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
June
30, 2020
[ ] 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
|
98-1009717
|
|
(State
or other jurisdiction
|
(IRS
Employer
|
|
of
incorporation or organization)
|
Identification
No.)
|
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
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
every Interactive Data File required to be submitted 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 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
August 7, 2020, 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
SIX MONTHS AND THREE MONTHS ENDED JUNE 30, 2020
2
Scandium International Mining Corp.
CONDENSED
CONSOLIDATED BALANCE SHEETS
(Expressed
in US Dollars) (Unaudited)
|
As
at:
|
June
30,
2020
|
December
31,
2019
|
|
|
|
|
|
ASSETS
|
|
|
|
|
|
|
|
Current
|
|
|
|
Cash
|
$
241,317
|
$
115,568
|
|
Prepaid
expenses and receivables
|
21,073
|
45,763
|
|
|
|
|
|
Total
Current Assets
|
262,390
|
161,331
|
|
|
|
|
|
Reclamation bond
(Note 4)
|
11,444
|
11,444
|
|
Equipment
(Note 3)
|
5,813
|
6,967
|
|
Mineral property interests
(Note
4)
|
704,053
|
704,053
|
|
|
|
|
|
Total
Assets
|
$
983,700
|
$
883,795
|
|
|
|
|
|
LIABILITIES
AND EQUITY
|
|
|
|
|
|
|
|
Current
|
|
|
|
Accounts payable
and accrued liabilities
|
$
336,156
|
$
269,059
|
|
Accounts
payable with related parties (Note 5)
|
460,074
|
269,165
|
|
|
|
|
|
Total
Liabilities
|
796,230
|
538,224
|
|
|
|
|
|
Equity
|
|
|
|
Capital stock (Note
6) (Authorized: Unlimited number of common shares; Issued and
outstanding: 312,482,595 (2019 – 312,482,595)
|
109,375,661
|
109,375,661
|
|
Treasury stock
(Note 7) (1,033,333 common shares) (2019 –
1,033,333)
|
(1,264,194
)
|
(1,264,194
)
|
|
Additional paid in
capital (Note 6)
|
6,194,450
|
5,936,074
|
|
Accumulated
other comprehensive loss
|
(853,400
)
|
(853,400
)
|
|
Deficit
|
(113,265,047
)
|
(112,848,570
)
|
|
|
|
|
|
Total
Equity
|
187,470
|
345,571
|
|
|
|
|
|
Total
Liabilities and Equity
|
$
983,700
|
$
883,795
|
Nature
and continuance of operations (Note 1)
The
accompanying notes are an integral part of these condensed
consolidated financial statements.
3
Scandium International Mining Corp.
CONDENSED
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE
LOSS
(Expressed
in US Dollars) (Unaudited)
|
|
Three months
ended
June
30,
2020
|
Three months
ended
June
30,
2019
|
Six months
ended
June
30,
2020
|
Six months
ended
June
30,
2019
|
|
|
|
|
|
|
|
EXPENSES
|
|
|
|
|
|
Amortization (Note
3)
|
$
576
|
$
577
|
$
1,154
|
$
1,154
|
|
Consulting
|
32,190
|
103,803
|
62,565
|
199,421
|
|
Exploration
|
13,220
|
73,339
|
29,181
|
47,155
|
|
General and
administrative
|
91,733
|
112,625
|
154,183
|
207,117
|
|
Insurance
|
8,034
|
7,719
|
16,273
|
15,303
|
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Professional
fees
|
9,315
|
21,059
|
36,860
|
50,263
|
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Salaries and
benefits
|
114,840
|
115,026
|
228,410
|
229,135
|
|
Stock-based
compensation (Notes 5 & 6)
|
3,616
|
409,520
|
258,376
|
422,636
|
|
Travel and
entertainment
|
-
|
12,431
|
3,658
|
26,162
|
|
|
|
|
|
|
|
|
(273,524
)
|
(856,099
)
|
(790,660
)
|
(1,198,346
)
|
|
|
|
|
|
|
|
Foreign exchange
gain (loss)
|
3,061
|
(3,835
)
|
(8,247
)
|
5,646
|
|
Sale
of royalty (Note 9)
|
-
|
-
|
382,430
|
-
|
|
|
|
|
|
|
|
Loss
and comprehensive loss for the period
|
$
(270,463
)
|
$
(859,934
)
|
$
(416,477
)
|
$
(1,192,700
)
|
|
|
|
|
|
|
|
Basic
and diluted loss per common share
|
$
0.00
|
$
0.00
|
$
0.00
|
$
0.00
|
|
|
|
|
|
|
|
Weighted
average number of common shares outstanding – basic and
diluted
|
312,482,595
|
311,782,595
|
312,482,595
|
308,694,037
|
The
accompanying notes are an integral part of these condensed
consolidated financial statements.
4
Scandium International Mining Corp.
