SCANDIUM INTERNATIONAL MINING CORP.
10-Ks and 10-Qs
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended
September
30, 2019
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from _________ to
__________________
000-54416
(Commission
File Number)
SCANDIUM INTERNATIONAL MINING CORP.
(Exact
name of registrant as specified in its charter)
|
British
Columbia, Canada
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98-1009717
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|
(State or other
jurisdiction
of incorporation or
organization)
|
(IRS
Employer
Identification
No.)
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1430 Greg Street, Suite 501, Sparks, Nevada 89431
(Address
of principal executive offices) (Zip Code)
(775)
355-9500
(Registrant’s
telephone number, including area code)
N/A
(Former
name, former address and former fiscal year, if changed since last
report)
Securities
registered pursuant to Section 12(b) of the Act:
None
Indicate by check mark whether the registrant (1) filed all reports
required to be filed by sections 13 or 15(d) of the Securities and
Exchange Act of 1934 during the preceding 12 months (or for such
shorter period that the registrant was required to file such
reports), and (2) has been subject to such filing requirements for
the past 90 days. Yes [
X
] No [ ]
Indicate
by check mark whether the registrant has submitted electronically
and posted on its corporate Web site, if any, every Interactive
Data File required to be submitted and posted pursuant to Rule 405
of Regulation S-T (§232.405 of this chapter) during the
preceding 12 months (or for such shorter period that the registrant
was required to submit and post such files).
Yes [
X
] No [ ]
Indicate by check mark
whether the registrant is a large
accelerated filer, an accelerated filer, a non-accelerated filer, a
smaller reporting company, or an emerging growth company. See the
definitions of “large accelerated filer,”
“accelerated filer,” “smaller reporting
company,” and “emerging growth company” in Rule
12b-2 of the Exchange Act.
Large
accelerated filer [ ] Accelerated filer [ ] Non-accelerated filer [
] Smaller reporting company [
X
] Emerging growth company [
]
If an emerging growth company, indicate by check mark if the
registrant has elected not to use the extended transition period
for complying with any new or revised financial accounting
standards provided pursuant to Section 13(a) of the Exchange Act. [
]
Indicate by check mark whether the registrant is a shell company,
as defined in Rule 12b-2 of the Exchange Act. Yes [ ] No
[
X
]
Indicate
the number of shares outstanding of each of the registrant’s
classes of common stock, as of the latest practicable date:
As of
November 07, 2019, the registrant’s outstanding common stock
consisted of 312,482,595 shares.
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NINE MONTHS AND THREE MONTHS ENDED SEPTEMBER 30,
2019
|
Scandium
International Mining Corp.
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||
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CONDENSED
CONSOLIDATED BALANCE SHEETS
|
||
|
(Expressed in US
Dollars) (Unaudited)
|
||
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|
||
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As
at:
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September 30,
2019
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December 31,
2018
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ASSETS
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|
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|
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Current
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|
|
Cash
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$
219,144
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$
284,757
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Prepaid
expenses and receivables
|
14,753
|
38,951
|
|
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Total
Current Assets
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233,897
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323,708
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Reclamation bond
(Note 4)
|
11,444
|
11,444
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Equipment
(Note 3)
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7,544
|
9,274
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|
Mineral property interests
(Note
4)
|
704,053
|
704,053
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|
|
|
|
|
Total
Assets
|
$
956,938
|
$
1,048,479
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LIABILITIES
AND EQUITY
|
|
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Current
|
|
|
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Accounts payable
and accrued liabilities
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$
152,288
|
$
146,586
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Accounts
payable with related parties (Note 5)
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150,924
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-
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Total
Liabilities
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303,212
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146,586
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Equity
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Capital stock (Note
6) (Authorized: Unlimited number of common shares; Issued and
outstanding: 312,482,595 (2018 – 304,781,294))
|
109,375,661
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108,244,311
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|
Treasury stock
(Note 7) (1,033,333 common shares) (2018 –
1,033,333)
|
(1,264,194
)
|
(1,264,194
)
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|
Additional paid in
capital (Note 6)
|
5,932,421
|
5,675,812
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Accumulated
other comprehensive loss
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(853,400
)
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(853,400
)
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Deficit
|
(112,536,762
)
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(110,900,636
)
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Total
Equity
|
653,726
|
901,893
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Total
Liabilities and Equity
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$
956,938
|
$
1,048,479
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Nature
and continuance of operations (Note 1)
The
accompanying notes are an integral part of these condensed
consolidated financial statements.
3
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Scandium
International Mining Corp.
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CONDENSED
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE
LOSS
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(Expressed in US
Dollars) (Unaudited)
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Periods
ended
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Three months ended
September 30, 2019
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Three months ended
September 30, 2018
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Nine months ended
September 30, 2019
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Nine months ended
September 30, 2018
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EXPENSES
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Amortization (Note
3)
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$
576
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$
158
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$
1,730
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$
474
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Consulting
|
98,159
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84,831
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297,580
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220,642
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Exploration
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46,828
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104,869
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93,983
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250,380
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General and
administrative
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126,118
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66,431
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333,235
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260,434
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Insurance
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7,808
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7,520
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23,111
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22,314
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Professional
fees
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7,353
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6,474
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57,616
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81,986
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Salaries and
benefits
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114,823
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116,098
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343,958
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429,996
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Stock-based
compensation (Note 6)
|
4,844
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69,411
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427,480
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1,054,456
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Travel and
entertainment
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32,550
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16,202
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58,712
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59,768
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(439,059
)
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(471,994
)
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(1,637,405
)
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(2,380,450
)
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Foreign exchange
gain (loss)
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(4,367
)
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10,213
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1,279
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(37,342
)
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Loss
and comprehensive loss for the period
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$
(443,426
)
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$
(461,781
)
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$
(1,636,126
)
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$
(2,417,792
)
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Basic
and diluted loss per common share
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$
0.00
|
$
0.00
|
$
0.01
|
$
0.01
|
|
|
|
|
|
|
|
Weighted
average number of common shares outstanding – basic and
diluted
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311,926,082
|
304,773,142
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309,914,357
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299,976,402
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The
accompanying notes are an integral part of these condensed
consolidated financial statements.
4
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Scandium
International Mining Corp.
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||
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CONDENSED
CONSOLIDATED STATEMENTS OF CASH FLOWS
|
||
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(Expressed in US
Dollars) (Unaudited)
|
||
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Periods
ended
|
Nine months ended
September 30, 2019
|
Nine months ended
September 30, 2018
|
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CASH
FLOWS FROM OPERATING ACTIVITIES
|
|
|
|
Loss for the
period
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$
(1,636,126
)
|
$
(2,417,792
)
|
|
Items not affecting
cash:
|
|
|
|
Amortization
|
1,730
|
474
|
|
Stock-based
compensation
|
427,480
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1,054,456
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|
|
|
|
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Changes in non-cash
working capital items:
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|
|
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Decrease in prepaid
expenses and receivables
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24,198
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27,875
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(Decrease) increase
in accounts payable, accrued liabilities and accounts payable with
related parties
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156,626
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(26,254
)
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|
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(1,026,092
)
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(1,361,241
)
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CASH
FLOWS FROM INVESTING ACTIVITIES
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Additions
to equipment
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-
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(11,811
)
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-
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(11,811
)
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CASH
FLOWS FROM FINANCING ACTIVITIES
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|
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Common shares
issued
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799,483
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1,675,300
|
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Options exercised
for common shares
|
160,996
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79,806
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|
|
960,479
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1,755,106
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|
|
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|
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Change
in cash during the period
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(65,613
)
|
382,054
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Cash,
beginning of period
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284,757
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343,434
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|
|
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Cash,
end of period
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$
219,144
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$
725,488
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Cash
paid during the period for interest
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$
-
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$
-
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Cash
paid during the period for taxes
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$
-
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$
-
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There
were no significant non-cash investing and financing activities
during the periods ended September 30, 2019 and 2018.
|
||
The accompanying notes are an integral part of these condensed
consolidated financial statements.
5
|
Scandium International Mining
Corp.
|
||||||
|
CONDENSED
CONSOLIDATED STATEMENTS OF CHANGES IN
|
||||||
|
EQUITY
|
||||||
|
(Expressed in
US Dollars) (Unaudited)
|
||||||
|
|
|
|
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|
Number of
Shares
|
Capital
Stock
|
Additional Paid in
Capital
|
Treasury
Stock
|
Accumulated Other
Comprehensive Loss
|
Total
Stockholders’ Equity
|
|
|
|
|
|
|
|
|
|
Balance,
December 31, 2017
|
291,970,239
|
$
106,468,869
|
$
4,617,484
|
$
(1,264,194
)
|
$
(853,400
)
|
$
1,029,231
|
|
Private
placement
|
5,729,167
|
810,898
|
-
|
-
|
-
|
810,898
|
|
Options
exercised
|
200,000
|
19,964
|
(3,893
)
|
-
|
-
|
16,071
|
|
Stock-based
compensation
|
-
|
-
|
920,558
|
-
|
-
|
920,558
|
|
Loss for the three
months
|
-
|
-
|
-
|
-
|
-
|
(1,329,613
)
|
|
Balance, March
31, 2018
|
297,899,406
|
$
107,299,731
|
$
5,534,149
|
$
(1,264,194
)
|
$
(853,400
)
|
$
1,447,145
|
|
|
|
|
|
|
|
|
|
Private
placement
|
6,071,888
|
864,402
|
-
|
-
|
-
|
864,402
|
|
Options
exercised
|
800,000
|
78,323
|
(15,574
)
|
-
|
-
|
62,749
|
|
Stock-based
compensation
|
-
|
-
|
64,487
|
-
|
-
|
64,487
|
|
Loss for the three
months
|
-
|
-
|
-
|
-
|
-
|
(626,398
)
|
|
Balance, June
30, 2018
|
304,771,294
|
$
108,242,456
|
$
5,583,062
|
$
(1,264,194
)
|
$
(853,400
)
|
$
1,812,385
|
|
|
|
|
|
|
|
|
|
Options
exercised
|
10,000
|
1,855
|
(869
)
|
-
|
-
|
986
|
|
Stock-based
compensation
|
-
|
-
|
69,411
|
-
|
-
|
69,411
|
|
Loss for the three
months
|
-
|
-
|
-
|
-
|
-
|
(461,781
)
|
|
Balance,
September 30, 2018
|
304,781,294
|
$
108,244,311
|
$
5,651,604
|
$
(1,264,194
)
|
$
(853,400
)
|
$
1,421,001
|
|
|
|
|
|
|
|
|
|
Stock-based
compensation
|
-
|
-
|
24,208
|
-
|
-
|
24,208
|
|
Loss for the three
months
|
-
|
-
|
-
|
-
|
-
|
(543,316
)
|
|
Balance,
December 31, 2018
|
304,781,294
|
$
108,244,311
|
$
5,675,812
|
$
(1,264,194
)
|
$
(853,400
)
|
$
901,893
|
|
|
|
|
|
|
|
|
|
Private
placement
|
5,926,301
|
799,483
|
-
|
-
|
-
|
799,483
|
|
Options
exercised
|
1,075,000
|
197,778
|
(101,098
)
|
-
|
-
|
96,680
|
|
Stock-based
compensation
|
-
|
-
|
13,116
|
-
|
-
|
13,116
|
|
Loss for the three
months
|
-
|
-
|
-
|
-
|
-
|
(332,766
)
|
|
Balance, March
31, 2019
|
311,782,595
|
$
109,241,572
|
$
5,587,830
|
$
(1,264,194
)
|
$
(853,400
)
|
$
1,478,406
|
|
|
|
|
|
|
|
|
|
Stock-based
compensation
|
-
|
-
|
409,520
|
-
|
-
|
409,520
|
|
Loss for the three
months
|
-
|
-
|
-
|
-
|
-
|
(859,934
)
|
|
Balance, June
30, 2019
|
311,782,595
|
$
109,241,572
|
$
5,997,350
|
$
(1,264,194
)
|
$
(853,400
)
|
$
1,027,992
|
|
|
|
|
|
|
|
|
|
Options
exercised
|
700,000
|
134,089
|
(69,773
)
|
-
|
-
|
64,316
|
|
Stock-based
compensation
|
-
|
-
|
4,844
|
-
|
-
|
4,844
|
|
Loss for the three
months
|
-
|
-
|
-
|
-
|
-
|
(443,426
)
|
|
Balance,
September 30, 2019
|
312,482,595
|
$
109,375,661
|
$
5,932,421
|
$
(1,264,194
)
|
$
(853,400
)
|
$
653,726
|
The
accompanying notes are an integral part of these condensed
consolidated financial statements.
