Attached files
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
[X]
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2019
[ ]
TRANSITION REPORT PURSUANT TO 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 of Incorporation or
organization)
|
|
(I.R.S.
Employer
Identification
No.)
|
|
1430 Greg Street, Suite 501
Sparks, Nevada
|
|
89431
|
|
(Address
of Principal Executive Offices)
|
|
(Zip
Code)
|
Registrant’s
Telephone Number, including area code: (775) 355-9500
Securities
registered pursuant to Section 12(b) of the Act: None
Securities to be
registered pursuant to Section 12(g) of the Act: Common Shares
without par value
(Title of class)
Indicate
by check mark if the registrant is a well-known seasoned issuer, as
defined in Rule 405 of the Securities Act. Yes [ ] No
[X]
Indicate
by check mark if the registrant is not required to file reports
pursuant to Section 13 or Section 15(d) of the Act. Yes [ ] No
[X]
Indicate
by check mark whether the registrant (1) has filed all reports
required to be filed by Section 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 (Check
one):
|
Large
Accelerated Filer ☐
|
|
Accelerated
Filer ☐
|
|
Non-Accelerated
Filer ☐
|
|
Smaller
Reporting Company☒
|
|
|
|
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]
State
the aggregate market value of the voting and non-voting common
equity held by non-affiliates computed by reference to the price at
which the common equity was sold, or the average bid and asked
price of such common equity, as of the last business day of the
registrant’s most recently completed second fiscal quarter:
$16,990,618 as at June 30, 2019.
Indicate
the number of shares outstanding of each of the registrant’s
classes of common equity, as of the latest practicable
date: 312,482,595 common shares as at February 25, 2020.
DOCUMENTS
INCORPORATED BY REFERENCE
Portions
of the registrant's Proxy Statement for the Annual Meeting of
Stockholders are incorporated by reference into Part III of this
Form 10-K, which Proxy Statement is to be filed within 120 days
after the end of the registrant's fiscal year ended December 31,
2019.
TABLE OF CONTENTS
PART I
Note about Forward-Looking
Statements
Certain
statements contained in this annual report on Form 10-K and the
documents incorporated by reference herein constitute
"forward-looking statements.” Forward-looking statements may
include, but are not limited to, statements with respect to the
future price of commodities, the estimation of mineral resources,
the realization of mineral resource 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, our ability to fund property
acquisition costs, our ability to reach targeted time frames for
establishing feasibility, permitting time lines, currency
fluctuations, requirements for additional capital, government
regulation of mining operations, environmental risks, unanticipated
reclamation expenses, title disputes or claims, our ability to
raise funds necessary for ongoing and planned expenditures and
operations, and regulatory approvals. In certain cases,
forward-looking statements can be identified by the use of words
such as "plans,” "expects" or "does not expect,” "is
expected,” "scheduled,” "estimates,” "intends,
"anticipates" or "believes,” or variations of such words and
phrases or state 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 our actual results, performance or achievements to be
materially different from any future results, performance or
achievements expressed or implied by the forward-looking
statements. Such factors may include, among others, risks related
to our joint venture operations; actual results of current
exploration activities or production technologies that we are
currently testing; actual results of reclamation activities; future
metal prices; accidents, labour disputes and other risks of the
mining industry; delays in obtaining governmental or regulatory
approvals or financing or in the completion of development
activities, as well as those factors discussed in the section
entitled "Risk Factors" and elsewhere in this Form 10-K. Although
we have 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.
Glossary of Terms
“Company,”
“SCY,” “we,” “us,”
“our” and similar words of similar meaning refer to
ScandiumInternational Mining Corp.
$, A$, C$
mean
respectively, United States dollars, Australian dollars and
Canadian dollars.
Alteration
Usually referring
to chemical reactions in a rock mass resulting from the passage of
hydrothermal fluids.
Assay
An analysis to
determine the presence, absence or quantity of one or more
components, elements or minerals.
Core
The long
cylindrical piece of a rock, up to several inches in diameter,
brought to the surface by Diamond drilling.
Diamond drilling
A drilling method
in which the cutting is done by abrasion using diamonds embedded in
a matrix rather than by percussion. The drill cuts a core of rock,
which is recovered in long cylindrical sections.
Fractures
Breaks in a rock,
usually due to intensive folding or faulting.
Grade
The
concentration of a valuable mineral within an Ore.
Hydrothermal
Hot fluids, usually
water, which may or may not carry metals and other compounds in
solution to the site of mineral deposition or wall rock
alteration.
Igneous
A rock formed by
the cooling of molten silicate material.
Intrusion
A general term for
a body of igneous rock formed below the surface of the
earth.
4
Kg
Kilogram which is
equivalent to approximately 2.20 pounds.
Km
Kilometer which is
equivalent to approximately 0.62 miles.
Mineralization
A term used to
describe the presence of minerals of possible economic value. Also
used to describe the process by which concentration of economic
minerals occurs.
Net Smelter
A share of the net
revenues generated from the sale of metal produced by a
mine.
Returns
Royalty
NI 43-101
National Instrument
43-101 – Standards for
Disclosure of Mineral Projects, being the regulation adopted
by Canadian securities regulators that governs the public
disclosure of technical and scientific information concerning a
mineral property.
Ore
A
naturally occurring solid material from which a metal or valuable
mineral can be profitably extracted.
Outcrop
An exposure of rock
at the earth’s surface.
ppm
Parts per
million.
Pyrite
Iron sulphide
mineral. The most common and abundant sulphide mineral and often
found in association with copper and gold.
Qualified Person
Means a Qualified
Person as defined in National Instrument 43-101, including an
engineer or geoscientist in good standing with their professional
association, with at least five years of relevant
experience.
Quartz
The second most common rock forming mineral in
the earth’s crust. SiO2.
Resource
Means any of a
measured, indicated or inferred resource as used in NI 43-101, and
having the following meanings:
“measured resource” is that part of a Mineral Resource
for which quantity, grade or quality, densities, shape, and
physical characteristics are so well established that they can be
estimated with confidence sufficient to allow the appropriate
application of technical and economic parameters, to support
production planning and evaluation of the economic viability of the
deposit. The estimate is based on detailed and reliable
exploration, sampling and testing information gathered through
appropriate techniques from locations such as outcrops, trenches,
pits, workings and drill holes that are spaced closely enough to
confirm both geological and grade continuity.
“indicated resource” is that part
of a Mineral Resource for which quantity, grade or quality,
densities, shape and physical characteristics, can be estimated
with a level of confidence sufficient to allow the appropriate
application of technical and economic parameters, to support mine
planning and evaluation of the economic viability of the deposit.
The estimate is based on detailed and reliable exploration and
testing information gathered through appropriate techniques from
locations such as outcrops, trenches, pits, workings and drill
holes that are spaced closely enough for geological and grade
continuity to be reasonably assumed.
“inferred resource” is that part of
a Mineral Resource for which quantity and grade or quality can be
estimated on the basis of geological evidence and limited sampling
and reasonably assumed, but not verified, geological and grade
continuity. The estimate is based on limited information and
sampling gathered through appropriate techniques from locations
such as outcrops, trenches, pits, workings and drill
holes.
For the
purposes of the above a “mineral resource” means a
concentration or occurrence of diamonds, natural solid inorganic
material, or natural solid fossilized organic material including
base and precious metals, coal, and industrial minerals in or on
the Earth’s crust in such form and quantity and of such a
grade or quality that it has reasonable prospects for economic
extraction. The location, quantity, grade, geological
characteristics and continuity of a Mineral Resource are known,
estimated or interpreted from specific geological evidence and
knowledge.
(Please
refer to “Item 2. Properties -
Cautionary Note to U.S. Investors Regarding Resource
Estimates” in regards to the use of the above terms in this
Form 10-K.)
5
Sulphide
A class of minerals
characterized by the linkage of sulphur with a metal (such as
Pyrite (FeS2)).
Tpd/Tpa
Tonnes per
day/tonnes per annum.
Tonne
A metric ton which
is equivalent to approximately 2,204 pounds.
Sediments
The debris
resulting from the weathering and breakup of rocks that have been
deposited by or carried by runoff, streams and rivers, or left over
from glacial erosion or sometimes from wind action.
Vein
A geological
feature comprised of minerals (usually dominated by quartz) that
are found filling openings in rocks created by faults or replacing
rocks on either side of faults or fractures.
6
ITEM 1. BUSINESS
General
We were
incorporated on July 17, 2006 under the laws of British Columbia,
Canada under the name
Golden Predator Mines Inc. We were incorporated as a wholly owned
subsidiary of Energy Metals Corp. for the purpose of holding
precious metals and certain specialty metals assets. In order to
focus on specialty metals, during February 2009 we transferred most
of our precious mineral assets to our then wholly-owned subsidiary
Golden Predator Corp., and on March 6, 2009 we completed a spin-out
of Golden Predator Corp. to our shareholders. Effective March 12,
2009, we changed our name to EMC Metals Corp. In order to reflect a
new emphasis on mining for scandium minerals, effective November
19, 2014, we changed our name to Scandium International Mining Corp
(“SCY” or the “Company”).
We are
a reporting issuer in the Canadian Provinces of British Columbia,
Alberta and Ontario and our common shares are listed for trading on
the Toronto Stock Exchange under the trading symbol
“SCY.”
Our
head office is located at 1430 Greg Street, Suite 501, Sparks,
Nevada 89431. The address of our registered office is 1200 - 750
West Pender Street, Vancouver, British Columbia, Canada,
V6C 2T8.
Our
focus of operations is the development of the Nyngan scandium
project located in New South Wales, Australia (the “Nyngan
Scandium Project”). We also hold a scandium mineral property
located nearby Nyngan known as the “Honeybugle Scandium
property” and a reservation on an exploration license in
Finland, known as the “Kiviniemi Scandium
property.”
Our
plan of operation for the remainder of 2020 is to obtain offtake
sales agreements with counterparties for Nyngan Scandium Project
product and seek additional funding for project construction and
corporate working capital. We also plan to continue to test and
develop unique scandium recovery and finishing techniques,
including the processing of intermediate scandium aluminum
products.
Intercorporate Relationships
The
chart below illustrates our corporate structure on December 31,
2019, including our subsidiaries, the jurisdictions of
incorporation, and the percentage of voting securities
held.
7
Recent History
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 report was filed on May 6, 2016 and
is available on SEDAR (www.sedar.com)
and on the Company’s website (www.scandiummining.com)
and the SEC’s website (www.sec.gov). A summary of the report
is provided herein under “Item 2. Properties – Description of
Mineral Projects – Nyngan Scandium Project – Nyngan
Feasibility Study.”
Transactions with Scandium Investments LLC
In June of 2017, the Company entered into a share exchange
agreement with Scandium Investments LLC (“SIL”) for the
purchase of SIL’s 20% interest in EMC Metals Australia Pty
Ltd (“EMC Australia”) in exchange for 57,371,565 common
shares of SCY as well as an additional 1,459,080 common shares as a
royalty adjustment payment. Closing of the purchase of the EMC
Australia shares was subject to shareholder approval, which the
Company obtained at a special meeting of shareholders held on
September 11, 2017. The transaction subsequently closed on October
9, 2017, with SCY holding a
100% ownership interest of 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.
Business Operations
Company Summary
We are
a mineral exploration and development company that is primarily
focused on the development of scandium mineral resources, and
scandium end-use markets, through identification of value-added
applications for scandium in aluminum alloys and end products. The
Company has also considered exploration and development interest in
rare earth minerals, and other specialty metals, including nickel,
cobalt, boron, manganese, tantalum, titanium and zirconium. We have
not commenced development of any of our scandium projects, and as a
result we are an exploration stage company.
We have
established a 16.9 million tonne measured and indicated resource on
the Nyngan property (grading 235ppm at a 100ppm cut-off) and we
have also established a 1.43 million tonne mineral reserve
(combined proven and probable) on the Nyngan Scandium Project,
based on economics presented in our 2016 feasibility
study.
Our
principal project is the Nyngan Scandium Project located in New
South Wales, Australia, in which we own 100% of the mineral rights,
including exploration licenses and a mining lease grant on the
portion of the property that corresponds to the feasibility study
development. In April 2014, we also acquired an exploration license
referred to as the Honeybugle Scandium property, a prospective
scandium exploration property located 24 kilometers from the Nyngan
Scandium Project. During August
2018, we were granted an exploration license for the Kiviniemi
Scandium property in central Finland from the Finnish regulatory
body governing mineral exploration and mining in
Finland.
Corporate Objectives and Strategy
Our
corporate focus is to produce and sell scandium (Sc) and
scandium-based products. None of our current properties have
advanced to the development or production stage and we are
currently an exploration stage company. We have completed an
independently prepared definitive feasibility study
(“DFS”) of the Nyngan Scandium Project. Subject to
successfully financing of construction costs, we intend to develop
the Nyngan Scandium Project for production, with a view to
supplying anticipated demand for scandium oxide and
scandium-content materials. For further information on the Nyngan
Scandium Project, please refer to “Item 2. Properties - Description of Mineral Projects –
Nyngan Scandium Project” and
“Item 1A. Risk Factors.”
Concurrently
with our analysis of the Nyngan Scandium Project, we are developing
and testing unique mineral recovery techniques as well as
techniques to produce high quality intermediate scandium-content
aluminum alloy products. If effective at a commercial level, these
mineral recovery techniques, scandia finishing techniques and
intermediate product developments are expected to provide increased
economic margins and returns on capital on any future scandium
production.