CONDENSED
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Expressed
in US Dollars) (Unaudited)
|
6-month period
ended
|
June
30,
2020
|
June
30,
2019
|
|
|
|
|
|
CASH
FLOWS FROM OPERATING ACTIVITIES
|
|
|
|
Loss for the
period
|
$
(416,477
)
|
$
(1,192,700
)
|
|
Items not affecting
cash:
|
|
|
|
Amortization
|
1,154
|
1,154
|
|
Stock-based
compensation
|
258,376
|
422,636
|
|
|
|
|
|
Changes in non-cash
working capital items:
|
|
|
|
Decrease in prepaid
expenses and receivables
|
24,690
|
11,202
|
|
(Decrease) increase
in accounts payable, accrued liabilities and accounts payable with
related parties
|
258,006
|
(20,567
)
|
|
|
125,749
|
(778,275
)
|
|
|
|
|
|
CASH
FLOWS FROM FINANCING ACTIVITIES
|
|
|
|
Common shares
issued
|
-
|
799,483
|
|
Options exercised
for common shares
|
-
|
96,680
|
|
|
-
|
896,163
|
|
|
|
|
|
Change
in cash during the period
|
125,749
|
117,888
|
|
Cash,
beginning of period
|
115,568
|
284,757
|
|
|
|
|
|
Cash,
end of period
|
$
241,317
|
$
402,645
|
|
|
2020
|
2019
|
|
Cash
paid during the 6-month period for interest
|
$
-
|
$
-
|
|
Cash
paid during the 6-month period for taxes
|
$
-
|
$
-
|
There
were no significant non-cash investing and financing activities
during the periods ended June 30, 2020 and 2019.
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)
|
|
Number of
Shares
|
Capital
Stock
|
Additional
Paid in Capital
|
Treasury
Stock
|
Accumulated
Other Comprehensive Loss
|
Deficit
|
Total
Stockholders’ Equity
|
|
|
|
|
|
|
|
|
|
|
Balance,
December 31, 2018
|
304,781,294
|
$
108,244,311
|
$
5,675,812
|
$
(1,264,194
)
|
$
(853,400
)
|
$
(110,900,636
)
|
$
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
)
|
(332,766
)
|
|
Balance,
March 31, 2019
|
311,782,595
|
$
109,241,572
|
$
5,587,830
|
$
(1,264,194
)
|
$
(853,400
)
|
$
(111,233,402
)
|
$
1,478,406
|
|
|
|
|
|
|
|
|
|
|
Stock-based
compensation
|
-
|
-
|
409,520
|
-
|
-
|
-
|
409,520
|
|
Loss for the three
months
|
-
|
-
|
-
|
-
|
-
|
(859,934
)
|
(859,934
)
|
|
Balance,
June 30, 2019
|
311,782,595
|
$
109,241,572
|
$
5,997,350
|
$
(1,264,194
)
|
$
(853,400
)
|
$
(112,093,336
)
|
$
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
)
|
(443,426
)
|
|
Balance,
September 30, 2019
|
312,482,595
|
$
109,375,661
|
$
5,932,421
|
$
(1,264,194
)
|
$
(853,400
)
|
$
(112,536,762
)
|
$
653,726
|
|
|
|
|
|
|
|
|
|
|
Stock-based
compensation
|
-
|
-
|
3,653
|
-
|
-
|
-
|
3,653
|
|
Loss for the three
months
|
-
|
-
|
-
|
-
|
-
|
(311,808
)
|
(311,808
)
|
|
Balance,
December 31, 2019
|
312,482,595
|
$
109,375,661
|
$
5,936,074
|
$
(1,264,194
)
|
$
(853,400
)
|
$
(112,848,570
)
|
$
345,571
|
|
|
|
|
|
|
|
|
|
|
Stock-based
compensation
|
-
|
-
|
254,760
|
-
|
-
|
-
|
254,760
|
|
Loss for the three
months
|
-
|
-
|
-
|
-
|
-
|
(146,014
)
|
(146,014
)
|
|
Balance,
March 31, 2020
|
312,482,595
|
$
109,375,661
|
$
6,190,834
|
$
(1,264,194
)
|
$
(853,400
)
|
$
(112,994,584
)
|
$
454,317
|
|
|
|
|
|
|
|
|
|
|
Stock-based
compensation
|
-
|
-
|
3,616
|
-
|
-
|
-
|
3,616
|
|
Loss for the three
months
|
-
|
-
|
-
|
-
|
-
|
(270,463
)
|
(270,463
)
|
|
Balance,
June30, 2020
|
312,482,595
|
$
109,375,661
|
$
6,194,450
|
$
(1,264,194
)
|
$
(853,400
)
|
$
(113,265,047
)
|
$
187,470
|
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
June
30, 2020
(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 and evaluation 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 any and all of 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.
