were staked by walking the perimeter of the desired ground and erecting and marking posts at prescribed intervals. Legacy claims, staked before January, 2005, remain valid and may be converted into cell claims.
Cell mineral claims may be kept in good standing by incurring assessment work or by paying cash-in-lieu of assessment work. Assessment work requirements are CAN$5.00 per hectare per year during the first 2 years following the location of the mineral claims, increasing to CAN$10.00 per hectare in the third and fourth years, CAN$15.00 per hectare in the fifth and sixth years and CAN$20.00 per hectare for all succeeding years. Cash-in-lieu of exploration and development work is double the value of the corresponding assessment work requirement.
We will be required to comply with all regulations, rules and directives of governmental authorities and agencies applicable to the exploration of minerals in the Province of British Columbia and in Canada generally. Under these laws, prior to production, we have the right to explore the property. We are required to file a “Notice of Work and Reclamation” with the British Columbia Ministry of Energy and Mines to conduct exploration works on mineral properties in British Columbia. To obtain a work permit, a company may be required to post a bond. In addition, the production of minerals in the Province of British Columbia requires prior regulatory approval.
Our mineral claims entitle our company to continue exploration activities on our properties, subject to our compliance with various Canadian federal and provincial laws governing land use, the protection of the environment and related matters.
If we locate a commercially viable mineral resource on any of our properties, we would be required to conduct extensive community consultations in northern British Columbia with both Aboriginal and non- Aboriginal groups, environmental surveys both on the property and along transportation corridors. We also would be required to develop a mining plan and a mine closure plan. These surveys and plans would be combined into a comprehensive Environmental Impact Statement and submitted to the British Columbia government for review and approval. Any development or exploitation of such a mineral resource would be subject to Canadian federal and provincial laws governing land use, protection of the environment, occupational health, waste disposal, toxic substances, mine safety and other matters. We had no material costs related to compliance and/or permits in recent years, and anticipate no material costs in the next year.
We will have to sustain the cost of reclamation and environmental mediation for all exploration work undertaken. The amount of these costs is not known at this time as we do not know the extent of the exploration program that will be undertaken beyond completion of the recommended work programs. The Company has posted $187,900 in total reclamation bonds towards the reclamation of existing exploration drill sites and access roads on the Turnagain property. Permits and regulations will control all aspects of any production program if the project continues to that stage because of the potential impact on the environment.
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Our operations are subject to environmental regulations promulgated by various levels of governments and their agencies. Existing environmental legislation provides for restrictions and prohibitions on spills, releases or emissions of various substances produced in association with certain mining industry operations, such as from disposal areas, which would result in environmental pollution. A breach of such legislation may result in the imposition of fines and penalties. Prior to conducting exploration involving surface disturbance in British Columbia, we are required to obtain a Work Permit from the Ministry of Energy, Mines and Petroleum Resources. So far, we have obtained the permits we needed to conduct our exploration program but if we are unable to obtain the permits that we require in the future, we will have to cease the exploration activity in question. Ceasing such exploration activities could reduce our chances of ever discovering mineral resources on our properties.
Where significant surface disturbance through road building and drill site preparation is planned, the Ministry of Energy, Mines and Petroleum Resources require a Reclamation Bond to cover the estimated reclamation costs if we fail to complete the reclamation. From 1996 to present, we have posted $187,900 in total reclamation bonds with the Ministry of Energy, Mines and Petroleum Resources.
We are not aware of any existing environmental liability associated with any of our exploration properties but if such liability should arise, we may incur substantial costs, which would reduce the amount of money we have to spend on exploration and could cause us to cease operations. Our potential exposure to liability for environmental damage is high and we have no reserves established to pay for such liability. If we are found to be liable for a large amount of environmental damage, we are likely to have to cease operations.
| C. | Organizational Structure |
We have one wholly-owned subsidiary, Canadian Metals Exploration Ltd., incorporated under theCanada Business Corporation Act (Canada) on July 14, 2004. This wholly-owned subsidiary is currently inactive.
| D. | Property, Plant and Equipment |
This section summarizes the assets of the company including its executive office in Vancouver, B.C., sample storage warehouse near Vancouver and its most important assets, mineral exploration properties.
The company has 100% interest in a number of mineral exploration properties located in British Columbia, the Turnagain is presently the only material exploration property and is described below.
Our executive office is located at 203 – 700 West Pender Street, Vancouver, British Columbia V6C 1G8, Canada. The Company subleases approximately 1,000 square feet of space for $53,159 per year expiring on March 31, 2019. We sublease 75% of this space resulting in approximately $1,300 per month in office rent. This space accommodates all of our executive and administrative offices. We believe that this existing space is adequate for our current needs. Should we require additional space, we believe that such space can be secured on commercially reasonable terms.
The company has rented a warehouse near Vancouver, British Columbia in which to store drill core samples and to prepare composite samples for metallurgical test-work. We rent this facility for $500 per month on a month to month basis. We own office, vehicle, and exploration equipment with a cost of approximately $15,000 located at our Vancouver Office and our camp at the Turnagain property.
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Our main mineral property the Turnagain is described more fully below:
The Turnagain Property
This section provides a summary of the geology and exploration activities on the Turnagain Property.
Exploration data collected during the 2003 to 2016 exploration programs was completed under the supervision of Tony Hitchins, M.Sc., an employee of Hard Creek Nickel Corporation.
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Location and Accessibility
The Turnagain Property consists of 65 neighboring mineral claims situated in the Liard Mining Division of northern British Columbia, 70 km east of Dease Lake and 1,350 km north-northwest of Vancouver. The maps above indicate where the property is located in the province of British Columbia, Canada. The mineral claims collectively cover an area of 33,220 hectares. The Turnagain Property is situated in the Stikine Ranges of the Cassiar Mountains. Elevations range from about 1,000 meters above sea level along the Turnagain River, in the central claim area, to 2,200 meters at an unnamed summit in the north central property area.
The Turnagain Property straddles the Turnagain River near where it joins Hard Creek. The community of Dease Lake, on Highway #37 some 400 km north of the port of Stewart, is 70 km west of the property. Helicopter access from Dease Lake involves a 20 minute flight. A secondary road extending easterly from Dease Lake has been used by large, articulated 4-wheel drive vehicles to convey large jade boulders from the Kutcho Creek area and to supply placer gold operations at Wheaton Creek over the past number of years. A branch of this road network extends into the Turnagain Property with road distance to Dease Lake of about 100 km.
A dirt airstrip, measuring approximately 930 meters long, constructed in the 1960s, and upgraded in early 2007, is situated within the claims on the northwest side of the Turnagain River and can accommodate small fixed wing aircraft. This airstrip is immediately adjacent to our current camp facility and core storage. Previous exploration programs have made use of camp facilities at Wheaton Creek (Boulder), which is about 15 km by road west of the Turnagain Property.
Three times a week, Dease Lake has scheduled airline service and offers some supplies and services. The communities of Terrace and Smithers, both several hundred km south, offer a range of services and supplies which can be trucked to Dease Lake via Highway #37.
The area between Dease Lake and the Turnagain Property features maturely dissected mountains rising to elevations of between 2,000 and 2,425 meters above sea level and separated by wide, drift-filled valleys in which elevations average 1,000 meters. Forest cover, present in valley areas, is replaced by typical alpine flora above 1,500 meters. Bedrock is reasonably well exposed in the areas above tree line and along drainages.
Description of Claims
The Turnagain Property consists of 65 neighboring mineral claims situated in the Liard Mining Division of northern British Columbia, 70 km east of Dease Lake and 1,350 km north-northwest of Vancouver. The mineral claims collectively cover an area of 33,220 hectares. The Turnagain Property is situated in the Stikine Ranges of the Cassiar Mountains. Elevations range from about 1,000 meters above sea level along the Turnagain River, in the central claim area, to 2,200 meters at an unnamed summit in the north central property area. The Turnagain Property straddles the Turnagain River near where it joins Hard Creek. The Company owns a 100% interest in all of these mineral claims subject to a 4% net smelter royalty on possible future production on one mineral claim (Tenure No. 511330) subject to a buyout clause of $4 million. The following table summarizes the claim name, size, and expiry date for the 65 claims in the Turnagain Property as of April 26, 2017
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The following table shows details relating to Hard Creek Nickel Corporation’s Turnagain claims andthe expiry dates of those claims:
Tenure Number | Claim Name | Area (ha) | Issue Date | Expiry Date |
Legacy Mineral Claim |
407627 | PUP 4 | 500.0 | 2004/Jan/01 | 2021/Jan/01 |
On-Line Cell Mineral Claims |
501131 | Drift 1 | 422.0 | 2005/Jan/12 | 2019/Jan/12 |
501168 | Drift 2 | 421.8 | 2005/Jan/12 | 2019/Jan/12 |
501234 | Drift 3 | 421.7 | 2005/Jan/12 | 2019/Jan/12 |
501298 | Drift 4 | 421.8 | 2005/Jan/12 | 2019/Jan/12 |
508218 | Dinah 1 | 407.2 | 2005/Mar/03 | 2019/Mar/03 |
508219 | Dinah 2 | 407.1 | 2005/Mar/03 | 2019/Mar/03 |
508221 | Dinah 3 | 406.9 | 2005/Mar/03 | 2019/Mar/03 |
508222 | Dinah 4 | 406.7 | 2005/Mar/03 | 2019/Mar/03 |
508223 | Dinah 5 | 407.1 | 2005/Mar/03 | 2019/Mar/03 |
508225 | Dinah 6 | 407.1 | 2005/Mar/03 | 2019/Mar/03 |
508226 | Dinah 7 | 254.6 | 2005/Mar/03 | 2019/Mar/03 |
508227 | Dinah 8 | 407.3 | 2005/Mar/03 | 2019/Mar/03 |
508228 | Dinah 9 | 135.5 | 2005/Mar/03 | 2019/Mar/03 |
508229 | Dinah 10 | 203.4 | 2005/Mar/03 | 2019/Mar/03 |
528780 | T1 | 67.7 | 2006/Feb/23 | 2019/Feb/23 |
528781 | T2 | 203.3 | 2006/Feb/23 | 2019/Feb/23 |
528782 | T3 | 152.6 | 2006/Feb/23 | 2019/Feb/23 |
528784 | T4 | 288.3 | 2006/Feb/23 | 2019/Feb/23 |
528787 | T5 | 169.6 | 2006/Feb/23 | 2019/Feb/23 |
528788 | T6 | 270.2 | 2006/Feb/23 | 2019/Feb/23 |
528789 | T7 | 422.5 | 2006/Feb/23 | 2019/Feb/23 |
528790 | T8 | 253.6 | 2006/Feb/23 | 2019/Feb/23 |
Converted Legacy to On-Line Cell Mineral Claims (April 2005 and November 2007) |
503365 | Hard 2 | 793.3 | 2005/Jan/14 | 2019/Feb/18 |
510889 | Flat 10, 13, 15 | 1627.9 | 2005/Apr/18 | 2019/Apr/07 |
510892 | Flat 2, 6 | 1219.3 | 2005/Apr/18 | 2019/Apr/07 |
510910 | Flat 9, 12, 14 | 1424.3 | 2005/Apr/18 | 2019/Apr/07 |
510911 | Flat 1, 5 | 1066.9 | 2005/Apr/18 | 2019/Apr/07 |
510912 | Flat 8, 11 | 779.9 | 2005/Apr/18 | 2019/Apr/07 |
511214 | Hard 4, 6 | 979.9 | 2005/Apr/20 | 2019/Feb/18 |
511226 | Hill 1, 2 | 1216.1 | 2005/Apr/20 | 2019/Feb/18 |
511227 | Hill 3 | 506.7 | 2005/Apr/20 | 2019/Feb/17 |
511230 | Hill 4, 5 | 760.5 | 2005/Apr/20 | 2019/Feb/17 |
511234 | Hill 6 | 185.9 | 2005/Apr/20 | 2019/Feb/16 |
511244 | Hard 5, 7 | 489.9 | 2005/Apr/20 | 2019/Feb/18 |
511251 | Hard 8 | 473.4 | 2005/Apr/20 | 2019/Feb/17 |
511257 | Hill 9, 10 | 1014.4 | 2005/Apr/20 | 2019/Feb/17 |
511279 | Hard 9, 10 | 896.7 | 2005/Apr/20 | 2019/Feb/17 |
511304 | Hill 7, 8 | 1149.7 | 2005/Apr/21 | 2019/Feb/17 |
511305 | Hound 3 | 271.0 | 2005/Apr/21 | 2019/Sep/27 |
511306 | Turn 2, Flat 7 | 881.2 | 2005/Apr/21 | 2019/Feb/19 |
511329 | Hound 1, 2 | 1015.4 | 2005/Apr/21 | 2019/Sep/27 |
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511330 | Cub | 592.6 | 2005/Apr/21 | 2021/Dec/01 |
511337 | Cub 10, 18, Pup 1 | 1065.8 | 2005/Apr/21 | 2018/Dec/01 |
511340 | Cub 17 | 253.9 | 2005/Apr/21 | 2018/Dec/01 |
511344 | Turn 1, Bear 2 | 271.0 | 2005/Apr/21 | 2019/Feb/19 |
511347 | Flat 3, 4 | 474.3 | 2005/Apr/21 | 2019/Apr/07 |
511348 | Cub 2 | 389.4 | 2005/Apr/21 | 2021/Dec/01 |
511586 | Pup 2 | 236.9 | 2005/Apr/25 | 2019/Jan/01 |
511593 | Pup 3 | 101.5 | 2005/Apr/25 | 2021/Dec/01 |
511627 | Cub 11 | 592.1 | 2005/Apr/25 | 2018/Dec/01 |
511628 | Hard 1 | 709.0 | 2005/Apr/25 | 2019/Feb/18 |
511629 | Hard 3 | 472.9 | 2005/Apr/25 | 2019/Feb/18 |
570454 | Bear 1 | 456.8 | 2007/Nov/22 | 2019/May/26 |
570455 | Bear 19, Bear 21 to 28 | 237.0 | 2007/Nov/22 | 2019/May/26 |
570456 | Bear 3 to 18 | 220.2 | 2007/Nov/22 | 2019/May/26 |
570457 | Bear 20 | 16.9 | 2007/Nov/22 | 2019/May/26 |
609390 | FLAT 7 | 254.6 | 2009/Jul/21 | 2018/Sep/20 |
609394 | FLAT 6 | 407.4 | 2009/Jul/21 | 2018/Sep/20 |
609396 | FLAT 8 | 203.8 | 2009/Jul/21 | 2018/Sep/20 |
609397 | FLAT 5 | 407.4 | 2009/Jul/21 | 2018/Sep/20 |
609398 | FLAT 4 | 407.4 | 2009/Jul/21 | 2018/Sep/20 |
609403 | FLAT 3 | 407.3 | 2009/Jul/21 | 2018/Sep/20 |
609423 | FLAT 2 | 407.3 | 2009/Jul/21 | 2018/Sep/20 |
609424 | FLAT 1 | 424.2 | 2009/Jul/21 | 2018/Sep/20 |
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The following figure shows the claims for the Turnagain property listed above.
