Notes to the Unaudited Condensed Interim Consolidated Financial Statements
For the three and nine months ended September 30, 2022 and 2021
(Expressed in United States Dollars)
1.
Nature of operations
Vox Royalty Corp. (“Vox” or the “Company”) was incorporated under the Business Corporations Act (Ontario) on February 20, 2018. The Company’s registered office is 66 Wellington Street West, Suite 5300, TD Bank Tower, Toronto, ON, M5K 1E6, Canada. The Company’s common shares trade on the TSX Venture Exchange under the ticker symbol “VOX”, and on the Nasdaq Stock Market under the ticker symbol “VOXR”.
Vox is a mining royalty company focused on accretive acquisitions on a net asset value and cash flow per share basis, with a particular emphasis on return of investment. Approximately 80% of the Company’s royalty and streaming assets by royalty count are located in Australia, Canada and the United States. Further, the Company is prioritizing acquiring royalties on producing or near-term producing assets to complement its high-quality portfolio of exploration and development stage royalties.
2.
Basis of preparation
(a)
Statement of compliance
These unaudited condensed interim consolidated financial statements are prepared in accordance with International Accounting Standards 34, Interim Financial Reporting (“IAS34”), as issued by the International Accounting Standards Board (“IASB”) and apply the same accounting policies and application as disclosed in the annual financial statements for the year ended December 31, 2021. They do not include all of the information and disclosures required by IFRS for annual statements. In the opinion of management, all adjustments considered necessary for fair presentation have been included in these unaudited condensed interim consolidated financial statements. Operating results for the period ended September 30, 2022 are not necessarily indicative of the results that may be expected for the full year ended December 31, 2022. For further information, see the Company’s annual financial statements including the notes thereto for the year ended December 31, 2021.
These unaudited condensed interim consolidated financial statements were reviewed, approved, and authorized for issue by the Company’s Board of Directors on November 15, 2022.
(b)
Basis of presentation
These unaudited condensed interim consolidated financial statements have been prepared on a historical cost basis, except for financial instruments, which have been measured at fair value. These unaudited condensed interim consolidated financial statements are presented in United States dollars, unless otherwise indicated.
(c)
Principles of consolidation
These unaudited condensed interim consolidated financial statements incorporate the accounts of the Company and its three wholly-owned subsidiaries, SilverStream SEZC (Cayman Islands), Vox Royalty Australia Pty Ltd. (Australia) and Vox Royalty Canada Ltd. (Ontario, Canada).
Subsidiaries are fully consolidated from the date the Company obtains control and continue 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)
Currency translation
Functional and presentation currency
These unaudited condensed interim consolidated financial statements are presented in United States dollars (“$”), which is also the functional currency of the Company and all of its subsidiaries. All amounts have been rounded to the nearest dollar, unless otherwise noted.
(e)
Recent accounting pronouncements
Certain pronouncements were issued by the IASB or the IFRIC that are mandatory for accounting periods commencing on or after January 1, 2023. Many are not applicable or do not have a significant impact to the Company and have been excluded. The following have not yet been adopted and are being evaluated to determine their impact on the Company.
IAS 1 – Presentation of Financial Statements (“IAS 1”)
IAS 1 was amended in January 2020 to provide a more general approach to the classification of liabilities under IAS 1 based on the contractual arrangements in place at the reporting date. The amendments clarify that the classification of liabilities as current or noncurrent is based solely on a company’s right to defer settlement at the reporting date. The right needs to be unconditional and must have substance. The amendments also clarify that the transfer of a company’s own equity instruments is regarded as settlement of a liability, unless it results from the exercise of a conversion option meeting the definition of an equity instrument. The amendments are effective for annual periods beginning on January 1, 2023.
Notes to the Unaudited Condensed Interim Consolidated Financial Statements
For the three and nine months ended September 30, 2022 and 2021
(Expressed in United States Dollars)
3.
Significant judgments, estimates and assumptions
The preparation of the Company’s unaudited condensed interim 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 unaudited condensed interim 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. The unaudited condensed interim consolidated financial statements include estimates, which, by their nature, are uncertain. The impact of such estimates are pervasive throughout the unaudited condensed interim consolidated financial statements and may require accounting adjustments based on future occurrences.
