POLYMET MINING CORP.
(a development stage company)
INTERIM CONSOLIDATED FINANCIAL STATEMENTS
30 April 2010
U.S. Funds
Suite 390 – 3600 Lysander Place, Richmond, British Columbia, Canada, V7B 1C3
E-MAIL:info@polymetmining.comOR VISIT OUR WEBSITE AT: www.polymetmining.com
PolyMet Mining Corp. |
(a development stage company) |
Interim Consolidated Balance Sheets |
As at 30 April and 31 January |
All figures in Thousands of U.S. Dollars |
30 April | 31 January | |||||
ASSETS | 2010 | 2010 | ||||
Current | ||||||
Cash and equivalents | $ | 15,190 | $ | 21,282 | ||
Accounts receivable and advances | 94 | 88 | ||||
Investment | 119 | 140 | ||||
Prepaid expenses | 390 | 512 | ||||
15,793 | 22,022 | |||||
Deferred Financing Costs(Note 11c)) | 1,815 | 1,794 | ||||
Mineral Property, Plant and Equipment(Notes 3 and 4) | 121,134 | 115,832 | ||||
$ | 138,742 | $ | 139,648 | |||
LIABILITIES | ||||||
Current | ||||||
Accounts payable and accrued liabilities | $ | 2,461 | $ | 2,953 | ||
Current portion of long term debt(Note 5) | 2,000 | 2,000 | ||||
Current portion of asset retirement obligation(Note 6) | 815 | 756 | ||||
5,276 | 5,709 | |||||
Long term | ||||||
Long term debt(Note 5) | 8,028 | 8,529 | ||||
Convertible debt(Note 7) | 25,787 | 25,253 | ||||
Asset retirement obligation(Note 6) | 2,455 | 2,590 | ||||
Total Liabilities | 41,546 | 42,081 | ||||
SHAREHOLDERS’ EQUITY | ||||||
Share Capital-(Note 8) | 132,098 | 132,066 | ||||
Contributed Surplus–(Note 8d) | 37,457 | 36,979 | ||||
Accumulated Other Comprehensive Income | 49 | 71 | ||||
Deficit | (72,408 | ) | (71,549 | ) | ||
97,196 | 97,567 | |||||
Total Liabilities and Shareholders’ Equity | $ | 138,742 | $ | 139,648 |
Nature of Business and Liquidity Risk(Note 1)
Contingent Liabilities and Commitments(Notes 4, 6 and 11)
ON BEHALF OF THE BOARD:
“William Murray”, Director
“David Dreisinger”, Director
- See Accompanying Notes–
PolyMet Mining Corp. |
(a development stage company) |
Consolidated Statements of Loss, Other Comprehensive Loss and Deficit |
For the three months ended 30 April |
All figures in Thousands of U.S. Dollars, except per share amounts |
2010 | 2009 | |||||
General and Administrative | ||||||
Amortization | 7 | 7 | ||||
Asset retirement obligation accretion | 91 | 95 | ||||
Consulting fees | 9 | 9 | ||||
Exploration | 193 | - | ||||
Investor relations and financing | 39 | 35 | ||||
Office and corporate wages | 361 | 286 | ||||
Professional fees | 33 | 16 | ||||
Shareholders’ information | 96 | 47 | ||||
Stock-based compensation(Notes 8b) and 8c)) | 10 | 453 | ||||
Transfer agent and filing fees | 35 | 9 | ||||
Travel | 68 | 52 | ||||
942 | 1,009 | |||||
Other Expenses (Income) | ||||||
Interest income, net | (1 | ) | (1 | ) | ||
Loss (gain) on foreign exchange | (12 | ) | 13 | |||
Rental income | (70 | ) | (39 | ) | ||
(83 | ) | (27 | ) | |||
Loss for the Period | $ | 859 | $ | 982 | ||
Other Comprehensive Income | ||||||
Unrealized gain (loss) on investment | (22 | ) | 8 | |||
Comprehensive Loss | 881 | 974 | ||||
Loss for the Period | 859 | 982 | ||||
Deficit – Beginning of the Period | 71,549 | 62,526 | ||||
Deficit – End of the Period | $ | 72,408 | $ | 63,508 | ||
Basic and Diluted Loss per Share | $ | (0.01 | ) | $ | (0.01 | ) |
Weighted Average Number of Shares | 148,989,218 | 137,597,414 |
- See Accompanying Notes -
PolyMet Mining Corp. |
(a development stage company) |
Interim Consolidated Statements of Changes in Shareholders’ Equity |
All figures in Thousands of U.S. |
Dollars, except for Shares |
Common Shares (Note 8) | |||||||||||||||||||||
Other | |||||||||||||||||||||
Authorized | Contributed | Comprehensive | |||||||||||||||||||
Shares | Shares | Amount | Surplus | Income | Deficit | Total | |||||||||||||||
Balance – 31 January 2009 | Unlimited | 137,303,875 | $ | 105,312 | $ | 27,549 | $ | - | $ | (62,526 | ) | $ | 70,335 | ||||||||
Loss for the year | - | - | - | - | (9,023 | ) | (9,023 | ) | |||||||||||||
Other comprehensive income for the period | - | - | - | - | 71 | - | 71 | ||||||||||||||
Shares and warrants issued: | |||||||||||||||||||||
Equity offering and issuance costs | - | 9,433,962 | 24,501 | - | - | 24,501 | |||||||||||||||
Exercise of options | - | 775,000 | 477 | - | - | 477 | |||||||||||||||
Fair value of stock options exercised | - | - | 307 | (307 | ) | - | - | ||||||||||||||
Exercise of warrants | - | 167,954 | 494 | - | - | 494 | |||||||||||||||
Fair value of warrants exercised | - | - | 254 | (254 | ) | - | - | ||||||||||||||
Convertible debt – conversion factor and warrants (Note 7) | - | - | - | 352 | - | 352 | |||||||||||||||
Accrual of Milestones 2 and 4 Bonus Shares (Note 11) | - | - | - | 4,200 | - | 4,200 | |||||||||||||||
Amendment to previously issued warrants (Notes 7 and 8e)) | - | - | - | 4,920 | - | 4,920 | |||||||||||||||
Issuance of Milestone 2 Bonus Shares (Note 11) | 1,300,000 | 721 | (721 | ) | - | ||||||||||||||||
Stock-based compensation (Note 8c)) | - | - | - | 1,240 | - | 1,240 | |||||||||||||||
Balance – 31 January 2010 | Unlimited | 148,980,791 | $ | 132,066 | $ | 36,979 | $ | 71 | $ | (71,549 | ) | $ | 97,567 | ||||||||
Loss for the period | - | - | - | - | (859 | ) | (859 | ) | |||||||||||||
Other comprehensive income for the period | - | - | - | - | (22 | ) | - | (22 | ) | ||||||||||||
Shares and warrants issued: | |||||||||||||||||||||
Exercise of options | - | 25,000 | 16 | - | - | - | 16 | ||||||||||||||
Fair value of stock options exercised | - | - | 16 | (16 | ) | - | - | - | |||||||||||||
Accrual of Milestone 4 Bonus Shares (Note11) | - | - | - | 428 | - | - | 428 | ||||||||||||||
Stock-based compensation (Note 8c)) | - | - | - | 66 | - | - | 66 | ||||||||||||||
Balance – 30 April 2010 | Unlimited | 149,005,791 | $ | 132,098 | $ | 37,457 | $ | 49 | $ | (72,408 | ) | $ | 97,196 |
Figures since 31 January 2010 unaudited and prepared by management.
- See Accompanying Notes -
PolyMet Mining Corp. |
(a development stage company) |
Consolidated Statements of Cash Flows |
For the Periods Ended 30 April |
All figures in Thousands of U.S. Dollars |
(unaudited) |
2010 | 2009 | |||||
Operating Activities | ||||||
Loss for the period | $ | (859 | ) | $ | (982 | ) |
Items not involving cash | ||||||
Amortization | 7 | 7 | ||||
Asset retirement obligation accretion | 91 | 95 | ||||
Stock-based compensation | 10 | 453 | ||||
Changes in non-cash working capital items | ||||||
Accounts receivable and advances | (6 | ) | 3 | |||
Prepaid expenses | 122 | 101 | ||||
Accounts payable and accrued liabilities | (198 | ) | 387 | |||
Net cash from (used in) operating activities | (833 | ) | 64 | |||
Financing Activities | ||||||
Share capital – for cash | 16 | 231 | ||||
Deferred financing costs | - | (15 | ) | |||
Convertible debt costs | - | (28 | ) | |||
Long-term debt repayment | (500 | ) | (250 | ) | ||
Net cash used in financing activities | (484 | ) | (62 | ) | ||
Investing Activities | ||||||
Purchase of mineral property, plant and equipment | (4,775 | ) | (4,306 | ) | ||
Net cash used in investing activities | (4,775 | ) | (4,306 | ) | ||
Net Decrease in Cash and Cash Equivalents Position | (6,092 | ) | (4,304 | ) | ||
Cash and Cash Equivalents Position - Beginning of Period | 21,282 | 7,354 | ||||
Cash and Equivalents Position - End of Period | $ | 15,190 | $ | 3,050 |
- See Accompanying Notes -
PolyMet Mining Corp. |
(a development stage company) |
Notes to Consolidated Financial Statements |
30 April 2010 |
Tabular amounts in Thousands of U.S. Dollars except for price per share, shares and options |
Unaudited – prepared by management |
1. | Nature of Business and Liquidity Risk |
PolyMet Mining Corp. (the “Company”) was incorporated in British Columbia, Canada on 4 March 1981 under the name Fleck Resources Ltd. The Company changed its name from Fleck Resources to PolyMet Mining Corp. on 10 June 1998. The Company is engaged in the exploration and development, when warranted, of natural resource properties. The Company’s primary mineral property is the NorthMet Project, a polymetallic project in northeastern Minnesota, USA. The realization of the Company’s investment in the NorthMet Project and other assets is dependent upon various factors, including the existence of economically recoverable mineral reserves, the ability to obtain the necessary financing to complete the exploration and development of the NorthMet Project, future profitable operations, or alternatively upon disposal of the investment on an advantageous basis.