In
March 2020, the World Health Organization declared coronavirus
COVID-19 a global pandemic. This contagious disease outbreak, which
has continued to spread, and related adverse public health
developments, have adversely affected workforces, economies, and
financial markets globally, leading to an economic downturn. It is
not possible for the Company to predict the duration or magnitude
of the adverse results of the outbreak and its effects on the
Company’s business or ability to raise funds.
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,
2019 and with our Annual Report on Form 10-K filed with the SEC on
February 28, 2020. Operating results for the six-month period ended
June 30, 2020 may not necessarily be indicative of the results for
the year ending December 31, 2020.
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 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.
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
7
Scandium International Mining Corp.
NOTES
TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
June
30, 2020
(Expressed
in US Dollars) (Unaudited)
2.
BASIS
OF PRESENTATION
(cont’d…)
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 $14,766 during the six months ended
June 30, 2020 and $13,932 during the six months ended June 30,
2019.
The
following table presents information about the assets that are
measured at fair value on a recurring basis as at June 30,
2020 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:
|
Assets:
|
June
30,
2020
|
Quoted Pricesin
Active Markets (Level 1)
|
Significant
OtherObservable Inputs (Level 2)
|
SignificantUnobservable
Inputs (Level 3)
|
|
Cash
|
$
241,317
|
$
241,317
|
$
—
|
$
—
|
|
|
|
|
|
|
|
Total
|
$
241,317
|
$
241,317
|
$
—
|
$
—
|
Recently
Adopted and Recently Issued Accounting Standards
Accounting Standards Update 2019-12 –
Income Taxes (Topic 740) The Financial Accounting Standards Board
(“Board”) is issuing this Update as part of its
initiative to reduce complexity in accounting standards.
This standard is effective for interim
and annual reporting periods beginning after December 15, 2020,
with early adoption permitted. The Company is currently evaluating
the impact this guidance will have on its financial
statements.
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, 2020, and interim
periods within fiscal years beginning after December 15, 2020.
The Company has evaluated that this
guidance will have little or no impact 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 has adopted this policy which has
no material effect on the consolidated financial
statements.
3. EQUIPMENT
|
|
December
31,
2019 Net Book Value |
Additions
(disposals) (write-offs)
|
Amortization
|
June
30,
2020
Net Book
Value
|
|
Computer
equipment
|
$
6,967
|
$
-
|
$
(1,154
)
|
$
5,813
|
|
|
December
31,
2018
Net Book
Value
|
Additions
(disposals) (write-offs)
|
Amortization
|
December
31,
2019
Net Book
Value
|
|
Computer
equipment
|
$
9,274
|
$
-
|
$
(2,307
)
|
$
6,967
|
8
Scandium International Mining Corp.
NOTES
TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
June
30, 2020
(Expressed
in US Dollars) (Unaudited)
4. MINERAL PROPERTY INTERESTS
|
June
30, 2020
|
Scandium and
other
|
|
|
|
|
Balance,
June 30, 2020, December 31, 2019
|
$
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, New South Wales Property
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 2016.
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.
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
June 30, 2020, no funds have been capitalized for this property.
During fiscal 2018, a reclamation bond of $11,444 (€10,000)
was placed.
5. RELATED PARTY TRANSACTIONS
During
the 6-month period ended June 30, 2020, the Company expensed
$196,551 for stock-based compensation for stock options issued to
Company directors. During the 6-month period ended June 30, 2019,
the Company expensed $314,104 for stock-based compensation for
stock options issued to Company directors.
During
the 6-month period ended June 30, 2020, the Company expensed a
consulting fee of $51,000 to one of its directors. During the
6-month period ended June 30, 2019, the Company expensed a
consulting fee of $51,000 to one of its directors.
As at
June 30, 2020, the Company owed $460,074 to various directors and
officers of the Company. (December 31, 2019 -
$269,165)
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).
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 and 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.
9
Scandium International Mining Corp.
NOTES
TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
June
30, 2020
(Expressed
in US Dollars) (Unaudited)
6. CAPITAL STOCK AND ADDITIONAL PAID IN CAPITAL
(cont’d…)
Stock
option transactions are summarized as follows:
|
|
Stock
Options
|
|
|
|
Number
|
Weighted
average
exercise price
in Canadian $
|
|
|
|
|
|
|
|
|
|
Outstanding,
December 31, 2018
|
29,065,000
|
$
0.19
|
|
Granted
|
9,860,000
|
0.15
|
|
Exercised
|
(1,775,000
)
|
0.12
|
|
Expired
|
(2,540,000
)
|
0.16
|
|
|
|
|
|
Outstanding,
December 31, 2019
|
34,610,000
|
0.188
|
|
Granted
|
8,525,000
|
0.065
|
|
Expired
|
(8,360,000
)
|
0.159
|
|
|
|
|
|
Outstanding, June
30, 2020
|
34,775,000
|
$
0.165
|
|
|
|
|
|
Number currently
exercisable
|
34,775,000
|
$
0.165
|
As at
June 30, 2020, incentive stock options were outstanding as
follows:
|
|
Number
of
Options
Outstanding
|
Number
of
Options
Exercisable
|
Exercise
Price in
Canadian $
|
Expiry
Date
|
|
|
|
|
|
|
|
Options
|
|
|
|
|
|
|
100,000
|
100,000
|
0.225
|
July 11,
2020*
|
|
|
25,000
|
25,000
|
0.150
|
July 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
|
250,000
|
0.300
|
October 6,
2022
|
|
|
6,100,000
|
6,100,000
|
0.225
|
January 19,
2023
|
|
|
350,000
|
350,000
|
0.185
|
August 30,
2023
|
|
|
5,025,000
|
5,025,000
|
0.150
|
May 9,
2024
|
|
|
50,000
|
50,000
|
0.130
|
June 24,
2024
|
|
|
8,425,000
|
8,425,000
|
0.065
|
March 19,
2025
|
|
|
100,000
|
100,000
|
0.075
|
May 22,
2025
|
|
|
|
|
|
|
|
|
34,775,000
|
34,775,000
|
|
|
* These
options expired unexercised on July 11, 2020.
