Exhibit 99.2
CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED
DECEMBER 31, 2020 AND 2019
(Expressed in United States Dollars)
KPMG LLP Chartered Professional Accountants PO Box 10426 777 Dunsmuir Street Vancouver BC V7Y 1K3 Canada | Telephone Fax Internet | (604) 691-3000 (604) 691-3031 www.kpmg.ca |
Report of Independent Registered Public Accounting Firm
To the Shareholders and Board of Directors
Maverix Metals Inc.
Opinion on the Consolidated Financial Statements
We have audited the accompanying consolidated statements of financial position of Maverix Metals Inc. (the Company) as of December 31, 2020, December 31, 2019 and January 1, 2019, the related consolidated statements of income (loss) and comprehensive income (loss), cash flows and changes in equity for each of the years in the two year period ended December 31, 2020, and the related notes (collectively, the consolidated financial statements). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2020 and December 31, 2019, and the results of its operations and its cash flows for each of the years in the two year period ended December 31, 2020, in conformity with International Financial Reporting Standards as issued by the International Accounting Standards Board.
Change in Accounting Principle
As discussed in Note 2 to the consolidated financial statements, the Company has elected to change its presentation currency from the Canadian dollar to the U.S. dollar. The change is as of January 1, 2020, and has been retrospectively applied, and the statement of financial position as of January 1, 2019, has been included pursuant to the requirements of International Financial Reporting Standards.
Basis for Opinion
These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.
© 2021 KPMG LLP, an Ontario limited liability partnership and a member firm of the KPMG global organization of
independent member firms affiliated with KPMG International Limited, a private English company limited by guarantee.
All rights reserved.
2
Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audits provide a reasonable basis for our opinion.
//s// KPMG LLP
We have served as the Company’s auditor since 2017.
Vancouver, Canada
March 22, 2021
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Maverix Metals Inc. Consolidated Statements of Financial Position |
| (in thousands of United States dollars) |
| Restated (Note 2g) | ||||||||||||
| December 31, 2020 | December 31, 2019 | January 1, 2019 | ||||||||||
| Assets | ||||||||||||
| Current assets | ||||||||||||
| Cash and cash equivalents | $ | 7,760 | $ | 4,828 | $ | 5,017 | ||||||
| Accounts receivable | 13,533 | 7,048 | 5,726 | |||||||||
| Investments (Note 6) | 18,238 | - | - | |||||||||
| Right of first refusal receivable (Note 4b) | - | 12,000 | - | |||||||||
| Asset held for sale (Note 4a) | 1,500 | - | - | |||||||||
| Prepaid expenses and other | 653 | 483 | 267 | |||||||||
| Total current assets | 41,684 | 24,359 | 11,010 | |||||||||
| Non-current assets | ||||||||||||
| Royalty, stream and other interests (Note 4 & 5) | 334,210 | 281,405 | 198,091 | |||||||||
| Investments (Note 6) | 1,000 | 7,148 | 4,458 | |||||||||
| Deferred financing costs and other | 960 | 1,400 | 823 | |||||||||
| Deferred tax asset (Note 13) | 1,753 | 823 | 823 | |||||||||
| Total assets | $ | 379,607 | $ | 315,135 | $ | 215,205 | ||||||
| Liabilities | ||||||||||||
| Current liabilities | ||||||||||||
| Trade payables and other | $ | 3,285 | $ | 3,233 | $ | 2,713 | ||||||
| Deferred revenue (Note 4a) | 3,333 | - | - | |||||||||
| Dividend payable (Note 8e) | - | 1,196 | - | |||||||||
| Total current liabilities | 6,618 | 4,429 | 2,713 | |||||||||
| Non-current liabilities | ||||||||||||
| Credit facility (Note 7) | 32,000 | 69,000 | 12,300 | |||||||||
| Total liabilities | 38,618 | 73,429 | 15,013 | |||||||||
| Equity | ||||||||||||
| Capital and reserves | ||||||||||||
| Share capital (Note 8a) | 318,530 | 237,509 | 187,028 | |||||||||
| Reserves | 10,654 | 14,009 | 13,298 | |||||||||
| Accumulated other comprehensive income | 4,326 | 1,262 | 2,077 | |||||||||
| Retained earnings (deficit) | 7,479 | (11,074 | ) | (2,211 | ) | |||||||
| Total equity | 340,989 | 241,706 | 200,192 | |||||||||
| Total liabilities and equity | $ | 379,607 | $ | 315,135 | $ | 215,205 | ||||||
Contractual obligations (Note 16)
Subsequent events (Note 17)
The accompanying notes are an integral part of these consolidated financial statements.
ON BEHALF OF THE BOARD:
“signed” Geoff Burns, Director “signed” Dan O’Flaherty, Director
4
Maverix Metals Inc.
Consolidated Statements of Income (Loss) and Comprehensive Income (Loss)
(in thousands of United States dollars, except for per share and share data)
| Years ended | ||||||||
| December 31 | ||||||||
| 2020 | 2019 Restated (Note 2g) | |||||||
| Royalty revenue (Note 14) | $ | 32,689 | $ | 21,797 | ||||
| Sales (Note 14) | 18,992 | 11,915 | ||||||
| Total revenue | 51,681 | 33,712 | ||||||
| Cost of sales, excluding depletion | (5,020 | ) | (3,927 | ) | ||||
| Depletion (Note 5) | (17,999 | ) | (13,181 | ) | ||||
| Total cost of sales | (23,019 | ) | (17,108 | ) | ||||
| Gross profit | 28,662 | 16,604 | ||||||
| Administration expenses (Note 9) | (4,784 | ) | (4,407 | ) | ||||
| Project evaluation expenses (Note 9) | (3,502 | ) | (2,300 | ) | ||||
| Royalty interest impairment (Note 5b) | - | (14,241 | ) | |||||
| Income (loss) from operations | 20,376 | (4,344 | ) | |||||
| Other income and expenses | ||||||||
| Gain on amendment of royalty interest (Note 4a) | 9,291 | - | ||||||
| Foreign exchange gain (loss) | 664 | (227 | ) | |||||
| Other income (expense) | 1,904 | (100 | ) | |||||
| Finance expense | (2,456 | ) | (1,813 | ) | ||||
| Income (loss) before income taxes | 29,779 | (6,484 | ) | |||||
| Income tax expense (Note 13) | (6,060 | ) | (1,183 | ) | ||||
| Net income (loss) | $ | 23,719 | $ | (7,667 | ) | |||
| Earnings per share (Note 10) | ||||||||
| Basic earnings (loss) per share | $ | 0.19 | $ | (0.07 | ) | |||
| Diluted earnings (loss) per share | $ | 0.17 | $ | (0.07 | ) | |||
| Weighted average number of common shares outstanding: | ||||||||
| Basic | 126,730,500 | 108,363,047 | ||||||
| Diluted | 135,975,539 | 108,363,047 | ||||||
| Other Comprehensive Income (Loss) | ||||||||
| Net income (loss) | $ | 23,719 | $ | (7,667 | ) | |||
| Item that will not be subsequently re-classified to net income: | ||||||||
| Changes in fair value of investments (Note 6) | 3,466 | (815 | ) | |||||
| Income tax expense on investments (Note 13) | (402 | ) | - | |||||
| Comprehensive income (loss) | $ | 26,783 | $ | (8,482 | ) | |||
The accompanying notes are an integral part of these consolidated financial statements.
5
Maverix Metals Inc.
Consolidated Statements of Cash Flows
(in thousands of United States dollars)
| Years ended | ||||||||
| December 31 | ||||||||
| 2020 | 2019 Restated (Note 2g) | |||||||
| Operating activities | ||||||||
| Net income (loss) | $ | 23,719 | $ | (7,667 | ) | |||
| Depletion and amortization | 18,146 | 13,303 | ||||||
| Royalty interest impairment (Note 5b) | - | 14,241 | ||||||
| Income tax expense | 6,060 | 1,183 | ||||||
| Share-based compensation | 1,688 | 1,666 | ||||||
| Finance expense | 2,456 | 1,813 | ||||||
| Unrealized foreign exchange (gain) loss | (284 | ) | 67 | |||||
| Unrealized (gain) loss on warrants | (1,891 | ) | 92 | |||||
| Income taxes paid on operating activities | (4,076 | ) | (1,230 | ) | ||||
| Gain on amendment of royalty interest (Note 4) | (9,291 | ) | - | |||||
| Changes in non-cash working capital (Note 11) | (3,527 | ) | (2,507 | ) | ||||
| Net cash provided by operating activities | $ | 33,000 | $ | 20,961 | ||||
| Investing activities | ||||||||
| Acquisition of royalty, stream and other interests (Note 4) | (15,436 | ) | (73,230 | ) | ||||
| Acquisition of investments and other (Note 6) | (7,137 | ) | (3,053 | ) | ||||
| Proceeds from amendment of royalty interest (Note 4) | 12,164 | - | ||||||
| Taxes paid on amendment of royalty interest (Note 4) | (2,787 | ) | - | |||||
| Proceeds from disposal of equity investments | 568 | - | ||||||
| Right of first refusal proceeds (Note 4b) | 12,000 | - | ||||||
| Net cash used in investing activities | $ | (628 | ) | $ | (76,283 | ) | ||
| Financing activities | ||||||||
| Proceeds from credit facility (Note 7) | 20,000 | 62,000 | ||||||
| Repayment of credit facility (Note 7) | (57,000 | ) | (5,300 | ) | ||||
| Financing costs and interest paid | (2,337 | ) | (2,129 | ) | ||||
| Dividends paid (Note 8e) | (6,361 | ) | - | |||||
| Proceeds from exercise of warrants and stock options (Note 8b & 8c) | 16,152 | 619 | ||||||
| Net cash (used in) provided by financing activities | $ | (29,546 | ) | $ | 55,190 | |||
| Effect of exchange rate changes on cash and cash equivalents | 106 | (57 | ) | |||||
| Increase (decrease) in cash and cash equivalents | 2,932 | (189 | ) | |||||
| Cash and cash equivalents at the beginning of the year | 4,828 | 5,017 | ||||||
| Cash and cash equivalents | $ | 7,760 | $ | 4,828 | ||||
Supplemental cash flow information (Note 11)
The accompanying notes are an integral part of these consolidated financial statements.
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Maverix Metals Inc.
