Perpetua Resources (PPTA) 8-K Condensed Consolidated Interim Financial Statements

Exhibit 99.3

 

CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS

FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2021 and 2020

Perpetua Resources Corp.

CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited)

	September 30, 2021			December 31, 2020
ASSETS
CURRENT ASSETS
Cash and cash equivalents	$	56,082,017		$	25,037,766
Receivables		77,931			107,727
Prepaid expenses		835,871			646,996
		56,995,819			25,792,489
NON-CURRENT ASSETS
Buildings and equipment, net		177,079			189,294
Right-of-use assets		76,719			235,965
Environmental reclamation bond (Note 9)		3,000,000			-
Mineral properties and interest		72,164,334			71,913,864
TOTAL ASSETS	$	132,413,951		$	98,131,612
LIABILITIES AND SHAREHOLDERS’ EQUITY
CURRENT LIABILITIES
Trade and other payables	$	4,101,250		$	3,736,222
Lease liabilities (Note 3)		117,553			201,825
Current environmental reclamation liabilities (Note 9)		3,251,622			-
		7,470,425			3,938,047
NON-CURRENT LIABILITIES
Convertible notes (Note 5)		-			9,562,293
Convertible note derivative (Notes 6, 8)		-			26,060,446
Warrant derivative (Notes 4, 8)		167,390			874,864
Non-current lease liabilities		-			65,136
Non-current environmental reclamation liabilities (Note 9)		3,738,647			-
TOTAL LIABILITIES	$	11,376,462		$	40,500,786
COMMITMENT AND CONTINGENCIES (Note 10)
SHAREHOLDERS’ EQUITY (Note 7)
Common stock, no par value, unlimited shares authorized, 62,941,443 and 47,481,134 shares outstanding, respectively		615,163,442			528,715,788
Additional paid in capital		28,681,483			26,176,265
Accumulated deficit		(522,807,436	)		(497,261,227	)
TOTAL SHAREHOLDERS’ EQUITY		121,037,489			57,630,826
TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY	$	132,413,951		$	98,131,612

See accompanying notes to the unaudited condensed consolidated financial statements

2 

Perpetua Resources Corp.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)

	For the three months ended September 30,						For the nine months ended September 30,
	2021			2020			2021			2020
EXPENSES
Consulting	$	(60,486	)	$	19,381		$	166,730		$	48,586
Corporate salaries and benefits		278,910			244,520			1,676,262			790,959
Depreciation		15,142			22,646			39,961			75,026
Directors’ fees		144,893			143,567			634,693			306,336
Exploration		4,975,996			6,828,253			17,552,062			19,765,208
Environmental liability expense		1,166,627			-			8,640,432			-
Office and administrative		268,491			91,271			1,254,472			259,239
Professional fees		58,507			88,170			315,932			194,497
Shareholder and regulatory		129,998			146,554			508,050			312,038
Travel and related costs		10,339			455			14,046			29,304
OPERATING LOSS		6,988,417			7,584,817			30,802,640			21,781,193
OTHER EXPENSES (INCOME)
Change in fair value of convertible note derivative (Note 6)		(17,644	)		153,708,326			(5,710,557	)		183,965,145
Change in fair value of warrant derivative (Note 4)		(342,242	)		702,242			(707,474	)		741,287
Finance costs		834			886,699			362,545			3,109,960
Foreign exchange loss (income)		(117,938	)		8,397,631			834,841			6,321,492
Interest income		(9,006	)		(61,640	)		(35,786	)		(233,401	)
Total other loss (income)		(485,996	)		163,633,258			(5,256,431	)		193,904,483
NET LOSS	$	6,502,421		$	171,218,075		$	25,546,209		$	215,685,676
NET LOSS PER SHARE, BASIC AND DILUTED	$	0.11		$	4.90		$	0.49		$	7.24
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING, BASIC AND DILUTED		57,079,291			34,965,513			51,694,189			29,780,010

See accompanying notes to the unaudited condensed consolidated financial statements

3 

Perpetua Resources Corp. 