Exploration History
Nickel and copper sulphides were discovered within the current Turnagain property area in a bedrock exposure along the Turnagain River in 1956. Mineral claims covering the area where these sulphides were found as well as other traces of sulphides were acquired by Falconbridge Nickel Mines Limited in 1966.
Falconbridge Nickel Mines Limited also completed work over the following seven years, including surface and airborne geophysical surveys, geological mapping, geochemical surveys and 2,895 meters of conventional and packsack diamond drilling in 40 widely spaced drill holes.
Our Turnagain Property represents a unique style of sulphide mineralization associated with a zoned, ultramafic complex (a suite of rocks high in iron and magnesium but low in silica.) Iron and nickel sulphides are widespread in dunite (ultramafic rock comprising more than 90% olivine) and wehrlite (ultramafic rock comprising less than 90% olivine and >10% pyroxene) near dunite-wehrlite contacts. Exploration on the Turnagain Property between 1967 and 2002 was sporadic and was concentrated in the Horsetrail area or near other small exposures of net-textured sulphides. We acquired the property in 1996.
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Work Completed by the Registrant
We acquired the Turnagain River property in 1996 and our exploration work that year included 400 line km of airborne magnetic surveys and 795.5 meters of diamond drilling in 5 holes. Additional diamond drilling completed by our company in 1997 and 1998 amounted to 3,123 meters in 14 holes. Related work included 18 line km of surface magnetic surveys covering two areas of the property, bore hole pulse-electromagnetic surveys in four of the 1997-1998 drill holes and preliminary metallurgical test work on drill core composites.
In 2002, we performed ground magnetic and Induced Polarization geophysical surveys over part of the claim area and completed 1,687 meters of diamond drilling in 7 holes. Exploratory work in 2003 included geological mapping and prospecting with bedrock, stream sediment and limited soil sampling and 8,669 meters of diamond drilling in 22 holes, including the deepening of one hole started in 2002. Preliminary metallurgical test work was conducted on composite 2002-2003 core samples.
In 2004, we conducted a comprehensive exploration program that included a helicopter borne magnetic and electromagnetic survey covering 1,866 line km, 14 km of ground magnetic and electromagnetic surveys, 1:20,000 scale aerial photography of the entire property, the collection of more than 3,000 geochemical soil samples, geological mapping, and 7522 meters of diamond drilling in 49 holes. We analyzed the approximately 4,000 core samples for 30 elements including nickel, copper, cobalt, sulphur and often platinum and palladium. Extensive metallurgical test work has been completed on 2003-2004 composite core samples and also on 2005-2006 composite core samples.
Our 2005 exploration program consisted of geological mapping, bedrock and soil sampling, and 7,143 meters of diamond drilling in 37 holes. We also undertook various mineralogical, environmental baseline surveys, engineering, metallurgical and analytical studies on the property.
Our 2006 exploration program was completed by early November and included 19,111 meters of diamond drilling in 68 holes, surface mapping and sampling in several areas and continuation of fish habitat surveys and water sampling. Metallurgical test-work on composite samples from our 2005 and 2006 drill core was also completed during 2007.
Our 2007 exploration program was completed by early November and included 24,325 meters of diamond drilling in 72 holes, surface mapping and sampling in several areas and continuation of fish habitat surveys and water sampling. Metallurgical test-work was directed towards further definition of the reagent scheme and nickel flotation kinetics for future pilot plant testing.
Our 2008 exploration program was completed by early September and included 4,105 meters of diamond drilling in 15 holes, surface mapping and sampling in several areas and continuation of fish habitat surveys and water sampling. Metallurgical test-work continued towards further definition of the reagent scheme and nickel flotation kinetics for future pilot plant testing.
In 2009 we developed an extensive electronic relational drill hole database, initiated metal leaching tests on site, and continued with baseline water sampling. Metallurgical testwork continued towards further definition of the reagent scheme and nickel flotation kinetics for future pilot plant testing. A small pilot plant test was conducted and a range of concentrates collected to develop potential hydrometallurgical refining processes. These concentrates were used for completion of amenability testing of the Activox® process in Perth Australia and the Outotec Nickel Chloride Leach in Pori Finland.
In 2010 the focus was primarily on the geological and mineralization model refinement and metallurgical test-work rather than the traditional field work exploration programs.
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In December 2011, the Company received the Turnagain Project Preliminary Economic Assessment (“PEA”) prepared by AMC Mining Consultants (Canada) Ltd. The complete PEA was filed on SEDAR on December 5, 2011, this technical report is also available on the Company's website www.hardcreek.com under the heading "Projects".
During the years ended December 31, 2012 - 2016, the Company focused on finding a partner to take the Turnagain Nickel project to the feasibility level, reviewed possible opportunities for reducing the overall project capital costs and identified a PGE exploration program on the Turnagain property.
| Item 5 | Operating and Financial Review and Prospects |
The following discussion and analysis should be read in conjunction with the consolidated financial statements and notes thereto included herein (see also "Selected Financial Data"). The consolidated financial statements have been prepared in accordance with International Financial Reporting Standards (“IFRS”).
Our results of operations have been, and may continue to be, affected by many factors of a global nature, including economic and market conditions, the availability of capital, the level and volatility of prices and interest rates, currency values, commodities prices and other market indices, technological changes, the availability of credit, inflation and legislative and regulatory developments. Factors of a local nature, which include the political, social, financial and economic stability, the availability of capital, technology, workers, engineers and management, geological factors and weather conditions, also affect our results of operations. See “Key Information – Risk Factors”. As a result of the economic and competitive factors discussed above, our results of operations may vary significantly from period to period.
Year Ended December 31, 2015 Compared to Year Ended December 31, 2016
General and Administrative - During the year ended December 31, 2016 (“2016”), the Company incurred a net loss of $224,112 ($0.01 per share) compared to a net loss of $10,230,524 ($0.57 per share) during the year ending December 31, 2015. The administrative expenses for 2016 were $196,321, up from $178,242 from 2015. Total administrative expenses includes two non-cash expenses, amortization and stock-based compensation, these amounts were $2,968 (2015: $3,876) and $42,831 (2015: $Nil) in 2016, respectively. Excluding amortization, the 2016 administrative expenses were $150,522 down from $174,366 in 2015. Office and general expenses in were $101,804 (2015: $101,559), an increase of $245. Investor relations in 2016 were $12,540 (2015: $15,263), a decrease of $2,723, legal and audit in 2016 were $18,178 (2015: $19,544) a decrease of $1,366. Management fees in 2016 were $18,000, down $20,000 from the $38,000 incurred in 2015. Excluding amortization and stock-based compensation, the total general and administrative expenses for 2016 were approximately $12,550 per month compared to $14,530 per month in 2015.
At December 31, 2016 the Company impaired the Turnagain mineral claims by $29,093 (2015: $10,055,858) to $1 based on the current nickel prices, the global over-supply of nickel held in inventories and the weaker than expected Chinese and European demand. During 2016, the Company earned $1,302 from interest income compared to $3,576 for 2015.
Exploration - During the year ended December 31, 2016, the Company incurred expenditures on exploration and evaluation assets of $29,093 (2015: $69,699). The exploration expenditures for 2016 were approximately $2,425 per month compared to $5,800 per month in 2015. In June 2015, the Company received $150,000 from the return of one of its reclamation deposits.
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Year Ended December 31, 2014 Compared to Year Ended December 31, 2015
General and Administrative - During the year ended December 31, 2015 (“2015”), the Company incurred a net loss of $10,230,524 ($0.57 per share) compared to a net loss of $22,803,513 ($1.26 per share) during the year ending December 31, 2014. The administrative expenses for 2015 were $178,242, down from $221,709 from 2014. Total administrative expenses includes one non-cash expense, amortization, which charges the cost of equipment against earnings over its useful life, these amounts were $3,876 and $5,082 in 2015 and 2014, respectively. Excluding amortization, the 2015 administrative expenses were $174,366 down from $216,627 in 2014. Office and general expenses in were $101,559 (2014: $125,654), a decrease of $24,095. Investor relations in 2015 were $15,263 (2014: $18,947), a decrease of $3,684, legal and audit in 2015 were $19,544 (2014: $24,026) a decrease of $4,482. Management fees in 2015 were $38,000, down $10,000 from the $48,000 incurred in 2014. Excluding amortization, the total general and administrative expenses for 2015 were approximately $14,550 per month compared to $18,050 per month in 2014. At December 31, 2015 the Company impaired the Turnagain mineral claims by $10,055,858 to $1 based on the current nickel prices, the global over-supply of nickel held in inventories and the weaker than expected Chinese and European demand. During 2015, the Company earned $3,576 from interest income compared to $4,124 for 2014.
At December 31, 2015 the Company impaired the Turnagain mineral claims by $10,055,858 to estimated net realizable value of $1 based on the current nickel prices, the global over- supply of nickel held in inventories and the weaker than expected Chinese and European demand.
Exploration - During the year ended December 31, 2015, the Company incurred exploration and evaluation costs of $69,699 (2014: $91,875).
| B. | Liquidity and Capital Resources |
Since the Company is organized in Canada, the Company’s December 31, 2016 consolidated financial statements have been prepared in accordance with IFRS.
As at December 31, 2016, our company had accumulated losses totaling $54,796,348 and a working capital of $89,698. The Company does not have any source of external liquidity such as bank loans or lines of credit to draw upon and relies on private placement funding and the exercise of share purchase warrants to fund ongoing operations and exploration programs.
As noted, these conditions raise substantial doubt about the Company’s ability to continue as a going concern. The financial statements do not include any adjustment that might arise from this uncertainty. The auditors’ report includes an explanatory paragraph disclosing the substantial doubt regarding the Company's ability to continue as a going concern.
As at December 31, 2016 the Company had cash of $85,758 and working capital of $89,698.
As of April 26, 2017, we had approximately $24,700 in cash, $11,3500 in receivables, and $872 in accounts payable and do not have sufficient working capital to cover our 2017 operating costs or 2017 exploration program and will need to raise additional funds through further equity issuances or loans.
The Company’s treasury policies are to receive cash in advance of any issuance of commons shares through private placements or the exercise of share purchase warrants or stock options, issue the common shares in a timely manner and invest any excess cash in an interest bearing redeemable term deposit. These treasury policies are controlled by the board of directors and reviewed by the audit committee on an annual basis.
All cash and cash equivalents are held in Canadian dollars.
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| C. | Research and Development, Patents and Licenses, etc. |
Not applicable.
Since the company is a mineral exploration company, we do not currently know of any trends, uncertainties, demands, commitments or events that are reasonably likely to have a material effect on our net sales or revenue, income from continuing operations, profitability, liquidity or capital resources, or that would cause reported financial information not necessarily to be indicative of future operating results or financial condition.
| E. | Off-Balance Sheet Arrangements |
Not applicable.
| F. | Tabular Disclosure of Contractual Obligations |
Not applicable.
Critical Accounting Policies and Estimates
Basis of preparation and accounting policies
The consolidated financial statements of the Company comply with International Financial Reporting Standards (“IFRS”) as issued by the International Accounting Standards Board (“IASB”) and interpretations of the International Financial Reporting Interpretations Committee (“IFRIC”).
There were no changes to the accounting policies applied by our company to each of the 2016 quarterly unaudited interim consolidated financial statements, to those applied to the consolidated financial statements for the year ended December 31, 2016.
Critical Accounting Estimates
As at December 31, 2016, the Company’s financial statements reflect “Exploration and evaluation assets” with a balance of $1. The recoverability of this amount is dependent upon the discovery of economically recoverable reserves, and the ability to attain future profitable production from those reserves, or from their successful disposition. The Company has not determined if its properties contain ore reserves that are economically recoverable.
Income taxes
Preparation of the consolidated financial statements involves determining an estimate of, or provision for, income taxes. The process also involves making an estimate of taxes currently payable and taxes expected to be payable or recoverable in future periods, referred to as deferred taxes. Deferred taxes result from the effects of temporary differences due to items that are treated differently for tax and accounting purposes. The tax effects of these differences are reflected in the consolidated balance sheet as deferred tax assets and liabilities. An assessment must also be made to determine the likelihood that the Company’s future taxable income will be sufficient to permit the recovery of deferred tax assets. To the extent that such recovery is not probable, recognized deferred tax assets must be reduced to the recoverable amount. Judgement is required in determining the provision for income taxes and recognition of deferred tax assets and liabilities. Management must also exercise judgement in its assessment of continually changing tax interpretations, regulations and legislation, to ensure deferred tax assets and liabilities are complete and fairly presented. The effects of differing assessments and applications could be material.
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Future Accounting Changes
Accounting standards issued but not yet effective
New standard IFRS 9 “Financial Instruments”
New standard IFRS 9 “Financial Instruments” is a partial replacement of IAS 39 “Financial Instruments: Recognition and Measurement”. IFRS 9 uses a single approach to determine whether a financial asset is measured at amortized cost or fair value, replacing the multiple rules in IAS 39. The approach in IFRS 9 is based on how an entity manages its financial instruments in the context of its business model and the contractual cash flow characteristics of the financial assets.
The new standard also requires a single impairment method to be used, replacing the multiple impairment methods in IAS 39. IFRS 9 is effective for annual periods beginning on or after January 1, 2018. The Company is currently assessing the impact this new standard will have on its consolidated financial statements.
IFRS 16 “Leases” replaces IAS 17 “Leases” and the related interpretative guidance. IFRS 16 applies a control model to the identification of leases, distinguishing between a lease and a service contract on the basis of whether the customer controls the asset being leased. For those assets determined to meet the definition of a lease, IFRS 16 introduces significant changes to the accounting by lessees, introducing a single, on-balance sheet accounting model that is similar to current finance lease accounting, with limited exceptions for short-term leases or leases of low value assets. Lessor accounting is not substantially changed. The standard is effective for annual periods beginning on or after January 1, 2019, with early adoption permitted for entities that have adopted IFRS 15. The Company has not yet assessed the future impact of this new standard on its financial statements.