Consolidated Statements of Changes in Equity
(in thousands of United States dollars, except for number of shares)
| Issued shares | Share $ | Share warrant reserve $ | Share option reserve $ | Accumulated other comprehensive income $ | Retained earnings (deficit) $ | Total equity $ | ||||||||||||||||||||||
| As at December 31, 2018 - Restated (Note 2g) | 107,715,646 | 187,028 | 10,999 | 2,299 | 2,077 | (2,211 | ) | 200,192 | ||||||||||||||||||||
| Total comprehensive loss | - | - | - | - | (815 | ) | (7,667 | ) | (8,482 | ) | ||||||||||||||||||
| Dividend declared (Note 8e) | - | - | - | - | - | (1,196 | ) | (1,196 | ) | |||||||||||||||||||
| Shares issued for the Kinross Portfolio (Note 4b) | 11,228,674 | 48,907 | - | - | - | - | 48,907 | |||||||||||||||||||||
| Shares issued for options exercised (Note 8c) | 508,964 | 1,070 | - | (451 | ) | - | - | 619 | ||||||||||||||||||||
| Share-based compensation | 125,205 | 504 | - | 1,162 | - | - | 1,666 | |||||||||||||||||||||
| As at December 31, 2019 - Restated (Note 2g) | 119,578,489 | 237,509 | 10,999 | 3,010 | 1,262 | (11,074 | ) | 241,706 | ||||||||||||||||||||
| Total comprehensive income | - | - | - | - | 3,064 | 23,719 | 26,783 | |||||||||||||||||||||
| Dividends declared (Note 8e) | - | - | - | - | - | (5,166 | ) | (5,166 | ) | |||||||||||||||||||
| Shares issued for the Newmont Portfolio (Note 4) | 12,000,000 | 59,826 | - | - | - | - | 59,826 | |||||||||||||||||||||
| Shares issued for warrants exercised (Note 8b) | 8,250,000 | 19,922 | (4,390 | ) | - | - | - | 15,532 | ||||||||||||||||||||
| Shares issued for options exercised (Note 8c) | 650,580 | 1,238 | - | (618 | ) | - | - | 620 | ||||||||||||||||||||
| Share-based compensation | 9,240 | 35 | - | 1,653 | - | - | 1,688 | |||||||||||||||||||||
| As at December 31, 2020 | 140,488,309 | 318,530 | 6,609 | 4,045 | 4,326 | 7,479 | 340,989 | |||||||||||||||||||||
The accompanying notes are an integral part of these consolidated financial statements.
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Maverix Metals Inc.
Notes to the Consolidated Financial Statements
For the Years Ended December 31, 2020 and 2019
(Expressed in thousands of United States dollars, unless stated otherwise)
| 1. | NATURE OF OPERATIONS |
Maverix Metals Inc. (“Maverix” or the “Company”) is incorporated and domiciled in Canada and its registered head office address is Suite 575, 510 Burrard Street, Vancouver, British Columbia, V6C 3A8, Canada. The Company’s common shares trade on the New York Stock Exchange American and Toronto Stock Exchange under the symbol “MMX”.
Maverix is a resource-based company that seeks to acquire and manage royalties and metal purchase agreements (a “Stream” or “Streams”) on projects that are in an advanced stage of development, on operating mines producing precious or other metals, or in some circumstances, exploration stage projects. Royalty interests (“Royalty” or collectively, “Royalties”) are non-operating interests in mining projects that provide Maverix with the right to a percentage of the gross revenue from the metals produced from the project (a “Gross Revenue Royalty” or “GRR”) or, the net revenue after the deduction of specified costs (a “Net Smelter Returns Royalty” or “NSR” royalty). Under a Stream interest, Maverix makes an upfront payment to acquire the Stream and then receives the right to purchase, at a fixed or variable price per unit based on the spot price of the precious or other metal, a percentage of a mine’s production for the life of mine or a specified time period.
These consolidated financial statements were approved and authorized for issue by the Board of Directors of the Company on March 22, 2021.
| 2. | SIGNIFICANT ACCOUNTING POLICIES |
| a) | Statement of Compliance |
These consolidated financial statements have been prepared in accordance with International Financial Reporting Standards (“IFRS”), as issued by the International Accounting Standard Board (“IASB”).
| b) | Basis of Preparation |
These consolidated financial statements have been prepared on a historical cost basis except for certain financial instruments, which are measured at fair value. The consolidated financial statements are presented in United States dollars (“USD”) (Note 2g), unless otherwise noted.
| c) | Principles of Consolidation |
These consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries, including its principal subsidiaries Maverix Metals (Australia) Pty Ltd. and Maverix Metals (Nevada) Inc. Subsidiaries are fully consolidated from the date the Company obtains control and continues to be consolidated until the date that control ceases. Control is achieved when the Company is exposed to, or has rights to, variable returns from its involvement with the entity and has the ability to affect those returns through its power over the entity.
All intercompany balances, transactions, revenues and expenses have been eliminated on consolidation.
| d) | Royalty, Stream and Other Interests |
Royalty, stream and other interests consist of acquired royalty, stream and other interests. These interests are recorded at cost and capitalized as tangible assets with finite lives. They are subsequently measured at cost less accumulated depletion and accumulated impairment losses, if any. Project evaluation expenses that are not related to a specific royalty or stream asset are expensed in the period incurred.
Producing royalty and stream interests are depleted using the units-of-production method over the life of the property to which the interest relates, which is estimated using available information of proven and probable reserves and the portion of resources expected to be classified as mineral reserves at the mine corresponding to the specific agreement.
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Maverix Metals Inc.
Notes to the Consolidated Financial Statements
For the Years Ended December 31, 2020 and 2019
(Expressed in thousands of United States dollars, unless stated otherwise)
On acquisition of a royalty or stream interest, an allocation of its fair value may be attributed to the exploration potential of the interest (non-depletable interest) and is accounted for in accordance with IFRS 6, Exploration and Evaluation of Mineral Resources (“IFRS 6”). Once the technical feasibility, commercial viability and a development decision have been established, the value of the asset is reclassified and accounted for in accordance with IAS 16, Property, Plant and Equipment (“IAS 16”). The exploration and evaluation asset is subject to an impairment test prior to reclassification in accordance with IFRS 6.
| e) | Impairment of Royalty, Stream and Other Interests |
Evaluation of the carrying values of each mineral interest is undertaken when events or changes in circumstances indicate that the carrying values may not be recoverable. Impairment is assessed at the level of cash-generating units, which is the smallest identifiable group of assets that generates cash inflows and largely independent of the cash inflows from other assets. This is usually at the individual royalty, stream, or other interest level for each property from which cash inflows are generated.
An impairment loss is recognized for the amount by which the asset’s carrying value exceeds its recoverable amount, which is the higher of its fair value less costs of disposal (“FVLCD”) and its value in use (“VIU”). Estimated future cash flows are calculated using estimated production, sales prices and a discount rate. Estimated future production is determined using current reserves and the portion of resources expected to be classified as mineral reserves, as well as exploration potential expected to be converted into resources or reserves. Estimated sales prices are determined by reference to an average of long-term metal price forecasts by research analysts and management’s expectations. The discount rate is estimated using an average discount rate incorporating research analyst views used to value precious metal royalty and streaming companies. All inputs used are those that an independent market participant would consider appropriate. In addition, the Company may use other market approaches for determining the recoverable amount which may include an estimate of (i) dollar value per unit of mineral reserve/resource; (ii) cash-flow multiples; (iii) comparable transactions or (iv) market capitalization of comparable assets.
An assessment is made at each reporting period if there is any indication that a previous impairment loss may no longer exist or has decreased. If indications are present, the carrying value of the royalty or stream interest is increased to the revised estimate of its recoverable amount to the extent that the increased carrying amount does not exceed the carrying amount net of depletion that would have been determined had no impairment loss been recognized for the royalty or stream interest in previous periods.
Royalty and stream interests classified as exploration and evaluation assets are assessed for impairment whenever indicators of impairment exist in accordance with IFRS 6. An impairment loss is recognized for the amount by which the asset’s carrying value exceeds its recoverable amount.
| f) | Revenue Recognition |
Revenue is comprised of revenue earned from royalty, stream and other interests. The Company recognizes revenue upon the transfer of control of the relevant commodity to customers in an amount that reflects the consideration to which the Company expects to be entitled in exchange for those commodities.
For Royalty interests, revenue recognition occurs when control of the relevant commodity is transferred to the end customer by the operator of the royalty property. Revenue is measured at the fair value of the consideration received or receivable when management can reliably estimate the amount, pursuant to the terms of the royalty agreement. In some instances, the Company will not have access to sufficient information to make a reasonable estimate of consideration to which it expects to be entitled and, accordingly, revenue recognition is deferred until management can make a reasonable estimate. Differences between estimates and actual amounts are adjusted and recorded in the period that the actual amounts are known.
9
Maverix Metals Inc.
Notes to the Consolidated Financial Statements
For the Years Ended December 31, 2020 and 2019
(Expressed in thousands of United States dollars, unless stated otherwise)
For Streams, revenue recognition occurs when the relevant commodity received from the stream operator is delivered by the Company to its third-party customers. Revenue is measured at the fair value of the consideration received or receivable when management can reliably estimate the amount, pursuant to the terms of the sales contract.
| g) | Foreign Currency Translation |
The functional currency of the Company and its subsidiaries is the principal currency of the economic environment in which they operate. The functional currency of the Company and its significant wholly-owned subsidiaries is the USD.
Foreign currency transactions, including revenues and expenses, are translated into the functional currency at the rate of exchange prevailing on the date of each transaction or valuation when items are re-measured. Monetary assets and liabilities denominated in currencies other than the operation’s functional currencies are translated into the functional currency at exchange rates in effect at the balance sheet date. Foreign exchange gains and losses resulting from the settlement of those transactions and from period-end translations are recognized in the consolidated statement of income (loss).
Effective January 1, 2020, the Company elected to change its presentation currency from the Canadian dollar (“CAD”) to USD. The change in presentation currency is to better reflect the Company’s business activities and to improve investors’ ability to compare the Company’s financial results with other publicly traded precious metals royalty and streaming companies. The Company has applied the change to USD presentation currency retrospectively and restated the comparative financial information as if the new presentation currency had always been the Company’s presentation currency.
| h) | Financial Instruments |
The Company’s financial instruments consist of cash and cash equivalents, accounts receivable, right of first refusal (“ROFR”) receivable, investments, trade and other payables, and the credit facility. All financial instruments are initially recorded at fair value and designated as follows:
Cash and cash equivalents include cash on account and short-term deposits with maturities from the date of acquisition of three months or less, which are readily convertible to known amounts of cash and are subject to insignificant changes in value. Cash and cash equivalents are subsequently measured at amortized cost using the effective interest rate method.