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY (Unaudited)

	Common Stock					Additional Paid			Accumulated
	Shares		Amount			in Capital			Deficit			Total
BALANCE, December 31, 2019		27,112,550	$	283,489,579		$	25,882,517		$	(276,629,120	)	$	32,742,976
Share based compensation		-		-			551,245			-			551,245
Exercise of share purchase options		41,650		213,470			(83,227	)		-			130,243
Net loss for the period		-		-			-			(595,406	)		(595,406	)
BALANCE, March 31, 2020		27,154,200		283,703,049			26,350,535			(277,224,526	)		32,829,058
Share based compensation		-		-			334,847			-			334,847
Shares issued through stock appreciation rights		5,416		23,287			(21,514	)		-			1,773
Exercise of share purchase options		9,750		41,083			(15,349	)		-			25,734
Net loss for the period		-		-			-			(43,872,195	)		(43,872,195	)
BALANCE, June 30, 2020		27,169,366	$	283,767,419		$	26,648,519		$	(321,096,721	)	$	(10,680,783	)
Share based compensation		-		-			346,631			-			346,631
Shares issued upon conversion of convertible notes		19,969,280		242,142,800			-			-			242,142,800
Share issue costs		-		(22,149	)		-			-			(22,149	)
Shares issued through stock appreciation rights		9,470		126,588			(55,495	)		-			71,093
Exercise of share purchase options		323,125		2,614,344			(966,886	)		-			1,647,458
Net loss for the period		-		-			-			(171,218,075	)		(171,218,075	)
BALANCE, September 30, 2020		47,471,241	$	528,629,002		$	25,972,769		$	(492,314,796	)	$	62,286,975
BALANCE, December 31, 2020		47,481,134	$	528,715,788		$	26,176,265		$	(497,261,227	)	$	57,630,826
Share based compensation		-		-			1,929,352			-			1,929,352
Shares issued through stock appreciation rights		30,819		230,396			(226,229	)		-			4,167
Exercise of share purchase options		82,038		446,407			(149,533	)		-			296,874
Net loss for the period		-		-			-			(4,716,577	)		(4,716,577	)
BALANCE, March 31, 2021		47,593,991		529,392,591			27,729,855			(501,977,804	)		55,144,642
Share based compensation		-		-			726,451			-			726,451
Shares issued upon conversion of convertible notes		4,345,350		31,154,648			-			-			31,154,648
Shares issued through stock appreciation rights		8,970		71,398			(53,640	)		-			17,758
Exercise of share purchase options		31,750		240,549			(83,534	)		-			157,015
Net loss for the period		-		-			-			(14,327,211	)		(14,327,211	)
BALANCE, June 30, 2021		51,980,061		560,859,186			28,319,132			(516,305,015	)		72,873,303
Share based compensation		-		-			368,989			-			368,989
Shares sold through stock offering		10,952,382		57,500,005			-			-			57,500,005
Share issued cost		-		(3,243,184	)		-			-			(3,243,184	)
Shares issued upon conversion of convertible notes		6,500		28,858			-			-			28,858
Exercise of share purchase options		2,500		18,577			(6,638	)		-			11,939
Net loss for the period		-		-			-			(6,502,421	)		(6,502,421	)
BALANCE, September 30, 2021		62,941,443	$	615,163,442		$	28,681,483		$	(522,807,436	)	$	121,037,489

See accompanying notes to the unaudited condensed consolidated financial statements

4 

Perpetua Resources Corp. 

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)

	For the nine months ended September 30,
	2021			2020
OPERATING ACTIVITIES:
Net loss	$	(25,546,209	)	$	(215,685,676	)
Noncash items included in net loss:
Share based compensation (Note 7)		3,024,792			1,232,723
Depreciation		39,961			75,026
Accretion of convertible debt discount (Note 5)		362,545			2,885,750
Change in fair value of warrant derivative (Note 4)		(707,474	)		741,287
Change in fair value of convertible note derivative (Note 6)		(5,710,557	)		183,965,145
Environmental liability expense		8,640,432			-
Unrealized foreign exchange loss (gain)		916,146			7,868,151
Changes in:
Receivables		41,930			38,112
Prepaid expenses		(188,875	)		324,032
Trade and other payables		355,394			156,094
Environmental reclamation liabilities		(1,650,163	)		-
Net cash used in operating activities		(20,422,078	)		(18,399,356	)
INVESTING ACTIVITIES:
Investment in mineral properties and interest		(250,470	)		(250,470	)
Purchase of building and equipment		(27,746	)		(38,796	)
Purchase of surety bond		(3,000,000	)		-
Net cash used in investing activities		(3,278,216	)		(289,266	)
FINANCING ACTIVITIES:
Proceeds from sale of common stock		57,500,005			-
Payment of shares issue costs		(3,243,184	)		-
Proceeds from issuance of convertible note, net		-			33,344,523
Proceeds from exercise of share purchase options (Note 7)		487,753			1,876,301
Net cash provided by financing activities		54,744,574			35,220,824
Effect of foreign exchange on cash and cash equivalents		(29	)		(39,765	)
Net increase in cash and cash equivalents		31,044,251			16,492,437
Cash and cash equivalents, beginning of period		25,037,766			17,504,622
Cash and cash equivalents, end of period	$	56,082,017		$	33,997,059
CASH AND CASH EQUIVALENTS
Cash	$	5,357,190		$	1,722,440
Investment savings accounts		29,246,600			12,073,310
GIC and term deposits		21,478,227			20,201,309
Total cash and cash equivalents	$	56,082,017		$	33,997,059