Presently
our recovery and finishing technology is completed to a degree that
supports engineering and flow sheet design for our +15%/-5% DFS,
although further development work will continue in both areas.
There is no guarantee that we will be able to benefit from the
commercial application of such techniques or that we will have
scandium production in the future.
8
Global Scandium Production and Market
Scandium
is the 31st most abundant
element in the earth’s crust (average 33 ppm), which makes it
more common than lead, mercury and precious metals, but less common
than copper. Scandium has characteristics that are similar to rare
earth elements, and it is often classified as a member of that
group, although it is technically a light transition metal.
Scandium occurs in nature as an oxide, rarely occurs in
concentrated quantities because it does not selectively combine
with the common ore-forming anions, and is very difficult to reduce
to a pure metal state. Scandium is typically produced and sold as
scandium oxide (Sc2O3), more properly
known as scandia.
Global
annual production estimates of scandium range from 15 tonnes to 20
tonnes, but accurate statistics are not available due to the lack
of public information from countries in which scandium is currently
being produced. There are five known, primary production sources
globally today: stockpiles from the former Zhovti Voty uranium mine
in Ukraine, the rare earth mine at Bayan Obo in China, apatite
mines on the Kola Peninsula in Russia, by-product production from
titanium dioxide (TiO2) pigment refiners
in China, and recent start-up production of scandium oxide
concentrates from the Taganito Nickel Mine in the Philippines
(Sumitomo Metal Mining Co., Ltd.).
There
is no reliable pricing data on global scandium oxide trading. The
U.S. Geological Survey (“USGS”) in its latest available
report (dated January 2020) documents the 2019 price of scandium
oxide (99.99% grade) at US$3,900/kg, indicating a reduction from
the 2018 price estimate of US$4,600/kg. Small quantities of
scandium oxide, suitable for laboratory investigations, are
currently offered on the internet by traders for prices at this
level. Larger quantities of oxide product at varying purities are
available at considerably lower prices, typically below
US$2,000/kg. Scandium oxide grades of 95% or greater are considered
commercially suitable, with 99.9% grade used for electrical
applications, and grades higher than 99.9% reserved for science and
new technical applications. Scandium oxide grades of 95-99% are
generally considered suitable for aluminum alloy
applications.
Scandium
oxide is typically traded in small quantities, between private
parties, and pricing is not transparent to other buyers or sellers
as there is no clearing facility as is more common with
commercially traded metals and commodities. Prices do vary, based
on purity and quantity supplied. Small sale quantities tend to
command premium prices, and large quantities (over one tonne) are
simply not available to establish appropriate commercial
pricing.
Scandium
can also be effectively purchased in the form of aluminum-scandium
(Al-Sc) master alloy, typically containing 2% scandium by weight.
This product is the preferred form for manufacture of aluminum
alloys containing scandium. The latest available 2019 USGS report
indicates the 2018 price for Al-Sc 2% master alloy at US$360/kg,
slightly higher than the 2017 USGS average. Recent USGS estimated
prices for Al-Sc 2% master alloy have also been high relative to
commonly available prices, which have trended under US$100/kg and
are available in one tonne lots or greater today.
Principal
uses for scandium are in high-strength aluminum alloys,
high-intensity metal halide lamps, electronics, and laser research.
Recently developed applications include welding wire and fuel cells
which are expected to be in future demand. Approximately 15
different commercial aluminum-scandium alloys have been developed,
and some of them are used for aerospace applications. In Europe and
the U.S., scandium-containing alloys have been evaluated for use in
structural parts in commercial airplanes and high stress parts in
automobile engines and brake systems. Military and aerospace
applications are known to be of interest, although with less
specificity. The combination of high strength, weldability and
ductility makes aluminum-scandium alloys potentially attractive
replacements for existing aluminum alloys in a number of
applications where improved alloy properties can add value to final
products.
Competitive Conditions
We compete with numerous other companies and individuals in the
search for and the acquisition or control of attractive rare earth
and specialty metals mineral properties. Our ability to acquire
further properties will depend not only on our ability to operate
and develop our properties but also on our ability to select and
acquire suitable properties or prospects for development or mineral
exploration.
In regard to our plan to produce scandium, there are a limited
number of scandium producers presently. If we are successful at
becoming a producer of scandium, our ability to be competitive will
require that we establish a reliable supply of scandium to the
market, delivered at purity levels demanded by various
applications, and that our operating costs generate margins at
prices that will be set by customers and competitors in a market
yet to mature.
Governmental Regulations and Environmental Laws
The
development of any of our properties, and specifically the Nyngan
Scandium Project, will require numerous local and national
government approvals and environmental permits. For further
information about governmental approvals and permitting
requirements, please refer to “Item 1A. Risk
Factors”.
Employees
As at January 1, 2020, we have 5 full and part time employees and 5
individuals working on a consulting basis. Our operations are
managed by our officers with input from our directors. We engage
geological, metallurgical, and engineering consultants from time to
time as required to assist in evaluating our property interests and
recommending and conducting work programs.
ITEM 1A. RISK FACTORS
In
addition to the factors discussed elsewhere in this Form 10-K, the
following are certain material risks and uncertainties that are
specific to our industry and properties that could materially
adversely affect our business, financial condition and results of
operations.
9
Risks Associated with the Nyngan Scandium Project
There are technical challenges to scandium production that may
render the Nyngan Scandium Project not economic. The
economics of scandium recovery are known to be challenging. There
are very few facilities producing scandium and the existing
scandium producers are secretive in their techniques for recovery.
In addition, the recovery of scandium product from laterite
resources, such as are found on the Nyngan property, has not been
demonstrated at an operating facility. The Nyngan processing
facility design, if constructed, will be the first of its kind for
scandium production. These factors increase the possibility that we
will encounter unknown or unanticipated production and processing
risks. Should we encounter any of these risks, they could increase
the cost of production thereby reducing margins on the Nyngan
Scandium Project or rendering it uneconomic.
There is no guarantee that we will be able to finance the Nyngan
Scandium Project for production. Any decision to proceed
with production on the Nyngan Scandium Project will require
significant production financing. Scandium projects are uncommon,
and economic and production uncertainty may limit our ability to
attract the required amount of capital to put the project into
production. If we are unable to source production financing on
commercially viable terms, we may not be able to proceed with the
project and may have to write off our investment in the
project.
If we are successful at achieving production, we may have
difficulty selling scandium. Scandium is characterized by
unreliable supply, resulting in limited development of markets for
scandium oxide. Markets may take longer to develop than
anticipated, and Nyngan and other potential scandium producers may
have to wait for products and applications to create adequate
demand. Certain applications may require lengthy certification
processes that could delay usage or acceptance. In addition,
certain scandium applications require very high purity scandium
product, which is much more difficult to produce than lower grade
product. If we commence production, our inability to supply
scandium in sufficient quantities, in a reliable and timely manner,
and in the correct quality, could reduce the demand for any
scandium produced from our projects and possibly render the project
uneconomic.
General Risks Associated with our Mining Activities and
Company
We may not receive permits necessary to proceed with the
development of a mining project. The development of any of
our properties, including the Nyngan Scandium Project, will require
the acquisition and sustained possession of numerous local and
national government approvals and permits. Our ability to secure
all necessary permits required to develop any of our projects is
unknown until such permits are received. If we cannot obtain or
retain all necessary permits, the Nyngan Scandium Project cannot be
developed, and our investment in the project will potentially be
lost. While the critical permits for the Nyngan Scandium Project
have been received, other permits remain outstanding at this time
and continuing compliance with the terms of the permits is
required. Our future market value will likely be significantly
reduced to the extent one or more of our projects cannot proceed to
the development or production stage due to an inability to secure
all required permits.
Mineral Resource Estimates on our properties are subject to
uncertainty and may not reflect what may be economically
extracted. Resource estimates
included for scandium on our Nyngan property are estimates only and
no assurances can be given that the estimated levels of scandium
minerals will actually be produced or that we will receive the
metal prices assumed in determining our resources. Such estimates
are expressions of judgment based on knowledge, mining experience,
analysis of drilling and exploration results and industry
practices. Estimates made at any given time may change
significantly when new information becomes available or when
parameters that were used for such estimates change. By their
nature resource estimates are imprecise and depend, to a certain
extent, upon statistical inferences which may ultimately prove
unreliable. Furthermore, market price fluctuations in scandium, as
well as increased capital or production costs or reduced recovery
rates, may limit our ability to establish reserves at some future
point on Nyngan, or on any of our properties. The extent to which
more Nyngan project resources may ultimately be reclassified as
proven or probable reserves is dependent upon the demonstration of
their profitable recovery. The evaluation of reserves or resources
is always influenced by economic and technological factors, which
may change over time. Accordingly, further current resource
estimates on our material properties may never be converted into
reserves, or be economically extracted, and we may have to write
off such properties or incur a loss on sale of our interest on such
properties, which will likely reduce the value of our
shares.
Our potential for a competitive advantage in specialty and rare
metals production depends on the availability of our technical
processing abilities, as currently provided by our Chief Technology
Officer. We
are dependent upon the personal efforts and commitment of Willem
Duyvesteyn, our CTO, a director and significant shareholder of the
Company, for the continued development of new extractive
technologies related to scandium and other rare and specialty
metals production. The loss of the services of Mr. Duyvesteyn would
likely limit our ability to use or continue the development of such
technologies, which would remove the potential competitive and
economic benefit of such technologies.
Our operations are subject to losses due to exchange rate
fluctuation. We
maintain accounts in Canadian, Australian, Euro and U.S. currency.
Our equity financings have to date been priced in Canadian dollars.
All of our material projects and non-cash assets are located
outside of both Canada and the USA, however, and require regular
currency conversions to local currencies where such projects and
assets are located. Our operations are accordingly subject to
foreign currency fluctuations and such fluctuations may materially
affect our financial position and results. We do not engage in
currency hedging activities.
We do not currently earn any revenue and without additional
funding, we will not be able to carry out our business plan, and if
we raise additional funding existing security holders may
experience dilution. As an
exploration stage mining company, none of our principal properties
are in operation and we do not currently earn any revenue. In order
to continue our exploration activities and to meet our obligations
on the Nyngan Scandium Project, we will need to raise additional
funds. Recently, we have relied entirely on the sale of our
securities to raise funds for operations. Our ability to continue
to raise funds from the sale of our securities is subject to
significant uncertainty due to volatility in the mineral
exploration marketplace. If we are able to raise funds from the
sale of our securities, existing security holders may experience
significant dilution of their ownership interests and possibly to
the value of their existing securities.
10
ITEM 2.
PROPERTIES
Cautionary Note to U.S. Investors Regarding Resource
Estimates
Certain terms used in this section are those used in accordance
with the requirements of the securities laws in effect in Canada,
which differ from the requirements of U.S. securities laws.
Canadian requirements, including NI 43-101, differ significantly
from the requirements of the U.S. Securities and Exchange
Commission (the “SEC”), and resource information
contained herein may not be comparable to similar information
disclosed by U.S. companies.
In particular, and without limiting the generality of the
foregoing, the term “resource” does not equate to the
term “reserves.” The requirements of NI 43-101 for
identification of “reserves” are not the same as those
of the SEC, and reserves reported in compliance with NI 43-101 may
not qualify as “reserves” under SEC standards. Under
U.S. 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 recognize
information concerning “measured mineral resources.”
“indicated mineral resources” or “inferred
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. In addition, resources that are classified as
“inferred mineral resources” have a great amount of
uncertainty as to their existence and great uncertainty as to their
economic and legal feasibility. It cannot be assumed that all or
any part of an “inferred mineral resource” will ever be
upgraded to a higher category. Under Canadian rules, estimated
“inferred mineral resources” may not generally form the
basis of feasibility or pre-feasibility studies. Investors are
cautioned not to assume that all or any part of an “inferred
mineral resource” exists or is economically or legally
mineable.
Disclosure of “contained ounces” in a resource 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 in-place
tonnage and grade without reference to unit measures.
Accordingly, information concerning mineral deposits set forth
herein may not be comparable with information presented by
companies using only U.S. standards in their public
disclosure.
Description of Mineral Projects
Nyngan Scandium Project
Property Description and Location
The
Nyngan Scandium Project site is located approximately 450
kilometres northwest of Sydney, NSW, Australia and approximately 20
kilometres due west from the town of Nyngan, a rural town of
approximately 2,900 people. The deposit is located 5 kilometres
south of Miandetta, off the Barrier Highway that connects the town
of Nyngan to the town of Cobar. The license area can be reached via
the paved Barrier Highway, which allows year-round access, but
final access to the site itself is reached by clay farm tracks. The
general area can be characterized as flat countryside and is
classified as agricultural land, used predominantly for wheat
farming and livestock grazing. Infrastructure in the area is good,
with available water and electric power in close proximity to the
property boundaries.
The Nyngan property is classified as an Australia Property
for purposes of financial statement segment
information.
The
scandium resource is hosted within the lateritic zone of the Gilgai
Intrusion, one of several Alaskan-type mafic and ultramafic bodies
which intrude Cambrian-Ordovician metasediments collectively called
the Girilambone Group. The laterite zone, locally up to 40 meters
thick, is layered with hematitic clay at the surface followed by
limonitic clay, saprolitic clay, weathered bedrock and finally
fresh bedrock. The scandium mineralization is concentrated within
the hematitic, limonitic, and saprolitic zones with values up to
350 ppm scandium.
11
The
general location of the Nyngan Scandium Project is provided in
Figure 1 below. The specific location of the exploration licenses
that we may earn an interest in are provided in Figure 2
below.