Liquidity Risk
These interim unaudited consolidated financial statements have been prepared on a going concern basis which contemplates the realization of assets and the settlement of liabilities in the normal course of operations. Liquidity risk is the risk that the Company will be unable to meet its financial obligations as they fall due.
In the past the Company has taken steps to fund its operations through the issuance of equity and debt. It plans to meet its ongoing financial obligations to the point at which all regulatory approvals for its NorthMet project have been obtained and which will allow the Company to raise additional capital to construct its mine and commence commercial production. In the event that currently available resources are not sufficient to meet these obligations, the Company may be forced to curtail or delay expenditures, sell assets or seek additional financing sources. All of these circumstances may delay the progress of or affect the ultimate success of the Company’s plans.
To address such risks, management of the Company has developed plans which involve the curtailment or postponement of certain activities, the sale of assets and the provision of additional sources of finance. However, there is no assurance that management will be successful in achieving any or all of the opportunities it has identified or obtain sufficient liquidity to execute its business plans.
1
PolyMet Mining Corp. |
(a development stage company) |
Notes to Consolidated Financial Statements |
30 April 2010 |
Tabular amounts in Thousands of U.S. Dollars except for price per share, shares and options |
Unaudited – prepared by management |
2. | Significant Accounting Policies |
Basis of Presentation | |
The interim consolidated financial statements of PolyMet have been prepared in accordance with accounting principles generally accepted in Canada and follow the same accounting policies and methods consistent with those used in the preparation of the most recent annual audited financial statements. In the opinion of management, all of the adjustments necessary to fairly present the consolidation financial statements set forth herein have been made. The unaudited interim consolidated financial statements do not include all information and note disclosures required by Canadian GAAP for annual financial statements and therefore should be read in conjunction with the Company’s audited consolidated financial statements for the year ended 31 January 2010. Significant differences from United States generally accepted accounting principles are disclosed in Note 13. | |
3. | Resource Property Agreements |
NorthMet, Minnesota, U.S.A. - Lease | |
Pursuant to an agreement dated 4 January 1989, subsequently amended and assigned, the Company leases certain lands in St. Louis County, Minnesota from RGGS Land & Minerals Ltd., L.P. The original term of the renewable lease was 20 years and called for total lease payments of $1,475,000. The Company has renewed the lease by making a payment of $150,000 in January 2010. All required lease payments have been paid to 30 April 2010. | |
The Company can, at its option, terminate the lease at any time by giving written notice to the lessor not less than 90 days prior to the effective termination date or can indefinitely extend the 20-year term by continuing to make $150,000 annual lease payments on each successive anniversary date. | |
The lease payments are considered advance royalty payments and shall be deducted from future production royalties payable to the lessor, which range from 3% to 5% based on the net smelter return received by the Company. The Company’s recovery of the advance royalty payments is subject to the lessor receiving an amount not less than the amount of the annual lease payment due for that year. | |
Pursuant to the leases, PolyMet holds mineral rights and the right to mine. PolyMet intends to acquire surface rights through a land exchange with or direct acquisition of surface rights from the United States Forest Service, which costs have been included in the capital cost estimate of the Project. |
2
PolyMet Mining Corp. |
(a development stage company) |
Notes to Consolidated Financial Statements |
30 April 2010 |
Tabular amounts in Thousands of U.S. Dollars except for price per share, shares and options |
Unaudited – prepared by management |
4. | Mineral Property, Plant and Equipment |
Details are as follows: |
30 April | 31 January | ||||||||||||
2010 | 2010 | ||||||||||||
Accumulated | Net Book | Net Book | |||||||||||
30 April 2010 | Cost | Amortization | Value | Value | |||||||||
Mineral Property Acquisition and Interest Costs | $ | 39,232 | $ | - | $ | 39,232 | $ | 38,613 | |||||
Mine Plan and Development | 27,190 | - | 27,190 | 25,470 | |||||||||
Environmental | 20,722 | - | 20,722 | 19,537 | |||||||||
Consulting and Wages | 20,071 | - | 20,071 | 18,788 | |||||||||
Operations | 7,828 | - | 7,828 | 7,641 | |||||||||
Mine Equipment | 4,071 | - | 4,071 | 3,790 | |||||||||
Asset Retirement Obligation | 1,605 | - | 1,605 | 1,781 | |||||||||
NorthMet Project | 120,719 | - | 120,719 | 115,620 | |||||||||
Leasehold improvements | 47 | 33 | 14 | 17 | |||||||||
Computers | 536 | 192 | 344 | 142 | |||||||||
Furniture and equipment | 151 | 94 | 57 | 53 | |||||||||
$ | 121,453 | $ | 319 | $ | 121,134 | $ | 115,832 |
Erie Plant, Minnesota, U.S.A.
On 15 November 2005, the Company exercised an option to acquire 100% ownership of large portions of the former LTV Steel Mining Company ore processing plant in northeastern Minnesota under the Asset Purchase Agreement with Cleveland Cliffs, Inc. (NYSE:CLF) (“Cliffs”).
The consideration for the purchase was $1 million in cash, $2.4 million in notes payable and the issuance of 6,200,547 common shares (at fair market value of $7,564,000) in the capital stock of the Company. The final instalment of the notes payable was paid on 30 June 2008 (Note 5).
3
PolyMet Mining Corp. |
(a development stage company) |
Notes to Consolidated Financial Statements |
30 April 2010 |
Tabular amounts in Thousands of U.S. Dollars except for price per share, shares and options |
Unaudited – prepared by management |
4. | Mineral Property, Plant and Equipment-Continued | |
On 20 December 2006, the Company closed a transaction (the “Asset Purchase Agreement II”) in which it acquired, from Cliffs, property and associated rights sufficient to provide it with a railroad connection linking the mine development site and the Erie Plant. The transaction also included a 120-railcar fleet, locomotive fuelling and maintenance facilities, water rights and pipelines, large administrative offices on site and an additional 6,000 acres of land to the east and west of and contiguous to its existing tailing facilities. | ||
The purchase price totalling 2 million shares and $15 million in cash and debt was in four tranches: | ||
2 million shares of PolyMet, paid at closing; | ||
$1 million in cash, paid at closing; | ||
$7 million in cash, payable in quarterly instalments of $250,000 commencing 31 December 2006 with the balance payable upon receipt of production financing. Interest is payable quarterly starting 31 December 2006 at theWall Street JournalPrime Rate; and | ||
$7 million in cash, payable in quarterly instalments of $250,000 commencing on 31 December 2009. No interest was payable until 31 December 2009 after which it is payable quarterly at theWall Street JournalPrime Rate, accordingly the debt was fair valued, for balance sheet purposes, by discounting it at 8.25%. | ||
The Company has assumed certain ongoing site-related environmental and reclamation obligations as a result of the above purchases. These environmental and reclamation obligations are presently contracted under the terms of the purchase agreements with Cliffs. Once the Company obtains its permit to mine and Cliffs is released from its obligations by the State agencies, the environmental and reclamation obligations will be direct with the governing bodies. The present value of the asset retirement obligation in the amount of $3,270,000 (Note 6) less accretion of $1,665,000 charged to retained earnings has been recorded as an increase in the carrying amount of the NorthMet Project assets and will be amortized over the life of the asset. | ||
Interest and loan accretion on the long-term and convertible debt to 30 April 2010 in the amount of $5,227,000 (31 January 2010 - $4,608,000) has been capitalized as part of the cost of the NorthMet Project assets. | ||
As the above assets are not in use no amortization of these assets has been recorded to 30 April 2010. |
4
PolyMet Mining Corp. |
(a development stage company) |
Notes to Consolidated Financial Statements |
30 April 2010 |
Tabular amounts in Thousands of U.S. Dollars except for price per share, shares and options |
Unaudited – prepared by management |
5. | Long Term Debt |
Pursuant to the Asset Purchase Agreements (Note 4) the Company’s wholly owned subsidiary Poly Met Mining, Inc. (“PolyMet US”) signed three notes payable to Cliffs in the amounts of $2,400,000, $7,000,000 and $7,000,000, respectively. The first note was interest bearing at the annual simple rate of four percent (4%) and the final payment was made on June 2008. The second note is interest bearing at theWall Street JournalPrime Rate and is being paid in quarterly instalments equal to $250,000 commencing 31 December 2006, with the balance repayable upon receipt of commercial financing, for total repayment of $7,000,000. The third note is interest bearing at theWall Street JournalPrime Rate and is being paid in quarterly instalments equal to $250,000 commencing on 31 December 2009 for total repayment of $7,000,000. No interest was payable on the third note until 31 December 2009. Accordingly it was fair valued, for balance sheet purposes, by discounting it at 8.25% . If PolyMet were to default on individual elements of the transactions with Cliffs, the assets associated with the default could revert to Cliffs’ control. As at 30 April 2010 the outstanding long term debt was as follows:
30 April 2010 | 31 January 2009 | ||||||
Notes Payable | $ | 10,000 | $ | 10,499 | |||
Accrued interest | 28 | 30 | |||||
Total debt | 10,028 | 10,529 | |||||
Less current portion | (2,000 | ) | (2,000 | ) | |||
Long term debt | $ | 8,028 | $ | 8,529 |
5
PolyMet Mining Corp. |
(a development stage company) |
Notes to Consolidated Financial Statements |
30 April 2010 |
Tabular amounts in Thousands of U.S. Dollars except for price per share, shares and options |
Unaudited – prepared by management |
6. | Asset Retirement Obligation |
As part of the consideration for the Cliffs Purchase Agreements (Note 4), the Company indemnified Cliffs for the liability for final reclamation and closure of the acquired property.