The estimates and underlying assumptions are reviewed on a regular basis. Revisions to accounting estimates are recognized in the period in which the estimate is revised and in any future periods affected. The areas involving a higher degree of judgment or complexity, or areas where the assumptions and estimates are significant to the consolidated financial statements were the same as those applied to the Company’s annual financial statements for the year ended December 31, 2021.
4.
Investments
Investment activity for the nine months ended September 30, 2022
During the nine months ended September 30, 2022, the Company sold 7,270,408 common shares of Electric for total cash proceeds of C$1,965,934 ($1,545,925). The total realized loss on investment was $604,574. As at September 30, 2022, the Company holds Nil shares in Electric.
5.
Royalty, stream and other interests
As at and for the nine months ended September 30, 2022:
Notes to the Unaudited Condensed Interim Consolidated Financial Statements
For the three and nine months ended September 30, 2022 and 2021
(Expressed in United States Dollars)
As at and for the year ended December 31, 2021:
Cost
Accumulated Depletion
Royalty
Country
Opening
Additions
Disposal
Ending
Opening
Depletion
Disposal
Ending
Carrying
Amount
$
$
$
$
$
$
$
$
$
Janet Ivy
Australia
-
2,494,285
-
2,494,285
-
(29,633)
-
(29,633)
2,464,652
Koolyanobbing
Australia
1,130,010
1,357,731
-
2,487,741
-
(797,157)
-
(797,157)
1,690,584
South Railroad
USA
-
2,316,757
-
2,316,757
-
(37,581)
-
(37,581)
2,279,176
Bowdens
Australia
1,130,068
-
-
1,130,068
-
-
-
-
1,130,068
Bullabulling
Australia
-
953,349
-
953,349
-
-
-
-
953,349
Brits
South Africa
764,016
-
-
764,016
-
-
-
-
764,016
Otto Bore
Australia
-
583,612
-
583,612
-
-
-
-
583,612
Segilola
Nigeria
706,425
-
-
706,425
-
(18,587)
-
(18,587)
687,838
Lynn Lake (MacLellan)
Canada
-
873,088
-
873,088
-
-
-
-
873,088
Bulong
Australia
544,957
-
-
544,957
-
-
-
-
544,957
Dry Creek
Australia
475,723
-
-
475,723
(9,338)
(61,429)
-
(70,767)
404,956
Sulfur Springs/ Kangaroo Caves
Australia
467,983
-
-
467,983
-
-
-
-
467,983
Pedra Branca
Brazil
450,131
-
-
450,131
-
-
-
-
450,131
Ashburton
Australia
355,940
-
-
355,940
-
-
-
-
355,940
Anthiby Well
Australia
311,742
-
-
311,742
-
-
-
-
311,742
Brauna
Brazil
262,328
-
-
262,328
(11,498)
(25,603)
-
(37,101)
225,227
Montanore
USA
-
61,572
-
61,572
-
-
-
-
61,572
Uley
Australia
212,393
-
-
212,393
-
-
-
-
212,393
Mt Ida
Australia
210,701
-
-
210,701
-
-
-
-
210,701
Graphmada
Madagascar
188,437
-
(188,437)
-
-
(2,602)
2,602
-
-
Other
Australia
1,173,883
302,758
(82,955)
1,393,686
-
-
-
-
1,393,686
Other
Peru
500,000
1,000,000
-
1,500,000
-
-
-
-
1,500,000
Other
Canada
-
60,018
-
60,018
-
-
-
-
60,018
Total
8,884,737
10,003,170
(271,392)
18,616,515
(20,836)
(972,592)
2,602
(990,826)
17,625,689
Total royalty, stream and other interests include carrying amounts in the following countries:
September 30 30,
2022
December 31,
2021
$
$
Australia
24,479,628
10,724,623
USA
2,334,564
2,340,748
South Africa
1,914,844
764,016
Canada
1,407,733
933,106
Brazil
662,817
675,358
Nigeria
309,853
687,838
Peru
1,545,609
1,500,000
32,655,048
17,625,689
Royalty acquisitions for the nine months ended September 30, 2022
Limpopo
On April 27, 2022, Vox completed the acquisition of a portfolio of two royalties from a private South African registered company (the “SA Vendor”). The royalties include a 1.0% gross receipts royalty over the Dwaalkop Project and a 0.704% gross receipts royalty over the Messina Project, which collectively cover the full extent of the Limpopo PGM Project (“Limpopo”). The upfront consideration was $1,139,628, settled by the issuance of 409,500 common shares of the Company.