Figure 1: Location of Nyngan Scandium Project
Note:
None of the Existing Mines identified in Figure 1 produce
scandium.
12
Figure 2: Location of the Exploration Licenses and Mining Lease for
the Nyngan Scandium Project
Mineral License Details
The
scandium resource is held under Exploration License (EL) 8316
(Block Number 3132, units d, e, j, k and Block no. 3133, unit f)
and EL 6096 (Block 3132, unit p, and Block 3133, units l, m, r and
s); a total of ten (10) graticular units. The exploration licenses
allow the license holder to conduct exploration on private land
(with landowner consents and signed compensation agreements in
place) and public lands not including wildlife reserves, heritage
areas or National Parks. The scandium resource is fully enclosed on
private agricultural land.
The
Company’s Australian subsidiary holds legal title to both the
surface and mineral exploration rights on the Nyngan Scandium
Project.
During
2017, an additional EL (EL 8448) was granted. Figure 2 provides
details of the location of EL 8448 and the locations of Mining
Lease 1792 and Mining Lease Application 531, both of which overlay
the exploration license area.
The exploration licenses cover 29.25 square kilometers (2,925
hectares). The resource site is located at geographic
coordinates MGA zone 55, GDA 94, Lat: - 31.5987, Long: 146.9827,
Map Sheets 1:250k – Cobar (SH/55-14) and 1:100k Hermidale
(8234).
The project surface rights (freehold) total 810 acres (370
hectares) on the portion of the exploration license area
corresponding to the Mine Lease 1792 area. The freehold
property boundaries are defined by standard land survey techniques
undertaken by the Lands Department and currently presented in the
form of Cadastral Deposited Plans (DP) and Lots. The land
associated with the project rights is DP 752879, Lots 6 and 7
(Appendix 2, Lots 6 and 7 - Nyngan).
The Company is required to lodge individual A$10,000 environmental
bonds with the NSW Mines Department for each license, and must meet
total minimum work requirements annually of approximately A$65,000,
covering both licenses.
Royalties attached to the properties include a 1.5% Net Profits
Interest royalty to private parties involved with the early
exploration on the property, a 1.7% Net Smelter Returns Royalty
payable to Jervois for 12 years after production commences, subject
to terms in the settlement agreement, and a 0.7% royalty on gross
mineral sales to a private investor. Another revenue royalty is
payable to private interests of 0.2%, subject to a US$370k cap. A
NSW minerals royalty will also be levied on the project, subject to
negotiation, currently 4% on revenue.
13
Metallurgy Development
The
Company has invested in and developed methodology for extracting
scandium from the Nyngan property resource since 2010. A portion of
the work done over this period has been superseded by work that
followed, but subsequent test programs universally benefitted from
prior efforts. In summary, the programs have been as
follows:
●
2010 – The
Company inherited work done on Nyngan from the previous property
owner, and applied that work to a quick flowsheet and capital
estimate done for management by Roberts & Schaefer of Salt Lake
City, Utah;
●
2011 – The
Company employed Hazen Research, Inc., of Golden, Colorado, USA
(“Hazen”) to test acid baking techniques and solvent
extraction (“SX”) processes with Nyngan resource
material. The Company also employed SGS-Lakefield (Ontario) to test
pressure acid leach techniques on Nyngan resource, as a replacement
for or an enhancement to acid bake techniques done earlier in the
year by Hazen;
●
2012 – The
Company engaged SNC-Lavalin to do an economic study for management,
utilizing an acid bake flowsheet and SX work from the Hazen test
program;
●
2014 – The
Company published a preliminary economic assessment
(“PEA”) entitled NI 43-101F1 Technical Report on the
Feasibility of the Nyngan Scandium Project, authored by Larpro Pty
Ltd, utilizing both Hazen and SGS-Lakefield test work results;
and
●
2015 – The
Company amended and refiled the 2014 PEA Report as the “Amended Technical Report and
Preliminary Economic Analysis on the Nyngan Scandium Project, NSW,
Australia.”
●
2016 – The
Company published an independently prepared definitive feasibility
study (“DFS”) on the Nyngan Scandium Project. The
technical report on the feasibility study entitled
“Feasibility Study –
Nyngan Scandium Project, Bogan Shire, NSW, Australia”
was independently compiled pursuant to the requirements of NI
43-101 and incorporated the results of current and previous test
work.
Nyngan Feasibility Study
On
April 18, 2016, the Company announced the results of an independent
definitive 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” or
“DFS”). The report was filed on May 6, 2016 and is
available on SEDAR (www.sedar.com)
and 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 NPV10% of US$177
million. The average process plant feed grade over the 20 year
project life is 409ppm of scandium.
The
financial results of the Feasibility Study are based on a
conventional flow sheet, employing continuous high pressure acid
leach (HPAL) and solvent extraction (SX) techniques. The flow sheet
was modeled and validated from METSIM modeling and considerable
bench scale/pilot scale metallurgical test work utilising Nyngan
resource material. A number of the key elements of this flowsheet
work have been protected by the Company under US patent
applications.
The
Feasibility Study has been developed and compiled to an accuracy
level of +15%/-5%, by a globally recognized engineering firm that
has considerable expertise in laterite deposits and process
facilities, as well as in smaller mining and processing projects,
and has excellent familiarity with the Nyngan Scandium Project
location and environment.
Nyngan Scandium Project Highlights
●
Capital cost
estimate for the project is US$87.1 million,
●
Annual scandium
oxide product volume averages 37,690 kg, 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.
14
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. The Feasibility Study consolidates a significant
amount of metallurgical test work and prior study on the Nyngan
Scandium Project, including important test work results completed
since the PEA was generated in 2014. 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. A number of the key elements
of this flowsheet work have been protected by the Company under US
Patent Applications. 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, specifically the PEA. 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 for the
business.
The
Feasibility Study delivered a positive result on the Nyngan
Scandium Project, and recommends the Nyngan Scandium Project owners
seek finance and proceed to construction. Recommendations were made
therein for additional immediate work, notably to win additional
offtake agreements with customers, complete some optimizing flow
sheet studies, and to initiate as early as possible detailed
engineering required on certain long-lead capital items. The
Company intends to act on these recommendations as financing
permits.
Confirmatory Metallurgical Test Results
On June
29, 2016, we announced the results of a confirmatory metallurgical
test work report from Altrius Engineering Services (AES) of
Brisbane, Australia. The test work results directly relate to the
list of recommended programs included in the Feasibility Study. AES
devised and supervised these test work programs at the SGS
laboratory in Perth, Australia and at the Nagrom laboratory in
Brisbane, Australia.
The
project DFS recommended a number of process flowsheet test work
programs be investigated prior to commencing detailed engineering
and construction. Those study areas included pressure leach
(“HPAL”), counter-current decant circuits
(“CCD”), solvent extraction (“SX”), and
oxalate precipitation, with specific work steps suggested in each
area. This latest test work program addresses 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.
15
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,
Australia, 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 80% owned
subsidiary, EMC Australia, to support an application for
Development Consent for the Nyngan Scandium Project. The EIS is a
complete document, including a Specialist Consultants Study
Compendium, and was submitted to the Department on April 29,
2016.
EIS
Highlights:
●
The EIS finds
residual environmental impacts represent negligible
risk.
●
The proposed
development design achieves sustainable environmental
outcomes.
●
The EIS finds
net-positive social and economic outcomes for the
community.
●
Nine independent
environmental consulting groups conducted analysis over five years,
and contributed report findings to the EIS.
●
The Nyngan project
development is estimated to contribute A$12.4M to the local and
regional economies, and A$39M to the State and Federal economies,
annually
●
The EIS is fully
aligned with the DFS and with a NSW Mining License Application for
the Nyngan project.
Conclusion
statement in the EIS:
“In
light of the conclusions included throughout this Environmental Impact Statement, it is
assessed that the Proposal could be constructed and operated in a
manner that would satisfy all relevant statutory goals and
criteria, environmental objectives and reasonable community
expectations.”
EIS
Discussion:
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$30million, 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 recently
completed DFS.
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.
16
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 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.
The NSW
Department of Planning and Environment has recently sought and
received independent consultant input that the landowner objection
should qualify as “Agricultural Land”, as defined in
the relevant law. The Company has rights of comment on that
finding, which have been exercised, in a formal comment package
delivered to the Department on February 1, 2019. With receipt and
consideration of comment documents from the parties, and further
Department input, the Department Secretary will make a
determination on the validity of the affected portion of the MLA
531.
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-K, the Department Secretary has not made a
decision on the validity of the landowner objection. In January
2020, the Company made a formal request to the Deputy Premier and
Minister for NSW Industry and Trade, urging for action and a final
decision in this matter, accompanied by a review of the facts,
status and Company position on the matter.
Patent Application Filings
The
Company is in the process of establishing a significant portfolio
of intellectual property through the filing of scandium related
patents both in the US and abroad.
To
date, the following five US patents have been granted to the
Company:
|
10450634
|
Scandium-Containing
Master Alloys And Method For Making The Same
|
|
10378085
|
Recovery
Of Scandium Values Through Selective Precipitation Of Hematite And
Basic Iron Sulfates From Acid Leachates
|
|
10260127
|
Method
For Recovering Scandium Values From Leach Solutions
|
|
9982326
|
Solvent
Extraction Of Scandium From Leach Solutions
|
|
9982325
|
Systems
And Methodologies For Direct Acid Leaching Of Scandium-Bearing
Ores
|
Below
is a list of ten US patents that haven filed, but have not been
granted yet:
|
US20200001407
|
Control Of Recrystallization In Cold-Rolled AlMn(Mg)ScZr Sheets For
Brazing Applications
|
|
US20190161827
|
Extraction Of Scandium Values From Copper Leach
Solutions
|
|
US20160289795
|
Systems and Processes for Recovering Scandium Values From Laterite
Ores
|
|
US20190218645
|
Direct Scandium Alloying
|
|
US20190218644
|
Scandium Master Alloy Production
|
|
US20120305452
|
Dry, Stackable Tailings and Methods for Producing the
Same
|
|
US20110298270
|
In Situ Ore Leaching Using Freeze Barriers
|
|
Provisional
|
Title not publicly disclosed.
|
|
Provisional
|
Title not publicly disclosed.
|
|
Provisional
|
Title
not publicly disclosed.
|
17
Patent Applications Discussion:
●
These patents and
patent applications cover novel, unique flowsheet designs,
applicable to scandium extraction, from scandiferous
resources;
●
The patented
designs are largely supported by test work done with Nyngan
Scandium Project resource material and known design
parameters;
●
The patents cover
HPAL system material flows, solvent extraction (SX), ion exchange
systems (“IX”), atmospheric tank and heap leaching
systems and techniques, and processes for directly making select
master alloys containing scandium; and
●
Most of the designs
are incorporated as part of the DFS.
●
Recovery by-product
scandium from certain mineral resources is also
covered.
These
patent applications, filed with the US Patent Office, protect the
Company’s position and rights to the intellectual property
(IP) contained and identified in the applications as of the date
filed, within the worldwide jurisdiction limits of the US patent
system. Review by the US Patent Office will take further time, but
the dates of filing these patents define the basis of IP ownership
claims, as is generally afforded U.S. patentholders.
The
Company intends to utilize the IP contained in these process
patents in the development of process flowsheets for recovery of
scandium from its Nyngan Scandium Project, as well as its
Honeybugle project, and potentially from future by-product
opportunities.
The
Company believes that patent protection of these specific, novel
process designs will be granted. Many of the basic design elements
contemplated in the Nyngan Scandium Project flowsheet are commonly
applied to other specialty metals, particularly nickel. However,
the application of these basic design elements has not been
commonly applied to scandium extraction from laterite resources,
and there are enough intended and required operational differences
in the application to permit the Company to patent-protect IP on
those differences.
These
patent claims are the result of several years of metallurgical test
work with independent resource laboratories and specific design
work by Willem Duyvesteyn, the Company’s Chief Technology
Officer. This work is ongoing. Patent protection on flowsheet
intellectual property will serve to limit or prevent the
unauthorized use of that IP by others without the Company’s
consent. We believe these filings are an important action to
protect the ownership of a Company asset, on behalf of all SCY
shareholders.
Downstream Scandium Products
In
February 2011 we announced results of a series of laboratory-scale
tests investigating the production of aluminum-scandium master
alloys directly from aluminum oxide and scandium oxide feed
materials. The overall objective of this research was to
demonstrate and commercialize the production of aluminum-scandium
master alloy using impure scandium oxide as the scandium source,
potentially significantly improving the economics of
aluminum-scandium master alloy production. In 2014, the Company
announced it applied for a US patent on master alloy production,
which is still in the application phase.
During
the 2015-2017 timeframe, we continued our own internal
laboratory-scale investigations into the production of
aluminum-scandium master alloys, furthering our understanding of
commercial processes, and achievable recoveries. We advanced our
abilities to make a standard-grade 2% scandium master alloy product
typical of commercially available products offered
today.
On
March 2, 2017, we announced the signing of a Memorandum of
Understanding ("MOU") with Weston Aluminium Pty Ltd. ("Weston") of
Chatswood, NSW, Australia. The MOU defines a cooperative commercial
alliance to jointly develop the capability to manufacture
aluminum-scandium master alloy. The intended outcome of this
alliance will be to develop the capability to offer Nyngan Scandium
Project aluminum alloy customers scandium in form of Al-Sc master
alloy, should customers prefer that product form.