See accompanying notes to the unaudited condensed consolidated financial statements

5 

Perpetua Resources Corp. 

Notes to Condensed Consolidated Interim Financial Statements

1. Nature of Operations and Basis of Presentation

Perpetua Resources Corp. (the “Corporation”, the “Company”, “Perpetua Resources” or “Perpetua”) was incorporated on February 22, 2011 under the Business Corporation Act (British Columbia) (the “BCBCA”). The Company was organized to hold shares in wholly owned subsidiaries that locate, acquire, develop and restore mineral properties located principally in the Stibnite – Yellow Pine mining district in Valley County, Idaho, USA. The Company’s principal asset is 100% ownership in subsidiaries that control the Stibnite Gold Project (“Stibnite Gold Project” or the “Project”). The Company currently operates in one segment, mineral exploration in the United States.

The unaudited condensed consolidated financial statements are prepared in accordance with accounting principles generally accepted in the United States of America ("GAAP") and include the accounts of Perpetua Resources Corp. and its wholly owned subsidiaries, Perpetua Resources Idaho, Inc. and Idaho Gold Resource Company, LLC. Intercompany transactions and balances have been eliminated.

The unaudited condensed consolidated financial statements do not include all disclosures required of annual consolidated financial statements and, accordingly, should be read in conjunction with our annual financial statements included in the Company’s annual report on Form 10-K for the year ended December 31, 2021 filed with the SEC on March 18, 2022. Operating results for the nine months ended September 30, 2021 may not be indicative of results expected for the full year ending December 31, 2021. Management estimates that the Company’s 2021 effective tax rate will be 0% due to the Company’s cumulative loss position, historical net operating losses (“NOLs”), and other available evidence related to the Company’s ability to generate taxable income. Accordingly, there is no income tax provision or benefit for the nine month period ended September 30, 2021.

In the opinion of the Company, the accompanying unaudited condensed consolidated financial statements contain all adjustments, consisting of only normal recurring adjustments, necessary for a fair statement of its financial position as of September 30, 2021 and statements of operations, of cash flows and of changes in shareholders’ equity for the three and nine months ended September 30, 2021 and 2020, respectively.

It is management’s opinion, based on the Corporation’s current capital resources and liquidity that the Corporation will have sufficient assets to discharge its liabilities as they become due, to continue to advance the Stibnite Gold Project for at least 12 months from the date these third quarter 2021 financial statements are issued, and to meet its administrative and overhead requirements for the same period. Future financings to fund additional permitting efforts and construction are anticipated through efforts to raise additional equity, new debt, project specific debt, and/or other means. Our continued operations are dependent on our ability to obtain additional financing prior to the second half of 2023 or alter the timing of controllable expenditures to the extent needed to maintain adequate liquidity to progress critical permitting efforts and maintain environmental baseline data. However, there can be no assurance that we will be successful in our efforts to raise additional capital on terms favorable to us, or at all, or our ability to adequately reduce expenses, if necessary, to maintain sufficient liquidity or capital resources.

COVID-19 Estimation Uncertainty

In March 2020, the World Health Organization declared the outbreak of COVID-19 a global pandemic. Government measures to limit the spread of COVID-19, including the closure of non-essential businesses, did not materially disrupt the Corporation’s operations during the year. Due to the rapid developments and uncertainty surrounding COVID-19, it is not possible to predict the impact that COVID-19 will have on our business, financial position and operating results in the future. The Corporation is closely monitoring the impact of the pandemic on all aspects of its business.