The Company will make additional cash payments or issue additional common shares (at Vox’s sole election) of up to C$8,900,000 upon achievement of certain production milestones at Limpopo. As at September 30, 2022, these additional amounts have not been recorded in the statement of financial position, as the production milestones have not been achieved.
Wonmunna
On May 26, 2022, Vox completed the acquisition of a producing royalty over the Wonmunna iron ore mine (“Wonmunna”) from a private company. The royalty is a 1.25% to 1.50% sliding scale Gross Revenue Royalty (“GRR”), with 1.25% payable when the benchmark 62% iron ore price is below A$100/t and 1.50% GRR payable when the benchmark 62% iron ore price is above A$100/t. Notwithstanding the acquisition date of the royalty, all royalty payments due and payable to the holder of the royalty are for the benefit of Vox commencing April 1, 2022.
Notes to the Unaudited Condensed Interim Consolidated Financial Statements
For the three and nine months ended September 30, 2022 and 2021
(Expressed in United States Dollars)
The total upfront consideration paid on May 26, 2022 was $15,703,991, broken down as follows:
-
Cash of $4,050,000 (inclusive of a $50,000 deposit paid prior to closing);
-
Issuance of 4,350,000 common shares of the Company, valued at $10,470,905;
-
Issuance of 3,600,000 common share purchase warrants of the Company. Each whole warrant is exercisable to acquire one common share at a price of C$4.50, expiring March 25, 2024. The fair value of the warrants on the issuance date was $1,183,086. The fair value of the warrants is based on the Black-Scholes valuation model (“BSM”) option pricing model with the following assumptions: stock price C$3.09 ($2.41), expected dividend yield – 0%, expected volatility – 46%, risk-free interest rate – 2.53% and an expected life of 1.83 years; and
The carrying amount of the Wonmunna royalty asset was subsequently reduced for the royalty revenues earned for the period April 1, 2022 to May 25, 2022 of $1,208,917.
In addition, there was a holdback amount of $700,000 (recorded as restricted cash) that becomes due and payable following the completion of certain conditions for a period up to December 31, 2024.
Gold Portfolio
On June 3, 2022, Vox completed the acquisition of two royalties from an individual prospector residing in Canada, along with all personal rights held to a third potential royalty. The royalties include a 1.0% Net Smelter Royalty (“NSR”) royalty over part of the Goldlund Project in Ontario, an effective 0.60% NSR royalty over the Beschefer Project in Quebec, and any personal rights held to a 1.50% NSR royalty over the Gold River deposit in Ontario. The upfront consideration was a cash payment of $79,499.
The Company will make additional cash payments or issue additional common shares (at Vox’s sole election), subject to the satisfaction of certain conditions, as follows:
-
C$500,000 or issue up to a maximum of 184,399 common shares in September 2022. This payment was settled on September 7, 2022, with the issuance of 173,058 common shares for total consideration of $387,816;
-
C$700,000 or issue up to a maximum of 258,159 common shares in January 2023; and
-
C$500,000 or issue up to a maximum of 184,399 common shares in December 2023.
As at September 30, 2022, the additional amounts related to January 2023 and December 2023 have not been recorded in the statement of financial position, as the conditions have not yet been met.
El Molino
On June 9, 2022, Vox acquired all of Terrace Gold’s (a subsidiary of Nuheara Limited) rights and interests in an agreement with Lumina Copper S.A.C, which includes the right to receive the El Molino royalty (“El Molino”). The upfront consideration issued was $45,167, settled by the issuance of 17,959 common shares of the Company.