The Company’s provisions for future site closure and reclamation costs are based on known requirements. It is not currently possible to estimate the impact on operating results, if any, of future legislative or regulatory developments. The Company’s estimate of the present value of the obligation to reclaim the NorthMet Project is based upon existing reclamation standards at 30 April 2010 and under Canadian GAAP. Once the Company obtains its permit to mine the environmental and reclamation obligations will be direct with the governing bodies. The Company’s estimate of the fair value of the asset retirement obligation at 30 April 2010 was $3,270,000 (31 January 2010 -$3,346,000). These were based upon a 30 April 2010 undiscounted future cost of $21.5 million for the first Cliffs transaction and $1.9 million for Cliffs II, an annual inflation rate of 2.00%, credit-adjusted risk free interest rates of 10.00% to 12.00% and a mine life of 20 years and a reclamation period of 9 years.
In March 2010, Cliffs entered into a consent decree with the Minnesota Pollution Control Agency (“MPCA”) relating to alleged violations on the Cliffs Erie Property. This consent decree requires submission of Field Study Plan Outlines by 6 May 2010 and Short Term Mitigation plans by 7 June 2010 (both of these milestones were met) and subsequent approval of those plans by the MPCA. As part of its prior transactions with Cliffs (note 4), PolyMet has agreed to indemnify Cliffs for certain ongoing site environmental liabilities. As such, the Company has included its best estimate of the liabilities related to this consent decree in its asset retirement obligation for the period ended 30 April 2010.
6
PolyMet Mining Corp. |
(a development stage company) |
Notes to Consolidated Financial Statements |
30 April 2010 |
Tabular amounts in Thousands of U.S. Dollars except for price per share, shares and options |
Unaudited – prepared by management |
7. | Convertible Debt |
Three Months | Year ended | ||
ended 30 April | 31 January | ||
2010 | 2010 | ||
Balance - Beginning of period | 25,253 | 13,943 | |
Issued | - | 10,000 | |
Discount | - | (301) | |
Financing costs | - | (56) | |
Accretion and capitalized interest | 534 | 1,667 | |
Balance - End of period | 25,787 | 25,253 |
On 31 October 2008, the Company entered into a financing with Glencore AG (“Glencore”) for an aggregate of US$50 million floating rate secured debentures due on 30 September 2011 (the "Debentures") to be issued by PolyMet US, and guaranteed by the Company. The Debentures bear interest at 12-month US dollar LIBOR plus 4%. Interest is payable in cash or by increasing the principal amount of the Debentures, at PolyMet’s option, for payments on or before 30 September 2009, and at Glencore’s option thereafter. At 31 January 2010, $1,314,000 of interest had been added to the principal amount of the debt. The Debentures are secured by all of the assets of PolyMet and PolyMet US, including a pledge of PolyMet’s 100% shareholding in PolyMet US.
The Debentures are exchangeable into common shares of PolyMet at Glencore’s option at US$4.00 per share. The Issuer can, at its option, prepay the Debentures if PolyMet’s shares trade at a 20-day volume weighted average price equal to or exceeding US$6.00, at which time, and at Glencore’s option, Glencore could exchange the Debentures for common shares of PolyMet within 30 days in lieu of payment. Repayment between 1 October 2009 and 30 September 2010 would be at 105% of the then outstanding principal of the Debentures, repayment between 1 October 2010 and 30 September 2011 would be at 102.5% of the outstanding principal.
US$7.5 million of the Debentures were issued on 31 October 2008, an additional US$7.5 million of the Debentures were issued on 22 December 2008, $5 million of the Debentures were issued on 18 June 2009 and an additional US$5 million of the Debentures were issued on 31 August 2009.
The final US$25 million of the Debentures, to be used primarily for detailed engineering and procurement, may be issued upon publication of the Final Environmental Impact Statement (“EIS”) in the State of Minnesota’s Environmental Quality Board Monitor, receipt by the Company of a bona fide term sheet for construction financing and are subject to expenditures being in material compliance with budget and other customary conditions as well as agreement between Glencore and Cliffs on terms and conditions whereby Cliffs will provide its consent to Glencore as mortgagee of those parts of the Erie Plant acquired by PolyMet under Asset Agreement II.
On 31 October 2008, PolyMet issued to Glencore warrants (”Glencore Warrants”) to purchase 6.25 million common shares of PolyMet at US$5.00 if exercised before the NorthMet Project has produced a total of 20,000 metric tonnes of concentrate, or US$6.00 thereafter. The Glencore Warrants expire on 30 September 2011. If the volume-weighted 20-day average price of PolyMet’s common shares trade at a 50% premium to the then applicable exercise price, Glencore must exercise the warrants within 30 days or the warrants will expire.
7
PolyMet Mining Corp. |
(a development stage company) |
Notes to Consolidated Financial Statements |
30 April 2010 |
Tabular amounts in Thousands of U.S. Dollars except for price per share, shares and options |
Unaudited – prepared by management |
7. | Convertible Debt -continued |
The Company has accounted for the initial US$7.5 million of the Debentures and the 6.25 million common share warrants by allocating the $7.5 million between the debt, the exchangeable feature of the debt and the warrants based on their pro rata fair values. The debt has been fair valued using the difference between 9% and 12 month LIBOR at 31 October 2008 (3.2075%) plus 4%. Costs related to the financing of $652,000 have been recorded against the convertible debt. | |
The Company has accounted for the second, third and fourth advances of US$7.5 million, US$5 million and US$5 million, respectively, of the Debentures by allocating the principal amounts between the debt and the exchangeable feature of the debt based on their pro rata fair values. The debt has been fair valued using the difference between 9% and 12 month LIBOR at 31 October 2008 (3.2075%) plus 4%. Costs related to the financings of $43,000, $16,000 and $12,000, respectively, have been recorded against the convertible debt. | |
On 17 November 2009, the Company announced that it agreed to modify certain terms of the above transaction. Under the new terms the Glencore Warrants entitle Glencore to purchase 6.25 million common shares of PolyMet at US$3.00 and expire on September 30, 2011. If the 20-day volume weighted average price of PolyMet’s shares is 150% of the exercise price or more ($4.50), and the Final EIS has been published in the Minnesota Department of Natural Resources EQB Monitor, PolyMet can accelerate the expiration of the Glencore Warrants to not less than 21 business days after the notice of acceleration. The incremental $158,000 increase in the fair value of the warrants due to the warrant exchange was debited to warrant amendment expense and credited to contributed surplus. | |
Separately in November 2009, PolyMet agreed to modify the terms of the final $25 million Tranche E of the $50 million Debenture with Glencore such that Tranche E, if drawn, can be exchanged at US$2.65 per share. The first four tranches totaling US$25 million (excluding capitalized interest) that have already been drawn will continue to be exchangeable at US$4.00 per share. |
8
PolyMet Mining Corp. |
(a development stage company) |
Notes to Consolidated Financial Statements |
30 April 2010 |
Tabular amounts in Thousands of U.S. Dollars except for price per share, shares and options |
Unaudited – prepared by management |
8. | Share Capital | |
a) | Share Issuances for Cash | |
During the three months ended 30 April 2010, the Company issued 25,000 shares (30 April 2009 – 475,000) pursuant to the exercise of stock options for total proceeds of $16,000 (30 April 2009 - $231,000). | ||
b) | Stock Options | |
Effective 25 May 2007, the Company adopted a new Omnibus Share Compensation Plan (“Stock Option Plan”), which was approved by the Company’s shareholders’ on 27 June 2007. The Stock Option Plan covers the Company’s employees, directors, officers and consultants. The options are granted for varying terms ranging from two to seven years. The maximum number of common shares under the stock option plan shall not exceed (i) 10% of the outstanding common shares of the Company at the time of granting of the options and (ii) 18,592,888 common shares of the Company, of which 3,640,000 common shares are reserved for issuance as awards other than options (Note 11a)). | ||
Details of stock option activity are as follows: |
Three Months | Year ended | ||||||
ended 30 April | 31 January | ||||||
2010 | 2010 | ||||||
Outstanding - Beginning of period | 13,075,000 | 12,615,000 | |||||
Granted | - | 1,585,000 | |||||
Forfeited | - | (350,000 | ) | ||||
Exercised | 25,000 | (775,000 | ) | ||||
Outstanding - End of period | 13,050,000 | 13,075,000 |
9
PolyMet Mining Corp. |
(a development stage company) |
Notes to Consolidated Financial Statements |
30 April 2010 |
Tabular amounts in Thousands of U.S. Dollars except for price per share, shares and options |
Unaudited – prepared by management |
8. | Share Capital-Continued | |
b) | Stock Options-Continued | |
As at 30 April 2010, the following director, officer, consultant and employee stock options were outstanding: |
Number of | ||||
Exercise Price | Exercise Price | options | ||
Expiry Date | (US$) | (CDN$) | outstanding | |
5 July 2011 | 0.66 | 0.66 | 800,000 | |
18 October 2011 | 0.79 | 0.79 | 50,000 | |
30 March 2012 | 0.65 | 0.65 | 85,000 | |
1 May 2012 | 0.85 | 0.85 | 350,000 | |
15 June 2012 | 0.93 | 0.94 | 40,000 | |
19 September 2012 | 1.35 | 1.36 | 1,540,000 | |
24 October 2012 | 1.19 | 1.20 | 200,000 | |
5 December 2012 | 1.14 | 1.15 | 200,000 | |
20 March 2013 | 2.74 | 2.76 | 2,900,000 | |
19 June 2013 | 2.95 | 2.97 | 325,000 | |
1 September 2013 | 3.80 | 3.82 | 300,000 | |
22 September 2013 | 3.49 | 3.51 | 75,000 | |
5 January 2014 | 3.28 | 3.30 | 525,000 | |
13 February 2014 | 2.99 | 3.01 | 1,250,000 | |
8 March 2014 | 2.88 | 2.90 | 400,000 | |
12 March 2014 | 2.92 | 2.94 | 250,000 | |
23 March 2014 | 2.89 | 2.91 | 50,000 | |
4 September 2014 | 3.00 | 3.02 | 360,000 | |
12 December 2014 | 3.05 | 3.07 | 205,000 | |
11 January 2015 | 3.03 | 3.05 | 70,000 | |
31 January 2015 | 2.87 | 2.89 | 100,000 | |
15 February 2015 | 2.72 | 2.74 | 500,000 | |
2 June 2015 | 3.92 | 3.94 | 100,000 | |
30 July 2015 | 3.22 | 3.24 | 175,000 | |
30 January 2016 | 0.82 | 0.82 | 615,000 | |
17 February 2016 | 0.82 | 0.82 | 1,410,000 | |
15 October 2016 | 2.67 | 2.68 | 115,000 | |
8 January 2017 | 3.54 | 3.56 | 60,000 | |
2.15 | 2.16 | 13,050,000 |
As at 30 April 2010 all options had vested and were exercisable, with the exception of 57,500 which vest incrementally until October 15, 2010 and 1,797,500 which vest upon completion of specific targets.
