Conversion Table | |||
Imperial | Metric | ||
1 Acre | = | 0.404686 | Hectares |
1 Foot | = | 0.304800 | Metres |
1 Mile | = | 1.609344 | Kilometres |
1 Ton | = | 0.907185 | Tonnes |
1 Ounce (troy)/ton | = | 34.285700 | Grams/Tonne |
Precious metal units and conversion factors | |||||||||
ppb | - Part per billion | 1 | ppb | = | 0.0010 | ppm | = | 0.000030 | oz/t |
ppm | - Part per million | 100 | ppb | = | 0.1000 | ppm | = | 0.002920 | oz/t |
oz | - Ounce (troy) | 10,000 | ppb | = | 10.0000 | ppm | = | 0.291670 | oz/t |
oz/t | - Ounce per ton (avdp.) | 1 | ppm | = | 1.0000 | ug/g | = | 1.000000 | g/tonne |
g | - Gram |
|
| ||||||
g/tonne | - gram per metric ton | 1 | oz/t | = | 34.2857 | ppm | |||
mg | - milligram | 1 | Carat | = | 41.6660 | mg/g | |||
kg | - kilogram | 1 | ton (avdp.) | = | 907.1848 | kg | |||
ug | - microgram | 1 | oz (troy) | = | 31.1035 | g | |||
| Precious metal units and conversion factors | |||||||||
| ppb | - Part per billion | 1 | ppb | = | 0.0010 | ppm | = | 0.000030 | oz/t |
| ppm | - Part per million | 100 | ppb | = | 0.1000 | ppm | = | 0.002920 | oz/t |
| oz | - Ounce (troy) | 10,000 | ppb | = | 10.0000 | ppm | = | 0.291670 | oz/t |
| oz/t | - Ounce per ton (avdp.) | 1 | ppm | = | 1.0000 | ug/g | = | 1.000000 | g/tonne |
| g | - Gram | ||||||||
| g/tonne | - gram per metric ton | 1 | oz/t | = | 34.2857 | ppm | |||
| mg | - milligram | 1 | Carat | = | 41.6660 | mg/g | |||
| kg | - kilogram | 1 | ton | = | 907.1848 | kg | |||
| (avdp.) | |||||||||
| ug | - microgram | 1 | oz (troy) | = | 31.1035 | g | |||
vi
PART I
ITEM 1. | IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS |
Not applicable.
ITEM 2. | OFFER STATISTICS AND EXPECTED TIMETABLE |
Not applicable.
ITEM 3. | KEY INFORMATION |
A. Selected Financial Data - Unless otherwise indicated, all monetary references herein are denominated in U.S. Dollars. References to "$" or "Dollars" are to US Dollars and references to "CAD" or "Canadian Dollars" are to Canadian Dollars.
The following table sets forth our selected consolidated financial data for the five years ended December 31, 2019 prepared in accordance with International Financial Reporting Standards ("IFRS") as issued by International Accounting Standards Board ("IASB"). This information should be read in conjunction with our consolidated financial statements included in Item 17 of this annual report.
| (In thousands of U.S. dollars, except for share and per share amounts) | Fiscal year ended December 31, | ||||||||||||||
| 2019 | 2018 | 2017 | 2016 | 2015 | |||||||||||
| Sales or operating revenue | Nil | Nil | Nil | Nil | Nil | ||||||||||
| Net loss for the year | (1,711 | ) | (1,419 | ) | (1,273 | ) | (1,896 | ) | (3,104 | ) | |||||
| Total assets | 30,697 | 32,804 | 33,247 | 34,514 | 36,957 | ||||||||||
| Shareholders' equity | 30,007 | 30,631 | 31,959 | 32,385 | 34,145 | ||||||||||
| Share capital | 101,424 | 100,729 | 100,729 | 100,051 | 100,051 | ||||||||||
| Derivative liabilities | 150 | 572 | 587 | 938 | 1,392 | ||||||||||
| Cash dividends per common shares | Nil | Nil | Nil | Nil | Nil | ||||||||||
| Loss per common share | (0.01 | ) | (0.01 | ) | (0.01 | ) | (0.01 | ) | (0.02 | ) | |||||
| Number of common shares outstanding | 217,215,610 | 200,969,314 | 200,969,314 | 193,479,416 | 193,479,416 | ||||||||||
|
|
1
| (In thousands of U.S. dollars, | Fiscal year ended December 31, | ||||||||||||||
| except for share and per share amounts) | 2018 | 2017 | 2016 | 2015 | 2014 | ||||||||||
| Sales or operating revenue | Nil | Nil | Nil | Nil | Nil | ||||||||||
| Net loss for the year | (1,419 | ) | (1,273 | ) | (1,896 | ) | (3,104 | ) | (2,141 | ) | |||||
| Total assets | 32,804 | 33,247 | 34,514 | 36,957 | 37,873 | ||||||||||
| Shareholders' equity | 30,631 | 31,959 | 32,385 | 34,145 | 35,827 | ||||||||||
| Share capital | 100,729 | 100,729 | 100,051 | 100,051 | 100,051 | ||||||||||
| Derivative liabilities | 572 | 587 | 938 | 1,392 | 1,293 | ||||||||||
| Cash dividends per common shares | Nil | Nil | Nil | Nil | Nil | ||||||||||
| Loss per common share | (0.01 | ) | (0.01 | ) | (0.01 | ) | (0.02 | ) | (0.01 | ) | |||||
| Number of common shares outstanding | 200,969,314 | 200,969,314 | 193,479,416 | 193,479,416 | 193,479,416 | ||||||||||
Capitalization and Indebtedness |
Not applicable.
C. | Reasons for the Offer and Use of Proceeds |
Not applicable.
D. | Risk Factors |
The Company’sCompany's securities should be considered a highly speculative investment and investors should carefully consider all of the information disclosed in the Company’sCompany's Canadian and U.S. regulatory filings prior to making an investment in the Company.
Resource exploration and development is a speculative business, characterized by a number of significant risks including, among other things, unprofitable efforts resulting not only from the failure to discover mineral deposits but also from finding mineral deposits, which, though present, are insufficient in quantity and/or quality to return a profit from production. Without limiting the foregoing, the following risk factors should be given special consideration when evaluating an investment in the Company’sCompany's securities. Additional risks not currently known to the Company, or that the Company currently deems immaterial, may also impair the Company’sCompany's operations.
The Company may require additional funding to complete further exploration programs.
The Company does not generate operating revenue and must finance exploration activity by other means, such as selling assets, raising funds through optioning certain property interests, selling certain water rights, and the issuance of debt and/or equity. The Company cannot provide any assurance that additional funding will be available for further exploration of the Company’sCompany's projects or to fulfill anticipated obligations under existing property agreements.
Failure to obtain necessary financing could result in delay or postponement of further exploration and development, and the property interests of the Company with the possible dilution or loss of such interests. Further, financing will depend upon the success of exploration programs and general market conditions for natural resources.
The Company has a history of losses and anticipates to incur losses for the foreseeable future.
The Company has had a history of losses. None of the Company’sCompany's properties are currently in production, and there is no certainty that the Company will succeed in placing any of its properties into production in the near future, if at all.
2
Quaterra anticipates continued losses for the foreseeable future until one or more of the properties enters into commercial production and generates sufficient revenues to fund the Company’sCompany's continuing operations.
Future equity transactions could cause dilution of present and prospective shareholders.
Historically, the Company has financed operations through the sale of equity securities including convertible into equity securities or sale of its mineral interests. The Company may issue additional equity securities in order to finance future operations and development efforts. The Company cannot predict the size and terms of future issuances of equity securities or debt instruments. Any transaction involving the issue of equity securities or securities convertible into common shares, could result in dilution, possibly substantial, to present and prospective security holders. Similarly, the Company cannot predict the value of any asset sale nor its effect on the market price of its common shares.
The Company’sCompany's exploration programs may not result in a commercial mining operation.
Mineral exploration involves significant risk because few properties that are explored contain bodies of ore that would be commercially economic to develop into producing mines. Quaterra’sQuaterra's mineral properties are without a known body of commercial ore and the proposed programs are an exploratory search for ore. The Company cannot provide any assurance that current exploration programs will result in any commercial mining operation. If the exploration programs do not result in the discovery of commercial ore, the Company will be required to acquire additional properties and write-off all investments in existing properties.
The Company does not have Proven Mineral Reserves or Probable Mineral Reserves.
The Company has not established the presence of any Proven Mineral Reserves or Probable Mineral Reserves (as such terms are defined in NI 43-101) at any of Quaterra’sQuaterra's mineral properties. The Company cannot provide any assurance that future feasibility studies will establish Proven Mineral Reserves or Probable Mineral Reserves at Quaterra’sQuaterra's properties. The failure to establish Proven Mineral Reserves or Probable Mineral Reserves could restrict the Company’sCompany's ability to successfully implement its strategies for long-term growth.
Mineral resource estimates are subject to updates which may differ from prior estimates and adversely affect the value of the Company’sCompany's properties.
The estimating of mineralization is a subjective process and the accuracy of estimates is a function of the quantity and quality of available data, the accuracy of statistical computations, and the assumptions used and judgments made in interpreting engineering and geological information. There is significant uncertainty in these Mineral Resource estimates, and the actual deposits encountered and the economic viability of mining a deposit may differ significantly from our estimates. From time to time, Quaterra obtains updated resource estimates and technical reports related to the Company’sCompany's mineral properties.
The Company’sCompany's future business and financial condition are dependent upon resource prices.
Resource prices have fluctuated widely, particularly in recent years, and are affected by numerous factors beyond the Company’sCompany's control. These include international economic and political trends, inflation, currency exchange fluctuations, interest rates, global or regional consumption patterns, speculative activities and increased production due to new and improved extraction and production methods. These factors may negatively affect the marketability of any ore or minerals discovered at, and extracted from, Quaterra’sQuaterra's properties. If, because of a sustained decline in prices, financing was not available to meet cash operating costs, the feasibility of continuing operations would be evaluated and if warranted, would be discontinued.
The Company’sCompany's common share price has been and may continue to be subject to volatility.
U.S. and Canadian securities markets in recent years have experienced high levels of price and volume volatility, and the market price of securities of many companies have experienced wide fluctuations in price which have not necessarily been related to the operating performance for underlying assets values or prospects of such companies. Factors unrelated to Quaterra’sQuaterra's financial performance or prospects include macroeconomic developments in North America and globally, and market perceptions of the attractiveness of particular industries. The Company’sCompany's share price, financial condition, and results of operations are all also likely to be significantly affected by short-term changes in copper prices. Continual fluctuations in metal prices may occur. As a result of any of these factors, the market price of the Company’sCompany's shares at any given point in time may be subject to wide swings unrelated to any direct action by Quaterra’sQuaterra's operations.
Some of the Company’sCompany's directors and officers may have conflicts of interest due to their involvement with other natural resource companies.
Some the Company’sCompany's directors and officers are directors or officers of other natural resource or mining-related companies and these associations may give rise to conflicts of interest from time to time. As a result of these conflicts of interest, Quaterra may miss the opportunity to participate in certain transactions, which may have a material, adverse effect on the Company’sCompany's financial position.
The Company may experience difficulty attracting and retaining qualified management to grow Quaterra’sQuaterra's business.
The Company is dependent on the services of key executives including the Chief Executive Officer and other highly skilled and experienced executives and personnel focused on advancing corporate objectives as well as the identification of new opportunities for growth and funding. Due to the Company’sCompany's relatively small size, the loss of these persons or Quaterra’sQuaterra's inability to attract and retain additional highly skilled employees required for activities may have a material adverse effect on the Company’sCompany's business and financial condition.
The Company may be limited in its ability to manage growth.
Should the Company be successful in its efforts to develop mineral properties or to raise capital for such development or for the development of other mining ventures, it may experience significant growth in operations. Any expansion of the Company’sCompany's business would place demands on management, operational capacity, and financial resources. The Company anticipates that it will need to recruit qualified personnel in all areas of operations. There can be no assurance that Quaterra will be effective in retaining current personnel or attracting and retaining additional qualified personnel, expanding operational capacity or otherwise managing growth. The failure to manage growth effectively could have a material adverse effect on the Company’sCompany's business, financial condition and results of operations.
Environmental and other regulatory requirements may limit the Company’sCompany's operations and increase expenses.
The Company’sCompany's operations are subject to environmental regulations promulgated by U.S. government agencies. Claims and current and future operations will be governed by laws and regulations governing mineral concession acquisition, prospecting, development, mining, production, exports, taxes, labor standards, occupational health, waste disposal, toxic substances, land use, environmental protection, mine safety and other matters. Companies such as ours that engage in exploration activities often experience increased costs and delays in schedules as a result of the need to comply with applicable laws, regulations and permits. Issuance of permits for Quaterra’sQuaterra's exploration activities is subject to the discretion of government authorities, and the Company may be unable to obtain or maintain such permits. Permits required for future exploration or development may not be obtainable on reasonable terms or on a timely basis. Existing and possible future laws, regulations and permits governing operations and activities of exploration companies, or more stringent implementation thereof, could have a material adverse impact and cause increases in capital expenditures or require abandonment or delays in exploration.
Operating hazards associated with mining may expose the Company to liability.
Mining operations generally involve a high degree of risk, including hazards such as fire, explosion, floods, structural collapses, industry accidents, unusual or unexpected geological conditions, power outages, cave-ins, inclement weather, and mechanical equipment failure in the Company’sCompany's operations. These and others may result in work stoppages, damage to or destruction of mines and other producing facilities, damage to or loss of life and property, environmental damage and possible legal liability for any or all damage or loss.
Safety measures implemented by the Company may not be able to obtain insurance to cover these risks at economically feasible premiums or at all. Insurance against certain environmental risks is not generally available to the Company or to other companies within the mining industry.
The Company’sCompany's properties may be subject to uncertain title
The acquisition of title to resource properties or interest therein is a very detailed and time consuming process. Title to and the area of resource concessions may be disputed. The Company has investigated title to all of its mineral properties and, to the best of the Company’sCompany's knowledge, title to all of Quaterra’sQuaterra's properties are in good standing.
The properties may be subject to prior, and in some cases, not fully ascertainable unregistered agreements or transfers, and title may be affected by undetected defects. Title may be based upon interpretation of a country’scountry's laws, which laws may be ambiguous, inconsistently applied and subject to reinterpretation or change.
Enforcement of judgments or bringing actions outside the United States against the Company and its directors and officers may be difficult.
Quaterra is organized under the law of and headquartered in British Columbia, Canada, and several of the Company’sCompany's directors and officers are not citizens or residents of the U.S. As a result, it may be difficult or impossible for one to (a) enforce in courts outside the U.S. judgments against the Company and a majority of Quaterra’sQuaterra's directors and officers, obtained in U.S. courts based upon the civil liability provisions of U.S. federal securities laws or (b) bring in courts outside the U.S. an original action against the Company and its directors and officers to enforce liabilities based upon such U.S. securities laws.
The Company's operations may be negatively impacted by the COVID-19 outbreak.
The current outbreak of the novel coronavirus (COVID-19) that was first reported from Wuhan, China in December 2019, and the spread of this virus could continue to have a material adverse effect on global economic conditions which may adversely impact our business. The World Health Organization declared a global emergency on January 30, 2020 with respect to the outbreak and characterized it as a pandemic on March 11, 2020. Cases of COVID-19 have been reported in 213 countries, areas or territories as of April 27, 2020, including China, the United States, Canada, and countries in the European Union. The extent to which the coronavirus impacts demand for commodities, including copper, will depend on future developments, which are highly uncertain and cannot be predicted, including new information which may emerge concerning the severity of the coronavirus and the actions to contain the coronavirus or treat its impact, among others. Moreover, the actual and threatened spread of the coronavirus globally could continue to negatively impact stock markets and adversely impact our ability to raise capital. Any of these developments, and others, could have a material adverse effect on our business.
ITEM 4. | INFORMATION ON THE COMPANY |
A. | History and Development of the Company |
Quaterra was incorporated under the Company Act (British Columbia) on May 11, 1993 originally under the name Acquaterre Mineral Development Ltd. On November 30, 1993, the Company changed its name to Aquaterre Mineral Development Ltd. and ultimately became Quaterra Resources Inc. on October 23, 1997. Quaterra’sQuaterra's domicile is British Columbia, Canada and the Company operates under theBusiness Corporations Act (British Columbia).
The Company’sCompany's registered office is located at 1200 –- 750 West Pender Street, Vancouver, British Columbia, Canada, V6C 2T8, Telephone: (604) 681-1194. The Company’sCompany's head office is located at 1100 –- 1199 West Hastings Street, Vancouver, British Columbia, Canada V6E 3T5. Telephone: (604) 684-9384, Facsimile: (604) 641-2740. The Company’sCompany's website is www.quaterra.com. We are not including the information contained on our website as part of, or incorporating it by reference into, this Annual Report on Form 20-F. The SEC maintains an internet website at www.sec.gov that contains reports, proxy and information statements, and other information regarding issuers like us who file electronically with the SEC.
Since our incorporation, substantially all of our capital has been deployed to the development of our exploration stage business. We have not undertaken any material mergers or acquisitions other than in the ordinary course of business. There have been no public takeover offers by third parties with respect to our shares and we have made no public takeover offers with respect to another company’scompany's shares.
5
B. | Business Overview |
The Company is a mineral exploration company engaged in the acquisition, exploration and development of copper projects currently in Nevada and Alaska, United States. The Company considers itself to be an advanced exploration stage company. The amounts shown as mineral properties represent acquisition and exploration costs incurred to date, less amounts amortizedrecovered and/or written off, and do not necessarily represent present or future values. The underlying value of mineral properties and related capitalized costs are dependent on the existence of economically recoverable reserves, securing and maintaining title and beneficial interest in the properties, and obtaining necessary financing.
Three Year History
During the three yearthree-year period under review, the Company had carried out exploration and development programs at its Yerington, Nevada copper property,properties, acquired an interest in a new copper property in Southwest Alaska, and discontinued operations at other properties in other jurisdictions. Accordingly, a number of option agreements were terminated and properties were sold or returned to optionors as more particularly set out below. Details of relevant agreements and operations are set out hereunder as “"Part A –- Yerington”" and “"Part B –- Other Properties”".
PART A - YERINGTON
Yerington Nevada Copper Project
Water rights salesales
On September 17, 2018, the Company announced that its wholly-owned subsidiary Singatse Peak Services, LLC (“SPS”("SPS") had entered into a purchase and sale agreement to sell certain primary ground water rights associated with its copper property in Yerington, Nevada, to Desert Pearl Farms LLC (“("Desert Pearl”Pearl"), a Yerington-based company involved in agriculture in the district, for $6.26 million.
On March 3, 2019, the Company closed the water rights sale for a final value of $6.02 million after adjusting for a small correction to one of the original permits. TheAfter the sale, the Company retainsretained approximate 6,700 acre-feet per year of primary ground water permitted for mining on its 51-square-mile Yerington property.
On December 19, 2019, the Company announced SPS had entered into two separate purchase and sale agreements to sell certain further primary ground water rights associated with its Yerington property to Desert Pearl and Desert Hills Dairy, LLC, two unrelated limited liability companies based in Yerington, for $1.88 million. The sales will close when the State of Nevada Division of Water Resources (NDWR) approves an application to change the manner of use of the water rights from mining and milling to agriculture in one case, and to commercial in the other and their place of use; and title is transferred to the purchasers. Once the sale has closed, SPS will retain about 6,000 acre-feet per year of primary ground water permitted for mining. In addition to these primary ground water rights, SPS also has decree, supplemental and storage water rights associated with options it holds on private land over the property’sproperty's Bear deposit.
Freeport Agreements
On June 16, 2014, the Company, through SPS, announced the entering into of a Membership Interest and Option Agreement (the “Option Agreement”"Option Agreement") with Freeport-McMoRan Nevada LLC (“("Freeport Nevada”Nevada") which set out the terms for due diligence and exploration of the Company’sCompany's Yerington Assets, including the MacArthur oxide and sulfide deposits (the “MacArthur Deposit”"MacArthur Deposit"); the Yerington pit oxide-sulfide deposit previously mined by the Anaconda Company (the “Yerington Pit”"Yerington Pit"); the Bear porphyry copper deposit (the “Bear Deposit”"Bear Deposit") and all other properties that SPS and Quaterra control in the Yerington District. On September 11, 2017, Freeport Nevada terminated the Option Agreement and retains no interest in the Yerington Assets.
Details of the Option Agreement, prior to termination, are summarized as follows:
Under the Option Agreement, after conducting additional due diligence about SPS, Freeport Nevada had the right to earn an initial 55% interest in SPS by providing option payments to SPS to complete a three- stage investigation and work program totalling $40.75 million in project funding. During these stages, Freeport Nevada provided option payments to SPS to be used for property maintenance, G&A, environmental compliance and, in later stages, exploration. Freeport Nevada could earn a further 20% interest in SPS (increasing its holding to 75%) should it elect to fund SPS with a further $97.85 million of spending, or complete a feasibility study, whichever came first.On June 15, 2015, Freeport Nevada elected to enter into Stage 2 of the Option Agreement, involving option payments of $6.6 million to SPS over the 12-month period for property maintenance costs; a drilling program; G&A; and environmental compliance.
6
On June 13, 2016, Quaterra and SPS announced they had reached an agreement with Freeport Nevada to extend the Stage 2 of Freeport Nevada’s option to acquire an interest in the Yerington Copper Project for up to two years by Freeport Nevada making staged option payments totalling $5.75 million of which $2.393 million was received in the year ended December 31, 2017.On September 11, 2017, Freeport Nevada terminated the Option Agreement. It retains no interest in the Yerington Assets. SPS used Freeport Nevada’s option payments for exploration, property maintenance, G&A and environmental compliance at its Yerington Copper Project.
• | Under the Option Agreement, after conducting additional due diligence about SPS, Freeport Nevada had the right to earn an initial 55% interest in SPS by providing option payments to SPS to complete a three-stage investigation and work program totalling $40.75 million in project funding. During these stages, Freeport Nevada provided option payments to SPS to be used for property maintenance, G&A, environmental compliance and, in later stages, exploration. Freeport Nevada could earn a further 20% interest in SPS (increasing its holding to 75%) should it elect to fund SPS with a further $97.85 million of spending, or complete a feasibility study, whichever came first. | |
• | On June 15, 2015, Freeport Nevada elected to enter into Stage 2 of the Option Agreement, involving option payments of $6.6 million to SPS over the 12-month period for property maintenance costs; a drilling program; G&A; and environmental compliance. | |
• | On June 13, 2016, Quaterra and SPS announced they had reached an agreement with Freeport Nevada to extend the Stage 2 of Freeport Nevada's option to acquire an interest in the Yerington Copper Project for up to two years by Freeport Nevada making staged option payments totalling $5.75 million of which $2.393 million was received in the year ended December 31, 2017. | |
• | On September 11, 2017, Freeport Nevada terminated the Option Agreement. It retains no interest in the Yerington Assets. SPS used Freeport Nevada's option payments for exploration, property maintenance, G&A and environmental compliance at its Yerington Copper Project. |
Yerington Ancillary Agreements
In December 2013, the Company announced the signing of four exclusive exploration and option agreements totaling 1,305 acres of private land north and east of the Yerington Mine Site (formerly the Anaconda Mine Site) that covers portions of the Bear Deposit. In May 2015, the Company entered into an option agreement to acquire a fifth property covering approximately 1,020 acres of additional private land covering a portion of the Bear Deposit. Under the terms of the five option agreements, Quaterra (now SPS) has the exclusive right to acquire these properties with all mineral rights and certain water rights, and to explore these parcels.
PART B - OTHER PROPERTIES
Butte Valley, Nevada
On December 10, 2019, the Company announced two option agreements to purchase a 100% interest in the Butte Valley project located in north-central White Pine County, Nevada.
Butte Valley consists of 678 unpatented mining claims, and hosts an extensive porphyry copper-gold system in a mining-friendly state with well-developed infrastructure. It fits the Company's acquisition profile and provides an opportunity to acquire a strategic land position on reasonable terms with no onerous long-term financial obligations.
Groundhog, Alaska
On April 25, 2017, the Company announced it had signed a lease agreement with Chuchuna Minerals Company (“Chuchuna”("Chuchuna"), giving it the option to acquire a 90% interest in the Groundhog copper prospect, a 40,000-acre property, later expanded to 54,880 acres, situated on an established copper porphyry belt 200 miles southwest of Anchorage, Alaska.
ThePursuant to the lease agreement, as amended on July 11, 2019, the Company is requiredagreed to fund a minimum of $1.0 million for exploration in 2017 ($1.5 million funded), and a minimum of $500,000 in each of the following four years. Quaterra can earn its 90% interest in Groundhog by providing a total of $5 million in funding for exploration over fivesix years, and by paying Chuchuna a lump sum of $3 million by the end of the fifthsixth year. The Company has no obligation to exercise its option and can terminate the agreement at its discretion annually.
If the Company exercises its option to acquire 90% of Groundhog, Chuchuna and the Company will enter into a joint venture agreement. Chuchuna will retain a 10% interest in the property carried to production, and a net smelter returns (NSR) royalty of 1.75%. Within the first ten years Quaterra may purchase 50% of the NSR royalty by paying Chuchuna $25 million.
Herbert Gold Project, Alaska
On July 14, 2016, Quaterra announced the sale of its remaining 35% participating interest in the Herbert Glacier project, Alaska, to its joint venture partner Grande Portage Resources Ltd. (“("Grande Portage”Portage"). On closing, Grande Portage issued to Quaterra 1,182,331 shares, equal to 9% of its issued and outstanding common shares. In addition, Grande Portage will allot and deliver to Quaterra within five business days ofAfter being issued additional shares in a financing, or financings totaling up to $1 million that numberQuaterra now holds 1,942,795 common shares of additional shares required to maintain Quaterra’s interest at 9%.Grande Portage. Grande Portage will also pay Quaterra $250,000 within 90 days of receipt of a feasibility report for the property or in event of a change of control or sale. Grande Portage will assumeassumed any and all obligations related to Quaterra’sQuaterra's participating interest under the JV agreement.