A further payment of $450,000 is payable in cash, following the registration of the El Molino royalty rights on the applicable mining title in Peru and the satisfaction of other customary completion conditions. As at September 30, 2022, this additional amount has not been recorded in the statement of financial position, as the registration of the El Molino royalty rights has not been completed.
Koolyanobbing
On September 30, 2022, the Company recorded a liability relating to the first contingent milestone payment owing on the Koolyanobbing royalty. Per the terms of the royalty sale and purchase agreement between Vox Royalty Australia Pty Ltd. and Vonex Limited, dated April 21, 2020, a first milestone cash payment of A$250,000 ($161,997) is due upon the achievement of a specific cumulative tonnage achieved, which was reached during the three months ended September 30, 2022.
Notes to the Unaudited Condensed Interim Consolidated Financial Statements
For the three and nine months ended September 30, 2022 and 2021
(Expressed in United States Dollars)
7.
Accounts payable and accrued liabilities
September 30,
2022
December 31,
2021
$
$
Trade payable
367,031
196,198
GST payable
366,104
150,832
Accrued liabilities
910,175
782,777
1,643,310
1,129,807
8.
Share capital
Authorized
The authorized share capital of the Company is an unlimited number of common shares without par value.
The number of common shares issued and outstanding as at September 30, 2022 and at December 31, 2021 is as follows:
September 30,
2022
December 31,
2021
$
$
Issued and outstanding: 44,556,855(December 31, 2021: 39,379,199) common shares
56,510,657
43,648,023
Share issuances for the nine months ended September 30, 2022
On April 27, 2022, the Company issued 409,500 common shares for the purchase of the Limpopo royalties, for total consideration of $1,139,628.
On May 26, 2022, the Company issued 4,350,000 common shares for the purchase of the Wonmunna royalty, for total consideration of $10,470,905.
On June 9, 2022, the Company issued 17,959 common shares for the purchase of the El Molino royalty, for total consideration of $45,167.
On September 7, 2022, the Company issued 173,058 common shares as a first milestone payment related to the gold royalty portfolio, for total consideration of $387,816.
On November 18, 2021, the Company renewed its normal course issuer bid (“NCIB”), allowing the Company to purchase up to 1,968,056 common shares from time to time during the period of November 19, 2021 through November 18, 2022. During the nine months ended September 30, 2022, the Company purchased and cancelled 192,200 common shares, purchased at an average share price of C$3.03. The value was allocated $213,230 to share capital and $240,985 to deficit. See Note 19 for the renewal of the NCIB.
Dividends
On September 20, 2022, the Board of Directors of the Company declared a quarterly dividend of $0.01 per common share to shareholders of record as of the close of business on October 21, 2022. Total dividends of $445,940 was paid on November 4, 2022.
9.
Equity reserves
Warrants
The following summarizes the warrant activity for the nine months ended September 30, 2022 and 2021:
Notes to the Unaudited Condensed Interim Consolidated Financial Statements
For the three and nine months ended September 30, 2022 and 2021
(Expressed in United States Dollars)
The following table summarizes information of warrants outstanding and exercisable as at September 30, 2022:
Expiry date
Number of
warrants
outstanding
Exercise
price
Weighted average remaining contractual
life
#
C$
Years
March 25, 2024
3,600,000
4.50
1.48
3,600,000
4.50
1.48
See Note 10 for additional warrants classified under derivative and other liabilities.
The Company used the BSM to estimate the grant date fair value of warrants granted during the period using the following weighted average assumptions:
Nine months
ended
September 30,
2022
Nine months
ended
September 30,
2021
Expected stock price volatility
46%
N/A
Risk-free interest rate
2.53%
N/A
Expected life
1.83 years
N/A
Grant date share price
$ 2.41
N/A
Expected forfeiture rate
-
N/A
Expected dividend yield
-
N/A
See Note 5 for warrants issuance as part of the acquisition of the Wonmunna royalty.