Trade receivables relate to amounts received from sales of refined gold and silver and royalty revenue. ROFR receivable relates to the underlying right of a property owner to repurchase a specific royalty (Note 4). These receivables are non-interest bearing and are recognized at fair value and are subsequently measured at amortized cost. We have applied the simplified approach to determining expected credit losses, which requires expected lifetime losses to be recognised upon initial recognition of the receivables.
Investments in common shares are designated as fair value through profit and loss (“FVTPL”) unless they are irrevocably designated, on an individual basis, as fair value through other comprehensive income (“FVTOCI”). Investment transactions are recognized on the trade date with transaction costs included in the underlying balance. Fair values are determined by reference to quoted market prices at the statement of financial position date.
When investments in common shares designated as FVTOCI are disposed of, the cumulative gains and losses recognized in other comprehensive income are not recycled to the consolidated statement of income (loss) and remain within equity. Dividends received are recognized in income and these investments are not assessed for impairment.
The consideration for investments in units including common shares and share purchase warrants are allocated on a pro-rata basis, based on relative fair values at the date of issuance. The fair value of common shares are based on the market closing price. The fair value of share purchase warrants is determined using the quoted market price or if the warrants are not traded, using the Black-Scholes Model (“BSM”) as of the date of issuance.
10
Maverix Metals Inc.
Notes to the Consolidated Financial Statements
For the Years Ended December 31, 2020 and 2019
(Expressed in thousands of United States dollars, unless stated otherwise)
Investments in warrants are classified as FVTPL. These warrants are measured at fair value at the end of each reporting period, with any gains or losses arising on re-measurement recognized as a component of net income (loss).
Trade and other payables and the credit facility are initially recorded at fair value, less transaction costs. These financial liabilities are subsequently measured at amortized cost, calculated using the effective interest rate method.
| i) | Inventory |
When refined gold or silver is delivered to the Company under a Stream agreement it is initially recorded as inventory. The amount recognized as inventory includes both the cash payment and the related depletion associated with the underlying Stream interest. At such time the inventory is sold, the amounts recognized in inventory are recorded as cost of sales and depletion.
| j) | Income taxes |
Current income tax assets and liabilities are measured at the amount expected to be recovered from or paid to the taxation authorities. The tax rates and tax laws used are those that are substantively enacted at the reporting date.
Deferred income taxes are provided using the liability method on temporary differences at the reporting date between the tax bases of assets and liabilities and their carrying amounts for accounting. The change in the net deferred income tax asset or liability is included in income, except for deferred income tax relating to equity items which are recognized directly in equity. The income tax effects of differences in the periods when revenue and expenses are recognized in accordance with the Company’s accounting practices, and the periods they are recognized for income tax purposes are reflected as deferred income tax assets or liabilities. Deferred income tax assets and liabilities are measured using the substantively enacted statutory income tax rates which are expected to apply to taxable income in the years in which the assets are realized or the liabilities settled. A deferred tax asset is recognized for unused tax losses, tax credits and deductible temporary differences to the extent that it is probable that future taxable profits will be available for utilization. Temporary differences arising on the initial recognition of assets or liabilities that affect neither accounting nor taxable profit are not recognized.
Deferred income tax assets and liabilities are offset only if a legally enforceable right exists to offset current tax assets against liabilities and the deferred tax assets and liabilities relate to income taxes levied by the same taxation authority on the same taxable entity and are intended to be settled on a net basis.
The determination of current and deferred taxes requires interpretations of tax legislation, estimates of expected timing of reversal of deferred tax assets and liabilities, and estimates of future earnings.
| k) | Share Capital and Share Purchase Warrants |
Common shares are classified as equity. Incremental costs directly attributable to the issuance of shares are recognized as a deduction from the proceeds in equity in the period where the transaction occurs.
The fair value of common shares issued for goods and services is based on the fair value of the goods or services received unless the fair value cannot be readily determined. If the fair value cannot be readily determined, the Company uses the market closing price on the date the shares are issued, while the fair value of share purchase warrants is estimated using the quoted market price or if the warrants are not traded, using the BSM as of the date of issuance.
Share purchase warrants issued with an exercise price denominated in the Company’s functional currency (USD) are considered equity instruments with the consideration received reflected within shareholders’ equity under the classification of share purchase warrants reserve. Upon exercise, the original consideration is reallocated from share purchase warrants reserve to issued share capital along with the associated exercise price.
11
Maverix Metals Inc.
Notes to the Consolidated Financial Statements
For the Years Ended December 31, 2020 and 2019
(Expressed in thousands of United States dollars, unless stated otherwise)
| l) | Earnings Per Share |
Basic earnings per share is computed by dividing the net income attributable to common shareholders by the weighted average number of common shares issued and outstanding during the period. Diluted earnings per share reflects the effect of all potentially dilutive common share equivalents, which includes dilutive share options, restricted share units (“RSUs”) and warrants computed using the treasury stock method.
| m) | Share Based Payments |
The Company recognizes share based compensation expense for share purchase options, RSUs and common shares granted to directors, officers, employees and consultants under the Company’s equity-based incentive plans based on the fair values at the date of grant.
Share purchase options
The fair value of share purchase options is determined using the BSM, with market related inputs as of the grant date. The BSM requires management to estimate the expected volatility, expected term, risk-free rate of return over the term, expected dividends, and the number of equity instruments expected to ultimately vest. Volatility is estimated using the historic stock price of the Company and similar listed entities, the expected term is estimated using historical exercise data of the Company and similar listed entities, and the number of equity instruments expected to vest is estimated using historical forfeiture data.
The fair values of share purchase options at the date of grant are expensed over the vesting periods with a corresponding increase to equity. Share purchase options with graded vesting schedules are accounted for as separate grants with different vesting periods and fair values.
Restricted share units
The fair value of RSUs is determined by the market value of the underlying shares at the date of the grant. Under the Company’s RSU Plan, the Board of Directors has the discretion to settle the vested RSUs in cash or equity. As the Company does not have a present obligation to settle the issued RSUs in cash, the RSUs issued have been treated as equity-settled instruments. The fair values of RSUs at the date of grant are expensed over the vesting periods with a corresponding increase to equity. At the end of each reporting period, the Company re-assesses its estimates of the number of awards that are expected to vest and recognizes the impact of any revisions to this estimate in equity.
Common shares
The fair value of common shares granted is determined by the market value of the underlying shares at the date of the grant. The fair value of the common shares is expensed with a corresponding increase to equity.
| n) | Related Party Transactions |
Parties are considered related if one party has the ability, directly or indirectly, to control the other party or exercise significant influence over the other party in making financial and operating decisions. Parties are also considered related if they are subject to common control or significant influence. A transaction is considered a related party transaction when there is a transfer of resources or obligations between related parties.
| o) | Segment Reporting |
The Company’s reportable operating segments are components of the Company’s business where discrete financial information is available and which are evaluated on a regular basis by the Company’s Chief Executive Officer, who is the Company’s chief operating decision maker, for the purpose of assessing performance. An operating segment is a component of an entity that engages in business activities, operating results are reviewed with respect to resource allocation and for which discrete financial information is available. The Company’s executive head office and general corporate administration (including finance expenses) are included within ‘Corporate’ to reconcile the reportable segments to the consolidated financial statements. Refer to Note 14 for summary of the Company’s segmented information.
12
Maverix Metals Inc.
Notes to the Consolidated Financial Statements
For the Years Ended December 31, 2020 and 2019
(Expressed in thousands of United States dollars, unless stated otherwise)
| 3. | CRITICAL ACCOUNTING JUDGEMENTS AND ESTIMATES |
The preparation of the Company’s consolidated financial statements in conformity with IFRS requires management to make judgments, estimates and assumptions that affect the reported amounts of assets, liabilities and contingent liabilities at the date of the consolidated financial statements and reported amounts of revenues and expenses during the reporting period. Estimates and assumptions are continuously evaluated and are based on management’s experience and other factors, including expectations of future events that are believed to be reasonable under the circumstances. However, actual outcomes can differ from these estimates.
Information about significant areas of estimation uncertainty and judgments made by management in preparing the consolidated financial statements are described below.
| a) | Attributable Reserve and Resource Estimates |
Royalty, stream and other interests comprise a large component of the Company’s assets and as such, the mineral reserves and resources of the properties to which the interests relate have a significant effect on the Company’s consolidated financial statements. The Company estimates the reserves and resources relating to each agreement. Reserves are estimates of the amount of minerals that can be economically and legally extracted from the mining properties at which the Company has royalty, stream or other interest, adjusted where applicable to reflect the Company’s percentage entitlement to minerals produced from such mines. The Company estimates its reserves and resources based on information compiled by appropriately qualified persons relating to the geological data on the size, depth, and shape of the ore body, and requires complex geological judgments to interpret the data. The estimation of recoverable reserves is based upon factors such as estimates of foreign exchange rates, commodity prices, future capital requirements, and production costs along with geological assumptions and judgments made in estimating the size and grade of the ore body. Changes in the reserve or resource estimates may impact the carrying value of the Company’s royalty, stream and other interests and depletion charges.
The Company’s royalty, stream and other interests are depleted on a units-of-production basis, with estimated recoverable reserves and resources being used to determine the depletion rate for each of the Company’s royalty, stream and other interests. These calculations require the use of estimates and assumptions, including the amount of recoverable resources to be converted into reserves. Changes to depletion rates are accounted for prospectively.
| b) | Fair Value of Acquired Royalty, Stream and Other Interests |
The determination of the fair values of acquired royalty, stream and other interests requires the use of estimates and assumptions for recoverable production, commodity prices, discount rates, mineral reserve/resource conversion, foreign exchange rates, taxes, future capital expansion plans and the associated production implications. In addition, the Company may use other approaches in determining fair value which may include estimates related to (i) dollar value per unit of mineral reserve/resource; (ii) cash-flow multiples; (iii) comparable transactions and (iv) market capitalization of comparable assets. Changes in any of the estimates used in determining the fair value could impact the acquisition date fair values of the royalty, stream and other interests.
| c) | Impairment of Royalty, Stream and Other Interests |
Assessment of impairment of royalty, stream and other interests requires the use of judgments, assumptions and estimates when assessing whether there are any indicators that could give rise to the requirement to conduct a formal impairment test as well as in the assessment of fair values.