As at
June 30, 2020 the Company’s outstanding and exercisable stock
options have an aggregate intrinsic value of $358,963 (December 31,
2019 - $Nil).
Stock-based
compensation
During
the 6-month period ended June 30, 2020, the Company recognized
stock-based compensation of $258,376 (June 30, 2019 - $422,636) in
the statement of operations and comprehensive loss. There were
8,525,000 stock options granted during the 6-month period ended
June 30, 2020 (June 30, 2019 – 9,860,000).
The
weighted average fair value of the options granted in the quarter
was C$0.065 (June 30, 2019 – C$0.15).
10
Scandium International Mining Corp.
NOTES
TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
June
30, 2020
(Expressed
in US Dollars) (Unaudited)
6. CAPITAL STOCK AND ADDITIONAL PAID IN CAPITAL
(cont’d…)
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 6-month period ended June 30 are as
follows:
|
|
2020
|
2019
|
|
|
|
|
|
Risk-free interest
rate
|
1.31
%
|
2.31
|
|
Expected
life
|
5 years
|
5 years
|
|
Volatility
|
86.26
%
|
90.40
%
|
|
Forfeiture
rate
|
N/A
|
N/A
|
|
Dividend
rate
|
N/A
|
N/A
|
7. TREASURY STOCK
|
|
Number
|
Amount
|
|
|
|
|
|
Treasury shares,
June 30, 2020, and December 31 2019
|
$
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:
|
June
30, 2020
|
Australia
|
United
States
|
Total
|
|
|
|
|
|
|
Equipment
|
$
-
|
$
5,813
|
$
5,813
|
|
Mineral property
interests
|
704,053
|
-
|
704,053
|
|
|
|
|
|
|
|
$
704,053
|
$
5,813
|
$
709,866
|
|
December
31, 2019
|
Australia
|
United
States
|
Total
|
|
|
|
|
|
|
Equipment
|
$
-
|
$
6,967
|
$
6,967
|
|
Mineral property
interests
|
704,053
|
-
|
704,053
|
|
|
|
|
|
|
|
$
704,053
|
$
6,967
|
$
711,020
|
9. SALE OF ROYALTY
On
January 16, 2020, the Company received net proceeds of $382,430
(C$500,000) from completion of a royalty buyback agreement.
The Company’s royalty interest was related to the Windfall
Lake gold property in Quebec, Canada, and was carried at zero value
on the balance sheet.
11
Item
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 six month periods ended June 30, 2020 and
should be read in conjunction with our unaudited interim
consolidated financial statements and the notes thereto for the six
month period ended June 30, 2019, and with the Company’s
audited consolidated financial statements and the notes thereto for
the year ended December 31, 2019 (the “Annual
Statements”).
This discussion and
analysis contain 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, 2019, 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 August 11, 2020
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.
12
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.
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.
Pursuant
to a share exchange agreement dated June 14, 2017 between the
Company and Scandium Investments LLC (“SIL”), the
Company purchased SIL’s 20% interest in EMC Australia in
exchange for 57,371,565 common shares of SCY and 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, with SCY holding a 100%
ownership interest in EMC Australia. Under the terms of the share
exchange agreement, 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 SCY’s issued and outstanding shares, and one
director for so long as SIL held at least 5% but less than 15% of
SCY’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.
13
During the second
quarter of 2020, we focused on Nyngan Scandium Project activities
including scandium marketing arrangements.
Principal Properties Review
Nyngan Scandium Project (NSW, Australia)
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 2,900 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.
14
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.
15
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.
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.
16
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.
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.
17
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.”
Development
Consent:
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.