Options
The Company maintains an omnibus long-term incentive plan dated May 19, 2020 (the “Plan”) whereby certain key employees, officers, directors and consultants may be granted options to acquire common shares of the Company. The maximum number of common shares that are issuable under the Plan is fixed at 20% of the number of common shares issued and outstanding as of May 19, 2020. As at September 30, 2022, the maximum number of common shares that are issuable under the Plan is 6,413,750. The exercise price and vesting terms are determined by the Board of Directors.
The following table summarizes the stock option activity for the nine months ended September 30, 2022 and 2021:
September 30, 2022
September 30, 2021
Number
Weighted
average
exercise price
Number
Weighted
average
exercise price
#
C$
#
$
Outstanding, beginning of period
799,826
3.25
6,000
3.50
Granted
804,158
4.16
819,826
3.27
Expired
-
-
(26,000)
3.88
Outstanding, end of period
1,603,984
3.71
799,826
3.25
Exercisable, end of period
600,954
3.55
-
-
The following table summarizes information of stock options outstanding as at September 30, 2022:
Notes to the Unaudited Condensed Interim Consolidated Financial Statements
For the three and nine months ended September 30, 2022 and 2021
(Expressed in United States Dollars)
The Company used the BSM to estimate the grant date fair value of stock options granted during the period using the following weighted average assumptions:
Nine months
ended
September 30,
2022
Nine months
ended
September 30,
2021
Expected stock price volatility
35%
36%
Risk-free interest rate
1.65%
0.96%
Expected life
5 years
4.91 years
Grant date share price
$ 3.09
$ 2.62
Expected forfeiture rate
-
-
Expected dividend yield
-
-
During the nine months ended September 30, 2022, 804,158 stock options were granted and vest in 25% increments on each of September 9, 2022, March 9, 2023, September 9, 2023 and March 9, 2024.
In making assumptions for expected volatility, the Company used the industry average as sufficient historical data was not available for the Company’s stock price.
Restricted Share Unit Plan
The Plan provides that the Board of Directors may, at its discretion, grant directors, officers, employees and consultants, non-transferable RSUs based on the value of the Company’s share price at the date of grant. The Board of Directors has the discretion to issue cash or equity settle the vested RSUs. The RSUs issued were treated as equity-settled instruments and measured at the grant date fair value because the Company does not have a present obligation to settle the issued RSUs in cash.
During the nine months ended September 30, 2022, 263,548 RSUs were granted and vest in 25% increments on each of September 9, 2022, March 9, 2023, September 9, 2023 and March 9, 2024.
The share-based compensation expense related to the RSUs will be recorded over the vesting period.
The following summarizes the RSU activity for the nine months ended September 30, 2022 and 2021:
September 30, 2022
September 30, 2021
Number
Weighted
average
fair value
Number
Weighted
average
fair value
#
$
#
$
Outstanding, beginning of period
581,696
2.13
2,124,906
2.04
Granted
263,548
3.01
292,842
2.16
Exercised
(193,105)
2.05
(1,815,369)
2.03
Outstanding, end of period
652,139
2.51
602,379
2.13
Vested, end of period
198,688
2.49
12,901
2.40
10.