The assessment of the fair values of royalty, stream and other interests requires the use of estimates and assumptions for recoverable production, commodity prices, discount rates, mineral reserve/resource conversion, foreign exchange rates, taxes, future capital expansion plans and the associated production implications. In addition, the Company may use other approaches in determining fair value which may include estimates related to (i) dollar value per unit of mineral reserve/resource; (ii) cash-flow multiples; (iii) comparable transactions and (iv) market capitalization of comparable assets. Changes in any of the estimates used in determining the fair value of the royalty, stream and other interests could impact the impairment analysis.
During the year ended December 31, 2020, no impairment charges were recorded. During the year ended December 2019, the Company recorded an impairment charge of $14.2 million (Note 5b).
13
Maverix Metals Inc.
Notes to the Consolidated Financial Statements
For the Years Ended December 31, 2020 and 2019
(Expressed in thousands of United States dollars, unless stated otherwise)
| d) | Income Taxes |
The interpretation of new and existing tax laws or regulations in Canada, Australia, the United States of America, or any of the countries in which our royalty, stream and other interests are located or to which shipments of gold or silver are made or received requires the use of judgment. Differing interpretation or changes to these laws or regulations could result in an increase in the Company’s taxes, or other governmental charges, duties or impositions. In addition, the recoverability of deferred income tax assets, including expected periods of reversal of temporary differences and expectations of future taxable income, are assessed by management at the end of each reporting period and adjusted, as necessary, on a prospective basis. Refer to Note 13 for more information.
| e) | Estimation Uncertainty and COVID-19 |
In March 2020, the World Health Organization declared a global pandemic related to COVID-19. The current and expected impacts on global commerce are anticipated to be far reaching. To date there has been significant volatility in the stock market and in the commodity and foreign exchange markets, restrictions on the conduct of business in many jurisdictions and the global movement of people and some goods has become restricted. In the current environment, estimates and assumptions about future production, commodity prices, exchange rates, discount rates, future capital expansion plans and associated production implications at the underlying mines in which the Company holds a royalty or stream interest are subject to greater variability than normal, which could significantly affect the valuation of our assets, both non-financial and financial. As at December 31, 2020, the Company has not recorded any adjustments related to the COVID-19 pandemic.
| 4. | ROYALTY AND STREAM TRANSACTIONS |
| a) | During the Year Ended December 31, 2020 |
Newmont Portfolio Acquisition
In October 2020, the Company completed the Purchase and Sale Agreement (the “Agreement”) entered into with Newmont Corporation (“Newmont”) to acquire a portfolio of 11 royalties (the “Newmont Portfolio”). As consideration for the Newmont Portfolio, the Company issued 12,000,000 common shares and paid $15.0 million in cash and has agreed to make contingent cash payments of up to $15.0 million if certain production milestones at certain underlying assets are achieved within five years of closing the Agreement.
Certain of the royalties that were due to be transferred pursuant to the Agreement were subject to certain restrictions on transfer, including a ROFR that permitted the underlying property owner the right to repurchase the specific royalty for cash consideration. The Company has committed to dispose the 1.0% NSR royalty on the Yecora project for cash consideration of $1.5 million. The Yecora royalty has been classified as an asset held for sale at the time of acquisition and at December 31, 2020.
The fair value of the Newmont Portfolio acquired was determined to be $75.0 million. The Company used discounted cash flow models for near-term development assets and comparable transactions for exploration or other assets to determine the fair value of the individual assets within the Newmont Portfolio. The discounted cash flow models used discount rates of 4% to 15% depending on the stage and risk profile of the assets. Metal prices were based on analyst metal price projections and management expectations.
14
Maverix Metals Inc.
Notes to the Consolidated Financial Statements
For the Years Ended December 31, 2020 and 2019
(Expressed in thousands of United States dollars, unless stated otherwise)
The excess of the fair value of the Newmont Portfolio of $75.0 million over the cash consideration paid of $15.0 million was allocated to the common shares.
The significant royalties acquired in the Newmont Portfolio include the 2.0% NSR royalty on the oxide and transitional ore of the Camino Rojo project owned by Orla Mining Ltd. and the 1.0% NSR royalty on the Cerro Blanco project owned by Bluestone Resources Inc. The Company also acquired nine development and exploration stage royalties, of which, there are four in the United States, two in Canada and three in Mexico.
Beta Hunt Royalty Amendment
In September 2020, Maverix closed an agreement with Karora Resources Inc. to reduce the gold royalty on the Beta Hunt mine from 7.5% to 4.75%, effective July 1, 2020 (the “Amendment”). Upon closing the Amendment, Maverix received $13.0 million for the reduction of its royalty interest in the Beta Hunt mine and received $2.5 million of the $5.0 million one-time bonus royalty (the “Bonus Royalty Payment”). The remaining $2.5 million of the Bonus Royalty Payment owed was received in January 2021 (Note 17). The Bonus Royalty Payment was recorded as deferred revenue and will be amortized into royalty revenue over approximately one and a half years from the effective date. The Company recorded and paid $4.3 million in current taxes and recognized a deferred tax asset of $0.9 million during the year ended December 31, 2020 as a result of the Amendment.
| b) | During the Year Ended December 31, 2019 |
Kinross Portfolio Acquisition
In December 2019, the Company completed the Purchase and Sale Agreement (the “PSA”) entered into with Kinross Gold Corporation (“Kinross”) to acquire a portfolio of royalties (the “Kinross Portfolio”). As consideration, the Company issued 11,228,674 common shares and paid $25.0 million in cash.
The fair value of the Kinross Portfolio acquired was determined to be $74.0 million. The Company used discounted cash flow models for producing or near-term development assets and comparable transactions for exploration or other assets to determine the fair value of the individual assets within the Kinross Portfolio. The discounted cash flow models used discount rates of 5% to 10% depending on the stage and risk profile of the assets. Metal prices were based on analyst metal price projections and management expectations.
Certain of the royalties that were due to be transferred pursuant to the PSA were subject to certain restrictions on transfer, including a ROFR that permitted the underlying property owner the right to repurchase the specific royalty for cash on the same valuation as established by Kinross and Maverix. Prior to the Company completing the PSA, one of the underlying property owners provided notification they were exercising their ROFR. After the exercise of the ROFR, Maverix acquired a total of 24 royalties (the “Kinross Portfolio”) pursuant to the PSA and received aggregate total proceeds of $12.0 million in cash upon the completion of the ROFR transaction.
The excess of the fair value of the Kinross Portfolio of $74.0 million over the cash consideration paid of $25.0 million was allocated to the common shares.
Additional Royalty on Hope Bay
In August 2019, Maverix entered into an agreement to purchase an additional 1.5% NSR royalty on the Hope Bay mine in Nunavut, Canada, previously owned and operated by TMAC Resources Inc. (“TMAC”) for a cash payment of $40.0 million (the “Additional Royalty”). Upon closing of the transaction, Maverix owned a combined 2.5% NSR royalty on the Hope Bay mine. Maverix was also entitled to receive an additional 0.25% NSR royalty until certain conditions with respect to the Additional Royalty were satisfied.
TMAC had the right to buy back the entire Additional Royalty for a cash payment of $50.0 million in the event of a change of control transaction of TMAC (as defined in the Additional Royalty agreement) that was announced prior to June 30, 2021. Subsequent to December 31, 2020, the buyback right for the entire Additional Royalty was exercised (Note 17).
15
Maverix Metals Inc.
Notes to the Consolidated Financial Statements
For the Years Ended December 31, 2020 and 2019
(Expressed in thousands of United States dollars, unless stated otherwise)
El Mochito Stream
In March 2019, Maverix entered into an agreement to purchase 22.5% of the silver produced from Kirungu Corporation’s (“Kirungu”) operating El Mochito mine (the “El Mochito Stream”). As consideration for the El Mochito Stream, Maverix made an upfront cash payment of $7.5 million. If certain production milestones are met, the El Mochito Stream percentage will decrease from 22.5% to 20% for the remaining life of the mine. Maverix will make ongoing cash payments to Kirungu equal to 25% of the spot price of silver for each ounce delivered.
| 5. | ROYALTY, STREAM AND OTHER INTERESTS |
| a) | Carrying Amount |
As at and for the year ended December 31, 2020:
| Cost | Accumulated Depletion | |||||||||||||||||||||||||||||||||||
| Country | Opening | Additions/ (Disposals) | Ending | Opening | Depletion | Disposals | Ending | Carrying Amount | ||||||||||||||||||||||||||||
| $ | $ | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||||
| Beta Hunt | AUS | 14,875 | (5,454 | ) | 9,421 | (6,638 | ) | (706 | ) | 2,581 | (4,763 | ) | 4,658 | |||||||||||||||||||||||
| Camino Rojo | MEX | - | 40,173 | 40,173 | - | - | - | - | 40,173 | |||||||||||||||||||||||||||
| Cerro Blanco | GTM | - | 16,069 | 16,069 | - | - | - | - | 16,069 | |||||||||||||||||||||||||||
| Cerro Casale | CHL | 7,053 | - | 7,053 | - | - | - | - | 7,053 | |||||||||||||||||||||||||||
| Converse | USA | 10,039 | - | 10,039 | - | - | - | - | 10,039 | |||||||||||||||||||||||||||
| DeLamar | USA | 9,068 | - | 9,068 | - | - | - | - | 9,068 | |||||||||||||||||||||||||||
| El Mochito | HON | 7,710 | 24 | 7,734 | (1,516 | ) | (1,122 | ) | - | (2,638 | ) | 5,096 | ||||||||||||||||||||||||
| Florida Canyon | USA | 12,823 | - | 12,823 | (2,189 | ) | (712 | ) | - | (2,901 | ) | 9,922 | ||||||||||||||||||||||||
| Gemfield | USA | 8,799 | - | 8,799 | - | - | - | - | 8,799 | |||||||||||||||||||||||||||
| Hope Bay | CAN | 63,324 | - | 63,324 | (1,950 | ) | (1,671 | ) | - | (3,621 | ) | 59,703 | ||||||||||||||||||||||||
| Karma | BFA | 20,080 | - | 20,080 | (4,062 | ) | (1,992 | ) | - | (6,054 | ) | 14,026 | ||||||||||||||||||||||||
| La Colorada | MEX | 17,400 | - | 17,400 | (3,262 | ) | (1,171 | ) | - | (4,433 | ) | 12,967 | ||||||||||||||||||||||||
| McCoy-Cove | USA | 18,553 | - | 18,553 | - | - | - | - | 18,553 | |||||||||||||||||||||||||||
| Moose River | CAN | 3,700 | - | 3,700 | (1,544 | ) | (843 | ) | - | (2,387 | ) | 1,313 | ||||||||||||||||||||||||
| Moss | USA | 20,283 | - | 20,283 | (1,617 | ) | (3,480 | ) | - | (5,097 | ) | 15,186 | ||||||||||||||||||||||||
| Mt Carlton | AUS | 9,436 | - | 9,436 | (4,638 | ) | (2,104 | ) | - | (6,742 | ) | 2,694 | ||||||||||||||||||||||||
| Omolon | RUS | 10,076 | 17 | 10,093 | (399 | ) | (3,093 | ) | - | (3,492 | ) | 6,601 | ||||||||||||||||||||||||
| San Jose | MEX | 5,500 | - | 5,500 | (2,302 | ) | (591 | ) | - | (2,893 | ) | 2,607 | ||||||||||||||||||||||||
| Silvertip | CAN | 4,340 | - | 4,340 | (454 | ) | - | - | (454 | ) | 3,886 | |||||||||||||||||||||||||
| Vivien | AUS | 3,301 | - | 3,301 | (2,593 | ) | (254 | ) | - | (2,847 | ) | 454 | ||||||||||||||||||||||||
| Other | Various | 83,375 | 17,394 | 100,769 | (15,166 | ) | (260 | ) | - | (15,426 | ) | 85,343 | ||||||||||||||||||||||||
| Total(1) | 329,735 | 68,223 | 397,958 | (48,330 | ) | (17,999 | ) | 2,581 | (63,748 | ) | 334,210 | |||||||||||||||||||||||||
| (1) | Royalty, stream and other interests includes non-depletable assets of $76.0 million and depletable assets of $258.2 million. |
16
Maverix Metals Inc.