Other accounting standards or amendments to existing accounting standards that have been issued but have future effective dates are either not applicable or are not expected to have a significant impact on the Company’s consolidated financial statements.
| Item 6 | Directors, Senior Management and Employees |
| A. | Directors and Senior Management |
The following table sets forth the names, business experience and function/areas of expertise of each of our directors and officers:
Name
Office Held
Age | Area of Experience and Functions in Our Company |
Mark Jarvis
Director and
Chief Executive Officer
Age: 62 | Mr. Jarvis has been a director of our company and our Chief Executive Officer since January of 2004. As Chief Executive Officer, Mr. Jarvis is responsible for the development of our strategic direction and the management and supervision of our overall business. As director, Mr. Jarvis is responsible for the corporate governance of our company. |
Tom Milner
Director
Age: 71 | Mr. Milner has been a director of our company since October of 2007. As a non- executive director, Mr. Milner is responsible for the corporate governance of our company. |
Lyle Davis
Director
Age: 60 | Mr. Davis was a director of our company in November of 2003 for a short period of time. He was later elected again as a director of our company in June of 2004. In July 2008, Mr. Davis became Chairman of the Board, responsible for the management and supervision of our board of directors. As director, Mr. Davis is responsible for the corporate governance of our company. |
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Brian Fiddler
Controller and
Chief Financial Officer
Age: 55 | Mr. Fiddler has served as our controller and Chief Financial Officer since January of 2003. As Controller and Chief Financial Officer, Mr. Fiddler is responsible for the financial and corporate management and supervision of the affairs and business of our company. |
Leslie Young
Corporate Secretary
Age: 58 | Ms. Young was appointed as our corporate secretary in June of 2004. As Corporate Secretary, Ms. Young is responsible for the internal accounting and record keeping, general administration, and making all necessary filings and financial reporting for our company. |
Mark Jarvis– Director and Chief Executive Officer
Mr. Jarvis has considerable experience in the financing and operations of public companies, primarily in exploration and production of mining and oil and gas projects. After a career in financing exploration projects as a stockbroker, Mr. Jarvis moved to the corporate side of the business by joining the Board of Ultra Petroleum, at the time a small oil and gas exploration and development company, in 1996. As Director responsible for Corporate Finance, he raised the equity capital necessary for proof of concept and to establish enough production to leverage further growth through debt financing. Ultra Petroleum has grown through the drill bit from a market capitalization of U.S. $10 million to its all- time high capitalization of more than U.S. $4 billion. From November 1996 to November 2003, Mr. Jarvis was the President of Gemini Energy Corp., another successful oil and gas company. Mr. Jarvis has held the position of CEO and President of Hard Creek Nickel Corporation since January 7th 2004. During his tenure he has taken control of management, reorganized the Board and significantly advanced our Turnagain project by focusing our company on best practice in exploration techniques. Mr. Jarvis is committed 25% to the business of Hard Creek Nickel Corporation.
Tom Milner– Director
Mr. Milner has been a director of our company since October of 2007. Mr. Milner is a consulting professional engineer with experience in mine planning and development. Mr. Milner has held various senior mine operational and mine development positions with large scale open pit mining operations. He was responsible for the Gibraltar Mine restart, including securing contracts for copper and molybdenum concentrate sales. Mr. Milner successfully built up the operations to put the Gibraltar Mine on a sound financial footing and is committed 10% to the business of Hard Creek Nickel Corporation.
Lyle Davis - Director
Mr. Davis was a director of our company in November of 2003 for a short period of time. He was later elected again as a director of our company in June of 2004. Mr. Davis has an M.B.A. from the University of British Columbia with a major in finance. He previously worked in the corporate finance practices of Ernst & Young, an accountancy firm, and in a similar capacity at C.M. Oliver, a brokerage firm. Before that, Mr. Davis was with the Vancouver Stock Exchange where he was responsible for trading operations during the transition from floor based to screen based trading, prior to which he was a senior member of the VSE’s corporate finance division. Since 1999, Mr. Davis has been the President of Ellardee Group Capital Inc. a firm specializing in consulting for public companies. Mr. Davis is a director of Condor Resources Inc.(TSX – “CN”) which explores for Copper and Gold in Latin America and is committed 10% to the business of Hard Creek Nickel Corporation.
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Brian Fiddler– Chief Financial Officer
Mr. Fiddler has served as our controller and Chief Financial Officer since January of 2003. Before joining our company, Mr. Fiddler had been involved in providing financial consulting services to private and public companies in Canada, U.S.A., Africa, Hong Kong and China since 1992. His business experience includes mining, oil and gas, technology, health/nutrition and environmental products as well as assisting public companies in raising investment capital. He is a member in good standing of the Chartered Professional Accountants’ Association of British Columbia, Mr. Fiddler is committed 25% to the business of Hard Creek Nickel Corporation.
Leslie Young– Corporate Secretary
Ms. Young was appointed as our corporate secretary in June of 2004. Ms. Young has previous experience working in brokerage firms, beginning with C.M. Oliver and most recently with Raymond James from 1999 to 2004. She has had experience in operations and executive administration. Ms. Young is committed 25% to the business of Hard Creek Nickel Corporation.
There are no family relationships between any of our executive officers or directors of our company. There are no arrangements or understandings with major shareholders, customers, suppliers or others pursuant to which any person referred to above was selected as a director or executive officer.
The following table sets out the compensation provided to our directors and senior management for performance of their duties during the fiscal year ended December 31, 2016:
| SUMMARY COMPENSATION TABLE |
Name and principal
position | Year | Salary
($) | Share-based
awards
($) | Option-based
awards
($) | Non-equity
incentive
compensation
plan
compensation
($) | Pension
value
($) | All
other
Compensation
($) | Total
Compensation
($) |
Annual
incentive
plans | Long-term
incentive
plans |
Mark Jarvis
Director and
Chief Executive Officer | 2016 | $Nil | Nil | 5,082 | Nil | Nil | Nil | Nil | $5,082 |
Tom Milner
Director | 2016 | $Nil | Nil | 7,986 | Nil | Nil | Nil | 8,000 | $15,986 |
Lyle Davis
Director | 2016 | $Nil | Nil | 5,082 | Nil | Nil | Nil | Nil | $5,082 |
Brian Fiddler
Controller and
Chief Financial Officer | 2016 | $9,000 | Nil | 5,082 | Nil | Nil | Nil | Nil | $14,082 |
Leslie Young
Corporate Secretary | 2016 | $9,000 | Nil | 5,082 | Nil | Nil | Nil | Nil | $14,082 |
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Our company does not have any pension or retirement plans, nor does our company compensate its directors and officers by way of any material bonus or profit sharing plans. Directors, officers, employees and other key personnel of our company may be compensated by way of stock options.
The election and retirement of directors are provided for in our Articles. An election of directors shall take place at each annual meeting of shareholders and all the directors then in office shall retire but, if qualified, shall be eligible for re-election. A director shall retain office only until the election of his successor. The number of directors to be elected at such meeting shall be the number of directors then in office unless the directors or the shareholders otherwise determine. The election shall be by ordinary resolution of shareholders. If an election of directors is not held at the proper time, the incumbent directors shall continue in office until their successors are elected.
Our Articles also permit the directors to add additional directors to the board between annual general meetings so long as the number appointed does not exceed more than one-third of the number of directors elected at the last annual general meeting. Individuals appointed as directors to fill casual vacancies created on the board or added as additional directors hold office like any other director until the next annual general meeting at which time they may be re-elected or replaced.
The members of our company’s audit committee include Lyle Davis, Tom Milner and Brian Fiddler. The audit committee reviews and approves the scope of the audit procedures employed by our independent auditors, reviews the results of the auditor’s examination, the scope of audits, the auditor’s opinion on the adequacy of internal controls and quality of financial reporting, if applicable, and our accounting and reporting principles, policies and practices, as well as our accounting, financial and operating controls. The audit committee also reports to the board of directors with respect to such matters and recommends the selection of independent auditors. Before financial statements that are to be submitted to the shareholders at an annual general meeting are considered by the board of directors, such financial statements are submitted to the audit committee for review with the independent auditors, following which the report of the audit committee on the financial statements is submitted to the board of directors.
We currently do not have a remuneration or compensation committee.
As of December 31, 2016, we had three part-time employees, including two of our officers. We do not have any relationship with any labor unions.
There were 43,074,696 Common Shares issued and outstanding as of April 26, 2017. Of the shares issued and outstanding, warrants held and stock options granted, our directors and officers owned the following Common Shares as of April 26, 2017:
Name | Number of Common Shares
Beneficially Owned as of
April 26, 2017 | Percentage(1) |
Mark Jarvis | 12,412,249(2) | 16.95% |
Tom Milner | 2,632,000(3) | 3.59% |
Lyle Davis | 412,000(4) | 0.56% |
Brian Fiddler | 400,784(5) | 0.55% |
Leslie Young | 402,760(6) | 0.55% |
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| | (1) | Based on 43,074,696 Common Shares issued and outstanding as at April 26, 2017, and the number of shares issuable upon the exercise of issued and outstanding stock options and warrants which are exercisable within 60 days of April 30, 2017. |
| | (2) | Includes stock options to purchase up to 390,000 of our Common Shares at an exercise price of $.05 -$0.50 per share expiring up to June 30, 2021. |
| | (3) | Includes stock options to purchase up to 610,000 of our Common Shares at an exercise price of $0.05 - $0.50 per share expiring up to June 30, 2021. |
| | (4) | Includes stock options to purchase up to 410,000 of our Common Shares at an exercise price of $0.05 - $0.50 per share expiring up to June 30, 2021. |
| | (5) | Includes stock options to purchase up to 390,000 of our Common Shares at an exercise price of $0.05 - $0.50 per share expiring up to June 30, 2021. |
| | (6) | Includes stock options to purchase up to 390,000 of our Common Shares at an exercise price of $0.05 - $0.50 per share expiring June 30, 2021. |
A total of ten percent (10%) of the common shares of our company, outstanding from time to time, are reserved for the issuance of stock options pursuant to our company’s Incentive Stock Option Plan. There were no stock options granted during the fiscal year ending December 31, 2016.
| Item 7 | Major Shareholders and Related Party Transactions |
The following table sets forth, as of April 26, 2017, the only person known to us to be the beneficial owner of more than five (5%) of our Common Shares:
Name of Shareholder | No. of Common Shares
Owned | Percentage of
Outstanding
Common Shares(1) |
Mark Jarvis | 12,412,249(2) | 16.95% |
| (1) | Based on 43,074,696 Common Shares issued and outstanding as at April 26, 2017, and the number of shares issuable upon the exercise of issued and outstanding stock options and warrants which are exercisable within 60 days of April 30, 2017. |
| (2) | Includes stock options to purchase up to 390,000 of our Common Shares at an exercise price of $0.05 - $0.50 per share expiring June 30, 2017. |
To the best of our knowledge, our company is not directly or indirectly owned or controlled by another corporation, by any foreign government or by any other natural or legal person.
There are no arrangements known to us, the operation of which may at a subsequent date result in a change in the control of our company.
| B. | Related Party Transactions |
The following sets forth all material transactions and loans from January 1, 2015 to the current date between our company and: (a) enterprises that directly or indirectly through one or more intermediaries, control or are controlled by, or are under common control with, our company; (b) associates; (c) individuals owning, directly or indirectly, an interest in the voting power of our company that gives them significant influence over our company and close members of any such individuals’ families; (d) key management personnel of our company, including directors and senior management of our company and close members of such individuals’ families; and (e) enterprises in which a substantial interest in the voting power is owned, directly or indirectly, by any person described in (c) or (d) or over which such a person is able to exercise significant influence. For the purposes of this section, shareholders beneficially owning a 10% interest in the voting power of our company are presumed to have a significant influence:
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Related party transactions
The Company incurred the following transactions with directors, officers and companies that are controlled by directors of the Company.
Key management personnel compensation
| | Year ended | |
| | December 31, | | | December 31, | |
| | 2016 | | | 2015 | |
Consulting fees | $ | 8,000 | | $ | - | |
Management fees | | 18,000 | | | 38,000 | |
Stock-based compensation | | 28,312 | | | - | |
| $ | 54,312 | | $ | 38,000 | |
| C. | Interests of Experts and Counsel |
Not required.
| Item 8 | Financial Information |
| A. | Consolidatedand Other Financial Information |
See Item 18 and our consolidated financial statements and accompanying notes.
Our company is not aware of any significant change since December 31, 2016 that is not otherwise reported in this filing.
| Item 9 | The Offer and Listing |
| A. | Common Share Trading Information |
Price History
Full Financial Years (five most recent financial years)
The annual high and low market prices for the five most recent full financial years (years ended December 31, 2012 through to December 31, 2016) on the TSX Venture Exchange (formerly the Canadian Venture Exchange) prior to September 19, 2008, and the TSX Exchange September 19, 2008 and afterwards were as follows:
| YearEnded | High | Low |
| 31-Dec-12 | $0.20 | $0.04 |
| 31-Dec-13 | $0.08 | $0.02 |
| 31-Dec-14 | $0.06 | $0.02 |
| 31-Dec-15 | $0.06 | $0.01 |
| 31-Dec-16 | $0.05 | $0.01 |
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Full Financial Quarters (two most recent financial years)
The high and low market prices for each full financial quarters for the two most recent full fiscal years on the TSX Venture Exchange were as follows:
| QuarterEnded | High | Low |
| 31-Mar-15 | $0.02 | $0.01 |
| 30-Jun-15 | $0.02 | $0.01 |
| 30-Sep-15 | $0.02 | $0.01 |
| 31-Dec-15 | $0.02 | $0.01 |
| 31-Mar-16 | $0.02 | $0.01 |
| 30-Jun-16 | $0.05 | $0.02 |
| 30-Sep-16 | $0.05 | $0.03 |
| 31-Dec-16 | $0.04 | $0.02 |
The high and low market prices for the most recent six months on the TSX Exchange is as follows:
| QuarterEnded | High | Low |
| 31-Oct-16 | $0.03 | $0.02 |
| 30-Nov-16 | $0.04 | $0.03 |
| 31-Dec-16 | $0.04 | $0.03 |
| 31-Jan-17 | $0.04 | $0.03 |
| 29-Feb-17 | $0.10 | $0.03 |
| 31-Mar-17 | $0.07 | $0.04 |
We have no principle trading market outside of our host market, the TSX Exchange.
Not Applicable.
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Our common shares trade on the Toronto Stock Exchange. Our symbol is “HNC” and our CUSIP number is 411637.
Not Applicable.
Not Applicable.
Not Applicable.
| Item 10 | Additional Information |
Not required.
| B. | Articles of Incorporation and By-laws |
Incorporation
We were incorporated under theCompany Act(British Columbia) on January 17, 1983. TheCompany Act(British Columbia) was repealed on March 29, 2004 when theBusiness Corporations Act (British Columbia) came into force. Accordingly, on June 15, we filed a transition application under theBusiness Corporations Act (British Columbia) and received the incorporation number 259067. We filed our Notice of Articles, which replaced our Memorandum of Incorporation, with the Registrar of Companies of British Columbia together with our transition application. A copy of our Notice of Articles may be obtained from the Registrar of Companies of British Columbia or from our corporate solicitors, Clark Wilson LLP, Suite 800 – 885 West Georgia Street, Vancouver, B.C. V6C 3H1. On June 25, 2004, we adopted our current Articles of Incorporation and a copy of which may be obtained from our corporate solicitors, Clark Wilson LLP, Suite 800 – 885 West Georgia Street, Vancouver, B.C. V6C 3H1.
Objects and Purposes of the Company
Our Notice of Articles and Articles of Incorporation place no restrictions upon our objects and purposes.