Derivative and other liabilities
The following summarizes the derivative and other liabilities balance:
Notes to the Unaudited Condensed Interim Consolidated Financial Statements
For the three and nine months ended September 30, 2022 and 2021
(Expressed in United States Dollars)
Warrants
The following summarizes the warrant activity for nine months ended September 30, 2022 and 2021:
September 30, 2022
September 30, 2021
Number
Weighted
average
exercise price
Number
Weighted
average
exercise price
#
C$
#
C$
Outstanding, beginning of period
5,097,550
4.50
2,289,667
4.50
Granted
-
-
2,807,883
4.50
Outstanding, end of period
5,097,550
4.50
5,097,550
4.50
Exercisable, end of period
5,097,550
4.50
5,097,550
4.50
The following table summarizes information of warrants outstanding and exercisable as at September 30, 2022:
Expiry date
Number of
warrants
outstanding
Exercise
price
Weighted average remaining
contractual life
#
C$
Years
May 14, 2023
2,289,667
4.50
0.62
March 25, 2024
2,807,883
4.50
1.48
5,097,550
4.50
1.10
The Company used the BSM to estimate the grant date fair value of warrants during the period using the following weighted average assumptions:
Nine months
ended
September 30,
2022
Nine months
ended
September 30,
2021
Expected stock price volatility
36%
51%
Risk-free interest rate
3.76%
0.61%
Expected life
1.10 years
2.10 years
Grant date share price
$ 2.18
$ 1.96
Expected forfeiture rate
-
-
Expected dividend yield
-
-
On February 3, 2021, the Company held a Warrant Holder Meeting (“Meeting”). At the Meeting, the holders of 2,289,667 common share purchase warrants that were originally set to expire on May 14, 2022 (“Warrants”), unanimously voted in favour to amend the Warrants to (a) remove the compulsory call option held by the Company, and (b) in conjunction with the foregoing, extend the term of the Warrants by 12 months, such that the warrants will now expire on May 14, 2023.
Performance Share Unit Plan
The Plan provides that the Board of Directors may, at its discretion, grant directors, officers, employees and consultants, non-transferable Performance Share Units (“PSUs”) based on the value of the Company’s share price at the date of grant. The Board of Directors has the discretion to issue cash or equity settle the vested PSUs. The PSUs issued were treated as derivative instruments because the number of shares to be eventually issued is based on a percentage of the common shares outstanding at the time the performance hurdle is met. The share-based compensation expense will be recorded over the vesting period, which is the date that specific share price hurdles are met.
Notes to the Unaudited Condensed Interim Consolidated Financial Statements
For the three and nine months ended September 30, 2022 and 2021
(Expressed in United States Dollars)
The following summarizes the PSU activity for the nine months ended September 30, 2022 and 2021:
September 30, 2022
September 30, 2021
Number
Weighted
average
fair value
Number
Weighted
average
fair value
#
$
#
$
Outstanding, beginning of period
787,584
1.36
648,246
1.36
Increase for the period
103,554
0.30
138,976
0.79
Outstanding, end of period
891,138
0.30
787,222
1.26
Vested, end of period
-
-
-
-
The Company used the Monte Carlo simulation model to estimate the grant date fair value of PSUs during the period using the following weighted average assumptions:
Nine months
ended
September 30,
2022
Nine months
ended
September 30,
2021
Expected stock price volatility
41%
51%
Risk-free interest rate
3.84%
0.56%
Expected life
0.90 years
1.16 years
Grant date share price
C$ 2.93
C$ 3.15
Expected forfeiture rate
-
-
Expected dividend yield
-
-
11.
General and administration
The Company’s general and administrative expenses incurred for three and nine months ended September 30, 2022 and 2021 are as follows:
Three months
ended
September 30,
2022
Three months
ended
September 30,
2021
Nine months
ended
September 30,
2022
Nine months
ended
September 30,
2021
$
$
$
$
Corporate administration
352,698
361,216
1,110,565
908,463
Nasdaq listing costs
118,605
-
264,503
-
Professional fees
168,416
89,034
433,938
560,386
Salaries and benefits
594,449
435,500
1,870,070
1,702,077
Depreciation
45,885
45,885
137,655
137,655
1,280,053
931,635
3,816,731
3,308,581
12.
Other income
The Company’s other income earned for the three and nine months ended September 30, 2022 and 2021 are as follows:
Notes to the Unaudited Condensed Interim Consolidated Financial Statements
For the three and nine months ended September 30, 2022 and 2021
(Expressed in United States Dollars)
13.
Related party transactions
Key management personnel compensation
Key management personnel are those persons having authority and responsibility for planning, directing and controlling the activities of the Company, directly or indirectly, and also comprise the directors of the Company.
The remuneration of directors and other members of key management personnel during the three and nine months ended September 30, 2022 and 2021 are as follows:
Three months
ended
September 30,
2022
Three months
ended
September 30,
2021
Nine months
ended
September 30,
2022
Nine months
ended
September 30,
2021
$
$
$
$
Short-term employee benefits
468,699
331,250
1,513,324
1,307,084
Share-based compensation
309,765
246,932
491,595
418,337
778,464
578,182
2,004,919
1,725,421
14.