Loss per share

Basic loss per share is computed by dividing the net loss by the weighted average number of shares outstanding during the reporting period. Diluted loss per share is computed similar to basic loss per share except that the weighted average shares outstanding are increased to include additional shares for the assumed exercise of share purchase options and warrants, if dilutive. The Company’s potential dilutive shares of common stock include outstanding share purchase options, warrants and convertible notes. Potentially diluted shares as of September 30, 2021 and 2020:

	September 30, 2021
	2021		2020
Share purchase options		2,570,900		1,989,975
Warrants		200,000		200,000
Convertible notes		-		4,351,850
Balance		2,770,900		6,541,825

6 

Perpetua Resources Corp. 

Notes to Condensed Consolidated Interim Financial Statements

All potentially dilutive shares were excluded from the calculation of diluted loss per share as their exercise and conversion would be anti-dilutive.

2. Recently Issued Accounting Pronouncements

In December 2019, the Financial Accounting Standards Board (the “FASB”) issued Accounting Standard Update (“ASU”) No. 2019-12 Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes. The update contains a number of provisions intended to simplify the accounting for income taxes. The update is effective for fiscal years beginning after December 15, 2020, with early adoption permitted. The adoption of the update as of January 1, 2021 did not have a material impact on our unaudited condensed consolidated financial statements.

In August 2020, the FASB issued ASU No. 2020-06, “Debt—Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging - Contracts in Entity’s Own Equity (Subtopic 815-40),” which simplifies the accounting for convertible instruments. The guidance removes certain accounting models which separate the embedded conversion features from the host contract for convertible instruments, requiring bifurcation only if the convertible debt feature qualifies as a derivative or for convertible debt issued at a substantial premium. The ASU removes certain settlement conditions required for equity contracts to qualify for the derivative scope exception, permitting more contracts to qualify for the exception. In addition, the guidance eliminates the treasury stock method to calculate diluted earnings per share for convertible instruments and requires the use of the if-converted method. The ASU is effective for annual reporting periods beginning after December 15, 2021, including interim reporting periods within those annual periods, with early adoption permitted no earlier than the fiscal year beginning after December 15, 2021. The adoption of this update on January 1, 2022 did not have a material impact on our unaudited condensed consolidated financial statements.

From time to time, new accounting pronouncements are issued by the FASB that are adopted by the Company as of the specified effective date. Unless otherwise discussed, management believes that the impact of recently issued standards did not or will not have a material impact on the Company’s consolidated financial statements upon adoption.

3. Mineral Properties and Interest

The Company’s mineral properties and interest at the Stibnite Gold Project totaled $72,164,334 and $71,913,864 as of September 30, 2021 and December 31, 2020, respectively.

The Company’s subsidiaries acquired mineral rights to the Stibnite Gold Project through several transactions. All mineral rights held by the Company’s subsidiaries are held through patented and unpatented mineral and mill site claims, except the Cinnabar option claims which are held under an Option to Purchase (“OTP”), and all of the Stibnite Gold Project is subject to a 1.7% net smelter returns royalty upon the sale of project-related production.

Included in mineral properties and interest are annual payments made under option agreements, where the Company is entitled to continue to make annual option payments or, ultimately, purchase certain properties. Annual payments due under option agreements during 2021 are $195,000.

As of September 30, 2021, it has not yet been determined that the Project’s mining deposits can be economically and legally extracted or produced because the Project’s estimated reserves do not yet meet the definition of proven reserves under the United States Securities and Exchange Commission (“SEC”) Regulation S-K 1300.

Accordingly, development costs related to such reserves will not be considered capitalized unless they are incurred after such determination. Upon commencement of commercial production, capitalized costs will be amortized over their estimated useful lives or units of production, whichever is a more reliable measure.

Although the Company has taken steps to review and verify mineral rights to the properties in which it has an interest, in accordance with industry standards for properties in the exploration stage, these procedures do not guarantee the Company’s title and interests. Mineral title may be subject to unregistered prior agreements and noncompliance with regulatory requirements.