Notes to the Consolidated Financial Statements
For the Years Ended December 31, 2020 and 2019
(Expressed in thousands of United States dollars, unless stated otherwise)
As at and for the year ended December 31, 2019:
| Cost | Accumulated Depletion | Carrying | ||||||||||||||||||||||||||||||||||
| Country | Opening | Additions | Ending | Opening | Depletion | Impairment | Ending | Amount | ||||||||||||||||||||||||||||
| $ | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||||||||||
| Amulsar | ARM | 14,241 | - | 14,241 | - | - | (14,241 | ) | (14,241 | ) | - | |||||||||||||||||||||||||
| Beta Hunt | AUS | 14,875 | - | 14,875 | (4,886 | ) | (1,752 | ) | - | (6,638 | ) | 8,237 | ||||||||||||||||||||||||
| Cerro Casale | CHL | - | 7,053 | 7,053 | - | - | - | - | 7,053 | |||||||||||||||||||||||||||
| Converse | USA | 10,039 | - | 10,039 | - | - | - | - | 10,039 | |||||||||||||||||||||||||||
| DeLamar | USA | - | 9,068 | 9,068 | - | - | - | - | 9,068 | |||||||||||||||||||||||||||
| El Mochito | HON | - | 7,710 | 7,710 | - | (1,516 | ) | - | (1,516 | ) | 6,194 | |||||||||||||||||||||||||
| Florida Canyon | USA | 12,215 | 608 | 12,823 | (1,516 | ) | (673 | ) | - | (2,189 | ) | 10,634 | ||||||||||||||||||||||||
| Gemfield | USA | 8,799 | - | 8,799 | - | - | - | - | 8,799 | |||||||||||||||||||||||||||
| Hope Bay | CAN | 23,305 | 40,019 | 63,324 | (772 | ) | (1,178 | ) | - | (1,950 | ) | 61,374 | ||||||||||||||||||||||||
| Karma | BFA | 20,073 | 7 | 20,080 | (2,346 | ) | (1,716 | ) | - | (4,062 | ) | 16,018 | ||||||||||||||||||||||||
| La Colorada | MEX | 17,400 | - | 17,400 | (2,338 | ) | (924 | ) | - | (3,262 | ) | 14,138 | ||||||||||||||||||||||||
| McCoy-Cove | USA | 12,004 | 6,549 | 18,553 | - | - | - | - | 18,553 | |||||||||||||||||||||||||||
| Moose River | CAN | 3,700 | - | 3,700 | (852 | ) | (692 | ) | - | (1,544 | ) | 2,156 | ||||||||||||||||||||||||
| Moss | USA | 20,273 | 10 | 20,283 | (70 | ) | (1,547 | ) | - | (1,617 | ) | 18,666 | ||||||||||||||||||||||||
| Mt Carlton | AUS | 9,436 | - | 9,436 | (3,622 | ) | (1,016 | ) | - | (4,638 | ) | 4,798 | ||||||||||||||||||||||||
| Omolon | RUS | - | 10,076 | 10,076 | - | (399 | ) | - | (399 | ) | 9,677 | |||||||||||||||||||||||||
| San Jose | MEX | 5,500 | - | 5,500 | (1,748 | ) | (554 | ) | - | (2,302 | ) | 3,198 | ||||||||||||||||||||||||
| Silvertip | CAN | 4,340 | - | 4,340 | (101 | ) | (353 | ) | - | (454 | ) | 3,886 | ||||||||||||||||||||||||
| Vivien | AUS | 3,293 | 8 | 3,301 | (2,030 | ) | (563 | ) | - | (2,593 | ) | 708 | ||||||||||||||||||||||||
| Other | Various | 39,504 | 29,630 | 69,134 | (627 | ) | (298 | ) | - | (925 | ) | 68,209 | ||||||||||||||||||||||||
| Total(1) | 218,997 | 110,738 | 329,735 | (20,908 | ) | (13,181 | ) | (14,241 | ) | (48,330 | ) | 281,405 | ||||||||||||||||||||||||
| (1) | Royalty, stream and other interests includes non-depletable assets of $51.5 million and depletable assets of $229.9 million. |
| b) | Royalty interest impairment |
In December 2019, Lydian International Limited (“Lydian”) announced it was granted creditor protection under the Companies’ Creditors Arrangement Act (“CCAA”) in order to restructure its business and affairs. The CCAA filing, amongst other facts and circumstances, were considered indicators of impairment. As a result of the Company’s review of the circumstances specific to its royalty payment agreement with Lydian, the Company recorded an impairment of $14.2 million.
17
Maverix Metals Inc.
Notes to the Consolidated Financial Statements
For the Years Ended December 31, 2020 and 2019
(Expressed in thousands of United States dollars, unless stated otherwise)
| 6. | INVESTMENTS |
As at and for the year ended December 31, 2020:
Balance at December 31, | Additions | Disposals | Exercise and Transfers | Fair Value Adjustments | Balance at December 31, | |||||||||||||||||||
| Short-term investments | ||||||||||||||||||||||||
| Common shares(1) | $ | - | $ | 8,205 | $ | (501 | ) | $ | 7,020 | $ | 3,466 | $ | 18,190 | |||||||||||
| Warrants(2) | - | 8 | - | (1,851 | ) | 1,891 | 48 | |||||||||||||||||
| Total short-term investments | $ | - | $ | 8,213 | $ | (501 | ) | $ | 5,169 | $ | 5,357 | $ | 18,238 | |||||||||||
| Non-current investments | ||||||||||||||||||||||||
| Common shares(1) | $ | 7,006 | $ | 1,519 | $ | (1,505 | ) | $ | (7,020 | ) | $ | - | $ | - | ||||||||||
| Convertible debenture(2) | - | 1,000 | - | - | - | 1,000 | ||||||||||||||||||
| Warrants(2) | 142 | - | - | (142 | ) | - | - | |||||||||||||||||
| Total non-current investments | $ | 7,148 | $ | 2,519 | $ | (1,505 | ) | $ | (7,162 | ) | $ | - | $ | 1,000 | ||||||||||
| Total investments | $ | 7,148 | $ | 10,732 | $ | (2,006 | ) | $ | (1,993 | ) | $ | 5,357 | $ | 19,238 | ||||||||||
| (1) | Fair value adjustments recorded within Other comprehensive income (loss). | |
| (2) | Fair value adjustments recorded within Net income (loss). |
In December 2020, Northern Vertex Mining Corp. (“Northern Vertex”) announced a merger with Eclipse Gold Mining Corporation and a concurrent CAD$20.0 million financing (the “Financing”). As part of the Financing, the Company agreed to exercise 19.5 million share purchase warrants at CAD$0.40 per common share of Northern Vertex and sell the underlying common shares received for CAD$0.50 per common share. The Financing closed subsequent to December 31, 2020 (Note 17).
In April 2020, the Company acquired a $1.0 million convertible debenture (the “Debenture”). The Debenture has a two year term, bears interest at 12% per annum and is convertible into up to 19.9% of the total issued and outstanding capital stock of Kirungu, the right to purchase an additional 3% of the silver from the operating El Mochito mine on the same terms as the existing El Mochito silver Stream, or a 0.3% NSR Royalty on all metals produced from any mining properties or projects owned by Kirungu.
As at and for the year ended December 31, 2019:
Balance at December 31, 2018 | Additions | Disposals | Fair Value Adjustments | Balance at December 31, 2019 | ||||||||||||||||
| Common shares | $ | 4,224 | $ | 3,597 | $ | - | $ | (815 | ) | $ | 7,006 | |||||||||
| Warrants | 234 | - | - | (92 | ) | 142 | ||||||||||||||
| Total investments | $ | 4,458 | $ | 3,597 | $ | - | $ | (907 | ) | $ | 7,148 | |||||||||
Concurrent with the acquisition of the Additional Royalty (Note 4b), the Company subscribed for $3.0 million of TMAC common shares.
18
Maverix Metals Inc.
Notes to the Consolidated Financial Statements
For the Years Ended December 31, 2020 and 2019
(Expressed in thousands of United States dollars, unless stated otherwise)
| 7. | CREDIT FACILITY |
The Company amended and increased its revolving credit agreement to borrow up to $120 million (the “Credit Facility”) in 2019. Amounts drawn on the amended Credit Facility are subject to interest at LIBOR plus 2.00% to 3.00% per annum, and the undrawn portion is subject to a standby fee of 0.45% to 0.675% per annum, both of which are dependent on the Company's leverage ratio (as defined in the Credit Facility agreement). During the year ended December 31, 2020, the Company paid approximately 2.9% (2019: 4.4%) on amounts drawn and 0.6% (2019: 0.5%) on the remaining undrawn portion. The Credit Facility is secured by the Company’s present and future acquired assets, matures in June 2023, and is extendable through mutual agreement between Maverix and the syndicate of lenders.