Nieves, Mexico Silver PropertyFinance and Equity issuances
On December 29, 2014,January 21, 2019, the Company entered into an agreement respecting the sale of its 50% indirect interest in the Nieves silver property in Zacatecas State, Mexico (the “Nieves Property”) to its joint-venture partner Blackberry Ventures I, LLC (“Blackberry”), for $4.0 million (the “Blackberry Agreement”). Under the terms of the Blackberry
7
Agreement, the purchase price is payable in four payments of $1 million each over 15 months, with each payment earning Blackberry an additional 12.5% interest in the project. All costs for maintaining and exploring the Nieves Property will be the sole responsibility of Blackberry, with no dilution to Quaterra, through the end of 2015 or until Blackberry completes the acquisition, whichever is earlier. Upon closing, Blackberry will become the operator of the Nieves Property. In the event that Blackberry subsequently sells the property, Quaterra will receive 5% of the future net sale price. In addition, Quaterra agreed to transfer its Americas claims in Durango State, Mexico, adjacent to Hecla Mining’s San Sebastian project, to Blackberry. The Blackberry Agreement was subsequently amendedclosed a non-brokered private placement by agreements dated September 1, 2015, November 12, 2015 and February 26, 2016 to reduce the purchase price by $500,000, increase Quaterra’s portion of the future net sales price from 5% to 7.5% and to extend the final closing date to June 1, 2016. On June 30, 2016, Quaterra concluded the sale of its 50% interest in the Nieves project with receipt of the final $1.0 million tranche owing to Quaterra by Blackberry Ventures. Quaterra no longer holds any interest in assets in Mexico.
Copper and Molybdenum Properties
On October 3, 2014, the Company completed a sale of its residual interests (including royalties) in three non-core copper and molybdenum assets: Butte Valley, Nevada; SW Tintic, Utah; and Cave Peak, Texas to Freeport-McMoRan Mineral Properties Inc. (“FMMP”) for $5.0 million (the “Purchase Price”). $1.0 million of the Purchase Price was paidissuing 3,000,000 common shares at closing with the balance payable to the Company in $500,000 quarterly increments commencing January 1, 2015 for eight consecutive quarters. On October 3, 2014, the Company issued 19 million common share purchase warrants to FMMP. Each warrant entitles FMMP to purchase one common share of the Company at a price of $0.16CAD 0.05 per share for five years, subject to vesting and termination provisions corresponding to the paymentgross proceeds of the Purchase Price in tranches.
On October 4, 2016, Quaterra received a final payment of $500,000 from FMMP.
Finance and Equity issuancesCAD 150,000.
On August 29 and September 20, 2018, the Company announced the closing of a non-brokered private placement in tranches by issuing secured convertible debentures for gross proceeds of $550,000 and CAD $550,000.550,000. The convertible debentures have a maturity date of 18 months from issuance, and bear a 10% interest rate per annum. Repayment of outstanding principal and interest are secured by a general security interest over the assets of the Company.
The convertible debentures are convertible into units of the Company at a price of $0.05 or CAD $0.0650.065 per unit in the first 12 months, and $0.075 or CAD $0.100.10 thereafter until the maturity date. Each unit consists of a common share and a warrant. Each warrant will entitle the holder to acquire an additional common share at a price of $0.05 or CAD $0.0650.065 for a period of four years.years from the closing of the private placement. The convertible debentures are subject to certain acceleration clauses.
In August 2019, Quaterra issued 11,769,230 units pursuant to conversions of convertible debentures having an aggregate principal amount of US$550,000 and C$50,000. Quaterra converted the interest portion of US$44,507 due on some of the convertible debentures into 1,077,066 shares and paid the remaining $13,012 of interest in cash.
On December 6, 2019, the remaining convertible debenture having a principal amount of C$500,000 was extended for six months until August 28, 2020. If the Company's water rights sale has not completed by August 28, 2020, the maturity date will be further extended to February 28, 2021. The convertible debenture is convertible into units at CAD 0.10 per unit, with each unit consisting of a share and a warrant. Each warrant can be exercised to acquire a share at CAD 0.065 until August 28, 2022.
On July 2, 2014, the Company completed a non-brokered private placement of $500,000 of units, each unit consisting of one non-transferable convertible redeemable $1,000 principal amount promissory note (a “Note”"Note") and 11,442 non-transferable common share purchase warrants. The Company issued $500,000 Notes and 5,721,000 warrants exercisable at CAD$0.16 per share until January 2, 2016, subject to acceleration right of the Company. On December 30, 2015 the expiry date of the Notes and warrants was extended to January 2, 2017 and on December 23, 2016, the expiry date of the Notes and warrants was extended to January 2, 2018. The Notes were automatically converted at a rate of CAD$0.10 per share on February 28, 2017. The Company issued 6,609,000 common shares for the principal, and settled the interest payment by issuing 880,898 shares and $53,315 cash payment.
For more information about our business, please refer to Item 4.D –- “"Property, Plant and Equipment”Equipment" below.
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C. | Organizational Structure |
Inter-corporate Relationships
The flow chart below presents the Company’sCompany's legal corporate structure and the jurisdictions of the incorporation.
Note 1: | Quaterra Alaska, Inc. is 100% owned by Quaterra Resources Inc. Singatse Peak Services LLC holds the MacArthur, Bear, Yerington and Wassuk properties. |
Note 2: | Six Mile Mining Company is 100% owned by Quaterra Resources Inc. It holds the option to earn a 90% interest in the Groundhog |
D. | Property, Plant and Equipment |
GENERAL DEVELOPMENT OF THE BUSINESS
The Yerington Projects, Nevada
Quaterra’sQuaterra's Yerington Projects –- located in the historic Yerington Copper District, about 70 miles southeast of Reno, Nevada, consist of the Yerington pit oxide-sulfide deposit previously mined by the Anaconda Mining Company; the MacArthur oxide and sulfide deposits; the Bear porphyry copper deposit; and a number of untested exploration targets. Quaterra’sQuaterra's 51-square-mile land package is situated in a mining-friendly jurisdiction with a history of copper production and good infrastructure. It also owns valuable water rights in the district.
The location of the Company’sCompany's Yerington project is provided on the following maps.
Yerington Project Location Map (Tetra Tech - February 2012)
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Yerington Project Prospect Location Map (Tetra Tech February 2012)
a.Yerington Deposit –- Nevada USA
The Yerington deposit refers to the former Anaconda mine site, a large partially mined porphyry copper system that includes the Yerington mine and a portion of the Bear copper deposits. The Anaconda Company conducted open pit mining from 1953 to 1978, producing 1.75 billion pounds of copper from first oxide, and later, sulfide ores. The Atlantic Richfield Company bought the Anaconda Company in 1977 and terminated work on the site shortly thereafter.
Acquisition and Staking of Claims
The Yerington PitMine property totals approximately 11 square miles. The project mineral rights consist of 2,768 acres of fee simple mineral properties and patented mining claims as well as 201208 unpatented lode and placer claims totaling 4,1534,298 acres on lands administered by the BLM. The total reflects the transfer of 345 claims of the MacArthur Deposit from Quaterra Alaska Inc.to SPS in August 2015.
On May 1, 2007, SPS received the bankruptcy court approval for the acquisition of certain assets of Arimetco Inc. (“Arimetco”("Arimetco") in the Yerington Mining District, subject to completion of due diligence. The purchase price comprised $500,000 cash, 250,000 of the Company’sCompany's common shares and a 2% net smelter return royalty capped at $7.5 million dollars on production from any claims owned by the Company in the Yerington Pit and MacArthur Deposit mine areas.
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SPS purchased the Yerington Mine properties along with the appurtenant ground water rights from the Arimetco bankruptcy court in April 2011. This included private land, patented claims, and 23 unpatented mining claims related to the Yerington Mine. The acquisition followed three years of due-diligence studies and negotiations with state and federal agencies and the receipt of Bona Fide Prospective Purchaser (“BFPP”("BFPP") letters from the U.S. Environmental Protection Agency (“EPA”("EPA"), the Nevada Division of Environmental Protection (“NDEP”("NDEP") and the US Bureau of Land Management (“BLM”("BLM") to protect SPS from liability emanating from activities of the former mine owners and operations.
SPS owns approximately 6,700 acre-feet/yryear of primary ground water rights that have senior priority standing. These water rights are specifically permitted for mining and milling and have significant value. Based on the price set at the close of its recent sale of water rights to a large agricultural concern in Yerington, these rights could be valued at about $20 million. In December 2019 the Company announced that SPS had negotiated the sale of further primary ground water rights to two unrelated entities for $1.88 million. The sales will close when the State of Nevada Division of Water Resources (NDWR) approves an application to change the manner and place of use of the water rights. Once the sale has closed, SPS will retain about 6,000 acre-feet per year of primary ground water permitted for mining and milling. In addition to these primary ground water rights, SPS also has decree, supplemental and storage water rights associated with options it holds on private land over the property’sproperty's Bear deposit.
Private properties related to the Arimetco acquisition are located in Township 13 North, Range 25 East in Sections 4, 5, 8, 9, 16, 17, and 21, and patented claims are located within Township 13 North, Range 25 East in Sections 16, 17, 19-21, 31-33 and in Township 13 North, Range 24 East in Sections 22-27 and 36. An additional 434441 unpatented claims in Sections 1, 2, 11-13, 23-26, 35, and 36 Township 13 North, Range 24 East and in Sections 4-9, 16-21, 28, and 30 Township 13 North, Range 25 East, and in Sections 1, 2 Township 12 North, Range 24 East Mount Diablo Base & Meridian were staked prior to or subsequent to the acquisition by SPS.
Expenditures to Date
Acquisition and exploration costs incurred by the Company for the Yerington Pit to December 31, 20182019 were $10.58$5.187 million (2017(2018 - $10.57$10.578 million) net of recovery orfrom water rights sale and option payments made by Freeport Nevada.
Location, Access and Infrastructure
The Yerington Mine property is located near the geographic center of Lyon County, Nevada, USA, along the eastern flank of the Singatse Range. The property centers on the historical Anaconda open pit mine, flanked on the west by Weed Heights, Nevada (a small private community; the original company town of Anaconda) and on the east by the town of Yerington, Nevada. The property is easily accessed from Yerington by a network of paved roads that were used as principal transportation and access routes during the former operating period of the mine. SPS controls approximately 6,700 acre feet of groundwater rights and the Yerington Pit contains an estimated 40,00045,000 acre feet of water. Power is currently on-site and a new substation is being constructed a quarter mile to the South. Nevada Energy operates a 226 Megawatt natural gas fueled power plant within ten miles of the site. Power for future mining operations is expected to be readily available. Topographic coverage is on US Geological Survey “Yerington”"Yerington" and “Mason Butte” 7.5’"Mason Butte" 7.5' topographic quadrangles. The nearest major city is Reno, Nevada, approximately 80 miles to the northwest.
History
Recorded production in the Yerington mining district dates back to 1883 (Moore, 1969) as prospectors were attracted to and investigated colorful oxidized copper staining throughout the Singatse Range. Knopf (1914) reported that oxidized copper cropped out at the historic Nevada-Empire mine located above the south center of the present-day Yerington open pit. Knopf does not show or reference other mines or prospects that are underlain by the Yerington open pit footprint, as gravel and alluvial cover obscure bedrock over an approximate 0.75 -mile0.75-mile radius around the Nevada-Empire Mine.
During the 1940s, Anaconda, at that time one of world’sworld's major copper producers, outlined a 60 million-ton resource over the Yerington Pit. During the early 1950s, the US government, citing the need for domestic copper production, offered “start-up”"start-up" subsidies to Anaconda to open a copper mine in the Yerington district. Anaconda sank two approximately 400-foot-deep shafts in the present-day open pit and drove cross cuts to obtain bulk samples of oxidized rock for metallurgical study. Anaconda began operating the Yerington Pit in 1952 and mined continuously through 1978, producing approximately 1.744 billion pounds of copper from an ore body that contained 162 million tons averaging 0.54% Cu. Approximately 104 million tons of this total were oxidized copper ore that was “vat-leached”"vat-leached" with sulfuric acid in 13,000-ton cement vats on a seven day leach cycle. Sulfide ores were concentrated on site in a facility that was dismantled and sold following termination of mining in 1979.
In 1976, all assets of Anaconda, including the Yerington Pit, were purchased by the Atlantic Richfield Company (ARCO) which in 1979 shut down dewatering pumps in the pit and closed the Yerington Pit due to low copper prices. In 1982, ARCO sold the entire Yerington Pit complex and Weed Heights town site to Mr. Don Tibbals of Yerington, Nevada, who scrapped the plant and equipment. At closure, before dewatering pumps were shut off, the Yerington Pit plan hosted a pre-stripped, non NI 43-101 compliant historic “reserve”"reserve" of 98 million tons averaging 0.36% Cu containing approximately 696 million pounds of copper (K. L. Howard, Jr., Anaconda Internal Memo, 1979) within the ultimate pit design. The estimate was prepared from a geologic section calculation using a 0.2 %TCu cut-off grade. A qualified person has not done sufficient work to classify these historic estimates as a current mineral resource and Quaterra does not treat them as such. Although the 1979 estimate contained no classification for measured, indicated, or inferred resources as defined by NI 43-101, the total estimate compares favorably to an independent resource estimate completed by Tetra Tech under NI 43-101 in February 2012. An additional 22.8 million tons of material containing 136.8 million pounds copper was identified adjacent to the pit in this historic estimate. The K. L. Howard, Jr., Anaconda Internal Memo (1979) addressing this material is considered reliable because it cites mine reconciliation calculations and geologic projections from drill holes using a 0.2% Cu grade cutoffcut-off in an internal Anaconda memo by T. Leigh to W.C. Norem (1979).
In 1989, Arimetco purchased the mine property from Tibbals, commissioned a 50,000-pound-per-day solvent extraction/electrowinning plant, and began heap leaching “sub-grade”"sub-grade" dump rock stripped from the Yerington Pit by Anaconda. Arimetco also added an unknown tonnage of “vat"vat leach tailings”tailings" (minus 3/8 inch oxidized tailings leached during Anaconda’sAnaconda's operation) to some heap leach pads (“HLP's”("HLP's") as well as trucking oxidized ore from the MacArthur Deposit located approximately five miles north of the Yerington Pit site. Arimetco produced some 95 million pounds of copper from 1989 to 1999 before declaring bankruptcy due to low copper prices and abandoning the property.
Soil and groundwater contamination, alleged to stem from the former mining operations at Yerington, have been identified on the property. As a result, a portion of the property acquired by SPS in 2011 previously under the jurisdiction of the EPA is now being managed by the Nevada Division of Environmental Protection (“NDEP”),NDEP, a division of the Nevada Department of Conservation and Natural Resources. Liability for the contamination on site is the responsibility of a third party which is actively engaged in remedial investigation and remediation activities under the supervision of the NDEP.
In order to establish SPS’sSPS's position and rights, the acquisition by SPS of the Arimetco properties required a series of rigorous environmental, legal, and technical due diligence studies. The Chambers Group Inc. and Golder Associates Inc. completed a Phase 1 Environmental Site Assessment Report to allow SPS to complete one of the requirements necessary to establish liability protection as a Bona Fide Prospective Purchaser (“BFPP”("BFPP"). Prior to closing on the property, SPS received letters from the NDEP, BLM and the USEPA indicating the post-closing requirements then applicable to the Yerington Pit site for SPS to maintain its defense to liability as a BFPP regarding the activities of the former mine owners and operators.
In September 2012, SPS reached a voluntary agreement with the EPA to participate in upgrading the system that manages fluids from the historic mining operation at the Yerington mine site. In exchange for SPS’sSPS's participation in this work, the Company obtained a site-wide ‘Covenant'Covenant Not to Sue’Sue' for the contamination left at the site by former owners and operators of the historic mine operations.
The agreement provides for immediate environmental improvements to the site and allows SPS to continue exploration at the site while working cooperatively with the EPA, Nevada Division of Environmental Protection (“NDEP”)NDEP and the community. The Agreement’s ‘CovenantEPA/SPS Agreement's 'Covenant Not to Sue’Sue' strengthens SPS’s ‘BonaSPS's 'Bona Fide Prospective Purchaser Defense’Defense' against liability resulting from the contamination at the site prior to SPS’sSPS's purchase.
The first phase of the fluid management project was completed in Q4the fourth quarter of 2012. The Company co-funded the repairs to the on-site fluid management system (“FMS”("FMS") by the EPA as well as the relining of one of the system ponds. During Phase 2 of the project, the Company completed a study of the FMS to determine what additional repairs or other modifications are necessary to ensure that the system is capable of handling the fluids from the former mine operations for a period of five years. The Study was completed by the Company’sCompany's contractor in June 2013. EPA decided not to implement the five-year capacity alternative recommended in the Study. Rather, EPA decided to build new ponds to address the FMS capacity issues.
The Company decided not to fund construction of the additional ponds. Rather, the Company agreed to provide property at the site to construct the new ponds.
In September 2014, SPS submitted to EPA a Final Report that documented the work SPS performed under the EPA Agreement. On January 7, 2015, the EPA issued a Notice of Completion to SPS confirming that the obligations of the Work to Be Performed and the Payment of Response Costs sections of the Settlement Agreement had been met. With the issuance of the Notice of Completion, SPS believes it does not have further obligations under the Agreement, except for those as a landowner and as a Bona Fide Prospective Purchaser.
In December 2015, the EPA sent a request to the Nevada Governor seeking the State’sState's support for listing the Anaconda-Yerington Mine Site on the EPA National Priorities List (“NPL”("NPL"). EPA has been considering an NPL listing as a mechanism to provide federal funds for remediation of contamination of the site left by former owners Arimetco Inc. This portion of the Site is referred to as Operable Unit 8 (OU8)("OU8") and iswas an unfunded liability due to Arimetco’sArimetco's bankruptcy. The Governor responded to the EPA noting that the State will not object to the initiation of the listing process.
On September 9, 2016, via publication in the Federal Register, the EPA proposed 10 new sites for NPL listing. The Anaconda Copper Mine in Yerington Nevada was one of those ten sites proposed for listing. EPA proposed to list the entire Site despite the fact that there iswas a responsible party for the operable units other than OU8, Atlantic Richfield Company, which hashad and continues to perform its obligations at the Site. SPS has a ‘Covenant'Covenant Not to Sue’Sue' with the EPA, and believes it qualifies for the ‘Bona'Bona Fide Prospective Purchaser Defense’Defense' to CERCLA liability. The existing contamination at the Site, other than that for which EPA seeks the listingrelated to OU 8 is the responsibility of the Atlantic Richfield Company that has been working with EPA to study the contamination, design remedial activities and implement remediation at the Site. SPS’sSPS's work program at the Bear deposit was not affected by the EPA proposed listing of the Site. Also, SPS does not believe that an NPL listing precludes advancing mineral exploration and development at the Site. Only the Yerington mine site falls within the area of the proposed NPL listing; the Company’sCompany's other targets in the district occur outside the area of the proposed listing.
In July 2017, NDEP made a formal request to EPA to defer the listing of the Site on the NPL. Since the original request, NDEP, EPA and Atlantic Richfield have worked toward a deferral of the listing process noted above. In support of a deferral action NDEP and EPA are negotiatingnegotiated the terms of a Deferral Agreement, NDEP and Atlantic Richfield are negotiatingnegotiated the terms of an Interim Administrative Order on Consent, and Atlantic Richfield and NDEP are negotiatingnegotiated a Statement of Work for a Site-Wide Remedial Investigation and Feasibility Study. These documents have not yet been provided in final form. As recently as January
In February 2018, the EPA and NDEP corresponded with EPA to address concerns noted by EPA assigned an agreement that transferred oversight responsibility for remediation of the Yerington mine site from the federal government to the Interim Administrative Order on Consent. Neither Quaterra norstate of Nevada. The deferral agreement requires that the responsible party fund and undertake remedial investigations, feasibility studies and cleanup of the Yerington site consistent with CERCLA standards. The cleanup, which is being overseen by NDEP, must be protective of human health, protective of ecological health, give preference for solutions that are durable over the long term, and will comply with all federal requirements as defined in CERCLA, the NCP and EPA guidance, and any more stringent state requirements.
On June 3, 2019, the Company announced that SPS have direct involvement in the negotiation of these documents but support the deferral process.
The Company is negotiatinghad entered into an agreement with Atlantic Richfield that will provide the framework foroutlines how the two entities will work together on the Site allowing Atlantic Richfield to complete its remedial activities and the Company to move forward with its development of the Site. The ARC-SPS Agreement is part of a state-regulated, privately-funded solution to long-standing environmental issues associated with previous mining activity at the Anaconda Copper Mine site. SPS has complied with the terms of the agreement as required to date.
14The agreement memorializes the Parties' commitments concerning cooperation, access, property rights, liabilities, federal land acquisition, and ensures preservation of SPS's property and mineral rights. The Agreement also contains covenants not to sue and indemnification provisions between the Parties.
Of particular note, the ARC-SPS agreement will:
- Further reduce SPS's risks regarding environmental liabilities at the Yerington site associated with past mining prior to SPS's acquisition in 2011. This includes both the former Anaconda mining operations and the former Arimetco area known as OU8, previously an unfunded liability. ARC has agreed to design, build, operate and fund the remedy for the Arimetco portion of the Site as well as to implement a CERCLA-protective remedy for the Site.
- Provide SPS with the opportunity to consolidate its land position at Yerington with the possible conversion of certain BLM mining claims into private land transferred to SPS at nominal cost without attached liability for previous mining activity.
- Dovetail with more comprehensive plans by government agencies to transfer oversight of the Yerington mine site from federal to state jurisdiction under NDEP.
- Assist in creating a simpler path for mine cleanup and development by way of private land ownership and state oversight.
The ARC-SPS agreement is one part of a larger set of agreements being negotiated among ARC, the EPA, NDEP and the BLM, to permanently address the impacts from previous mining activities by the Anaconda Mining Company and Arimetco Inc. at Yerington. ARC has continued its remediation activities at the site under previous orders by NDEP and the EPA. Once arrangements are completed, it will finalize cleanup of the Yerington site consistent with Comprehensive Environmental Response, Compensation, and Liability Act ("CERCLA") standards. The cleanup is being overseen by NDEP.
Geology and Mineralization
The Yerington Pit property includes both the Yerington deposit (the “Yerington Deposit”"Yerington Deposit") and a portion of the Bear Deposit which represent two of three known porphyry copper deposits in the Yerington copper district. The porphyry systems are hosted in middle Jurassic intrusive rocks of the Yerington Batholith. Unless noted otherwise, the following discussions refer to the Yerington Deposit.
Mineralized porphyry dikes associated with three phases of intrusive activity related to the Yerington Batholith form an elongate body of mineralization that extends 6,600 feet along a strike of N118ºE. The mineralization has an average width of 2,000 feet and has been defined by drilling to an average depth of 250 feet below the Yerington Pit bottom at the 3,800-ft elevation. Because of the economic constraints of low copper prices at the time, many of the 792 historic Anaconda drill holes used in the SPS study were stopped in mineralization and very few were drilled below the 3,400-ft level where the porphyry system remained largely unexplored.
Only four historic holes have actually explored the deep vertical projection of copper mineralization in the pit. Three of the holes were drilled along a single N-S oriented section through the center of the pit. According to M. T. Einaudi in an internal 1970 Anaconda report, the deep drilling program defined a series of nested, concave upward, grade shells that are elongated down the N 70º dip of the dikes with the 0.2% Cu zone extending to approximately the 2,600-ft level; an overall dip distance of 2,200 feet. Although the program encountered an increasing ratio of pyrite to chalcopyrite, there was no indication of a “barren core”"barren core", the porphyry dikes showed a “remarkable continuity”"remarkable continuity" down dip and molybdenum mineralization became more abundant with increasing depth.
Secondary oxide copper formed much of the upper Yerington Deposit. Chrysocolla was the dominant copper oxide mineral, occurring as fracture coatings and fillings to a depth of approximately 400 feet below the surface. Below the 4,100-ft level, chalcopyrite is the dominant copper sulfide mineral with minor bornite primarily hosted in A-type quartz veins in the older porphyry dikes. The un-mined mineralized material below the current pit bottom is primarily of chalcopyrite mineralization.
Exploration and Drilling Results
Exploration work on the Yerington Pit project commenced with a technical review of all available historical information relating to mineralization in and around the Yerington Pit. A huge inventory of Anaconda data was available at the Anaconda Collection –- American Heritage Center, University of Wyoming at Laramie. Approximately 10,000 pages of drill hole records from the library were scanned. The records included drill hole lithology, assays, and/or survey coordinates for almost 800 drill holes. Although some holes contained only lithologic or assay summary information, 892 holes contained adequate detailed assay, hole location and orientation information to be used in a resource estimation. Core from historical drilling left on site by Anaconda was photographed, described and selected intervals from 45 Anaconda core holes were shipped to Skyline Labs for re-assay.
Information obtained from the review of historical information was used to guide a two-pronged program of drilling during the last half of 2011. A total of 21,887 feet were drilled in 42 holes. The core holes and four RC holes were drilled to twin Anaconda core holes, while the remaining RC holes were targeted for expansion of mineralization laterally and below historic drill intercepts along the perimeter of the Yerington Pit to support a NI 43-101 compliant resource estimate and technical report.