The MOU
outlines steps to jointly establish the manufacturing parameters,
metallurgical processes, and capital requirements to convert Nyngan
Scandium Project scandium product into Master Alloy, on Weston's
existing production site in NSW. The MOU does not include a binding
contract with commercial terms at this stage, although the intent
is to pursue the necessary technical elements to arrive at a
commercial contract for conversion of scandium oxide to master
alloy, and to do so prior to first mine production from the Nyngan
Scandium Project.
18
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.
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
(Sc2O3) 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 also 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.
19
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.
Letters of Intent with Potential Customers
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 can't otherwise be similarly formed today.
PAB
Coventry Ltd. (“PAB”), based in Coventry, UK. PAB is a
privately held manufacturing and prototyping company offering
specialty metal parts and design capabilities, serving the
automotive, aerospace, defense and HVAC industries. PAB has been a
well-known parts and forms supplier to the premium market segment
of the British automotive industry for decades.
Eck
Industries Inc. (“Eck”), based in Manitowoc, Wisconsin,
USA. Eck is a privately held manufacturer of precision sand cast
parts, and engineering services. Eck Industries operates a 210,000
sq. ft. facility with over 250 employees, and 110 customers.
Customer segments include commercial aircraft parts, automotive and
trucking cast parts, military drivetrain casings, marine propulsion
system castings, and military aerospace components.
Grainger
& Worrall Ltd. (“GW”), based in Shropshire, UK. GW
is a privately held manufacturer of precision sand cast parts, and
engineering services. GW is a well-recognized precision air-set
sand cast parts manufacturer in the UK, specializing in low to
intermediate volume cast parts for commercial automotive,
motorsports/racing, defense, marine, and aerospace
applications.
20
Gränges
AB (“Gränges”), based in Stockholm, Sweden.
Gränges is a public company, traded on the NASDAQ Stockholm
Stock Exchange (GRNG:OMX), and a large global player in the rolled
aluminum products business, with production assets in Europe, USA,
and China, and a worldwide customer base, majority concentrated in
the USA. Gränges is focused on advanced aluminum materials,
and holds a leading global position in rolled products for brazed
heat exchangers, which it estimates at 20%.
Ohm
& Häner Metallwerk GmbH & Co. GK
(“O&H”), based in Olpe, Germany. O&H is a
privately held manufacturer of sand cast and gravity die cast
parts, using metal alloys, servicing a significant, global customer
base. O&H produces over 3,000 individual cast parts, and
currently works with over 40 different alloys, primarily aluminum
and copper-based alloys.
AML
Technologies (“AML”), is 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 learned, 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 expedient confirmation on that
validation. The scandium market for aluminum alloys needs to be
developed, and that process is 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.
Nyngan Scandium Project - Planned Activities for
2020-2021
The
following steps are planned for Nyngan during the 2020 and 2021
Calendar years:
●
Complete master
alloy pilot trials and optimization work in Q1 2020
●
Pursue additional
offtake agreements in support of planned future scandium
sales,
●
Seek project
construction financing for the Nyngan Scandium Project in
2020,
●
Commence site
construction in the late of 2020, with anticipated construction
completion over 14 months, and
●
Initiate project
commissioning in late 2021, with product available for sale by year
end 2021.
Honeybugle Scandium Property
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 (NSW), Australia referred to as the
Honeybugle Scandium property. The license area is located
approximately 24 kilometers west-southwest from SCY’s Nyngan
Scandium Project. The license area covers part of the Honeybugle
geologic complex, and will carry that name in our future references
to the property. The ground was released by the prior holder, and
SCY intends to explore the property for scandium and other
metals.
The
Company currently does not consider the Honeybugle Scandium
property to be a material property at this time. No resources or
reserves are known to exist on the property. The property is
classified as an Australian property for purposes of financial
statement segment information.
The
location of the Honeybugle Scandium property is provided
below.
Figure
4. Location of Honeybugle Scandium property
21
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 our Nyngan Scandium Project.
Highlights
of initial drilling program results are as follows:
●
The highest 3-meter
intercept graded 572 ppm scandium (hole EHAC 11);
●
EHAC 11 also
generated two additional high grade scandium intercepts, grading
510 ppm and 415 ppm, each over 3 meters;
●
The program
identified a 13-hole cluster which was of particular
interest;
●
Intercepts on these
13 holes averaged 270 ppm scandium over a total 273 meters at an
average continuous thickness of 21 meters per hole, representing a
total of 57% (354 meters) of total initial program
drilling;
●
The 13 holes
produced 29 individual (3-meter) intercepts over 300 ppm,
representing 31% of the mineralized intercepts in the 273 meters of
interest; and
●
This initial
30-hole AC exploratory drill program generated a total of 620
meters of scandium drill/assay results, over approximately 1 square
kilometer on the property.
The
detail results of 13 holes in the initial drill program are as
follows:
Table
7. Results of 13-Hole Initial Drill Program
22
Seaford
is characterized by extensive outcrops of dry, iron-rich laterites,
allowing for a particularly shallow drill program. Thirty (30) air
core (AC) holes on nominal 100-meter spacing were planned, over an
area of approximately 1 square kilometer. Four holes were halted in
under 10 meters depth, based on thin laterite beds, low scandium
grades, and shallow bedrock.
The 13
holes highlighted in the table are grouped together on either side
of Coffills Lane, and represent all of the drill locations where
meaningful intercept thickness generated scandium grades exceeding
175 ppm. Some of these 13 holes showed significant scandium values
on the immediate surface, and alternately, other holes exhibited
favorable scandium grades that began at shallow depth. The highest
grade Sc sample was found in a 21-24 meter interval (572 ppm),
although several holes produced better than 350 ppm Sc intercepts
at depths of under 9 meters. The deepest hole (EHAC 7) was drilled
to 57 meters, showing good scandium grades over a 12-meter horizon
(245 ppm) near the bottom of the hole, from 39 to 51 meters depth.
Higher scandium grades were associated with higher iron levels.
Holes were drilled to a depth where they contacted the fresh
ultramafic bedrock, which generally signaled the end of any
scandium enrichment zones.
The
drill plan divided Seaford into four sub-areas, 1-4, as highlighted
Figure 5, below. Area 1 was relatively higher ground and therefore
the least impacted by ground moisture. Consequently, this dryer
area received the greatest attention, although that had been the
general intention in the plan. Area 1 received 17 holes, with 13
presented in detail in the table above. Areas 2-4 were each
intended as step-out areas that need to be further examined in the
next program. The three step-out areas did not generate results of
particular note, although hole locations were not optimal due to
ground conditions and access.
Area 2
received 3 holes, 60 meters total, and generated Sc grades from
45-75 ppm,
Area 3
received 4 holes, 87 meters total, and generated Sc grades from
47-122 ppm,
Area 4
received 5 holes, 72 meters total, and generated Sc grades from
60-101 ppm, and
The
average depth of all of these holes was 18 meters, with the deepest
30 meters.
Figure
5. Initial Drill Program Map
23
This
13-hole cluster (Area 1) was noted to be in a relatively thick
laterite zone which was constrained to the west by contact with
meta-sediments, to the east by fresh ultramafic bedrock, and to
some extent in the north by a poor intersection result in hole 30.
Area 1 remains somewhat open to the south, with the two
southern-most holes (EHAC 9 and EHAC 29) generating some of the
best scandium grade intercepts in the area.
The
surface and near surface mineralization at this property is an
advantage, both in locating areas of interest for future
exploration work, and also because of extremely low overburden
ratios. This particular characteristic for the Honeybugle Scandium
property is different from our Nyngan Scandium Project, where
mineralization is typically covered by 10-20 meters of barren
alluvium.
Further
drilling at Seaford is warranted, based on the results of this
introductory and modest program, specifically to the north and
south of the existing area 1 drill pattern, along with
investigation and select drilling at the other three remaining
anomalies on the property.
During
2018 we performed site work at the Honeybugle Scandium property to
meet the expenditure commitment to maintain the exploration
license. Work performed during 2018 does not change the previous
conclusions, as described above. No work was required or performed
during 2019.
Qualified
Person and Quality Assurance/Quality Control
John
Thompson, B.E. (Mining); Vice President - Development at SCY is a
qualified person as defined in NI 43-101 and has reviewed the
technical information on this property. The drilling, sampling,
packaging and transport of the drill samples was carried out to
industry standards for QA/QC. SCY employed an independent local
geology consulting and drill supervisory team, Rangott Mineral
Exploration Pty. Ltd., (RME) of Orange, NSW, Australia, to manage
the drill work on-site. Bulk samples of drill returns were
collected at one metre intervals from a cyclone mounted on the
drilling rig, and a separate three-tier riffle splitter was used on
site to obtain 2.0-4.5kg composite samples collected over 3 metre
intervals, for assay. Individual sample identifiers were
cross-checked during the process. The assay samples were placed in
sealed polyweave bags which remained in RME’s possession
until the completion of the drilling program, at which time they
were transported to RME’s office in Orange. There, the
sequence of sample numbers was validated, and the assay samples
were immediately submitted to Australian Laboratory Services’
(ALS’) laboratory in Orange. The remnant bulk samples, which
were collected in sealed polythene bags, were transported by RME to
a local storage unit at Miandetta, for long-term
storage.
ALS/Orange
dried and weighed the samples, and pulverized the entire sample to
85% passing 75 microns or better (technique PUL-21). These 50g
sample bags of pulps were then sent to the ALS laboratory at
Stafford in Brisbane, Queensland for analysis. ALS/Brisbane
analyzed the pulps for scandium, nickel, cobalt, chromium, iron and
magnesium, using Inductively Coupled Plasma Atomic Emission
Spectroscopy (ICP-AES) after a four acid (total) digestion
(technique ME-ICP61). The lower detection limit for scandium using
this technique is 1ppm. For their internal quality control,
ALS/Brisbane added 4 standard samples (for 20 repeat analyses), 10
blank samples and 16 duplicate samples to the batch. Please see
news release see news release dated May 7, 2014 and available on
www.sedar.com for further information on the Honeybugle drill
results.
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, and our exploration rights have been moved to
SCY Exploration Finland Oy, a wholly owned Finnish
subsidiary.
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 does not consider the Kiviniemi Scandium property to be a
material property at this time. No NI 43-101 resources or reserves
are known to exist on the property. The property is classified as
the Finland property for purposes of financial statement segment
information.
24
Highlights
●
Kiviniemi property
was previously identified for scandium and explored by
GTK,
●
Property is a high
iron content, medium grade scandium target, located on surface,
with on-site upgrade potential,
●
Early resource
upgrade work done for GTK promising, confirmed by SCY,
●
Property is
all-weather accessible, close to infrastructure, and
●
Finland location is
mining-friendly and ideally suited to EU customer
markets.
Property/Location
The
Kiviniemi property is located in the municipality of Rautalampi,
Eastern Finland Province, approximately 350km northeast of
Helsinki, by road. The closest major city/airport is Kuopio (pop.
110,000), approximately 70km to the northeast of the property. The
exploration target is located on a small portion of a family farm,
partially cleared for farming. Most of the property is wooded,
including the area where the mineralization has been
located,
Exploration License
During
August 2018 an Exploration License for the Kiviniemi Scandium
property was granted from the Finnish regulatory body governing
mineral exploration and mining in Finland. The exploration area is
approximately 24.6 hectares (0.25 square kilometer), identical to
the historic GTK exploration license on the property, which expired
in 2015. The mineralized area, as defined on GTK resource modeling
maps, is approximately 25% of the total reservation. The
exploration license requires us to report our exploration activities annually
to Finland government agencies and to demonstrate in the annual
reports that exploration work has been effective and
systematic.
Prior Exploration Work
GTK
performed magnetic surveys on the general area in 1986, focused on
copper/nickel/cobalt targets, and based on current mining activity
in the area. That initial field work located a significant magnetic
anomaly on the Kiviniemi property. In 2008, GTK initiated an
exploration drilling program on the property, completing 4 diamond
core holes in that first program phase, followed by a further 5
diamond holes in 2010, totaling 1,250 meters, at an average
(angled) length of 139 meters, and a maximum vertical extension of
167 meters. The drill spacing varied from 50-200 meters, using a
diamond drill size of 46mm (T56).
Four of
the nine total holes drilled (approx. 850 meters) are in the
mineralized area, with the remainder defining portions of the mag
zone that did not contain scandium. The mag zone is generally very
high in iron, ranging from about 20% to 35% Fe. The GTK published
the results of the drill program assays, and other information on
the geology and mineralization, on their website in
2016.
Geology of Resource Target
The
host rock is very iron-rich, garnet-bearing fayalite ferro(monzo)
diorite. The main minerals in the deposit include: plagioclase,
potassium feldspar, ferrohedenbergite (clinopyroxene),
ferrohastingsite (amphibole), almandine garnet and fayalite. The
principal scandium carrier minerals are ferrohastingsite (59 %) and
ferrohedenbergite (40 %).
25
Resource Modeling
GTK
completed and published a paper outlining property work including a
3D modeling and resource estimation on the project, in March 2016.
The authors employed data from 6 holes, and used an industry
standard GEOVIA Surpac software to produce a geological 3D domain
model, and inverse distance was run to estimate resource grades
into the block model. The authors declined to specifically
characterize the resource on the basis of limited holes and uneven
spacing, describing their estimate as an “exploration
potential measurement”. The authors estimated that another
500-700 meters of drilling (5-7 holes) would establish 50 meter
centers on the target and allow a resource classification. The
mineralized target remains open at depth. The authors did provide a
table of results on tonnage estimates from their modeling work, at
various cut off values, excerpts of which are presented
below.