6
|
Scandium International Mining Corp.
|
|
NOTES
TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
|
|
September
30, 2019
|
|
(Expressed
in US Dollars) (Unaudited)
|
1.
NATURE
AND CONTINUANCE OF OPERATIONS
Scandium
International Mining Corp. (the “Company”) is a
specialty metals and alloys company focusing on scandium and other
specialty metals.
The
Company was incorporated under the laws of the Province of British
Columbia, Canada in 2006. The Company currently trades on the
Toronto Stock Exchange under the symbol
“SCY”.
The
Company’s focus is on the exploration, evaluation and future
development of its specialty metals assets, specifically the Nyngan
scandium deposit located in New South Wales, Australia. The Company
is an exploration stage company and anticipates incurring
significant additional expenditures prior to production at its
properties.
These
condensed consolidated financial statements have been prepared on a
going concern basis that contemplates the realization of assets and
discharge of liabilities at their carrying values in the normal
course of business for the foreseeable future. These financial
statements do not reflect any adjustments that may be necessary if
the Company is unable to continue as a going concern.
The
Company currently earns no operating revenues and will require
additional capital in order to advance the Nyngan property. The
Company’s ability to continue as a going concern is uncertain
and is dependent upon the generation of profits from mineral
properties, obtaining additional financing and maintaining
continued support from its shareholders and creditors. These are
material uncertainties that raise substantial doubt about the
Company’s ability to continue as a going concern. In the
event that additional financial support is not received or
operating profits are not generated, the carrying values of the
Company’s assets may be adversely affected.
2.
BASIS
OF PRESENTATION
Basis
of presentation
The
accompanying unaudited interim condensed consolidated financial
statements have been prepared in accordance with the rules and
regulations of the Securities and Exchange Commission
(“SEC”). The interim condensed consolidated financial
statements include the consolidated accounts of the Company and its
wholly-owned subsidiaries with all significant intercompany
transactions eliminated. In the opinion of management, all
adjustments necessary for a fair statement of the consolidated
financial position, results of operations and cash flows for the
interim periods have been made. Certain information and footnote
disclosures normally included in the consolidated financial
statements prepared in accordance with generally accepted
accounting principles of the United States of America (“US
GAAP”) have been condensed or omitted pursuant to such SEC
rules and regulations. These interim condensed consolidated
financial statements should be read in conjunction with the audited
consolidated financial statements for the year ended December 31,
2018 and with our Annual Report on Form 10-K filed with the SEC on
March 4, 2019. Operating results for the nine-month period ended
September 30, 2019 may not necessarily be indicative of the results
for the year ending December 31, 2019.
These
unaudited interim condensed consolidated financial statements
include the accounts of the Company and its wholly-owned
subsidiaries, EMC Metals USA Inc., Scandium International Mining
Corp. Norway AS, SCY Exploration Finland Oy, and EMC Metals
Australia Pty Ltd. (EMC-A”).
Use
of estimates
The
preparation of unaudited interim condensed consolidated financial
statements in conformity with US GAAP requires management to make
estimates and assumptions that affect the reported amounts of
assets and liabilities and the disclosure of contingent assets and
liabilities at the date of the financial statements and the
reported amounts of expenses during the reporting period. The
Company regularly evaluates estimates and assumptions related to
the deferred income tax asset valuations, asset impairment,
stock-based compensation and loss contingencies. The Company bases
its estimates and assumptions on current facts, historical
experience and various other factors that it believes to be
reasonable under the circumstances, the results of which form the
basis for making judgments about the other sources. The actual
results experienced by the Company may differ materially and
adversely from the Company’s estimates. To the extent there
are material differences between estimates and the actual results,
future results of operations will be affected.
The
Company considers itself to be an exploration stage company and
will consider the transition to development stage after it receives
funding to begin mine construction and board approval.
Fair value of financial assets and liabilities
The
Company measures the fair value of financial assets and liabilities
based on US GAAP guidance which defines fair value, establishes a
framework for measuring fair value, and expands
disclosures about fair value measurements.
7
2.
BASIS OF PRESENTATION
(cont’d…)
The
Company classifies financial assets and liabilities as
held-for-trading, available-for-sale, held-to-maturity, loans and
receivables or other financial liabilities depending on their
nature. Financial assets and financial liabilities are recognized
at fair value on their initial
recognition, except
for those arising from certain related party transactions which are
accounted for at the transferor’s carrying amount or exchange
amount.
Financial assets
and liabilities classified as held-for-trading are measured at fair
value, with gains and losses recognized in net income. Financial
assets classified as held-to-maturity, loans and receivables, and
financial liabilities other than those classified as
held-for-trading are measured at amortized cost, using the
effective interest method of amortization. Financial assets
classified as available-
for-sale are measured at fair value,
with unrealized gains and losses being recognized as other
comprehensive income until realized, or if an unrealized loss is
considered other than temporary, the unrealized loss is recorded in
income.
Financial
instruments, including receivables, accounts payable and accrued
liabilities, and accounts payable with related parties are carried
at amortized cost, which management believes approximates fair
value due to the short-term nature of these
instruments.
The
Company has no leases with a term of greater than 12 months. Short
term lease expenses totaled $21,176 during the nine months ended
September 30, 2019 and $20,898 during the nine months ended
September 30, 2018.
The
following table presents information about the assets that are
measured at fair value on a recurring basis as at
September 30, 2019 and indicates the fair value hierarchy of
the valuation techniques the Company utilized to determine such
fair value. In general, fair values determined by Level 1 inputs
utilize quoted prices (unadjusted) in active markets for identical
assets. Fair values determined by Level 2 inputs utilize data
points that are observable such as quoted prices, interest rates
and yield curves. Fair values determined by Level 3 inputs are
unobservable data points for the asset or liability, and included
situations where there is little, if any, market activity for the
asset:
|
|
September
30,
2019
|
Quoted Prices in Active Markets (Level
1)
|
Significant Other
Observable Inputs (Level 2)
|
Significant
Unobservable Inputs
(Level
3)
|
|
Assets:
|
|
|
|
|
|
Cash
|
$
219,144
|
$
219,144
|
$
—
|
$
—
|
|
|
|
|
|
|
|
Total
|
$
219,144
|
$
219,144
|
$
—
|
$
—
|
The
carrying value of receivables, accounts payable and accrued
liabilities, and accounts payable with related parties approximate
their fair value due to their short-term nature.
The
fair value of cash is determined through market, observable and
corroborated sources.
Recently
Adopted and Recently Issued Accounting Standards
Accounting Standards Update 2019-01 –
Leases (Topic 842) Codification Improvements - Issue 3 Transition
Disclosures Related to Topic 250, Accounting Changes and Error
Corrections. The amendments in this Update clarify the
Board’s original intent by explicitly providing an exception
to the paragraph 250-10-50-3 interim disclosure requirements in the
Topic 842 transition disclosure requirements. The effective date is
for fiscal years beginning after December 15, 2019, and interim
periods within fiscal years beginning after December 15, 2020.
The Company is currently evaluating
the impact this guidance will have on its financial
statements.
Accounting Standards Update 2018-13 – Fair
Value Measurement (Topic 840)
Disclosure
Framework—Changes to the Disclosure Requirements for Fair
Value Measurement.
The
amendments in this update apply to all entities that are required,
under existing GAAP, to make disclosures about recurring or
nonrecurring fair value measurements.
This standard is effective for interim and annual
reporting periods beginning after December 15, 2019, with early
adoption permitted. The Company is currently evaluating the impact
this guidance will have on its financial
statements.
Accounting
Standards Update 2018-11 - Leases (Topic 842) Targeted Update. This
accounting pronouncement is an update to Accounting Standard
2016-02 (see below). This standard allows for an additional (and
optional) transition method. This standard is effective for interim
and annual reporting periods beginning after December 15, 2018,
with early adoption permitted. The Company has adopted the election
to recognize short-term leases through profit or loss, with no
material effect to the consolidated financial
statements.
Accounting
Standards Update 2016-02 - Leases (Topic 842). This accounting
pronouncement allows lessees to make an accounting policy election
to not recognize a lease asset and liability for leases with a term
of 12 months or less and that do not have a purchase option that is
expected to be exercised. This standard is effective for interim
and annual reporting periods beginning after December 15, 2018,
with early adoption permitted. The Company has adopted this policy
which had no material effect to the consolidated financial
statements.
8
3.
EQUIPMENT
|
|
December 31,
2018
Net Book
Value
|
Additions
(disposals)
(write-offs)
|
Amortization
|
September 30,
2019
Net Book
Value
|
|
Computer
equipment
|
$
9,274
|
$
-
|
$
(1,730
)
|
$
7,544
|
|
|
December 31,
2017
Net Book
Value
|
Additions
(disposals)
(write-offs)
|
Amortization
|
December 31,
2018
Net Book
Value
|
|
Computer
equipment
|
$
1,947
|
$
8,377
|
$
(1,050
)
|
$
9,274
|
4.
MINERAL
PROPERTY INTERESTS
|
September
30, 2019
|
Scandium and
other
|
|
|
|
|
Balance,
September 30, 2019, December 31, 2018
|
$
704,053
|
Title
to mineral property interests involves certain inherent risks due
to the difficulties of determining the validity of certain claims
as well as the potential for problems arising from the frequently
ambiguous conveyancing history characteristic of many mineral
property interests. The Company has investigated title to all of
its mineral property interests and, to the best of its knowledge,
title to all of its properties is in good standing.
SCANDIUM
PROPERTIES
Nyngan Property, Australia
The
Company holds a 100% interest in the Nyngan property in New South
Wales, Australia (NSW). A definitive feasibility study was
completed on the property in fiscal 2016. During December 2017 the
Company revised and renewed a scandium product offtake agreement
for delivery of scandium-based product upon availability from mine
production.