The data review and drilling results of the 2011 program clearly indicated that mineralization at Yerington is open to depth and along strike. Many of the historic holes in the pit were stopped in mineralization. Drill hole intercepts along the western edge of the pit are some of the best in the SPS database. Twin hole SP-04, drilled by SPS at the northwest end of the pit, intercepted 524.5 feet averaging 0.35%TCu starting at a depth of 228 feet including 88 feet of 0.69%TCu at a depth of 265 feet. Exploration hole SP-36, located along south central margin of the pit intercepted 95 feet averaging 0.28% TCu at a depth of 230 feet. Details of the 2011 drilling program are in the NI 43-101 technical report for the Yerington Pit project completed by Tetra Tech, Inc. of Golden, Colorado (“("Tetra Tech”Tech") in February 2012 (the “Yerington"Yerington Technical Report”Report").
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A drilling program to sample residuals (historic dumps and tailings) at the Yerington Pit site was completed in September 2012. A total of 9,585 feet of sonic drilling in 95 holes have provided material for the characterization of the vat leach tails, heap leach pads, and the W-3 sub-grade waste dump. Selected samples were sent to Metcon Labs in Tucson, Arizona for metallurgical testing. These residuals have been historically estimated to total 124 million tons of mineralized material. The residuals are referenced in the MacArthur Deposit PEA and the Yerington Technical Report, as “mineralized material”"mineralized material" and therefore are neither an NI 43-101 compliant resource nor a historical resource. Additional details regarding the residuals are described in the Yerington Technical Report. The residuals are not included in the resource estimate at the Yerington Pit site or in the MacArthur Deposit PEA or resource estimate at the MacArthur Deposit site.
Sampling, Analysis and Security of Samples
Tetra Tech’sTech's review of sample preparation, handling, analyses, and security procedures for the Yerington drilling and sampling program has determined that the Company’sCompany's current practices meet NI 43-101 and CIM defined requirements.
Samples taken during the period from 1952 to 1979, when Anaconda operated the Yerington Pit, including samples used for the determination of mine head grades, lithology, densities, and metallurgical performance were determined by Tetra Tech to be representative of the deposit. While no details are available regarding Anaconda’sAnaconda's exact assaying protocol and quality control during the period the Yerington Pit copper mine was operating, public records of profit and cost confirmed that the techniques and procedures implemented conformed to industry standards for that era.
SPS explored the Yerington Pit copper property with both RC and diamond core drilling methods. The drilling program was supervised in the field by the project geologist for monitoring recovery, proper sample handling and accuracy in labeling. Approximately 4,300 samples were collected during the 2011 program and shipped for sample analyses. The samples were analyzed for total copper (TCu), gold, and a 47-element trace element package. Samples representing oxide mineralization and acid soluble sulfide copper were also analyzed for acid soluble copper and for ferric sulfate soluble copper. Rock quality designations (“RQD”("RQD") and magnetic susceptibility measurements were taken on all core which was photographed following geologic logging.
The RC samples are collected in a conventional manner via a cyclone and standard wet splitter, placed in cloth bags that are pre-marked by SPS personnel at five-foot intervals and include a numbered tag inserted into a plastic bag bearing the hole number and footage interval. Collected samples, weighing approximately 15 to 20 pounds each, are wire tied and then loaded onto a ten-foot trailer with wood bed allowing initial draining and drying. Each day SPS personnel or the drillers at the end of their shift, haul the samples to SPS’sSPS's secure sample preparation warehouse in Yerington, Nevada where the samples are dried, loaded on plastic lined pallets, weighed, and trucked by Skyline Assayers and Laboratories (“Skyline”("Skyline") personnel to Skyline’sSkyline's sample preparation facility in Battle Mountain, Nevada. A chain of custody form accompanies all shipments from Yerington to Battle Mountain. Once Skyline preps each sample in its Battle Mountain facility, approximately 50-gram sample pulps are air-freighted to Skyline’sSkyline's analytical laboratory in Tucson, Arizona for analyses and assay.
Samples from the core drilling program are handled in a similar manner. Core samples with a diameter of approximately 2.75 -inches (HQ) are placed in wax-impregnated, ten-foot capacity cardboard boxes and delivered to SPS’sSPS's secure sample warehouse in Yerington, Nevada by the drill crew following each 12-hour shift. The core is logged by a SPS geologist who marks appropriate sample intervals (one to nominal five feet) with colored flagging tape. Lines are marked along the length of core with red wax crayons to indicate where the core piece should be sawed. Each core box, bearing a label tag showing drill hole number, box number, and box footage interval, is then photographed. RQD, magnetic susceptibility, and recovery measurements are taken. Core is then loaded on a pallet, shrink wrapped, and secured with wire bands for trucking by Skyline personnel to Skyline’sSkyline's sample preparation facility in Battle Mountain, Nevada. The core is sawed in half by Skyline personnel, one half designated for sample preparation/assay, the second half placed in its core box for return to SPS. Chain of custody procedures for core shipments picked up by Skyline at the SPS core shed follow the format for RC samples.
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Drilling samples from the Yerington Pit project were analyzed by Skyline in Tucson, Arizona, which is accredited by the American Association for Laboratory Accreditation (A2LA - certificate no. 2953.01) and by ISO17025-compliant ALS Minerals Laboratories in Sparks, Nevada. SPS implements a quality assurance and quality control assay protocol whereby either one blank or one standard is inserted with every ten samples into the assay stream. Rejects from the previously analyzed samples are sent to ALS Minerals in Reno, Nevada for check assays.
Mineral Resources
Tetra Tech completed an independent resource estimate and technical report update under NI 43-101 for the mineralization in and around the historic Yerington Pit titled“"NI 43-101 Technical Report Mineral Resource Update Yerington Copper Project Lyon County, Nevada”Nevada" and dated January 3, 2014 (effective November 20, 2013), which supersedes its previous report completed in February 2012 (the “Updated"Updated Yerington Technical Report”Report"). The Updated Yerington Technical Report is based upon an additional 232 historic Anaconda holes unavailable when the previous report was completed. The current resource now includes over 800 boreholes.
These additional holes are well distributed throughout the deposit and provided infill and extensional information to the previously used data, allowing upgrades in classification, improved grade estimate and a new resource definition.
The increases to the February 2012 resource are as follows. Using a 0.12% TCu copper cutoff, measured and indicated oxide and chalcocite resources increased 28% in tons, 9% in grade, and 37% in pounds of contained copper while the inferred resource increased 5% in tons, 14% in grade, and 21% in contained copper. Using a 0.15% TCu copper cutoff, the primary measured and indicated resources increased 12% in tons, 12% in grade, and 25% in contained copper while the inferred resource increased 4% in tons, 11% in grade, and 13% in contained copper.
Using a cutoff grade of 0.12%, the Yerington Pit’sPit's measured and indicated acid-soluble oxide/chalcocite mineralization includes a measured and indicated resource of 23.5 million tons averaging 0.25% TCu (118 million pounds of copper) and an inferred resource of 25.9 million tons of 0.23% TCu (118 million pounds of copper). Using a cutoff of 0.15% TCu, the measured and indicated primary copper resource contains 105 million tons averaging 0.30% TCu (633 million pounds of copper) and an inferred primary copper resource of 128 million tons of 0.23% TCu (600 million pounds of copper).
Cutoff grades of 0.12% and 0.15% for the oxide/chalcocite and sulfide mineralization, respectively, were used in the Updated Yerington Technical Report based on benchmarking of the Yerington Deposit to similar deposits using open pit mining. The cutoff values are representative of grades and recoveries used in calculating the mineral resources for the preliminary economic assessment for the Company’sCompany's adjacent MacArthur Copper Project, which is described in a NI 43-101 technical report filed in January of 2014 using an effective date for the resource calculation of May 2012. The MacArthur study indicates that using the cutoff grades in the report, the project has reasonable prospects for economic extraction of mineralization. The Yerington and MacArthur deposits are adjacent, geologically similar and have similar grade continuity. Open pit mining methods are proposed for both deposits. They will use similar metallurgical processes. The cutoff grades are based on similar costs, metal prices and mining/metallurgic parameters. The benchmark values applied to the Yerington Project from the MacArthur project are:
| Price and Recovery | ||
Copper Price (average) | $2.42/lb | |
Oxide Ore recovery | 65% of TCu | |
Sulfide Ore recovery | 27% of TCu | |
Costs: | ||
Process (Heap and SXEW) | $1.02/lb recovered copper | |
G&A Cost | $0.50/ton ore | |
Ore Haul and Heap dozing | $0.25/ton ore | |
Mining (ore and waste), base cost | $1.50/ton | |
Mining Lift Charge | $0.02/ton per 20 ft bench below 4760 | |
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Floating Cone Discount Rate | 0.5% per 20 ft bench |
The following table summarizes the resource estimates contained in the Updated Yerington Technical Report, including changes from the previous report prepared in February of 2012:
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YERINGTION COPPER PROJECT RESOURCES USING SELECTIVE CUTOFF FOR OXIDE AND SULFIDE 1,2,3 | |||||||
MEASURED | Cutoff | 2013 ESTIMATE | % CHANGE FROM 2012 | ||||
| %Cu | Tonsx1000 | Grade | Lbsx1000 | Tonsx1000 | Grade | Lbsx1000 |
Oxide and Chalcocite Material | 0.12 | 6,500 | 0.25 | 33,000 | 8% | 10% | 17% |
Sulfide (Primary Material) | 0.15 | 31,000 | 0.33 | 205,000 | -3% | 10% | 8% |
Combined | 0.12,0.15 | 37,500 | 0.32 | 238,000 | -1% | 10% | 9% |
INDICATED | Cutoff | 2013 ESTIMATE | % CHANGE FROM 2012 | ||||
| %Cu | Tonsx1000 | Grade | Lbsx1000 | Tonsx1000 | Grade | Lbsx1000 |
Oxide and Chalcocite Material | 0.12 | 17,000 | 0.25 | 85,000 | 37% | 9% | 47% |
Sulfide (Primary Material) | 0.15 | 74,000 | 0.30 | 428,000 | 19% | 15% | 35% |
Combined | 0.12,0.15 | 90,000 | 0.29 | 513,000 | 22% | 12% | 37% |
MEASURED + INDICATED | Cutoff | 2013 ESTIMATE | % CHANGE FROM 2012 | ||||
| %Cu | Tonsx1000 | Grade | Lbsx1000 | Tonsx1000 | Grade | Lbsx1000 |
Oxide and Chalcocite Material | 0.12 | 23,500 | 0.25 | 118,000 | 28% | 9% | 37% |
Sulfide (Primary Material) | 0.15 | 105,000 | 0.30 | 633,000 | 12% | 12% | 25% |
Combined | 0.12,0.15 | 128,000 | 0.29 | 751,000 | 14% | 11% | 26% |
INFERRED | Cutoff | 2013 ESTIMATE | % CHANGE FROM 2012 | ||||
| %Cu | Tonsx1000 | Grade | Lbsx1000 | Tonsx1000 | Grade | Lbsx1000 |
Oxide and Chalcocite Material | 0.12 | 25,900 | 0.23 | 118,000 | 5% | 14% | 21% |
Sulfide (Primary Material) | 0.15 | 128,000 | 0.23 | 600,000 | 4% | 11% | 13% |
Combined | 0.12,0.15 | 154,000 | 0.23 | 718,000 | 4% | 10% | 14% |
1Independent qualified person, Dr. Rex Bryan, prepared and supervised the preparation of these mineral resources.
2All estimated resources are shown using a 0.12% and 0.15% copper cutoff for oxide and sulfide respectively
3 Effective date November 20, 2013
The results of the 2013 NI 43-101 compliant resource estimate compare favorably to the estimates of copper remaining in and around the Yerington Pit after the mine shut down (K.L. Howard, Jr., Anaconda Internal Memo, 1979). The 1979 estimate contained no classification for measured, indicated, or inferred, so direct comparison can only be made when considering all classes of the current estimate, but was reported at 121 million tons with an average grade of 0.34% TCu.
The 1979 estimate cited approximately 84% of the total contained copper (696 million pounds of copper in 97.8 million tons with an average grade of 0.356% Cu) as being within the original Anaconda pit design, suggesting that a significant portion of the Yerington Pit resource may be mined without a pushback or major changes to the upper walls of the Anaconda pit.
The current Tetra Tech resource estimate is based upon SPS’sSPS's 2011 drilling as well as 792 historic drill holes taken from approximately 10,000 scanned pages of assay and/or geologic data which were reviewed and digitally recorded by SPS personnel and from 57 Anaconda cross sections in use at the time of mine closure. The digital data entry was validated by Tetra Tech against historic sections and was considered to be compliant, based upon results of 18 twin holes and 5,446 feet of core from Anaconda holes which were assayed by SPS. The twinned drill intercepts statistically confirmed that the new compliant data support use of the historical data, as did the new core assays which were well within the expected norms for corroborating the old with new data.
The Tetra Tech resource estimate is included with a description of the project history, geology, mineralization, sampling procedures, and laboratory Quality Assurance/Quality Control procedures. The Updated Yerington Technical Report is available at www.sedar.com. The Qualified Person for the Yerington Pit project resource estimate and the Updated Yerington Technical Report is Rex Clair Bryan, Ph.D., Sr. Geostatistician for Tetra Tech.
2017 Drill Program
In March 2017, Quaterra and SPS commenced drilling at Yerington with the area in and around the historic Yerington pit as the primary focus. The drill program was funded by option payments by Freeport Nevada.
Hole YM-041A-17, drilled at - 55 degrees, intersected 561.7 feet averaging 0.20% copper, including several narrower intercepts with plus 0.30% copper. Hole YM-042-17, also drilled at - 55 degrees, collared in the pit about 1,000 feet further west, intersected a similar but lower grade interval averaging 0.12% copper. Hole YM-043-17, drilled at - 55 degrees, intersected 1,269.5 feet averaging 0.15% copper. Hole YM-045-17, also drilled at - 55 degrees, collared in the pit about 900 feet further east, intersected several thinner intervals with grades ranging to 0.55% copper, including a shallow oxide zone Hole YM-044-17, drilled on the northwest rim of the Yerington pit at - 50 degrees, intersected several narrow zones of mineralization averaging less than 0.2% copper.
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Significant intercepts from Yerington holes YM-041A-17, YM-042-17,
YM-043-17, YM-044-17 and YM-045-17 in 2017 drill programprogram
HOLE YM-041A-17 | From | To | Interval | % |
| feet | feet | feet | Cu |
| 1411.7 | 1973.4 | 561.7 | 0.20 |
includes | 1454.3 | 1488.8 | 34.5 | 0.31 |
includes | 1558.5 | 1619.8 | 61.3 | 0.33 |
includes | 1683.5 | 1770.5 | 87.0 | 0.32 |
HOLE YM-042-17 | From | To | Interval | % |
| 460.0 | 515.0 | 55.0 | 0.14 |
| 630.2 | 701.8 | 71.6 | 0.13 |
| 1022.0 | 1491.6 | 469.6 | 0.12 |
HOLE YM-043-17 | From | To | Interval | % |
| feet | feet | feet | Cu |
| 692.0 | 1961.5 | 1269.5 | 0.15 |
includes | 1077.3 | 1151.4 | 74.1 | 0.23 |
includes | 1592.0 | 1656.0 | 64.0 | 0.26 |
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|
|
|
|
HOLE YM-044-17 | From | To | Interval | % |
| 1016.9 | 1089.0 | 72.1 | 0.16 |
| 1665.8 | 1726.0 | 60.2 | 0.10 |
| 1789.1 | 1842.0 | 52.9 | 0.14 |
HOLE QM-045-17 | From | To | Interval | % |
Oxide
includes includes | 65.2 992.0 1060.2 1147.0 1236.5 1346.0 1568.5 1736.0 | 140.9 1006.0 1076.0 1378.6 1322.0 1363.8 1584.0 1993.5 | 75.7 14.0 15.8 231.6 85.5 17.8 15.5 257.5 | 0.17 0.36 0.55 0.15 0.23 0.28 0.26 0.13 |
*Drill intercepts are based on actual core lengths and may not reflect the true width of mineralization
Drilling extended sulfide mineralization from 600 to 800 feet below the currently defined resource identified at the Yerington pit across a strike length of 4,400 feet. The absence of higher-grade mineralization in widely spaced holes decreases the likelihood that better grades over appreciable widths exist at greater depth below the pit.
Mineralization, primarily chalcopyrite, is hosted in a quartz monzonite-quartz monzonite porphyry complex and occurs as sheeted veins and vein swarms that are steeply dipping and strike northwesterly parallel to the long axis of the pit. Copper grades are directly related to vein intensity and spacing, which vary markedly over short distances.
Quality assurance and control
Drilling included both reverse circulation (RC) and core, contracted to Layne Christensen Company, Chandler, Arizona, which provided both drill rigs. Core samples were either sawed or split by SPS personnel in Yerington, Nevada, and shipped to Bureau Veritas Minerals NA –- Inspectorate America Corporation, an ISO certified assaying/geochemistry facility, in Reno, Nevada, for sample preparation. Gold analyses are assayed in Bureau Veritas’Veritas' lab in Reno using their “FA430”"FA430" procedure (fire assay with atomic absorption finish) with a 5 ppb Au detection limit. Prepared pulps are shipped to Bureau Veritas’Veritas' lab in Vancouver, B.C., Canada, for analysis using their “MA 300”"MA 300" procedure for 35 element ICP-ES analysis. Commercially prepared standards and blanks are inserted by SPS at 50-foot intervals to insure precision of results as a quality control measure. SPS has a chain of custody program to ensure sample security during all stages of sample collection, cutting, shipping, and storage.
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SPS also engaged a reverse circulation (RC) drill rig in the program. RC samples were shipped to the Bureau Veritas Minerals NA facility in Reno, Nevada, for sample preparation and analyses following the same procedure and protocol, including inserted blanks and standards, as that of the core samples described above.
Future Work Plans
Quaterra believes the Yerington Pit project has potential for additional copper resources. Historic and current drilling data indicate that horizontal and vertical limits to the mineralization at the Yerington Pit have not yet been found. Additional exploration and in-fill drilling is planned to both expand and upgrade the current copper resources of the project prepared under NI 43-101.43-101 subject to financing and the lift of COVID-19 related restrictions in Nevada.
b. MacArthur Deposit, Nevada USA
Acquisition and Staking of Mineral Claims
The MacArthur Deposit consists of 897 unpatented lode claims totaling approximately 18,533 acres on lands administered by the BLM. A significant number of the claims were held by means of a mineral lease with an option to purchase, executed with North Exploration LLC (“North”("North") on August 27, 2005, and subsequently amended. The option was exercised and the final payment of $212,000 plus interest to North was made on February 10, 2015. Quaterra’sQuaterra's purchase is subject to a 2% NSR royalty, 1% of which may be purchased for $1,000,000, leaving a perpetual 1% NSR. The agreement with North is in good standing.
Expenditures to Date
Acquisition and exploration costs incurred by the Company for the MacArthur Deposit to December 31, 20182019 were $18.22$18.504 million (2017(2018 - $17.89$18.218 million) net of option payments made by Freeport Nevada.
Location, Access and Infrastructure
The MacArthur Deposit is located near the geographic center of Lyon County, Nevada, USA, along the northeastern flank of the Singatse Range approximately seven miles northwest of the town of Yerington, Nevada. The project is accessible from Yerington by approximately five miles of paved roads and two miles of maintained gravel road. A 100-foot wide gravel haul road that accessed the MacArthur open pit copper mine during the 1990s leads 3.5 miles south to the Yerington Mine Site. Beyond the MacArthur Deposit pit area are several existing historic two-track dirt roads that provide access throughout the property. Topographic coverage is on US Geological Survey “Mason Butte”"Mason Butte" and “Lincoln Flat” 7.5’"Lincoln Flat" 7.5' topographic quadrangles. The nearest major city is Reno, Nevada approximately 80 miles to the northwest. Following areThe following maps providingprovide information on the location of the MacArthur Deposit.
History
Prior to 1989, the MacArthur Deposit was explored and drilled by several operators who have contributed to the current database of more than 740 holes totaling approximately 282,000 feet. During the early 1970s, The Anaconda Company (“Anaconda”("Anaconda") conducted an extensive trenching and rotary drilling program consisting of more than 280 rotary holes totaling approximately 56,000 feet over and adjacent to the present day MacArthur Deposit pit.
Arimetco purchased the property in 1989 and mined a total of six million tons at an estimated grade of 0.36 % total copper using open pit methods from the MacArthur Deposit in the period of 1995 to 1998. Due to financial difficulties resulting primarily from the low price of copper, Arimetco sought protection under Chapter 11 of the U.S. bankruptcy Code in January 1997 and suspended all operations in 2000. After Arimetco’sArimetco's departure, the mining claims over the deposit were allowed to lapse.
Quaterra acquired the MacArthur Deposit in August 2005. The acquisition was motivated by Quaterra’sQuaterra's belief in the potential of the property to host an oxide copper deposit capable of sustaining a large run-of-mine heap leach operation using a solution extraction/electrowinning (SXEW) process for low cost production. The Company initiated exploration drilling in April 2007 and by November 2011, completed a total of 204,700 feet of drilling in 401 holes on the property. The drilling program has defined a widespread blanket of acid soluble copper oxide and chalcocite mineralization above primary copper mineralization that is believed to be the fringe or top of a major copper porphyry system.
Geology
The MacArthur Deposit forms part of the Yerington mining district which includes at least three large, porphyry copper deposits (Yerington, Ann Mason, Bear), as well as two large iron-oxide copper gold (IOCG) deposits (Pumpkin Hollow, and Minnesota). Mineralization ranges from disseminated porphyry copper occurrences to skarn, limestone replacement, and vein type deposits.
The Yerington area is underlain by early Mesozoic volcanic and sedimentary rocks now exposed along uplands in the Singatse Range in the west and the Wassuk Range to the east. These Mesozoic rocks were intruded by two Middle Jurassic batholiths, an older granodiorite (Yerington Batholith) and younger quartz monzonite (Bear Quartz Monzonite) that comprise the majority of outcropping rocks in the district. The batholiths were themselves intruded by another Middle Jurassic quartz monzonite event moderately to steeply north dipping quartz-biotite-hornblende porphyry dike swarms, associated with copper mineralization, striking north-northwesterly across the entire mining district. The Mesozoic section is overlain by Early to Middle Tertiary volcanics deposited ash flow tuffs prior to the advent of normal faulting associated with Late Tertiary basin-and-range extension that displaced and tilted all of the above-mentioned rocks. These faults dip east and are curved, concave upward, so that the dip of the fault flattens eastward. Net displacements are in an east-west direction. The geologic section is completed by post-faulting conglomerates and alluvium.
At the MacArthur Deposit, the older granodiorite underlies most of the northern and western parts of the Company’sCompany's claim block. Along the east part of the claim, block quartz monzonite is dominant and underlies the MacArthur Deposit pit. In bench walls at the MacArthur Deposit pit, the quartz monzonite hosts conspicuous light brown limonite alteration banding (averaging 4 to 6 per foot) sub-parallel to the steeply north dipping, west-northwest trending quartz porphyry dikes.
Quartz porphyry dikes that host a large portion of the primary copper mineralization at Anaconda’sAnaconda's Yerington mine are associated with all copper occurrences in the district. The porphyry dikes at the MacArthur Deposit are classified by dominate mafic minerals into quartz biotite porphyry and quartz hornblende porphyry, each subdivided further based on composition and alteration. Dikes contain feldspar crystals and either hornblende or biotite crystals set in an aphanitic matrix. The structures are typically ridge-formers with widths to 50 feet, dip steeply to the north, and follow a penetrative north-northwest (S60°E to S80°E) structural fabric. Narrow (<10 feet) fine grained, post porphyry andesite dikes follow the same NNW structural fabric.
Mineralization
The MacArthur Deposit is part of a large, partially defined porphyry copper system that has been complicated by complex faulting and possible post-mineral tilting. Events leading to the current geometry and distribution of known mineralization include: 1) emplacement of primary porphyry copper mineralization; 2) supergene enrichment resulting in the formation of a widespread, tabular zone of secondary chalcocite mineralization below outcrops of totally oxidized rocks called a leached cap; and 3) oxidation of outcropping and near-surface parts of this chalcocite blanket, as well as oxidation of the primary porphyry sulfide system coupled with partial remobilization of copper to form the upper zone of oxide copper now exposed in the MacArthur Deposit pit and throughout the MacArthur Deposit. Oxide, chalcocite, and primary copper mineralization at the MacArthur Deposit is hosted in both
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granodiorite and quartz monzonite, and in lesser amounts within quartz biotite-hornblende (monzonite) porphyry dikes, all of middle Jurassic age. Oxide copper is also hosted in northwest striking andesite dikes less than one to ten feet wide with contacts forming favorable loci for mineralization. Andesite dikes make up less than approximately one to two percent of the host rocks on the property. Fracturing and ground preparation supplied the passage ways for the copper to migrate.
Copper oxide minerals are exposed throughout the MacArthur Deposit, particularly in the pit walls as primarily green and greenish-blue chrysocolla CuSiO3.2H20 along with black neotocite, aka copper wad (Cu, Fe, Mn) SiO2, azurite Cu3(OH2)(CO3) and malachite Cu2(OH2)CO3, while tenorite (CuO) was identified with the electron microprobe (Schmidt, 1996). Copper-enriched limonite was identified by Anaconda as the mineral delafossite (CuFeO2). Chalcocite has been identified in drill holes below the MacArthur Deposit pit and in drilling throughout the property. The sulfides digenite (Cu9S5) and covellite (CuS) have been identified petrographically in drill cuttings from the western part of the property. The oxide copper mineralization is strongly fracture controlled, coating joint and fracture surfaces and within shears and faults. Both green and black copper oxides are frequently found on 1 to 5 millimeter fractures, as coatings and selvages and may be mixed with limonite. The fractures trend overall N60°W to N80°W (bearing 300° to 280° azimuth) and generally dip to the north. Limited turquoise is found on the property, mainly in one- to five-millimeter veinlets. On a minor scale, oxide copper mineralization replaces feldspar phenocrysts in the igneous host units, favoring andesite.