4. Warrant Derivative

In May 2013, the Company issued to Franco Nevada Company (“Franco”) 200,000 share purchase warrants (“Franco Warrants”) for gross proceeds of $350,000. The Franco Warrants are exercisable into 200,000 common shares of the Company at C$12.30 per warrant. The Franco Warrants contain a mandatory conversion feature which requires Franco to exercise 100% of the outstanding warrants if, at any time, the volume weighted average trading price of the Corporation’s common shares is equal to or greater than C$32.30 for a period of 30 consecutive trading days. The Franco Warrants expire on May 9, 2023.

7 

Perpetua Resources Corp. 

Notes to Condensed Consolidated Interim Financial Statements

The exercise price of the Franco Warrants is denominated in Canadian dollars; however, the functional currency of the Company is the U.S. dollar. As a result of this difference in currencies, the proceeds that will be received by the Company are not fixed and will vary based on foreign exchange rates and the warrants are a derivative and are required to be recognized and measured at fair value at each reporting period. Any changes in fair value from period to period are recorded as a gain or loss in the unaudited condensed consolidated statements of operations. There are no circumstances in which the Company would be required to pay any cash upon exercise or expiry of the warrants.

A reconciliation of the change in fair values of the derivative is below:

	Fair Value of Warrant Derivative
Balance, December 31, 2019	$	274,723
Change in fair value of warrant derivative		741,287
Balance, September 30, 2020	$	1,016,010
Balance, December 31, 2020	$	874,864
Change in fair value of warrant derivative		(707,474	)
Balance, September 30, 2021	$	167,390

The fair value of the warrants was calculated using the Black-Scholes valuation model. As of September 30, 2021 and December 31, 2020, the inputs used in the Black-Scholes valuation model are:

	September 30, 2021			December 31, 2020
Share price	C$	6.30		C$	12.20
Exercise price	C$	12.30		C$	12.30
Expected term (in years)		1.6			2.4
Expected share price volatility		73	%		79	%
Annual rate of quarterly dividends		0	%		0	%
Risk-free interest rate		0.5	%		0.2	%

5. Convertible Notes

On March 17, 2016, the Corporation issued unsecured convertible notes (the “2016 Notes”) for gross proceeds of $38.5 (C$50.0) million and a maturity date of March 17, 2023. On March 17, 2020, the Corporation issued a second round of unsecured convertible notes (the “2020 Notes”) for gross proceeds of $35.0 (C$47.6) million and a maturity date of March 17, 2027. Both sets of notes, collectively the “Convertible Notes”, have identical features and bear interest at a rate of 0.05% per annum, payable annually in cash or common shares (at the Corporation’s election) or added to the principal and payable on maturity. Upon maturity, and for each set of notes, the outstanding principal amount is due and payable in cash unless converted in advance of that date. The holders of the Convertible Notes may convert any portion of their Convertible Notes at any time prior to the maturity date into common shares of the Corporation, at a price of C$3.541 per share for the 2016 Notes and a price of C$4.655 for the 2020 Notes. If there is an equity financing completed at 95% of the conversion price, or below, the conversion price is adjusted downward. The Convertible Notes can be redeemed by the Corporation after four years with not more than 60-days written notice and not less than 30-days written notice when the Corporation’s common shares reach a volume weighted average trading price for 20 consecutive trading days of C$7.082 or higher for the 2016 Notes and C$9.31 or higher for the 2020 Notes. Following the notice of redemption, but prior to the redemption date, the holders may convert their Convertible Notes to be redeemed into common shares at the then-current conversion price.

The terms for the 2020 Notes were announced on March 10, 2020, for gross proceeds of $35.0 million at a USD:CAD exchange rate of 1:1.36 (C$47.6 million due and payable upon maturity). The 2020 Notes were issued on March 17, 2020, with a USD:CAD exchange rate of 1:1.42; this movement resulted in a foreign exchange gain on the date of issuance.

Each set of Convertible Notes are deemed to contain an embedded derivative (collectively, the “Convertible Note Derivatives”) relating to the conversion option. The Convertible Note Derivatives were valued upon initial recognition at fair value using partial differential equation methods. At inception, for each set of notes, the face value of the notes was reduced by the estimated fair value of the related convertible note derivative and the transaction costs.

8 

Perpetua Resources Corp. 