In
April 2019, the Company received notice from the New South Wales
Department of Planning and Environment (the
“Department”) that, due to a procedural issue within
the Department, the Company’s Mine Lease Grant (“ML
1763”) pertaining to the Nyngan Scandium Project, previously
issued by the Department, is invalid. In May 2019, the Company
filed a new mine lease application with the Department, related to
the Nyngan Scandium Project. On July 24, 2019, the Company
announced that a new mine lease (“ML 1792”) had been
granted.
Royalties
attached to the Nyngan property include a 0.7% royalty on gross
mineral sales on the property, a 1.5% Net Profits Interest royalty
to private parties involved with the early exploration on the
property, and a 1.7% Net Smelter Returns royalty payable for 12
years after production commences. Another revenue royalty is
payable to private interests of 0.2%, subject to a $370,000 cap. A
NSW minerals royalty will also be levied on the project, subject to
negotiation, currently 4% on revenue.
Honeybugle Property, Australia
The
Company holds a 100% interest in the Honeybugle property in New
South Wales, Australia (NSW).
Kiviniemi Scandium Property, Finland
In
August 2018, the Company was granted an
Exploration License for the Kiviniemi Scandium property
in
central
Finland from the Finnish regulatory body governing mineral
exploration and mining in Finland.
As of
September 30, 2019, no funds have been capitalized for this
property. During fiscal 2018, a reclamation bond of $11,444
(€10,000) was placed.
9
5.
RELATED PARTY
TRANSACTIONS
During
the 9-month period ended September 30, 2019, the Company expensed
$314,104 for stock-based compensation for stock options issued to
Company directors. During the 9-month period ended September 30,
2018, the Company expensed $695,405 for stock-based compensation
for stock options issued to Company directors.
During
the 9-month period ended September 30, 2019, the Company paid a
consulting fee of $76,500 to one of its directors. During the
9-month period ended September 30, 2018, the Company paid a
consulting fee of $76,500 to one of its directors.
As at
September 30, 2019, the Company owed $150,924 to various directors
and officers of the Company. (December 31, 2018 -
$Nil)
6.
CAPITAL STOCK AND ADDITIONAL PAID IN
CAPITAL
Private
placements
On
March 21, 2019, the Company issued 5,926,301 common shares at a
value of C$0.18 per common share for total proceeds of C$1,066,734
($799,483).
On May
4, 2018, the Company issued 6,071,888 common shares at a value of
C$0.18 per common share for total proceeds of C$1,092,940
($864,402).
On
March 2, 2018, the Company issued 5,729,167 common shares at a
value of C$0.18 per common share for total proceeds of C$1,031,250
($810,898).
Stock
Options
The
Company established a stock option plan (the “Plan”)
under which it is authorized to grant options to executive officers
and directors, employees and consultants. The number of options
granted under the Plan shall not exceed 15% of the shares
outstanding. Under the Plan, the exercise period of the
options may not exceed ten years from the date of grant and vesting
is determined by the Board of Directors.
Stock
option transactions are summarized as follows:
|
|
Stock
Options
|
|
|
|
Number
|
Weighted
average
exercise price in
Canadian $
|
|
|
|
|
|
|
|
|
|
Outstanding,
December 31, 2017
|
23,585,000
|
$
0.18
|
|
Granted
|
6,850,000
|
0.225
|
|
Exercised
|
(1,010,000
)
|
0.10
|
|
Expired
|
(360,000
)
|
0.27
|
|
|
|
|
|
Outstanding,
December 31, 2018
|
29,065,000
|
0.19
|
|
Granted
|
9,860,000
|
0.15
|
|
Exercised
|
(1,775,000
)
|
0.12
|
|
Cancelled
|
(2,240,000
)
|
0.16
|
|
|
|
|
|
Outstanding,
September 30, 2019
|
34,910,000
|
$
0.188
|
|
|
|
|
|
Number currently
exercisable
|
29,900,000
|
$
0.193
|
10
|
6.
|
CAPITAL STOCK AND ADDITIONAL PAID IN CAPITAL
(cont’d…)
|
|
As at
September 30, 2019, incentive stock options were outstanding as
follows:
|
|
Number
of
Options
Outstanding
|
Number
of
Options
Exercisable
|
Exercise
Price in Canadian
$
|
Expiry
Date
|
|
|
|
|
|
|
|
Options
|
|
|
|
|
|
|
200,000
|
200,000
|
0.100
|
December 30,
2019
|
|
|
3,450,000
|
3,450,000
|
0.140
|
April 17,
2020
|
|
|
250,000
|
250,000
|
0.600
|
May 11,
2020
|
|
|
400,000
|
400,000
|
0.115
|
August 28,
2020
|
|
|
4,300,000
|
4,300,000
|
0.100
|
November 5,
2020
|
|
|
4,850,000
|
4,850,000
|
0.130
|
February 8,
2021
|
|
|
4,800,000
|
4,800,000
|
0.370
|
February 21,
2022
|
|
|
250,000
|
200,000
|
0.300
|
October 6,
2022
|
|
|
6,200,000
|
6,000,000
|
0.225
|
January 19,
2023
|
|
|
350,000
|
350,000
|
0.185
|
August 30,
2023
|
|
|
9,810,000
|
5,050,000
|
0.150
|
May 9,
2024*
|
|
|
50,000
|
50,000
|
0.130
|
June 24,
2024
|
|
|
|
|
|
|
|
|
34,910,000
|
29,900,000
|
|
|
*
4,760,000 of these options are performance based
with vesting based on achieving certain
milestones.
As at
September 30, 2019 the Company’s outstanding and exercisable
stock options have an aggregate intrinsic value of $17,181
(December 31, 2018 - $1,084,994).
Stock-based
compensation
During
the 9-month period ended September 30, 2019, the Company recognized
stock-based compensation of $427,480 (September 30, 2018 -
$1,054,456) in the statement of operations and comprehensive loss.
There were 9,860,000 stock options granted during the 9-month
period ended September 30, 2019 (September 30, 2018 –
6,850,000).
The
weighted average fair value of the options granted in the 9-month
period was C$ Nil (2018 - C$0.19).
The
fair value of all compensatory options granted is estimated on
grant date using the Black-Scholes option pricing model. The
weighted average assumptions used in calculating the fair values of
stock options granted in the 9-month period ended September 30 are
as follows:
|
|
2019
|
2018
|
|
|
|
|
|
Risk-free interest
rate
|
2.31
%
|
1.96
%
|
|
Expected
life
|
5 years
|
5 years
|
|
Volatility
|
90.40
%
|
127.81
%
|
|
Forfeiture
rate
|
N/A
|
N/A
|
|
Dividend
rate
|
N/A
|
N/A
|
11
7.
TREASURY
STOCK
|
|
Number
|
Amount
|
|
|
|
|
|
Treasury shares,
September 30, 2019 and December 31 2018
|
1,033,333
|
$
1,264,194
|
|
|
|
|
|
|
1,033,333
|
$
1,264,194
|
Treasury shares
comprise shares of the Company which cannot be sold without the
prior approval of the TSX.
8.
SEGMENTED
INFORMATION
The
Company’s mineral properties are located in Australia. The
Company’s capital assets’ geographic information is as
follows:
|
September
30, 2019
|
Australia
|
United
States
|
Total
|
|
|
|
|
|
|
Equipment
|
$
-
|
$
7,544
|
$
7,544
|
|
Mineral property
interests
|
704,053
|
-
|
704,053
|
|
|
|
|
|
|
|
$
704,053
|
$
7,544
|
$
711,597
|
|
December
31, 2018
|
Australia
|
United
States
|
Total
|
|
|
|
|
|
|
Equipment
|
$
-
|
$
9,274
|
$
9,274
|
|
Mineral property
interests
|
704,053
|
-
|
704,053
|
|
|
|
|
|
|
|
$
704,053
|
$
9,274
|
$
713,327
|
12
I
tem 2. Management’s Discussion and
Analysis of Financial Condition and Results of
Operations
The
following discussion of the operating results, corporate activities
and financial condition of Scandium International Mining Corp.
(hereinafter referred to as “we”, “us”,
“SCY”, “Scandium”, “Scandium
International” or the “Company”) and its
subsidiaries provides an analysis of the operating and financial
results for the three and nine month periods ended September 30,
2019 and should be read in conjunction with our unaudited interim
consolidated financial statements and the notes thereto for the
nine month period ended September 30, 2019, and with the
Company’s audited consolidated financial statements and the
notes thereto for the year ended December 31, 2018 (the
“Annual Statements”).
This
discussion and analysis contains forward-looking statements that
involve risks, uncertainties and assumptions. Our actual results
may differ materially from those anticipated in these
forward-looking statements as a result of many factors, including,
but not limited to, those set forth under the heading “Risk
Factors and Uncertainties” in our Annual Report on Form 10-K
for the year ended December 31, 2018, and elsewhere in this
Quarterly Report on Form 10-Q.
The
interim statements have been prepared in accordance with US
Generally Accepted Accounting Principles, as required under U.S.
federal securities laws applicable to the Company, and as permitted
under applicable Canadian securities laws. The Company is a
reporting company under applicable securities laws in Canada and
the United States. The reporting currency used in our financial
statements is the United States Dollar.
The
information contained within this report is current as of November
06, 2019 unless otherwise noted. Additional information relevant to
the Company’s activities can be found on SEDAR at
www.sedar.com
and on EDGAR at
www.sec.gov
.
Technical
information in this Form 10Q, including the MD&A, has been
reviewed and approved by Willem Duyvesteyn, a Qualified Person as
defined by Canadian National Instrument 43-101 (“NI
43-101”). Mr. Duyvesteyn is a director of and consultant to
Scandium International.
Cautionary Note to U.S. Investors Regarding Reserve and Resource
Estimates
The
Company uses Canadian Institute of Mining, Metallurgy and Petroleum
definitions for the terms “proven reserves”,
“probable reserves”, “measured resources”
and “indicated resources”. U.S. investors are cautioned
that while these terms are recognized and required by Canadian
regulations, including National Instrument 43-101
Standards of Disclosure for Mineral
Projects
(“NI 43-101”), the U.S. Securities and
Exchange Commission (“SEC”) does not recognize them.
Canadian mining disclosure standards differ from the requirements
of the SEC under SEC Industry Guide 7, and reserve and resource
information referenced in this Form 10-Q may not be comparable to
similar information disclosed by companies reporting under U.S.
standards. In particular, and without limiting the generality of
the foregoing, the term “resource” does not equate to
the term “reserve”. Under United States standards,
mineralization may not be classified as a “reserve”
unless the determination has been made that the mineralization
could be economically and legally produced or extracted at the time
the reserve determination is made. The SEC’s disclosure
standards normally do not permit the inclusion of information
concerning “measured mineral resources” or
“indicated mineral resources” or other descriptions of
the amount of mineralization in mineral deposits that do not
constitute “reserves” by U.S. standards in documents
filed with the SEC. Disclosure of “contained ounces” in
a resource estimate is permitted disclosure under Canadian
regulations; however, the SEC normally only permits issuers to
report mineralization that does not constitute
“reserves” by SEC standards as tonnage and grade
without reference to unit measures. The requirements of NI 43-101
for identification of “reserves” are also not the same
as those of the SEC, and reserves in compliance with NI 43-101 may
not qualify as “reserves” under SEC
standards.
Cautionary Note Regarding Forward-Looking Statements
Certain
statements made in this Quarterly Report on Form 10-Q may
constitute forward-looking statements
about the Company and its business.