A significant amount of chalcocite has been intersected in drillholes. Chalcocite is seen on drill chips or drill core coating pyrite and chalcopyrite as weak to strong coatings and is strongest when occurring around the MacArthur Deposit fault. Chalcopyrite is present as disseminations and veinlets, with or without chalcocite. As much of the historic drilling was stopped at shallow (<400 foot) depths, the scope and extent of chalcopyrite mineralization have not been fully defined.
Both copper oxide and chalcocite mineralization occur over approximately 9,000 feet east-west by 4,500 feet north-south. Copper oxides are structurally controlled coating fractures, joint surfaces, and developed as green or black “streaks”"streaks" within shears and faults over several feet. Chalcocite may similarly be seen as grayish “streaks”"streaks" within shears. Oxide mineralization exhibits a generally flat-lying geometry extending with good continuity 150 feet below surface and less continuously up to 600 feet below surface. Chalcocite mineralization generally occurs as flat-lying zones 50 feet or more in thickness, mixed with or below oxide mineralization.
Primary chalcopyrite mineralization occurs irregularly with chalcocite and as porphyry style disseminations or as veinlets in quartz monzonite associated with potassic alteration below both the oxide and chalcocite mineralization. Quaterra’sQuaterra's drilling program in the Gallagher area has delineated a zone of chalcopyrite mineralization that extends over a north-south distance of 2,500 feet. The primary sulfide zone has a defined width of 500 feet and extends to a depth of approximately 650 feet.
Porphyry copper style sulfide mineralization below the low-angle MacArthur Deposit fault zone at the North Porphyry Target has been defined over a distance of 2,500 feet between holes QM-68 and QM-164. Veinlet and disseminated primary chalcopyrite mineralization intercepted at a depth of 485 feet in QM-68 assayed 1.19% copper over a thickness of 110 feet. The same zone in QM-70 averaged 0.82% copper over a thickness of 60 feet at a depth of 420 feet and correlates to a thickness of 15 feet averaging 1.20% at a depth of 770 feet in hole QM-72. QM-100 intersected the sulfide mineralization with 0.58% copper over 65 feet. Approximately 1,000 feet to the north, hole QM-164 intercepted 64 feet of disseminated chalcopyrite mineralization in sodic altered granodiorite averaging 1.31% copper at a depth of 1,673 feet. The intercept includes a high-grade zone of 29 feet averaging 2.21% . Mineralized zones within potassic halos in holes QM-165 to the west and in QM-163 to the east are consistent with those that could fringe a porphyry copper center.
Exploration and Drilling Results
Quaterra acquired the digitized Anaconda exploration and drilling data package in August 2006 and commenced a review of the deposit geology and mineralization model using Datamine software. The data was used to assess the required drilling and sampling to complete a technical report on the MacArthur Deposit with the objective of preparing a NI 43-101 compliant resource estimate.
The lateral zonation of supergene copper minerals visible at the surface, a possible chalcocite blanket to the north of the pit, and a large, pervasive phyllic alteration zone to the north and west of the mine workings, all suggested to Quaterra that the MacArthur Deposit could have a potential for growth; both in the form of copper oxides and as primary sulfides in a related porphyry system.
In April 2007, the Company commenced a drilling program to twin approximately 10% of the shallow holes that defined the previously explored copper oxide mineralization at the MacArthur Deposit and to identify extensions of copper oxide and chalcocite mineralization in the vicinity of the open pit. The 20-month drilling program totaled 80,100 feet in 173 holes including 23,900 feet of core in 49 holes and 56,200 feet of RC drilling in 124 holes. The drilling successfully targeted a deeper chalcocite zone in step-out holes from the pit, expanded the known oxide mineralization, and encountered a large, underlying tabular blanket of mixed oxide-chalcocite mineralization that overlies primary chalcopyrite mineralization verified by deeper drill holes in the western and northern margins of the drilled area.
Drilling on the MacArthur Deposit was suspended through most of 2009 pending receipt of a Plan of Operations (“POO”("POO") drilling permit. On October 28, 2009,the Company received the approval of the MacArthur Deposit POO and the BLM Record of Decision with a Finding of No Significant Impact. The POO environmental assessment anticipates a total surface disturbance of 200 acres as a result of drilling activities throughout much of the project area.
Quaterra initiated a second phase of RC and deep core drilling in early December 2009. Completed in August 2010, the program tested the northern extension to higher grade acid soluble copper mineralization on 500 foot centers northwest of the pit in-filled on 500 ft centers an undrilled area west of the pit. In the southern Gallagher area, the program confirmed a band of continuous near surface oxide mineralization ranging in thickness from 15 to 60 feet over a distance of 1,900 feet between holes QM-155 and 156.
Three deep holes tested surface IP/resistivity (“IPR”("IPR") anomalies to the north and northwest of the MacArthur Deposit pit where earlier drill holes intersected ore grade porphyry copper style sulfide mineralization below the low-angle MacArthur Deposit fault zone over a strike length of 1,000 feet. Hole QM-100, located 1,400 feet north of QM-68, intercepted porphyry-style chalcopyrite/biotite-chlorite veining at a depth 1,203 feet that assayed 0.58% copper over a thickness of 65 feet below the shallow-dipping MacArthur fault zone. QM-109, spotted on an IPR anomaly, failed to reach projected depth due to fractured, caving ground while QM-99 intersected massive pyrite impregnated breccia and scattered zones of secondary biotite and chlorite alteration; common elements of a porphyry system.
A total of 81,650 feet was drilled in 153 holes including 69,890 feet in 147 RC holes and 11,760 feet in 6 core holes during the 2011 drilling program. The program had the twin goals of enlarging and upgrading the status of the inferred resources through step-out and infill drilling and exploring for primary sulfide mineralization related to a copper porphyry system at depth.
The infill program encountered high grades of continuous chalcocite and copper oxide mineralization in zones averaging 40 feet or more in thickness along the western and northern margins of the deposit in the area referred to as the “Ridge Zone”"Ridge Zone". To test the high-angle mineralized structures that form an important component of the acid-soluble copper deposit, the program was completed on 250-foot centers in areas with higher grade potential and encountered some of the highest grades and best intercepts of acid soluble copper mineralization ever drilled on the property. Hole QM-187, drilled 2,000 feet north of the MacArthur Deposit pit, intersected 90 feet of predominantly chalcocite mineralization averaging 1.66% total copper (TCu) starting at a depth of 310 feet. This intercept includes 40 feet assaying 3.49% TCu. Hole QM-180 along the northwestern margin of the zone intercepted 40 feet averaging 1.37% TCu at a depth of 360 feet.
Exploration for a deep porphyry system at the MacArthur Deposit intercepted one of the best primary copper intercepts yet identified on the project with hole QM-164 intersecting 64 feet of disseminated chalcopyrite mineralization in sodic altered granodiorite averaging 1.31% TCu at a depth of 1,673 feet. The intercept includes a high-grade zone of 29 feet averaging 2.21% TCu. QM-164 also intercepted a shallower zone of both vein and disseminated chalcopyrite at a depth of 685 feet that averages 0.34% TCu over a thickness of 96.5 feet. QM-164 extended the mineralized zone identified in QM-100 a distance of 1,000 feet to the north where it remains open for extension.
Geophysics
Quaterra contracted three surveys at the MacArthur Deposit in 2011 and 2012. A borehole geophysical survey and an IPR survey was carried out by Zonge International (“Zonge”("Zonge") in 2011. A detailed helicopter magnetic survey was flown by Geosolutions Pty. Ltd. (“Geosolutions”("Geosolutions") in 2012. These surveys supplement previous geophysical work on the MacArthur Deposit that includes: a 2009 IPR survey carried out by Zonge; a 2007 helicopter magnetic survey carried out by EDCON-PRJ; a series of historic aeromagnetic surveys (1966 to 1975) available in analog form from Anaconda’sAnaconda's archives; and a series of historic IPR surveys (1963 –- 1964) carried out by Kennecott Exploration Company (“Kennecott”("Kennecott"), Bear Creek Mining Company and Superior Oil.
The mineralized system at the MacArthur Deposit has an anomalous IP and resistivity response first detected in the Kennecott and Superior Oil IPR surveys in the 1960’s.1960's. The Quaterra 2009 and 2011 IPR surveys confirmed the reliability of the earlier surveys and further defined the depth extent of the IP anomalies. The 2009 and 2011 Quaterra surveys confirmed that the 1963-64 Kennecott data is of good quality and is useful for mapping anomalous IP zones within the upper 1,000 to 1,200 feet from the surface. Below this depth, the older data cannot effectively resolve the bottom of the IP anomalies nor determine if any of the anomalies extend to great depths.
The 2009 and 2011 data sets show this increased depth of exploration is important. Portions of the IP response are flat lying with limited depth extent. However both the 2009 and 2011 surveys have identified anomalous IP responses with depth extent in excess of 2000 feet and possibly feeder zones of the near surface zones. In 2011, two borehole IP surveys were run that demonstrate Quaterra’sQuaterra's ability to explore for deep sulfide responses below the depth of exploration of surface techniques. The modern data maps subtle low resistivity features which are interpreted to be porphyry alteration systems and have identified anomalous IP responses that extend under post-mineral volcanic cover to the north and west of the main MacArthur Deposit system. These buried anomalies are high priority drill targets.
Two high resolution helicopter magnetic surveys were flown over the MacArthur Deposit in 2007 (EDCON-PRJ) and 2012 (Geosolutions). The modern, high-resolution data has a broad frequency bandwidth and will be used for 3D modeling and exploring beneath the magnetic volcanic cover.
Sampling, Analysis and Security of Samples
Quaterra has explored the MacArthur Deposit with both RC and diamond core drilling methods. RC holes were drilled by Diversified Drilling LLC, Missoula, Montana, USA, DeLong Construction Inc., Winnemucca, Nevada, USA and by Leach Drilling Inc., Silver Springs, Nevada, USA. During 2007-2008 the core drilling was contracted to Kirkness Diamond Drilling of Dayton, Nevada, USA and Kirkness Brothers Diamond Drilling (aka KB Drilling Co, Inc) of Carson City, Nevada, USA. Major Drilling America, Inc., Salt Lake City, Utah, conducted core drilling during 2009-2010. Core drilling during 2011 was contracted to Ruen Drilling Inc, Clark Fork, Idaho, USA. The RC crews ran one 10 to 12 hour shift per day; the core drill crews operated 24 hours per day.
The MacArthur Deposit drilling program is supervised in the field by the project geologist for monitoring recovery, proper sample handling and accuracy in labeling. Drill core (HQ diameter) and RC samples are delivered from the drilling rigs to the core and sample storage facility in Yerington by the drillers at the end of each 12 hour shift for logging and sampling by the project geologists.
At the core storage/logging facility, core is photographed, measured, core recovery calculated, and the rock types, alteration minerals, textural features, structures, veining, and mineralized zones documented. Sample intervals on the first three holes were fixed at five feet. In subsequent drill holes the sample intervals are taken at each of the core runs marked by the driller’sdriller's blocks. Exceptions are where full recovery occurs in numerous, short core runs in intervals less than about 6 feet, or where the geologists visually selected sample intervals based on rock type or structure. Sample intervals are measured and marked with permanent marker, orange ribbon and aluminum tag that is stapled to the core tray showing the sample number. Where the core sample is coherent a line is drawn with permanent marker along the stick so that it is sawn in half perpendicular to the “grain”"grain" in order to get a representative split. The core is stored on pallets to be picked up by the analytical laboratory.
When core from the MacArthur Deposit arrives at the laboratory, it is split, using a core saw, into halves and one half of each interval is placed into a sample bag that is marked with the sample number. The sample is then dried, crushed to -10 mesh, rotary split to 1,000 grams, pulverized to -150 mesh, and split to 350 gram pulps. The pulps are assayed for total copper using a 2 gram-3 acid volumetric ore grade atomic-absorption (AA) spectroscopy analysis. The solution from the total Cu analysis is assayed by inductively coupled plasma (ICP) spectrometry for 34 elements. The acid soluble copper oxide (asCu) content of the sample is then analyzed by using a weak, sulfuric acid solution leach of a 1 gram pulp. The acid leachable copper sulfide content is analyzed by using ambient temperature concentrated sulfuric acid and hydrated ferric sulphate to determine Ferric Sulfate Soluble Copper (FSCu) content. Internal quality assurance and quality control procedures include the insertion of standards and duplicates into the sample sequences. Rejects from the previously analyzed samples are also sent to another accredited laboratory for check analyses. The remaining half core is placed back into the core box in its original position and the core boxes are returned to the Yerington core storage/logging facility by the laboratory truck, where it is then stacked and stored in order and by hole number. Reject and pulps are also returned with the core to the Yerington facility for archiving.
American Assay Laboratories located in Sparks, Nevada (“AAL”("AAL") prepared and assayed samples from the MacArthur Deposit drilling program in 2007. AAL is ISO/IEC 17025 certified and participates in CANMET, PTP MAL certification analyses twice a year and in GEOSTATS, SMA, and IOAG testing twice a year. Core samples from subsequent programs have been prepared and analyzed by ISO17025 compliant ALS Chemex Laboratories in Sparks, Nevada (“("ALS Chemex”Chemex") and Skyline Assayers and Laboratories in Tucson, Arizona (“Skyline”("Skyline").
The MacArthur Deposit RC drilling program is supervised in the field by the project geologist for sample accuracy, proper handling and accuracy in labeling. Methods and procedures for splitting and packaging of samples are conducted such that the quality of the sample splitting meets or exceeds standards required under NI 43-101 and a chain of custody starts with the drillers collecting, splitting and bagging of RC drill cuttings.
For logging of drilled lithologies, a continuous chip sample is collected in a plastic chip tray over five foot intervals and stored for logging by the project geologists. A 5/16 continuous split of five-foot sample intervals is collected for assaying from 5.2 inch diameter drill holes through a wet splitter mounted on the rig. The samples are placed in sample bags and transported from the drilling rig to the Company’sCompany's storage facility in Yerington at the end of each 12-hour shift. The samples are then inventoried by Company personnel, dried, placed on pallets, wrapped in plastic and shipped via United Parcel Service to the Skyline laboratory in Tucson, Arizona for sample preparation and assaying. Rejects and pulps are returned to the Yerington facility for archiving.
Skyline is accredited by the American Association for Laboratory Accreditation (A2LA - certificate no. 2953.01) in the Chemical field of Testing. Skyline is a recognized industry leader for all types of base metal, ferrous and non-ferrous analysis including high quality ore-grade assays, sequential copper analyses of ores, and umpire assays of metallurgical products. The Tucson laboratory has provided analytical service to the copper mining industry for over 70 years.
At Skyline, the RC samples are crushed to plus 75% passing a -10 mesh, split and pulverized at the laboratories for assay using analytical techniques as described for the core drilling program. Internal quality assurance and quality control procedures include the insertion of standards into the sample sequences. Rejects from the previously analyzed samples are sent to ALS Chemex Laboratories in Sparks, Nevada for check assays.
Mineral Resources
Tetra Tech completed an updated independent resource estimate under NI 43-101 for the MacArthur Deposit preliminary economic assessment (the “MacArthur"MacArthur Deposit Resource Estimate”Estimate") titled“"MacArthur Copper Project –- Amended NI 43-101 Technical Report Preliminary Economic Assessment, Lyon County, Nevada, USA”USA" and dated January 17, 2014 (effective date May 23, 2012). At a 0.12% cutoff, the tonnage of the measured oxide and chalcocite resourcewasresourcewas 71.8 million tons at 0.218% copper containing 313 million lbs. of copper, the indicated oxide and chalcocite resourcewasresourcewas 87.3 million tons at 0.208% copper containing 362 million lbs. of copper, and the inferred oxide and chalcocite resource was 243.4 million tons at 0.201% copper containing 979.5 million lbs. of copper.
The MacArthur Deposit’sDeposit's indicated sulfide resource at a 0.15% cutoff is 1.1 million tons averaging 0.292% copper containing 6.4 million pounds of copper and the inferred sulfideresourcesulfideresource was 134.9 million tons averaging 0.283% copper containing 764 million lbs. of copper.
The Qualified Person for the updated MacArthur Deposit resource estimate is Dr. Rex Clair Bryan of Tetra Tech.
Metallurgy
The MacArthur Deposit has a long history of metallurgical testing from 1976 through 2011 including bottle roll and column leach testing and full-scale heap leach operations. Anaconda performed the first test work in 1976 and multiple subsequent owners continued test work through 2011. The most comprehensive test work was performed by Quaterra during 2010 and 2011. Quaterra contracted METCON Research of Tucson, Arizona to run a substantial number of bottle roll leach tests along with 32 column leach tests, on samples from 27 large diameter (PQ) size core drill holes. These drill holes are generally representative of the MacArthur Deposit mineral resources. The test work, both historic and that most recently performed, shows the mineralized material is amenable to standard heap leaching with good copper extraction.
The Qualified Person for the metallurgical portion of the MacArthur Deposit Resource Estimate is Dr. Richard Jolk of Tetra Tech.
Preliminary Economic Assessment
M3 Engineering & Technology Corp. of Tucson, Arizona (“M3”("M3") completed a preliminary economic assessment for the MacArthur Deposit on May 23, 2012 and titled“"MacArthur Copper Project –- Amended NI 43-101 Technical Report Preliminary Economic Assessment Lyon County, Nevada, USA”USA" (the “MacArthur"MacArthur Deposit PEA”PEA"). The MacArthur Deposit PEA was amended and restated on January 27, 2014. The study concluded that the project has potential for development as a large-scale copper oxide heap leach operation that would provide long-term cash flows for a relatively modest capital outlay.
A PEA should not be considered to be a pre-feasibility or feasibility study as the economics and technical viability of the Project have not been demonstrated at this time. Mineral resources that are not mineral reserves do not have demonstrated economic viability. A PEA is preliminary in nature and includes Inferred Mineral Resources that are considered too geologically speculative at this time to have economic considerations applied to them to be categorized as Mineral Reserves. Thus, there is no certainty that the production profile concluded in the MacArthur Deposit PEA will be realized. Actual results may vary, perhaps materially.
The MacArthur Deposit PEA set out the following key project parameters:
An open pit mine based on an acid soluble measured and indicated copper resource model of 159 million tons at 0.212% copper and an inferred resource of 243 million tons at 0.201% copper.Recovery of 747 million pounds of copper over the 18-year mine life at an average mining rate of 15 million tons per year with a waste to ore stripping ratio averaging 0.90.
• | An open pit mine based on an acid soluble measured and indicated copper resource model of 159 million tons at 0.212% copper and an inferred resource of 243 million tons at 0.201% copper. | |
• | Recovery of 747 million pounds of copper over the 18-year mine life at an average mining rate of 15 million tons per year with a waste to ore stripping ratio averaging 0.90. |
Initial capital expenditure of $232.7 million.Average life-of-mine operating costs of $1.89 per pound.An after tax net present value (“NPV”) of $201.6 million at an 8% discount rate and a base case copper price of $3.48 per pound. (The project breaks even at a copper price of $2.56 per pound until the capital is paid off in 3.1 years. Thereafter, the breakeven is $2.23 per pound.)An after tax internal rate of return (“IRR”) of 24.2% with a 3.1-year pay back.
• | Initial capital expenditure of $232.7 million. | |
• | Average life-of-mine operating costs of $1.89 per pound. | |
• | An after tax net present value ("NPV") of $201.6 million at an 8% discount rate and a base case copper price of $3.48 per pound. (The project breaks even at a copper price of $2.56 per pound until the capital is paid off in 3.1 years. Thereafter, the breakeven is $2.23 per pound.) | |
• | An after tax internal rate of return ("IRR") of 24.2% with a 3.1-year pay back. |
Mine operating costs were provided by Independent Mining Consultants Inc. of Tucson, Arizona (“IMC”("IMC"), based on an average 41,000 ton per day mine plan.
The project financials were enhanced by including in the above cash flows a sulfuric acid plant at the site compared to purchasing and transporting acid to the site. An on-site acid plant provides more long term certainty for the highest operating cost item (sulfuric acid), reduces the requirement for purchased electric power, and would leverage future consolidation and development of other oxide deposits in the District.
The SX/EW capital cost estimate was prepared based on M3 in-house information of similar SX/EW facilities. It includes the heap leach pads, SX/EW facility and tank farm based on a design flow rate of 10,400 gal/min. Additional upfront capital costs were included for mining equipment and infrastructure improvements (power, water, roads) needed at the site. Capital costs are considered accurate to -20% to +25%.
The Qualified Person for the MacArthur Deposit PEA is Mr. Rex Henderson with M3. The Qualified Person for the mining portion of the MacArthur Deposit PEA is Herb Welhener of IMC. The 2012 PEA is available at www.sedar.com.
In August 2014, as part of the Freeport Nevada Option Agreement, the MacArthur Deposit was transferred to SPS, a wholly owned subsidiary of Quaterra Alaska Inc.
Future Plans
On January 10, 2018, Quaterra announced that it has initiated preparation of a prefeasibility study at MacArthur. In November 2017, Quaterra approached M3 to review opportunities to optimize the near-term production potential at MacArthur as laid out in the 2012 PEA.
The 2012 PEA identified several areas for potential improvement, including additional metallurgical work and focused resource drilling. In addition, M3’sM3's review indicated that it may be more economic to buy sulfuric acid in the market than to build an acid plant to process purchased sulfur. The acid plant represented $65.4 million or 28% of the total pre-production capital costs of $232.7 million in the 2012 PEA.
Following the review and a final evaluation, and depending on the availability of funds, Quaterra intends completing a prefeasibility study in order to further de-risk MacArthur, and add more certainty to its economic potential. Specifically, as part of the prefeasibility study there will be, among others, an investigation of:
- Updating the resource model and optimizing the mine plan.
- Reducing initial capital costs by eliminating the acid plant.
Investigating waysWays to improve copper recovery by testing various crush sizes to replace the original plan to use Run-of-Mine (ROM) material. The new metallurgical test work program will help define the ultimate recovery, acid consumption, and leach cycle for ROM and crushed ore as well as optimal leach pad parameters. Bulk leach tests of copper oxide material are included in the test work plan.- Evaluating the cost-recovery trade-offs of leaching ROM material compared with crushed material.
Quaterra has also engaged Independent Mining Consultants ("IMC") of Tucson, Arizona, to update the MacArthur mineral resource estimate by incorporating the results of work completed since the 2012 PEA, re-evaluate the assumptions in the 2012 PEA, and identify additional opportunities to enhance the mine plan.
On October 21, 2019, Quaterra announced the results of sequential copper analysis at MacArthur. Sequential copper analysis ("Seq-Cu") is a semi-quantitative technique to determine the total amount of soluble (leachable) copper present in drill samples. Actual recoverable copper will be a percentage of the soluble amount, and will depend on a number of factors including particle size, permeability and pH of the leach pad. The Seq-Cu is useful in defining the geologic, mineralogic, and metallurgical types and zones of oxidation commonly associated with porphyry-type copper deposits.
The Seq-Cu analysis work was completed by Skyline Assayers & Laboratories, Inc. of Tucson, Arizona. Evaluation of the results has been undertaken by IMC and Process Engineering LLC ("PE") also of Tucson. IMC will incorporate the data into a resource block model and mine plan in order to further de-risk the MacArthur Project and advance the project towards a prefeasibility study.
The Seq-Cu assay work included 298 pulps from reverse circulation and drill core samples from drilling completed from 2008 to 2012. The sequential assay results provide a total copper (% TCu), acid (H2SO4) soluble copper (% asCu), and cyanide soluble (% CNCu) copper values. Copper Solubility (%) is calculated by the equation [(% asCu + % CNCu)/% TCu] x 100. Copper solubility provides an initial indication of how amenable the material is to heap leaching. Metallurgical testing (column leach testing) is required to assess the level of copper recovery that may be achieved in the oxide and transition zones of the deposit.
Pulps were selected to geographically and mineralogically represent the initial phases of the current mine plan. Of the 298 samples, 165 of the samples were taken from the oxide zone and 133 were taken from the transitional (chalcocite, oxide, and minor chalcopyrite) zone. The samples taken from the oxide zone average 74.5% solubility and those from the transitional zone average 79.9% solubility. The solubility of all of the samples averages 77.1% (please see Table 1 below). Geographically, samples from the main MacArthur pit area have the highest solubility, averaging 78.6% while those from the northern portion of the deposit average 74.4% solubility (Table 2 below). The accompanying map shows the location of the samples within the deposit area.
Table 1. Solubility of pulps by copper occurrence | ||||||
Copper Occurrence | # of | %TCu | H2SO4 soluble | CuCN soluble | H2SO4 + CuCN | Solubility |
Oxide | 165 | 0.28 | 0.19 | 0.02 | 0.21 | 74.5 |
Transitional | 133 | 0.31 | 0.13 | 0.12 | 0.25 | 79.9 |
Total | 298 | 0.29 | 0.16 | 0.07 | 0.23 | 77.1 |
Table 2. Solubility of pulps by location | ||||||
Location/Phase | # of |
%TCu | H2SO4 soluble | CuCN soluble | H2SO4 + CuCN | Solubility |
Main MacArthur Pit | 195 | 0.29 | 0.18 | 0.05 | 0.23 | 78.6 |
North Area | 103 | 0.31 | 0.13 | 0.10 | 0.23 | 74.4 |
Total | 298 | 0.29 | 0.16 | 0.07 | 0.23 | 77.1 |
Quaterra has engaged IMC and PE to further evaluate the results of the Seq-Cu work with respect to the advancement of the MacArthur Project towards prefeasibility. In the near term, the Seq-Cu data will be incorporated into the resource block model to evaluate changes to the mining sequence in order to optimize project economics. As well, a plan for additional drilling will be developed to acquire fresh samples for column test work that will provide further definition of the copper recoverability from heap leaching. The initial column tests will represent areas in the deposit that will be mined during the early years of the mine schedule.