10
PolyMet Mining Corp. |
(a development stage company) |
Notes to Consolidated Financial Statements |
30 April 2010 |
Tabular amounts in Thousands of U.S. Dollars except for price per share, shares and options |
Unaudited – prepared by management |
8. | Share Capital-Continued | |
c) | Stock-Based Compensation | |
During the three month period ended 30 April 2010, the Company granted no options to directors, officers, consultants and employees (30 April 2009 – 1,410,000). | ||
During the three month period ended 30 April 2010, the Company recorded $66,000 for stock based compensation in its accounts as an expense of $10,000 and a debit to mineral property, plant and equipment of $56,000, with the offsetting entries going to contributed surplus. | ||
During the quarter ended 30 April 2009, the Company recorded $577,000 for stock based compensation in its accounts as an expense of $453,000 and a debit to mineral property, plant and equipment of $124,000, with the offsetting entries going to contributed surplus. | ||
d) | Contributed Surplus | |
Contributed surplus represents accumulated stock-based compensation expense and warrants issued, reduced by the fair value of the stock options and warrants exercised. | ||
Details are as follows: |
30 April | 31 January | ||||||
2010 | 2010 | ||||||
Balance – Beginning of period | $ | 36,979 | $ | 27,549 | |||
Current period fair value of stock-based compensation | 66 | 1,240 | |||||
Fair value of exchangeable warrants and debt conversion(Note 7) | - | 352 | |||||
Change in fair value of warrants amended(Notes 7 ande)) | - | 4,920 | |||||
Issuance of Milestone 2 Bonus Shares(Note 11a)) | - | (721 | ) | ||||
Accrual of Bonus Shares for Milestones 2 and 4(Note11a)) | 428 | 4,200 | |||||
Fair value of stock options and warrants exercised during the period | (16 | ) | (561 | ) | |||
Balance – End of period | $ | 37,457 | $ | 36,979 |
11
PolyMet Mining Corp. |
(a development stage company) |
Notes to Consolidated Financial Statements |
30 April 2010 |
Tabular amounts in Thousands of U.S. Dollars except for price per share, shares and options |
Unaudited – prepared by management |
8. | Share Capital-Continued |
e)Share Purchase Warrants |
Details of stock purchase warrant activity are as follows:
30 April 2010 | 31 January 2009 | ||||||||||||
Weighted | Weighted | ||||||||||||
Average | Average | ||||||||||||
Exercise | Exercise | ||||||||||||
Price | Price | ||||||||||||
Warrants | (US$) | Warrants | (US$) | ||||||||||
Warrants outstanding - beginning of period | 15,034,092 | 3.74 | 15,370,000 | 4.74 | |||||||||
Cancelled (Notes 7 and 8e)) | - | - | (10,260,000 | ) | 4.52 | ||||||||
Exercised | - | - | (335,908 | ) | 3.00 | ||||||||
Issued | - | - | 4,010,000 | 3.00 | |||||||||
Issued (Note 8a)) | - | - | - | - | |||||||||
Issued (Note 7) | - | - | 6,250,000 | 3.00 | |||||||||
Warrants outstanding – end of period | 15,034,092 | 3.74 | 15,034,092 | 3.74 |
12
PolyMet Mining Corp. |
(a development stage company) |
Notes to Consolidated Financial Statements |
30 April 2010 |
Tabular amounts in Thousands of U.S. Dollars except for price per share, shares and options |
Unaudited – prepared by management |
8. | Share Capital-Continued | ||
e) | Share Purchase Warrants–Continued | ||
On 17 April 2007, the Company issued 7,500,000 warrants in connection with a non-brokered private placement financing of 15 million units at US$2.75 per unit, with each unit comprising one common share and one-half of one warrant. Each whole warrant was exercisable into a common share at a price of US$4.00 at any time until 13 October 2008 subject to an early trigger if the 20- day volume weighted average price of the common shares is US$6.00 or more. In connection with the private placement, the Company has paid finders’ fees including an additional 520,000 broker warrants having the same terms as the warrants described above. | |||
On 10 October 2008, the Company announced that it had received the consent from the holders of more than two-thirds of the 8,020,000 warrants issued as part of the April 2007 private placement to exchange those warrants into: | |||
4,010,000 warrants, each warrant entitling the holder to purchase one share of PolyMet common stock at US$3.00 per share at any time until the sooner of 30 calendar days after publication of the draft Environmental Impact Statement by the State of Minnesota in the state’s Environmental Quality Board Monitor and October 13, 2009, and | |||
4,010,000 warrants, each warrant entitling the holder to purchase one share of PolyMet common stock at US$5.00 if exercised before the NorthMet Project has produced a cumulative total of 20,000 metric tonnes of concentrate, or US$6.00 thereafter and prior to August 31, 2011. PolyMet can accelerate the expiration of the warrants if PolyMet’s volume-weighted 20-day average stock price trades at a 50% premium to the exercise price applicable at any time. | |||
The incremental $544,000 increase in the fair value of the warrants due to the warrant exchange was debited to warrant amendment expense and credited to contributed surplus in the year ended 31 January 2009. | |||
In October 2009, the Company received the consent from holders of more than two-thirds of the above warrants to exchange the 4,010,000 warrants due to expire on October 13, 2009 for 4,010,000 warrants, each warrant entitling the holder to purchase one share of PolyMet common stock at US$3.00 per share at any time until the sooner of 30 calendar days after publication of the draft Environmental Impact Statement by the State of Minnesota in the state’s Environmental Quality Board Monitor and 31 December, 2009. The incremental $1,005,000 increase in the fair value of the warrants due to the warrant exchange was debited to warrant amendment expense and credited to contributed surplus. |
13
PolyMet Mining Corp. |
(a development stage company) |
Notes to Consolidated Financial Statements |
30 April 2010 |
Tabular amounts in Thousands of U.S. Dollars except for price per share, shares and options |
Unaudited – prepared by management |
8. | Share Capital-Continued | |
e) | Share Purchase Warrants–Continued | |
In November 2009, the Company received the consent from holders of more than two-thirds of the above warrants to exchange the 4,010,000 warrants due to expire the earlier of 30 calendar days after publication of the draft Environmental Impact Statement by the State of Minnesota in the state’s Environmental Quality Board Monitor and 31 December, 2009 for 4,010,000 warrants, each warrant entitling the holder to purchase one share of PolyMet common stock at US$3.00 per share at any time until the sooner of 21 business days after publication of the final Environmental Impact Statement by the State of Minnesota in the state’s Environmental Quality Board Monitor and 31 December 2010. The incremental $3,757,000 increase in the fair value of the warrants due to the warrant exchange was debited to warrant amendment expense and credited to contributed surplus. | ||
On 31 October 2006, the Company issued 600,000 warrants to BNP Paribas Loan Services as partial consideration under the agreement described in Note 11c). These warrants have an exercise price of US$4.00 per share and expire on 30 October 2010. The fair value of these warrants was $1,197,000. Further, upon delivering a bona fide offer of project financing, warrants to purchase an additional 500,000 shares of the Company at a price of US$4.00 per share at any time prior to 30 October 2010 will vest. | ||
All of the warrants are exercisable as at 30 April 2010, except for 500,000 which vest upon delivery of a bona fide offer of project financing. |
14
PolyMet Mining Corp. |
(a development stage company) |
Notes to Consolidated Financial Statements |
30 April 2010 |
Tabular amounts in Thousands of U.S. Dollars except for price per share, shares and options |
Unaudited – prepared by management |
9. | Related Party Transactions |
The Company has conducted transactions with officers, directors and persons or companies related to directors and paid or accrued amounts as follows:
30 April | 30 April | ||||||
2010 | 2009 | ||||||
Consulting fees paid to David Dreisinger, a Director of the Company | $ | 16 | $ | 13 |
During the three months ended 30 April 2009, the Company paid $16,000 (30 April 2009 - $13,000) to Dr. Dreisinger for consulting fees primarily in connection with activities related to the processing / technical side of the NorthMet project and related expenses (the latter were supported by invoices and receipts). The consulting fees were based on a monthly fee of Canadian $5,500 plus general sales tax. Throughout the term of his engagement, Dr. Dreisinger has conducted in-person and telephonic meetings with Mr. William Murray, the Company’s Executive Chairman, and other members of management at which he provided both verbal and written updates on the status of test work and made recommendations for future activities. These meetings occurred approximately every two to three weeks for the past five years.