Directors’ Powers
Our Articles of Incorporation do not contain any special provision with respect to a director’s power to vote on a proposal, arrangement or contract in which the director is materially interested. Such power of directors will be exercised by our directors in accordance with Sections 147 to 153 of theBusiness Corporations Act (British Columbia), which provides in part that a director who is a party to, or who is also a director or officer of or has a material interest in any person who is a party to, a material contract or proposed material contract with us shall disclose the nature and extent of his interest at the time and in the manner provided by theBusiness Corporations Act (British Columbia). TheBusiness Corporations Act (British Columbia) also provides that any such contract or proposed contract shall be referred to the board or shareholders for approval and a director whose interest in a contract is so referred to the board shall not vote on any resolution to approve the same.
35
Section 10.6 of our Articles of Incorporation provides that the directors shall be paid such remuneration for their services as the board may from time to time determine. The directors shall also be entitled to be reimbursed for traveling and other expenses properly incurred by them in attending meetings of the board or any committee thereof. No independent quorum is required when the board is making decisions on directors’ remuneration.
Section 6.1 of our Articles of Incorporation provides that our directors may from time to time on behalf of the Company:
| | (a) | borrow money in the manner and amount, on the security, from the sources and on the terms and conditions that they consider appropriate, |
| | | |
| | (b) | issue bonds, debentures and other debt obligations either outright or as security for any liability or obligation of the Company or any other person, |
| | | |
| | (c) | guarantee the repayment of money by any other person or the performance of any obligation of any other person, and |
| | | |
| | (d) | mortgage or charge, whether by way of specific or floating charge, or give other security on the whole or any part of the present and future undertaking of the Company. |
Qualifications of Directors
Section 10.4 of our Articles of Incorporation provides that a director is not required to hold a share in the capital of our Company as qualification for his or her office but must be qualified as required by theBusiness Corporations Act(British Columbia)to become, act or continue to act as a director.
There is no provision in our Notice of Articles or Articles of Incorporation imposing a requirement for retirement or non-retirement of directors under an age limit requirement.
Share Rights
Our authorized capital consists of an unlimited number of Common Shares without par value and an unlimited number of Class A Preference Shares without par value. Each of our Common Shares entitles the holder thereof to notice and to attend and to cast 1 vote for each matter to be decided at a general meeting of our company. Except for such rights relating to the election of directors on a default in payment of dividends as may be attached to any series of the Class A Preference Shares by the directors, holders of Class A Preference Shares shall not be entitled, as such, to receive notice of, or to attend or vote at, any general meeting of shareholders of our company. Subject to any special rights as may be attached to any series of the Class A
Preference Shares by the directors, holders of our Common Shares are entitled to dividends as the directors may from time to time declare and authorize when the directors consider appropriate.
Our Class A Preference Shares may be issued in one or more series and, subject to theBusiness Corporations Act (British Columbia), the directors may, by resolution, if none of the shares of any particular series are issued, alter the Articles of the Company and authorize the alteration of the Notice of Articles of our Company, as the case may be, to do one or more of the following:
36
| | (a) | determine the maximum number of shares of that series that the Company is authorized to issue, determine that there is no such maximum number, or alter any such determination; |
| | | |
| | (b) | create an identifying name for the shares of that series, or alter any such identifying name; and |
| | | |
| | (c) | attach special rights or restrictions to the shares of that series, or alter any such special rights or restrictions. |
The holders of our Class A Preference Shares will be entitled, on the liquidation or dissolution of our company, whether voluntary or involuntary, or on any other distribution of our assets among our shareholders for the purpose of winding up our affairs, to receive, before any distribution is made to the holders of Common Shares or any other shares ranking junior to the Class A Preference Shares with respect to the repayment of capital on the liquidation or dissolution of our company, whether voluntary or involuntary, or on any other distribution of our assets among our shareholders for the purpose of winding up our affairs, the amount paid up with respect to each Class A Preference Share held by them, together with the fixed premium (if any) thereon, all accrued and unpaid cumulative dividends (if any and if preferential) thereon, whether or not earned or declared, and all declared and unpaid non-cumulative dividends (if any and if preferential) thereon. After payment to the holders of the Class A Preference Shares of the amounts so payable to them, they will not, as such, be entitled to share in any further distribution of the property or assets of our company, except as specifically provided in the special rights and restrictions attached to any particular series.
Our issued shares are not subject to call or assessment rights. There are no provisions for redemption, purchase for cancellation, surrender or purchase funds.
Procedures to Change the Rights of Shareholders
Our Articles of Incorporation do not contain any special provision with respect to actions necessary to change the rights of our shareholders. The rights of our shareholders may be changed by altering our Notice of Articles and Articles of Incorporation in accordance with procedures set out in Sections 256 to 265 of theBusiness Corporations Act (British Columbia).
Summary of Sections 256 to 265 of the Business Corporations Act (British Columbia).
In British Columbia, the statute that used to apply to the creation, amendment, maintenance and operations of corporations and their corporate documents has been repealed and replaced by theBusiness Corporations Act. Under the former act, a company could be created through the signature of a memorandum or articles of incorporation. We were incorporated under the former act, using articles of incorporation.
Section 256 sets out the sections of the Act that are available to a company for a change in its memorandum or articles of incorporation.
Section 257 sets out the sections of the act that describe the circumstances under which a company may alter its notice of articles and the sections of the act that provide for the process.
Section 258 informs companies how and when they may withdraw their notice of alteration of notice of articles before the alteration takes effect.
Section 259 explains that a company may resolve to alter its articles of incorporation by the type of resolution specified in the Act or, if not specified, by the resolution described in the articles or, if not in the articles, by a special resolution.
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A special resolution is a resolution passed by being consented to in writing by all of the shareholders holding shares that carry the right to vote at general meetings or a resolution passed at a general meeting under the following circumstances:
(i) notice of the meeting specifying the intention to propose the resolution as a special resolution is sent to all shareholders holding shares that carry the right to vote at general meetings at least the prescribed number of days before the meeting;
(ii) the majority of the votes cast by shareholders voting shares that carry the right to vote at general meetings is cast in favor of the resolution; and
(iii) ) the majority of votes cast in favor of the resolution constitutes at least a special majority.
According to our articles of incorporation, the majority of votes required to pass a special resolution at a meeting of our shareholders is two-thirds of the votes cast on the resolution.
Also under section 259, a company may alter its articles to specify or change the majority of votes that is required to pass a special resolution, which majority must be at least 2/3 and not more than 3/4 of the votes cast on the resolution, if the shareholders resolve, by a special resolution, to make the alteration. A company may also alter its articles to specify or change the majority of votes that is required for shareholders holding shares of a class or series of shares to pass a special separate resolution, which majority must be at least 2/3 and not more than 3/4 of the votes cast on the resolution, if the shareholders resolve, by a special resolution, to make the alteration, and shareholders holding shares of that class or series of shares consent by a special separate resolution of those shareholders.
Section 259 also covers the transition period for changes to the articles and how to create and file a resolution to ensure that any information in the notice of articles or special rights or restrictions attached to shares are not rendered false or altered by the change in articles. Section 259 also covers the effective dates of changes to the articles and that a court order may be used by the Court to effect a change in the articles of incorporation of a company.
Section 260 states that any shareholder of a company may send a notice of dissent to the company in respect of any resolution to change the articles of incorporation to alter any restrictions on the powers of the company or on the business it is permitted to carry on.
Section 261 describes how changes may be made by amendment to a regulation to a pre-written form of articles, known as Table 1 articles, that companies may adopt. We do not have these Table 1 articles.
Section 262 states that after an alteration to the articles of a company takes effect, the company must not issue a copy of the articles unless the copy of the articles reflects the alteration, or there is attached, to the copy of the articles, a copy of each resolution, court order or other record by which the articles being issued were altered.
Section 263 provides the process for changing a company’s name, which
Section 264 covers exceptional resolutions and resolutions respecting unalterable provisions. It states that a company may specify, by a provision in its articles, that a provision of its notice of articles may not be altered unless:
1. the resolution to authorize the alteration to the notice of articles is passed as an exceptional resolution;
2. a provision of its articles may not be altered unless the resolution to alter the company's articles is passed as an exceptional resolution, or,
38
3. an action may not be taken by the company or the directors unless the resolution to authorize or effect the taking of the action is passed as an exceptional resolution.
Furthermore, this section states that a company may not vary or delete an exceptional resolution provision unless the variation or deletion is authorized by an exceptional resolution.
If a company existed before theBusiness Corporations Act (British Columbia) but it has made the transition to become a “Business Corporations Act (British Columbia)” as described in the Act and its articles include a provision that was not capable of alteration under the old act that governed the company, that company must not alter that provision unless the alteration is ordered by the court, or authorized by a unanimous resolution by vote of every shareholder.
Under section 265, where under our articles or theBusiness Corporations Act (British Columbia), we are allowed or required to pass a shareholders resolution or a directors’ resolution, and there is a conflict between our articles of incorporation and theBusiness Corporations Act (British Columbia) regarding the majority of votes that is required to pass the resolution, we must, in order to pass the resolution, obtain the greater of the majority of votes required by our articles and the majority of votes required by theBusiness Corporations Act (British Columbia).
Meetings
Section 7.1 of our Articles of Incorporation provides that, unless an annual general meeting is deferred or waived in accordance with section 182(2)(a) or (c) of theBusiness Corporations Act, we must hold an annual general meeting at least once in each calendar year and not more than 15 months after the last annual general meeting. The percentage vote required to pass an ordinary resolution at a shareholder meeting is a simple majority, which is any amount greater than 50%.
According to Section 7.4 of our Articles of Incorporation, notice of the time and place of each meeting of shareholders shall be given not less than 21 days before the date of the meeting to each director, to the auditor and to each shareholder who at the close of business on the record date for notice is entered in the securities register as the holder of one or more shares carrying the right to vote at the meeting. Notice of a meeting of the shareholders called for any purpose other than consideration of the financial statements and auditor’s report, election of directors and re-appointment of incumbent auditor shall state the nature of such business in sufficient detail to permit the shareholder to form a reasoned judgment thereon and shall attach to it a copy of the document to be considered, approved, ratified, adopted or authorized at the meeting or state that a copy of the document will be available for inspection by the shareholders at the company’s records office or such other reasonably accessible location in British Columbia. A shareholder may in any manner waive notice of or otherwise consent to a meeting of shareholders.
The number of shareholders that must be present at a meeting to constitute a quorum is 2 persons who are, or who represent by proxy, shareholders who, in the aggregate, hold at least 1/20 of the issued shares entitled to be voted at the meeting. If there is only one shareholder entitled to vote at a meeting of shareholders, then the quorum is one person.
Limitations on Ownership of Securities
There are no limitations on the right to own securities of our company by non-resident or foreign shareholders imposed either by theBusiness Corporations Act (British Columbia), our Notice of Articles or Articles of Incorporation.
There are no limitations on the rights of non-resident or foreign shareholders to hold or exercise voting rights.
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Except as provided in theInvestment Canada Act (Canada), there are no limitations under the applicable laws of Canada or by our charter or our other constituent documents on the right of foreigners to hold or vote common shares or other securities of our company.
TheInvestment Canada Act (Canada) will prohibit implementation, or if necessary, require divestiture of an investment deemed “reviewable” under theInvestment Canada Act (Canada) by an investor that is not a “Canadian” as defined in theInvestment Canada Act (Canada) (a “non-Canadian”), unless after review the Minister responsible for theInvestment Canada Act (Canada) (“the Minister”) is satisfied that the “reviewable” investment is likely to be of net benefit to Canada. An investment in our Common Shares by a non-Canadian, who is not a resident of a World Trade Organization member, would be reviewable under theInvestment Canada Act (Canada) if it was an investment to acquire control of our company and the value of the assets of our company was CAN$5 million or more. An investment in our common shares by WTO Investors would be reviewable only if it was an investment to acquire control of our company and the value of the assets of our company was equal to or greater than a specified amount (the “Review Threshold”), which is published by the Minister after its determination for any particular year.
A non-Canadian would be deemed to acquire control of our company for the purposes of theInvestment Canada Act (Canada) if the non-Canadian acquired a majority of our outstanding common shares (or less than a majority but controlled our company in fact through the ownership of one-third or more of our outstanding common shares) unless it could be established that, on the acquisition, we were not controlled in fact by the acquirer through the ownership of such common shares. Certain transactions in relation to our common shares would be exempt from review under theInvestment Canada Act (Canada), including, among others, the following:
1. acquisition of common shares by a person in the ordinary course of that person’s business as a trader or dealer in securities;
2. acquisition of control of our company in connection with the realization of security granted for a loan or other financial assistance and not for any purpose related to the provisions of theInvestment Canada Act (Canada); and
3. acquisition of control of our company by reason of an amalgamation, merger, consolidation or corporate reorganization following which the ultimate direct or indirect control of our company, through the ownership of voting interests, remains unchanged.
Change in Control
There are no provisions in our articles or our bylaws 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.
TheBusiness Corporations Act (British Columbia) does not contain any provisions that would have the effect of delaying, deferring or preventing a change of control of our company. Generally, there are no significant differences between Canadian and United States law in this regard, as many state corporation statutes also do not contain such provisions and only empower our board of directors to adopt such provisions.
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Ownership Threshold
There are no provisions in our articles or our bylaws or in theBusiness Corporations Act(British Columbia) governing the threshold above which shareholder ownership must be disclosed. TheSecurities Act (British Columbia) requires us to disclose, in our annual general meeting proxy statement, holders who beneficially own more than 10% of our issued and outstanding shares. Most state corporation statutes do not contain provisions governing the threshold above which shareholder ownership must be disclosed.
United States federal securities laws require us to disclose, in our Annual Report on Form 20-F, holders who own more than 5% of our issued and outstanding shares.
Changes in the Capital of the Company
There are no conditions imposed by our articles or our bylaws which are more stringent than those required by theBusiness Corporations Act(British Columbia).
We have not entered into any material contracts outside the normal course of business to which we are a party during the fiscal year ending December 31, 2016, the two fiscal years proceeding and the current fiscal year up to and including the date of this annual report. Each contract is between Hard Creek Nickel and the Contractor, there is no provision to pass any of these contracts to Hard Creek Nickel’s wholly-owned subsidiary, Canadian Metals Exploration Ltd.
There are no government laws, decrees or regulations in Canada which restrict the export or import of capital or which affect the remittance of dividends, interest or other payments to non-resident holders of our common shares. Any remittances of dividends to United States residents and to other non-residents are, however, subject to withholding tax. See “Taxation” below.
There are no limitations imposed by the laws of Canada, the laws of Alberta or by the charter or other governing documents of the Company on the right of a non-resident to hold or vote common shares of the Company, other than as provided in the Investment Canada Act (the “Investment Act”) and the potential requirement for a Competition Act Review.
The following summarizes the principal features of the Investment Act and the Competition Act Review for a non-resident who proposes to acquire common shares. This summary is of a general nature only and is not intended to be, nor is it, a substitute for independent advice from an investor’s own advisor. This summary does not anticipate statutory or regulatory amendments.