QA/QC for Seq-Cu results
Pulps were prepared from reverse circulation and core drilling from 2008 to 2012 by Skyline Assayers & Laboratories, Inc., an ISO certified assaying/geochemistry facility, in Tucson, Arizona. During this span, pulps were returned to Quaterra and placed in a secure location. For the sequential copper analysis, Quaterra returned the pulps to Skyline where they were re-blended using their "SP-16" procedure. The samples were then analyzed for total copper and sequential copper using their "SEA-Cu" and "SEA-CuSEQ" procedures, respectively. The "SEA-Cu" procedure has a 0.01% detection limit, while the "SEA-CuSEQ" has a 0.005% detection limit. Skyline used commercially prepared standards that were placed into their sample stream and analyzed multiple duplicates to insure precision of results as a quality control measure. Quaterra has a chain of custody program to ensure sample security during all stages of sample collection, cutting, shipping, and storage.
c. Bear Deposit, Nevada
A portion of the Bear deposit lies on the northeast portion of the Yerington Mine property that was acquired with the SPS purchase of Arimetco’sArimetco's assets from bankruptcy court. In December 2013, Quaterra announced the signing of four option agreements totaling 1,305 acres of private land north and east of the Yerington Mine Site that covers additional portions of the Bear Deposit. In May 2015, the Company entered into an option agreement to acquire a fifth property covering approximately 1,020 acres of additional private land covering a portion of the Bear Deposit. Under the terms of the five option agreements, Quaterra (now SPS) has an exclusive right to acquire these properties with all mineral rights and certain water rights, and to explore these parcels.
The Bear Deposit was discovered in 1961 by Anaconda condemnation drilling in the sulfide tailings disposal area and was further delineated in the 1960s and 1970s. Currently the deposit is open in several directions and has never been consolidated under a single owner. A part of Quaterra’sQuaterra's recently acquired acreage was not previously accessible for exploration and is adjacent to the highest grade mineralization discovered during previous exploration of the area.
Historical information compiled for the Bear Deposit includes 126,400 feet of drilling in 49 drill holes that define a mineralized system covering an area of at least two square miles. The portion controlled by Anaconda in the 1960s covered approximately 25% of this area and includes an estimated 500 million tons of mineralized material averaging 0.40% copper (Dilles and Proffett, 1995). The Bear Deposit tonnage and grade estimate is historic in nature. A qualified person has not done sufficient work to classify this historic estimate as a current mineral resource and Quaterra does not treat it as such. In order to do so, this estimate will have to be confirmed by additional drilling.
The Bear Deposit is a large porphyry copper system that occurs below 500 to 1,000 feet of valley fill and volcanic rocks of Tertiary age. Mineralization occurs predominantly in quartz monzonite, border phase quartz monzonite, and quartz monzonite porphyry dikes of Jurassic age. There does not seem to be any relation between the Jurassic rock type and the sulfide occurrence. Copper mineralization occurs most commonly as chalcopyrite with minor bornite within platings and veinlets of fresh feldspar and shreddy biotite. No copper oxide mineralization is present and only minor occurrences of chalcocite have been noted. Molybdenite is a common sulfide within the deposit, usually occurring with the best copper mineralization. However, only about 20% of the historic core samples have been analyzed for molybdenite and more studies are necessary to better understand its average grade and distribution.
The deposit is displaced by the gently east-dipping normal fault known as the Bear fault. The fault is defined by strongly sheared dark clay gouge with andesite and sulfide fragments. On the western part of the deposit the mineralization occurs within the foot wall of the fault while to the east the mineralization occurs deeper within the hanging wall.
The Bear Deposit is a high priority because of its very large size, historic drilling and potential for higher grades than district averages. Molybdenum could also represent a by-product credit. Exploration to expand and upgrade the historic Bear Deposit resource into a resource under NI 43-101 is a high priority.
Acquisition and exploration costs incurred by the Company for the Bear Deposit to December 31, 20182019 were $1.01$1.267 million (2017(2018 - $0.32$1.012 million) net of option payments made by Freeport Nevada.
Exploration and Drilling Results
On August 13, 2015, the Company commenced a five to seven-hole exploration drilling program at the Bear Deposit funded by Freeport Nevada. The drilling program was designed to assess historic assay results and determine geological controls for higher-grade mineralization. A magneto telluric (MT) geophysical survey was also carried out over the Bear Deposit target area to assist in the drill site selection. Assays from the three holes completed in 2015 were released sequentially on November 17, December 23, 2015 and February 8, 2016. (Please see press releases at www.quaterra.com issued on those dates for details).
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Highlights fromHole B-048 include an intercept of 1,157.5 feet of 0.42% copper containing 123.6 feet of higher grade mineralization beginning at 2,588.5 feet averaging 1.07% copper, 0.03% molybdenum, 0.036ppm gold, and 0.9ppm silver.Hole B-049, drilled vertically to a depth of 3,635 feet, intercepted 1,138 feet (407.9 meters) of 0.26% copper beginning at a depth of 1,588 feet. Higher-grade mineralization, although present, is restricted to narrow zones varying from 3.0 to 5.5 feet in width. This hole extends an already large mineralized system an additional 770 feet to the north.Hole B-050, drilled vertically to a depth of 3,838 feet, intercepted 521.9 feet (159.1 meters) of 0.36% copper beginning at a depth of 2,429.2 feet. Included within this interval is 279.3 feet (85.1 meters) of 0.44% copper starting at 2,491.4 feet. A 6.1 -foot (1.9 -meter) interval of massive pyrite-magnetite-chalcopyrite skarn starting at 2,330.5 feet averages 1.91% copper, 0.22 ppm gold and 5.7 ppm silver.
Three additional holes were drilled in 2016, and results were released on April 6, 2016, May 24, 2016, and June 9, 2016. (Please see press releases at www.quaterra.com issued on those dates for details).
Hole B-051, drilled vertically to a depth of 3,878 feet, intercepted 1,483.3 feet (452.1 meters) of 0.26% copper beginning at a depth of 2,191.2 feet. Included within this interval is 1,213.8 feet (370.0 meters) of 0.30% copper starting at 2,191.2 feet. Several narrower intervals contain > 0.40% copper with anomalous gold and molybdenum. Hole B-051 is a significant step-out. The nearest holes are B-049, approximately 1,150 feet to the west and historic hole B-22, about 1,300 feet to the southwest.
The thickness of the mineralized intercept in B-051 is larger than those in the three previous holes of the drilling program. Bornite also is more common than in previous SPS holes, occurring with chalcopyrite and molybdenite in quartz-sulfide veins, veinlet swarms and stockworks. The quartz-sulfide veins appear to correlate with higher gold and molybdenum values found in B-051 compared to the three previous drill holes. The interval 3,253 to 3278 feet averaged 0.43% copper, 182 ppm molybdenum and 0.12 ppm gold over 25 feet; the interval 2,218 to 2,241.9 feet averaged 445 ppm molybdenum over 23.9 feet.
Hole B-052, drilled vertically to a depth of 3,468 feet, intercepted two zones of 0.4% copper, the first of 43 feet (13.1 meters) with 201 ppm molybdenum starting at 2,508 feet and another of 29 feet (8.8 meters) starting at 2,667 feet. Overall, the hole intercepted 666.2 feet (203.1 meters) of 0.14% copper mineralization beginning at a depth of 2,081.3 feet.
The lower copper and gold grades, combined with a higher pyrite/chalcopyrite ratio, indicate that hole B-052 was drilled in a more distal part of the system. Additional drilling will be necessary to test this concept as Bear mineralization remains open in three directions.
Hole GHH-001, the sixth and final drill-hole of the program, is located in Ground Hog Hills about 6,000 feet south of previous SPS holes. It was drilled vertically to a depth of 2,017.5 feet and cased for possible future deepening. Sporadic zones of copper mineralization were intersected which are interpreted as an extension of Bear mineralization to the north.
The entire six-hole exploration drilling program, which commenced in August 2015, totaled 20,274.5 feet. The five holes at Bear, including twin hole B-048, totaled 18,257 feet. Results from Hole B-048 supported historic assays from Hole 23B drilled in 1966 by Anaconda. Drilling results from holes B-049 to B-052 were successful in extending the Bear mineralization an additional 2,000 feet north-northeast by 3,000 feet northwest-southeast, with the average mineralized intercept in these four step-out holes averaging approximately 1,000 feet in thickness. The Bear system remains open in three directions. Copper mineralization is overlain by ubiquitous propylitic alteration with moderate to strong phyllic alteration, often laced with tourmaline veining and flooding. Significantly higher grades, if present, will most likely be found where quartz monzonite is cut by quartz monzonite porphyry dikes as occurs at the nearby Yerington mine. The Bear porphyry copper deposit currently covers more than two square miles.
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Quality assurance and control
Core samples were either sawed or split by SPS personnel in Yerington, Nevada, and shipped to Bureau Veritas Minerals NA –- Inspectorate America Corporation (“("Bureau Veritas”Veritas"), an ISO certified assaying/geochemistry facility, in Reno, Nevada for sample preparation. Gold analyses are assayed in Bureau Veritas’Veritas' lab in Reno using their “FA430”"FA430" procedure (fire assay with atomic absorption finish) with a 5 ppb Au detection limit. Prepared pulps are shipped to Bureau Veritas’Veritas' lab in Vancouver, B.C., Canada, for analysis using their “MA 300”"MA 300" procedure for 35 element ICP-ES analysis. Commercially prepared standards and blanks are inserted by SPS at 50-foot intervals to insure precision of results as a quality control measure. SPS has a chain of custody program to ensure sample security during all stages of sample collection, cutting, shipping, and storage.
d.Groundhog copper project, Alaska |
The Groundhog copper project is a 40,000-acre54,880-acre property situated in an established copper porphyry belt situated 200 miles southwest of Anchorage, Alaska. It is located on State of Alaska claims covering the northern extension of a 10-kilometer wide north-northeast trending structural zone that hosts a number of porphyry copper-gold prospects, including the large Pebble porphyry copper, gold and molybdenum project, which is approximately three miles south of the Groundhog claim boundary.
Acquisition and Staking of Claims
In April 2017, Quaterra signed a lease agreement dated April 20, 2017, as amended on July 11, 2019, with Chuchuna Minerals Company (“Chuchuna”("Chuchuna"), an Alaska corporation, giving Quaterra an option to purchase a 90% interest in the Groundhog copper prospect. Quaterra committed to funding $1 million for exploration in the first year of the agreement, and a minimum of $500,000 in each of the following fourfive years. Quaterra can earn its 90% interest in Groundhog by providing a total of $5 million in funding for exploration over fivesix years, and by paying Chuchuna a lump sum of $3 million by the end of the fifthsixth year. Quaterra has no obligation to exercise its option and can terminate the agreement at its discretion annually. Chuchuna will be the operator of the project and will plan, implement and manage exploration field programs as set out in a budget and work plan approved by Quaterra.
If Quaterra exercises its option to acquire 90% of Groundhog, Chuchuna and Quaterra will enter into a joint venture agreement. Chuchuna will retain a 10% interest in the property carried to production, and a net smelter returns (NSR) royalty of 1.75%. Within the first ten years Quaterra may purchase 50% of the NSR royalty by paying Chuchuna $25 million.
Location and Access
The property is located in the Bristol Bay region of southwest Alaska, 300 km (186 mi) southwest of Anchorage within the Lake and Peninsula Borough. It lies 27 km (16 mi) north of the village of Iliamna and 10km (6 mi) west of the village of Nondalton. The southern portion of the claim group is accessible by ATV but the majority of the property is best accessed by helicopter. The general location of the Groundhog property is provided on the following map.
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Property Status
The Groundhog property currently consists of 283343 State of Alaska 160-acre claims (45,280(54,880 acres 18,324 ha)or 22,209 hectares) immediately to the northeast (3 miles) of the Pebble porphyry copper-gold deposit. The claims lie within a 78,240-acre prospective area of interest.
History
During the 1980s and 1990s COMINCO explored the area north of Iliamna Lake and discovered several porphyry copper and epithermal gold prospects. Northern Dynasty Minerals Ltd. acquired the COMINCO properties in the early 2000s and began an aggressive exploration program that resulted in the discovery of the large and high-grade Pebble East Cu-Au-Mo deposit in 2006. By 2004 Liberty Star, Full Metal Minerals and Alaska Earth Sciences had become active in the area and over 1,000 state claims were staked.
The Groundhog property was staked by Alaska Earth Sciences Inc. (“AES”("AES") in late 2004 and early 2005 consisting of 489 160-acre claims for Greg Ellis, a private investor. Kennecott Exploration (a subsidiary of RioTinto) optioned the Groundhog property from 2009 to 2013 from AES. Kijik Corporation (an Alaskan native corporation) and AES formed Chuchuna Minerals Co. (“Chuchuna”("Chuchuna") which created a joint venture to explore the Groundhog property in 2016. In April 2017, Quaterra entered into an agreement with Chuchuna to acquire 90% interest in the Groundhog project. More claims were staked in 2019, bringing the total to 343.
Regional Geology
The Groundhog property is located in the Kahiltna Terrane near the northeast trending, crustal-scale Lake Clark fault system that separates the Kahiltna Terrane to the northwest and the Peninsular Terrane to the southeast. The Kahiltna is characterized by a Jurassic-Cretaceous flysch sequence of andesitic turbidites deposited in a basinal setting. Tectonic activity since the Cretaceous has been controlled by a compressional system due to northwest dipping subduction of the Pacific plate below the North American plate. The flysch sequence is intruded by various Cretaceous and early Tertiary plutons such as the nearby Kaskanak batholiths and the multi-phased intrusive corridor and is uncomfortably overlain by Tertiary volcanics and sediments. Displacements along major dextral strike-slip and thrust faults within the Lake Clark fault system have accommodated most of the compressional stress. Late northeast and northwest-striking Tertiary normal and graben faults are common on the property. The area has been glaciated with a variety glacial-fluvio deposits present in many areas.
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In the Pebble and Groundhog area the older basement units are gently folded Jurassic-Cretaceous andesitic argillite, siltstone, graywacke with some diorite and gabbro sills. A variety of Cretaceous intrusions occur in a northeast trending structural corridor which extends onto the Groundhog property. Older intrusions (98-96Ma) have an alkali affinity and are comprised of biotite pyroxenite, monzosyenite, and monzonite. Subalkalic granodiorite intrusions (91-89 Ma) include the Kaskanak Batholith which is genetically related to the Cu-Au-Mo mineralization at Pebble.
Property Geology
Geologic mapping and geochemical sampling of the Groundhog claim block has been completed by AES geologists in 2005-2007, KEX geologists 2010-2012, and AES geologists in 2017. A variety of geophysical surveys were completed in 2006, 2007, 2010, 2011, and 2017 by various geophysical contractors.
Jura-Cretaceous Meta-Sedimentary and Intrusive Rocks
The oldest unit exposed on the property is the Kahiltna flysch, a meta-sedimentary basement flysch sequence of fine-grained, thinly-bedded siltstone, mudstone and massive greywacke. The sediments are regionally metamorphosed from greenschist to low amphibolite facies with some contact metamorphism near mafic intrusions. Some andesitic flows are interbedded with the sediments which are andesitic in composition. The Kahiltna flysch is intruded by some intermediate to mafic intrusive bodies a few kilometers in length. These intermediate to mafic bodies are mainly composed of fine- to medium-grained gabbro with subordinate pyroxenite and diorite-granodiorite.
Three main strongly magnetic bodies from south to north on the Groundhog property are the Alpha, Beta, and Gamma anomalies. The Alpha anomaly is a late Jurassic (U-Pb date 149.2 Ma) medium-grained banded ophitic gabbro. The Beta anomaly is a Late Cretaceous (U-Pb date 98.2 Ma) medium-grained biotite granodiorite. The Gamma anomaly is a very poorly exposed fine-grained magnetite-rich massive gabbro of unknown age.
Quartz-feldspar veinlets containing pyrite and traces of chalcopyrite along with locally abundant epidote-carbonate-pyrite veinlets are found at several locations at the Alpha and Beta anomalies.
Tertiary Volcanics
Tertiary volcanic rocks are the most common and best exposed units on the property and occupy the higher elevation areas encompassing most of Groundhog Mountain. It consists of a post-mineral sequence of volcanic flows and tuffaceous beds of various compositions that can be subdivided into intermediate volcanic rocks, intermediate tuffaceous rocks, mafic volcanic rocks, rhyolite tuff and volcanic breccias. A medium- to fine-grained light-colored diorite is present extending northeast from Groundhog Mountain.
Structural Setting
Deformation on the Groundhog property is dominated by late brittle faults that cut the Tertiary volcanics. The Jura-Cretaceous sedimentary package is regionally known to be affected by broad open folding. The basement sediments generally dip north 60-70 degrees, but dip to the south 35-60 degrees in the vicinity of the Alpha anomaly. The Tertiary stratigraphy well exposed on Groundhog Mountain is upright and tilted about 10 degrees to the south-southwest.
Most faults on the property have been interpreted from airborne magnetic data acquired in 2010. Two major sets of faults have been interpreted, one striking northeast and the other striking west-northwest. The northwest structures appear to be cut by the northeast faults. Extending major faults from the Pebble property combined with IP data observations, the northeast faults appear to be southeast dipping normal faults. Fault breccias have been observed in Groundhog Mountain Tertiary volcanics.
35
Geophysics
Geophysical work undertaken on the property includes the following:
- Airborne Magnetic Survey (USGS 2001, KEX 2010).
- CSAMT/IP Survey (AES 2006-7).
- Magnetotelluric Survey (KEX 2010).
- Reconnaissance IP survey/Dipole-dipole IP Surveys (KEX 2011, AES 2017).
Exploration and Drilling Results
The objectives of the 2017 reconnaissance drilling program were to determine the source of numerous IP anomalies identified by historic and 2017 surveys and to confirm the prospectiveness of the area for porphyry copper mineralization. Four widely-spaced core holes totaling 4,073 feet –- the first ever drilled on the property –- were drilled to test induced polarization (IP) anomalies over an area approximately six miles north-south by three miles east-west.
The holes targeted only the southernmost of three magnetic anomalies that have been defined on the property by historic surveys and 26.1 kilometers of new IP completed by Zonge International in June and July this year:
- Hole 3/3A, drilled to a depth of 1,178 feet (S65E at
- 70-70 degrees), encountered strong propylitically altered Jurrasic-agegabbro-pyroxenite -basaltgabbro-pyroxenite-basalt basement rocks in the entire hole from 0 to 1,178 feet. The strongly altered and pyritized core was uniformly anomalous in copper (25 to 612 ppm) with scattered anomalous molybdenum (trace to 177 ppm) and gold (trace to 827 ppb). The hole did not penetrate the full extent of the IP anomaly. The strong alteration and anomalous copper, molybdenum, and gold suggest that the hole may be above or adjacent to a porphyry copper system.
- Hole 4,collaredapproximately six miles south of Hole 3,encountered variably pyritized and silicified multi-phase intrusive porphyry rocks over its entire 985-foot length (S45E at -77 degrees). The dominant rock was a crowded quartz-plagioclase-potassium feldspar
porphyr yporphyry intruded by a more altered and mineralized feldspar porphyry, both of which were intruded by a late unmineralized intrusive breccia. The strongly altered and pyritized porphyritic rocks contain weakly anomalous copper and zinc values. - Holes 1 and 2,drilled approximately three miles apart midway between Holes 3 and 4, intersected weak sulfide mineralization currently interpreted as Tertiary epithermal mineralization and syngenetic pyrite, respectively.
Drill results confirm that pyrite is the source of all IP anomalies tested and will be an effective tool for exploring the project’sproject's large land position; and that intrusive rocks similar to those at Pebble were intersected in Holes 3 and 4 and extend well into the Groundhog land block. IP surveying to date has defined a large sulfide anomaly(s) open laterally and at depth whose ultimate extent and source will be determined by additional surveys and deeper drilling. Data compilation and analysis will be completed and drill permits secured prior to finalizing further work plans.
Quality assurance and control
Core drilling was contracted to AES which completed four BTW core holes with a Discovery 1 drill rig. Core samples were sawed in half and sealed in heavy plastic bags into two- to three-meter samples by AES personnel. The samples were then sealed into two foot by three foot rice bags and shipped by a commercial air carrier from Nondalton, Alaska, to Anchorage, Alaska. In Anchorage the samples were picked up by AES personnel who then inserted sample blanks from a local rock quarry approximately every tenth sample. The samples were then shipped by Lynden Transport trucks to the ALS USA’sUSA's Prep Laboratory in Fairbanks, Alaska, where they were crushed, pulverized and split. ALS then shipped a split of the samples to their Reno Nevada analytical lab where they were analyzed by ME-MS41 ultra trace Aqua Regia ICP-MS and Au-AA23 (Au 30g fire assay with AA finish, 0.005 ppm Au detection limit). ALS routinely inserts about 15 duplicate samples, blanks, and standards with each sample shipment.
362019 exploration
During August and September 2019, Geotech of Ontario, Canada, completed a 1,664 line kilometer ZTEM and magnetic survey covering 165 square miles of the Groundhog property. A review of the data resulted in the selection of 19 targets that were ranked using ZTEM responses from similar porphyry systems, including the Pebble Project porphyry copper, gold and molybdenum deposit, which lies about five kilometers to the southwest of Groundhog. Targets were picked along a resistivity slice at 400-meters in depth from a 2D inversion. Eight top-ranked targets were selected that compare favorably in size and intensity to the ZTEM responses of other mineralized systems in Central and North American mining districts. An additional 11 target anomalies were identified that were less similar to other known deposits.
The combined interpretation of all of the geophysical data collected on the Groundhog property to date leads to grouping the ZTEM targets into two areas: the northwest sector associated with the Alpha magnetic anomaly and the southeast sector, an extension of the ZG fault zone area trending northeastward from Pebble. Additional IP and drilling will be required to evaluate these anomalies, but the timing and scope of such programs has yet to be determined. Chuchuna has expanded its land position based on ZTEM results.
A limited geologic reconnaissance program of the strongest ZTEM survey targets did not identify any significant geochemical anomalies, due primarily to thick overburden and scarce outcrop. Traverses in Groundhog Creek and White Rock Creek discovered pyritic, argillically altered crystalline igneous dike rocks of uncertain relationship with the Tertiary cover rocks. Argillically altered and pyritized volcanic rocks and gabbros were also sampled in the northern part of the White Rock Creek Canyon. Geologic work - including an IP line and a shallow drill hole in 2017 at the Alpha anomaly in the northern part of the ZTEM survey area - found areas of strong to pervasive propylitic alteration, with veined and weakly mineralized (anomalous copper to 0.18%, Mo 0.01%, Au 0.8 ppm) basalt/gabbro/pyroxenite.
ZTEM is a geophysical method that measures changes in resistivity. Because IP response (sulfides) are often associated with changes in resistivity related to various alteration types, the large area covered by the ZTEM survey will facilitate interpretation of wide-spaced ground IP lines that could result in the identification of one or more blind sulfide systems.
Future plans
Previous geologic, geochemical, and geophysical studies conducted on the property by a major international mining company, have identified a number of large, high priority, magnetic and induced polarization (IP) targets. It is the intention to evaluate these, and other targets identified by more recent work by Chuchuna, by mapping, sampling, additional IP and drilling.
e.Butte Valley, Nevada
On August 22, 2019, the Company entered into an option agreement with North Exploration, LLC, to earn a 100% interest in 600 unpatented mining claims in White Pine County, Nevada, for $600,000 over five years. North Exploration will retain a 2.5% NSR, of which 1% can be purchased for $1,000,000. A further 0.5% NSR can be purchased within the first ten years for $5,000,000.
On December 3, 2019, the Company entered another option agreement with Nevada Select Royalty, Inc., to purchase a 100% interest in 78 unpatented claims associated with the Butte Valley project, for $250,000 over five years. Nevada Select Royalty will retain a 2% NSR, of which 1% can be purchased by Quaterra for $10,000,000.
ITEM 4A. | UNRESOLVED STAFF COMMENTS |
None.
ITEM 5. | OPERATING AND FINANCIAL REVIEW AND PROSPECTS |
The information in this section is presented in accordance with International Financial Reporting Standards, (“IFRS”("IFRS") as issued by International Accounting Standards Board. The following is a discussion of our financial condition and results of operations for the fiscal years ended December 31 and should be read in conjunction with our consolidated financial statements included in Item 17 of this annual report.
Critical Accounting Estimates
The accounting estimates believed to require the most difficult, subjective or complex judgments, and which are the most critical to our reporting of results of operations and financial position, which are not limited to, are as follows:
Impairment of mineral properties
The assessment of the impairment indicators involves the application of a number of significant judgments and estimates to certain variables including metal price trends, plans for properties, and the results of exploration and evaluation to date.
Fair value of derivative liabilities
Fair value of derivative liabilities that are not traded in an active market is determined by using a valuation technique. Management makes estimates and utilizes assumptions in determining the fair value for share-based payments, warrants and the (gain) loss on the revaluation of the derivative liability in determining inputs to be used for the Black-Scholes option pricing model.
The critical judgments that the Company’sCompany's management has made in the process of applying the Company’sCompany's accounting policies, apart from those involving estimations, that have the most significant effect on the amounts recognized in the Company’sCompany's consolidated financial statements are related to the economic recoverability of the mineral properties and the assumption of no material restoration, rehabilitation and environmental exposure.