The following table summarizes the Company’s Credit Facility as at December 31, 2020 and 2019 and changes during the years then ended:
| Credit Facility | ||||
| Balance at December 31, 2018 | $ | 12,300 | ||
| Proceeds | 62,000 | |||
| Repayment | (5,300 | ) | ||
| Balance at December 31, 2019 | 69,000 | |||
| Proceeds | 20,000 | |||
| Repayment | (57,000 | ) | ||
| Balance at December 31, 2020 | $ | 32,000 | ||
Amortization of the deferred financing costs related to the Credit Facility for the years ended December 31, 2020 and 2019 were $0.3 million and $0.3 million, respectively. As at December 31, 2020 the Company was in compliance with all of the covenants related to the Credit Facility.
| 8. | SHARE CAPITAL |
| a) | Authorized, Issued and Outstanding shares |
The Company is authorized to issue an unlimited number of common shares without par value and preferred shares. No preferred shares have been issued.
| b) | Share Purchase Warrants |
The following table summarizes warrants which were outstanding and exercisable as at December 31, 2020 and 2019 and changes during the years then ended:
Number of warrants outstanding | Weighted average exercise price per warrant | |||||||
| Balance at December 31, 2018 and 2019 | 18,250,000 | $ | 2.41 | |||||
| Exercised | (8,250,000 | ) | $ | 1.89 | ||||
| Balance at December 31, 2020 | 10,000,000 | $ | 2.84 | |||||
In June 2020, 8,250,000 common share purchase warrants were exercised for gross proceeds of $15.6 million to the Company. The common share price was $4.29 per share at the time the warrants were exercised.
19
Maverix Metals Inc.
Notes to the Consolidated Financial Statements
For the Years Ended December 31, 2020 and 2019
(Expressed in thousands of United States dollars, unless stated otherwise)
A listing of the Company’s outstanding warrants as at December 31, 2020 is presented below:
| Number outstanding | Exercise Price | Expiry Date | ||||||||
| 5,000,000 | $ | 2.41 | December 23, 2021 | |||||||
| 5,000,000 | $ | 3.28 | June 29, 2023 | |||||||
| 10,000,000 | ||||||||||
| c) | Share Based Payments - Share Option Plan |
The Company adopted a stock option and compensation share plan (the “Plan”), which provides that the Board of Directors may, at its discretion, grant directors, officers, employees and consultants, either, (i) common shares of the Company or (ii) non-transferable stock options to purchase common shares of the Company, each set at a price determined by the fair market value of the shares at the date immediately preceding the date on which the option is granted or the common share is issued. Under the Plan, the aggregate number of common shares of the Company reserved for issuance is 7,500,000 common shares. If any option granted under the Plan expires or terminates for any reason in accordance with the terms of the Plan without being exercised, that option shall again be available for the purpose of the Plan. All stock options and incentive shares issued under the Plan vest over a period determined by the Board of Directors. Incentive stock options issued under the Plan expire up to five years after issuance.
The following table summarizes stock options which were outstanding and exercisable as at December 31, 2020 and 2019 and changes during the years then ended:
Number of Options | Weighted average exercise price per option (CAD$) | |||||||
| Balance at December 31, 2018 | 3,176,518 | $ | 2.28 | |||||
| Granted | 1,211,565 | $ | 5.38 | |||||
| Exercised | (508,964 | ) | $ | 1.62 | ||||
| Forfeited | (45,000 | ) | $ | 5.18 | ||||
| Balance at December 31, 2019 | 3,834,119 | $ | 3.31 | |||||
| Granted | 953,255 | $ | 5.21 | |||||
| Exercised | (650,580 | ) | $ | 1.25 | ||||
| Forfeited | (67,910 | ) | $ | 5.17 | ||||
| Balance at December 31, 2020 | 4,068,884 | $ | 4.05 | |||||
Options which have vested and are exercisable as at December 31, 2020 | 2,600,257 | $ | 3.35 | |||||
A summary of the Company’s outstanding stock options as at December 31, 2020 is presented below:
| Number outstanding | Exercise Price (CAD$) | Expiry Date | ||||||||
| 285,750 | $ | 1.08 | April 10, 2021 | |||||||
| 722,408 | $ | 2.80 | April 28, 2022 | |||||||
| 156,081 | $ | 2.80 | May 30, 2022 | |||||||
| 852,735 | $ | 3.30 | May 31, 2023 | |||||||
| 848,252 | $ | 5.18 | April 3, 2024 | |||||||
| 50,000 | $ | 6.48 | August 9, 2024 | |||||||
| 268,313 | $ | 5.83 | December 12, 2024 | |||||||
| 855,345 | $ | 5.17 | March 10, 2025 | |||||||
| 30,000 | $ | 6.54 | September 24, 2025 | |||||||
| 4,068,884 | ||||||||||
20
Maverix Metals Inc.
Notes to the Consolidated Financial Statements
For the Years Ended December 31, 2020 and 2019
(Expressed in thousands of United States dollars, unless stated otherwise)
The following are the weighted-average assumptions used in the BSM to estimate the fair value of stock options granted for the years ended December 31, 2020 and 2019:
| Years ended | |||||||
| December 31 | |||||||
| 2020 | 2019 | ||||||
| Risk-free interest rate | 0.5 | % | 1.6 | % | |||
| Expected volatility | 45 | % | 47 | % | |||
| Expected life | 3 years | 3 years | |||||
| Expected dividend yield | 1.1 | % | 0.2 | % | |||
The weighted-average common share price during the years ended December 31, 2020 and 2019, were $4.78 and $4.13 per share at the time the options were exercised, respectively. The weighted average remaining contractual life of the options as at December 31, 2020 was 2.73 years (2019: 3.04 years).
| d) | Share Based Payments –RSU Plan |
The Company adopted a RSU Plan, which provides that the Board of Directors may, at its discretion, grant directors, officers, employees and consultants, non-transferable RSUs. Each RSU is set at a price determined by the fair market value of the shares at the date immediately preceding the date on which the RSU is granted. Under the RSU Plan, the aggregate number of common shares of the Company reserved for issuance is 3,000,000 common shares. If any RSU granted under the RSU Plan expires or terminates for any reason in accordance with the terms of the RSU Plan without vesting, that RSU shall again be available for the purpose of the Plan. All RSUs issued under the Plan vest after three years, unless otherwise determined on the grant date by the Board of Directors. The Board of Directors has the discretion to settle the vested RSUs in cash or equity.
The following table summarizes RSUs which were outstanding as at December 31, 2020 and 2019 and the changes during the years then ended:
Number of RSUs Outstanding | Weighted average fair (CAD$) | |||||||
| Balance at December 31, 2018 | - | - | ||||||
| Granted | 97,027 | $ | 5.82 | |||||
| Balance at December 31, 2019 | 97,027 | $ | 5.82 | |||||
| Granted | 105,822 | $ | 5.57 | |||||
| Forfeited | (10,155 | ) | $ | 5.17 | ||||
| Balance at December 31, 2020 | 192,694 | $ | 5.72 | |||||
| e) | Dividends |
During the year ended December 31, 2020, the Company declared four and paid five separate dividends of $0.01 per common share. During the year ended December 31, 2019, the Company declared one dividend of $0.01 per common share.
21
Maverix Metals Inc.
Notes to the Consolidated Financial Statements
For the Years Ended December 31, 2020 and 2019
(Expressed in thousands of United States dollars, unless stated otherwise)
| 9. | OPERATING EXPENSES BY NATURE |
| Years ended | ||||||||
| December 31 | ||||||||
| 2020 | 2019 | |||||||
| Compensation and benefits | $ | 4,504 | $ | 3,001 | ||||
| Corporate administration | 969 | 864 | ||||||
| Listing and filing fees | 242 | 646 | ||||||
| Professional fees | 736 | 408 | ||||||
| Amortization | 147 | 122 | ||||||
| Operating expenses before share-based compensation | 6,598 | 5,041 | ||||||
| Share-based compensation | 1,688 | 1,666 | ||||||
| Total operating expenses | $ | 8,286 | $ | 6,707 | ||||
| 10. | EARNINGS PER SHARE |
Basic and diluted earnings (loss) per share is calculated based on the following:
| Years ended | ||||||||
| December 31 | ||||||||
| 2020 | 2019 | |||||||
| Net income (loss) | $ | 23,719 | $ | (7,667 | ) | |||
| Basic weighted average number of shares | 126,730,500 | 108,363,047 | ||||||
| Basic earnings (loss) per share | $ | 0.19 | $ | (0.07 | ) | |||
| Effect of dilutive securities | ||||||||
| Warrants | 7,431,541 | - | ||||||
| Stock options | 1,752,315 | - | ||||||
| RSUs | 61,183 | - | ||||||
| Diluted weighted average number of common shares | 135,975,539 | 108,363,047 | ||||||
| Diluted earnings (loss) per share | $ | 0.17 | $ | (0.07 | ) | |||
The following table lists the number of warrants, stock options and RSUs which were excluded from the computation of diluted earnings per share because the exercise prices plus the unamortized share-based compensation per share exceeded the average market value of the common shares during the year ended December 31, 2020, or the Company was in a net loss position during the year ended December 31, 2019.
| Years ended | ||||||||
| December 31 | ||||||||
| 2020 | 2019 | |||||||
| Warrants | - | 18,250,000 | ||||||
| Stock options | 58,033 | 3,834,119 | ||||||
| RSUs | - | 97,027 | ||||||
22
Maverix Metals Inc.
Notes to the Consolidated Financial Statements
For the Years Ended December 31, 2020 and 2019
(Expressed in thousands of United States dollars, unless stated otherwise)
| 11. | SUPPLEMENTAL CASH FLOW INFORMATION |
| Years ended | ||||||||
| December 31 | ||||||||
| Changes in non-cash working capital: | 2020 | 2019 | ||||||
| Accounts receivable | $ | (6,393 | ) | $ | (2,484 | ) | ||
| Prepaid expenses and other | (170 | ) | (215 | ) | ||||
| Trade payables and other | (297 | ) | (1,004 | ) | ||||
| Dividend payable | - | 1,196 | ||||||
| Deferred revenue | 3,333 | - | ||||||
| Changes in non-cash working capital | $ | (3,527 | ) | $ | (2,507 | ) | ||
| Significant non-cash transactions: | ||||||||
| Equity issued for Newmont and Kinross Portfolios (Note 4) | $ | 60,000 | $ | 49,000 | ||||
| Settlement of receivables in equity investments | 1,519 | 597 | ||||||
| Cash and cash equivalents at the end of the year: | ||||||||
| Cash at bank | $ | 7,760 | $ | 4,828 | ||||
| 12. | RELATED PARTY DISCLOSURES |
Key management personnel are those persons having authority and responsibility for planning, directing and controlling the activities of the Company, including any director of the Company. Compensation for key management personnel of the Company was as follows:
| Years ended | ||||||||
| December 31 | ||||||||
| 2020 | 2019 | |||||||
| Compensation and benefits | $ | 3,632 | $ | 2,530 | ||||
| Share-based compensation | 1,532 | 1,471 | ||||||
| Total compensation | $ | 5,164 | $ | 4,001 | ||||
During the years ended December 31, 2020 and 2019, the Company purchased $2.3 million and $2.4 million, respectively, of refined gold from Pan American Silver Corp. (“Pan American”) at a price of $650 per ounce purchased under its La Colorada gold Stream agreement (Note 16). As a consequence of its shareholding and other factors, Pan American is deemed to have significant influence over the Company.