The agreement with Dr. Dreisinger was entered into at a time when the Company’s current business plans were being formulated and it was month to month and oral in nature. The agreement was approved by Mr. William Murray. It was discussed with the Company’s board of directors who did not consider that a formal approval and written contract was necessary at that time. The Company believes that the contract was at terms at least as good as could be obtained from third parties.
15
PolyMet Mining Corp. |
(a development stage company) |
Notes to Consolidated Financial Statements |
30 April 2010 |
Tabular amounts in Thousands of U.S. Dollars except for price per share, shares and options |
Unaudited – prepared by management |
10. | Segmented Information |
The Company is in the feasibility stage of developing its mineral properties in the U.S. and provides for its financing and administrative functions at the head office located in Canada. Segmented information on a geographic basis is as follows: |
30 April 2010 | Canada | U.S. | Consolidated | |||||||
Segment operating loss | $ | 478 | $ | 188 | $ | 666 | ||||
Identifiable assets | $ | 15,197 | $ | 123,545 | $ | 138,742 | ||||
30 April 2009 | Canada | U.S. | Consolidated | |||||||
Segment operating loss | $ | 831 | $ | 151 | $ | 982 | ||||
Identifiable assets | $ | 3,137 | $ | 100,115 | $ | 103,252 |
16
PolyMet Mining Corp. |
(a development stage company) |
Notes to Consolidated Financial Statements |
30 April 2010 |
Tabular amounts in Thousands of U.S. Dollars except for price per share, shares and options |
Unaudited – prepared by management |
11. | Contingent Liabilities and Commitments | |
a) | The Company has instituted a share bonus plan as part of its employment, management and consulting contracts for key management and project personnel. This bonus plan adds incentive for key personnel to reach certain prescribed milestones required to reach commercial production at the NorthMet Project. As at 30 April 2010, the Company had received shareholder approval of the Bonus Shares for Milestones 1 – 4 and regulatory approval for Milestones 1, 2 and 3. Milestone 4 is subject to regulatory approval, which will be sought in the future. To 30 April 2010, 5,240,000 shares have been issued for the achievement of Milestones 1, 2 and 3. | |
The summary of the share bonus plan is as follows: |
Bonus Shares | |||
Milestone 1 | 1,590,000 | issued | |
Milestone 2 | 1,300,000 | (i) issued in May 2009 | |
Milestone 3 | 2,350,000 | (ii) issued | |
Milestone 4 | 3,640,000 | (iii) and (iv) |
(i) | Milestone 2 – Negotiation and completion of an off-take agreement with a senior metals producer for the purchase of nickel-hydroxide produced from the NorthMet Project, and / or an equity investment in the Company by such a producer or producers. The bonus shares allocated to Milestone 2 are valued at C$0.75. This milestone was deemed to have been achieved in May 2009 and therefore the Company issued the shares to certain directors and insiders and capitalized $714,000 to Property, Plant and Equipment. | |
(ii) | Milestone 3 – Completion of a “bankable feasibility study” which indicates that commercial production from the NorthMet Project is viable. This milestone was achieved on 25 September 2006 and therefore, during the year ended 31 January 2007, the Company expensed a C$1,762,500 ($1,289,000) bonus as consulting fees and allotted 2,350,000 shares. These shares were issued in October 2006. | |
(iii) | Milestone 4 – Commencement of commercial production at the NorthMet Project at a time when the Company has not less than 50% ownership interest. | |
(iv) | At the Annual General Meeting of shareholders of the Company, held on 17 June 2008, the disinterested shareholders approved the bonus shares for Milestone 4. The bonus shares allocated to Milestone 4 are valued at US$3.80, the Company’s closing trading price on 17 June 2008. During the three months ended 30 April 2010, the Company accrued $428,000 related to Milestone 4 (30 April 2009 - $961,000), these amounts were capitalized to Mineral Property, Plant and Equipment. |
17
PolyMet Mining Corp. |
(a development stage company) |
Notes to Consolidated Financial Statements |
30 April 2010 |
Tabular amounts in Thousands of U.S. Dollars except for price per share, shares and options |
Unaudited – prepared by management |
11. | Contingent Liabilities and Commitments- Continued | |
b) | Pursuant to the Company’s Asset Purchase Agreement with Cliffs (Note 4), for as long as Cliffs owns 1% or more of the Company’s issued shares, Cliffs will have the right to participate on a pro-rata basis in future cash equity financings. This agreement also includes a first right of refusal in favour of the Company should Cliffs wish to dispose of its interest. | |
c) | On 31 October 2006 the Company entered into an agreement with BNP Paribas Loan Services (“BNPP”) whereby BNPP will advise and assist PolyMet in all aspects of preparation for construction finance. As part of this agreement, BNPP was issued warrants to purchase 600,000 shares of the Company’s common stock at a price of US$4.00 per share at any time prior to 30 October 2010. The fair value of these warrants was $1,197,000. Further, upon delivering a bona fide offer of project financing, warrants to purchase an additional 500,000 shares of the Company at a price of US$4.00 per share at any time prior to 30 October 2010 will vest. As part of the agreement, PolyMet will also pay BNPP a monthly fee for its advice and assistance and pay the costs for BNPP’s independent engineers. | |
d) | On 13 October 2008, the Company entered into a collateral pledge agreement wherein it pledged a used drill rig which it owned against payments made by a supplier for parts that will be used in rebuilding the drill rig. The drill rig has a book value of $3,122,000 including the amount that the Company has capitalized related to an account payable of $847,000 for the full value of the parts and labour to 30 April 2010. | |
e) | On 31 October 2008, the Company entered into agreements with Glencore wherein Glencore will provide marketing services covering concentrates, metal, or intermediate products at prevailing market terms for at least the first five years of production. | |
f) | On 30 April 2010, the Company had outstanding commitments related to equipment, rent, consultants and the environmental review process of approximately $750,000 predominantly due over the next year. |
18
PolyMet Mining Corp. |
(a development stage company) |
Notes to Consolidated Financial Statements |
30 April 2010 |
Tabular amounts in Thousands of U.S. Dollars except for price per share, shares and options |
Unaudited – prepared by management |
12. | Financial Instruments and Risk Management |
Categories of financial assets and liabilities |
Under Canadian GAAP, financial instruments are classified into one of the following five categories: held-for-trading; held to maturity investment; loans and receivables; available-for-sale financial assets, and other financial liabilities. The carrying values of the Company’s financial instruments are classified into the following categories:
30 April | 31 January | ||||||
2010 | 2010 | ||||||
Held-for-trading (1) | $ | 15,190 | 21,282 | ||||
Available-for-sale | 119 | 140 | |||||
Loans and receivables | 94 | 88 | |||||
Other financial liabilities (2) | 38,276 | 38,735 |
(1) Includes cash and equivalents.
(2) Includes accounts payable and accrued liabilities, convertible debt and long-term debt.
The Company has determined the estimated fair values of its financial instruments based on appropriate valuation methodologies. The fair values of the Company’s financial instruments are not materially different from their carrying values.
Risks arising from financial instruments and risk management
The Company’s activities expose it to a variety of financial risks: market risk (including foreign exchange), credit risk, liquidity risk, interest rate risk and investment risk. Reflecting the current stage of development of the Company’s NorthMet Project, PolyMet’s overall risk management program focuses on facilitating the Company’s ability to continue as a going concern and seeks to minimize potential adverse effects on PolyMet’s ability to execute its business plan.
Risk management is the responsibility of executive management. Material risks are identified and monitored and are discussed with the audit committee and the board of directors.
Foreign exchange risk
The Company incurs expenditures in Canada and in the United States. The functional and reporting currency of the Company is the United States dollar. Foreign exchange risk arises because the amount of Canadian dollar cash and equivalents, receivables, investment or payables will vary in United States dollar terms due to changes in exchange rates.
As the majority of the Company’s expenditures are in United States dollars, the Company has kept a significant portion of its cash and equivalents in United States dollars. The Company has not hedged its exposure to currency fluctuations.