Forward looking statements are statements that are not historical
facts and include, but are not limited to, reserve and resource
estimates, estimated value of the project, projected investment
returns, anticipated mining and processing methods for the project,
the estimated economics of the project, anticipated scandium
recoveries, production rates, scandium grades, estimated capital
costs, operating cash costs and total production costs, planned
additional processing work and environmental permitting. The
forward-looking statements in this report are subject to various
risks, uncertainties and other factors that could cause the
Company's actual results or achievements to differ materially from
those expressed in or implied by forward looking statements. These
risks, uncertainties and other factors include, without limitation,
risks related to uncertainty in the demand for scandium and pricing
assumptions; uncertainties related to raising sufficient financing
to fund the Nyngan Scandium Project in a timely manner and on
acceptable terms; changes in planned work resulting from
logistical, technical or other factors; the possibility that
results of work will not fulfill expectations and realize the
perceived potential of the Company's properties; uncertainties
involved in the estimation of scandium reserves and resources; the
possibility that required permits may not be obtained in a timely
manner or at all; the possibility that capital and operating costs
may be higher than currently estimated and may preclude commercial
development or render operations uneconomic; the possibility that
the estimated recovery rates may not be achieved; risk of
accidents, equipment breakdowns and labor disputes or other
unanticipated difficulties or interruptions; the possibility of
cost overruns or unanticipated expenses in the work program; risks
related to projected project economics, recovery rates, and
estimated NPV and anticipated IRR and other factors identified in
the Company's SEC filings and its filings with Canadian securities
regulatory authorities. Forward-looking statements are based on the
beliefs, opinions and expectations of the Company's management at
the time they are made, and other than as required by applicable
securities laws, the Company does not assume any obligation to
update its forward-looking statements if those beliefs, opinions or
expectations, or other circumstances, change.
13
Scandium International Corporate Overview
Scandium International is a specialty metals and alloys company
focused on developing the production and sales of scandium and
other specialty metals. The Company intends to utilize its knowhow
and, in certain instances, patented technologies to maximize
opportunities in scandium and other specialty metals.
The Company was formed in 2006, under the name Golden Predator
Mines Inc. As part of a reorganization and spin-out of the
Company’s precious metals portfolio in March 2009, the
Company changed its name to EMC Metals Corp.
In order to
reflect our emphasis on mining for scandium minerals, effective
November 19, 2014, we changed our name to Scandium International
Mining Corp.
The Company currently
trades on the Toronto Stock Exchange under the symbol
“SCY”.
Our
focus of operations is the exploration and development of the
Nyngan scandium deposit located in New South Wales
(“NSW”,) Australia (“Nyngan” or the
“Nyngan Scandium Project.”) We also hold exploration
stage properties in Australia, known as the “Honeybugle
Scandium Property”, and in Finland, known as the
“Kiviniemi Scandium Property.”
We
acquired a 100% interest in the Nyngan Scandium Project in June of
2014 pursuant to the terms of a settlement agreement with Jervois
Mining Ltd. of Melbourne, Australia. The project is held through
our Australian subsidiary, EMC Metals Australia Pty Ltd.
(“EMC Australia” or “EMC-A,”) which also
holds the Honeybugle Scandium Property.
During
Q3 of 2015, the Company converted a $2,500,000 loan from Scandium
Investments LLC (“SIL,”) an unrelated investment
company, into a 20% minority interest in EMC Australia. As a
result, from Q3 2015 until October 2017, the Company held an 80%
equity interest in EMC Australia, with SIL holding a 20% interest.
EMC Australia was operated as a joint
venture between SIL and SCY with SIL holding a carried interest in
the Nyngan Scandium Project until the Company met certain
development milestones. The Company completed the development
milestones during May 2017 and triggered a limited period option
whereby SIL had a right to convert the fair market value of its 20%
interest in EMC Australia into an equivalent value of SCY common
shares, at then prevailing market prices.
In June of 2017, the Company entered into a share exchange
agreement with SIL for the purchase of SIL’s 20% interest in
EMC Australia in exchange for 57,371,565 common shares of SCY as
well as an additional 1,459,080 common shares as a royalty
adjustment payment. Closing of the purchase of the EMC Australia
shares was subject to shareholder approval, which the Company
obtained at a special meeting of shareholders held on September 11,
2017. The transaction subsequently closed on October 9, 2017. Under
the terms of the share purchase agreement, on closing SIL was
granted the right to nominate two individuals to the board of the
Company for so long as SIL held at least 15% of Scandium’s
issued and outstanding shares, and one director for so long as SIL
held at least 5% but less than 15% of Scandium’s issued and
outstanding shares. Pursuant to the nomination rights, Peter
Evensen and R. Christian Evensen were appointed as directors to the
SCY Board on closing of the transaction.
During
the third quarter of 2019, we focused on Nyngan Scandium Project
activities including scandium marketing arrangements.
Principal Properties Review
Nyngan Scandium Project (NSW, Australia)
14
Nyngan Property Description and Location
The Nyngan Scandium Project
site is located approximately 450 kilometers northwest of Sydney,
NSW, Australia and approximately 20 kilometers due west of the town
of Nyngan, a rural town of approximately 2900 people. The general
area can be characterized as flat countryside and is classified as
agricultural land, used predominantly for wheat farming and
livestock grazing.
Figure
1: Location of Nyngan Project
Note: None of the Existing Mines identified in Figure 1 produce
scandium.
15
Figure 2: Location of the Exploration Licenses and Mining Lease for
the Nyngan Scandium Project
Note:
All Exploration Licenses and Leases described in Figure 2 are held
100% by EMC-A.
Nyngan Feasibility Study
On
April 18, 2016, the Company announced the results of an
independently prepared feasibility study on the Nyngan Scandium
Project. The technical report on the feasibility study entitled
“
Feasibility Study –
Nyngan Scandium Project, Bogan Shire, NSW, Australia
”
is dated May 4, 2016 and was independently compiled pursuant to the
requirements of NI 43-101 (the “Feasibility Study”).
The report was filed on May 6, 2016 and is available on SEDAR
(
www.sedar.com
),
on the Company’s website (
www.scandiummining.com
)
and the SEC’s website (www.sec.gov). A full discussion on the
technical report was provided in the Company’s Form 10Q for
the quarterly period ending March 31, 2016, as filed with the SEC
and on SEDAR on May 13, 2016.
The
Feasibility Study concluded that the Nyngan Scandium Project has
the potential to produce an average of 37,690 kilograms of scandium
oxide (scandia) per year, at grades of 98.0%-99.8%, generating an
after tax cumulative cash flow over a 20 year Project life of
US$629 million, with an NPV
10%
of US$177
million. The average process plant feed grade over the 20 year
Project life is 409ppm of scandium.
The
financial results of the Feasibility Study are based on a
conventional flow sheet, employing continuous high pressure acid
leach (HPAL) and solvent extraction (SX) techniques. The flow sheet
was modeled and validated from METSIM modeling and considerable
bench scale/pilot scale metallurgical test work utilising Nyngan
resource material. A number of the key elements of this flowsheet
work have been protected by the Company under US patent
applications.
The
Feasibility Study has been developed and compiled to an accuracy
level of +15%/-5%, by a globally recognized engineering firm that
has considerable expertise in laterite deposits and process
facilities, as well as in smaller mining and processing projects,
and has excellent familiarity with the Nyngan Scandium Project
location and environment.
Nyngan Scandium Project Highlights
●
Capital cost
estimate for the Project is US$87.1 million,
●
Annual scandium
oxide product volume averages 37,690 kg per year, over 20
years,
●
Annual revenue of
US$75.4 million (oxide price assumption of
US$2,000/kg),
●
Operating cost
estimate for the Project is US$557/kg scandium oxide,
●
Project Constant
Dollar NPV10% is US$177 million, (NPV8% is US$225
million),
●
Project Constant
Dollar IRR is 33.1%,
●
Oxide product
grades of 98-99.8%, as based on customer requirements,
●
Project resource
increases by 40% to 16.9 million tonnes, grading 235ppm Sc, at a
100ppm cut-off in the measured and indicated categories,
and
●
Project Reserve
totalling 1.43 million tonnes, grading 409ppm Sc was established on
part of the resource.
16
DFS Conclusions and Recommendations
The
production assumptions in the Feasibility Study are backed by solid
independent flow sheet test work on the planned process for
scandium recovery and consolidates a significant amount of
metallurgical test work and prior study on the Nyngan Scandium
Project. The entire body of work demonstrates a viable,
conventional process flow sheet utilizing a continuous-system HPAL
leaching process, and good metallurgical recoveries of scandium
from the resource. The metallurgical assumptions are supported by
various bench and pilot scale independent test work programs that
are consistent with known outcomes in other laterite resources. The
continuous autoclave configuration, as opposed to batch systems
explored in previous flow sheets, is also a more conventional and
current design choice.
The
level of accuracy established in the Feasibility Study
substantially reduces the uncertainty levels inherent in earlier
studies. The greater confidence intervals around the Feasibility
Study were achieved by reliance on significant project engineering
work, a capital and operating cost estimate supported by detailed
requirements and vendor pricing, plus one conditional offtake
agreement and an independent marketing assessment, both supportive
of the marketing assumptions on the business.
The
Feasibility Study delivered a positive result on the Nyngan
Scandium Project, and recommended the Nyngan Scandium Project
owners seek finance and proceed to construction. Recommendations
were made therein for additional immediate work, notably to win
additional offtake agreements with customers, complete some
optimizing flow sheet studies, and to initiate as early as possible
detailed engineering required on certain long-lead capital items.
The Company intends to act on these recommendations as financing
permits.
Confirmatory Metallurgical Test Results
On June
29, 2016, we announced the results of a confirmatory metallurgical
test work report from Altrius Engineering Services (AES) of
Brisbane, Australia. The test work results directly relate to the
list of recommended programs included in the Feasibility Study. AES
devised and supervised these test work programs at the SGS
laboratory in Perth, Australia and at the Nagrom laboratory in
Brisbane, Australia.
The
project DFS recommended a number of process flowsheet test work
programs be investigated prior to commencing detailed engineering
and construction. Those study areas included pressure leach
(“HPAL”), counter-current decant circuits, solvent
extraction (“SX”), and oxalate precipitation, with
specific work steps suggested in each area. This latest test work
program addressed all of these recommended areas, and the results
confirm recoveries and efficiencies that either meet or exceed the
parameters used in the DFS. Highlights of the testing
are:
●
Pressure leach test
work achieved 88% recoveries, from larger volume
tests,
●
Settling
characteristics of leach discharge slurry show substantial
improvement,
●
Residue
neutralization work meets or exceeds all environmental requirements
as presented in the DFS and the environmental impact
statement,
●
Solvent extraction
circuit optimization tests generated improved performance,
exceeding 99% recovery in single pass systems, and
●
Product finish
circuits produced 99.8% scandium oxide, completing the recovery
process from Nyngan ore to finished scandia product.
Engineering, Procurement and Construction Management
Contract
On May
30, 2017, the Company announced that its subsidiary EMC Australia
signed an Engineering, Procurement and Construction Management
("EPCM") contract with Lycopodium Minerals Pty Ltd ("Lycopodium"),
to build the Nyngan Scandium Project in New South Wales, Australia.