The Canadian Investment Act
The Canadian Investment Act generally prohibits implementation of a reviewable investment by an individual, government or agency thereof, corporation, partnership, trust or joint venture that is not a “Canadian” as defined in the Investment Act (a “non-Canadian”), unless, after review, the minister responsible for the Investment Act (the “Minister”) is satisfied that the investment is likely to be of a net benefit to Canada. Under the Investment Act, a United States citizen qualifies as a “World Trade Organization Investor.” Subject to the restrictions noted below, an investment in a Canadian business by a World Trade Organization Investor would be reviewable under the Investment Act only if it is an investment to acquire control of such Canadian business and the value of the assets of the Canadian business as shown on its financial statements is not less than a specified amount, which for 1999 was $184 million. An investment in the shares of a Canadian business by a non-Canadian other than a “World Trade Organization Investor” when the Company is not controlled by a World Trade Organization Investor, would be reviewable under the Investment Act if it is an investment to acquire control of the Canadian business and the value of the assets of the Canadian business as shown on its financial statements is $5 million or more, or if an order for review is made by the federal cabinet on the grounds that the investment relates to Canada’s cultural heritage or national identity.
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The acquisition by a World Trade Organization Investor of control of a Canadian business in any of the following sectors is also subject to review if the value of the assets of the Canadian business exceeds $5 million (as shown on its financial statements): uranium, financial services (except insurance), transportation services and cultural businesses, which include broadcast media (publication, distribution or sale of books, magazines, periodicals, newspapers, music, film and video products and the exhibition of film and video products), television and radio services. As the Company’s business does not fall under any of the aforementioned categories, the acquisition of control of the Company, in excess of the $5 million threshold, by a World Trade Organization Investor would not be subject to such review.
A non-Canadian would acquire control of the Company for purposes of the Investment Act if the non-Canadian acquired a majority of the common shares.
The acquisition of less than a majority but one-third or more of the common shares would be presumed to be an acquisition of control of the Company unless it could be established that, on acquisition, the Company was not controlled in fact by the acquirer through the ownership of common shares. Notwithstanding the review provisions, any transaction involving the acquisition of control of a Canadian business or the establishment of a new business in Canada by a non-Canadian is a notifiable transaction and must be reported to Industry Canada by the non-Canadian making the investment either before or within thirty days after the investment.
Certain transactions relating to common shares are exempt from the Investment Act, including:
| · | an acquisition of common shares by a person 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 security granted for a loan or other financial assistance and not for a 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 common shares, remained unchanged. |
Canadian Competition Act Review
Investments giving rise to the acquisition or establishment, directly or indirectly, by one or more persons of control over, or a significant interest in the whole or part of a business of a competitor, supplier, customer or other person are subject to substantive review by Canada’s Competition Law Authority, the Director of Investigation and Research (the “Director”). If or when the Director concludes that a merger, whether by purchase or lease of shares or assets, by amalgamation or by combination, or otherwise, prevents or lessens, or is likely to prevent or lessen competition substantially, he may apply as may be necessary to eliminate the substantial lessening or prevention of competition. Such substantive merger review power applies to all mergers, whether or not they meet limits for pre-notification under the Competition Act.
In addition to substantive merger review, the Competition Act provides for a pre-notification regime respecting mergers of a certain size. The regime applies in respect of share acquisitions, asset acquisitions, amalgamations and combinations. For ease of reference, this filing refers specifically to share acquisition, although the pre-notification regime applies, with the appropriate modification, to other types of acquisition of control as well.
In order for a share acquisition transaction to be pre-notifiable, the parties to the transaction (being the person or persons who proposed to acquire shares, and the corporation the shares of which are to be acquired), together with their affiliates (being all firms with a 50% or more voting shares linkage up and down the chain) must have:
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| | (i) | aggregate gross assets in Canada that exceed $400,000,000 in value, as shown on their audited financial statements for the most recently completed fiscal year (which must be within the last fifteen (15) months); or |
| | (ii) | aggregate gross revenue from sales in, from or into Canada that exceed $400,000,000 for the most recently completed fiscal year shown on the said financial statements; and |
| | (iii) | the party being acquired or corporations controlled by that party must have gross assets in Canada, or gross revenues from sales in or from Canada, exceeding $35,000,000 as shown on the said financial statements. Acquisition of shares carrying up to 20% of the votes of a publicly-traded corporation, or 35% of the votes in a private corporation, will not be subject to pre-notification, regardless of the above thresholds. However, exceeding the 20% or the 35% threshold, and again exceeding the 50% threshold, gives rise to an obligation of notification if the size threshold is met. |
If a transaction is pre-notifiable, a filing must be made with the Director containing the prescribed information with respect to the parties, and a waiting period (either seven or twenty-one days, depending on whether a long or short form filing is chosen) must expire prior to closing.
As an alternative to pre-notification, the Director may grant an Advance Ruling Certificate, which exempts the transaction from pre-notification. Advance Ruling Certificates are granted where the Director concludes, based on the information provided to him, that he would not have sufficient grounds on which to apply to the Competition Tribunal to challenge the Merger.
This summary is of a general nature only and is not intended to be, and should not be interpreted as,legal or tax advice to any prospective purchaser or holder of the Company’s shares and norepresentation with respect to the Canadian federal income tax consequences to any such prospective purchaser is made. Accordingly, prospective purchasers of the Company’s shares should consultwith their own tax advisors with respect to their individual circumstances.
The following summary describes the principal Canadian federal income tax considerations generally applicable to a holder of the Company’s shares who, for purposes of the Income Tax Act (Canada) (the “Canadian Tax Act”) and the Canada-United States Income Tax Convention, 1980 (the “Convention”) and at all relevant times is resident in the United States and not resident in Canada, deals at whom the non-resident did not deal at arm’s length for purposes of the Canadian Income Tax Act. For this purpose, issued shares include options to acquire such shares (including conversion rights) held by such persons. Under the Convention, a capital gain realized by a resident of the United States will not be subject to Canadian tax unless the value of the shares of the Company is derived principally from real estate (as defined in the Convention) situated in Canada.
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| F. | Dividends and Paying Agents |
Not applicable.
Not required.
The documents concerning our company may be viewed at the offices of our corporate solicitor, Clark Wilson LLP, Suite 800 - 885 West Georgia Street, Vancouver, British Columbia, V6C 3H1, during normal business hours.
As at the date of this annual report, we have one wholly-owned subsidiary, Canadian Metals Exploration Limited.
| Item 11 | Quantitative and Qualitative Disclosures About Market Risk |
Not required.
| Item 12 | Description of Securities Other than Equity Securities |
Not required.
PART II
| Item 13 | Defaults, Dividend Arrearages and Delinquencies. |
Not applicable.
| Item 14 | Material Modifications to the Rights of Security Holders and Use of Proceeds. |
Not Applicable
| Item 15 | Controls and Procedures |
Disclosure Controls and Procedures
Disclosure controls and procedures are controls and other procedures that are designed to ensure that information required to be disclosed by our company is recorded, processed, summarized and reported, within the time periods specified in the rules and forms of the Securities and Exchange Commission. Our Chief Executive Officer and our Chief Financial Officer are responsible for establishing and maintaining disclosure controls and procedures for our company.
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Our Chief Executive Officer and our Chief Financial Officer have evaluated the effectiveness of our disclosure controls and procedures as of December 31, 2016, pursuant to Rule 13a-15(b) promulgated under the Securities Exchange Act of 1934, as amended. As part of such evaluation, our Chief Executive Officer and our Chief Financial Officer considered the matters discussed below relating to internal control over financial reporting. Based on this evaluation, our company’s Chief Executive Officer and Chief Financial Officer have concluded that our company’s disclosure controls and procedures were effective as of December 31, 2016.
Management Report on Internal Control over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over financial reporting as such term is defined in Rule 13a-15(f) Securities Exchange Act of 1934, as amended. Management (under the supervision and with the participation of the Chief Executive Officer and the Chief Financial Officer) assessed the effectiveness of our internal control over financial reporting as of December 31, 2016. In making this assessment, management used the framework set forth in Internal Control - Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). Management of our company conducted an assessment of the effectiveness of our company’s internal controls over financial reporting as of December 31, 2016. Based on its assessment as per the standards of the Public Company Accounting Oversight Board, we concluded that our company’s internal controls over financial reporting were effective as of December 31, 2016.
We will transition to the 2013 COSO Framework in due course and continue to monitor and evaluate the effectiveness of our internal controls and procedures and our internal controls over financial reporting on an ongoing basis and are committed to taking further action and implementing additional enhancements or improvements, as necessary and as funds allow.
Attestation Report of the Registered Public Accounting Firm
This annual report does not include an attestation report of our company’s registered public accounting firm regarding internal control over financial reporting. Our management's report was not subject to attestation by our company’s independent registered public accounting firm pursuant to temporary rules of the Securities and Exchange Commission that permit our company to provide only the management’s report in this annual report.
Changes in Internal Control over Financial Reporting
There were no changes during the period covered by this Annual Report in our company’s internal controls over financial reporting that have materially affected, or are reasonably likely to materially affect our company’s internal control over financial reporting.
Audit Committee Financial Expert
The Board of Directors has determined that the Company has at least one independent audit committee financial expert serving on its audit committee, this person being Lyle Davis, our Chairman and who also serves as Chair of the Audit Committee. Please refer to Item 6.A for Mr. Davis' relevant experience.
Code of Ethics
The Board has adopted a Code of Ethics and Insider Trading Policy which has been distributed to its directors, officers, employees and consultants. A copy of the Code is available from the Company on written request or may be viewed on the Company’s website at www.hardcreek.com.
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Principal Accountant Fees and Services
| Audit-Related Fees | | | |
| | Fiscal Year 2016: $10,000 | | Fiscal Year 2015: $10,000 |
| Tax Fees | | | |
| | Fiscal Year 2016: $Nil | | Fiscal Year 2015: $Nil |
| All Other Fees | | | |
| | Fiscal Year 2016: $1,500 | | Fiscal Year 2015: $1,500 |
Exemptions from the Listing Standards for Audit Committees
Not Applicable
Purchases of Equity Securities by the Issuer and Affiliated Purchasers
Not Applicable
Change in Registrant's Certifying Accountant
Not Applicable
PART III
| Item 17 | Financial Statements |
Not applicable. See “Item 18. Financial Statements” below.
| Item 18 | Financial Statements |
The financial statements and notes thereto as required by Item 18 are attached hereto and found immediately after the text of this Annual Statement. The auditors’ report of Dale Matheson Carr-Hilton LaBonte LLP, independent registered public accountants, on the audited consolidated financial statements and notes thereto is included immediately preceding the audited consolidated financial statements.
Independent Auditors’ Report.
Consolidated Statements of financial position as at December 31, 2016, and 2015.
Consolidated Statements of Comprehensive Loss as at December 31, 2016, 2015 and 2014.
Consolidated Statements of cash flows for the years ended December 31, 2016, 2015 and 2014.
Exhibits Required by Form 20-F
Exhibit
Number | Description |
| | |
| 1. | Articles of Incorporation and By-laws: |
| | |
| 1.1 | Certificate of Incorporation underThe Business Companies Act(British Columbia)(1) |
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*Filed herewith.
| (1) | Previously submitted with our Registration Statement on Form 20-F filed on November 17, 2006. |
| (2) | Previously submitted with our Annual Report Form 20-F filed on July 1, 2010. |
SIGNATURE
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.
| HARD CREEK NICKEL CORPORATION |
| |
| “Brian Fiddler” |
| |
| |
| Brian Fiddler |
| Chief Financial Officer |
| Date: April 28, 2017 |
47
| Hard Creek Nickel Corporation |
| Consolidated Financial Statements |
| Years Ended December 31, 2016, 2015 and 2014 |
| |
| Expressed in Canadian Dollars |
INDEPENDENT AUDITOR’S REPORT
To the Shareholders of Hard Creek Nickel Corporation
We have audited the accompanying consolidated financial statements of Hard Creek Nickel Corporation, which comprise the consolidated statements of financial position as at December 31, 2016, 2015 and 2014, and the consolidated statements of comprehensive loss, changes in equity and cash flows for the years then ended, and a summary of significant accounting policies and other explanatory information.
Management's Responsibility for the Consolidated Financial Statements
Management is responsible for the preparation and fair presentation of these consolidated financial statements in accordance with International Financial Reporting Standards as issued by the International Accounting Standards Board, and for such internal control as management determines is necessary to enable the preparation of consolidated financial statements that are free from material misstatement, whether due to fraud or error.
Auditor’s Responsibility
Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We conducted our audits in accordance with Canadian generally accepted auditing standards and the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free from material misstatement.
An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the consolidated financial statements. The procedures selected depend on the auditor’s judgment, including the assessment of the risks of material misstatement of the consolidated financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity's preparation and fair presentation of the consolidated financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity's internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements.
We believe that the audit evidence we have obtained in our audits is sufficient and appropriate to provide a basis for our audit opinion.
Opinion
In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of Hard Creek Nickel Corporation as at December 31, 2016, 2015 and 2014, and its financial performance and its cash flows for the years then ended in accordance with International Financial Reporting Standards as issued by the International Accounting Standards Board.