Mining
Lease:
During July 2019,
EMC Australia received notice of approval for its Mining Lease
application. The Mining Lease (“ML 1792”) overlays
select areas previously covered by Exploration Licenses. The ML
represents the final major development approval required from the
NSW Government to begin construction on the project. The ML
1792 grant is issued for a period of 21 years and is based on the
development plans and intent submitted in the ML Application. The
ML can be modified 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 must be finalized:
●
Water Supply Works
and Use Approval and Water Access License,
●
State and local
approval for construction of the intersection of the Site Access
Road and 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.
The ML 1792 grant
covers
810 acres (370 hectares)
of
surface area fully owned by the Company, an area adequate
to construct and operate a scandium mine of a scale outlined in the
definitive Feasibility Study. The Company had originally filed a
mining lease application (MLA 531) covering an area of 874
hectares, providing for significant project expansion capacity.
However, due to an objection filed in 2016 by a landowner who holds
freehold surface ownership over a portion of the 874 hectare area,
the original MLA 531 remains in review by the New South Wales
Department of Planning and Environment. The landowner objection
claims the property is “Agricultural Land”, with
meaning as defined in the relevant law.
18
On April 20, 2020
the Company announced that it received a favorable ‘Notice of
Proposed Decision’ (the “Notice”) from the Deputy
Secretary, Mining, Exploration and Geoscience (Government of New
South Wales, Australia), related to the landowner
objection.
This Notice
references new governmental findings regarding determination of the
longstanding 2016 Agricultural Land Objection, and indicates that
the Deputy Secretary now believes the objection has failed to meet
key legal tests on major portions of the affected area. The Deputy
Secretary engaged staff from the Department of Primary Industry,
with relevant agricultural knowledge, to review the external
consultant work on the objection. These government agricultural
experts opined that most of the land covered under the objection
was in fact not ‘Agricultural Land’ as defined by Law
and recommended only a small portion of specific areas under
question be excluded from a future Mine Lease.
The Notice makes
clear the advice received to date is to be understood as a proposed
decision, rather than a final decision. At the time the Notice was
issued, the affected parties were offered an additional 21 days to
file any additional information or arguments. The Deputy Secretary
committed to consider any additional submissions and render a final
decision on the matter. The Company offered very limited additional
input, but the landowner did make further submissions, we
understand. These further submissions remain under review by the
Deputy Secretary, and have delayed a final determination on the
matter.
We continue to have
every expectation the final determination will be delivered on the
basis of the proposed decision, as supported by a thorough opinion
document shared with the Company by the decision makers. However,
if the Department Secretary’s decision upholds the landowner
objection, the Company believes that outcome will not delay or
prevent the development of the Nyngan Scandium Project, as is
generally characterized in the 2016 Feasibility Study.
As of the date of
this Form 10-Q, the Department Secretary has not made a final
determination on the validity of the landowner
objection.
Downstream
Scandium Products
In February 2011,
we announced the 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 October 2019, the Company was granted Patent
No. 10450634, titled “Scandium-Containing Master Alloys And
Method For Making The Same.”
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.
19
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.
On March 5, 2018,
the Company announced that it had initiated a small scale pilot
program (4kg scale) at the Alcereco Inc. metallurgical research
facilities in Kingston, Ontario, to confirm and refine previous
lab-scale work on the manufacture of aluminum-scandium 2% master
alloy (MA). The program advanced the process understanding for
commercial scale upgrade of Nyngan scandium oxide product to master
alloy product.
The 2018 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
and was completed in December of 2018. The results of the program
included the successful production of 2% grade MA, with recoveries
of scandium to product of 85%.
A second phase of
the small-scale pilot program was initiated in the first half of
2019, again at 4kg scale, building on the work done in phase I. The
results of this second program included successful production of 2%
grade MA, with improvements in form of rapid kinetics, and
recoveries of scandium to product of +90%.
On March 5, 2018,
the Company also announced that it 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.
Master Alloy Capability Demonstrated
On February 24,
2020, the Company announced the completion of a three year, three
stage program to demonstrate the capability to manufacture
aluminum-scandium master alloy (Al-Sc2%), from scandium oxide,
using a patent pending melt process involving aluminothermic
reactions.
This master alloy
capability will allow the Company to offer scandium product from
the Nyngan Scandium Project in a form that is used directly by
aluminum alloy manufacturers globally, either major integrated
manufacturers or smaller wrought or casting alloy
consumers.
Research
Highlights:
●
Program achieved
full 2% target product quality requirement,
●
Sc recoveries from
oxide exceeded target, demonstrated in final tests,
●
The microstructure
and metal quality meet major alloy producers’
specifications,
●
Rapid kinetics
achieved, important for commercial viability,
●
Individual testing
batches done at 4kg scale, and
●
Successful program
testing forms a basis for a larger scale demonstration facility,
supporting large scale samples required for industrial aluminum
alloy trials.
20
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.
21
Letters of Intent
During 2018 and
2019, the Company announced that it entered into 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 2020.
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 cannot 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.
22
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.
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.