A. | Operating Results |
2019 versus 2018
For the year ended December 31, 2019, the Company incurred a loss of $1.711 million compared to $1.419 million for the year ended December 31, 2018. Significant differences in the comparative amounts were mainly caused by the interest and accretion expenses on convertible notes, the non-cash fair value calculation of share-based compensation, and an unrealized gain (loss) on the marketable securities.
General administrative costs are mainly comprised of salaries, rent, investor relations, insurance, regulatory and general office costs required to maintain a publicly listed company in Canada. The scale and nature of the Company's corporate and administrative activity have remained relatively consistent over the periods presented. The Company engaged a few consulting firms to assist the Company in expanding communications through focused marketing, distribution and research.
The Company assesses for any indication of impairment at each reporting date or upon a triggering event that may identify impairment of a property's value. The carrying amount of the Company's mineral properties represent mineral property costs net of recoveries and write-downs to date and does not necessarily reflect present or future values.
The fact the Company successfully sold a portion of the water rights associated with the Yerington property for gross proceeds of $6.02 million demonstrated that the potential value of the water rights alone supports the recoverability of the Company's mineral properties in Yerington.
As per the Company's accounting policy, proceeds from the water rights sale are recorded as a reduction of the carrying value of the mineral properties. To date, all mineral claims and option payments have been maintained in good standing; no impairment was recorded for the years ended December 31, 2019, and 2018.
Interest expense was primarily related to the interest on convertible notes, loans to Freeport Nevada and loans due to Dr. Thomas Patton.
The Company holds 1,942,795 common shares of Grande Portage Resources Ltd. The Company recorded an unrealized gain reflecting the changes in the market value of these shares of $9,000 during 2019 and a $130,000 loss for 2018.
In August 2019, $550,000 and CAD 50,000 of the convertible notes were converted into 11,769,230 units consisting of one common share and one share purchase warrant. As a result, a loss resulting from the difference between the market price of the shares issued and the conversion rate was recorded in the statement of income (loss) and comprehensive income (loss).
2018 versus 2017
For the year ended December 31, 2018, the Company incurred a loss of $1.419 million compared to $1.273 million for the year ended December 31, 2017. Losses related the marketable securities have been reclassified retrospectively from other comprehensive income (loss) to deficit upon the adoption of IFRS 9 effective January 1, 2018. Significant differences in the comparative amounts were mainly caused by the unrealized loss on the marketable securities, the non-cash fair value calculation on share based payments, interest expenses on convertible notes, plus a onetime respective gain and loss recognized from the disposal of non-core asset and debt settlement in 2017.
Administration and office are mainly comprised of salaries, rent, insurance and general office expenses in addition to other costs related to operating a publicly listed company in Canada. The scale and nature of the Company’sCompany's corporate and administrative activity has remained relatively consistent over the periods presented.
Under the option agreement with Freeport Nevada, all SPS operating expenses including its salaries for U.S. personnel and certain executive officers were funded by Freeport Nevada. For presentation purposes, these costs were presented in previous periods as part of mineral property expenditures with an associated recovery from Freeport Nevada for no net impact on mineral property carrying values. Since the termination of the option agreement, all personnel costs are expensed in the profit and loss resulting in a higher personnel cost in 2018.
Interest expense was primarily related to the interest on convertible notes, loans and extension fee paid to Freeport Nevada on the $500,000 borrowed in May 2015.
The Company holds 1,942,795 common shares of Grande Portage Resources Ltd. Of those shares, 760,464 were issued to the Company in 2017 resulting in a gain on disposal of assets of $185,742. The Company recorded an unrealized loss reflecting the change in the market value of these shares of $129,848 during 2018 year end ($31,324 - 2017).
The Company assesses for any indication of impairment at each reporting date or upon a triggering event that may identify an impairment of a property’sproperty's value. The carrying amount of the Company’sCompany's exploration and evaluation assets represent mineral property costs net of recoveries and write-downs to date and does not necessarily reflect present or future values.
The fact the Company successfully sold a portion of the water rights within Yerington property for gross proceeds of $6.02 million demonstrated that the water rights alone support the recoverability of certain of the Company’sCompany's mineral properties. As per the Company’sCompany's accounting policy, proceeds from the water rights sale are recorded as a reduction of the carrying value of the related mineral properties.Toproperties.To date all mineral claims and option payments have been maintained in good standing, no impairment was recorded for the years ended December 31, 2018 and 2017.
During the year ended December 31, 2018, the Company spent $0.11 million on Groundhog. Excess exploration expenditures from 2017 were carried forward to meet the required $500,000 minimum expenditures in 2018.
On March 16, 2017, the Company issued 7,489,898 common shares to settle the principal and certain interest on a debt entered into in July 2014. As a result, a $100,000 loss was recorded for the 2017 year end resulting from the difference between the market price of the shares issued and the conversion rate of the debt.
2017 versus 2016
During the year ended December 31, 2017, the Company’s net loss was $1.242 million compared to $1.865 million and $3.104 million for the comparative periods of 2016 and 2015, respectively. Both years ended December 31, 2017 and 2016 were impacted by non-cash fair value calculations on derivative liabilities and gains or losses on disposal of assets.
The Company evaluates the carrying value of its assets at the end of each reporting period or upon a triggering event that may identify an impairment of a property’s value. During the year ended December 31, 2017, all properties were active with mineral claims and/or earn-in option payments made up to date. Despite the fact that Freeport Nevada terminated its Yerington assets Option Agreement in September 2017, the Company believes in the economic potential of its wholly owned Yerington assets and has determined to carry on exploration programs. No impairment was recorded for the year ended December 31, 2017.
38
During the year ended December 31, 2017, the Company spent $1.51 million at Groundhog including 4,073 feet of drilling. Excess 2017 exploration expenditures were carried forwarded to 2018 year end to meet its minimum work commitment.
Under the Option Agreement, all SPS operating expenses including its U.S. personnel were covered by funds provided by Freeport Nevada. Since the third quarter of 2017, the Company has expensed those costs in the profit and loss resulting in a higher personnel cost in 2017.
In July 2016, the Company sold the Herbert Gold property for 1.18 million shares of Grande Portage, and recognized a $1.48 million impairment during the year ended December 31, 2016. In November 2017, Grande Portage delivered an additional 760,464 of its common shares to the Company at a market value of $185,742 pursuant to the property sale agreement.
On June 30, 2016, the Company concluded the sale of its 50% indirect interest in the Nieves silver property in Zacatecas State, Mexico, to its joint-venture partner Blackberry Ventures I, LLC. Legal fees related to the completion of this transaction resulted in higher professional fees in 2016.
Overall, the general administrative expense of $1.53 million in 2017 was comparable to the same period in 2016 of $1.34 million. Higher personnel cost was offset by reduced professional costs; higher investor relations and communication represented the Company’s marketing and fund raising efforts.
On February 28, 2017, the Company’s shares had achieved a closing price of C$0.12 or more for 10-consecutive trading days on the TSXV, and in accordance with the terms of the convertible notes issued on July 2, 2014, the principal of the notes was automatically deemed to have been converted to shares at a rate of C$0.10 per share. The $79,973 interest portion due on some of the notes was paid in shares with the remaining interest of $53,315 paid in cash. A total of 7,489,898 shares were issued to settle the convertible notes.
As a result, a $100,000 loss on the settlement of the convertible notes was recorded during the year ended December 31, 2017, resulting from the difference between the market price of the shares issued and the conversion rate.
As at December 31, 2017, derivative liability was $587,100 compared to $938,580 at December 31, 2016. 5,721,100 warrants classified as derivatives expired unexercised on January 2, 2018.
Interest expense (net) was primarily related to the $85,558 interest accretion on the convertible and 5% interest, compounded daily, on the $500,000 loan payable to Freeport Nevada due September 6, 2018.
B. | Liquidity and Capital Reserves |
The Company is an exploration stage company andthat has not earned any production revenue. ItIts operation has been dependent on funding from Freeport Nevada, and sale proceeds from sales of some of its non-core assets in the last few years.years, and the limited issuance of convertible notes.
The Company had cash and cash equivalents of $1.81 million on December 31, 2019 (2018 - $0.05 million). The increase in cash and cash equivalents of $1.76 million was mainly due to the $5.68 million in proceeds received from the water rights sale, after the cash invested in mineral properties of $1.9 million, spent in operating activities of $1.62 million and financing activities of $0.4 million.
During the year ended December 31, 2019, cash flow used in operating activities was $1.44 million before non-cash items and changes in working capital. The Company's average monthly cash burn rate was $0.12 million, and management expects a similar expenditure range in 2020.
Net cash used in financing activities of $0.4 million consists of the net proceeds received from the private placement closed in January 2019 and the 400,000 stock options exercised. The total proceeds are offset by the loan repayments made in March 2019 to Freeport Nevada and the Company's Chairman, Thomas Patton.
Net cash provided in investing activities reflects the $5.68 million in net proceeds of the water rights sale received in March 2019, partially offset by cash invested in the mineral properties of $1.9 million comprising of property maintenance, pre-feasibility study preparation on MacArthur, the geophysical survey on Groundhog, the acquisition of Butte Valley, and ongoing environmental monitoring at Yerington.
The Company has entered into several mineral property agreements, under which the Company is obliged, at its discretion, to maintain good standing of these mineral properties and meet required work commitments for a combined $1.0 million in 2020.
On March 1,December 19, 2019, the Company closedannounced a second water rights sale for $1.88 million expected to close in the second half of 2020. Proceeds from the sale will be used to progress the MacArthur project, assess exploration opportunities and for general corporate purposes.
As of certain primary ground water rights at Yerington and received total net proceeds of $6.03 million of which $312,960 was received in October 2018. As at March 28, 2019,26, 2020, the Company has cash and cash equivalents of approximately $4.5$1.4 million with no debt except the CAD 0.5 million convertible notes. The expiry date of the convertible notes was extended to August 28, 2020, and can be further extended to February 28, 2021.
With existing working capital and expected proceeds from the second water rights sale, the Company believes it has sufficient working capital tocan sustain its operations for the next several years.
39
In August and September 2018, the Company completed a non-brokered private placement in tranches of secured 10% convertible notes of the Company for gross proceeds of $550,000 and CAD $550,000. Subsequent to the 2018 year end, the Company issued 3,000,000 common shares for a gross proceed of CAD $150,000. These funds were used in property payments and general corporate purposes.
During the year ended December 31, 2018, the Company incurred $1.519 million in exploration expenditures comprised of mineral property maintenance, prefeasibility study preparation on MacArthur, and ongoing environmental monitoring at Yerington.
In March 2019, the Company repaid the principal and interest on the loans from Freeport Nevada and related party advances from its CEO Thomas Patton. Following these repayments, the Company has no debt other than the convertible notes.12 months.
C. | Research and Development, Patents and Licenses, etc. |
We do not have a research and development policy, nor do we hold any patents, licenses, or other intellectual property.
D. | Trend Information |
Mineral property expenditures can vary from quarter to quarter depending when option payments are due and the stage of the exploration program. For example, drilling may slow down for a period of time when results are analyzed, resulting in lower costs during that period.
We have had no revenue from mining operations since our inception. Income was generated through management fees on certain properties and interest earned on banker’sbanker's acceptance investments.
E. | Off- Balance Sheet Arrangements |
None.
F. | Tabular Disclosure of Contractual Obligations |
The following table outlines our contractual and optional obligations at December 31, 20182019 and the period such payments are due by:
| Total | 1 Year | 2-3 Years | 4-5 years | > 5 years | ||||||||||||
| Mineral properties(a) | $ | 1,268,000 | $ | 293,000 | $ | 811,000 | $ | 114,000 | $ | 50,000 |
| Total | 1 Year | 2-3 Years | 4-5 years | > 5 years | |||||||||||
| Mineral properties (a) | $ | 5,270,000 | $ | 833,000 | $ | 3,636,000 | $ | 751,000 | $ | 50,000 | |||||
| $ | 5,270,000 | $ | 833,000 | $ | 3,636,000 | $ | 751,000 | $ | 50,000 |
(a) Mineral property option payments only without exercising purchase options.
|
Safe Harbor |
The safe harbor provided in Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, shall apply to forward-looking information provided pursuant to this Item 5.F. Please see“"Cautionary Statement Regarding Forward-Looking Information”Information" at the outset of this annual report.
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ITEM 6. | DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES |
A. | Directors and senior management |
The following tables and biographies set forth information about our directors and executive officers:
Name | Age | Positions Held | Period as Director | Jurisdiction of | |
or Officer | Residence | ||||
Thomas C. Patton | 76 | Director & Chairman | Since 1998 | Washington, U.S.A. | |
Gerald Prosalendis | 63 | Director & President & | Since 2016 | British Columbia, | |
Chief Executive Officer | Canada | ||||
Lei Wang | 52 | Chief Financial Officer | Since 2016 | British Columbia, | |
Canada | |||||
Lawrence Page, Q.C | 80 | Corporate Secretary | Since 1995 | British Columbia, | |
Canada | |||||
John Kerr | 79 | Director | Since | British Columbia, | |
Canada | |||||
LeRoy Wilkes | 77 | Director | Since 2006 | Colorado, U.S. | |
Terrence Eyton | 73 | Director | Since 2015 | British Columbia, | |
Canada |
Dr. Thomas Patton, Director Chairman & Chief Executive OfficerChairman
Dr. Patton graduated from the University of Washington in 1971 (Ph.D.) and has worked with both junior and senior mining companies. He served as the President and Chief Operating Officer for Western Silver Corporation (“("Western Silver”Silver") from January 1998 to May 2006. Among his accomplishments at Western Silver were the discovery and delineation of the world-class Peñasquito silver-gold-lead zinc deposit in Zacatecas, Mexico, and the subsequent sale of the company to Glamis Gold Ltd. Prior to joining Western Silver, Dr. Patton held senior positions with Rio Tinto PLC and Kennecott Corporation, where he served as Senior Vice President, Exploration and Business Development. Dr. Patton is a member of the Society of Economic Geologists and the American Institute of Mining & Metallurgical Engineers.
Gerald Prosalendis, Director, President & Chief OperatingExecutive Officer
Mr. Prosalendis has been an officer or director of a number of publicly traded mining exploration and development companies. He was the Vice President Corporate Development of Western Silver and was involved in the successful sale of that company in 2006 to Glamis Gold Ltd. He was also Vice President Corporate Development of Dia Met Minerals, a member of the team that developed the Ekati diamond mine and was involved in the sale of Dia Met to BHP Billiton in 2001. He has worked with company executives to develop and implement strategic plans; identify opportunities for growth including property acquisitions, M&A activity, joint ventures and partnerships; facilitate corporate financings; and, build companies’companies' profiles in the investment community.
Lei Wang, Chief Financial Officer
Ms. Wang, CPA, CGA, has worked in the mineral resource sector for more than 20 years, and has experience in financial reporting, regulatory compliance, internal control and corporate finance activities. She is currently CFO of GoviEx Uranium Inc. Prior to coming to Canada, Ms. Wang worked at Schlumberger in Aberdeen, Scotland, and Glencore International in Beijing, China. Ms. Wang holds a Bachelor of Science in Engineering from Qingdao University, China.
Lawrence Page, Q.C., Corporate Secretary
Lawrence Page, Q.C. obtained his law degree from the University of British Columbia in 1964 and was called to the Bar of British Columbia in 1965. He has been admitted to the Bar of Ontario for the purpose of acting as counsel in specified litigation. Mr. Page was awarded the distinction of Queen’sQueen's Counsel in 1988. Mr. Page practices on his own in Vancouver in the areas of natural resource law and corporate and securities law. He is the principal of Manex Resource Group, which provides administrative, financial, corporate and geological services to a number of public companies in the mineral resource sector, including Quaterra. Mr. Page also serves as a director of the following public companies: Valterra Resource Corporation, Southern Silver Exploration Corp., Equity Metals Corporation and Bravada Gold Corporation.
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John R Kerr, Director
John R. Kerr graduated from the University of British Columbia in 1964 with a Bachelor of Applied Science (B.ASc) degree in Geological Engineering. He has participated in the mining industry continuously since graduation as an exploration geologist. Mr. Kerr has gained experience in recognition and identification of mineral potential in a diversified field of geological environments. Mr. Kerr also serves as director of Bravada Gold Corporation, Equity Metals Corporation and Valterra Resource Corporation. He currently operates a geological consulting practice out of Vancouver, B.C., with projects located in all areas of North America.
LeRoy Wilkes, Director
LeRoy Wilkes was President of Washington Group International’sInternational's mining business unit where he was responsible for the operating and financial performance of the unit’sunit's international operations in the coal, metals and industrial minerals markets. He has 38approximately 40 years of mining experience in the precious metals, coal industrial metals, and base metals mining and processing. Prior to joining the Washington Group International, Mr. Wilkes served as executive vice-president and chief operating officer of Santa Fe Pacific Gold Corporation of Albuquerque, New Mexico from 1988 to 1995. Mr. Wilkes also previously served as executive vice-president of Washington Corporation of Missoula, Montana, responsible for merger and acquisition activities. He earlier served as vice-president and general manager of Kennecott Ridgeway Mining Company of Ridgeway, South Carolina, and director of business development of Anaconda Minerals Co. of Denver, Colorado. He has held management and supervisory positions at surface and underground mines producing molybdenum, copper, limestone, lead silver and zinc. Mr. Wilkes has a degree in mining engineering from the Montana School of Mines. Mr. Wilkes previously served as a director and chairman of the Board of Sabina Gold & Silver Corp.
Terrence (Terry) Eyton, FCA, ICD.D, Director
Mr. Eyton graduated from Lakehead University in 1967 in Business Administration. He obtained his Chartered Accountant designation in 1971 and was elected to Fellowship of the Institute of Chartered Accountants in 1983. He completed the Institute of Corporate Directors program in 2008 and obtained the designation of ICD.D.
Mr. Eyton practiced the profession of accounting in both public practice and corporate entities. Currently Mr. Eyton is a Director and Chair of the Audit Committee for Quaterra Resources Inc. Mr. Eyton has also served as a director and chair of audit committees for other reporting issuers including, Sabina Gold & Silver Corp; Southern Silver Exploration Corp; Homestake Resource Corporation; Bravada Gold Corporation; and Potash North Resource Corp.
Mr. Eyton is currently retired from active employment.
B. | Compensation |
Executive Officers
The following table sets forth the compensation paid to executive officers for the fiscal year ended December 31, 2018.2019.
42
| Name | Salary ($) | Bonus ($) | Securities Under Options Granted (#)(4) | Share-Based Payment Under Options ($)(5) | All other Compensation | Total ($) |
| Thomas C. Patton(1) CEO | 150,000 | nil | 250,000 | 11,380 | nil | 161,380 |
| Lei Wang(2) Chief Financial Officer | 69,461 | nil | 200,000 | 7,054 | nil | 76,515 |
| Gerald Prosalendis(3) President and Chief Operating Officer | 173,651 | nil | 250,000 | 11,380 | nil | 185,031 |
Name | Salary | Bonus | Securities | Share-Based | All other | Total |
($) | ($) | Under Options | Payment | Compensation | ($) | |
Granted (#)(4) | Under Options | |||||
($)(5) | ||||||
Thomas C. Patton(1) | ||||||
CEO | 125,000 | nil | 200,000 | 7,568 | nil | 132,568 |
Lei Wang(2) | ||||||
Chief Financial | 67,827 | nil | 200,000 | 7,568 | nil | 75,396 |
Officer | ||||||
Gerald Prosalendis(3) | ||||||
President and Chief | 178,989 | nil | 400,000 | 15,137 | nil | 194,125 |
Operating Officer |
| Dr. Patton received a salary payment of $150,000 per | ||
(2) | Ms. Wang received a salary payment of | ||
(3) | Mr. Prosalendis received a salary payment of CAD$225,000 per year and was appointed as President and Chief Operating Officer effective April 14, 2016. He assumed the role of President and CEO of the company in July 2019 from Dr. Patton at CAD 250,000 per year. | ||
(4) | We granted stock options on | ||
(5) | The assumptions used to calculate share-based payment for |
Board of Directors
The Company reinstated from July 2015 the Directors’Directors' annual fees to non-executive directors as follows:
Independent Directors | CAD10,000 | |||
Chairman of the Audit Committee | CAD7,500 | |||
Chairman of any other committee | CAD5,000 |
The following table sets forth the compensation paid to independent directors for the fiscal year ended December 31, 2017.2019.
| Name | Fees | Bonus | Securities | Share-Based | All other | Total |
| ($) | ($) | Under Options | Payment Under | Compensation | ($) | |
| Granted (#)(1) | Options ($)(2) | |||||
| John Kerr | ||||||
| 11,305 | nil | 200,000 | 7,568 | nil | 18,873 | |
| SHSE Chair | ||||||
| Terry Eyton | ||||||
| 13,189 | nil | 200,000 | 7,568 | nil | 20,757 | |
| Audit Chair | ||||||
| Roy Wilkes | ||||||
| 11,305 | nil | 200,000 | 7,568 | nil | 18,873 | |
| CGNC Chair |
(1) | The Company granted stock options on |
(2) | The assumptions used to calculate share-based payment for |
43
C. | Board Practices |
Term of Office
Our directors are elected annually at our annual general meeting and each officer holds such office for one year, until the next annual general meeting of shareholders, or until replaced by his or her successor.
Employment and Service Contracts
During the most recently completed financial year, four of our executive officers had service contracts in place which provide for benefits upon termination of employment.
Thomas Patton: Mr.Dr. Patton entered into an amended and restated employment agreement with the Company and its subsidiary, Quaterra Alaska Inc., effective July 1, 2019 for a term of two years. This agreement replaces a prior agreement dated January 1, 2016 and amended on April 14, 2016. This agreement was subsequently2016 and renewed onby agreements dated April 14, 2017 for an additional year and further renewed on April 14, 2018 until July 1, 2019. Under the employment agreement, Mr.Dr. Patton is entitled to receive an annual base salary of $150,000.$100,000 (previously $150,000). Upon the expiration of one year following the date of the employment agreement and each year thereafter, the Company will review Mr. Patton’sDr. Patton's salary with a view to its increase, giving consideration to the Company’sCompany's financial position and the scope of its activities. Mr.Dr. Patton may be eligible to participate in future stock option grants. The Company may terminate the employment of Mr.Dr. Patton only for breach of the employment agreement or for cause. Mr.Dr. Patton is entitled to two months’months' notice of such discharge. If Mr.Dr. Patton becomes disabled and unable to perform his regular duties, he shall be entitled to receive his full salary for two months. Upon a change of control, as defined in the employment agreement, Mr.Dr. Patton has the right to terminate the employment agreement and receive an amount of money equal to thehis annual salary for two years, that amount that would have been paid to him during the unexpired term of the Agreement.being $200,000.
Gerald Prosalendis: On April 14, 2016, Mr. Prosalendis entered into an employment agreement with the Company effective July 1, 2019 for a period of two years, whereby Mr. Prosalendis receives an annual salary of CAD$225,000. On250,000. This replaces a prior agreement dated April 14, 2016 as renewed on April 14, 2018 the employment agreement was renewed until July 1, 2019. After three months from the datewhereby Mr. Prosalendis received an annual salary of the employment agreement and every twelve months thereafter, the CEOCAD$225,000. The board of directors will conduct aan annual performance review of Mr. Prosalendis which shall include a general performance assessment and possible salary adjustments or bonus payments. Mr. Prosalendis may be eligible to participate in future stock option grants. The Company may terminate the employment of Mr. Prosalendis only for breach of the employment agreement or for cause. Mr. Prosalendis is entitled to two months’months' notice of such discharge. If Mr. Prosalendis becomes disabled and unable to perform his regular duties, he shall be entitled to receive his full salary for two months. Upon a change of control, as defined in the employment agreement, Mr. Prosalendis has the right to terminate the employment agreement and receive an amount of money equal to his annual salary for two years, that amount being CAD$450,000.500,000.
Lei Wang: Effective January 1, 2017, Lei Wang entered into an employment agreement with the Company for a period of one year, whereby Ms. Wang is entitled to an annual salary of CAD$90,000. On January 1, 2018, theThe employment agreement washas been renewed for a period of one year.annually. Upon the expiration of one year following the date of the employment agreement, assuming the term is extended by mutual agreement, and each year thereafter, the Company will review Ms. Wang’sWang's salary with a view to its increase, giving consideration to the Company’sCompany's financial position and the scope of its activities. Ms. Wang may be eligible to participate in future stock option grants. The Company may terminate the employment of Ms. Wang only for breach of the employment agreement or for cause. Ms. Wang is entitled to two months’months' notice of such discharge. If Ms. Wang becomes disabled and unable to perform her regular duties, she shall be entitled to receive her full salary for two months. Upon a change of control, as defined in the employment agreement, Ms. Wang has the right to terminate the employment agreement and receive an amount of money equal to her annual salary for one year, that amount being CAD$90,000.
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Lawrence Page, Q.C.:On July 15, 2011,2019, Mr. Page entered into a consulting agreement with the Company for a period of fivetwo years, whereby Mr. Page provides corporate secretarial services to the Company and is entitled to receive an annual fee of CAD$50,000. The consulting agreement was renewed onreplaces a prior agreement dated July 15, 2016,2011 as renewed annually until July 15, 2017 and July 15, 2018, for further one year periods.2019. Mr. Page may be eligible to participate in future stock option grants. Upon a change of control, as defined in the agreement, Mr. Page has the right to terminate the agreement and receive an amount of money equal to his annual salary for one year,two years, that amount being CAD$50,000.100,000.
Committees
Our Board of Directors has established an Audit Committee and a Corporate, Governance, Nomination and Compensation Committee.