The EPCM contract also provides for start-up and commissioning
services.
The
EPCM contract appoints Lycopodium (Brisbane, QLD, Australia) to
manage all aspects of project construction. Lycopodium is the
principal engineering firm involved with the DFS. Lycopodium's
continued involvement in project construction and commissioning
ensures valuable technical and management continuity for the
project during the construction and start-up of the
project.
On
October 19, 2017, we announced that Lycopodium has been instructed
to initiate critical path engineering for the Nyngan Scandium
Project. Lycopodium commenced work on select critical path
components for the project, including design and specification
engineering on the high-pressure autoclave unit, associated flash
and splash vessels and several specialized high-pressure input
pumps. The engineering work was completed in 2018 and will enable
final supplier selection, firm component pricing and delivery dates
for these key process components.
17
Environmental Permitting/Development Consent/Mining
Lease
On May
2, 2016, the Company announced the filing of an Environmental
Impact Statement (“EIS”) with the New South Wales
Department of Planning and Environment (the
“Department”) in support of the planned development of
the Nyngan Scandium Project. The EIS was prepared by R.W. Corkery
& Co. Pty. Limited, on behalf of the Company’s
subsidiary, EMC Australia, to support an application for
Development Consent for the Nyngan Scandium Project. The EIS is a
complete document, including a Specialist Consultants Study
Compendium, and was submitted to the Department on April 29,
2016.
EIS
Highlights:
●
The EIS finds
residual environmental impacts represent negligible
risk.
●
The proposed
development design achieves sustainable environmental
outcomes.
●
The EIS finds
net-positive social and economic outcomes for the
community.
●
Nine independent
environmental consulting groups conducted analysis over five years,
and contributed report findings to the EIS.
●
The Nyngan Project
development is estimated to contribute A$12.4M to the local and
regional economies, and A$39M to the State and Federal economies,
annually.
●
The EIS is fully
aligned with the DFS and with a NSW Mining License Application for
the Nyngan Project.
Conclusion
statement in the EIS:
“In
light of the conclusions included throughout this
Environmental Impact Statement
, it is
assessed that the Proposal could be constructed and operated in a
manner that would satisfy all relevant statutory goals and
criteria, environmental objectives and reasonable community
expectations.”
EIS,
Development Consent, Mining Lease:
The EIS
is the foundation document submitted by a developer intending to
build a mine facility in Australia. The Nyngan Scandium Project is
considered a State Significant Project, in that capital cost
exceeds A$30 million, which means State agencies are designated to
manage the investigation and approval process for granting a
Development Consent, from the Minister of Planning and Environment.
This Department will manage the review of the Proposal through a
number of State and local governmental agencies.
The EIS
is a self-contained set of documents used to seek a Development
Consent. It is however, supported in many ways by the feasibility
study.
On
November 10, 2016, the Company announced that the Development
Consent had been granted. This Development Consent represents an
approval to develop the Nyngan Scandium Project and is based on the
EIS. The Development Consent follows an in-depth review of the EIS,
the project plan, community impact studies, public EIS exhibition
and commentary, and economic viability, and involved more than 12
specialized governmental agencies and groups.
In May
2017, EMC Australia received notice of approval of its Mining Lease
application (“MLA 531”), resulting in the grant of a
Mining Lease (“ML 1763”), which overlaid select areas
previously covered by two Exploration Licenses.
NOTE:
subsequent changes to ML 1763 are described below.
ML 1763
represented the final major development approval required from the
NSW Government to begin construction on the project.
The ML was awarded after all
environmental work had been completed and reviewed, all social
implications of project development considered, and required as a
pre-condition that the NSW Environmental Minister had issued a
Development Consent. The ML grant reflects the further review that
the State resource value was considered and approved for extraction
based on mine development plans. The ML was issued for a period of
21 years, and was based on the development plans and intent
submitted in the ML Application. The ML was subject to modification
by NSW regulatory agencies, as requested by EMC Australia over
time, to reflect changing operating conditions.
In
addition to these two key governmental approvals, other required
licenses and permits must be acquired but are considered routine
and require only compliance with fixed standards and objective
measurements. These remaining approvals include submittal of
numerous plans and reports supporting compliance with Development
Consent and Mining Lease. In addition, the following water, roads,
dam and electrical access reviews and arrangements are each
underway, but remain to be finalized:
●
Water Supply Works
and Use Approval and Water Access License,
●
State and local
approval for construction of a redesigned intersection of the Site
Access Road with Gilgai Road,
●
An approval from
the NSW Dams Safety Committee for the design and construction of
the Residue Storage Facility, and
●
A high voltage
connection agreement with Essential Energy.
18
On
January 2, 2019, the Company announced receipt of notification that
the Department intended to review its 2017 decision to grant ML
1763, as related to the Nyngan Scandium Project.
This
Department review was a required response to the confirmation of a
historical objection lodged by an affected landowner maintaining
that his affected property is “Agricultural Land”, as
defined by the applicable laws.
The
landowner filed his formal objection with the Department in mid
2016, but the objection notice was improperly handled, and was only
physically located and verified as compliant in mid 2018. The
landowner did make the Department aware of the existence of this
unrecorded objection in mid 2017, and the Company was subsequently
advised that the objection was investigated by the Department
directly with the landowner, prior to final award of the signed ML
1763 grant in late 2017.
The
Department reviewed the situation and the proper response for
approximately 6 months, before advising the Company in April 2019
that it would take steps to determine the ML 1763 invalid. During
this time, the landowner sued the Department Minister, other
Department officials, and the Company in a Court designed for
hearing landowner objections. The lawsuit requested the project ML
1763 be formally revoked, and it was formally revoked in mid
2019.
In May
2019 the Company filed a new Mine Lease Application (“MLA
568’) with the Department, related to the Nyngan project,
covering only surface area fully owned by the Company.
On July
24, 2019 the Company announced that a new mine lease (“ML
1792”) was granted by the Department for the project. While
the new ML covers only a portion of the total area originally
covered by the prior ML,
the Company maintains it can
construct and operate a scandium mine of similar scale to our
current plans within that reduced footprint.
The
Department has a binding legal obligation to rule on the legitimacy
of the 2016 landowner objection, specifically on the claim that
ground over mineral resource that remains under control of the
Company, is indeed “Agricultural land’ as defined in
Australian laws. The Department has not yet made that ruling. The
Department engaged an independent consultant, beginning in October
2018, to opine on the matter, and the consultant produced in
December a draft report in agreement with the landowner claim. The
Company and Company Counsel subsequently outlined detailed
disagreement with that consultant’s findings, and, as of this
writing, the matter remains under continuing review.
The
Department’s eventual decision on the validity of the
landowner objection will determine the outcome on the original 2016
mine lease application (MLA 531). If the landowner’s
objection is rejected by the Department, then the Company will
request that the Department proceed to grant a second, separate
Mining Lease to the Company. The second Mining Lease will combine
with ML 1792 to effectively reinstate the full area and rights to
mine that were originally granted in 2017.
The
Company believes that the viability of the project is not dependent
on surface land rights related to the current landowner objection,
and therefore on the Department findings related to validity of the
pending objection.
Regardless
of how the Department rules on the validity of the neighboring
landowner’s objection, the Company can also recover mining
rights to the adjacent property through surface land rights
purchase, lease, or consent, from the landowner. The Company
remains in active discussion with the landowner regarding the
property rights in question.
Downstream Scandium Products
In
February 2011 we announced results of a series of laboratory-scale
tests investigating the production of aluminum-scandium master
alloys directly from aluminum oxide and scandium oxide feed
materials. The overall objective of this research was to
demonstrate and commercialize the production of aluminum-scandium
master alloy using impure scandium oxide as the scandium source,
potentially significantly improving the economics of
aluminum-scandium master alloy production. In 2014, the Company
announced it applied for a US patent on master alloy production,
which is still in the application phase.
During
the 2015-2017 timeframe, we continued our own internal
laboratory-scale investigations into the production of
aluminum-scandium master alloys, furthering our understanding of
commercial processes, and achievable recoveries. We advanced our
abilities to make a standard-grade 2% scandium master alloy product
typical of commercially available products offered
today.
On
March 2, 2017, we announced the signing of a Memorandum of
Understanding ("MOU") with Weston Aluminium Pty Ltd. ("Weston") of
Chatswood, NSW, Australia. The MOU defines a cooperative commercial
alliance to jointly develop the capability to manufacture
aluminum-scandium master alloy. The intended outcome of this
alliance will be to develop the capability to offer Nyngan Scandium
Project aluminum alloy customers scandium in form of Al-Sc master
alloy, should customers prefer that product form.
The MOU
outlines steps to jointly establish the manufacturing parameters,
metallurgical processes, and capital requirements to convert Nyngan
Scandium Project scandium product into Master Alloy, on Weston's
existing production site in NSW. The MOU does not include a binding
contract with commercial terms at this stage, although the intent
is to pursue the necessary technical elements to arrive at a
commercial contract for conversion of scandium oxide to master
alloy, and to do so prior to first mine production from the Nyngan
Scandium Project.
19
On
March 5, 2018, the Company announced that it had initiated a pilot
scale program at the Alcereco Inc. metallurgical research
facilities in Kingston, Ontario, to confirm and refine previous
work on the manufacture of aluminum-scandium 2% master alloy (MA).
The pilot scale program was intended to confirm the previous
bench-scale test work, and to provide necessary process
understanding for commercial scale upgrade of Nyngan scandium oxide
product to master alloy product.
The
pilot program consisted of 5 separate trials on two MA product
types, production of MA in various forms, and dross analysis to
ascertain scandium recoveries to product. The mass of master alloy
and product variants produced in the program totaled approximately
20kg. The pilot program, as defined for 2018, was completed in
December of 2018. Additional pilot scale work to pursue further
refinements and specific process optimization was undertaken in Q2
2019, with results expected on this program in Q4
2019.
On
March 5, 2018, the Company also announced that it has filed for
patent protection on certain process refinements for master alloy
manufacture that it believes are novel methods, and also on certain
product variants that it believes represent novel forms of
introducing scandium more directly into aluminum
alloys.
Focus on Aluminum Alloy Applications for Scandium
Products
The
Company is in the process of obtaining sales agreements for
scandium products produced from our Nyngan Scandium Project. Our
focus is on the use of scandium as an alloying ingredient in
aluminum-based products. The specific scandium product forms we
intend to sell from the Nyngan project include both scandium oxide
(Sc
2
O
3
) and
aluminum-scandium master alloys (Al-Sc 2%).
Scandium
as an alloying agent in aluminum allows for aluminum metal products
that are much stronger, more easily weldable and exhibit improved
performance at higher temperatures than current aluminum-based
materials. This means lighter structures, lower manufacturing costs
and improved performance in areas that aluminum alloys do not
currently compete.
Aluminum Alloy Research Partner – Alcereco
In
2015, the Company entered into a memorandum of understanding
(“MOU”) with Alcereco Inc. of Kingston, Ontario
(“Alcereco”), forming a strategic alliance to develop
markets and applications for aluminum alloys containing scandium.