Cerium-Scandium Aluminum Alloy Program Agreement
On February 27, 2020, the Company announced signing a Program
Agreement with Eck Industries (“ECK”) located in
Manitowoc, Wisconsin, to pursue novel alloy development of a
combined cerium-scandium aluminum alloy, based on previous work
done independently by the companies in this area.
The companies intend to pursue alloy refinements in both wrought
and cast alloy applications, specifically targeting property
improvements related to strength, corrosion resistance, and
heat-working tolerance, principally in A5000 series
alloys.
Program Highlights:
●
Joint economic and technical support to alloy design,
●
Joint sharing of previous data, and new data produced from this
program,
●
Samples production for customer trials, either as cast products, or
wrought sample shapes for various potential customers and alloy
manufacturers,
●
Initial high value application expected to be in marine
applications, and
●
Program work is protected by existing patent applications filed by
ECK.
Nyngan Scandium Project - Planned Activities for
2020-2021
The following steps
are planned for the Nyngan Project during the 2020 and 2021
calendar years:
●
Complete master
alloy pilot trials and optimization work in Q1 2020
(completed),
●
Pursue additional
offtake agreements in support of planned future scandium
sales,
●
With offtakes, seek
construction financing for project, earliest 2021,
●
Commence site
construction in late 2021, with anticipated completion over 14
months, and
●
Initiate project
commissioning earliest late 2022, with product available for sale
by year end 2022.
23
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.
●
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.
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.
●
Finland location is
mining-friendly and ideally suited to EU customer
markets.
24
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 – Second Quarter 2020
Critical Metals Recovery Technology Program
On May 13, 2020, we
announced the Company’s pursuit of copper industry interest
in our ion exchange (IX) technology and knowhow to recover
scandium, cobalt and other critical metals from solvent extraction
(SX) raffinate and other acidic waste streams in certain acid leach
copper operations.
Recovery metals
targeted by this application include cobalt, copper, nickel,
scandium, and zinc, and possibly other metals and rare earth
elements, depending on recovery economics. The suitability of this
IX technology, and the target metal opportunities, vary with the
specifics of individual orebodies, and associated SX plant
characteristics. Depending on specific project variables, and the
value and volume of critical metals recovered, the end result
economics are expected to be significant to the parties
involved.
Concept Highlights
●
IX technology
offers rapid deployment to existing Cu operation waste
streams,
●
Recoveries target
critical metals with transparent, established markets,
●
Includes potential
for significant scandium production alongside other
products,
●
Represents near
term production sources that can address security of supply issues,
conflict metal issues, and concentrated supply source issues,
and
●
The concept has
real potential to deliver positive economic benefits to both SCY
and the established copper producers that can host this
program.
Program Discussion
The copper industry
is fully aware of the opportunity to harvest valuable metals from
copper process waste streams, and the industry does so with
significant success today in precious metals. Most specialty metals
recovery work has historically been considered un-economic, based
on effective recovery costs and recovered metals pricing. The
technology in this area has advanced, improving both operating
costs and recoveries. New, technology-driven uses for critical
metals are stressing supply channels. Traditional jurisdiction risk
concerns are now multiplied by ethical sourcing issues, and
long-term sustainability questions, all of which elevate the
interest in broader, more localized sourcing. These issues are
receiving heightened governmental and industry priority, and metals
markets customers are now seeking and favoring new, economic,
responsible solutions.
25
On the basis of
this dynamic critical metals opportunity, and the fact that SCY has
a significant capability to apply advanced mineral recovery
technologies to the separation of critical metals from both ores
and waste streams, the Company began a search for a North American
scandium production source. This effort immediately recognized an
attractive economic value in secondary recoveries of other critical
metals from certain copper operations, in addition to scandium,
specifically from source systems employing solvent extraction
techniques. Depending on orebody specifics, the residual metals
content in raffinate can also include economically recoverable
quantities of cobalt, nickel, additional copper, and other valuable
metals.
The potential new
revenue stream of the combined metals residual varies by orebody,
and also by the specifics of the mineral processing systems in
place, but collectively the metals basket is more instantly
marketable and shows superior economics to the solo scandium target
we had in mind at the start. This IX technology also represents a
viable precursor for direct refining cobalt, nickel and potentially
copper into high purity sulfate product forms, as required for
battery manufacture, specifically in the electric vehicle (EV)
industry.
This SCY program is
led by SCY’s Chief Technology Officer, Willem P.C.
Duyvesteyn, who is the primary inventor of close to 100 US patents
and patent applications in the field of materials processing and
commercial recovery processes for base metals, specialty metals,
and chemical compounds. The Company has filed for patent protection
on various aspects of its relevant technical program ideas with the
US Patent Office, using technical information from preliminary
bench scale testing with actual copper SX raffinate
solutions.
The Company
believes this work can be demonstrated with a working and
successful copper plant installation, with proven knowhow, and
intends to pursue a copper industry partner to demonstrate the
economic viability of this technology. It is the Company’s
intent to fully participate in the operation, ownership and
production economics associated with a plant asset that is
developed in concert with that partner.