The
Company believes the standards and controls employed by GTK are
reliable and consistent with proper industry practice. However, the
potential quantity and grade is conceptual in nature and there has
been insufficient exploration to define a mineral resource and it
is uncertain whether further exploration will result in a mineral
resource. The Company considers the above estimates as historical
in nature, and such estimates do not use the categories prescribed
by NI 43-101. A qualified person (as defined in NI 43-101) has not
done sufficient work to classify the historical estimate as a
current mineral resource. The Company is not treating the
historical estimate as a current mineral resource.
Metallurgical Upgrade Work
In
2010, GTK engaged their metallurgical research laboratory (at
Outokumpu) to conduct standard upgrade testing on the drill core
sample material, specifically magnetic gravity separations. The mag
separation work suggested a scandium upgrade to approximately
346ppm, based on a resource material head grade of 160-200ppm, and
a 72% scandium recovery.
In June
2017, SCY engaged FLSmidth (Salt Lake City, Utah) seeking to
duplicate the earlier 2010 upgrade work and confirm the earlier
results. The earlier results were generally confirmed, in that the
2017 work achieved magnetic separation upgrade assays of 286ppm on
a resource material head grade of 186ppm. We supplied FLSmidth with
approximately 16kg of resource material sourced from GTK, all
samples from a single hole (P433-R3). FLSmidth also carried out
scandium check assays on the individual drill hole samples provided
by GTK, with good grade correlation to GTK data.
Kiviniemi Summary
The
Kiviniemi property represents a medium grade scandium resource
target that has remained unrecognized and overlooked by earlier
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$2M of work value
has been directed at this property to date, including field work,
drilling programs, assay work, overheads, and metallurgical upgrade
studies, but firm numbers are not available.
We plan
a limited drill program to augment the existing GTK data, and
provide more sample material for metallurgical test work programs
to define economic site upgrade possibilities on the scandium
mineralization observed to date.
ITEM 3. LEGAL PROCEEDINGS
We are
not a party to any pending legal proceedings and, to the best of
our knowledge, none of our properties or assets are the subject of
any pending legal proceedings.
ITEM 4. MINE SAFETY
DISCLOSURES
The
Company has no active mining operations or dormant mining assets at
this time, and has no outstanding mine safety violations or other
regulatory safety matters to report.
26
PART II
ITEM 5. MARKET FOR REGISTRANTS’
COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF
EQUITY SECURITIES
Price Range of Common Shares
The
principal market on which our common shares are traded is the
Toronto Stock Exchange. Our common shares commenced trading on the
Toronto Stock Exchange on April 24, 2008 under the symbol
“GP”. Effective March 11, 2009, the common shares were
listed and posted for trading on the Toronto Stock Exchange under
the symbol “EMC”. Effective November 28, 2014, the
common shares were listed and posted for trading on the Toronto
Stock Exchange under the symbol “SCY”. The following
table shows the high and low trading prices of our common shares on
the Toronto Stock Exchange for the periods indicated.
|
Year
|
High
(C$)
|
Low
(C$)
|
|
Fiscal
Year ended December 31, 2019
|
|
|
|
First
quarter
|
0.220
|
0.145
|
|
Second
quarter
|
0.170
|
0.110
|
|
Third
quarter
|
0.190
|
0.095
|
|
Fourth
quarter
|
0.145
|
0.075
|
|
Fiscal
Year ended December 31, 2018
|
|
|
|
First
quarter
|
0.240
|
0.165
|
|
Second
quarter
|
0.190
|
0.125
|
|
Third
quarter
|
0.280
|
0.145
|
|
Fourth
quarter
|
0.285
|
0.200
|
Exchange Rates
We
maintain our books of account in United States dollars and
references to dollar amounts herein are to the lawful currency of
the United States except that we are traded on the Toronto Stock
Exchange and, accordingly, stock price quotes and sales of stock
are conducted in Canadian dollars (C$). The following table sets
forth, for the periods indicated, certain exchange rates based on
the noon rate provided by the Bank of Canada. Such rates are the
number of Canadian dollars per one (1) U.S. dollar (US$). The high
and low exchange rates for each month during the previous six
months were as follows:
|
|
High
|
Low
|
|
January
2020
|
1.3079
|
1.2970
|
|
December
2019
|
1.3302
|
1.2988
|
|
November
2019
|
1.3307
|
1.3148
|
|
October
2019
|
1.3330
|
1.3056
|
|
September
2019
|
1.3343
|
1.3153
|
|
August
2019
|
1.3325
|
1.3217
|
27
The
following table sets out the exchange rate (price of one U.S.
dollar in Canadian dollars) information as at each of the years
ended December 31, 2018 and 2019.
|
|
Year Ended
December 31
(Canadian $ per
U.S. $)
|
|
|
|
2018
|
2019
|
|
Rate at end of
Period
|
1.3610
|
1.2988
|
|
Low
|
1.2288
|
1.2988
|
|
High
|
1.3642
|
1.3600
|
As of
February 25, 2019, there were 104 registered holders of record of
the Company’s common shares and an undetermined number of
beneficial holders.
Dividends
We have
not paid any cash dividends on our common shares since our
inception and do not anticipate paying any cash dividends in the
foreseeable future. We plan to retain our earnings, if any,
to provide funds for the expansion of our business.
Securities Authorized for Issuance under Compensation
Plans
The
following table sets forth information as at December 31, 2019
respecting the compensation plans under which shares of the
Company’s common stock are authorized to be
issued.
|
Plan
Category
|
Number of
securities to be issued upon exercise of outstanding options,
warrants and rights
(a)
|
Weighted-average
exercise price of outstanding options, warrants and
rights
(b)
|
Number of
securities remaining available for future issuance under equity
compensation plans (excluding securities reflected in column
(a))
(c)
|
|
Equity compensation
plans approved by security holders
|
34,610,000
|
$C0.188
|
12,262,389
|
|
Equity compensation
plans not approved by security holders
|
Nil
|
Nil
|
Nil
|
|
Total
|
34,610,000
|
$C0.188
|
12,262,389
|
Purchases of Equity Securities by the Company and Affiliated
Purchasers
Neither
the Company nor an affiliated purchaser of the Company purchased
common shares of the Company in the year ended December 31,
2019.
28
ITEM 6. SELECTED FINANCIAL
DATA
Not applicable.
ITEM 7. MANAGEMENT’S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITIONS AND RESULTS OF
OPERATIONS
Overview
The
Company is a specialty metals and alloys company focusing on
scandium and other specialty metals.
The
Company was incorporated under the laws of the Province of British
Columbia, Canada in 2006. The Company currently trades on the
Toronto Stock Exchange under the symbol
“SCY”.
The
Company’s focus is on the exploration, evaluation and future
development of its specialty metals assets, specifically the Nyngan
Scandium Project and Honeybugle Scandium property located in New
South Wales, Australia and the Kiviniemi scandium prospect in
Finland, all of which are 100% owned by SCY. The Company is an
exploration stage company and anticipates incurring significant
additional expenditures prior to production at any and all of its
properties.
These
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 to advance both the Nyngan Scandium Project and
the Honeybugle 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. If additional financial support is not received or
operating profits are not generated, the carrying values of the
Company’s assets may be adversely affected.
RESULTS FOR THE YEAR ENDED DECEMBER 31, 2019
Liquidity and Capital Resources
At December 31, 2019, we had working capital of $(376,893)
including cash of $115,568 and current liabilities of $538,224 as
compared to working capital of $177,122 including cash of $284,757
at December 31, 2018.
At December 31, 2019, we had a total of 34,610,000 (2018 –
29,065,000) stock options exercisable between C$0.10 and C$0.60
(2018 – between C$0.10 and C$0.60) which have the potential
upon exercise to generate a total of C$6,513,250 (2018 –
C$5,635,350) in cash over the next four and a half years. There is
no assurance that these securities will be exercised.
Our continued development is contingent upon our 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
us; however, management is committed to pursuing all possible
sources of financing to execute our business plan.
Our
major capital requirement in the next 12 months relates to the
start of construction on the Nyngan Scandium Project.
The Company will need additional funding to develop the Nyngan
project into a mine in 2020 and will seek to raise additional
equity financing at that time.
29
Results of Operations
Quarter ended December 31, 2019
The net
loss for the quarter decreased by $231,509 to $311,807 from a loss
of $543,316 in the prior year mainly as a result of lower general
and administrative expenses, exploration costs, foreign exchange
losses and stock-based compensation. Details of the individual items contributing to
the decreased loss are as follows:
|
Q4 2019 vs. Q4
2018 - Variance Analysis (US$)
|
||
|
Item
|
Variance
Favourable / (Unfavourable)
|
Explanation
|
|
General
and administrative
|
$113,395
|
The
Q4 2019 expense is lower than in Q4 2018 due to lower property tax
expense, patent fees and marketing costs.
|
|
Exploration
|
$55,415
|
The Company is not
actively doing exploration work on its projects as it seeks to
create markets for its production. In Q4 2018 funds were still
being expended on exploration efforts.
|
|
Foreign
exchange loss
|
$25,446
|
Exchange rates for
the two major foreign currencies used stabilized in Q4 2019
resulting in a minimal expense in the current year. In Q4 2018
exchange rates were more volatile resulting in a larger exchange
loss in that year.
|
|
Stock
based compensation
|
$20,555
|
Timing of stock
option expense recognition is affected by vesting provisions. In Q1
of 2018, the Company issued stock options which vested over a
2-year period and resulted in expenses during 2018 Q4 of $24,208.
Options issued in Q2 of 2019 all vested immediately resulting in
minimal costs during Q4 of 2019.
|
|
Professional
fees
|
$8,199
|
Lower
company activity in Q4 2019 required less use of legal advice
resulting in lower professional fee costs when compared to Q4
2018.
|
|
Consulting
|
$5,127
|
The
lower consulting fee in Q4 2019 is a result of no longer using a
marketing consultant for the latter half of 2019.
|
|
Travel
|
$3,921
|
Year over year the
costs are almost the same. Fewer overseas trips by our consultants
lowered this expense in Q4 2019.
|
|
Salaries
and benefits
|
$62
|
Costs
are virtually the same when Q4 2019 is compared to Q4
2018.
|
|
Amortization
|
$(1)
|
Costs
are the same for the comparative quarters.
|
|
Insurance
|
$(610)
|
Higher
insurance premiums for the Company when compared to one year ago
results in this minor negative variance.
|
30
Results of Operations for the Year ended December 31,
2019
The net
loss for the year decreased by $1,013,175 to $1,947,933 from
$2,961,108 in the prior year, mainly because of lower stock-based
compensation and exploration costs. Details of the individual items contributing to
the decreased net loss are as follows:
|
2019 vs. 2018 -
Variance Analysis (US$)
|
||
|
Item
|
Variance
Favourable / (Unfavourable)
|
Explanation
|
|
Stock-based
compensation
|
$647,531
|
In 2019 the Company
granted 9,860,000 stock options compared to 6,500,000 stock options
issued in 2018. However, more immediate vesting provisions resulted
in a higher expense in 2018. Also, the Company’s shares were
trading at a lower price at the time of the 2019 stock option
grant, resulting in a lower compensation expense.
|
|
Exploration
|
$211,812
|
The Company is not
actively carrying-on exploration work on its projects as it seeks
to create markets for its production. In 2018 funds were still
being expended on exploration efforts.
|
|
Salaries
and benefits
|
$86,100
|
The amount expensed
in 2019 is lower due to the resignation of a senior company officer
in June of 2018. The position was not replaced.
|
|
Foreign
exchange gain
|
$64,067
|
Exchange rates for
the two major currencies used stabilized in 2019 resulting in a
minimal expense in the current year. In 2018 exchange rates were
more volatile resulting in a larger exchange loss in that
year.
|
|
General
and administrative
|
$40,594
|
With the lower
activity in 2019, general and administrative costs have been
reduced.
|
|
Professional
fees
|
$32,569
|
2018 costs include
legal fees pertaining to closing of the Exchange Agreement with SIL
and conversion of SIL’s 20% interest in EMC-A to shares of
SCY. No similar legal fees were incurred in 2019.
|
|
Travel
and entertainment
|
$4,977
|
Year over year the
costs are almost the same. Fewer overseas trips by our consultants
lowered this expense in 2019.
|
|
Amortization
|
$(1,257)
|
In the second half
of 2018, the Company replaced its computer servers in the Sparks,
Nevada office. The higher amortization expense in 2019 is due to
this expenditure.
|
|
Insurance
|
$(1,407)
|
Higher
insurance premiums for the Company when compared to one year ago
results in this minor negative variance.
|
|
Consulting
|
$(71,811)
|
The Company hired
new consultants for marketing scandium in America in the latter
half of 2018 and in 2019. The first six months of 2018 do not
include these costs hence the lower charges in the same period one
year ago.
|
31
Cash flow discussion for the year ended December 31, 2019 compared
to December 31, 2018
The cash outflow from operating activities decreased by $664,294 to
$1,129,668 (2018 – $1,793,962) due to lower stock-based
compensation, exploration, salary, and foreign exchange exposure
which were partially offset by higher consulting
costs.
Cash flows used in investing activities decreased by $19,821 to
$Nil (2018 – $19,821) due to the 2018 replacement of computer
servers at the Sparks office and the purchase of a reclamation bond
on the Kiviniemi property not occurring in 2019.