Commitments and contingencies
As at September 30, 2022, the Company did not have any right-of-use assets or lease liabilities.
We are, from time to time, involved in legal proceedings of a nature considered normal to our business. We believe that none of the litigation in which we are currently involved or have been involved with, individually or in the aggregate, is material to our consolidated financial condition or results of operations.
The Company is committed to minimum annual lease payments for its premises, which renews on a quarterly basis and certain consulting agreements, as follows:
October 1, 2022
to
September 30, 2023
$
Leases
12,980
Consulting agreements
15,389
28,369
The Company is responsible for making certain milestone payments in connection with royalty acquisitions, which become payable on certain royalty revenue or cumulative production thresholds being achieved, as follows:
Royalty
$
Limpopo(1)
6,493,033
Janet Ivy(1)
1,943,970
Goldlund(1)
875,465
Brits(1)
1,250,000
Bullabulling(2)
647,990
Koolyanobbing
323,995
El Molino
450,000
Uley(1)
142,558
12,127,011
(1) The milestone payment(s) may be settled in either cash or common shares of the Company, at the Company’s election.
(2) The milestone payment may be settled in cash or ½ cash and ½ common shares of the Company, at the Company’s election.
Notes to the Unaudited Condensed Interim Consolidated Financial Statements
For the three and nine months ended September 30, 2022 and 2021
(Expressed in United States Dollars)
18.
Financial instruments
The Company’s risk exposures and the impact on the financial instruments are summarized below. There have been no material changes to the risks, objectives, policies and procedures during the nine months ended September 30, 2022 and the year ended December 31, 2021.
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 receivable in the ordinary course of business. In order to mitigate its exposure to credit risk, the Company maintains its cash in high quality financial institutions and closely monitors its accounts receivable balances. The Company’s accounts receivable are subject to the credit risk of the counterparties who own and operate the mines underlying Vox’s royalty and streaming portfolio.
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 and holding of cash and cash equivalents. As at September 30, 2022, the Company had cash and cash equivalents of $3,655,305 (December 31, 2021 - $5,064,802) and working capital of $3,636,005 (December 31, 2021 - $6,209,207).
Currency risk
Foreign currency risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in foreign exchange rates. Financial instruments that impact the Company’s net income due to currency fluctuations include cash and cash equivalents, accounts receivable, accounts payable and accrued liabilities, income taxes payable and derivative and other liabilities denominated in Canadian and Australian dollars. Based on the Company’s Canadian and Australian denominated monetary assets and liabilities at September 30, 2022, a 10% increase (decrease) of the value of the Canadian and Australian dollar relative to the United States dollar would increase (decrease) net income and other comprehensive income by $506,000.
Interest rate risk
The Company has cash balances with rates that fluctuate with the prevailing market rate. The Company’s current policy is to invest excess cash in cash accounts or short-term interest-bearing securities issued by chartered banks. The Company periodically monitors the investments it makes and is satisfied with the credit ratings of its banks. The Company does not use any derivative instrument to reduce its exposure to interest rate risk.
Commodity and share price risk
The Company’s royalties are subject to fluctuations from changes in market prices of the underlying commodities. The market prices of precious and base metals are the primary drivers of the Company’s profitability and ability to generate free cash flow. All of the Company’s future revenue is not hedged in order to provide shareholders with full exposure to changes in the market prices of these commodities.
The Company’s financial results may be significantly affected by a decline in the price of precious and/or base metals. The price of precious and base metals can fluctuate widely, and is affected by numerous factors beyond the Company’s control.
Fair value of financial instruments
The carrying amounts for cash and cash equivalents, accounts receivables, accounts payable and accrued liabilities, and income tax liabilities on the unaudited condensed interim consolidated statements of financial position approximate fair value because of the limited term of these instruments.
The fair value of the derivative and other liabilities were estimated based on the assumptions disclosed in Note 10.