Notes to Condensed Consolidated Interim Financial Statements

See below for additional detail of initial value upon issuance of each set of notes:

	2020 Notes			2016 Notes
Gross proceeds upon issuance	$	35,000,000		$	38,508,431
Foreign exchange gain		(1,419,753	)		-
Face value of convertible note	$	33,580,247		$	38,508,431
Estimated fair value of embedded derivative		(17,197,994	)		(19,771,572	)
Transaction costs		(213,575	)		(429,723	)
Convertible note liability, net	$	16,168,678		$	18,307,136

On August 26, 2020, convertible notes in the aggregate principal amount of C$82,102,500 (C$34,502,500 of the 2016 Notes and C$47,600,000 for all 2020 Notes), were converted for 19,969,280 common shares of the Company.

During the nine months ended September 30, 2021, the remaining 2016 Notes in the aggregate principal amount of C$15,409,901 were converted for 4,351,850 common shares of Perpetua Resources. As of September 30, 2021, the Corporation has no outstanding convertible notes. During 2021 and 2020, interest payments were made to note holders in cash, in the amount of $7,190 and $32,521, respectively.

The components of the Convertible Notes activity during the ninth months ended September 30, 2021 and 2020, including conversion related activity are as follows:

	Convertible Notes
Balance, December 31, 2020	$	9,562,293
Accretion and Interest Expense		362,545
Interest Payments		(7,190	)
Foreign exchange adjustments		345,471
Conversion		(10,263,119	)
Balance, September 30, 2021	$	-
Balance, December 31, 2019	$	27,336,373
Additions		16,168,678
Conversions		(38,674,790	)
Accretion and Interest Expense		2,885,750
Interest Payments		(32,522	)
Foreign exchange adjustments		1,408,366
Balance, September 30, 2020	$	9,091,855

6. Convertible Note Derivative

Convertible Note Derivative related to the Convertible Notes (Note 5) were valued upon initial recognition at fair value using partial differential equation methods and are subsequently re-measured at fair value at each period end through the consolidated statement of net loss and comprehensive loss. The components of changes in the Convertible Note Derivative balance for the nine month period ended September 30, 2021 and 2020 are summarized as follows:

	Convertible Note Derivative
Balance, December 31, 2020	$	26,060,446
Conversions		(20,920,535	)
Fair value adjustment		(5,710,557	)
Foreign exchange adjustments		570,646
Balance, September 30, 2021	$	-
Balance, December 31, 2019	$	25,478,212
Additions		17,197,994
Conversions		(203,468,010	)
Fair value adjustment		183,965,145
Foreign exchange adjustments		6,420,020
Balance, September 30, 2020	$	29,593,361

9 

Perpetua Resources Corp. 

Notes to Condensed Consolidated Interim Financial Statements

Upon conversion of the remaining Convertible Notes, the fair value of the Convertible Note Derivatives and the carrying value of the Convertible Notes, on that date, were reclassified to share capital.  The fair value of the Convertible Note Derivatives was calculated using partial differential equation methods. The assumptions used in the valuation model include the following, with a change in share price having the most significant impact on the valuation:

	September 30, 2021	December 31, 2020
Risk-free interest rate	n/a	0.2%
Expected term (in years)	n/a	2.2
Share Price	n/a	C$12.20
Credit Spread	n/a	10%
Implied discount on share price	n/a	21% - 9%
Expected share price volatility	n/a	77%

7. Equity

a. Authorized

· Unlimited number of common shares without par value.

· Unlimited number of first preferred shares without par value.

· Unlimited number of second preferred shares without par value.

On January 27, 2021, the Corporation completed a one-for-ten (1:10) reverse share split of all of its issued and outstanding common shares (“Share Consolidation”), resulting in a reduction of the issued and outstanding shares from 475,227,060 to 47,522,706. Shares reserved under the Corporation’s equity and incentive plans were adjusted to reflect the Share Consolidation. All share and per share data presented in the Corporation’s condensed consolidated financial statements have been retroactively adjusted to reflect the Share Consolidation unless otherwise noted.