Emphasis of Matter
Without modifying our opinion, we draw attention to Note 1 to the consolidated financial statements which describes matters and conditions that indicate the existence of a material uncertainty that casts substantial doubt about Hard Creek Nickel Corporation’s ability to continue as a going concern. The consolidated financial statements do not include any adjustments that might result from this uncertainty.
 |
| DALE MATHESON CARR-HILTON LABTONE LLP |
| CHARTERED PROFESSIONAL ACCOUNTANTS |
Vancouver,
Canada April 11, 2017
| Hard Creek Nickel Corporation |
| Consolidated statements of financial position |
| Expressed in Canadian dollars |
| | | | | December 31, | | | December 31, | |
| | Notes | | | 2016 | | | 2015 | |
| | | | | | | | | |
ASSETS | | | | | | | | | |
Current assets | | | | | | | | | |
Cash | | | | $ | 85,758 | | $ | 11,964 | |
Receivables | | 4 | | | 10,504 | | | 19,916 | |
Prepaid expenses | | | | | 8,406 | | | 6,596 | |
| | | | | 104,668 | | | 38,476 | |
Non-current assets | | | | | | | | | |
Reclamation deposits | | | | | 187,900 | | | 187,900 | |
Equipment | | 5 | | | 10,320 | | | 13,288 | |
Exploration and evaluation assets | | 6 | | | 1 | | | 1 | |
| | | | | 198,221 | | | 201,189 | |
| | | | | | | | | |
TOTAL ASSETS | | | | $ | 302,889 | | $ | 239,665 | |
| | | | | | | | | |
LIABILITIES | | | | | | | | | |
Current liabilities | | | | | | | | | |
Trade payables and accrued liabilities | | 7 | | $ | 14,970 | | $ | 15,849 | |
| | | | | | | | | |
TOTAL LIABILITIES | | | | | 14,970 | | | 15,849 | |
| | | | | | | | | |
EQUITY | | | | | | | | | |
Share capital | | 10 | | | 48,887,797 | | | 48,642,413 | |
Share-based payment reserve | | 11 | | | 6,196,470 | | | 6,153,639 | |
Deficit | | | | | (54,796,348 | ) | | (54,572,236 | ) |
| | | | | | | | | |
TOTAL EQUITY | | | | | 287,919 | | | 223,816 | |
| | | | | | | | | |
TOTAL LIABILITIES AND EQUITY | | | | $ | 302,889 | | $ | 239,665 | |
Nature and continuance of operations (Note 1)
Commitment (Note 8)
Subsequent event (Note )
| APPROVED BY: | | | | |
| DIRECTOR | “MARK JARVIS” | | DIRECTOR | “LYLE DAVIS” |
| The accompanying notes are an integral part of these consolidated financial statements | 3 |
| Hard Creek Nickel Corporation |
| Consolidated statements of comprehensive loss |
| Expressed in Canadian dollars |
| | | | | Years Ended | |
| | | | | December 31, | | | December 31, | | | December 31, | |
| | Notes | | | 2016 | | | 2015 | | | 2014 | |
| | | | | | | | | | | | |
Operating expenses | | | | | | | | | | | | |
Depreciation | | 5 | | $ | 2,968 | | $ | 3,876 | | $ | 5,082 | |
Investor relations | | | | | 12,540 | | | 15,263 | | | 18,947 | |
Legal and audit | | | | | 18,178 | | | 19,544 | | | 24,026 | |
Management fees | | 12 | | | 18,000 | | | 38,000 | | | 48,000 | |
Office and general | | 12 | | | 101,804 | | | 101,559 | | | 125,654 | |
Stock-based compensation | | 10, 12 | | | 42,831 | | | - | | | - | |
| | | | | 196,321 | | | 178,242 | | | 221,709 | |
| | | | | | | | | | | | |
Other (income) loss | | | | | | | | | | | | |
Exploration property impairments | | 6 | | | 29,093 | | | 10,055,858 | | | 22,799,128 | |
Interest income | | | | | (1,302 | ) | | (3,576 | ) | | (4,124 | ) |
| | | | | 27,791 | | | 10,052,282 | | | 22,795,004 | |
| | | | | | | | | | | | |
Loss before income taxes | | | | | (224,112 | ) | | (10,230,524 | ) | | (23,016,713 | ) |
Deferred income tax recovery | | 9 | | | - | | | - | | | 213,200 | |
Loss and comprehensive loss forthe year | | | | $ | (224,112 | ) | $ | (10,230,524 | ) | $ | (22,803,513 | ) |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
Loss per share – basic and diluted | | 10 | | $ | (0.01 | ) | $ | (0.57 | ) | $ | (1.26 | ) |
Weighted average number ofshares outstanding – basic anddiluted | | 10 | | | 36,694,422 | | | 18,074,696 | | | 18,074,696 | |
| The accompanying notes are an integral part of these consolidated financial statements | 4 |
| Hard Creek Nickel Corporation |
| Consolidated statement of changes in |
| Expressed in Canadian dollars |
| | | | | Share capital | | | | | | | | | | |
| | | | | Number of | | | | | | Share-based | | | | | | | |
| | Notes | | | shares | | | Amount | | | payment reserve | | | Deficit | | | Total | |
| | | | | | | | | | | | | | | | | | |
Balance at December 31, 2014 | | | | | 18,074,696 | | $ | 48,642,413 | | $ | 6,153,639 | | $ | (44,341,712 | ) | $ | 10,454,340 | |
| | | | | | | | | | | | | | | | | | |
Comprehensive loss for the year | | | | | - | | | - | | | - | | | (10,230,524 | ) | | (10,230,524 | ) |
Balance at December 31, 2015 | | | | | 18,074,696 | | | 48,642,413 | | | 6,153,639 | | | (54,572,236 | ) | | 223,816 | |
| | | | | | | | | | | | | | | | | | |
Private placement | | 10 | | | 25,000,000 | | | 250,000 | | | - | | | - | | | 250,000 | |
Share issuance costs | | 10 | | | - | | | (4,616 | ) | | - | | | - | | | (4,616 | ) |
Stock-based compensation | | 12 | | | - | | | - | | | 42,831 | | | - | | | 42,831 | |
Comprehensive loss for the year | | | | | - | | | - | | | - | | | (224,112 | ) | | (224,112 | ) |
Balance at December 31, 2016 | | | | | 43,074,696 | | $ | 48,887,897 | | $ | 6,196,470 | | $ | (54,796,348 | ) | $ | 287,919 | |
| The accompanying notes are an integral part of these consolidated financial statements | 5 |
| Hard Creek Nickel Corporation |
| Consolidated statements of cash flows |
| Expressed in Canadian dollars |
| | Years Ended | |
| | December 31, | | | December 31, | | | December 31, | |
| | 2016 | | | 2015 | | | 2014 | |
| | | | | | | | | |
Operating activities | | | | | | | | | |
Loss for the year | $ | (224,112 | ) | $ | (10,230,524 | ) | $ | (22,803,513 | ) |
Adjustments for: | | | | | | | | | |
Depreciation | | 2,968 | | | 3,876 | | | 5,082 | |
Exploration property impairments | | 29,093 | | | 10,055,858 | | | 22,799,128 | |
Stock-based compensation | | 42,831 | | | - | | | - | |
Income tax recovery | | - | | | - | | | (213,200 | ) |
Changes in non-cash working capital items: | | | | | | | | | |
Receivables | | 9,412 | | | 12,294 | | | (877 | ) |
Prepaid expense | | (1,810 | ) | | 5,010 | | | 4,324 | |
Trade payables and accrued liabilities | | (879 | ) | | (10,744 | ) | | 7,174 | |
Net cash flows used in operating activities | | (142,497 | ) | | (164,230 | ) | | (201,882 | ) |
| | | | | | | | | |
Investing activities | | | | | | | | | |
Expenditures on exploration and evaluation assets | | (29,093 | ) | | (69,699 | ) | | (91,875 | ) |
Reclamation deposits | | - | | | 150,000 | | | - | |
BC Mining tax credit settlement | | - | | | - | | | 289,995 | |
Net cash flows from investing activities | | (29,093 | ) | | 80,301 | | | 198,120 | |
| | | | | | | | | |
Financing activities | | | | | | | | | |
Private placement | | 250,000 | | | - | | | - | |
Share issuance costs | | (4,616 | ) | | - | | | - | |
Net cash flows from investing activities | | 245,384 | | | - | | | - | |
Change in cash | | 73,794 | | | (83,929 | ) | | (3,762 | ) |
Cash, beginning | | 11,964 | | | 95,893 | | | 99,655 | |
| | | | | | | | | |
Cash, ending | $ | 85,758 | | $ | 11,964 | | $ | 95,893 | |
| The accompanying notes are an integral part of these consolidated financial statements | 6 |
| Hard Creek Nickel Corporation |
| Notes to the Consolidated Financial Statements |
| Expressed in Canadian dollars |
| For the years ended December 31, 2016, 2015 and 2014 |
| 1. | Nature and continuance of operations |
| | |
| Hard Creek Nickel Corporation (the “Company”) was incorporated on January 17, 1983, under the laws of the province of British Columbia, Canada, and its principal activity is the acquisition and exploration of mineral properties in Canada. The Company’s common shares are listed for trading on the TSX Venture Exchange (“TSXV”) under the symbol “HNC”. |
| | |
| The head office, principal address and records office of the Company are located at 700 West Pender Street, Suite 203, Vancouver, British Columbia, Canada, V6C 1G8. The Company’s registered address is 885 West Georgia Street, Suite 800, Vancouver, British Columbia, Canada, V6C 3H1. |
| | |
| These consolidated financial statements have been prepared on the assumption that the Company and its subsidiary will continue as a going concern, meaning it will continue in operation for the foreseeable future and will be able to realize assets and discharge liabilities in the ordinary course of operations. As at December 31, 2016 the Company had not advanced its mineral properties to commercial production and is not able to finance day to day activities through operations. The Company’s continuation as a going concern is dependent upon the successful results from its mineral property exploration activities, the future price for nickel and its ability to generate funds there from and/or raise additional equity capital or borrowings sufficient to meet current and future obligations. With the current state of the junior resource market the ability to raise funds for working capital is very difficult. These uncertainties cast significant doubt on the ability of the Company to continue operations as a going concern. Management intends to finance operating costs over the next twelve months using existing cash, exercise of share purchase warrants and/ or private placement of common shares. |
| | |
| 2. | Significant accounting policies and basis of preparation |
| | |
| These financial statements were authorized for issue on April 11, 2017 by the directors of the Company. |
| | |
| Statement of compliance with International Financial Reporting Standards |
| | |
| The consolidated financial statements of the Company comply with International Financial |
| | |
| Reporting Standards (“IFRS”) as issued by the International Accounting Standards Board (“IASB”) and interpretations of the International Financial Reporting Interpretations Committee (“IFRIC”). |
| | |
| Basis of preparation |
| | |
| The consolidated financial statements of the Company have been prepared on an accrual basis and are based on historical costs, modified where applicable. The consolidated financial statements are presented in Canadian dollars unless otherwise noted. |
| | |
| Consolidation |
| | |
| The consolidated financial statements include the accounts of the Company and its wholly owned Canadian subsidiary, Canadian Metals Exploration Ltd. Inter-company balances and transactions, including unrealized income and expenses arising from inter-company transactions, are eliminated on consolidation. |
7
| Hard Creek Nickel Corporation |
| Notes to the Consolidated Financial Statements |
| Expressed in Canadian dollars |
| For the years ended December 31, 2016, 2015 and 2014 |
| 2. | Significant accounting policies and basis of preparation(cont’d) |
| | |
| Significant estimates and assumptions |
| | |
| The preparation of financial statements in accordance with IFRS requires the Company to make estimates and assumptions concerning the future. The Company’s management reviews these estimates and underlying assumptions on an ongoing basis, based on experience and other factors, including expectations of future events that are believed to be reasonable under the circumstances. Revisions to estimates are adjusted for prospectively in the period in which the estimates are revised. |
| | |
| Estimates and assumptions where there is significant risk of material adjustments to assets and liabilities in future accounting periods include the useful lives of plant and equipment, the recoverability of the carrying value of exploration and evaluation assets, fair value measurements for financial instruments, the recoverability and measurement of deferred tax assets and liabilities, provisions for restoration and environmental obligations and contingent liabilities. |
| | |
| Significant judgments |
| | |
| The preparation of financial statements in accordance with IFRS requires the Company to make judgments, apart from those involving estimates, in applying accounting policies. The most significant judgments in applying the Company’s financial statements include: |
| - | the assessment of the Company’s ability to continue as a going concern and whether there are events or conditions that may give rise to significant uncertainty; |
| - | whether there are indicators of impairment of the Company’s exploration and evaluation assets and other non-current assets; |
| - | the classification / allocation of expenditures as exploration and evaluation expenditures or operating expenses; and |
| | - | the classification of financial instruments. |
Exploration and evaluation expenditures
Costs incurred before the Company has obtained the legal rights to explore an area are expensed as incurred.
Exploration and evaluation expenditures include the costs of acquiring licenses and costs associated with exploration and evaluation activity. Option payments are considered acquisition costs provided that the Company has the intention of exercising the underlying option.
Property option agreements are exercisable entirely at the option of the optionee. Therefore, option payments (or recoveries) are recorded when payment is made (or received) and are not accrued.
Exploration and evaluation expenditures are capitalized. The Company capitalizes costs to specific blocks of claims or areas of geological interest. Government tax credits received are recorded as a reduction to the cumulative costs incurred and capitalized on the related property.
Exploration and evaluation assets are tested for impairment if facts or circumstances indicate that impairment exists. Examples of such facts and circumstances are as follows:
| - | the period for which the Company has the right to explore in the specific area has expired during the period or will expire in the near future, and is not expected to be renewed; |
| - | substantive expenditure on further exploration for and evaluation of mineral resources in the specific area is neither budgeted nor planned; |
8
| Hard Creek Nickel Corporation |
| Notes to the Consolidated Financial Statements |
| Expressed in Canadian dollars |
| For the years ended December 31, 2016, 2015 and 2014 |
| 2. | Significant accounting policies and basis of preparation(cont’d) |
| | |
| Exploration and evaluation expenditures(cont’d) |
| - | exploration for and evaluation of mineral resources in the specific area have not led to the discovery of commercially viable quantities of mineral resources and the entity has decided to discontinue such activities in the specific area; and |
| - | sufficient data exist to indicate that, although a development in the specific area is likely to proceed, the carrying amount of the exploration and evaluation asset is unlikely to be recovered in full from successful development or by sale. |
After technical feasibility and commercial viability of extracting a mineral resource are demonstrable, the Company stops capitalizing expenditures for the applicable block of claims or geological area of interest and tests the asset for impairment. The capitalized balance, net of any impairment recognized, is then reclassified to either tangible or intangible mine development assets according to the nature of the asset.
Share-based payments
The Company operates an employee stock option plan. 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 goods or services received or the fair value of the equity instruments issued, if it is determined the fair value of the goods or services cannot be reliably measured, and are recorded at the date the goods or services are received. The corresponding amount is recorded to the share-based payment reserve. The fair value of options is determined using the Black–Scholes option pricing model. The number of shares and options expected to vest is reviewed and adjusted at the end of each reporting period such that the amount recognized for services received as consideration for the equity instruments granted shall be based on the number of equity instruments that eventually vest.
The Company records any adjustments on modification of warrants directly in equity.
Loss per share
Basic loss per share is calculated by dividing the loss attributable to common shareholders by the weighted average number of common shares outstanding in the period. For all periods presented, the loss attributable to common shareholders equals the reported loss attributable to owners of the Company. Diluted loss per share is calculated by the treasury stock method. Under the treasury stock method, the weighted average number of common shares outstanding for the calculation of diluted loss per share assumes that the proceeds to be received on the exercise of dilutive share options and warrants are used to repurchase common shares at the average market price during the period.
Financial instruments
The Company classifies its financial instruments in the following categories: loans and receivables, and financial liabilities. The classification depends on the purpose for which the financial instruments were acquired. Management determines the classification of its financial instruments at initial recognition.
Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market and are subsequently measured at amortized cost. They are included in current assets, except for maturities greater than 12 months after the end of the reporting period. These are classified as non-current assets.