Cash inflows from financing activities of $960,479 reflect lower
private placements of $875,816 partially offset by higher income
from exercises of stock options of $81,189, resulting in a decrease
of $794,627 when compared to the year ending December 31, 2018 of
$1,755,106.
Summary of quarterly results (US$)
|
|
2019
|
2018
|
||||||
|
|
Q4
|
Q3
|
Q2
|
Q1
|
Q4
|
Q3
|
Q2
|
Q1
|
|
Net
Sales
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
|
Net
Income (Loss)
|
(311,807)
|
(443,426)
|
(859,934)
|
(332,766)
|
(543,316)
|
(461,781)
|
(626,398)
|
(1,329,613)
|
|
Basic
and diluted
Net
Income (Loss) per share
|
(0.00)
|
(0.00)
|
(0.00)
|
(0.01)
|
(0.00)
|
(0.00)
|
(0.00)
|
(0.01)
|
Financial Position
Cash
The decrease in cash of $169,189 to $115,568 (2018 - $284,757)
results from lower common share issuances.
Prepaid expenses and receivables
Prepaid expenses and receivables have increased by $6,812 to
$45,763 (2018 - $38,951) due to prepayment of filing costs,
software licenses and marketing expenses.
Reclamation bond
A reclamation bond of $11,444 was purchased for the Kiviniemi
property in 2018.
Property, plant and equipment
Property plant and equipment consists of office furniture and
computer equipment at the Sparks, Nevada office. The decrease of
$2,307 to $6,967 at December 31, 2019 (2018 - $9,274) is due to
depreciation of computer servers at the Sparks office.
32
Mineral interests
Mineral interests remained at $704,053 at December 31, 2019 (2018 -
$704,053).
Accounts Payable, Accounts
payable with related parties and Accrued
Liabilities
Accounts payable,
accounts payable with related parties
and accrued liabilities have increased by $389,838 to $536,424 at
December 31, 2019 (2018 – $146,586) due to the deferral of
consulting and salary fees.
Capital Stock
Capital stock increased by $1,131,350 to $109,375,661 (2018 -
$108,244,311) due to private placements of $799,484 and stock
option exercises of $160,995.
Additional paid-in capital decreased by $260,262 to $5,936,074
(2018 - $5,675,812) as a result of stock option expensing which was
partially offset by stock option exercises.
Treasury shares remained at $1,264,194 through the 2019 fiscal
period.
Off-balance sheet arrangements
At December 31, 2019, we 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 us.
Transactions with related parties
During
the year ended December 31, 2019, the Company expensed $314,104 for
stock-based compensation for stock options issued to Company
directors. During the year ended December 31, 2018, the Company
expensed $695,405 for stock options issued to Company
directors.
During
each of the years ended December 31, 2019 and December 31, 2018,
the Company paid a consulting fee of $102,000 to one of its
directors.
As at
December 31, 2019, the Company owed $269,165 (2018 - $Nil) to
officers of the Company.
33
Additional Information and Accounting Pronouncements
Outstanding share data
At February 25, 2020 we had 312,482,595 issued and outstanding
common shares and 29,950,000 outstanding stock options at a
weighted average exercise price of C$0.194. No warrants are
outstanding at February 25, 2020.
Critical Accounting Estimates
The
preparation of financial statements in conformity with generally
accepted accounting policies requires our management 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
We use 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 we make
will likely change from time to time. At the time the fair value is
determined, the methodology that we use 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.
Deferred income taxes
We account for tax consequences of the differences in the carrying
amounts of assets and liabilities and our tax bases using tax rates
expected to apply when these temporary differences are expected to
be settled. When the deferred 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. We have
taken a valuation allowance against all such potential tax
assets.
Mineral properties and exploration and development
costs
We
capitalise the costs of acquiring mineral rights at the date of
acquisition. After acquisition, various factors can affect the
recoverability of the capitalized costs. Our 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. We
are 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, we have assumed recent world commodity prices
will be achievable. We have considered the mineral resource reports
by independent engineers on the Nyngan 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 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, 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.
34
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 will have no material effect to the
consolidated financial statements.
Accounting Standards Update 2018-11 - Leases (Topic 842) Targeted
Update. This accounting pronouncement is an update to Accounting
Standard 2016-02 (see below). This standard allows for an
additional (and optional) transition method. This standard is
effective for interim and annual reporting periods beginning after
December 15, 2018, with early adoption permitted. The Company has
adopted the election to recognize short-term leases through profit
or loss, with no material effect to the consolidated financial
statements.
Accounting Standards Update 2016-02 - Leases (Topic 842). This
accounting pronouncement allows lessees to make an accounting
policy election to not recognize a lease asset and liability for
leases with a term of 12 months or less and that do not have a
purchase option that is expected to be exercised. This standard is
effective for interim and annual reporting periods beginning after
December 15, 2018, with early adoption permitted. The Company has
adopted this policy which had no material effect to the
consolidated financial statements.
Financial instruments and other risks
Our
financial instruments consist of cash, receivables, accounts
payable and accrued liabilities, accounts payable with related
parties, and promissory notes payable. It is management's opinion
that we are not exposed to significant interest, currency or credit
risks arising from our financial instruments. The fair values of
these financial instruments approximate their carrying values
unless otherwise noted. The Company has its cash primarily in two
commercial banks, one in Vancouver, British Columbia, Canada and in
one in Chicago, Illinois.
ITEM 7A. QUANTITATIVE AND QUALITATIVE
DISCLOSURES ABOUT MARKET RISK
Not applicable.
ITEM 8. FINANCIAL STATEMENTS AND
SUPPLEMENTARY DATA
The
Consolidated Financial Statements of the Company and the notes
thereto are attached to this report following the signature page
and Certifications.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH
ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
For the
fiscal years ended December 31, 2019 and 2018 we did not have any
disagreement with our accountants on any matter of accounting
principles, practices or financial statement
disclosure.
ITEM 9A. CONTROLS AND
PROCEDURES
Disclosure controls and procedures
The Company’s management, including our principal executive
officer and our principal financial officer, evaluated the
effectiveness of 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.
35
Management’s report on internal control over financial
reporting
The
Company’s management is responsible for establishing and
maintaining adequate internal control over financial reporting (as
defined in Rule 13a-15(f) or 15d-15(f) of the Exchange Act).
Management assessed the effectiveness of our internal control over
financial reporting as of December 31, 2019, using criteria
established in Internal
Control-Integrated Framework issued in 1992 by the Committee
of Sponsoring Organizations of the Treadway Commission (COSO). Even
an effective internal control system, no matter how well designed,
has inherent limitations, including the possibility of human error
and circumvention or overriding of controls and therefore can
provide only reasonable assurance with respect to reliable
financial reporting. Furthermore, the effectiveness of an internal
control system in future periods can change with
conditions.
A
material weakness is a deficiency, or combination of deficiencies,
in internal control over financial reporting such that there is a
reasonable possibility that a material misstatement of the
Company’s annual or interim financial statements will not be
prevented or detected on a timely basis.
The
Company’s management has determined that the internal
controls over financial reporting are effective as of December 31,
2019.
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.
ITEM 9B. OTHER INFORMATION
None.
PART III
Information
with respect to Items 10 through 14 is set forth in the definitive
Proxy Statement to be filed with the Securities and Exchange
Commission on or before April 30, 2020 and is incorporated herein
by reference. If the definitive Proxy Statement cannot be filed on
or before April 30, 2020, the Company will instead file an
amendment to this Form 10-K disclosing the information with respect
to Items 10 through 14.
PART IV
ITEM 15. EXHIBITS, FINANCIAL STATEMENTS
SCHEDULES
Financial Statements
The
following Consolidated Financial Statements are filed as part of
this report.
|
Description
|
Page
|
|
Financial
statements for the years ended December 31, 2019 and 2018 and audit
reports thereon.
|
F-1
|
36
Exhibits
The
following table sets out the exhibits filed herewith or
incorporated herein by reference.
|
Exhibit
|
Description
|
|
3.1
|
Certificate
of Incorporation, Certificate of Name Change dated March 2009,
Notice of Articles dated March 2009(1)
Certificate
of Name Change dated November 19, 2014 and Notice of Articles dated
November 19, 2014(2)
|
|
3.2
|
Corporate
Articles(1)
Amendment
to Corporate Articles dated November 10, 2014(2)
|
|
|
|
|
10.1(3)
|
2015
Stock Option Plan
|
|
10.2(1)
|
Management
Contract with George Putnam dated May 1, 2010
|
|
10.3(4)
|
Management
Contract with Edward Dickinson dated August 13, 2011
|
|
|
|
|
10.4(5)
|
Share
Exchange Agreement dated June 30, 2017
|
|
List of
Subsidiaries
|
|
|
Consent
of Davidson & Company LLP
|
|
|
Consent
of Stuart Hutchin
|
|
|
Consent
of Dean Basile
|
|
|
23.4(7)
|
Consent
of Geoffrey Duckworth
|
|
Certification
Pursuant to Rule 13a-14(a) or 15d-14(a) of the U.S. Securities
Exchange Act of 1934 of the Principal Executive
Officer
|
|
|
Certification
Pursuant to Rule 13a-14(a) or 15d-14(a) of the U.S. Securities
Exchange Act of 1934 of the Principal Financial
Officer
|
|
|
Section
1350 Certification of the Principal Executive Officer and Principal
Financial Officer of the Principal Executive Officer
|
|
|
Section
1350 Certification of the Principal Executive Officer and Principal
Financial Officer of the Principal Financial Officer
|
(1) Previously filed as exhibits to the Form 10 filed May
24, 2011 and incorporated herein by reference.
(2) Previously filed as exhibits to the Form 10-K filed
February 27, 2015 and incorporated herein by
reference.
(3) Previously filed as Schedule “A” to the Form
DEF 14A filed October 5, 2015 and incorporated herein by
reference.
(4) Previously filed as an exhibit to the Form 10-K/A filed
May 1, 2014 and incorporated herein by reference.
(5) Previously filed
as an exhibit to the Form 8-K filed July 26, 2017 and incorporated
herein by reference.
(7) Filed herewith.
37
SIGNATURES
Pursuant
to the requirements of Section 13 or 15(d) 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. |
|
|
|
|
|
|
|
|
Date: February 28,
2020
|
By:
|
/s/ George
Putnam
|
|
|
|
|
George
Putnam
|
|
|
|
|
President and
Principal Executive Officer
|
|
Pursuant
to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of
the registrant and in the capacities and on the dates
indicated.
|
Signature
|
Title
|
Date
|
|
|
|
|
|
|
|
|
|
/s/
George Putnam
|
President,
Principal Executive Officer, and Director
|
February
28, 2020
|
|
George
Putnam
|
|
|
|
|
|
|
|
|
|
|
|
/s/
William Harris
|
Chairman
and Director
|
February
28, 2020
|
|
William
Harris
|
|
|
|
|
|
|
|
/s/
James Rothwell
|
Director
|
February
28, 2020
|
|
James
Rothwell
|
|
|
|
|
|
|
|
/s/
Willem Duyvesteyn
|
Director
|
February
28, 2020
|
|
Willem
Duyvesteyn
|
|
|
|
|
|
|
|
|
|
|
|
/s/
Warren Davis
|
Director
|
February
28, 2020
|
|
Warren
Davis
|
|
|
|
|
|
|
|
|
|
|
|
/s/
Barry Davies
|
Director
|
February
28, 2020
|
|
Barry
Davies
|
|
|
|
|
|
|
|
|
|
|
|
/s/
Peter Evensen
|
Director
|
February
28, 2020
|
|
Peter
Evensen
|
|
|
|
|
|
|
|
|
|
|
|
/s/
R.Christian Evensen
|
Director
|
February
28, 2020
|
|
R.
Christian Evensen
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
/s/
Edward Dickinson
|
Principal
Accounting Officer and
Principal
Financial Officer
|
February
28, 2020
|
|
Edward
Dickinson
|
|
|
38
CONSOLIDATED FINANCIAL STATEMENTS
YEAR ENDED DECEMBER 31, 2019
F-1
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING
FIRM
To the
Shareholders and Directors of
Scandium
International Mining Corp.
Opinion on the consolidated Financial Statements
We have audited the accompanying consolidated balance sheets of
Scandium International Mining Corp. (the “Company”), as
of December 31, 2019 and 2018, and the related consolidated
statements of loss and comprehensive loss, cash flows, and changes
in equity for the years ended December 31, 2019 and 2018, and the
related notes and schedules (collectively referred to as the
“financial statements”). In our opinion, the
consolidated financial statements present fairly, in all material
respects, the financial position of Scandium International Mining
Corp. as of December 31, 2019 and 2018, and the results of its
operations and its cash flows for the years ended December 31, 2019
and 2018 in conformity with accounting principles generally
accepted in the United States of America.
Going Concern
The
accompanying consolidated financial statements have been prepared
assuming that the Company will continue as a going concern. As
discussed in Note 1 to the consolidated financial statements, the
Company has suffered recurring losses from operations that raise
substantial doubt about its ability to continue as a going concern.
Management's plans in regard to these matters are also described in
Note 1. The consolidated financial statements do not include any
adjustments that might result from the outcome of this
uncertainty.
Basis for Opinion
These
consolidated financial statements are the responsibility of the
Company’s management. Our responsibility is to express an
opinion on the Company’s consolidated financial statements
based on our audits. We are a public accounting firm registered
with the Public Company Accounting Oversight Board (United States)
(“PCAOB”) and are required to be independent with
respect to the Company in accordance with the U.S. federal
securities laws and the applicable rules and regulations of the
Securities and Exchange Commission and the PCAOB.