This new critical
metals recovery program contains a scandium component that utilizes
the same technology applied to other targeted critical metals
recoveries. This program is intended to allow SCY to benefit from
early and attractive scandium production, in addition to producing
a basket of other metals with currently established markets. The
program has the potential to generate commercial scale scandium
production from the USA and the Americas, which produces little or
no scandium today. Early scandium production can be expected to
more quickly build the nascent scandium market globally, thus
supporting the development of the Company’s Nyngan and
Honeybugle scandium assets in Australia.
Operating
results - Revenues and Expenses
The
Company’s results on a year-to-date basis reflect lower
operating costs. Cash expenditures were down by $243,426 due to
lower consulting fees, travel expenditures, general and
administrative fees, and exploration expenses. Also, during the
six-month period the Company received funds from the sale of a
royalty interest.
The
Company’s results when comparing Q2 2020 to Q2 2019 reflect a
decrease of $176,671 in cash operating costs due to lower
consulting fees, exploration, travel expenditures, general and
administrative fees, professional fees and travel.
26
Summary of quarterly results
A
summary of the Company’s quarterly results is shown below at
Table 10.
Table 10. Quarterly Results Summary (US$)
|
|
2020
|
|
2018
|
|||||
|
|
Q2
|
Q1
|
Q4
|
Q3
|
Q2
|
Q1
|
Q4
|
Q3
|
|
Net
Sales
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
|
Net
Income (Loss) attributable to Scandium Mining Corp.
|
(270,463
)
|
(146,014
)
|
(311,807
)
|
(443,426
)
|
(859,934
)
|
(332,766
)
|
(543,316
)
|
(461,781
)
|
|
Basic
and diluted
Net
Income (Loss) per share attributable to Scandium Mining
Corp.
|
(0.00
)
|
(0.00
)
|
(0.00
)
|
(0.00
)
|
(0.01
)
|
(0.00
)
|
(0.00
)
|
(0.00
)
|
Results of Operations for the three months ended June 30,
2020
The
net loss for the quarter was $270,463, a decrease of $589,471 from
$859,934 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
|
Q2 2020 vs. Q2 2019 - Variance Analysis
|
||
|
Item
|
Variance Favourable / (Unfavourable)
|
Explanation
|
|
Stock-based
compensation
|
$405,904
|
In Q2 of 2020 only
100,000 stock options were issued versus 5,075,000 in Q2 of 2019
leading to this favourable non-cash variance.
|
|
Consulting
|
$71,613
|
The Company
released several contractors who were no longer required, resulting
in this positive variance in the current
quarter.
|
|
General and administrative
|
$20,892
|
The decrease in
this expense is due to the downturn of activity in Q2 2020 compared
to Q2 2019.
|
|
Exploration
|
$60,119
|
Very limited work
was done on our exploration projects in Q2 2020. Higher levels of
activity occurred in Q2 2019 resulting in this positive
variance.
|
|
Travel and entertainment
|
$12,431
|
No travel in Q2
2020 was due to an overall decrease in Company activities when
compared to Q2 2019.
|
|
Professional fees
|
$11,744
|
Lower 2020
activity levels resulted in the favourable
variance.
|
|
Foreign exchange
|
$6,896
|
The Company
maintains a significant portion of our cash in Canadian
dollar accounts. The US dollar weakened against most world
currencies in Q2 2020 whereas in Q2 2019 the US dollar was
strengthening.
|
|
Salaries and
benefits
|
$186
|
This favourable
variance is due to foreign exchange impacts to accrued payments due
individuals.
|
|
Insurance
|
$(315)
|
The slightly
higher cost in Q2 2020 is due to overall increases in insurance
premiums for the Company’s operations.
|
27
Results of Operations for the six months ended June 30,
2020
The
net loss for the six-month period was $416,477, a decrease of
$776,223 from $1,192,700 in the same six-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
|
Six-months
ended June 30, 2020 vs. six-months ended June 30, 2019 - Variance
Analysis
|
||
|
Item
|
Variance
Favourable / (Unfavourable)
|
Explanation
|
|
Sale of royalty
interest
|
$382,430
|
In January of 2020
the Company sold a royalty interest for net proceeds of $382,430.