19
PolyMet Mining Corp. |
(a development stage company) |
Notes to Consolidated Financial Statements |
30 April 2010 |
Tabular amounts in Thousands of U.S. Dollars except for price per share, shares and options |
Unaudited – prepared by management |
12. | Financial Instruments and Risk Management- continued |
As at 30 April 2010, the Company is exposed to currency risk through the following assets and liabilities denominated in Canadian dollars: |
30 April | 31 January | ||||||
2010 | 2010 | ||||||
Held-for-trading (1) | $ | 366 | $ | 157 | |||
Available-for-sale | 119 | 140 | |||||
Loans and receivables | 30 | 25 | |||||
Other financial liabilities (2) | (171 | ) | (302 | ) | |||
$ | 344 | $ | 20 |
(1) Includes cash and equivalents.
(2) Includes accounts payable and accrued liabilities.
Based on the above net exposures, as at 30 April 2010, a 10% change in the Canadian / United States exchange rate would impact the Company’s earnings by $34,000.
Credit risk
Credit risk arises on cash and equivalents held with banks and financial institutions, as well as credit exposure on outstanding accounts receivable. The maximum exposure to credit risk is equal to the carrying value of the financial assets of $15,190,000.
The Company’s cash and equivalents are held through a large Canadian financial institution.
Liquidity risk
Liquidity risk arises through the excess of financial obligations over available financial assets due at any point in time. The Company’s objective in managing liquidity risk is to maintain sufficient readily available reserves in order to meet its liquidity requirements at any point in time. Additional information relating to liquidity risk is disclosed in Note 1.
Interest rate risk
Interest rate risk arises on cash and equivalents and long-term debt and fluctuations in the related interest rates. The Company has not hedged any of its interest rate risk.
As at 30 April 2010, the Company is exposed to interest rate risk through the following assets and liabilities:
30 April | 31 January | ||||||
2010 | 2010 | ||||||
Held-for-trading (1) | $ | 15,190 | $ | 21,282 | |||
Other financial liabilities (2) | 35,815 | 35,782 |
(1) Includes cash and equivalents.
(2) Represents long-term debt (Note 5) and convertible debt (Note 7).
20
PolyMet Mining Corp. |
(a development stage company) |
Notes to Consolidated Financial Statements |
30 April 2010 |
Tabular amounts in Thousands of U.S. Dollars except for price per share, shares and options |
Unaudited – prepared by management |
12. | Financial Instruments and Risk Management-continued |
Investment risk | |
The Company’s investment in the common shares of a publicly traded Canadian mining company bears investment risk. The maximum exposure to investment risk is equal to the carrying value of the investment. | |
As at 30 April 2010, the Company is exposed to investment risk through the following assets: |
30 April | 31 January | ||||||
2010 | 2010 | ||||||
Available-for-sale (1) | $ | 119 | $ | 140 |
(1) Includes investment.
Fair Value Measurements
PolyMet’s financial assets and liabilities are measured or disclosed at fair value on a recurring basis and classified in their entirety based on the lowest level of input that is significant to the fair value measurement. There are three levels of fair value hierarchy that prioritize the inputs to valuation techniques used to measure fair value, with level 1 inputs having the highest priority. The levels and the valuation techniques used to value the Company’s financial assets and liabilities 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 marketable securities are valued using quoted market prices in active markets, obtained from securities exchanges. Accordingly, these items are included in Level 1 of the fair value hierarchy. | ||
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 liability. | |
Level 3 – | Unobservable (supported by little or no market activity) prices. |
Cash equivalents are recorded at face value. Accounts receivable and advances are short-term in nature and represent the initial price of the good or service. Long term and convertible debt have been fair valued using assumptions with respect to interest rates relevant to similar debt taking into account the collateral involved.
21
PolyMet Mining Corp. |
(a development stage company) |
Notes to Consolidated Financial Statements |
30 April 2010 |
Tabular amounts in Thousands of U.S. Dollars except for price per share, shares and options |
Unaudited – prepared by management |
12. | Financial Instruments and Risk Management-Continued |
The fair values of our financial assets and liabilities at 30 April 2010 are summarized in the following table: |
Fair Value – Quoted in active markets for identical assets (Level 1) | Fair Value - Significant other observable inputs (Level 2) | Fair Value - Significant unobservable inputs (Level 3) | Fair Value - Total | Book Value | |
Assets | |||||
Cash and equivalents | - | - | 15,190 | 15,190 | 15,190 |
Accounts receivable and advances | - | - | 94 | 94 | 94 |
Investment | 119 | - | - | 119 | 119 |
119 | - | 15,284 | 15,403 | 15,403 | |
Liabilities | |||||
Accounts payable and accrued liabilities | - | - | 2,461 | 2,461 | 2,461 |
Current portion of long term debt | - | - | 2,000 | 2,000 | 2,000 |
Long term debt | - | - | 8,028 | 8,028 | 8,028 |
Convertible debt | - | - | 25,787 | 25,787 | 25,787 |
- | - | 38,276 | 38,276 | 38,276 |
22
PolyMet Mining Corp. |
(a development stage company) |
Notes to Consolidated Financial Statements |
30 April 2010 |
Tabular amounts in Thousands of U.S. Dollars except for price per share, shares and options |
Unaudited – prepared by management |
12. | Financial Instruments and Risk Management-Continued | |
Capital Management | ||
Similar to other companies in the development stage, the Company is in discussions with certain parties to provide funding which will enable the Company to execute its business plan. With the completion of the Definitive Feasibility Study and taking into account the current permitting process the Company is in, PolyMet will require additional funds through Project construction. Funding for the Project could come from a number of sources and include internal cash flows (for the second stage of the construction), bank project financing and capital market financing. During the upcoming fiscal year, the Company’s objective is to identify the source or sources from which it will obtain the capital required both to fund to the start of construction and to complete the Project. | ||
The Company has no externally imposed capital requirements. In the management of capital, the Company includes the components of shareholders’ equity, convertible debt and long-term debt. The Company manages the capital structure and makes adjustments to it depending on economic conditions and the rate of anticipated expenditures. To maintain or adjust the capital structure, the Company may attempt to issue new shares, issue new debt, acquire or dispose of assets. | ||
In order to assist in management of its capital requirements, the Company prepares expenditure budgets that are updated as necessary depending on various factors. The budgets are approved by the Company’s Board of Directors. | ||
Although the Company plans to have the resources to carry out its plans and operations through 30 April 2011 (Note 1), it does not currently have sufficient capital to meet its estimated project capital expenditure requirements and is currently in discussions to arrange sufficient capital to meet these requirements. | ||
13. | Differences Between Canadian and United States Generally Accepted Accounting Principles | |
These consolidated financial statements are prepared in accordance with Canadian generally accepted accounting principles (“GAAP”). The U.S. Securities and Exchange Commission requires that financial statements of foreign registrants contain a reconciliation presenting the statements on the basis of accounting principles generally accepted in the U.S. U.S. GAAP also requires additional disclosures which are set out in this financial statement note. Any differences in accounting principles as they pertain to the accompanying consolidated financial statements are not material except as follows: | ||
a) | Under Canadian GAAP, all of the elements of the convertible debt transaction are fair valued and then allocated book value on a pro-rated basis. The conversion feature on the debt is treated as equity. Under US GAAP the conversion feature is treated as debt. This resulted in a $250,000 difference between convertible debt and shareholders’ equity in the period ended 30 April 2010 (31 January 2010 - $250,000). |
23
PolyMet Mining Corp. |
(a development stage company) |
Notes to Consolidated Financial Statements |
30 April 2010 |
Tabular amounts in Thousands of U.S. Dollars except for price per share, shares and options |
Unaudited – prepared by management |
13. | Differences Between Canadian and United States Generally Accepted Accounting Principles- |
Continued | |
The effects of the above difference in accounting principle on convertible debt and shareholders’ equity are as follows: |
31 April | 31 January | ||||||
2010 | 2010 | ||||||
Convertible Debt – Canadian GAAP basis | $ | 25,787 | $ | 25,253 | |||
Convertible Debt – US GAAP basis | $ | 26,037 | $ | 25,503 | |||
Shareholders’ Equity – Canadian GAAP basis | $ | 97,196 | $ | 97,567 | |||
Shareholders’ Equity – US GAAP basis | $ | 96,946 | $ | 97,317 |
(b) Development Stage Company
The Company meets the definition of a development stage enterprise under United States Accounting Standard Codification (“ASC”) 915 (formerly Statement of Financial Accounting Standards (“SFAS”) No. 7), Accounting and Reporting by Development Stage Enterprises. The following additional disclosures are required under this standard. Management has determined, in accordance with ASC 915 that the Company was dormant for a period to 31 January 2002, as such the required disclosures have been included commencing from 1 February 2003.