In August 2021, the Company issued 10,952,382 common shares at a price of $5.25 per common share for gross proceeds of approximately $57.5 million with transaction costs of $3.2 million. The net proceeds of the issuance were $54.3 million.

b. Share purchase options

Share based compensation was recognized in the statement of operations for the three and nine month periods ended September 30, 2021 and 2020 as follows:

	Three months ended September 30,				Nine months ended September 30,
	2021		2020		2021		2020
Exploration	$	135,941	$	254,475	$	1,726,710	$	916,133
Consulting		-		4,040		8,080		24,339
Corporate salaries and benefits		133,720		56,773		784,010		182,757
Directors’ fees		99,328		31,343		505,992		109,494
Total	$	368,989		346,631		3,024,792		1,232,723

A summary of share purchase option activity within the Corporation’s share-based compensation plan for the year ended December 31, 2020 and nine months ended September 30, 2021 is as follows:

	Number of Options			Weighted Average Exercise Price (C$)
Balance December 31, 2019		1,972,625		$	7.72
Options granted		442,500			5.72
Options expired		(20,125	)		5.44
Options terminated via SAR		(60,250	)		6.91
Options exercised		(375,162	)		6.54
Balance December 31, 2020		1,959,588		$	7.40
Options granted		1,013,500			11.40
Options expired		(176,050	)		8.53
Options terminated via SAR		(109,850	)		6.00
Options exercised		(116,288	)		7.02
Balance, September 30, 2021		2,570,900		$	8.98

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Perpetua Resources Corp. 

Notes to Condensed Consolidated Interim Financial Statements

During the nine month periods ended September 30, 2021 and 2020, the Company granted 1,013,500 and 442,500 options. The fair value of options granted is estimated at the time of the grant using the Black-Scholes option pricing model. The grant date fair value of options granted during the nine month periods ended September 30, 2021 and 2020 was approximately $5.2 million and $1.0 million, respectively. The weighted average inputs used in the Black-Scholes option pricing model are:

	2021			2020
Fair value options granted	C$	6.49		C$	3.20
Risk-free interest rate		0.5	%		1.4	%
Expected term (in years)		5.0			5.0
Expected share price volatility		73	%		65	%
Expected dividend yield		-			-

An analysis of outstanding share purchase options as of September 30, 2021 is as follows:

	Options Outstanding						Options Exercisable
Range of Exercise Prices (C$)	Number		Price (C$)1		Remaining Life2		Number		Price (C$)1		Remaining Life2
$3.50 - $4.40		70,000	$	3.82		3.5		22,500	$	3.50		3.5
$4.41 - $7.20		682,525	$	6.20		2.6		434,900	$	6.18		2.3
$7.21 - $8.90		334,750	$	8.88		0.6		334,750	$	8.88		0.6
$8.91- $11.80		1,483,625	$	10.85		3.6		557,875	$	10.50		3.0
$3.50 - $11.80		2,570,900	$	9.18		3.0		1,350,025	$	8.60		2.2

¹ Weighted Average Exercise Price (C$) 

² Weighted Average Remaining Contractual Life (Years)

As of September 30, 2021, all unvested options are expected to vest and unvested compensation of approximately $2.4 million will be recognized. The weighted average remaining period of vesting options is 1.4 years. As of September 30, 2021, the intrinsic value of outstanding and exercisable share purchase options is $232,175 and $124,610, respectively. During the nine month periods ended September 30, 2021 and 2020, the intrinsic value of share purchase options exercised was approximately $0.5 million and $2.4 million respectively.

c. Warrants

There was a total of 200,000 warrants outstanding as of both December 31, 2020 and September 30, 2021.

8. Financial Instruments and Fair Value Measurements

At September 30, 2021 and December 31, 2020, the levels in the Fair Value hierarchy into which the Corporation’s financial assets and liabilities are measured and recognized on the balance sheet at fair value are categorized as follows:

	September 30, 2021
	Level 1		Level 2		Level 3
Warrant Derivative	$	-	$	-	$	167,390
	$	-	$	-	$	167,390

	December 31, 2020
	Level 1		Level 2		Level 3
Convertible Note Derivative	$	-	$	-	$	26,060,446
Warrant Derivative		-		-		874,864
	$	-	$	-	$	26,935,310

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Perpetua Resources Corp. 