The Company completed the acquisition of the Newmont Portfolio during the year ended December 31, 2020 (Note 4a). As a consequence of its shareholding and other factors, Newmont is deemed to have significant influence over the Company.
| 13. | INCOME TAXES |
Income tax recognized in net income is comprised of the following:
| Years ended | ||||||||
| December 31 | ||||||||
| 2020 | 2019 | |||||||
| Current tax expense | $ | 7,392 | $ | 1,183 | ||||
| Deferred tax recovery | (1,332 | ) | - | |||||
| Income tax expense | $ | 6,060 | $ | 1,183 | ||||
23
Maverix Metals Inc.
Notes to the Consolidated Financial Statements
For the Years Ended December 31, 2020 and 2019
(Expressed in thousands of United States dollars, unless stated otherwise)
The income tax expense differs from the amount that would result from applying the federal and provincial income tax rates to the income before income taxes due to the following:
| Years ended | ||||||||
| December 31 | ||||||||
| 2020 | 2019 | |||||||
| Income (loss) before income taxes | $ | 29,779 | $ | (6,484 | ) | |||
| Statutory tax rate | 27 | % | 27 | % | ||||
| Expected income tax expense (recovery) | $ | 8,040 | $ | (1,751 | ) | |||
| Increase (decrease) due to: | ||||||||
| Foreign tax rate differences | 583 | 210 | ||||||
| Non-deductible expenses | 448 | 318 | ||||||
| Withholding taxes | 548 | 319 | ||||||
| Change in unrecognized temporary differences | (2,970 | ) | 2,443 | |||||
| Recognition of temporary differences | (1,332 | ) | - | |||||
| Effect of true-ups in prior year temporary and other differences | 743 | (356 | ) | |||||
| Income tax expense | $ | 6,060 | $ | 1,183 | ||||
Deferred tax assets and liabilities
As at December 31, 2020, the Company has recognized gross deferred tax assets of $15.6 million related to Canadian non-capital losses (December 31, 2019: $5.5 million). These have been partially offset by $14.8 million of deferred tax liabilities primarily related to the Company’s royalty, stream and other interests (December 31, 2019: $4.7 million).
The following table summarizes the Company’s deferred income tax asset as at December 31, 2020 and 2019 and the changes during the years then ended:
| Years ended | ||||||||
| December 31 | ||||||||
| 2020 | 2019 | |||||||
| Balance, beginning of the year | $ | 823 | $ | 823 | ||||
| Recognized in net income (loss) | 1,332 | - | ||||||
| Recognized in other comprehensive income (loss) | (402 | ) | - | |||||
| Balance, end of the year | $ | 1,753 | $ | 823 | ||||
The aggregate amount of deductible temporary differences for which deferred income tax assets have not been recognized are as follows:
| December 31, 2020 | December 31, 2019 | |||||||
| Royalty, stream and other interests | $ | 2,492 | $ | 2,355 | ||||
| Financing costs and other | 859 | 130 | ||||||
| Non-capital losses | 5,430 | 18,470 | ||||||
| Total | $ | 8,781 | $ | 20,955 | ||||
As at December 31, 2020, the Company has deductible Canadian non-capital tax losses of $58.9 million that expire between 2038 to 2040.
24
Maverix Metals Inc.
Notes to the Consolidated Financial Statements
For the Years Ended December 31, 2020 and 2019
(Expressed in thousands of United States dollars, unless stated otherwise)
| 14. | SEGMENT INFORMATION |
For the year ended December 31, 2020:
Primary Product | Royalty revenue | Sales | Costs of sales, excluding depletion | Depletion | Gain on amendment of royalty interest | Income (loss) before taxes | Cash from (used in) operations | |||||||||||||||||||||||
| $ | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||||
| Beta Hunt (AUS) | Gold | 8,635 | - | - | (706 | ) | 9,291 | 17,220 | 9,533 | |||||||||||||||||||||
| El Mochito (HON) | Silver | - | 3,716 | (881 | ) | (1,122 | ) | - | 1,713 | 2,836 | ||||||||||||||||||||
| Florida Canyon (USA) | Gold | 2,551 | - | - | (712 | ) | - | 1,839 | 2,638 | |||||||||||||||||||||
| Hope Bay (CAN) | Gold | 5,355 | - | - | (1,671 | ) | - | 3,684 | 2,998 | |||||||||||||||||||||
| Karma (BFA) | Gold | 2,946 | - | - | (1,992 | ) | - | 954 | 2,636 | |||||||||||||||||||||
| La Colorada (MEX) | Gold | - | 6,347 | (2,345 | ) | (1,171 | ) | - | 2,831 | 4,002 | ||||||||||||||||||||
| Moose River (CAN) | Gold | 1,586 | - | - | (843 | ) | - | 743 | 1,521 | |||||||||||||||||||||
| Moss (USA) | Silver | - | 8,929 | (1,794 | ) | (3,480 | ) | - | 3,655 | 7,135 | ||||||||||||||||||||
| Mt Carlton (AUS) | Gold | 2,469 | - | - | (2,104 | ) | - | 365 | 2,112 | |||||||||||||||||||||
| Omolon (RUS) | Gold | 4,792 | - | - | (3,093 | ) | - | 1,699 | 3,169 | |||||||||||||||||||||
| San Jose (MEX) | Silver | 1,989 | - | - | (591 | ) | - | 1,398 | 1,736 | |||||||||||||||||||||
| Silvertip (CAN) | Silver | - | - | - | - | - | - | 189 | ||||||||||||||||||||||
| Vivien (AUS) | Gold | 1,839 | - | - | (254 | ) | - | 1,585 | 1,596 | |||||||||||||||||||||
| Other (Various) | Various | 527 | - | - | (260 | ) | - | 267 | 670 | |||||||||||||||||||||
| Total segments | 32,689 | 18,992 | (5,020 | ) | (17,999 | ) | 9,291 | 37,953 | 42,771 | |||||||||||||||||||||
| Operating expenses | - | - | - | - | - | (8,286 | ) | (6,451 | ) | |||||||||||||||||||||
| Foreign exchange gain | - | - | - | - | - | 664 | 380 | |||||||||||||||||||||||
| Unrealized gain on warrants | - | - | - | - | - | 1,891 | - | |||||||||||||||||||||||
| Finance expense | - | - | - | - | - | (2,456 | ) | - | ||||||||||||||||||||||
| Income taxes paid | - | - | - | - | - | - | (4,076 | ) | ||||||||||||||||||||||
| Other | - | - | - | - | - | 13 | 376 | |||||||||||||||||||||||
| Total corporate | - | - | - | - | - | (8,174 | ) | (9,771 | ) | |||||||||||||||||||||
| Consolidated total | 32,689 | 18,992 | (5,020 | ) | (17,999 | ) | 9,291 | 29,779 | 33,000 | |||||||||||||||||||||
25
Maverix Metals Inc.
Notes to the Consolidated Financial Statements
For the Years Ended December 31, 2020 and 2019
(Expressed in thousands of United States dollars, unless stated otherwise)
For the year ended December 31, 2019:
Primary Product | Royalty revenue | Sales | Costs of sales, excluding depletion | Depletion | Royalty interest impairment | Income (loss) before taxes | Cash from (used in) operations | |||||||||||||||||||||||
| $ | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||||
| Amulsar (ARM) | Gold | - | - | - | - | (14,241 | ) | (14,241 | ) | - | ||||||||||||||||||||
| Beta Hunt (AUS) | Gold | 4,786 | - | - | (1,752 | ) | - | 3,034 | 5,001 | |||||||||||||||||||||
| El Mochito (HON) | Silver | - | 3,626 | (874 | ) | (1,516 | ) | - | 1,236 | 2,752 | ||||||||||||||||||||
| Florida Canyon (USA) | Gold | 2,101 | - | - | (673 | ) | - | 1,428 | 1,610 | |||||||||||||||||||||
| Hope Bay (CAN) | Gold | 3,124 | - | - | (1,178 | ) | - | 1,946 | 1,761 | |||||||||||||||||||||
| Karma (BFA) | Gold | 2,305 | - | - | (1,716 | ) | - | 589 | 1,868 | |||||||||||||||||||||
| La Colorada (MEX) | Gold | - | 5,216 | (2,443 | ) | (924 | ) | - | 1,849 | 2,773 | ||||||||||||||||||||
| Moose River (CAN) | Gold | 1,124 | - | - | (692 | ) | - | 432 | 1,023 | |||||||||||||||||||||
| Moss (USA) | Silver | - | 3,073 | (610 | ) | (1,547 | ) | - | 916 | 2,463 | ||||||||||||||||||||
| Mt Carlton (AUS) | Gold | 2,941 | - | - | (1,016 | ) | - | 1,925 | 3,210 | |||||||||||||||||||||
| Omolon (RUS) | Gold | 562 | - | - | (399 | ) | - | 163 | - | |||||||||||||||||||||
| San Jose (MEX) | Silver | 1,471 | - | - | (554 | ) | - | 917 | 1,377 | |||||||||||||||||||||
| Silvertip (CAN) | Silver | 941 | - | - | (353 | ) | - | 588 | 897 | |||||||||||||||||||||
| Vivien (AUS) | Gold | 2,070 | - | - | (563 | ) | - | 1,507 | 2,093 | |||||||||||||||||||||
| Other (Various) | Various | 372 | - | - | (298 | ) | - | 74 | 272 | |||||||||||||||||||||
| Total segments | 21,797 | 11,915 | (3,927 | ) | (13,181 | ) | (14,241 | ) | 2,363 | 27,100 | ||||||||||||||||||||
| Operating expenses | - | - | - | - | - | (6,707 | ) | (4,919 | ) | |||||||||||||||||||||
| Foreign exchange gain | - | - | - | - | - | (227 | ) | (160 | ) | |||||||||||||||||||||
| Unrealized gain on warrants | - | - | - | - | - | (92 | ) | - | ||||||||||||||||||||||
| Finance expense | - | - | - | - | - | (1,813 | ) | - | ||||||||||||||||||||||
| Income taxes paid | - | - | - | - | - | - | (1,230 | ) | ||||||||||||||||||||||
| Other | - | - | - | - | - | (8 | ) | 170 | ||||||||||||||||||||||
| Total corporate | - | - | - | - | - | (8,847 | ) | (6,139 | ) | |||||||||||||||||||||
| Consolidated total | 21,797 | 11,915 | (3,927 | ) | (13,181 | ) | (14,241 | ) | (6,484 | ) | 20,961 | |||||||||||||||||||
26
Maverix Metals Inc.