To further that alliance, and to reinforce the capability of both
companies to deliver product developed for scandium aluminum alloy
markets, Scandium International and Alcereco also signed an offtake
agreement governing sales terms of scandium oxide product produced
from the Nyngan Scandium Project. The offtake agreement specifies
prices, delivery volumes and timeframes for commencement of
delivery of scandium oxide product. The offtake agreement does not
provide for a mandatory annual minimum purchase volume of scandium
oxide by Alcereco, and there is no requirement for payment in lieu
of purchase.
The MOU
represented keen mutual interest in foundry-based test work on
aluminum alloys containing scandium, based on understandings that
Alcereco’s team had gained from prior work with Alcan
Aluminum, and based on SCY’s twin goals of understanding and
identifying quality applications for scandium, and also
understanding the scandium value proposition for
customers.
During
December 2017, the Company revised and renewed the scandium product
offtake agreement with Alcereco. The revised agreement extends the
deadline for initial production and shipments from the Nyngan
Scandium Project from December 1, 2017, to as late as December 1,
2020. The defined sale product was changed to an aluminum scandium
2% master alloy from scandium oxide in the prior agreement. The
revised sales agreement covers approximately the same scandium
oxide volume as the prior agreement, representing 55% of
Nyngan’s initial twelve month forecast production, and
approximately 20% of nameplate capacity, as established by the
Definitive Feasibility Study. The revised offtake agreement does
not provide for a mandatory annual minimum purchase volume of
scandium oxide by Alcereco, and there is no requirement for payment
in lieu of purchase.
The
Company has sponsored research work as contemplated by the MOU with
Alcereco and with multiple other unrelated entities in separate
locations. This work develops and documents the improvement in
strength characteristics scandium can deliver to aluminum alloys
without degrading other key properties. The team has run multiple
alloy mix programs where scandium loading is varied, in order to
look at response to scandium additions on a cost/benefit basis.
This work has been done in the context of industries and
applications where these particular alloys are popular
today.
These
programs are focused on 1000 series, 3000 Series, 5000 Series and
7000 Series Al-Sc alloys, and have served to make independent data
and volume samples available for sales efforts.
The
results of our research work are positive, and consistent with the
body of published literature available today on aluminum scandium
alloys. We are observing noteworthy strengthening effects with
scandium additions above 0.1%, and dramatic strengthening
improvements with additions of 0.35%, while preserving or enhancing
other alloy properties and characteristics. We have also
demonstrated that altering the combinations of scandium loads and
alloy hardening process techniques has significant effect on the
final alloy properties, offering the opportunity to tune alloy
characteristics to suit specific applications.
These findings are considered
commercially sensitive, and the data is not intended for public
disclosure at this time, although the findings and data are being
shared with select potential customers under specific
non-disclosure agreement protections, as is deemed relevant to
their specific areas of commercial interest.
20
Letters of Intent
During
2018 and 2019, the Company announced signing letter of intent
(“LOI”) agreements with nine unrelated partnering
entities. In each LOI, we have agreed to contribute scandium
samples, either in form of scandium master alloy product, or
aluminum-scandium alloy product, for trial testing by the partners
in their downstream manufacturing applications. Each of the parties
to the LOI agreements have agreed to report the parameters and
general results of the testing program utilizing these
scandium-containing alloys, upon completion of testing. The Company
plans to continue this LOI program of introducing scandium for
trial testing by partners through agreements with more potential
customers in 2019.
These
formal LOI agreements, with distinct industry segment leaders,
represent a key marketing program demonstrating precisely how
scandium will perform in specific products, and in
production-specific environments. Potential scandium customers
insist on these sample testing opportunities, directly in their
research facilities or on their shop floor, to ensure their full
understanding of the impacts, benefits, and costing implications of
introducing scandium into their traditional aluminum
feedstocks.
The
partnering entities in these LOI agreements are set out
below:
Austal
Ltd. (“Austal”), headquartered in Henderson, Western
Australia, (Australia). Austal is a public corporation, listed on
the Australian Stock Exchange (ASB.ASX), with shipbuilding
facilities in Perth, Australia, Mobile, Alabama (USA), Vung Tau,
Vietnam and Balamban, Cebu (Philippines). The company maintains a
focus on research and development of emerging maritime technologies
and cutting-edge ship designs, and is a recognized world leader in
the design and construction of large aluminum commercial and
defense vessels.
Impression
Technologies Ltd. (“ITL”), based in Coventry, UK. ITL
is a privately held technology company, developing and licensing
its advanced aluminum forming technology, Hot Form Quench
(“HFQ®”), to automotive, aerospace, rail and
electronics industries, globally. ITL manufactures custom parts for
customers with its patented HFQ® technology, which enables the
single-pass forming of complex, lightweight, high-strength aluminum
parts that can't otherwise be similarly formed today.
PAB
Coventry Ltd. (“PAB”), based in Coventry, UK. PAB is a
privately held manufacturing and prototyping company offering
specialty metal parts and design capabilities, serving the
automotive, aerospace, defense and HVAC industries. PAB has been a
well-known parts and forms supplier to the premium market segment
of the British automotive industry for decades.
Eck
Industries Inc. (“Eck”), based in Manitowoc, Wisconsin,
USA. Eck is a privately held manufacturer of precision sand cast
parts, and engineering services. Eck Industries operates a 210,000
sq. ft. facility with over 250 employees, and 110 customers.
Customer segments include commercial aircraft parts, automotive and
trucking cast parts, military drivetrain casings, marine propulsion
system castings, and military aerospace components.
Grainger
& Worrall Ltd. (“GW”), based in Shropshire, UK. GW
is a privately held manufacturer of precision sand cast parts, and
engineering services. GW is a well-recognized precision air-set
sand cast parts manufacturer in the UK, specializing in low to
intermediate volume cast parts for commercial automotive,
motorsports/racing, defense, marine, and aerospace
applications.
Gränges
AB (“Gränges”), based in Stockholm, Sweden.
Gränges is a public company, traded on the NASDAQ Stockholm
Stock Exchange (GRNG:OMX), and a large global player in the rolled
aluminum products business, with production assets in Europe, USA,
and China, and a worldwide customer base, majority concentrated in
the USA. Gränges is focused on advanced aluminum materials,
and holds a leading global position in rolled products for brazed
heat exchangers, which it estimates at 20%.
Ohm
& Häner Metallwerk GmbH & Co. GK
(“O&H”), based in Olpe, Germany. O&H is a
privately held manufacturer of sand cast and gravity die cast
parts, using metal alloys, servicing a significant, global customer
base. O&H produces over 3,000 individual cast parts, and
currently works with over 40 different alloys, primarily aluminum
and copper-based alloys.
AML
Technologies (“AML”), an Adelaide, Australia based
start-up company with proprietary technology for applying aluminum
alloys to additive layer manufacturing processes, also commonly
referred to as 3D printing.
Bronze-Alu
Group (“
BAL
”), based in La
Couture-Boussey, northern France. BAL is a privately held
manufacturer of precision high-pressure die cast parts, and offers
prototyping, machining, finishing and engineering services,
employing both aluminum and copper-based alloys. BAL exports
approximately 80% of its products to customers outside of France.
This agreement was signed during March 2019.
These
LOI agreements are part of a developing strategy by the Company to
engage with innovative, research-capable partners, willing to test
scandium in their applications. The Company also has similar
agreements with other research capable partners who do not wish to
be publicly named at this time. We are selecting and approaching
these specific partners because we have an understanding, from our
commissioned alloy mixing programs, that scandium additions can
make value-added contributions to their specific products, and we
have the alloy samples to enable an expedient uptake on that
validation. The scandium market for aluminum alloys needs to be
built, and that construction should be seen as underway in the most
direct sense. The Company plans to conduct further
application-specific programs in pursuit of sales contracts with
quality, predominantly existing aluminum alloy, customers across
numerous industry segments.
21
Nyngan Scandium Project - Planned Activities for
2019-2020
The
following steps are planned for Nyngan during the 2019, 2020 and
2021 calendar years:
●
Complete master
alloy pilot trials and optimization work in Q4 2019,
●
Pursue additional
offtake agreements in support of planned future scandium
sales,
●
Seek project
construction financing for the Nyngan Scandium Project in Q2
2020
●
Commence site
construction in late 2020, with anticipated completion over 14
months, and
●
Initiate project
commissioning in late 2021, with product available for sale by year
end 2021.
Other Properties Review
Honeybugle Scandium Property (NSW, Australia)
On April 2, 2014, the Company
announced that it had secured a 100% interest in
an exploration license (EL 7977) covering 34.7 square kilometers in
New South Wales, Australia. The license area, we call the
‘Honeybugle Scandium Property’, is located
approximately 24 kilometers west-southwest from the Company’s
Nyngan Scandium Project and approximately 36 kilometers southwest
from the town of Nyngan, NSW.
Exploration rights for the Honeybugle Scandium Property include
certain minimum expenditure requirements. The Company intends to
fulfill those minimum expenditure requirements.
Honeybugle Drill Results
On May
7, 2014, the Company announced completion of an initial program of
30 air core (“AC”) drill holes on the property,
specifically at the Seaford anomaly, targeting scandium (Sc).
Results on 13 of these holes are shown in detail, in the table
below. These holes suggest the potential for scandium
mineralization on the property similar to Nyngan.
Highlights
of initial drilling program results include the
following:
●
The highest 3-meter
intercept graded 572 ppm scandium (hole EHAC 11),
●
EHAC 11 also
generated two additional high grade scandium intercepts, grading
510 ppm and 415 ppm, each over 3 meters,
●
The program
identified a 13-hole cluster which was of particular interest;
intercepts on these 13 holes averaged 270 ppm scandium over a total
273 meters, at an average continuous thickness of 21 meters per
hole, representing a total of 57% (354 meters) of total initial
program drilling,
●
The 13 holes
produced 29 individual (3-meter) intercepts over 300 ppm,
representing 31% of the mineralized intercepts in the 273 meters of
interest, and
●
This initial
30-hole AC exploratory drill program generated a total of 620
meters of scandium drill/assay results, over approximately 1 square
kilometer on the property.
Kiviniemi Scandium Property
(
Eastern Finland Province
,
Finland)
On
September 25, 2017, the Company announced that its
wholly-owned subsidiary company, Scandium International Mining
Corp., Norway AS, was granted a reservation on an Exploration
License for the Kiviniemi Scandium property in central Finland from
the Finnish regulatory body governing mineral exploration and
mining in Finland. The exploration license was subsequently granted
during August 2018.
The
Geological Survey of Finland (“GTK”) conducted airborne
survey work on the area in 1986, conducted exploration drilling on
the property in 2008-2010, and published those program results on
their public GTK website in 2016. The Company’s Exploration
License area is approximately 24.6 hectares (0.25 square
kilometer), identical to the historic GTK exploration license on
the property.
22
Highlights
●
Kiviniemi property
previously identified for scandium and explored by
GTK,
●
Property is a high
iron content, medium grade scandium target, located on surface,
with on-site upgrade potential,
●
Early resource
upgrade work done for GTK promising, confirmed by SCY,
●
Property is
all-weather accessible, close to infrastructure, and
●
Finland location is
mining-friendly and ideally suited to EU customer
markets.
Kiviniemi Summary
The
Kiviniemi property represents a medium grade scandium resource
target that has remained unrecognized and overlooked by exploration
work, largely due to the absence of the more commonly sought-after
minerals in the region, specifically copper, nickel and cobalt. We
believe that Kiviniemi is Europe’s largest underdeveloped
primary scandium resource.