We
conducted our audits in accordance with the standards of the PCAOB.
Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the consolidated
financial statements are free of material misstatement, whether due
to error or fraud. The Company is not required to have, nor were we
engaged to perform, an audit of its internal control over financial
reporting. As part of our audits we are required to obtain an
understanding of internal control over financial reporting but not
for the purpose of expressing an opinion on the effectiveness of
the Company’s internal control over financial reporting.
Accordingly, we express no such opinion.
Our
audits included performing procedures to assess the risks of
material misstatements of the financial statements, whether due to
error or fraud, and performing procedures that respond to those
risks. Such procedures included examining, on a test basis,
evidence regarding the amounts and disclosures in the consolidated
financial statements. Our audits also included evaluating the
accounting principles used and significant estimates made by
management, as well as evaluating the overall presentation of the
consolidated financial statements. We believe that our audits
provide a reasonable basis for our opinion.
We have
served as the Company’s auditor since 2008.
|
|
“DAVIDSON
& COMPANY LLP”
|
|
|
|
|
Vancouver,
Canada
|
Chartered
Professional Accountants
|
|
February 28,
2020
|
|
F-2
|
Scandium
International Mining Corp.
|
||
|
CONSOLIDATED BALANCE
SHEETS
|
||
|
(Expressed in US
Dollars)
|
||
|
|
||
|
As
at:
|
December 31,
2019
|
December 31,
2018
|
|
|
|
|
|
|
|
|
|
ASSETS
|
|
|
|
|
|
|
|
Current
|
|
|
|
Cash
|
$115,568
|
$284,757
|
|
Prepaid
expenses and receivables
|
45,763
|
38,951
|
|
|
|
|
|
Total
Current Assets
|
161,331
|
323,708
|
|
|
|
|
|
Reclamation bond (Note 4)
|
11,444
|
11,444
|
|
Equipment (Note 3)
|
6,967
|
9,274
|
|
Mineral property interests (Note
4)
|
704,053
|
704,053
|
|
|
|
|
|
Total
Assets
|
$883,795
|
$1,048,479
|
|
|
|
|
|
|
|
|
|
LIABILITIES
AND EQUITY
|
|
|
|
|
|
|
|
Current
|
|
|
|
Accounts payable
and accrued liabilities
|
$269,059
|
$146,586
|
|
Accounts
payable with related parties (Note 5)
|
269,165
|
-
|
|
|
|
|
|
|
|
|
|
Total
Liabilities
|
538,224
|
146,586
|
|
|
|
|
|
|
|
|
|
Stockholders’
Equity
|
|
|
|
Capital stock (Note
6) (Authorized: Unlimited number of common shares; Issued and
outstanding: 312,482,595 (2018 – 304,781,294))
|
109,375,661
|
108,244,311
|
|
Treasury stock
(Note 7) (1,033,333 common shares) (2018 –
1,033,333)
|
(1,264,194)
|
(1,264,194)
|
|
Additional paid in
capital (Note 6)
|
5,936,074
|
5,675,812
|
|
Accumulated
other comprehensive loss
|
(853,400)
|
(853,400)
|
|
Deficit
|
(112,848,570)
|
(110,900,636)
|
|
|
|
|
|
Total
Stockholders’ Equity
|
345,571
|
901,893
|
|
|
|
|
|
Total
Liabilities and Equity
|
$883,795
|
$1,048,479
|
Nature
and continuance of operations (Note 1)
Subsequent
event (Note 11)
The
accompanying notes are an integral part of these consolidated
financial statements.
F-3
|
Scandium
International Mining Corp.
|
|
|
|
CONSOLIDATED
STATEMENTS OF LOSS AND COMPREHENSIVE LOSS
|
|
|
|
(Expressed in US
Dollars)
|
|
|
|
|
|
|
|
Years
ended:
|
December 31,
2019
|
December 31,
2018
|
|
|
|
|
|
EXPENSES
|
|
|
|
Amortization (Note
3)
|
$2,307
|
$1,050
|
|
Consulting (Note
5)
|
388,730
|
316,919
|
|
Exploration
|
119,503
|
331,315
|
|
General and
administrative
|
381,341
|
421,934
|
|
Insurance
|
31,457
|
30,050
|
|
Professional
fees
|
63,818
|
96,387
|
|
Salaries and
benefits
|
458,050
|
544,150
|
|
Stock-based
compensation (Notes 5 & 6)
|
431,133
|
1,078,664
|
|
Travel and
entertainment
|
71,868
|
76,845
|
|
|
|
|
|
|
(1,948,207)
|
(2,897,314)
|
|
|
|
|
|
Foreign exchange
gain (loss)
|
273
|
(63,794)
|
|
|
|
|
|
Loss
and comprehensive loss for the year
|
$(1,947,934)
|
$(2,961,108)
|
|
|
|
|
|
Basic
and diluted loss per common share
|
$(0.01)
|
$(0.01)
|
|
|
|
|
|
Basic
and diluted weighted average number of common shares
outstanding
|
310,561,693
|
301,187,498
|
The
accompanying notes are an integral part of these consolidated
financial statements.
F-4
|
Scandium
International Mining Corp.
|
||
|
CONSOLIDATED
STATEMENTS OF CASH FLOWS
|
||
|
(Expressed in US
Dollars)
|
||
|
Years
ended:
|
December 31,
2019
|
December 31,
2018
|
|
|
|
|
|
CASH
FLOWS USED IN OPERATING ACTIVITIES
|
|
|
|
Loss for the
year
|
$(1,947,934)
|
$(2,961,108)
|
|
Items not affecting
cash:
|
|
|
|
Amortization
|
2,307
|
1,050
|
|
Stock-based
compensation
|
431,133
|
1,078,664
|
|
Changes in non-cash
working capital items:
|
|
|
|
(Increase) decrease
in prepaids and receivables
|
(6,812)
|
7,035
|
|
Increase in
accounts payable, accrued liabilities and accounts payable with
related parties
|
391,638
|
80,397
|
|
|
(1,129,668)
|
(1,793,962)
|
|
CASH
FLOWS USED IN INVESTING ACTIVITIES
|
|
|
|
Reclamation
bond
|
-
|
(11,444)
|
|
Equipment
purchase
|
-
|
(8,377)
|
|
|
-
|
(19,821)
|
|
|
|
|
|
CASH
FLOWS FROM FINANCING ACTIVITIES
|
|
|
|
Common shares
issued
|
799,484
|
1,675,300
|
|
Options exercised
for common shares
|
160,995
|
79,806
|
|
|
960,479
|
1,755,106
|
|
|
|
|
|
Change
in cash during the year
|
(169,189)
|
(58,677)
|
|
Cash,
beginning of year
|
284,757
|
343,434
|
|
|
|
|
|
Cash,
end of year
|
$115,568
|
$284,757
|
|
|
||
|
Supplemental disclosure with respect to cash
flows (Note 10)
|
||
The accompanying notes are an integral part of these consolidated
financial statements.
F-5
|
Scandium International Mining
Corp.
|
|
|
|
|
|
||
|
CONSOLIDATED
STATEMENTS OF CHANGES IN EQUITY
|
|
|
|
|
|
||
|
(Expressed in
US Dollars)
|
|
|
|
|
|
||
|
|
|
|
|
|
|
|
|
|
|
Number of Shares
|
Capital Stock
|
Additional Paid in
Capital
|
Treasury Stock
|
Accumulated Other Comprehensive
Loss
|
Deficit
|
Total Stockholders’
Equity
|
|
|
|
|
|
|
|
|
|
|
Balance,
December 31, 2017
|
291,970,239
|
$106,468,869
|
$4,617,484
|
$(1,264,194)
|
$(853,400)
|
$(107,939,528)
|
$1,029,231
|
|
Private
placement
|
11,801,055
|
1,675,300
|
-
|
-
|
-
|
-
|
1,675,300
|
|
Options
exercised
|
1,010,000
|
100,142
|
(20,336)
|
-
|
-
|
-
|
79,806
|
|
Stock-based
compensation
|
-
|
-
|
1,078,664
|
-
|
-
|
-
|
1,078,664
|
|
Loss for the
year
|
-
|
-
|
-
|
-
|
-
|
(2,961,108)
|
(2,961,108)
|
|
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
|
799,484
|
-
|
-
|
-
|
-
|
799,484
|
|
Options
exercised
|
1,775,000
|
331,866
|
(170,871)
|
-
|
-
|
-
|
160,995
|
|
Stock-based
compensation
|
-
|
-
|
431,133
|
-
|
-
|
-
|
431,133
|
|
Loss for the
year
|
-
|
-
|
-
|
-
|
-
|
(1,947,934)
|
(1,947,934)
|
|
Balance,
December 31, 2019
|
312,482,595
|
$109,375,661
|
$5,936,074
|
$(1,264,194)
|
$(853,400)
|
$(112,848,570)
|
$345,571
|
The
accompanying notes are an integral part of these consolidated
financial statements.
F-6
|
Scandium International Mining Corp.
|
|
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
|
|
December
31, 2019
|
|
(Expressed
in US Dollars)
|
|
|
|
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
consolidated financial statements have been prepared on a going
concern basis that contemplates the realization of assets and
discharge of liabilities at their carrying values in the normal
course of business for the foreseeable future. These financial
statements do not reflect any adjustments that may be necessary if
the Company is unable to continue as a going concern.
The
Company currently earns no operating revenues and will require
additional capital in order to advance the Nyngan property. The
Company’s ability to continue as a going concern is uncertain
and is dependent upon the generation of profits from mineral
properties, obtaining additional financing and maintaining
continued support from its shareholders and creditors. These are
material uncertainties that raise substantial doubt about the
Company’s ability to continue as a going concern. In the
event that additional financial support is not received, or
operating profits are not generated, the carrying values of the
Company’s assets may be adversely affected.
|
2.
|
SIGNIFICANT ACCOUNTING POLICIES
|
a)
Basis
of presentation
These
consolidated financial statements have been prepared in conformity
with generally accepted accounting principles of the United States
of America (“US GAAP”).
These
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”).” All significant intercompany
accounts and transactions have been eliminated on
consolidation.
b)
Use
of estimates
The
preparation of consolidated financial statements in conformity with
US GAAP requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and the
disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of expenses during
the reporting period. The Company regularly evaluates estimates and
assumptions related to the deferred income tax asset valuations,
asset impairment, stock-based compensation and loss contingencies.
The Company bases its estimates and assumptions on current facts,
historical experience and various other factors that it believes to
be reasonable under the circumstances, the results of which form
the basis for making judgments. 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.
c)
Equipment
Equipment is
recorded at cost less accumulated amortization, calculated as
follows:
|
Computer equipment
|
30% straight line
|
F-7
|
Scandium International Mining Corp.
|
|
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
|
|
December
31, 2019
|
|
(Expressed
in US Dollars)
|
|
|
2.
SIGNIFICANT ACCOUNTING POLICIES
(cont’d…)
d)
Mineral interests and exploration and development
costs
The
costs of acquiring mineral rights are capitalized at the date of
acquisition. After acquisition, various factors can affect the
recoverability of the capitalized costs. If, after review,
management concludes that the carrying amount of a mineral interest
is impaired, it will be written down to estimated fair value.
Exploration costs incurred on mineral interests are expensed as
incurred. Development costs incurred on proven and probable
reserves will be capitalized. Upon commencement of production,
capitalized costs will be
amortized using the
unit-of-production method over the estimated life of the ore body
based on proven and probable reserves.
e)
Asset retirement obligations
The
Company records the fair value of an asset retirement obligation as
a liability in the period in which it incurs a legal obligation
associated with the retirement of tangible long-lived assets that
result from the acquisition, construction, development, and/or
normal
use of
the long-lived assets. The Company also records a corresponding
asset which is amortized over the life of the asset. Subsequent to
the initial measurement of the asset retirement obligation, the
obligation is adjusted at the end of each period to reflect the
passage of time (accretion expense) and changes in the estimated
future cash flows underlying the obligation (asset retirement
cost).
f)
Long-lived assets
Long-lived
assets held and used by the Company are reviewed for impairment
whenever events or changes in circumstances indicate that the
carrying amount of an asset may not be recoverable. For purposes of
evaluating the recoverability of long-lived assets, the
recoverability test is performed using undiscounted net cash flows
or fair value in use related to the long-lived assets. If such
assets are considered to be impaired, the impairment recognized is
measured by the amount by which the carrying amount of the assets
exceeds the fair value of the assets. Assets to be disposed of are
reported at the lower of the carrying amount or fair value less
costs to sell.
g)
Income taxes
The
Company accounts for income taxes under the asset and liability
method. Deferred tax assets and liabilities are recognized for the
future tax consequences attributable to differences between the
financial statement carrying amounts of existing assets and
liabilities and their respective tax bases. Deferred tax assets and
liabilities are measured using enacted tax rates expected to apply
to taxable income in the years in which those temporary differences
are expected to be recovered or settled. Under the asset and
liability method the effect on deferred tax assets and liabilities
of a change in tax rates is recognized in income in the period that
includes the enactment date. A valuation allowance is recognized if
it is more likely than not that some part or all of the deferred
tax asset will not be recognized.
h)
Loss per share
Basic
loss per common share is computed using the weighted average number
of common shares outstanding during the year. To calculate diluted
loss per share, the Company uses the treasury stock method and the
if converted method. As at December 31, 2019 and 2018 there were no
warrants outstanding and 34,610,000 options (2018 –
29,065,000) outstanding which have not been included in the
weighted average number of common shares outstanding as these were
anti-dilutive.
i)
Foreign exchange
The
Company's and subsidiaries’ functional currency is the US
Dollar (“USD”). Any monetary assets and liabilities
that are in a currency other than the USD are translated at the
rate prevailing at year end. Revenue and expenses in a foreign
currency are translated at rates that approximate those in effect
at the time of translation. Gains and losses from translation of
foreign currency transactions into USD are included in current
results of operations. Fixed assets and mineral properties have
been translated at historical rates, the rate on the date of the
transaction.
j)
Stock-based compensation
The
Company accounts for stock-based compensation under the provisions
of Accounting Standard Codification (“ASC”) 718,
“Compensation-Stock Compensation.” Under the fair value
recognition provisions, stock-based compensation expense is
measured at the grant date for all stock-based awards to employees,
directors and non-employees and is recognized as an expense over
the requisite service period, which is generally the vesting
period. The Black-Scholes option valuation model is used to
calculate fair value.