Audit Committee –The Company’s-The Company's Board of Directors has a separately-designated standing audit committee (the “Audit Committee”"Audit Committee") established in accordance with Section 3(a)(58)(A) of the Securities Exchange Act of 1934, as amended. The members of the Audit Committee are Terrence Eyton, John Kerr and LeRoy Wilkes. The Company’sCompany's Board of Directors has determined that each of Messrs. Eyton, Kerr and Wilkes are independent (as provided for under Rule 10A-3 of the Securities Exchange Act of 1934, as amended) and are financially literate. The Audit Committee is responsible for assisting directors to meet their responsibilities, providing better communication between directors and external auditors, enhancing the independence of the external auditor, increasing the credibility and objectivity of financial reports, and strengthening the role of the directors, facilitating in-depth discussions among directors, management, and the external auditor. The Audit Committee meets at least four times during a year. A copy of the Audit Committee Charter is available through our website at www.quaterra.com.
Corporate Governance, Nomination and Compensation Committee –- The members of the Corporate Governance Nomination Compensation Committee (the “CGNCC”"CGNCC") are LeRoy Wilkes, Terrence Eyton and John Kerr all of whom are independent. The Board of Directors has determined that the composition of the CGNCC ensures an objective process for determining compensation of executive officers. The CGNCC meets regularly and considers matters of governance and compensation. The CGNCC may seek the advice of third party independent consultants as may be required in particular circumstances and submits reports to the full Board of Directors on a regular basis.
D. | EMPLOYEES |
During the fiscal years ended December 31, 2019, 2018, 2017 and 2016,2017, we had direct employees as outlined below:
| Company | 2018 | 2017 | 2016 |
| Quaterra Resources Inc. | 3 | 3 | 3 |
| Quaterra Alaska Inc./Singatse Peak Services LLC | 4 | 5 | 5 |
| Minera Agua Tierra S.A. de C.V. | Nil | Nil | Nil |
| Quaterra International Limited | Nil | Nil | Nil |
Company |
| 2019 | 2018 | 2017 | |
Quaterra Resources Inc. |
| 3 | 3 | 3 | |
Quaterra Alaska Inc. |
| 4 | 4 | 5 | |
E. | SHARE OWNERSHIP | ||||
All persons listed in subsection 6.B above beneficially own an aggregate of 6,128,839 Common9,637,417 common shares or 3.05%4.43% of our common shares outstanding. Dr. Thomas Patton beneficially owns 5,214,7627,454,110 or 2.59%3.42% of our common shares and he has the right to exercise or redeem various stock options that if fully exercised he will beneficially own 7,164,7628,804,110 common shares of the Company or 3.53%4.02% of our outstanding shares.
Mr. Prosalendis owns 1,187,681 common shares; 769,230 warrants; and 1,650,000 options of the company which if fully exercised will amount to a total beneficial ownership of 3,606,911 shares or 1.66% of the outstanding shares of the Company.
No other director or officer beneficially owns greater than 1% of our common shares.
We grant stock options to directors, officers, employees and consultants who provide services to us, including our subsidiaries, pursuant to our Incentive Stock Option Plan. The purpose of the Incentive Stock Option Plan is to provide increased incentive to contribute to our future success and prosperity, thus enhancing the value of our shares for the benefit of all the shareholders and increasing our ability to attract and retain skilled and motivated individuals in the service of us. Our Incentive Stock Option Plan is a “rolling”"rolling" plan through which the maximum number of issuable shares underlying options is equal to 10% of our outstanding shares. As of December 31, 2018,2019, there were 14,860,00014,095,000 options outstanding under the Incentive Stock Option Plan.
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ITEM 7. | MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS |
A. | Major Shareholders |
We are not aware of anyThe following table sets forth information regarding each beneficial shareholder holding greater than 5% of ourQuaterra's common shares as of the date of this annual report. The information is based solely on our review of publicly filed ownership reports and information delivered to us. The number of shares beneficially owned by each person or entity is determined under SEC rules which provide that a person or entity beneficially owns any shares as to which the person or entity has or shares voting or investment power. In addition, a person or entity beneficially owns any shares that the person or entity has the right to acquire within 60 days of the date of this annual report through the exercise of any stock option or other right.
Identity of Shareholder | Shares Owned | Percent of Class(1) |
Tony Alford | 47,170,793(2) | 21.67% |
(1) Based on 217,215,610 common shares issued and outstanding as at the date of this annual report.
(2) Based solely on a Schedule 13D filed by Tony Alford with the SEC on February 27, 2020. Includes 7 million share purchase warrants. The Company does not have information regarding significant changes in the shareholder's beneficial holdings during the prior three years, other than:years.
To the Company’s knowledge, Goldcorp’s ownership of the Company has not changed in three years. The Company’sCompany's major shareholder doesshareholders do not have different voting rights.rights than all other shareholders of the Company.
To the knowledge of the Company, no shareholder currently holds greater than 20% of the outstanding voting rights of the Company. Upon exercise of his 7 million warrants, Tony Alford would hold greater than 20% of the outstanding voting rights, assuming no further shares are issued by the Company, and as such could be considered a control person of the Company.
As of December 31, 2018,2019, approximately 56%53% of our common shares were held in Canada and approximately 44%47% of our common shares were held in the U.S., with less than 1% of our common shares held in various other countries.
There are no arrangements known to us that may, at a subsequent date, result in a change in control.
B. | Related Party Transactions |
The Company amended theis party to a service agreement (the “Manex Agreement”"Manex Agreement") with related party Manex Resource Group (“Manex”("Manex"). These services are provided in the normal course of operations for consideration established and accepted by the Company and Manex. On February 9, 2012, the Company renewed the Manex Agreement with Manex at agreed market rates for a five-year term expired August 31, 2017. The Manex Agreement was amended further on September 1, 2013, March 1, 2014 and January 1, 2015 to reduce the fee for services to a monthly rate of CAD$CAD 5,000 with the monthly office lease remaining at CAD$CAD 8,000. During the year ended December 31, 20182019 the Company was charged CAD$156,000.charged$68,819. Effective April 1, 2019, the Company reduced its office space and entered into an agreement with Manex at a monthly rate of CAD 7,500 with a 60-day written notice. Manex is located at the same address as the Company at Suite 1100, 1199 West Hastings Street, Vancouver, British Columbia, V6E 3T5. We believe the terms of the Manex Agreement are similar to that which would be obtainable from an unrelated party. Subsequent to the year end, the Company reduced its office space and entered into an agreement with Manex at a monthly rate of CAD$7,500 with a 60-day period of written notice.
C. | Interests of Experts and Counsel |
Not applicable.
ITEM 8. | FINANCIAL INFORMATION |
Financial Statements
The consolidated statements of financial position of Quaterra Resources Inc. as of December 31, 20182019 and 20172018 and the consolidated statements of loss and comprehensive loss, changes in equity and cash flows of Quaterra Resources Inc. for the years ended December 31, 2019, 2018 2017 and 2016,2017, as well as the auditors’auditors' report thereon, are presented at Item 17 of this annual report.
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Legal Proceedings
From time to time, we may be a party to pending or threatened legal proceedings and arbitrations that are routine and incidental to our business. Based upon information presently available, our management is not aware of any threatened or pending litigation.
Dividends
We have never declared or paid any cash dividends on our common stock and we do not anticipate paying any cash dividends in the foreseeable future.
Significant Changes
Except as otherwise disclosed in this annual report, including under Item 5.“"Operating and Financial Review and Prospects”Prospects", there has been no significant change in our financial position since December 31, 2018.2019.
ITEM 9. | THE OFFER AND LISTING |
A. |
|
Our common shares are listed on the TSX Venture Exchange under the symbol “QTA”"QTA" and on the OTCQB under the symbol “QTRRF”"QTRRF".
B. | Plan of Distribution |
Not applicable.
C. | Markets |
See subsection 9.A. “Offer"Offer and Listing Details”Details" above.
D. | Selling Shareholders |
Not applicable.
E. | Dilution |
Not applicable.
F. | Expenses of the Issue |
Not applicable.
ITEM 10. | ADDITIONAL INFORMATION |
A. | Share Capital |
Not applicable.
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B. | Memorandum and Articles of Association |
Incorporation
We are governed by notice of articles dated May 11, 2017, and articles of association dated June 13, 2005, as amended on December 11, 200721, 2018 (the “Articles”"Articles"). Our Articles are on file with the Office of the British Columbia Registrar of Companies under Certificate of Incorporation No. BC0446713. Under the provisions of the Business Corporations Act (BC), we have the capacity and the rights, powers, and privileges of an individual of full capacity. There are no restrictions in our Articles on the business that we can carry on or the powers we can exercise.
Powers and Functions of the Directors
Under Article 17, a director is obligated to disclose a potential interest in a contract or transaction being considered by us, and may not vote on a contract or transaction with a disclosable interest, but the director shall be counted in the quorum at the meeting of the Board of Directors at which the contract or transaction is approved.
Under Article 13, the Board of Directors may, in the absence of an independent quorum, vote compensation to themselves.
Under Article 8, there are no limitations on borrowing powers exercisable by our Board of Directors.
There are no provisions in our Articles for the retirement or non-retirement of a director under an age limit.
There is no requirement in our Articles for a director to hold any of our common shares.
Rights and Restrictions Attached to the Common Shares
Our common shares rank equally as to dividend rights, voting rights, profits, and liquidation rights. The common shares are not subject to redemption or sinking fund provisions, liability to further capital calls, nor any provisions discriminating against any existing or prospective holder of such shares as a result of such shareholder owning a substantial number of shares.
Alteration of Share Rights
In accordance withSubject to theBusiness Corporations Act (BC) and, our Articles a specialprovide that an ordinary resolution is required to change the rights of common shares, and must be (a) passed at a general meeting by a simple majority of not less than 2/3 of the voting common shareholders; or (b) consented to in writing by alla majority of not less than 2/3 of the voting common shareholders.
Annual General Meetings
Articles 10 and 11 of our Articles, together with applicable corporate and securities laws, contain the conditions governing the manner in which annual and extraordinary general meetings of shareholders are called, including notice, proxy solicitation, and quorum requirements. Annual general meetings are called and scheduled upon decision by the Board of Directors. The Board of Directors may convene an extraordinary general meeting of the shareholders. Holders of common shares may not requisition an extraordinary meeting of the shareholders. All meetings may be attended by registered shareholders or persons who hold powers of attorney or proxies given to them by registered shareholders.
Foreign Ownership Limitation
Our Articles do not contain limitations on the rights of non-residents, foreigners, or other groups to own common shares.
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Change of Control
There are no provisions in our Articles that would have the effect of delaying, deferring or preventing a change in control, or that operate only with respect to a merger, acquisition or corporate restructuring involving us or any of our subsidiaries.
Share Ownership Reporting Obligation
Our Articles do not contains provisions governing the threshold above which shareholder ownership must be disclosed.
Differences between Canadian and U.S. Law
The securities laws of the Province of British Columbia require disclosure of shareholdings by (i) persons who are our directors or senior officers; and (ii) a person who has direct or indirect beneficial ownership of, control or direction over, or a combination of direct or indirect beneficial ownership of and control or direction over our securities carrying more than 10% of the voting rights attached to all of our outstanding voting securities.
The threshold of share ownership percentage requiring disclosure of ownership is higher in the home jurisdiction of British Columbia than the U.S. where U.S. securities law prescribes a 5% threshold for ownership disclosure.
Capital Changes
There are no conditions imposed by our Articles governing changes in our share capital that are more stringent than is required by law.
C. | Material Contracts |
We have not entered into any material contracts other than in the ordinary course of business and other than those described in Item 4. – “- "Information on the Company”" or elsewhere in this annual report.
D. | Exchange Controls |
There currently are no laws, decrees, regulations, or other legislation in Canada that restrict the export or import of capital, or impose foreign exchange controls or affect the remittance of interest, dividends, or other payments to nonresidentnon-resident holders of our common shares, other than the withholding tax requirements described under Subsection E –- “Taxation”"Taxation" below. Canada has no system of exchange controls.
There are no limitations imposed by Canadian laws or our Articles on the right of non-resident to hold our common shares, other than as provided by theInvestment Canada Act, as amended (the “"Act”"), as amended by theNorth American Free Trade Agreement Implementation Act(Canada), and theWorld Trade Organization (WTO) Agreement Implementation Act. The Act requires notification and, in certain cases, advance review and approval by the Government of Canada of the acquisition by a “non-Canadian”"non-Canadian" of “control"control of a Canadian business”business", all as defined in the Act. Generally, the threshold for review will be higher in monetary terms for a member of the WTO or NAFTA.
E. | Taxation |
We encourage you to consult with your own tax advisors about the Canadian and U.S. federal, state, provincial, local, and foreign tax consequences of purchasing, owning, and disposing of our common shares. |
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Certain Canadian Federal Income Tax Consequences
The discussion under this heading summarizes the principal Canadian federal income tax consequences of acquiring, holding and disposing of shares of common shares for a shareholder who is not a resident of Canada but is a resident of the United States and who will acquire and hold a corporation’scorporation's common shares as capital property for the purposes of the Income Tax Act (Canada) (the “"Canadian Tax Act”"). This summary does not apply to a shareholder who carries on business in Canada through a “permanent establishment”"permanent establishment" situated in Canada or performs independent personal services in Canada through a fixed base in Canada if the shareholder’sshareholder's holding is effectively connected with such permanent establishment or fixed base. This summary is based on the provisions of the Canadian Tax Act and the regulations thereunder and on an understanding of the administrative practices of Canada Customs & Revenue Agency, and takes into account all specific proposals to amend the Canadian Tax Act or regulations made by the Minister of Finance of Canada as of the date hereof.
This discussion is general only and is not, nor is it intended to provide a detailed analysis of the income tax implications of any particular shareholder’sshareholder's interest. Investors are advised to obtain independent advice from a shareholder’sshareholder's own Canadian and U.S. tax advisors with respect to income tax implications pertinent to their particular circumstances. The provisions of the Canadian Tax Act are subject to income tax treaties to which Canada is a party, including the Canada-United States Income Tax Convention (1980), as amended (the “Convention”"Convention").
Dividends on Common Shares and Other Income
Under the Canadian Tax Act, a non-resident of Canada is generally subject to Canadian withholding tax at the rate of 25 percent on dividends paid or deemed to have been paid to him or her by a corporation resident in Canada. The corporation is responsible for the withholding of tax at the source. The Convention limits the rate to 15 percent if the shareholder is a resident of the United States and the dividends are beneficially owned by and paid to such shareholder and to 5 percent if the shareholder is also a corporation that beneficially owns at least 10 percent of the voting stock of the payor corporation.
The amount of a stock dividend (for tax purposes) would generally be equal to the amount by which the paid up or stated capital of the corporation had increased by reason of the payment of such dividend. The corporation will furnish additional tax information to shareholders in the event of such a dividend. Interest paid or deemed to be paid on the corporation’scorporation's debt securities held by non-Canadian residents may also be subject to Canadian withholding tax, depending upon the terms and provisions of such securities and any applicable tax treaty.
The Convention generally exempts from Canadian income tax dividends paid to a religious, scientific, literary, educational or charitable organization or to an organization constituted and operated exclusively to administer a pension, retirement or employee benefit fund or plan, if the organization is a resident of the United States and is exempt from income tax under the laws of the United States.
Dispositions of Common Shares
Under the Canadian Tax Act, a taxpayer’staxpayer's capital gain or capital loss from a disposition of a common share is the amount, if any, by which his or her proceeds of disposition exceed (or are exceeded by, respectively) the aggregate of his or her adjusted cost base of the share and reasonable expenses of disposition. The capital gain or loss must be computed in Canadian currency using a weighted average adjusted cost base for identical properties. The capital gains net of losses included in income since October 17, 2000 is 50%. The amount by which a shareholder’sshareholder's capital loss exceeds the capital gain in a year may be deducted from a capital gain realized by the shareholder in the three previous years or any subsequent year, subject to certain restrictions in the case of a corporate shareholder.
Under the Canadian Tax Act, a non-resident of Canada is subject to Canadian tax on taxable capital gains, and may deduct allowable capital losses realized on a disposition of “taxable"taxable Canadian property.”" Common shares of a corporation will constitute the taxable Canadian property of a shareholder at a particular time if the shareholder used the shares in carrying on business in Canada, or if at any time in the five years immediately preceding the disposition, 25% or more of the issued shares of any class or series in the capital stock of the corporation belonged to one or more persons in a group comprising the shareholder and persons with whom the shareholder and persons with whom the shareholder did not deal at arm’sarm's length and in certain other circumstances.
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The Convention relieves United States residents from liability for Canadian tax on capital gains derived on a disposition of shares, unless: (i) the value of the shares is derived principally from “real property”"real property" in Canada, including the right to explore for or exploit natural resources and rights to amounts computed by reference to production; (ii) the shareholder was resident in Canada for 120 months during any period of 20 consecutive years preceding, and at any time during the 10 years immediately preceding, the disposition and the shares were owned by him when he ceased to be resident in Canada; or (iii) the shares formed part of the business property of a “permanent establishment”"permanent establishment" that the holder has or had in Canada within the 12 months preceding the disposition.
Certain United States Federal Income Tax Consequences
The following is a discussion of material United States federal income tax consequences generally applicable to a U.S. Holder (as defined below) of our common shares. This discussion does not cover any state, local or foreign tax consequences. This discussion is based upon the sections of the Internal Revenue Code of 1986, as amended (“("the Code”Code"), Treasury Regulations, published Internal Revenue Service (“IRS”("IRS") rulings, published administrative positions of the IRS and court decisions that are currently applicable, any or all of which could be materially and adversely changed, possibly on a retroactive basis, at any time. In addition, the discussion does not consider the potential effects, both adverse and beneficial, or recently proposed legislation which, if enacted, could be applied, possibly on a retroactive basis, at any time.
U.S. Holders
As used herein, a U.S. Holder includes a holder of common shares who is a citizen or resident of the United States, a corporation (or an entity which has elected to be treated as a corporation under Treasury Regulations created or organized in or under the laws of the United States or of any political subdivision thereof, any estate other than a foreign estate (as defined in the Code) or, a trust subject to the primary supervision of a court within the United States and control of a United States fiduciary as described in the Code. This summary does not address the tax consequences to, and U.S. Holder does not include, persons subject to special provisions of federal income tax law, such as tax-exempt organizations, qualified retirement plans, financial institutions, insurance companies, real estate investment trusts, regulated investment companies, broker-dealers, non-resident alien individuals, persons or entities that have a “functional currency”"functional currency" other than the U.S. dollar, shareholders who hold common shares as part of a straddle, hedging or conversion transaction, and shareholders who acquired their common shares through the exercise of employee stock options or otherwise as compensation for services. This summary is limited to U.S. Holders who own common shares as capital assets. This summary does not address the consequences to a person or entity holding an interest in a shareholder or the consequences to a person of the ownership, exercise or disposition of any options, warrants or other rights to acquire common shares.
Distribution on Common Shares
U.S. Holders receiving dividend distributions (including constructive dividends) with respect to common shares are required to include in gross income for United States federal income tax purposes the gross amount of such distributions equal to the U.S. dollar value of such distributions on the date of receipt (based on the exchange rate on such date), to the extent that the corporation has current or accumulated earnings and profits, without reduction for any Canadian income tax withheld from such distributions. Such Canadian tax withheld may be credited, subject to certain limitations, against the U.S. Holder’sHolder's United States federal income tax liability or, alternatively, may be deducted in computing the U.S. Holder’sHolder's United States federal taxable income (see more detailed discussion at “Foreign"Foreign Tax Credit”Credit" below). To the extent that distributions exceed current or accumulated earnings and profits of the corporation, they will be treated first as a return of capital up to the U.S. Holder’sHolder's adjusted basis in the common shares and thereafter as gain from the sale or exchange of the common shares. Dividend income will be taxed at marginal tax rates applicable to ordinary income while preferential tax rates for long-term capital gains are applicable to a U.S. Holder which is an individual, estate or trust. There are currently no preferential tax rates for long-term capital gains for a U.S. Holder which is a corporation.
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In the case of foreign currency received as a dividend that is not converted by the recipient into U.S. dollars on the date of receipt, a U.S. Holder will have a tax basis in the foreign currency equal to its U.S. dollar value on the date of receipt. Gain or loss may be recognized upon a subsequent sale of other disposition of the foreign currency, including the exchange for U.S. dollars.
Dividends paid on the common shares of a corporation will not generally be eligible for the dividends received deduction provided to corporations receiving dividends from certain United States corporations. A U.S. Holder which is a corporation may, under certain circumstances, be entitled to a 70% deduction of the United States source portion of dividends received from a corporation (unless the corporation qualifies as a “foreign"foreign personal holding company”company" or a “passive"passive foreign investment company”company", as defined below) if such U.S. Holder owns shares representing at least 10% of the voting power and value of the corporation. The availability of this deduction is subject to several complex limitations which are beyond the scope of this discussion.
Foreign Tax Credit
A U.S. Holder who pays (or has withheld from distributions) Canadian income tax with respect to the ownership of common shares may be entitled, at the option of the U.S. Holder, to either a deduction or a tax credit for such foreign tax paid or withheld. Generally, it will be more advantageous to claim a credit because a credit reduces United States Federal income taxes on a dollar-for-dollar basis, while a deduction merely reduces the taxpayer’staxpayer's income subject to tax. This election is made on a year-by-year basis and applies to all foreign income taxes (or taxes in lieu of income tax) paid by (or withheld from) the U.S. Holder during the year. There are significant and complex limitations which apply to the credit, among which is the general limitation that the credit cannot exceed the proportionate share of the U.S. Holder’sHolder's United States income tax liability that the U.S. Holder’sHolder's foreign source income bears to his/her or its worldwide taxable income. The various items of income and deduction must be classified into foreign and domestic sources. Complex rules govern this classification process. In addition, this limitation is calculated separately with respect to specific classes of income such as “passive income”"passive income", “high"high withholding tax interest”interest", “financial"financial services income”income", “shipping income”"shipping income", and certain other classifications of income. Dividends distributed will generally constitute “passive income”"passive income" or, in the case of certain U.S. Holders, “financial"financial services income”income" for these purposes. The availability of the foreign tax credit and the application of the limitations on the credit are fact specific and holders and prospective holders of common shares of should consult their own tax advisors regarding their individual circumstances.
For individuals whose entire income from sources outside the United States consists of qualified passive income whose total amount of creditable foreign taxes paid or accrued during the taxable year does not exceed $300 ($600 in the case of a joint return) and for whom an election is made under section 904(j), the limitation on credit does not apply.
Disposition of Common Shares
A U.S. Holder will recognize gain or loss upon the sale of common shares equal to the difference, if any, between (i) the amount of cash plus the fair market value of any property received, and (ii) the tax basis in the common shares. Preferential tax rates apply to long-term capital gains of U.S. Holders which are individuals, estates, or trusts. This gain or loss will be capital gain or loss if the common shares are capital assets in the hands of the U.S. Holder, which will be a short-term or long-term capital gain or loss depending upon the holding period of the U.S. Holder. Gains and losses are netted and combined according to special rules in arriving at the overall capital gain or loss for a particular tax year. Deductions for net capital losses are subject to significant limitations. For U.S. Holders which are not corporations, any unused portion of such net capital loss may be carried over to be used in later tax years until such net capital loss is thereby exhausted, but individuals may not carry back capital losses. For U.S. Holders which are corporations (other than corporations subject to Subchapter S of the Code), an unused net capital loss may be carried back three years from the loss year and carried forward five years from the loss year to be offset against capital gains until such net capital loss is thereby exhausted.
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Foreign Personal Holding Company
If at any time during a taxable year more than 50% of the total combined voting power or the total value of the our outstanding shares is owned, actually or constructively, by five or fewer individuals who are citizens or residents of the United States and 60% (50% after the first tax year) or more of our gross income for such year was derived from certain passive sources, then we would be treated as a “foreign"foreign personal holding company.”" In that event, U.S. Holders that hold common shares would be required to include in gross income for such year their allocable portions of such passive income to the extent we do not actually distribute such income.
We do not believe we currently have the status of a “foreign"foreign personal holding company”company". However, there can be no assurance that we will not be considered a foreign personal holding company for any future taxable year.
Passive Foreign Investment Company
As a foreign corporation with U.S. Holders, we potentially could be treated as a passive foreign investment company (“PFIC”("PFIC"), as defined in Section 1297 of the Code, depending upon the percentage of our income which is passive, or the percentage of our assets which are held for the purpose of producing passive income. We believe we currently are a PFIC.
The rule governing PFICs can have significant tax effects on U.S. Holders of foreign corporations. These rules do not apply to non-U.S. Holders. Section 1297 of the Code defines a PFIC as a corporation that is not formed in the United States and, for any taxable year, either (i) 75% or more of its gross income is “passive income”"passive income", which includes interest, dividends and certain rents and royalties or (ii) the average percentage, by fair market value (or, if the corporation is a controlled foreign corporation or makes an election, by adjusted tax basis), of its assets that produce or are held for the production of “passive income”"passive income" is 50% or more. The taxation of a US Holder who owns stock in a PFIC is extremely complex and is therefore beyond the scope of this discussion. U.S. Holders should consult with their own tax advisors with regards to the impact of these rules.
Controlled Foreign Corporation
If more than 50% of the voting power of all classes of our common shares entitled to vote is owned, actually or constructively, by citizens or residents of the United States, United States partnerships, corporations, or estates or trusts other than foreign estates or trusts, each of whom own actually or constructively own 10% or more of the total combined voting power of all classes of our capital stock (“("United States Shareholders”Shareholders"), then we would be a “controlled"controlled foreign corporation”corporation" (CFC). We do not believe we currently are a CFC.