The
target has benefited significantly from valuable early exploration
work by the GTK, which has advanced the property to a stage where
successful metallurgical investigations may prove value that
offsets grade concerns. SCY estimates roughly US$2M of work value
has been directed at this property to date, including field work,
drilling programs, assay work, overheads, and metallurgical upgrade
studies, but firm numbers are not available.
We
intend to undertake a limited drill program to augment the existing
GTK data, and provide more sample material for metallurgical test
work programs to define economic site upgrade possibilities on the
scandium mineralization observed to date.
Other Developments – Third Quarter 2019
None
Operating results - Revenues and Expenses
The Company’s results on a year-to-date basis reflect lower
operating costs due to decreases in stock-based compensation (a
non-cash expense), exploration and salaries. Excluding non-cash
costs, expenditures were down $154,690 due to lower professional
fees, salaries and exploration expenses. These lower costs were
slightly offset by higher consulting fees.
The Company’s results on when comparing Q3 2019 to Q3 2018
reflect decreased operating costs due to a decrease in stock-based
compensation (a non-cash expense). Excluding non-cash costs,
expenditures were up $45,212 due to higher consulting fees, travel
expenditures and general and administrative costs. These higher
costs were offset by lower exploration costs.
Summary of quarterly results
A summary of the Company’s quarterly results are shown below
at Table 10.
Table
10. Quarterly Results Summary
|
|
2019
|
2018
|
2017
|
|||||
|
|
Q3
|
Q2
|
Q1
|
Q4
|
Q3
|
Q2
|
Q1
|
Q4
|
|
Net Sales
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
|
Net Income (Loss) attributable to Scandium Mining
Corp.
|
(443,426)
|
(859,934)
|
(332,766)
|
(543,316)
|
(461,781)
|
(626,398)
|
(1,329,613)
|
(563,452)
|
|
Basic and diluted
Net Income (Loss) per share attributable to Scandium Mining
Corp.
|
(0.00)
|
(0.01)
|
(0.00)
|
(0.00)
|
(0.00)
|
(0.00)
|
(0.01)
|
(0.00)
|
23
Results of Operations for the three months ended September 30,
2019
The net loss for the quarter was $443,426, a decrease of $18,355
from $461,781 in the same quarter of the prior year. Details of the
individual items contributing to the decreased net loss are set out
below at Table 11:
Table 11. Variance Analysis for Net Loss
|
Q3 2019 vs. Q3 2018 - Variance Analysis
|
||
|
Item
|
Variance Favourable / (Unfavourable)
|
Explanation
|
|
Stock-based
compensation
|
$64,567
|
Timing
of stock option expense recognition is affected by vesting
provisions. In Q1 of 2018, the Company issued stock options which
vested over a 2 year period and resulted in expenses during 2018 Q3
of $69,411. Options issued in Q2 of 2019 all vested immediately
resulting in minimal costs during Q3 of 2019.
|
|
Exploration
|
$58,041
|
The
Company is not actively doing exploration work on either of its
projects as it seeks to create markets for its production. In Q3
2018 funds were still being expended on exploration
efforts.
|
|
Salaries and benefits
|
$1,275
|
The
minor positive variance is due to exchange rate impact on salaries
paid in Australia.
|
|
Insurance
|
$(288)
|
The
slightly higher cost in Q3 2019 is due to overall increases in
insurance premiums for the Company’s operations.
|
|
Amortization
|
$(418)
|
In the
second half of 2018, the Company replaced its computer servers in
the Sparks, Nevada office. The higher amortization expense in 2019
is due to this expenditure.
|
|
Professional fees
|
$(879)
|
Costs
for the comparative quarters are almost identical.
|
|
Consulting
|
$(13,328)
|
The
Company hired new consultants for marketing scandium in America in
the latter half of 2018. Q3 2018 does not include these costs hence
the lower charges in the same period one year ago.
|
|
Foreign exchange loss
|
$(14,580)
|
In Q3
2019, the Canadian and Australian dollars weakened against the US
dollar. Funds held at financial institutions outside the US
experienced these foreign exchange losses.
|
|
Travel and entertainment
|
$(16,348)
|
In Q3
2019, trips were made to Europe to promote the Company’s
stock resulting in the much higher travel costs when compared to
the same period one year prior.
|
|
General and administrative
|
$(59,687)
|
In Q3
2019, fees were paid for the services in Europe that was used to
help introduce the Company to potential investors in
Europe.
|
24
Results of Operations for the nine months ended September 30,
2019
The net loss for the nine-month period was $1,636,126, a decrease
of $781,666 from $2,417,792 in the same nine-month period of the
prior year. Details of the individual items contributing to the
decreased net loss are set out below at Table 12:
Table 12. Variance Analysis for Net Loss
|
Nine-months ended September 30, 2019 vs. nine-months ended
September 30, 2018 - Variance Analysis
|
||
|
Item
|
Variance Favourable / (Unfavourable)
|
Explanation
|
|
Stock-based
compensation
|
$626,976
|
In 2019
the company granted 9,860,000 stock options compared to 6,500,000
stock options issued in 2018. However, more immediate vesting
provisions resulted in a higher expense in 2018. Also, the
Company’s shares were trading at a lower price at the time of
the 2019 stock option grant, resulting in a lower compensation
expense.
|
|
Exploration
|
$156,397
|
The
Company is not actively doing exploration work on either of its
projects as it seeks to create markets for its production. In 2018
funds were still being expended on exploration
efforts.
|
|
Salaries
and benefits
|
$86,038
|
The
amount paid in 2019 is lower due to the resignation of a senior
company officer in June of 2018. The position was not
replaced.
|
|
Foreign exchange
|
$38,621
|
Currency
exchange rates were more stable in 2019 when compared to 2018
resulting in this favourable variance.
|
|
Professional fees
|
$24,370
|
2018
costs include legal fees pertaining to closing of the Exchange
Agreement with SIL and conversion of SIL’s 20% interest in
EMC-A to shares of SCY.
|
|
Travel and entertainment
|
$1,056
|
Travel
costs when compared to the prior year were relatively the
same.
|
|
Insurance
|
$(797)
|
The
slightly higher cost in 2019 is due to overall increases in
insurance premiums for the Company’s locations.
|
|
Amortization
|
$(1,256)
|
In the
second half of 2018, the Company replaced its computer servers in
the Sparks, Nevada office. The higher amortization expense in 2019
is due to this expenditure.
|
|
General and administration
|
$(72,801)
|
Included
in Q2 2019 are the costs of applying for a new mining lease in
Australia of US$31,188 as well as fees paid to help promote the
Company’s stock in Europe led to this unfavourable
variance.
|
|
Consulting
|
$(76,938)
|
The
Company hired new consultants for marketing scandium in America in
the latter half of 2018 and in 2019. The first six months of 2018
does not include these costs hence the lower charges in the same
period one year ago.
|
Cash flow discussion for the three-month period ended September 30,
2019 compared to September 30, 2018
The cash outflow for operating activities was $247,817, a decrease
of $217,287 (September 30, 2018 – $465,104), due to lower
operating costs as described in the variance analysis.
Cash inflows from financing activities were $64,316 in Q3 2019 as
compared to $986 in Q3 2018 due to higher option exercises
inflow.
Cash flow discussion for the nine-month period ended September 30,
2019 compared to September 30, 2018
The cash outflow for operating activities was $1,026,092, a
decrease of $335,149 (September 30, 2018 – $1,361,241), due
to lower operating costs as described in the variance
analysis.
Cash inflows from financing activities of $960,479 reflect lower
inflow from private placements of $875,816 when compared to 2018,
which was partially offset by higher inflows from option exercises
of $81,189, resulting in a decrease of $960,479 when compared to
2018 of $1,755,106.
25
Financial Position
Cash
The Company’s cash position decreased during the nine-month
period by $65,613 to $219,144 (December 31, 2018 - $284,757) due to
lower private placement and option exercises.
Prepaid expenses and receivables
Prepaid expenses and accounts receivable decreased by $24,198 to
$14,753 due to draw downs on prepaid insurance and lower
expenditures in Australia and Canada where goods and services taxes
are levied (December 31, 2018 - $38,951).
Property and equipment
Property and equipment consist of computer equipment at the Sparks,
Nevada office. The decrease of $1,730 to $7,544 (December 2018 -
$9,274) is due to amortization of that computer equipment in the
nine-month period.
Mineral interests
Mineral interests remained the same at $704,053.
Accounts payable, accrued liabilities and accounts payable with
related parties
Accounts payable has increased by $156,626 to $303,212 (December
2018– $146,586) due largely to deferral of salaries and
consulting fees.
Capital Stock
Capital stock increased by $1,131,350 to $109,375,661 due to a
private placement occurring in the nine-month period and the
exercise of stock options (December 31, 2018 -
$108,244,311).
Additional paid-in capital increased by $256,609, to $5,932,421
(December 31, 2018 - $5,675,812) as a result of the expensing of
stock options which was partially offset by the exercise of stock
options.
Liquidity and Capital Resources
At September 30, 2019, the Company had a working capital of
$(69,315) including cash of $219,144 as compared to a working
capital of $177,122 including cash of $284,757 at December 31,
2018.
At September 30, 2019, the Company had a total of 29,910,000 stock
options exercisable between CAD$0.10 and CAD$0.60 that have the
potential upon exercise to generate a total of C$5,774,250 in cash
over the next five years. There is no assurance that these
securities will be exercised. The Company’s continued
development is contingent upon its ability to raise sufficient
financing both in the short and long term. There are no guarantees
that additional sources of funding will be available to the
Company; however, management is committed to pursuing all possible
sources of financing in order to execute its business plan. The
Company continues its cost control measures to conserve cash to
meet its operational obligations.
Outstanding share data
At the date of this report, the Company has 312,482,595 issued and
outstanding common shares and
34,910,000
stock options currently outstanding at a weighted
average exercise price of CAD$0.19.
Off-balance sheet arrangements
At September 30, 2019, the Company had no material off-balance
sheet arrangements such as guarantee contracts, contingent interest
in assets transferred to an entity, derivative instruments
obligations or any obligations that trigger financing, liquidity,
market or credit risk to the Company.
Transactions with related parties
During
the 9-month period ended September 30, 2019, the Company expensed
$314,104 for stock-based compensation for stock options issued to
Company directors. During the 9-month period ended September 30,
2018, the Company expensed $695,405 for stock-based compensation
for stock options issued to Company directors.
During
the 9-month period ended September 30, 2019, the Company paid a
consulting fee of $76,500 to one of its directors. During the
9-month period ended September 30, 2018, the Company paid a
consulting fee of $76,500 to one of its directors.
As at
September 30, 2019, the Company owed $150,924 to various directors
and officers of the Company. (December 31, 2018 -
$Nil)
26
Proposed Transactions
There are no proposed transactions outstanding other than as
disclosed.
Critical Accounting Estimates
The
preparation of financial statements in conformity with generally
accepted accounting principles requires management of the Company
to make estimates and assumptions that affect the reported amounts
of assets and liabilities at the date of the financial statements
and the reported amounts of revenues and expenses during the
reporting period. These estimates are based on past experience,
industry trends and known commitments and events. By their nature,
these estimates are subject to measurement uncertainty and the
effects on the financial statements of changes in such estimates in
future periods could be significant. Actual results will likely
differ from those estimates.