Notes to Condensed Consolidated Interim Financial Statements

9. Environmental Reclamation Liability

On January 15, 2021, the Company agreed to the ASAOC. The Company has accounted for its obligation under the ASAOC as an environmental reclamation liability. The aggregate cost of the obligation was estimated to be approximately $7,473,805. Upon the signing of the ASAOC, the Company recorded an immediate expense of $7,473,805 and a corresponding environmental reclamation liability.  The provision for the liability associated with the terms of the ASAOC is based on cost estimates developed with the use of engineering consultants, independent contractor quotes and the Company’s internal development team. The timing of cash flows is based on the current schedule for early action items. The estimated environmental reclamation liability may be subject to change based on changes to cost estimates and is adjusted for actual work performed. Movements in the environmental reclamation liability during the nine months ended September 30, 2021, are as follows:

	Nine months ended September 30, 2021
Balance at beginning of period	$	-
Additions		8,640,432
Work performed on early action items		(1,650,163	)
Balance at end of period	$	6,990,269
Current portion	$	3,251,622
Long-term portion		3,738,647

The Company provided $7.5 million in financial assurance for Phase 1 projects under the ASAOC. The Company paid $3.0 million in cash collateral for a surety bond related to the ASAOC statement of work in early 2021.

10. Commitments and Contingencies

Mining Claim Assessments

The Corporation currently holds mining claims on which it has an annual assessment obligation of $250,470 to maintain the claims in good standing. The Corporation is committed to these payments indefinitely. Related to the Mining Claims Assessments is a $335,000 bond related to the Corporation’s exploration activities.

Stibnite Foundation

Upon formation of the Stibnite Foundation on February 26, 2019, the Corporation became contractually liable for certain future payments to the Stibnite Foundation based on several triggering events, including receipt of a final Record of Decision issued by the US Forest Service, receipt of all permits and approvals necessary for commencement of construction, commercial production, and of the final reclamation phase. These payments could begin as early as late 2023 based on the current permitting schedule and range from $0.1 million to $1.0 million (upon commencement of final reclamation phase) in cash and 150,000 in shares. During commercial production, the Corporation will make payments to the Stibnite Foundation equal to 1% of Total Comprehensive Income less debt repayments or a minimum of $0.5 million each year.

The Stibnite Foundation will support projects that benefit the communities surrounding the Stibnite Gold Project and was created through the establishment of the Community Agreement between Perpetua Resources Idaho, Inc. and eight communities and counties throughout the West Central Mountains region of Idaho.

Option Payments on Other Properties

The Company is obligated to make option payments on mineral properties in order to maintain an option to purchase these properties. As of September 30, 2021, the option payments due on these properties in 2021 are $192,500 which will be paid in 2021. The agreements include options to extend.

Off balance sheet arrangements

The Company has no off-balance sheet arrangements as of September 30, 2021 and the date of this report.

Legal Update

The Company is a party to ongoing legal proceedings with the Nez Perce Tribe for alleged violations of the Clean Water Act related to historical mining activities. In August 2019, the Nez Perce Tribe filed suit in the United States District Court for the District of Idaho. The Company promptly filed a motion to dismiss and, in the alternative, a motion to stay the litigation. Both motions were denied. Later, the court allowed the Company to amend its answer and file a third-party complaint and the Company also filed a separate citizen suit against the USFS alleging the point source discharges, referred to by the Nez Perce Tribe in its complaint, were alleged to be occurring on lands owned and controlled by the United States. Pursuant to the terms of the Comprehensive Environmental Response, Compensation, and Liability Act (the “CERCLA”) ASAOC executed with the U.S. EPA and the United States Department of Agriculture, the Company dismissed its pending actions against USFS. The remaining parties to the ongoing legal proceeding agreed to stay the litigation and explore Alternative Dispute Resolution (“ADR”) options. The stay has been extended on subsequent occasions, and a request to extend the stay through October 31, 2022 was filed jointly by the parties on July 26, 2022 and subsequently ordered by the court on the same date.

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Perpetua Resources Corp. 

Notes to Condensed Consolidated Interim Financial Statements

The CERCLA ASAOC entered into by the Company, the U.S. EPA, and the United States Department of Agriculture requires numerous voluntary early cleanup actions to occur over the next several years. Perpetua Resources Idaho, Inc. is presently executing the development of the Phase 1 early cleanup actions (known as “time critical removal actions”) that, upon final work plan approval by the federal agencies, will be designed and constructed to efficiently improve water quality in a number of areas on the Site while other, longer-term proposed actions relating to Project operations are being evaluated through the NEPA process.

11. Subsequent Events

These financial statements should be read in conjunction with the audited consolidated financial statements included in the Company’s annual report on Form 10-K for the year ended December 31, 2021 which contain disclosures relating to subsequent events.

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