The Company classifies fair value measurements using a fair value hierarchy that reflects the significance of the inputs used in making the measurements. The fair value hierarchy has the following levels:
-
Level 1 - Quoted prices (unadjusted) in active markets for identical assets or liabilities;
-
Level 2 - Inputs other than quoted prices included in Level 1 that are observable for the asset or liability, either directly (i.e. as prices) or indirectly (i.e. derived from prices); and
-
Level 3 - Inputs for the asset or liability that are not based on observable market data (unobservable inputs).
As at September 30, 2022 and December 31, 2021, the Company does not have any financial instruments measured at fair value after initial recognition, except derivative and other liabilities, which are estimated using Level 3 inputs.
Notes to the Unaudited Condensed Interim Consolidated Financial Statements
For the three and nine months ended September 30, 2022 and 2021
(Expressed in United States Dollars)
The following table provides information about financial assets and liabilities measured at fair value in the unaudited condensed interim consolidated statements of financial position and categorized by level according to the significance of the inputs used in making the measurements.
As at September 30, 2022:
Level 1
Level 2
Level 3
Total
$
$
$
$
Derivative and other liabilities
-
-
(698,961)
(698,961)
-
-
(698,961)
(698,961)
Level 3 Hierarchy
The following table presents the changes in fair value measurements of financial instruments classified as Level 3 as at September 30, 2022 and December 31, 2021. These financial instruments are measured at fair value utilizing non-observable market inputs. The gains and losses are recognized in the unaudited condensed interim consolidated statements of income and comprehensive income.
September 30,
2022
December 31,
2021
$
$
Balance, beginning of year
3,327,672
1,042,642
Issuance of Offering warrants (Note 10)
-
1,372,247
Change in valuation of financing warrants (Note 10)
(2,142,865)
517,971
Share-based compensation expense on PSUs (Note 10)
(485,846)
394,812
Balance, end of period
698,961
3,327,672
Capital 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. As at September 30, 2022, the capital structure of the Company consists of $35,098,110 (December 31, 2021 - $20,709,675) of total equity, comprising of share capital, equity reserves, and deficit. The Company was not subject to any externally imposed capital requirements.
19.
Subsequent events
On November 14, 2022, the Board of Directors of the Company declared a quarterly dividend of $0.01 per common share payable on January 13, 2023 to shareholders of record as of the close of business on December 30, 2022.
On November 7, 2022, the Company submitted a notice of intention to make an NCIB to the TSXV and renew its current NCIB (the “Notice”). Under the terms of the Notice, the Company may repurchase for cancellation, up to 2,229,697 common shares, being 5% of the total number of 44,593,950 common shares outstanding as at November 7, 2022. Subject to receipt of final approval from the TSXV, the repurchases are to be made at market prices through the facilities of the TSXV or other recognized Canadian marketplaces, or through the facilities of the Nasdaq, during the period November 21, 2022 to November 20, 2023.
On November 9, 2022, Vox executed a binding royalty sale and purchase agreement (“FQMRSPA”) to acquire two royalties and the option rights held on two additional royalties from First Quantum Minerals Ltd. (“FQM”). The royalties include a 2.0% NSR royalty over part of the Estrades Project in Québec (“Estrades”), a 0.49% NSR royalty over the Opawica Project in Québec (“Opawica”), a right to acquire a 2% NSR (1% buyback for C$3,000,000) over the Winston Lake Project in Ontario (“Winston Lake”), and a right to acquire a 2% NSR over the Norbec & Millenbach Project in Québec (“N&M”). Pursuant to the terms of the FQM RSPA, on closing, Vox will issue to FQM C$525,000 of Vox common shares, being 164,319 common shares of the Company at an issue price of C$3.1950 per common share for the Estrades and Opawica royalties. Additional closings and cash payments of C$100,000 (Winston Lake) and C$25,000 (N&M) will be due and payable following (i) the exercise of separate third-party option agreements, (ii) the issuance of the Winston Lake and N&M royalties to FQM, and (iii) the assignment of the Winston Lake and N&M royalties to Vox.
17
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