F-8
|
Scandium International Mining Corp.
|
|
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
|
|
December
31, 2019
|
|
(Expressed
in US Dollars)
|
|
|
|
2.
|
SIGNIFICANT ACCOUNTING POLICIES
(cont’d…)
|
k)
Financial instruments
The
Company’s financial instruments consist of cash, receivables,
accounts payable and accrued liabilities, and accounts payable with
related parties. 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, one in Chicago, Illinois, United States of America, one in
Vancouver, British Columbia, Canada and one in Melbourne, Victoria,
Australia.
l)
Concentration of credit risk
The
financial instrument which potentially subjects the Company to
concentration of credit risk is cash. The Company maintains cash in
bank accounts that, at times, may exceed federally insured limits.
As at December 31, 2019, the Company has not exceeded the federally
insured limit. The Company has not experienced any losses in such
amounts and believes it is not exposed to any significant risks on
its cash in bank accounts.
m)
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 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
following table presents information about the assets that are
measured at fair value on a recurring basis as at December 31,
2019 and indicates the fair value hierarchy of the valuation
techniques the Company utilized to determine such fair value. In
general, fair values determined by Level 1 inputs utilize quoted
prices (unadjusted) in active markets for identical assets. Fair
values determined by Level 2 inputs utilize data points that are
observable such as quoted prices, interest rates and yield curves.
Fair values determined by Level 3 inputs are unobservable data
points for the asset or liability, and include situations where
there is little, if any, market activity for the
asset:
|
|
December 31,
2019
|
Quoted Pricesin
Active Markets
(Level
1)
|
Significant Other
Observable Inputs
(Level
2)
|
SignificantUnobservable
Inputs
(Level
3)
|
|
Assets:
|
|
|
|
|
|
Cash
|
$115,568
|
$115,568
|
$—
|
$—
|
|
|
|
|
|
|
|
Total
|
$115,568
|
$115,568
|
$—
|
$—
|
The
fair values of cash are determined through market, observable and
corroborated sources.
F-9
|
Scandium International Mining Corp.
|
|
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
|
|
December
31, 2019
|
|
(Expressed
in US Dollars)
|
|
|
|
2.
|
SIGNIFICANT ACCOUNTING POLICIES
(cont’d…)
|
n)
Recently
Adopted and Recently Issued Accounting Standards
Accounting Standards Update 2019-12 –
Income Taxes (Topic 740) The 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, 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.
Accounting
Standards Update 2018-11 - Leases (Topic 842) Targeted Update. This
accounting pronouncement is an update to Accounting Standard
2016-02 (see below). This standard allows for an additional (and
optional) transition method. This standard is effective for interim
and annual reporting periods beginning after December 15, 2018,
with early adoption permitted. The Company has adopted the election
to recognize short-term leases through profit or loss, with no
material effect to the consolidated financial
statements.
Accounting
Standards Update 2016-02 - Leases (Topic 842). This accounting
pronouncement allows lessees to make an accounting policy election
to not recognize a lease asset and liability for leases with a term
of 12 months or less and that do not have a purchase option that is
expected to be exercised. This standard is effective for interim
and annual reporting periods beginning after December 15, 2018,
with early adoption permitted. The Company has adopted this policy
which had no material effect to the consolidated financial
statements.
|
3.
|
EQUIPMENT
|
2019
|
|
December 31, 2018 Net
Book Value
|
Additions
(disposals)
|
Amortization
|
December 31, 2019 Net
Book Value
|
|
Computer
equipment
|
$9,274
|
$-
|
$(2,307)
|
$6,967
|
2018
|
|
December 31, 2017 Net
Book Value
|
Additions
(disposals)
|
Amortization
|
December 31,
2018 Net Book Value
|
|
Computer
equipment
|
$1,947
|
$8,377
|
$(1,050)
|
$9,274
|
F-10
|
Scandium International Mining Corp.
|
|
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
|
|
December
31, 2019
|
|
(Expressed
in US Dollars)
|
|
|
|
4.
|
MINERAL PROPERTY INTERESTS
|
|
|
Scandium and other
|
|
|
|
|
Acquisition
costs
|
|
|
|
|
|
Balance,
December 31, 2019, 2018, and 2017
|
$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 fiscal 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 its 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 December 31, 2019, no funds have been
capitalized for this property. During fiscal 2018, a reclamation
bond of $11,444 (€10,000) was placed.
F-11
|
Scandium International Mining Corp.
|
|
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
|
|
December
31, 2019
|
|
(Expressed
in US Dollars)
|
|
|
5.
RELATED PARTY
TRANSACTIONS
During the year ended December 31, 2019, the
Company expensed $314,104 for stock-based compensation for stock
options issued to Company directors. During the year ended December
31, 2018, the Company expensed $695,405 for stock options issued to
Company directors.During each of the years ended December 31, 2019
and December 31, 2018 the Company paid a consulting fee of $102,000
to one of its directors.As at December 31, 2019, the Company owed
$269,165 (2018 - $Nil) to officers of the Company.
6.
CAPITAL STOCK AND ADDITIONAL PAID IN
CAPITAL
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
($799,484).
On May
4, 2018, the Company issued 6,071,888 common shares at a value of
C$0.18 per common share for total proceeds of C$1,092,940
($864,402).
On
March 21, 2018, the Company issued 5,729,167 common shares at a
value of C$0.18 per common share for total proceeds of C$1,031,250
($810,898).
Stock
Options
The
Company established a stock option plan (the “Plan”)
under which it is authorized to grant options to executive officers
and directors, employees and consultants 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.
Stock
option transactions are summarized as follows:
|
|
Stock
Options
|
|
|
|
Number
|
Weighted
average
exercise price in
Canadian $
|
|
|
|
|
|
Outstanding,
December 31, 2017
|
23,585,000
|
$0.18
|
|
Granted
|
6,850,000
|
0.22
|
|
Exercised
|
(1,010,000)
|
0.10
|
|
Expired
|
(360,000)
|
0.27
|
|
|
|
|
|
Outstanding,
December 31, 2018
|
29,065,000
|
0.19
|
|
Granted
|
9,860,000
|
0.15
|
|
Exercised
|
(1,775,000)
|
0.12
|
|
Expired
|
(2,540,000)
|
0.16
|
|
|
|
|
|
Outstanding,
December 31, 2019
|
34,610,000
|
$0.188
|
|
|
|
|
|
Number currently
exercisable
|
29,650,000
|
$0.194
|
|
|
|
|
F-12
|
Scandium International Mining Corp.
|
|
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
|
|
December
31, 2019
|
|
(Expressed
in US Dollars)
|
|
|
6.
CAPITAL STOCK AND ADDITIONAL PAID IN CAPITAL
(cont’d…)
As at
December 31, 2019, incentive stock options were outstanding as
follows:
|
|
Number
of
Options
(outstanding)
|
Number
of
Options
(exercisable)
|
Exercise
Price in Canadian
$
|
Expiry Date
|
|
|
|
|
|
|
|
Options
|
|
|
|
|
|
|
3,450,000
|
3,450,000
|
0.140
|
April 17,
2020
|
|
|
250,000
|
250,000
|
0.600
|
May 11,
2020
|
|
|
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
|
5,900,000
|
0.225
|
January 19,
2023
|
|
|
350,000
|
350,000
|
0.185
|
August 30,
2023
|
|
|
9,685,000*
|
4,925,000
|
0.150
|
May 9,
2024
|
|
|
50,000
|
50,000
|
0.130
|
June 24,
2024
|
|
|
|
|
|
|
|
|
34,610,000
|
29,650,000
|
|
|
*4,660,000 of these
options expired on January 1, 2020.
As at
December 31, 2019 the Company’s outstanding and exercisable
stock options have an aggregate intrinsic value of $Nil (2018 -
$1,084,994).
Stock-based
compensation
During
the year ended December 31, 2019, the Company recognized
stock-based compensation of $431,133 (December 31, 2018 -
$1,078,664) in the statement of loss and comprehensive loss. There
were 9,860,000 stock options granted during the year ended December
31, 2019 (December 31, 2018 – 6,850,000).
The
weighted average fair value of the options granted in the year was
C$0.15 (2018 - C$0.19).
The
fair value of all compensatory options granted is estimated on
grant date using the Black-Scholes option pricing model. The
weighted average assumptions used in calculating the fair values of
stock options granted in the year ended December 31 are as
follows:
|
|
2019
|
2018
|
|
|
|
|
|
Risk-free interest
rate
|
2.31%
|
1.96%
|
|
Expected
life
|
5 years
|
5 years
|
|
Volatility
|
90.40%
|
127.81%
|
|
Forfeiture
rate
|
0.00%
|
0.00%
|
|
Dividend
rate
|
0.00%
|
0.00%
|
|
|
|
|
F-13
|
Scandium International Mining Corp.
|
|
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
|
|
December
31, 2019
|
|
(Expressed
in US Dollars)
|
|
|
|
7.
|
TREASURY STOCK
|
|
|
Number
|
Amount
|
|
|
|
|
|
Treasury shares,
December 31, 2019, 2018, and 2017
|
$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:
|
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
|
|
December
31, 2018
|
Australia
|
United
States
|
Total
|
|
|
|
|
|
|
Equipment
|
$-
|
$9,274
|
$9,274
|
|
Mineral property
interests
|
704,053
|
-
|
704,053
|
|
|
|
|
|
|
|
$704,053
|
$9,274
|
$713,327
|
|
Scandium International Mining Corp.
|
|
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
|
|
December
31, 2019
|
|
(Expressed
in US Dollars)
|
|
|
|
9.
|
INCOME
TAX
|
A reconciliation of income taxes at statutory
rates with the reported taxes is as follows:
|
|
2019
|
2018
|
|
|
|
|
|
Loss before
income taxes
|
$(1,947,934)
|
$(2,961,108)
|
|
Expected
income tax (recovery)
|
(506,000)
|
(768,000)
|
|
Change in
statutory, foreign exchange rates, and
other
|
(3,000)
|
2,000,000
|
|
Permanent
difference
|
112,000
|
289,000
|
|
Impact of
foreign exchange
|
263,000
|
-
|
|
Adjustment to
prior years provision versus statutory tax
returns
|
(3,278,000)
|
-
|
|
Change in
unrecognized deductible temporary differences
|
3,412,000
|
(1,521,000)
|
|
Total Income
tax expense (recovery)
|
$-
|
$-
|
The significant components of the
Company’s deferred tax assets that have not been included on
the consolidated statement of financial position are as
follows:
|
|
2019
|
2018
|
|
Deferred Tax
Assets (Liabilities)
|
|
|
|
Exploration
and evaluation assets
|
$1,715,000
|
$1,372,000
|
|
Property and
equipment
|
65,000
|
51,000
|
|
Share issue
costs
|
-
|
3,000
|
|
Marketable
securities
|
19,000
|
14,000
|
|
Allowable
capital losses
|
1,845,000
|
1,404,000
|
|
Non-capital
losses available for future periods
|
6,075,000
|
3,463,000
|
|
|
9,719,000
|
6,307,000
|
|
Unrecognized
deferred tax assets
|
(9,719,000)
|
(6,307,000)
|
|
Net deferred
tax assets
|
$-
|
$-
|
The
significant components of the Company’s temporary
differences, unused tax credits and unused tax losses that have not
been included on the consolidated statement of financial position
are as follows:
|
|
2019
|
Expiry Date
Range
|
2018
|
Expiry Date
Range
|
|
Temporary
Differences
|
|
|
|
|
|
Exploration
and evaluation assets
|
$6,551,000
|
No expiry
date
|
$5,231,000
|
No expiry
date
|
|
Property
and equipment
|
251,000
|
No expiry
date
|
196,000
|
No expiry
date
|
|
Share
issue costs
|
-
|
2036 to
2039
|
10,000
|
2036 to
2039
|
|
Marketable
securities
|
145,000
|
No expiry
date
|
106,000
|
No expiry
date
|
|
Allowable
capital losses
|
7,097,000
|
No expiry
date
|
5,399,000
|
No expiry
date
|
|
Non-capital
losses available for future periods
|
22,965,000
|
2020 to
2039
|
13,195,000
|
2019 to
2038
|
10.
SUPPLEMENTAL
DISCLOSURE WITH RESPECT TO CASH FLOWS
There
were no major non-cash transactions in the year ended December 31,
2019 and 2018.
There
were no amounts paid for taxes and interest in the years ended
December 31, 2019 and December 31, 2018.
11.
SUBSEQUENT
EVENT
On
January 16, 2020, the Company received net proceeds of 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.
F-14