This was a non-recurring event.
|
|
Stock-based
compensation
|
$164,260
|
In the first six
months of 2020 the Company issued 8,525,000 stock options at an
average price of C$0.065. In the comparative period in 2019, the
Company issued 5,075,000 stock options at an average price of
C$0.15. The lower price of the options issued in the current year
resulted in a much lower expense despite more options being
issued.
|
|
Consulting
|
$136,856
|
The Company
released several contractors who were no longer required, resulting
in this positive variance in the current quarter.
|
|
General
and administrative
|
$52,934
|
The decrease in
this expense is due to the downturn of activity in 2020 compared to
2019.
|
|
Travel
and entertainment
|
$22,504
|
Less travel in 2020
was due to an overall decrease in Company activities when compared
to 2019.
|
|
Exploration
|
$17,974
|
With the Company in
a conservation of cash mode in 2020, less funds were expended on
this activity.
|
|
Professional
fees
|
$13,403
|
Lower 2020 activity
levels resulted in the favourable variance.
|
|
Salaries and
benefits
|
$725
|
This favourable
variance is due to foreign exchange impacts on accrued payments due
individuals.
|
|
Insurance
|
$(970)
|
The slightly higher
cost in 2020 is due to overall increases in insurance premiums for
the Company’s operations.
|
|
Foreign
exchange
|
$(13,895)
|
The Company
maintains a significant portion of our cash in Canadian
dollar accounts. The US dollar strengthened against most world
currencies in 2020 whereas in 2019 the US dollar was
weakening
|
28
Cash flow discussion for the six-month period ended June 30, 2020
compared to June 30, 2019
The
cash inflow for operating activities was $125,749, an increase of
$904,024 (June 30, 2019 – ($778,275)), due mainly to the sale
of a royalty interest.
Cash
inflows from financing activities of $Nil reflect the fact that
there were no private placements or options exercised in the
current six month period when compared to the six month period
ended June 30, 2019, in which there was private placements of
$799,483, and options exercised of $96,680.
Financial Position
Cash
The
Company’s cash position increased during the six-month period
by $125,749 to $241,317 (December 31, 2019 - $115,568) due to the
sale of a royalty interest.
Prepaid expenses and receivables
Prepaid
expenses and accounts receivable decreased by $24,690 to $21,073
during the six-month period due to funds received from cancellation
of promotion events and the amortization of prepaid expenditures
(December 31, 2019 - $45,763).
Property and equipment
Property
and equipment consist of computer equipment at the Sparks, Nevada
office. The decrease of $1,154 to $5,813 (December 2019 - $6,967)
is due to amortization of that computer equipment in the
quarter.
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 $258,006 to $796,230 (December 2019–
$538,224) due to the continued deferral of salaries to certain
individuals.
Capital Stock
Capital
stock remained the same at $109,375,661 (December 31, 2019 -
$109,375,661).
Additional
paid-in capital increased by $258,376, to $6,194,450 (December 31,
2019 - $5,936,074) as a result of the expensing of stock
options.
Liquidity and Capital Resources
At
June 30, 2020, the Company had a working capital of $(533,840)
including cash of $241,317 as compared to a working capital of
$(376,893) including cash of $115,568 at December 31,
2019.
At
June 30, 2020, the Company had a total of 34,775,000 stock options
exercisable between CAD$0.065 and CAD$0.37 that have the potential
upon exercise to generate a total of C$5,736,375 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.
29
Outstanding share data
At the date of this report, the Company has
312,482,595 issued and outstanding common shares and
34,650,000
stock options currently
outstanding at a weighted average exercise price of
CAD$0.165.
Off-balance
sheet arrangements
At
June 30, 2020, 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 6-month
period ended June 30, 2020, the Company expensed $196,551 for
stock-based compensation for stock options issued to Company
directors. During the 6-month period ended June 30, 2019, the
Company expensed $314,104 for stock-based compensation for stock
options issued to Company directors.
During the 6-month
period ended June 30, 2020, the Company paid a consulting fee of
$51,000 to one of its directors. During the 6-month period ended
June 30, 2019, the Company paid a consulting fee of $51,000 to one
of its directors.
As at June 30,
2020, the Company owed $460,074 to various directors and officers
of the Company (December 31, 2019 - $269,165).
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 policies 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.
30
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 2019-12 –
Income Taxes (Topic 740) The Financial Accounting Standards Board
issued this Update as part of its initiative to reduce complexity
in accounting standards.
This standard
is effective for interim and annual reporting periods beginning
after December 15, 2020, with early adoption permitted. The Company
is currently evaluating the impact this guidance will have on its
financial statements.
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 Financial
Accounting Standards 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 has evaluated that this guidance will have little or no
impact 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 has
adopted this policy which has 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 and risks relating to the COVID-19 pandemic.
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.
31
Item
3. Quantitative and Qualitative Disclosures About Market
Risk
Not
applicable.
Item
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.
32
PART
II – OTHER INFORMATION
Item
1. Legal Proceedings
We are not aware of
any material current, pending, or threatened litigation with
respect to the Company.
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 six months ended June 30, 2020, formatted in XBRL (filed
herewith)
|
33
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) |
|
|
|
|
(Registrant) |
|
|
|
|
|
|
|
| Date: August 7, 2020 |
By:
|
/s/
George
Putnam
|
|
|
|
|
George
Putnam
|
|
|
|
|
Principal Executive Officer |
|
|
|
|
|
|
|
|
By:
|
/s/
Edward
Dickinson
|
|
|
|
|
Edward
Dickinson
|
|
|
|
|
Principal Financial
Officer
|
|
34
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