9
| Hard Creek Nickel Corporation |
| Notes to the Consolidated Financial Statements |
| Expressed in Canadian dollars |
| For the years ended December 31, 2016, 2015 and 2014 |
| 2. | Significant accounting policies and basis of preparation(cont’d) |
| | |
| Financial instruments(cont’d) |
| | |
| Non-derivative financial liabilities (excluding financial guarantees) are subsequently measured at amortized cost. |
| | |
| Financial assets are derecognized when the rights to receive cash flows from the investments have expired or have been transferred and the Company has transferred substantially all risks and rewards of ownership. |
| | |
| At each reporting date, the Company assesses whether there is objective evidence that a financial instrument has been impaired. |
| | |
| The Company does not have any derivative financial assets and liabilities. |
| | |
| Impairment of assets |
| | |
| The carrying amount of the Company’s assets (which include equipment and exploration and evaluation assets) is reviewed at each reporting date to determine whether there is any indication of impairment. If such indication exists, the recoverable amount of the asset is estimated in order to determine the extent of the impairment loss. An impairment loss is recognized whenever the carrying amount of an asset or its cash generating unit exceeds its recoverable amount. Impairment losses are recognized in the statement of comprehensive loss. |
| | |
| The recoverable amount of assets is the greater of an asset’s fair value less cost to sell and value in use. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects the current market assessments of the time value of money and the risks specific to the asset. For an asset that does not generate cash inflows largely independent of those from other assets, the recoverable amount is determined for the cash- generating unit to which the asset belongs. |
| | |
| An impairment loss is only reversed if there is an indication that the impairment loss may no longer exist and there has been a change in the estimates used to determine the recoverable amount. Any reversal of impairment cannot increase the carrying value of the asset to an amount higher than the carrying amount that would have been determined had no impairment loss been recognized in previous years. |
| | |
| Income taxes |
| | |
| Current income tax: |
| | |
| Current income tax assets and liabilities for the current period are measured at the amount expected to be recovered from or paid to the taxation authorities. The tax rates and tax laws used to compute the amount are those that are enacted or substantively enacted, at the reporting date, in the countries where the Company operates and generates taxable income. |
| | |
| Current income tax relating to items recognized directly in other comprehensive income or equity is recognized in other comprehensive income or equity and not in profit or loss. Management periodically evaluates positions taken in the tax returns with respect to situations in which applicable tax regulations are subject to interpretation and establishes provisions where appropriate. |
10
| Hard Creek Nickel Corporation |
| Notes to the Consolidated Financial Statements |
| Expressed in Canadian dollars |
| For the years ended December 31, 2016, 2015 and 2014 |
| 2. | Significant accounting policies and basis of preparation(cont’d) |
| | |
| Deferred income tax: |
| | |
| Deferred income tax is recognized, using the asset and liability method, on temporary differences at the reporting date arising between the tax bases of assets and liabilities and their carrying amounts for financial reporting purposes. |
| | |
| The carrying amount of deferred income tax assets is reviewed at the end of each reporting period and recognized only to the extent that it is probable that sufficient taxable profit will be available to allow all or part of the deferred income tax asset to be utilized. |
| | |
| Deferred income tax assets and liabilities are measured at the tax rates that are expected to apply to the year when the asset is realized or the liability is settled, based on tax rates (and tax laws) that have been enacted or substantively enacted by the end of the reporting period. |
| | |
| Deferred income tax assets and deferred income tax liabilities are offset, if a legally enforceable right exists to set off current tax assets against current income tax liabilities and the deferred income taxes relate to the same taxable entity and the same taxation authority. |
| | |
| Flow-through shares: |
| | |
| On the issuance of flow-through shares, any premium received in excess of the market price of the Company’s common shares is initially recorded as a liability (“flow-through tax liability”). Provided that the Company has renounced the related expenditures, or that there is a reasonable expectation that it will do so, the flow-through tax liability is reduced on a pro-rata basis as the expenditures are incurred. If such expenditures are capitalized, a deferred tax liability is recognized. To the extent that the Company has suitable unrecognized deductible temporary differences, an offsetting recovery of deferred income taxes would be recorded. |
| | |
| Restoration and environmental obligations |
| | |
| The Company recognizes liabilities for statutory, contractual, constructive or legal obligations associated with the retirement of long-term assets, when those obligations result from the acquisition, construction, development or normal operation of the assets. The net present value of future restoration cost estimates arising from the decommissioning of plant and other site preparation work is capitalized to the related asset along with a corresponding increase in the restoration provision in the period incurred. Discount rates using a pre-tax rate that reflect the time value of money are used to calculate the net present value. |
| | |
| The Company’s estimates of restoration costs could change as a result of changes in regulatory requirements, discount rates and assumptions regarding the amount and timing of the future expenditures. These changes are recorded directly to the related asset with a corresponding entry to the restoration provision. The Company’s estimates are reviewed annually for changes in regulatory requirements, discount rates, effects of inflation and changes in estimates. Changes in the net present value, excluding changes in the Company’s estimates of restoration costs, are charged to the statement of comprehensive loss for the period. |
| | |
| The net present value of restoration costs arising from subsequent site damage that is incurred on an ongoing basis during production are charged to the statement of comprehensive loss in the period incurred. |
| | |
| | The costs of restoration projects that were included in the provision are recorded against the provision as incurred. The costs to prevent and control environmental impacts at specific properties are capitalized in accordance with the Company’s accounting policy for exploration and evaluation assets. |
11
| Hard Creek Nickel Corporation |
| Notes to the Consolidated Financial Statements |
| Expressed in Canadian dollars |
| For the years ended December 31, 2016, 2015 and 2014 |
| 2. | Significant accounting policies and basis of preparation(cont’d) |
| | |
| At December 31, 2016 and 2015, the Company had no material restoration and environmental obligations. |
| | |
| Equipment |
| | |
| Equipment is stated at historical cost less accumulated depreciation and accumulated impairment losses. |
| | |
| Subsequent costs are included in the asset’s carrying amount or recognized as a separate asset, as appropriate, only when it is probable that future economic benefits associated with the item will flow to the Company and the cost of the item can be measured reliably. The carrying amount of the replaced part is derecognized. All other repairs and maintenance are charged to the statement of comprehensive loss during the financial period in which they are incurred. |
| | |
| Gains and losses on disposals are determined by comparing the proceeds with the carrying amount and are recognized in the statement of comprehensive loss. |
| | |
| Depreciation is calculated on a straight-line method to write off the cost of the assets to their residual values over their estimated useful lives. The depreciation rates applicable to each category of equipment are as follows: |
| | Class of equipment | Depreciation rate |
| | Motor vehicles | 30% declining balance |
| | Computer equipment | 30% declining balance |
| | Exploration and office equipment | 20% declining balance |
| 3. | Accounting standards issued but not yet effective |
| | |
| New standard IFRS 9 “Financial Instruments” is a partial replacement of IAS 39 “Financial Instruments: Recognition and Measurement”. IFRS 9 uses a single approach to determine whether a financial asset is measured at amortized cost or fair value, replacing the multiple rules in IAS 39. The approach in IFRS 9 is based on how an entity manages its financial instruments in the context of its business model and the contractual cash flow characteristics of the financial assets. |
| | |
| The new standard also requires a single impairment method to be used, replacing the multiple impairment methods in IAS 39. IFRS 9 is effective for annual periods beginning on or after January 1, 2018. The Company is currently assessing the impact this new standard will have on its consolidated financial statements. |
| | |
| IFRS 16 “Leases” replaces IAS 17 “Leases” and the related interpretative guidance. IFRS 16 applies a control model to the identification of leases, distinguishing between a lease and a service contract on the basis of whether the customer controls the asset being leased. For those assets determined to meet the definition of a lease, IFRS 16 introduces significant changes to the accounting by lessees, introducing a single, on-balance sheet accounting model that is similar to current finance lease accounting, with limited exceptions for short-term leases or leases of low value assets. Lessor accounting is not substantially changed. The standard is effective for annual periods beginning on or after January 1, 2019, with early adoption permitted for entities that have adopted IFRS 15. The Company has not yet assessed the future impact of this new standard on its financial statements. |
| | |
| Other accounting standards or amendments to existing accounting standards that have been issued but have future effective dates are either not applicable or are not expected to have a significant impact on the Company’s consolidated financial statements. |
12
| Hard Creek Nickel Corporation |
| Notes to the Consolidated Financial Statements |
| Expressed in Canadian dollars |
| For the years ended December 31, 2016, 2015 and 2014 |
| | | | December 31, | | | December 31, | |
| | | | 2016 | | | 2015 | |
| | Goods and Service sales tax | $ | 1,141 | | $ | 596 | |
| | British Columbia mining tax credits | | 7,273 | | | 13,840 | |
| | Other receivable | | 2,090 | | | 5,480 | |
| | | $ | 10,504 | | $ | 19,916 | |
| | | | | | | | | | Exploration | | | | |
| | | | Motor | | | Computer | | | and office | | | | |
| | | | vehicles | | | equipment | | | equipment | | | Total | |
| | Cost: | | | | | | | | | | | | |
| | At December 31, 2015 and 2016 | $ | 20,330 | | $ | 28,809 | | $ | 61,984 | | $ | 111,123 | |
| | | | | | | | | | | | | | |
| | Depreciation: | | | | | | | | | | | | |
| | At January 1, 2015 | | 19,032 | | | 25,679 | | | 49,248 | | | 93,959 | |
| | Charge for the year | | 390 | | | 940 | | | 2,546 | | | 3,876 | |
| | | | | | | | | | | | | | |
| | At December 31, 2015 | | 19,422 | | | 26,619 | | | 51,794 | | | 97,835 | |
| | Charge for the year | | 272 | | | 660 | | | 2,036 | | | 2,968 | |
| | At December 31, 2016 | | 19,694 | | | 27,279 | | | 53,830 | | | 100,803 | |
| | | | | | | | | | | | | | |
| | Net book value: | | | | | | | | | | | | |
| | At December 31, 2015 | $ | 908 | | $ | 2,190 | | $ | 10,190 | | $ | 13,288 | |
| | At December 31, 2016 | $ | 636 | | $ | 1,530 | | $ | 8,154 | | $ | 10,320 | |
13
| Hard Creek Nickel Corporation |
| Notes to the Consolidated Financial Statements |
| Expressed in Canadian dollars |
| For the years ended December 31, 2016, 2015 and 2014 |
| 6. | Exploration and evaluation assets |
| | |
| The Company’s deferred exploration costs are as follows: |
| | | | Balance, | | | | | | Balance, | | | | | | Balance, | |
| | | | December 31, | | | Change in year | | | December 31, | | | Change in year | | | December 31, | |
| | | | 2014 | | | 2015 | | | 2015 | | | 2016 | | | 2016 | |
| | Mineral property interests | $ | 179,500 | | $ | - | | $ | 179,500 | | $ | - | | $ | 179,500 | |
| | Assays and testing | | 2,052,292 | | | - | | | 2,052,292 | | | - | | | 2,052,292 | |
| | Claims renewal / staking | | 458,761 | | | 500 | | | 459,261 | | | - | | | 459,261 | |
| | Drilling | | 12,488,967 | | | - | | | 12,488,967 | | | - | | | 12,488,967 | |
| | Environmental studies | | 1,256,621 | | | - | | | 1,256,621 | | | - | | | 1,256,621 | |
| | Exploration data management | | 917,422 | | | - | | | 917,422 | | | - | | | 917,422 | |
| | First Nations | | 166,444 | | | - | | | 166,444 | | | - | | | 166,444 | |
| | Geochemistry | | 111,066 | | | - | | | 111,066 | | | - | | | 111,066 | |
| | Geological and engineering services | | 8,748,398 | | | 31,500 | | | 8,779,898 | | | 18,000 | | | 8,797,898 | |
| | Geophysical services | | 743,515 | | | - | | | 743,515 | | | - | | | 743,515 | |
| | Metallurgy | | 3,780,382 | | | 12,290 | | | 3,792,672 | | | 7,500 | | | 3,800,172 | |
| | Petrographic work | | 43,957 | | | - | | | 43,957 | | | - | | | 43,957 | |
| | Project management | | 106,015 | | | - | | | 106,015 | | | - | | | 106,015 | |
| | Survey, mapping and camp | | 1,592,631 | | | 25,218 | | | 1,617,849 | | | 10,866 | | | 1,628,715 | |
| | Transportation | | 2,604,358 | | | 191 | | | 2,604,549 | | | - | | | 2,604,549 | |
| | Cost recovery | | (56,480 | ) | | - | | | (56,480 | ) | | - | | | (56,480 | ) |
| | Property impairments | | (22,951,102 | ) | | (10,055,858 | ) | | (33,006,960 | ) | | (29,093 | ) | | (33,036,053 | ) |
| | BC refundable mining tax credits | | (2,181,563 | ) | | (13,840 | ) | | (2,195,403 | ) | | (7,273 | ) | | (2,202,676 | ) |
| | Federal non-refundable mining tax credits, net of valuation allowance | | (61,185 | ) | | - | | | (61,185 | ) | | - | | | (61,185 | ) |
| | | $ | 10,000,000 | | $ | (9,999,999 | ) | $ | 1 | | $ | - | | $ | 1 | |
14
| Hard Creek Nickel Corporation |
| Notes to the Consolidated Financial Statements |
| Expressed in Canadian dollars |
| For the years ended December 31, 2016, 2015 and 2014 |
| 6. | Exploration and evaluation assets(cont’d) |
| | |
| The Company has a 100% interest in certain mineral claims, located along the Turnagain River in British Columbia, Canada. One claim is subject to a 4% net smelter return royalty (“NSR”). The Company has the option to purchase all or part of the NSR within four years of commercial production for a price of $1,000,000 per 1% NSR. |
| | |
| During the year ended December 31, 2016, the Company incurred costs totalling $29,093 net of B.C. Mineral Exploration Tax Credits (2015 - $69,699) on the Turnagain mineral claims, which have been impaired based on the indicators discussed below. |
| | |
| At December 31, 2016 the Company determined that impairment indicators existed and reduced he carrying value of the Turnagain mineral claims by $29,093 (2015 - $10,055,858) to $1 based on management’s assessment of current nickel prices, the global over- supply of nickel held in inventories and the weaker than expected Chinese and European demand for nickel. Future changes to this estimate could have a significant impact on the carrying value of the Turnagain mineral claims. |
| | |
| 7. | Trade payables and accrued liabilities |
| | | | December 31, | | | December 31, | |
| | | | 2016 | | | 2015 | |
| | Trade payables | $ | 4,970 | | $ | 3,929 | |
| | Accrued liabilities | | 10,000 | | | 11,920 | |
| | | $ | 14,970 | | $ | 15,849 | |
| 8. | Sublease obligations |
| | |
| Sublease obligations relate to the Company’s rent of office space. The term of the lease expires on March 31, 2019. A schedule of the Company’s minimum lease payments is as follows: |
| | | | December 31, | | | December 31, | |
| | | | 2016 | | | 2015 | |
| | Payable not later than one year | $ | 53,159 | | $ | 38,522 | |
| | Payable later than one year and not later than five years | | 79,738 | | | - | |