24
PolyMet Mining Corp. |
(a development stage company) |
Notes to Consolidated Financial Statements |
30 April 2010 |
Tabular amounts in Thousands of U.S. Dollars except for price per share, shares and options |
Unaudited – prepared by management |
13. | Differences Between Canadian and United States Generally Accepted Accounting Principles- |
Continued |
Consolidated Statements of Loss, Other Comprehensive Loss and Deficit
Cumulative from 1 February 2003 to 30 April 2010
Cumulative | |||
from 1 | |||
February | |||
2003 to 30 | |||
April 2010 | |||
(unaudited) | |||
Pre-feasibility Costs | 21,679 | ||
General and Administrative | |||
Amortization | 138 | ||
Asset retirement obligation accretion | 1,656 | ||
Consulting fees | 3,045 | ||
Exploration | 193 | ||
Investor relations and financing | 1,301 | ||
Office and corporate wages | 6,639 | ||
Professional fees | 2,667 | ||
Shareholders’ information | 1,246 | ||
Stock-based compensation | 11,341 | ||
Transfer agent and filing fees | 765 | ||
Travel | 2,432 | ||
Warrant amendment | 5,464 | ||
36,887 | |||
Other Expenses (Income) | |||
Interest income, net | (1,906 | ) | |
Loss (gain) on foreign exchange | (173 | ) | |
Gain on sale of resource properties | (220 | ) | |
Loss on sale of property, plant and equipment | 9 | ||
Investment loss | 2,415 | ||
Rental income | (497 | ) | |
(372 | ) | ||
Loss for the Period | 58,194 | ||
Other Comprehensive Income | |||
Unrealized gain on investment | (49 | ) | |
Comprehensive Loss | 58,145 | ||
Deficit Beginning of the Period | 14,214 | ||
Deficit End of the Period | 72,408 |
25
PolyMet Mining Corp. |
(a development stage company) |
Notes to Consolidated Financial Statements |
30 April 2010 |
Tabular amounts in Thousands of U.S. Dollars except for price per share, shares and options |
Unaudited – prepared by management |
13. | Differences Between Canadian and United States Generally Accepted Accounting Principles- |
Continued | |
Consolidated Statements of Changes in Shareholder’s Equity (unaudited) (continued) | |
Cumulative from 1 February 2003 to 30 April 2010 |
Accumulated | |||||||||||||||||||||
Other | |||||||||||||||||||||
Issue Price | Comprehensive | ||||||||||||||||||||
Per Share | Shares | Amount | Contributed Surplus | Income | Deficit | Total | |||||||||||||||
Balance – 31 January 2003 | 32,657,526 | 14,183 | - | - | (14,214 | ) | (31 | ) | |||||||||||||
Loss for the year | - | - | - | - | (147 | ) | (147 | ) | |||||||||||||
Shares issued for cash: | |||||||||||||||||||||
Private placements, net of finders’ fees and issuance costs | 0.09 | 11,708,318 | 999 | - | - | - | 999 | ||||||||||||||
Share subscriptions received | - | - | 763 | - | - | - | 763 | ||||||||||||||
Exercise of warrants | 0.08 | 486,610 | 41 | - | - | - | 41 | ||||||||||||||
Exercise of options | 0.06 | 89,600 | 5 | - | - | - | 5 | ||||||||||||||
Shares issued to settle debt | 0.07 | 50,000 | 4 | - | - | - | 4 | ||||||||||||||
Stock-based compensation | - | - | 55 | - | - | 55 | |||||||||||||||
Balance 31 January 2004 | 44,992,054 | 15,995 | 55 | - | (14,361 | ) | 1,689 | ||||||||||||||
Loss for the year | - | - | - | - | - | (4,416 | ) | (4,416 | ) | ||||||||||||
Shares issued for cash: | |||||||||||||||||||||
Private placements, net of finders’ fees and issuance costs | 0.58 | 2,955,626 | 1,715 | - | - | - | 1,715 | ||||||||||||||
Share subscriptions received | - | - | (763 | ) | - | - | - | (763 | ) | ||||||||||||
Exercise of warrants | 0.16 | 5,277,573 | 829 | - | - | - | 829 | ||||||||||||||
Exercise of options | 0.07 | 1,088,400 | 81 | - | - | - | 81 | ||||||||||||||
Shares issued for property | 0.23 | 1,000,000 | 229 | - | - | - | 229 | ||||||||||||||
Stock-based compensation | - | - | - | 993 | - | - | 993 | ||||||||||||||
Fair value of stock options exercised | - | - | 42 | (42 | ) | - | - | - | |||||||||||||
Shares allotted for exercise of warrants | 0.12 | 224,925 | 26 | - | - | - | 26 | ||||||||||||||
Shares allotted for bonus | 0.55 | 1,590,000 | 873 | - | - | - | 873 | ||||||||||||||
Balance 31 January 2005 | 57,128,578 | 19,027 | 1,006 | - | (18,777 | ) | 1,256 |
26
PolyMet Mining Corp. |
(a development stage company) |
Notes to Consolidated Financial Statements |
30 April 2010 |
Tabular amounts in Thousands of U.S. Dollars except for price per share, shares and options |
Unaudited – prepared by management |
13. | Differences Between Canadian and United States Generally Accepted Accounting Principles- |
Continued | |
Consolidated Statements of Changes in Shareholder’s Equity (unaudited) (continued) | |
Cumulative from 1 February 2003 to 30 April 2010 |
Accumulated | |||||||||||||||||||||
Other | |||||||||||||||||||||
Issue Price | Comprehensive | ||||||||||||||||||||
Per Share | Shares | Amount | Contributed Surplus | Income | Deficit | Total | |||||||||||||||
Balance 31 January 2005 (brought forward) | 57,128,578 | 19,027 | 1,006 | - | (18,777 | ) | 1,256 | ||||||||||||||
Loss for the year | - | - | - | - | - | (15,976 | ) | (15,976 | ) | ||||||||||||
Shares issued for cash: | |||||||||||||||||||||
Private placements, net of finders’ fees and issuance costs | 0.66 | 29,347,568 | 15,827 | 3,653 | - | - | 19,480 | ||||||||||||||
Exercise of warrants | 0.58 | 5,700,628 | 3,296 | - | - | - | 3,296 | ||||||||||||||
Exercise of options | 0.11 | 1,795,852 | 197 | - | - | - | 197 | ||||||||||||||
Shares issued for property | 1.22 | 6,200,547 | 7,564 | - | - | - | 7,564 | ||||||||||||||
Stock-based compensation | - | - | - | 3,523 | - | - | 3,523 | ||||||||||||||
Fair value of stock options exercised | - | - | 98 | (98 | ) | - | - | - | |||||||||||||
Balance 31 January 2006 | 100,173,173 | 46,009 | 8,084 | - | (34,753 | ) | 19,340 | ||||||||||||||
Loss for the year | - | - | - | - | - | (18,126 | ) | (18.126 | ) | ||||||||||||
Issuance of shares for bonus | 0.55 | 2,350,000 | 1,289 | - | - | - | 1,289 | ||||||||||||||
Shares issued for cash: | |||||||||||||||||||||
Exercise of warrants | 0.98 | 14,662,703 | 17,963 | (3,653 | ) | - | - | 14,310 | |||||||||||||
Exercise of options | 0.35 | 2,193,000 | 765 | - | - | - | 765 | ||||||||||||||
Shares issued for property | 3.08 | 2,000,000 | 6,160 | - | - | - | 6,160 | ||||||||||||||
Stock-based compensation | - | - | - | 4,723 | - | - | 4,723 | ||||||||||||||
Warrants issued for deferred financing costs | - | - | - | 1,197 | - | - | 1,197 | ||||||||||||||
Fair value of stock options exercised | - | - | 737 | (737 | ) | - | - | - | |||||||||||||
Balance – 31 January 2007 | 121,378,876 | 72,923 | 9,614 | - | (52,879 | ) | 29,658 |
27
PolyMet Mining Corp. |
(a development stage company) |
Notes to Consolidated Financial Statements |
30 April 2010 |
Tabular amounts in Thousands of U.S. Dollars except for price per share, shares and options |
Unaudited – prepared by management |
13. | Differences Between Canadian and United States Generally Accepted Accounting Principles- |
Continued | |
Consolidated Statements of Changes in Shareholder’s Equity (unaudited) (continued) | |
Cumulative from 1 February 2003 to 30 April 2010 |
Accumulated | |||||||||||||||||||||
Other | |||||||||||||||||||||
Issue Price | Comprehensive | ||||||||||||||||||||
Per Share | Shares | Amount | Contributed Surplus | Income | Deficit | Total | |||||||||||||||
Balance – 31 January 2007 (brought forward) | 121,378,876 | 72,923 | 9,614 | - | (52,879 | ) | 29,658 | ||||||||||||||
Loss for the year | - | - | - | - | - | (4,124 | ) | (4,124 | ) | ||||||||||||
Shares and warrants issued: | |||||||||||||||||||||
Exercise of options | 0.66 | 462,200 | 303 | - | - | - | 303 | ||||||||||||||
Fair value of stock options exercised | - | - | 212 | (212 | ) | - | - | - | |||||||||||||
Private placement, net of finders’ fees and issuance costs | 2.61 | 15,149,999 | 31,177 | 8,346 | - | - | 39,523 | ||||||||||||||
Stock-based compensation | - | - | - | 3,077 | - | - | 3,077 | ||||||||||||||
Balance – 31 January 2008 | 136,991,075 | 104,615 | 20,825 | - | (57,003 | ) | 68,437 | ||||||||||||||
Loss for the year | - | - | - | - | - | (5,523 | ) | (5,523 | ) | ||||||||||||
Shares and warrants issued: | |||||||||||||||||||||
Exercise of options | 1.45 | 312,800 | 452 | - | - | - | 452 | ||||||||||||||
Fair value of stock options exercised | - | - | 245 | (245 | ) | - | - | - | |||||||||||||
Convertible debt – conversion factor and warrants | - | - | - | 441 | - | - | 441 | ||||||||||||||
Accrual of Milestones 2 and 4 Bonus Shares | - | - | - | 3,912 | - | - | 3,912 | ||||||||||||||
Amendment to previously issued warrants | - | - | - | 544 | - | - | 544 | ||||||||||||||
Stock-based compensation | - | - | - | 1,822 | - | - | 1,822 | ||||||||||||||
Balance – 31 January 2009 | 137,303,875 | 105,312 | 27,299 | - | (62,526 | ) | 70,085 |