Stock-based compensation
The Company uses the Black-Scholes option pricing model to
calculate the fair value of stock options and compensatory warrants
granted. This model is subject to various assumptions. The
assumptions the Company makes will likely change from time to time.
At the time the fair value is determined, the methodology the
Company uses is based on historical information, as well as
anticipated future events. The assumptions with the greatest impact
on fair value are those for estimated stock volatility and for the
expected life of the instrument.
Future income taxes
The Company accounts for tax consequences of the differences in the
carrying amounts of assets and liabilities and their tax bases
using tax rates expected to apply when these temporary differences
are expected to be settled. When the future realization of income
tax assets does not meet the test of being more likely than not to
occur, a valuation allowance in the amount of the potential future
benefit is taken and no future income tax asset is recognized. The
Company has taken a valuation allowance against all such potential
tax assets.
Mineral properties and exploration and development
costs
The Company capitalizes the costs of acquiring mineral rights at
the date of acquisition. After acquisition, various factors can
affect the recoverability of the capitalized costs. The
Company’s recoverability evaluation of our mineral properties
and equipment is based on market conditions for minerals,
underlying mineral resources associated with the assets and future
costs that may be required for ultimate realization through mining
operations or by sale. The Company is in an industry that is
exposed to a number of risks and uncertainties, including
exploration risk, development risk, commodity price risk, operating
risk, ownership and political risk, funding and currency risk, as
well as environmental risk. Bearing these risks in mind, the
Company has assumed recent world commodity prices will be
achievable. The Company has considered the mineral resource reports
by independent engineers on the Nyngan Scandium Project in
considering the recoverability of the carrying costs of the mineral
properties. All of these assumptions are potentially subject to
change, out of our control, however such changes are not
determinable. Accordingly, there is always the potential for a
material adjustment to the value assigned to mineral properties and
equipment.
Recent Accounting Pronouncements
Accounting Standards Update 2019-01 –
Leases (Topic
842) Codification Improvements - Issue 3 Transition Disclosures
Related to Topic 250, Accounting Changes and Error Corrections. The
amendments in this Update clarify the Board’s original intent
by explicitly providing an exception to the paragraph 250-10-50-3
interim disclosure requirements in the Topic 842 transition
disclosure requirements. The effective date is for fiscal years
beginning after December 15, 2019, and interim periods within
fiscal years beginning after December 15, 2020.
The Company is currently evaluating the impact
this guidance will have on its financial
statements.
Accounting Standards Update 2018-13 – Fair Value Measurement
(Topic 840)
Disclosure Framework —Changes to the
Disclosure Requirements for Fair Value Measurement. The amendments
in this update apply to all entities that are required, under
existing GAAP, to make disclosures about recurring or nonrecurring
fair value measurements.
This standard
is effective for interim and annual reporting periods beginning
after December 15, 2019, with early adoption permitted. The Company
is currently evaluating the impact this guidance will have on its
financial statements.
Accounting Standards Update 2018-11 - Leases (Topic 842) Targeted
Update. This accounting pronouncement is an update to Accounting
Standard 2016-02 (see below). This standard allows for an
additional (and optional) transition method. This standard is
effective for interim and annual reporting periods beginning after
December 15, 2018, with early adoption permitted. The Company has
adopted the election
to
recognize short-term leases through profit or loss, with no
material effect to the consolidated financial
statements.
27
Accounting Standards Update 2016-02 - Leases (Topic 842). This
accounting pronouncement allows lessees to make an accounting
policy election to not recognize a lease asset and liability for
leases with a term of 12 months or less and that do not have a
purchase option that is expected to be exercised. This standard is
effective for interim and annual reporting periods beginning after
December 15, 2018, with early adoption permitted. The Company has
adopted this policy which had no material effect to the
consolidated financial statements.
Financial instruments and other risks
The
Company’s financial instruments consist of cash, receivables,
accounts payable, accounts payable with related parties, accrued
liabilities and promissory notes payable. It is management's
opinion that the Company is not exposed to significant interest,
currency or credit risks arising from its financial instruments.
The fair values of these financial instruments approximate their
carrying values unless otherwise noted. The Company has its cash
primarily in three commercial banks: (i) one in Vancouver, British
Columbia, Canada, (ii) one in Mackay, Queensland,
Australia,
and (iii) one
in Chicago, Illinois, United States.
Information Regarding Forward-Looking Statements
This Management’s Discussion and Analysis of Financial
Condition and Results of Operations contain certain forward-looking
statements. Forward-looking statements include but are not limited
to those with respect to the prices of metals, the estimation of
mineral resources and reserves, the realization of mineral reserve
estimates, the timing and amount of estimated future production,
costs of production, capital expenditures, costs and timing of the
development of new deposits, success of exploration activities,
permitting time lines, currency fluctuations, requirements for
additional capital, government regulation of mining operations,
environmental risks, unanticipated reclamation expenses, title
disputes or claims and limitations on insurance coverage and the
timing and possible outcome of pending litigation. In certain
cases, forward-looking statements can be identified by the use of
words such as “plans”, “expects” or
“does not expect”, “is expected”,
“estimates”, “intends”,
“anticipates” or “does not anticipate”, or
“believes” or variations of such words and phrases, or
statements that certain actions, events or results
“may”, “could”, “would”, or
“will” be taken, occur or be achieved. Forward-looking
statements involve known and unknown risks, uncertainties and other
factors which may cause the actual results, performance or
achievements of Scandium International to be materially different
from any future results, performance or achievements expressed or
implied by the forward-looking statements. Such risks and
uncertainties include, among others, the actual results of current
exploration activities, conclusions or economic evaluations,
changes in project parameters as plans continue to be refined,
possible variations in grade and or recovery rates, failure of
plant, equipment or processes to operate as anticipated, accidents,
labor disputes or other risks of the mining industry, delays in
obtaining government approvals or financing or incompletion of
development or construction activities, risks relating to the
integration of acquisitions, to international operations, and to
the prices of metals. While Scandium International has attempted to
identify important factors that could cause actual actions, events
or results to differ materially from those described in
forward-looking statements, there may be other factors that cause
actions, events or results not to be as anticipated, estimated or
intended. There can be no assurance that forward-looking statements
will prove to be accurate, as actual results and future events
could differ materially from those anticipated in such statements.
Accordingly, readers should not place undue reliance on
forward-looking statements. Scandium International expressly
disclaims any intention or obligation to update or revise any
forward-looking statements, whether as a result of new information,
future events or otherwise.
I
tem 3. Quantitative and Qualitative Disclosures About
Market Risk
Not
applicable.
I
tem 4. Controls and
Procedures
Disclosure controls and procedures
The
Company’s management is responsible for establishing and
maintaining adequate disclosure controls and procedures. The
Company’s management, including our principal executive
officer and our principal financial officer, evaluated the
effectiveness of our disclosure controls and procedures (as defined
in Exchange Act Rule 13a-15(e)) as of the end of the period covered
by this report. Based on that evaluation, the principal executive
officer and principal financial officer concluded that as of the
end of the period covered by this report, the Company has
maintained effective disclosure controls and procedures in all
material respects, including those necessary to ensure that
information required to be disclosed in reports filed or submitted
with the SEC (i) is recorded, processed, and reported within the
time periods specified by the SEC, and (ii) is accumulated and
communicated to management, including the principal executive
officer and principal financial officer, as appropriate to allow
for timely decision regarding required disclosure.
Changes in Internal Control
There
have been no changes in internal control over financial reporting
that occurred during the last fiscal quarter that have materially
affected, or are reasonably likely to materially affect, internal
control over financial reporting.
28
PART II – OTHER INFORMATION
Item 1. Legal Proceedings
On
February 6th, 2019, the Company’s Australian subsidiary was
served a Summons and named as a Defendant in a lawsuit brought by
the Law Firm of Nelson, Keane and Hemmingway, on behalf of
Plaintiff, Owen Bernard Carter, a landowner in Nyngan, NSW. The
Company’s subsidiary, EMC Metals Australia Pty Ltd (EMC-A) is
the Company’s subsidiary which held disputed Mining Lease ML
1763, related to the Nyngan Scandium Project.
The
lawsuit claims NSW governmental officials improperly granted EMC-A
a mining lease in 2017. Counsel for the Government defendants
conceded the point, and re-determined ML 1763 to
‘Invalid’ status.
On July
24, 2019 the Company announced that a new mine lease (“ML
1792”) had been granted to EMC-A by the Department, for the
Nyngan Scandium Project. The Court proceeding brought by the
landowner is now resolved, EMC-A has no further obligations related
to the lawsuit, and no claims for compensation have been made
against EMC-A.
While
the new ML covers only a portion of the total area originally
covered by the prior ML, the Company maintains it can construct and
operate a scandium mine of similar scale to our current plans,
within that reduced footprint.
Please
refer to more a detailed discussion of the mine lease grant and
landowner objection contained in Item 2 – Principle
Properties Review, Nyngan Scandium Project in this Form
10Q.
Item 2. Unregistered Sales of Equity Securities and Use of
Proceeds.
Not
applicable.
Item 3. Defaults Upon Senior Securities.
Not
applicable.
Item 4. Mine Safety Disclosures
Not
applicable.
Item 5. Other Information
Not applicable.
Item 6. Exhibits
|
Certification of
the Principal Executive Officer, pursuant to Rule 13a-14(a) or
15d-14(a) of the U.S. Securities Exchange Act of 1934 (filed
herewith)
|
|
|
|
|
|
Certification of
the Principal Financial Officer, pursuant to Rule 13a-14(a) or
15d-14(a) of the U.S. Securities Exchange Act of 1934 (filed
herewith)
|
|
|
|
|
|
Section 1350
Certification of the Principal Executive Officer (filed
herewith)
|
|
|
|
|
|
Section 1350
Certification of the Principal Financial Officer (filed
herewith)
|
|
|
|
|
|
101
|
Financial
Statements from the Quarterly Report on Form 10-Q of the Company
for the three months ended November 30, 2019, formatted in XBRL
(filed herewith)
|
29
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned thereunto duly
authorized.
|
|
SCANDIUM INTERNATIONAL MINING CORP.
(Registrant) |
|
|
|
|
|
|
|
|
Date:
November
12, 2019
|
By:
|
/s/
George
Putnam
|
|
|
|
|
George
Putnam
|
|
|
|
|
Principal Executive
Officer
|
|
|
|
|
|
|
|
|
|
|
|
|
|
By:
|
/s/
Edward
Dickinson
|
|
|
|
|
Edward
Dickinson
|
|
|
|
|
Principal Financial
Officer
|
|
30
TABLE OF CONTENTS
Part I. Financial InformationItem 1. Financial StatementsItem 2. Management S Discussion and Analysis Of Financial Condition and Results Of OperationsItem Variance Favourable / (unfavourable) ExplanationItem 3. Quantitative and Qualitative Disclosures About Market RiskItem 4. Controls and ProceduresPart II Other InformationItem 1. Legal ProceedingsItem 2. Unregistered Sales Of Equity Securities and Use Of ProceedsItem 3. Defaults Upon Senior SecuritiesItem 4. Mine Safety DisclosuresItem 5. Other InformationItem 6. Exhibits