| | | $ | 132,897 | | $ | 38,522 | |
15
| Hard Creek Nickel Corporation |
| Notes to the Consolidated Financial Statements |
| Expressed in Canadian dollars |
| For the years ended December 31, 2016, 2015 and 2014 |
| 9. | Income taxes and mining tax credits |
| | |
| The actual income tax provision differs from the expected amounts calculated by applying the Canadian combined statutory federal and provincial corporate income tax rates to the Company’s loss before income taxes. The components of the Company’s income tax recovery are as follows: |
| | | | Year ended | | | Year ended | | | Year ended | |
| | | | December | | | December 31, | | | December 31, | |
| | | | 31, 2016 | | | 2015 | | | 2014 | |
| | Loss before income taxes | $ | 224,112 | | $ | 10,230,524 | | $ | 23,016,713 | |
| | | | | | | | | | | |
| | Statutory tax rate | | 26% | | | 26% | | | 26% | |
| | Expected income tax recovery at the statutory tax rate | $ | (58,269 | ) | $ | (2,659,936 | ) | $ | (5,988,505 | ) |
| | Permanent differences | | - | | | - | | | 32 | |
| | Tax pool not recognized | | 7,564 | | | 2,121,995 | | | 5,718,733 | |
| | Other | | 50,705 | | | 537,941 | | | 56,540 | |
| | Income tax recovery | $ | - | | $ | - | | $ | (213,200 | ) |
The Company has the following deferred tax assets and liabilities:
| | | | December 31, | | | December 31, | |
| | | | 2016 | | | 2015 | |
| | Federal investment tax credits | $ | 663,144 | | $ | 688,331 | |
| | Exploration and evaluation assets | | 3,674,149 | | | 3,664,824 | |
| | Non-capital loss carryforwards | | 4,056,879 | | | 4,006,159 | |
| | Other | | 85,439 | | | 84,667 | |
| | Valuation allowance | | (8,479,611 | ) | | (8,443,981 | ) |
| | | $ | - | | $ | - | |
The tax pools relating to these deferred tax assets expire as follows:
| | | | Canadian resource | | | Non-capital | | | | | | Canadian federal investment | |
| | | | pools | | | losses | | | Other | | | tax credit losses | |
| | 2025 | $ | - | | $ | - | | $ | - | | $ | 25,187 | |
| | 2026 | | - | | | 1,663,131 | | | 3,024 | | | 92,277 | |
| | 2027 | | - | | | 3,323,364 | | | - | | | 58,467 | |
| | 2028 | | - | | | 2,559,733 | | | - | | | 237,882 | |
| | 2029 | | - | | | 2,620,757 | | | - | | | 274,518 | |
| | 2030 | | - | | | 2,388,309 | | | - | | | - | |
| | 2031 | | - | | | 1,392,527 | | | - | | | - | |
| | 2032 | | - | | | 818,110 | | | - | | | - | |
| | 2033 | | - | | | 202,411 | | | - | | | - | |
| | 2034 | | - | | | 266,149 | | | - | | | - | |
| | 2035 | | - | | | 173,814 | | | - | | | - | |
| | 2036 | | - | | | 195,075 | | | - | | | - | |
| | No expiry | | 14,124,072 | | | - | | | 325,587 | | | | |
| | | $ | 14,124,072 | | $ | 15,603,380 | | $ | 328,611 | | $ | 663,144 | |
16
| Hard Creek Nickel Corporation |
| Notes to the Consolidated Financial Statements |
| Expressed in Canadian dollars |
| For the years ended December 31, 2016, 2015 and 2014 |
| 10. | Share capital |
| | |
| Authorized share capital |
| | |
| Unlimited number of common shares without par value. |
| | |
| Issued share capital |
| | |
| At December 31, 2016 there were 43,074,696 issued and fully paid common shares (2015 – 18,074,696). |
| | |
| On July 14, 2015, the Company consolidated its common shares on a basis of one (1) new common share for five (5) old common shares held. Reference to common shares, per share amounts and other securities have been retroactively restated. |
| | |
| In March 2016, the Company closed a private placement of 18,240,000 units at a price of $0.01 per unit for gross proceeds of $182,400. Each unit consists of one common share and one share purchase warrant exercisable into one common share at a price of $0.05 for a period of five years. Included in the private placement were 5,400,000 shares issued to officers and directors of the Company. As part of the private placement, the Company paid $1,800 in finder’s fees and issued 180,000 in broker warrants with an expiry date of one year. The Company determined that the value of the broker warrants was insignificant. |
| | |
| In April 2016, the Company closed a private placement of 6,760,000 units at a price of $0.01 per unit for gross proceeds of $67,600. Each unit consists of one common share and one share purchase warrant exercisable into one common share at a price of $0.05 for a period of five years. As part of the private placement, the Company paid $2,816 in finder’s fees and issued 21,600 in broker warrants with an expiry date of one year. The Company determined that the value of the broker warrants was insignificant. |
| | |
| There were no share issuances during the fiscal year 2015. |
| | |
| Basic and diluted loss per share |
| | |
| The calculation of basic and diluted loss per share for the year ended December 31, 2016 was based on the loss attributable to common shareholders of $224,112 (2015 - $10,230,524) and the weighted average number of common shares outstanding of 36,694,422 (2015 – 18,074,696). |
| | |
| Diluted loss per share did not include the effect of stock options and warrants as the effect would be anti-dilutive. |
| | |
| Stock options |
| | |
| The Company has adopted an incentive stock option plan, which provides that the Board of Directors of the Company may from time to time, in its discretion, and in accordance with TSX requirements, grant to directors, officers, employees and technical consultants to the Company, non-transferable stock options to purchase common shares, provided that the number of common shares reserved for issuance will not exceed 10% of the Company’s issued and outstanding common shares. Such options will be exercisable for a period of up to 5 years from the date of grant. In connection with the foregoing, the number of common shares reserved for issuance to any one optionee will not exceed five percent (5%) of the issued and outstanding common shares and the number of common shares reserved for issuance to all investor relations and technical consultants will not exceed two percent (2%) of the issued and outstanding common shares. Options may be exercised no later than 90 days following cessation of the optionee’s position with the Company or 30 days following cessation of an optionee conducting investor relations activities’ position. |
17
| Hard Creek Nickel Corporation |
| Notes to the Consolidated Financial Statements |
| Expressed in Canadian dollars |
| For the years ended December 31, 2016, 2015 and 2014 |
| 10. | Share capital(cont’d) |
| | |
| Stock options(cont'd) |
| | |
| If no vesting schedule is specified at the time of grant, the options will vest 25% each anniversary of the date of grant. |
| | |
| The fair value of each share option is estimated on the date of grant using the Black -Scholes Option Pricing Model that uses the assumptions noted below. Expected volatilities are based on historical volatility of the Company’s shares, and other factors. The expected term of share options granted represents the period of time that share options granted are expected to be outstanding. The risk-free rate of periods within the contractual life of the share option is based on the Canadian government bond rate. |
| | |
| 2,950,000 share options were granted during the year ended December 31, 2016, which vested 25% on the date of grant and 25% each six months thereafter. The assumptions used in the Black- Scholes Option Pricing model were as follows: expected price volatility of 102%, risk free interest rate of 0.62%-1.16%, expected life of options of 4 ½ - 5 years, and no dividend yield. The fair value of these options granted was $108,081 of which $42,831 was recorded by December 31, 2016. |
| | |
| On exercise, each option allows the holder to purchase one common share of the Company. The changes in options during the years ended December 31, 2016 and 2015 are as follows: |
| | | | Year ended | | | Year ended | |
| | | | December 31, 2016 | | | December 31, 2015 | |
| | | | | | | Weighted | | | | | | Weighted | |
| | | | | | | average | | | | | | average | |
| | | | Number of | | | exercise | | | Number of | | | exercise | |
| | | | options | | | price | | | options | | | price | |
| | Options outstanding, beginning | | 469,400 | | $ | 1.08 | | | 1,084,400 | | $ | 1.40 | |
| | Options granted | | 2,950,000 | | | 0.05 | | | - | | | - | |
| | Options expired/cancelled | | (139,400 | ) | | 2.44 | | | (615,000 | ) | | 1.32 | |
| | Options outstanding, ending | | 3,280,000 | | | 0.50 | | | 469,400 | | $ | 1.08 | |
| | Options exercisable, ending | | 1,805,000 | | $ | 0.13 | | | 469,400 | | $ | 1.08 | |
Details of options outstanding as at December 31, 2016 are as follows:
| | Number of options | | Weighted average | | | Weighted average | |
| | outstanding | | exercise price | | | contractual life | |
| | 330,000 | $ | 0.50 | | | 1.01 years | |
| | 2,950,000 | $ | 0.05 | | | 4.50 years | |
| | 3,280,000 | $ | 0.50 | | | 4.15 years | |
18
| Hard Creek Nickel Corporation |
| Notes to the Consolidated Financial Statements |
| Expressed in Canadian dollars |
| For the years ended December 31, 2016, 2015 and 2014 |
| 10. | Share capital(cont’d) |
| | |
| Warrants |
| | |
| On exercise, each warrant allows the holder to purchase one common share of the Company. The changes in warrants outstanding during the years ended December 31, 2016 and 2015 are as follows: |
| | | | Year ended | | | Year ended | |
| | | | December 31, 2016 | | | December 31, 2015 | |
| | | | | | | Average | | | | | | Average | |
| | | | Number of | | | exercise | | | Number of | | | exercise | |
| | | | warrants | | | price | | | warrants | | | price | |
| | Warrants outstanding, | | | | | | | | | | | | |
| | beginning | | 2,105,360 | | $ | 0.12 | | | 2,418,667 | | $ | 0.40 | |
| | Warrants issued | | 25,201,600 | | | 0.05 | | | - | | | - | |
| | Warrants expired | | (418,667 | ) | | 0.40 | | | (313,307 | ) | | 0.40 | |
| | Warrants outstanding, ending | | 26,888,293 | | $ | 0.05 | | | 2,105,360 | | $ | 0.12 | |
At December 31, 2016 and December 31, 2015, all warrants outstanding were exercisable. Details of warrants outstanding as at December 31, 2016 are as follows:
| | | | | | | Number of warrants | |
| | Exercise price | | Contractual life | | | outstanding | |
| | $0.05 | | 4.25 years | | | 18,240,000 | |
| | $0.05 | | 4.29 years | | | 5,000,000 | |
| | $0.05 | | 4.26 years | | | 1,760,000 | |
| | $0.05 | | 0.91 years | | | 1,686,693 | |
| | $0.05 | | 0.25 years | | | 180,000 | |
| | $0.05 | | 0.29 years | | | 21,600 | |
| | $0.05 | | 4.02 years | | | 26,888,293 | |
Effective November 16, 2015, the Company extended 1,686,693 post consolidated warrants from November 27, 2015 to November 27, 2017 and repriced them from a post consolidated strike price of $0.40 to $0.05. If the closing price of the Company's shares is $0.0625 or greater for a period of 10 consecutive trading days, the warrant holders will have 30 days to exercise their warrants, otherwise, the warrants will expire on the 31st day. See Note 14, Subsequent events.
| 11. | Share-based payment reserve |
| | |
| The share-based payment reserve records items recognized as stock-based compensation expense, the intrinsic value of warrants associated with private placements and the fair value of agent’s warrants until such time that the stock options or warrants are exercised, at which time the corresponding amount will be transferred to share capital. |
| | |
| The intrinsic value of the warrants is the difference between the market value of the stock when issued and the unit price of the private placement times the number of units issued. |
19
| Hard Creek Nickel Corporation |
| Notes to the Consolidated Financial Statements |
| Expressed in Canadian dollars |
| For the years ended December 31, 2016, 2015 and 2014 |
| 12. | Related party transactions |
| | |
| Key management personnel compensation |
| | | | | | | Years ended | | | | |
| | | | December 31, | | | December 31, | | | December 31, | |
| | | | 2016 | | | 2015 | | | 2014 | |
| | Consulting fees (include in office and general) | $ | 8,000 | | $ | - | | $ | - | |
| | Management fees | | 18,000 | | | 38,000 | | | 48,000 | |
| | Stock-based compensation | | 28,312 | | | - | | | - | |
| | | $ | 54,312 | | $ | 38,000 | | $ | 48,000 | |
There are no amounts owing to related parties at December 31, 2016 or 2015. See also Note 10.
| 13. | Financial risk and capital management |
| | |
| The Company is exposed in varying degrees to a variety of financial instrument related risks. The Board of Directors approves and monitors the risk management processes, inclusive of documented investment policies, counterparty limits, and controlling and reporting structures. The type of risk exposure and the way in which such exposure is managed is provided as follows: |
| | |
| 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’s primary exposure to credit risk is on its cash held in bank accounts. All of the cash is deposited in bank accounts held with one major bank in Canada. Since all of the Company’s cash is held by one bank there is a concentration of credit risk. This risk is managed by using major banks that are high credit quality financial institutions as determined by rating agencies. |
| | |
| Liquidity risk |
| | |
| Liquidity risk is the risk that the Company will not be able to meet its financial obligations as they fall due. The Company has a planning and budgeting process in place to help determine the funds required to support the Company’s normal operating requirements on an ongoing basis. The |
| | |
| Company ensures that there are sufficient funds to meet its short-term business requirements, taking into account its anticipated cash flows from operations and its holdings of cash and cash equivalents. |
| | |
| Historically, the Company's sole source of funding has been the issuance of equity securities for cash, primarily through private placements. The Company’s access to financing is always uncertain. There can be no assurance of continued access to significant equity funding. |
| | |
| Foreign exchange risk |
| | |
| Foreign currency risk is the risk that the fair values of future cash flows of a financial instrument will fluctuate because they are denominated in currencies that differ from the respective functional currency. The Company does not have any direct exposure to foreign exchange risk. |
20
| Hard Creek Nickel Corporation |
| Notes to the Consolidated Financial Statements |
| Expressed in Canadian dollars |
| For the years ended December 31, 2016, 2015 and 2014 |
| 13. | Financial risk and capital management(cont'd) |
| | |
| Interest rate risk |
| | |
| Interest rate risk is the risk that the fair value of future cash flows of a financial instrument will fluctuate because of changes in market interest rates. The Company does not have any significant interest rate risk. |
| | |
| Capital management |
| | |
| The Company's policy is to maintain a strong capital base so as to maintain investor and creditor confidence, safeguard the Company’s ability to support the exploration and development of its exploration and evaluation assets and to sustain future development of the business. The capital structure of the Company consists of equity and debt obligations, net of cash. |
| | |
| There were no changes in the Company's approach to capital management during the year and no restrictions. |
| | |
| Classification of financial instruments |
| | |
| Financial assets included in the statement of financial position are as follows: |
| | | | December 31, | | | December 31, | |
| | | | 2016 | | | 2015 | |
| | Loans and receivables: | | | | | | |
| | Cash | $ | 85,758 | | $ | 11,964 | |
| | Reclamation deposits | | 187,900 | | | 187,900 | |
| | | $ | 273,658 | | $ | 199,864 | |
Financial liabilities included in the statement of financial position are as follows:
| | | | December 31, | | | December 31, | |
| | | | 2016 | | | 2015 | |
| | Non-derivative financial liabilities: | | | | | | |
| | Trade payables | $ | 14,970 | | $ | 15,849 | |
Fair value
The fair value of the Company’s financial assets and liabilities approximates the carrying amount.
| 14. | Subsequent events |
| | |
| Subsequent to year end, the Company’s shares traded at more than $0.065 per share for 10 consecutive trading days, and as a result certain warrants were subject to an accelerated exercise clause. The accelerated clause affects 1,686,693 warrants with an exercise price of $0.05 which now expire April 1, 2017 instead of November 27, 2017. As of April 1, 2017, no warrants were exercised. |
| | |
| A total of 201,600 broker warrants with an exercise price of $0.05 expired subsequent to year end. |
21