28
PolyMet Mining Corp. |
(a development stage company) |
Notes to Consolidated Financial Statements |
30 April 2010 |
Tabular amounts in Thousands of U.S. Dollars except for price per share, shares and options |
Unaudited – prepared by management |
13. | Differences Between Canadian and United States Generally Accepted Accounting Principles- |
Continued | |
Consolidated Statements of Changes in Shareholder’s Equity (unaudited) (continued) | |
Cumulative from 1 February 2003 to 30 April 2010 |
Accumulated | |||||||||||||||||||||
Other | |||||||||||||||||||||
Issue Price | Comprehensive | ||||||||||||||||||||
Per Share | Shares | Amount | Contributed Surplus | Income | Deficit | Total | |||||||||||||||
Balance – 31 January 2009 (brought forward) | 137,303,875 | 105,312 | 27,299 | - | (62,526 | ) | 70,085 | ||||||||||||||
Loss for the year | - | - | - | - | - | (9,023 | ) | (9,023 | ) | ||||||||||||
Other comprehensive income for the year | - | - | - | - | 71 | - | 71 | ||||||||||||||
Shares and warrants issued: | |||||||||||||||||||||
Equity offering and issuance costs | 2.60 | 9,433,962 | 24,501 | - | - | - | 24,501 | ||||||||||||||
Exercise of options | 0.62 | 775,000 | 477 | - | - | - | 477 | ||||||||||||||
Fair value of stock options exercised | - | - | 307 | (307 | ) | - | - | - | |||||||||||||
Exercise of warrants | 2.94 | 167,954 | 494 | - | - | - | 494 | ||||||||||||||
Fair value of warrants exercised | - | - | 254 | (254 | ) | - | - | - | |||||||||||||
Convertible debt – conversion factor | - | - | - | 352 | - | - | 352 | ||||||||||||||
Accrual of Milestones 2 and 4 Bonus Shares | - | - | - | 4,200 | - | - | 4,200 | ||||||||||||||
Amendment to previously issued warrants | - | - | - | 4,920 | - | - | 4,920 | ||||||||||||||
Issuance of Milestone 2 Bonus Shares | 0.55 | 1,300,000 | 721 | (721 | ) | - | - | - | |||||||||||||
Stock-based compensation | - | - | - | 1,240 | - | - | 1, 240 | ||||||||||||||
Balance – 31 January 2010 | 148,980,791 | 132,066 | 36,729 | 71 | (71,549 | ) | 97,317 | ||||||||||||||
Loss for the period | - | - | - | - | - | (859 | ) | (859 | ) | ||||||||||||
Other comprehensive income (loss) for the period | - | - | - | - | (22 | ) | - | (22 | ) | ||||||||||||
Shares and warrants issued: | |||||||||||||||||||||
Exercise of options | 1.56 | 25,000 | 16 | - | - | - | 16 | ||||||||||||||
Fair value of options exercised | - | - | 16 | (16 | ) | - | - | - | |||||||||||||
Accrual of Milestones 2 and 4 Bonus Shares | - | - | - | 428 | - | - | 428 | ||||||||||||||
Stock-based compensation | - | - | - | 66 | - | - | 66 | ||||||||||||||
Balance – 30 April 2010 | 149,005,791 | 132,098 | 37,207 | 49 | (72,408 | ) | 96,946 |
29
PolyMet Mining Corp. |
(a development stage company) |
Notes to Consolidated Financial Statements |
30 April 2010 |
Tabular amounts in Thousands of U.S. Dollars except for price per share, shares and options |
Unaudited – prepared by management |
13. | Differences Between Canadian and United States Generally Accepted Accounting Principles- |
Continued |
Consolidated Statements of Cash Flows
Cumulative from 1 February 2003 to 30 April 2010
Cumulative | |||
from 1 | |||
February | |||
2003 to 30 | |||
April 2010 | |||
(unaudited) | |||
Operating Activities | |||
Loss for the period | $ | (58,194 | ) |
Items not involving cash | |||
Consulting fees and Office and Corporate wages | 2,161 | ||
Amortization | 138 | ||
Asset retirement obligation | 1,656 | ||
Investment loss | 2,415 | ||
Stock-based compensation | 11,341 | ||
Warrant amendment | 5,464 | ||
Gain on sale of resource properties | (220 | ) | |
Loss on sale of property, plant and equipment | 9 | ||
Changes in non-cash working capital items | |||
Accounts receivable and advances | (88 | ) | |
Prepaid expenses | (390 | ) | |
Accounts payable and accrued liabilities | 512 | ||
Net cash used in operating activities | (35,196 | ) | |
Financing Activities | |||
Share capital - for cash | 106,746 | ||
Long-term debt repayment | (6,400 | ) | |
Convertible debt | 24,277 | ||
Share subscriptions received | 763 | ||
Deferred financing costs | (597 | ) | |
Net cash provided by financing activities | 124,789 | ||
Investing Activities | |||
Purchase of investment | (2,495 | ) | |
Proceeds on disposal of equipment | 33 | ||
Proceeds on sale of resource property | 220 | ||
Purchase of mineral property, plant and equipment | (72,164 | ) | |
Net cash used in investing activities | (74,406 | ) | |
Net Increase (Decrease) in Cash and Cash Equivalents Position | 15,187 | ||
Cash and Cash Equivalents Position - Beginning of Period | 3 | ||
Cash and Cash Equivalents Position - End of Period | $ | 15,190 |
41
PolyMet Mining Corp. |
(a development stage company) |
Notes to Consolidated Financial Statements |
30 April 2010 |
Tabular amounts in Thousands of U.S. Dollars except for price per share, shares and options |
Unaudited – prepared by management |
13. | Differences Between Canadian and United States Generally Accepted Accounting Principles- |
Continued |
Consolidated Schedules of Pre-Feasibility Costs
Cumulative from 1 February 2003 to 30 April 2010
Cumulative | |||
from 1 | |||
February | |||
2003 to 30 | |||
April 2010 | |||
(unaudited) | |||
Direct | |||
Camp and general | $ | 298 | |
Consulting fees | 1,846 | ||
Drilling | 3,169 | ||
Engineering | 1,441 | ||
Environmental | 6,130 | ||
Geological and geophysical | 303 | ||
Land lease, taxes and licenses | 469 | ||
Metallurgical | 2,275 | ||
Mine planning | 3,597 | ||
Permitting | 321 | ||
Plant maintenance and repair | 725 | ||
Sampling | 1,001 | ||
Scoping study | 104 | ||
Cumulative Total Costs for the Period | $ | 21,679 |
42
PolyMet Mining Corp. |
(a development stage company) |
Notes to Consolidated Financial Statements |
30 April 2010 |
Tabular amounts in Thousands of U.S. Dollars except for price per share, shares and options |
Unaudited – prepared by management |
13. | Differences Between Canadian and United States Generally Accepted Accounting Principles- |
Continued |
(c) Mineral Rights
The total amount paid for mineral rights to 30 April 2010 was $1,775,000.
(d) Accounts Payable
The components of accounts payable and accrued liabilities as at 30 April are as follows:
30 April 2010 | 31 January | ||||||
2010 | |||||||
Operating payables | 149 | 376 | |||||
Project development payables | 1,465 | 1,561 | |||||
Equipment payables | 847 | 1,016 | |||||
Total | $ | 2,461 | $ | 2,953 |
(e) Stock-Based Compensation
As at 31 January 2010, there were 1,855,000 unvested stock options with an average grant date fair value of $1.24 per option. As at 30 April 2010, there were 1,840,000 unvested stock options with an average grant date fair value of $1.22 per option. During the three month period ended 30 April 2010, 15,000 additional stock options vested.
The intrinsic value of a stock option is the difference between the current market price for PolyMet’s common shares and the exercise price of the option. At 30 April 2010, the aggregate intrinsic value of vested and unvested stock options, based on the 30 April 2010 closing price for PolyMet’s common shares of US$2.15 was $1,957,000.
The weighted average remaining contractual term of all stock options outstanding as at 30 April 2010 is 3.62 years. The weighted average remaining contractual term of all stock options vested as at 30 April 2010 was 3.50 years.
The unrecognized compensation cost for non-vested stock options at 30 April 2010 was $419,000. The weighted average period over which it is expected to be recognized is 3.33 years.
PolyMet records stock-based compensation expense as a separate line item in the Company’s consolidated statements of loss, other comprehensive loss and deficit. If stock-based compensation had been recorded on the same line as cash compensation for the individuals who received the stock options, $10,000 for the three months ended 30 April 2010 and $453,000 for the three months ended 30 April 2009 would have been recorded under office and corporate wages expense.
The Company has estimated the expected life of incentive stock options to be 2.3 years based on historic option exercise patterns and the timeline for material developments in the past and anticipated in future.
43
PolyMet Mining Corp. |
(a development stage company) |
Notes to Consolidated Financial Statements |
30 April 2010 |
Tabular amounts in Thousands of U.S. Dollars except for price per share, shares and options |
Unaudited – prepared by management |
13. | Differences Between Canadian and United States Generally Accepted Accounting Principles- |
Continued |
f) | Recent U.S. Accounting Pronouncements, which relate to the Company’s current operations are summarized as follows: | |
None. |
44