Notes to the Consolidated Financial Statements
For the Years Ended December 31, 2020 and 2019
(Expressed in thousands of United States dollars, unless stated otherwise)
Non-current Assets by Geographical Region:
| December 31, 2020 | December 31, 2019 | |||||||
| North America | ||||||||
| USA | $ | 107,064 | $ | 101,554 | ||||
| Canada | 73,820 | 74,842 | ||||||
| Mexico | 64,847 | 20,936 | ||||||
| South & Central America | ||||||||
| Guatemala | 16,069 | - | ||||||
| Chile | 10,073 | 10,073 | ||||||
| Peru | 8,400 | 8,400 | ||||||
| Dominican Republic | 5,160 | 6,195 | ||||||
| Honduras | 5,097 | 5,160 | ||||||
| Other | ||||||||
| Burkina Faso | 14,156 | 16,148 | ||||||
| Australia | 9,152 | 15,089 | ||||||
| Russia | 6,601 | 9,677 | ||||||
| Cote d’Ivoire | 4,030 | 4,030 | ||||||
| Ghana | 3,527 | 3,527 | ||||||
| Argentina | 3,200 | 3,200 | ||||||
| Various | 3,974 | 3,946 | ||||||
| Total(1) | $ | 335,170 | $ | 282,777 | ||||
| (1) | Includes royalty, stream, and other interests (Note 5) and deferred financing costs and other. |
| 15. | FINANCIAL RISK MANAGEMENT |
The Company has exposure to a variety of financial risks from its use of financial instruments. This note presents information about the Company's exposure to each of these risks, the Company's objectives, policies and processes for measuring and managing risk, and the Company's management of capital.
Capital Risk Management
The Company’s primary objective when managing capital is to maximize returns for its shareholders by growing its asset base through accretive acquisitions of royalties, streams and other interests, while optimizing its capital structure by balancing debt and equity. At December 31, 2020, the capital structure of the Company consists of $341.0 million (December 31, 2019: $241.7 million) of total equity, comprising of share capital, reserves, accumulated other comprehensive income, and retained earnings (deficit), and $32.0 million (December 31, 2019: $69.0 million) of drawn Credit Facility. The Company was not subject to any externally imposed capital requirements with the exception of complying with certain covenants under the Credit Facility (Note 7). The Company is in compliance with its debt covenants at December 31, 2020.
Credit Risk
Credit risk is the risk of potential loss to the Company if the counterparty to a financial instrument fails to meet its contractual obligations. The Company's credit risk is primarily attributable to its liquid financial assets including cash and cash equivalents and accounts receivables in the ordinary course of business. In order to mitigate its exposure to credit risk, the Company maintains its cash and cash equivalents in several high-quality financial institutions and closely monitors its accounts receivable balances. The Company’s accounts receivables are subject to the credit risk of the counterparties who own and operate the mines underlying Maverix’s royalty portfolio.
27
Maverix Metals Inc.
Notes to the Consolidated Financial Statements
For the Years Ended December 31, 2020 and 2019
(Expressed in thousands of United States dollars, unless stated otherwise)
Currency Risk
Financial instruments that impact the Company’s net income due to currency fluctuations include: cash and cash equivalents, accounts receivable, investments, and trade payables and other denominated in Canadian and Australian dollars. Based on the Company’s Canadian and Australian dollar denominated monetary assets and liabilities at December 31, 2020, a 10% increase (decrease) of the value of the Canadian and Australian dollar relative to the USD would increase (decrease) net income by $0.3 million and other comprehensive income by $1.8 million, respectively.
Liquidity Risk
Liquidity risk is the risk that the Company will not be able to meet its financial obligations as they come due. The Company’s approach to managing liquidity is to ensure it will have sufficient liquidity to meet liabilities when due. In managing liquidity risk, the Company takes into account anticipated cash flows from operations, holding of cash and cash equivalents, and the amount available under the Credit Facility. As at December 31, 2020, the Company had cash and cash equivalents of $7.8 million (December 31, 2019: $4.8 million) and working capital of $35.1 million (December 31, 2019: $19.9 million). In addition, at December 31, 2020 the Company had $88.0 million available under its Credit Facility (Note 7).
Other Risks
The Company is exposed to equity price risk as a result of holding common shares in other mining companies with a combined fair market value as at December 31, 2020 of $18.2 million (December 31, 2019: $7.1 million) (Note 6). The equity prices of investments are impacted by various underlying factors including commodity prices and the volatility in global markets as a result of COVID-19 and the daily exchange traded volume of the equity may not be sufficient for the Company to liquidate its position in a short period of time without potentially affecting the market value of the equity. Based on the Company’s investments held as at December 31, 2020, a 10% increase (decrease) in the equity prices of these investments would increase (decrease) other comprehensive income by $1.8 million.
Fair Value Measurements
The fair value hierarchy establishes three levels to classify the inputs of valuation techniques used to measure fair value. The three levels of the fair value hierarchy are described below:
Level 1: Unadjusted quoted prices in active markets that are accessible at the measurement date for identical, unrestricted assets or liabilities. Investments in common shares held that have direct listings on an exchange are classified as Level 1.
Level 2: Quoted prices in markets that are not active, quoted prices for similar assets or liabilities in active markets, or inputs that are observable, either directly or indirectly, for substantially the full term of the asset or liabilities.
Level 3: Prices or valuation techniques that require inputs that are both significant to fair value measurement and unobservable (supported by little or no market activity).
The following table summarizes the Company's financial assets and liabilities measured at fair value on a recurring basis by level within the fair value hierarchy as at December 31, 2020 and December 31, 2019. In accordance with IFRS 13, Fair Value Measurements, assets and liabilities are classified in their entirety based on the lowest level of input that is significant to the fair value measurement.
| As at December 31, 2020 | As at December 31, 2019 | |||||||||||||||||||||||
| Level 1 | Level 2 | Level 3 | Level 1 | Level 2 | Level 3 | |||||||||||||||||||
| Common shares | $ | 18,190 | $ | - | $ | - | $ | 7,006 | $ | - | $ | - | ||||||||||||
| Warrants | - | 48 | - | - | 142 | - | ||||||||||||||||||
| Convertible debenture | - | - | 1,000 | - | - | - | ||||||||||||||||||
| Total | $ | 18,190 | $ | 48 | $ | 1,000 | $ | 7,006 | $ | 142 | $ | - | ||||||||||||
28
Maverix Metals Inc.
Notes to the Consolidated Financial Statements
For the Years Ended December 31, 2020 and 2019
(Expressed in thousands of United States dollars, unless stated otherwise)
The fair values of the royalty, stream and other interests acquired through issuance of equity instruments were determined by a market approach using unobservable inputs into discounted cash flow projections and comparable transactions. As a result, for the years ending December 31, 2020 and 2019, the acquisition date fair values of royalty and other interests designated as Level 3 fair value measurements were $75.0 million and $74.0 million, respectively.
| 16. | CONTRACTUAL OBLIGATIONS |
In connection with its Streams, the Company has committed to purchase the following:
| Percent of life of mine production | Per ounce cash payment: Lesser of amount below (unless otherwise noted) | |||||||
| Gold Stream interests | ||||||||
| La Bolsa | 5 | % | $ | 450 | ||||
| La Colorada | 100 | % | $ | 650 | ||||
| Silver Stream interests | ||||||||
| El Mochito | 22.5 | %(1) | 25% of silver spot price | |||||
| Moss | 100 | %(2) | 20% of silver spot price | |||||
| (1) | If 3.0 million ounces of silver are delivered to Maverix prior to April 1, 2022, Maverix’s silver purchase entitlement will be 20% of life of mine silver production. |
| (2) | After 3.5 million ounces of silver are delivered, Maverix’s silver purchase entitlement will be 50% of the remaining life of mine silver production. |
In connection with the acquisition of the Silvertip Royalty in 2017, the Company may issue an additional 1,400,000 common shares of the Company when the Silvertip mine achieves commercial production and a cumulative throughput of 400,000 tonnes of ore through the processing plant is achieved.
In connection with the Newmont Portfolio acquisition, the Company has agreed to make certain contingent cash payments if certain production milestones at certain assets are achieved (Note 4a).
| 17. | SUBSEQUENT EVENTS |
Hope Bay
In February 2021, Agnico Eagle Mines Limited (“Agnico”) completed the acquisition of TMAC, the previous owner of the Hope Bay mine. Concurrent with the acquisition, Agnico provided notice to the Company and exercised the buyback right with respect to 1.5% of the total 2.5% NSR royalty the Company owned on the Hope Bay mine for $50.0 million. The Company has retained a 1% NSR royalty on the Hope Bay mine that is not subject to any reductions.
Investment Proceeds
In February 2021, Northern Vertex closed its Financing (Note 6) and the Company received $7.7 million in proceeds for the sale of its Northern Vertex common shares.
Royalty Proceeds
In January 2021, the Company received the remaining $2.5 million owed under the Beta Hunt royalty Amendment (Note 4a).
29
Maverix Metals Inc.
Notes to the Consolidated Financial Statements
For the Years Ended December 31, 2020 and 2019
(Expressed in thousands of United States dollars, unless stated otherwise)
Exercise of Stock Options
Subsequent to December 31, 2020, a total of 589,351 stock options were exercised with a weighted-average exercise price of CAD$2.32.
Credit Facility Payment
In February 2021, the Company repaid $32.0 million, leaving the full $120.0 million available under the Company’s Credit Facility.
Dividend Declared
In February 2021, the Board of Directors of the Company declared a quarterly dividend of $0.01 per common share payable on March 15, 2021 to shareholders of record as of the close of business on February 26, 2021.
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