The CFC classification would affect many complex results, one of which is that certain income of a CFC would be subject to current U.S. tax. The United States generally taxes United States Shareholders of a CFC currently on their pro rata shares of the Subpart F income of the CFC. Such United States Shareholders are generally treated as having received a current distribution out of the CFC’sCFC's Subpart F income and are also subject to current U.S. tax on their pro rata shares of the CFC’sCFC's earnings invested in U.S. property. The foreign tax credit described above may reduce the U.S. tax on these amounts. In addition, under Section 1248 of the Code, gain from the sale or exchange of shares by a U.S. Holder of common shares of a corporation which is or was a United States Shareholder at any time during the five-year period ending with the sale or exchange is treated as ordinary income to the extent of earnings and profits of the corporation (accumulated only while the shares were held by the United States Shareholder and while the corporation was a CFC attributable to the shares sold or exchanged). If a foreign corporation is both a PFIC and a CFC, the foreign corporation generally will not be treated as a PFIC with respect to the United States Shareholders of the CFC. This rule generally will be effective for taxable years of United States Shareholders beginning after 1997 and for taxable years of foreign corporations ending with or within such taxable years of United States Shareholders. The PFIC provisions continue to apply in the case of a PFIC that is also a CFC with respect to the U.S. Holders that are less than 10% shareholders.
F. | Dividends and Paying Agents |
Not applicable.
53
G. | Statement by Experts |
Not applicable.
H. | Documents on Display |
Any document referred to in this annual report may be inspected at our principal executive offices at Suite 1100, 1199 West Hastings Street, Vancouver, British Columbia Canada V6E 3T5 during regular business hours.
Various documents referenced in this annual report also are included as exhibits to this annual report in accordance with Item 19 of this Form 20-F. We are required to file periodic reports and other information with the SEC. You may read and copy any materials we file with the SEC at its Public Reference Room at 100 F Street, NE, Washington, DC 20549. Please call the SEC at 1-800-SEC-0330 for further information on the operation of the Public Reference Room. The SEC further maintains an internet website at www.sec.gov that contains reports and other information about issuers like us who file electronically with the SEC.
In addition, we file various documents on the Canadian Securities Administrator’sAdministrator's System for Electronic Document Analysis and Retrieval (SEDAR) at www.sedar.com as required by applicable Canadian law and stock exchanges.
I. | Subsidiary Information |
Not applicable.
ITEM 11. | QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK |
Not applicable.
ITEM 12. | DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES |
Not applicable.
PART II
ITEM 13. | DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES |
None.
ITEM 14. | MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OFPROCEEDS |
Effective June 21, 2018, in accordance with the vote of shareholders at the 2018 Annual General Meeting, we adopted a rights plan applicable to our common shares (the “Rights Plan”"Rights Plan"). This Rights Plan replaced an earlier shareholder rights plan dated June 12, 2013. The Rights Plan will remain in effect until termination of the annual meeting of shareholders in 2021 unless the shareholders vote by ordinary resolution at that meeting to ratify and confirm the Rights Plan.
The purpose of the Rights Plan is to ensure, to the extent possible, that all shareholders are treated equally and fairly in connection with any take-over bid or similar proposal to acquire our common shares. Take-over bids may be structured in such a way as to be coercive or discriminatory in effect, or may be initiated at a time when it will be difficult for our Board of Directors to prepare an adequate response. Such offers may result in shareholders receiving unequal or unfair treatment, or not realizing the full or maximum value of their investment in us.
54
The Rights Plan discourages the making of any such offers by creating the potential of significant dilution to any offeror who does so. This potential is created through the issuance to all shareholders of contingent rights to acquire additional common shares of the Company at a significant discount to then prevailing market prices, which could, in certain circumstances, become exercisable by all shareholders other than an offeror and its associates, affiliates and joint actors.
An offeror can avoid that potential by making an offer that either: (i) qualifies as a “Permitted Bid”"Permitted Bid" under the Rights Plan, and therefore meets certain specified conditions (including a minimum deposit period of 105 days) which aim to ensure that all shareholders are treated fairly and equally; or (ii) does not qualify as a “Permitted Bid”"Permitted Bid" but is negotiated with and has been exempted by our Board of Directors from the application of the Rights Plan in light of the opportunity to bargain for agreed terms and conditions to the offer that are believed to be in the best interests of shareholders.
ITEM 15. | CONTROLS AND PROCEDURES |
Disclosure Controls and Procedures
Our management carried out an evaluation, under the supervision and with the participation of our Chief Executive Officer and Chief Financial Officer, of the effectiveness of our disclosure controls and procedures (as such term is defined in Rule 13a-15(e) under the Securities Exchange Act of 1934, as amended) as of the end of the fiscal year covered by this report. Based on the evaluation, our Chief Executive Officer and Chief Financial Officer concluded that, as of December 31, 2018,2019, our disclosure controls and procedures were effective.
Management’sManagement's Annual Report on Internal Control Over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over financial reporting (“ICFR”("ICFR") as such term is defined in Rule 13a-15(f) or Rule 15d-15(f) promulgated under the Exchange Act. Management (under the supervision and with the participation of the Chief Executive Officer and the Chief Financial Officer) assessed the effectiveness of our ICFR as of December 31, 2018,2019, using the framework set forth in Internal Control - Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (the COSO 2013 framework). Based on this assessment, our management concluded that our ICFR were effective as of December 31, 2018.2019.
This annual report does not include an attestation report of our registered public accounting firm regarding our ICFR. Our management's report was not subject to attestation by our registered independent public accounting firm because we are not an accelerated filer or large accelerated filer and exempt as an Emerging Growth Company.
Changes in Internal Control Over Financial Reporting
There were no changes in our internal control over financial reporting during the fiscal year ended December 31, 20182019 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
Item 16A. |
|
Our Board of Directors has determined that Terrence Eyton is an “audit"audit committee financial expert”expert", as defined in Item 16A(b) of Form 20-F, serving on the Audit Committee of the Company as within the criteria prescribed under SEC.
Item 16B. |
|
We have adopted a Code of Business Conduct and Ethics for all our directors, officers, and employees. It includes a Code of Ethical Conduct for Financial Managers that applies to our principal executive officer, principal financial officer, principal accounting officer or controller, or persons performing similar functions. The Code of Business Conduct and Ethics is available in the Governance section of our website at www.quaterra.com. All applicable amendments to and waivers of the Code of Business Conduct Ethics governing our principal executive officer, principal financial officer, principal accounting officer or controller, or persons performing similar functions will be posted on our website and furnished to the SEC on Form 6-K.
55
The Company will provide to any person without charge, upon request via email at info@quaterra.com, a copy of the Code of Business Conduct and Ethics.
Item 16C. |
|
The following table shows the aggregate fees billed to us by our independent auditor PricewaterhouseCoopers LLP for 20182019 and 2017,2018, in each of the last two fiscal years.
| CAD$ | Year ended December 31, | |||
CAD | Year ended December 31, | |||
| 2018 | 2017 | 2019 | 2018 | |
| Audit Fees | $44,500 | $42,500 | $39,000 | $44,500 |
| Audit-Related Fees | Nil | Nil | ||
| Tax Fees | Nil | Nil | ||
| All Other Fees | - | - | ||
Audit feesare the aggregate fees billed by the Company’sCompany's independent auditor for the audit of the Company’sCompany's annual consolidated financial statements, reviews of interim consolidated financial statements and attestation services that are provided in connection with statutory and regulatory filings or engagements.
Audit-related fees are fees charged by the Company’sCompany's independent auditor for assurance and related services that are reasonably related to the performance of the audit or review of financial statements and are not reported under “Audit Fees”"Audit Fees".
Tax fees are fees for professional services rendered by the Company’sCompany's independent auditors for tax compliance and tax advice on actual or contemplated transactions.
The Audit Committee recommends to the Board of Directors the external auditor to perform audit, review, and attestation services. The Audit Committee pre-approves all non-audit services provided by our external auditors, and pre-approved the tax fees and the all other fees listed in the table above.
Item 16D. |
|
Not applicable.
Item 16E. |
|
None.
Item 16F. Change in Registrant’s
Item 16F. | Change in Registrant's Certifying Accountant |
Not applicable.
Item 16G. |
|
Not applicable.
Item 16H. |
|
Not applicable.
PART III
ITEM 17. | FINANCIAL STATEMENTS |
Index to Consolidated Financial Statements:
Page | |
Report of Independent Registered Public Accounting Firm dated March | |
Consolidated Statements of Financial Position as at December 31, | |
ITEM 18. | FINANCIAL STATEMENTS |
Not applicable.
ITEM 19. | EXHIBITS |
The following documents are filed as exhibits to this annual report on Form 20-F:
Exhibit | |
Number | Description of Exhibit |
57
| (101) | Interactive Data File |
| 101.INS | |
| 101.SCH | |
| 101.CAL | |
| 101.DEF | |
| 101.LAB | |
| 101.PRE |
SIGNATURES
The registrant hereby certifies that it meets all of the requirements for filing on Form 20-F and that it has duly caused and authorized the undersigned to sign this annual report on its behalf.
QUATERRA RESOURCES INC. | ||
Dated: April | By: | |
Lei Wang | ||
Chief Financial Officer |
59
(An Exploration Stage Company)
Consolidated Financial Statements
For the year ended December 31, 20182019
(In U.S. Dollars)
Management’s Responsibility for Financial Reporting
The managementaccompanying annual consolidated financial statements of Quaterra Resources Inc. is responsible for the integrity and fair presentation of the financial information contained in this annual report. Where appropriate, the financial information, including consolidated financial statements, reflects amounts based on management’s best estimates and judgments. The consolidated financial statements have been prepared by management and are in accordance with International Financial Reporting Standards as issued by the International Accounting Standards Board. Financial information presented elsewhere in
Management acknowledges its responsibility for the preparation and presentation of the annual report is consistent with that disclosed in the consolidated financial statements.
Management is responsible for establishing and maintaining adequate internal control over financial reporting. Managementstatements; has established and maintainsmaintained a system of internal accounting control designed to provide reasonable assurance that assets are safeguarded from loss or unauthorized use, financial information is reliable and accurate, and transactions are properly recorded and executed in accordance withunder management’s authorization. This system includes established policies and procedures, the selection and training of qualified personnel, and an organization providing for appropriate delegation of authority and segregation of responsibilities. Any system of internal control over financial reporting, no matter how well designed, has inherent limitations. Therefore, even those systems determined to be effective can provide only reasonable assurance with respect tofor financial statement preparation and presentation.
The Board of Directors oversees management’s responsibility for financial reporting and internal control systems through an Audit Committee, which is composed entirely of independent directors. The Audit Committee meets periodically with management and the independent auditors to review the scope and results of the annual audit and to review the consolidated financial statements and related financial reporting and internal control matters before the consolidated financial statements are approved by the Board of Directors and submitted to the Company’s shareholders.
PricewaterhouseCoopers LLP, an independent registered public accounting firm, has audited the Company’s consolidated financial statements in accordance withunder Canadian generally accepted auditing standards and the standards of the Public Company Accounting Oversight Board (United States) and has expressed its opinion in the independent auditor’s report.
“ | “Lei Wang” (signed) |
Gerald Prosalendis | Lei Wang |
President and Chief Executive Officer | Chief Financial Officer |
March 30, 2020 | |
Vancouver, British Columbia, Canada |
Report of Independent Registered Public Accounting Firm
Report of Independent Registered Public Accounting Firm
To the Shareholders and Board of Directors of Quaterra Resources Inc.
Opinion on the Financial Statements
We have audited the accompanying consolidated statements of financial position of Quaterra Resources Inc. and its subsidiaries (together, the Company) as of December 31, 20182019 and 2017,2018, and the related consolidated statements of loss and comprehensive loss, cash flows and changes in equity for each of the three years in the period ended December 31, 2018,2019, including the related notes (collectively referred to as the consolidated financial statements). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2019 and 2018, and 2017, and theirits financial performance and theirits cash flows for each of the three years in the period ended December 31, 20182019 in conformity with International Financial Reporting Standards as issued by the International Accounting Standards Board (IFRS).Board.
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 of these consolidated financial statements 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.
Our audits included performing procedures to assess the risks of material misstatement of the consolidated 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.
(signed) PricewaterhouseCoopers LLP
Chartered Professional Accountants
Vancouver, Canada
March 28, 201930, 2020
We have served as the Company's auditor since 20162016.
Quaterra Resources Inc. Consolidated Statements of Financial Position |
| Note | December 31, 2018 | December 31, 2017 | January 1, 2017 | ||||||||
| Assets | (Restated - Note 2(l)) | (Restated - Note 2(l)) | |||||||||
| Current assets: | |||||||||||
| Cash and cash equivalents | $ | 47 | $ | 1,575 | $ | 6,665 | |||||
| Other receivable | 2 | 3 | 3 | ||||||||
| Marketable securities | 3 | 156 | 286 | 132 | |||||||
| Prepaid and other | 4 | 28 | 47 | ||||||||
| 209 | 1,892 | 6,847 | |||||||||
| Non-current assets: | |||||||||||
| Exploration and evaluation assets | 4 | 32,533 | 31,295 | 27,597 | |||||||
| Reclamation bonds | 62 | 60 | 70 | ||||||||
| 32,595 | 31,355 | 27,667 | |||||||||
| Total Assets | $ | 32,804 | $ | 33,247 | $ | 34,514 | |||||
| Liabilities | |||||||||||
| Current liabilities: | |||||||||||
| Accounts payable and accrued liabilities | $ | 365 | $ | 130 | $ | 111 | |||||
| Loan payable | 5 | 305 | 571 | 540 | |||||||
| Related party loan payable | 10 (c) | 210 | - | - | |||||||
| Convertible notes | - | - | 540 | ||||||||
| 880 | 701 | 1,191 | |||||||||
| Non-current liability | |||||||||||
| Convertible notes | 6 | 721 | - | - | |||||||
| Derivative liabilities | 7 | 572 | 587 | 938 | |||||||
| 1,293 | 587 | 938 | |||||||||
| Total Liabilities | 2,173 | 1,288 | 2,129 | ||||||||
| Shareholders' Equity | |||||||||||
| Share capital | 100,729 | 100,729 | 100,051 | ||||||||
| Share-based compensation reserve | 18,820 | 18,729 | 18,560 | ||||||||
| Deficit | (88,918 | ) | (87,499 | ) | (86,226 | ) | |||||
| 30,631 | 31,959 | 32,385 | |||||||||
| Total Liabilities and Shareholders' Equity | $ | 32,804 | $ | 33,247 | $ | 34,514 | |||||
| Nature of operations and liquidity (Note 1) | |||||||||||
| Subsequent events (Note 16) |
| Note | December 31, 2019 | December 31, 2018 | |||||
| Assets | |||||||
| Current assets: | |||||||
| Cash and cash equivalents | $ | 1,812 | $ | 47 | |||
| Other receivables | 3 | 2 | |||||
| Marketable securities | 3 | 165 | 156 | ||||
| Prepaid and deposit | 4 | 4 | |||||
| 1,984 | 209 | ||||||
| Non-current assets: | |||||||
| Mineral properties | 4 | 28,679 | 32,533 | ||||
| Reclamation bonds | 34 | 62 | |||||
| 28,713 | 32,595 | ||||||
| Total Assets | $ | 30,697 | $ | 32,804 | |||
| Liabilities | |||||||
| Current liabilities: | |||||||
| Accounts payable and accrued liabilities | $ | 112 | $ | 365 | |||
| Loan payable | 5 | - | 305 | ||||
| Related party loan payable | 10(c) | - | 210 | ||||
| Convertible notes | 6 | 402 | - | ||||
| Derivative liabilities | 7 | 150 | - | ||||
| 664 | 880 | ||||||
| Non-current liability | |||||||
| Convertible notes | - | 721 | |||||
| Derivative liabilities | 7 | 26 | 572 | ||||
| 26 | 1,293 | ||||||
| Total Liabilities | 690 | 2,173 | |||||
| Shareholders' Equity | |||||||
| Share capital | 101,424 | 100,729 | |||||
| Contributed surplus | 19,212 | 18,820 | |||||
| Deficit | (90,629 | ) | (88,918 | ) | |||
| 30,007 | 30,631 | ||||||
| Total Liabilities and Shareholders' Equity | $ | 30,697 | $ | 32,804 |
(See the accompanying notes to the consolidated financial statements)
Approved on behalf of the Board of Directors on March 28, 2019:26, 2020:
/s/ “Thomas Patton” | /s/“Terrence Eyton” |
Director | Director |
Quaterra Resources Inc.
Consolidated Statements of Loss and Comprehensive Loss
(In thousands of U.S. Dollars, except for shares and per share amounts)
| Year ended December 31, | ||||||||||
| Note | 2019 | 2018 | 2017 | |||||||
| General administrative expenses | ||||||||||
| Consulting | $ | 39 | $ | 49 | $ | 48 | ||||
| General office | 53 | 74 | 79 | |||||||
| Insurance | 63 | 46 | 56 | |||||||
| Investor relations and corporate development | 217 | 75 | 104 | |||||||
| Professional fees | 89 | 113 | 120 | |||||||
| Rent | 123 | 114 | 152 | |||||||
| Salaries and benefits | 823 | 838 | 645 | |||||||
| Transfer agent and regulatory | 66 | 38 | 70 | |||||||
| Travel | 29 | 50 | 91 | |||||||
| (1,502 | ) | (1,397 | ) | (1,365 | ) | |||||
| Fair value gain on derivative liabilities | 7 | 105 | 358 | 351 | ||||||
| Foreign exchange (loss) gain | (43 | ) | 11 | (33 | ) | |||||
| Gain on disposal of assets | - | - | 186 | |||||||
| Unrealized gain (loss) on marketable securities | 3 | 9 | (130 | ) | (31 | ) | ||||
| Loss on settlement of convertible notes | (13 | ) | - | (100 | ) | |||||
| Interest expense and other | (150 | ) | (170 | ) | (112 | ) | ||||
| Share-based compensation | 9(a) | (117 | ) | (91 | ) | (169 | ) | |||
| (209 | ) | (22 | ) | 92 | ||||||
| Loss and comprehensive loss for the year | $ | (1,711 | ) | $ | (1,419 | ) | $ | (1,273 | ) | |
| Loss per share - basic and diluted | $ | (0.01 | ) | $ | (0.01 | ) | $ | (0.01 | ) | |
| Weighted average number of common shares outstanding | 208,688,604 | 200,969,314 | 199,450,814 | |||||||
(See the accompanying notes to the consolidated financial statements)
| Year ended December 31, | |||||||||||
| Note | 2018 | 2017 | 2016 | ||||||||
| (Restated - Note 2(l)) | (Restated - Note 2(l)) | ||||||||||
| General administrative expenses | |||||||||||
| Administration and office | $ | 283 | $ | 335 | $ | 346 | |||||
| Consulting | - | - | 46 | ||||||||
| Investor relations and communications | 75 | 104 | 69 | ||||||||
| Personnel costs | 4 | 838 | 645 | 419 | |||||||
| Professional fees | 113 | 120 | 199 | ||||||||
| Transfer agent and regulatory fees | 38 | 70 | 43 | ||||||||
| Travel and promotion | 50 | 91 | 70 | ||||||||
| (1,397 | ) | (1,365 | ) | (1,192 | ) | ||||||
| Fair value gain on derivative liabilities | 7 | 358 | 351 | 454 | |||||||
| Foreign exchange gain (loss) | 11 | (33 | ) | 23 | |||||||
| Gain on disposal of assets | - | 186 | 536 | ||||||||
| Loss on marketable securities | 3 | (130 | ) | (31 | ) | (31 | ) | ||||
| Loss on settlement of convertible notes | - | (100 | ) | - | |||||||
| Impairments | - | - | (1,480 | ) | |||||||
| Interest expense and other | (170 | ) | (112 | ) | (70 | ) | |||||
| Share-based compensation | 9 (a) | (91 | ) | (169 | ) | (136 | ) | ||||
| (22 | ) | 92 | (704 | ) | |||||||
| Loss and comprehensive loss for the year | $ | (1,419 | ) | $ | (1,273 | ) | $ | (1,896 | ) | ||
| Loss per share - basic and diluted | $ | (0.01 | ) | $ | (0.01 | ) | $ | (0.01 | ) | ||
| Weighted average number of common sharesoutstanding | 200,969,314 | 199,450,814 | 193,479,416 | ||||||||
Quaterra Resources Inc.
Consolidated Statements of Cash Flows
(In thousands of U.S. Dollars)
| Year ended December 31, | |||||||||
| 2019 | 2018 | 2017 | |||||||
| Operating activities | |||||||||
| Net loss for the year | $ | (1,711 | ) | $ | (1,419 | ) | $ | (1,273 | ) |
| Items not involving cash: | |||||||||
| Fair value gain on derivative liabilities | (105 | ) | (358 | ) | (351 | ) | |||
| Interest and convertible accretion | 260 | 141 | 79 | ||||||
| Gain on disposal of assets | - | - | (186 | ) | |||||
| Loss on settlement of convertible notes | 13 | - | 100 | ||||||
| Unrealized (gain) loss on marketable securities | (9 | ) | 130 | 31 | |||||
| Share-based compensation | 117 | 91 | 169 | ||||||
| (1,435 | ) | (1,415 | ) | (1,431 | ) | ||||
| Changes in non-cash working capital | |||||||||
| Other receivable | (1 | ) | 1 | - | |||||
| Prepaid and other | - | 24 | 19 | ||||||
| Accounts payable and accrued liabilities | (185 | ) | 202 | (31 | ) | ||||
| (1,621 | ) | (1,188 | ) | (1,443 | ) | ||||
| Financing activities | |||||||||
| Shares issued for cash | 132 | - | - | ||||||
| Convertible notes proceeds | - | 973 | - | ||||||
| Loan repayment | (311 | ) | (295 | ) | - | ||||
| Related party loan payable | (218 | ) | 210 | - | |||||
| (397 | ) | 888 | - | ||||||
| Investing activities | |||||||||
| Expenditures on mineral properties | (1,899 | ) | (1,518 | ) | (6,122 | ) | |||
| Proceeds from option agreement | - | - | 2,393 | ||||||
| Net proceeds from water rights sale | 5,685 | 313 | - | ||||||
| Reclamation bonds | 28 | 2 | (10 | ) | |||||
| 3,814 | (1,203 | ) | (3,739 | ) | |||||
| Effect of foreign exchange on cash | (31 | ) | (25 | ) | 92 | ||||
| Increase (decrease) in cash and cash equivalents | 1,765 | (1,528 | ) | (5,090 | ) | ||||
| Cash and cash equivalents, beginning of year | 47 | 1,575 | 6,665 | ||||||
| Cash and cash equivalents, end of year | $ | 1,812 | $ | 47 | $ | 1,575 | |||
| Supplemental cash flow information | |||||||||
| Exploration expenditures included in accounts payable | $ | 27 | $ | 95 | $ | 63 | |||
| Interest paid in cash | $ | 46 | $ | 45 | $ | 53 | |||
| Shares issued for interest | $ | 45 | $ | - | $ | 80 | |||
(See the accompanying notes to the consolidated financial statements)
64
Quaterra Resources Inc.
Consolidated Statements of Changes in Equity Year ended December 31, 2018 2017 2016 Operating activities (Restated - Note 2(l)) (Restated - Note 2(l)) Net loss for the year $ (1,419 ) $ (1,273 ) $ (1,896 ) Items not involving cash: Depreciation - - 14 Fair value gain on derivative liabilities (358 ) (351 ) (454 ) Impairments - - 1,480 Interest expense 141 79 70 Gain on disposal of assets - (186 ) (536 ) Loss on settlement of convertible notes - 100 - Unrealized loss on marketable securities 130 31 31 Share-based compensation 91 169 136 (1,415 ) (1,431 ) (1,155 ) Changes in non-cash working capital Other receivable 1 - 2 Prepaid and other 24 19 34 Accounts payable and accrued liabilities 202 (31 ) 92 Cash used in operating activities (1,188 ) (1,443 ) (1,027 ) Financing activities Loan repayment (295 ) - - Related party loan payable 210 - - Convertible notes proceeds 973 - - Cash provided by financing activities 888 - - Investing activities Expenditures on mineral properties (1,518 ) (6,122 ) (5,145 ) Recovery from exploration partners - - 48 Proceeds from option agreement - 2,393 5,075 Proceeds from sale of assets 313 - 3,343 Reclamation bonds 2 (10 ) (18 ) Cash (used) provided by in investing activities (1,203 ) (3,739 ) 3,303 Effect of foreign exchange on cash (25 ) 92 (133 ) (Decrease) increase in cash and cash equivalents (1,528 ) (5,090 ) 2,143 Cash and cash equivalents, beginning of year 1,575 6,665 4,522 Cash and cash equivalents, end of year $ 47 $ 1,575 $ 6,665 �� Supplemental cash flow information Exploration expenditures included in accounts payable $ 95 $ 63 $ 75 Interest paid in cash $ 45 $ 53 $ - Shares issued for interest $ - $ 80 $ -
| Notes | Number of shares | Share capital | Contributed surplus | Deficit | Total Equity | |||||||||||
| Balance, December 31, 2016 | 193,479,416 | $ | 100,051 | $ | 18,560 | $ | (86,226 | ) | $ | 32,385 | ||||||
| Shares issued to settle convertible notes | 7,489,898 | 678 | - | - | 678 | |||||||||||
| Share-based compensation | - | - | 169 | - | 169 | |||||||||||
| Net loss for the year | - | - | - | (1,273 | ) | (1,273 | ) | |||||||||
| Balance, December 31, 2017 | 200,969,314 | 100,729 | 18,729 | (87,499 | ) | 31,959 | ||||||||||
| Share-based compensation | - | - | 91 | - | 91 | |||||||||||
| Net loss for the year | - | - | - | (1,419 | ) | (1,419 | ) | |||||||||
| Balance, December 31, 2018 | 200,969,314 | 100,729 | 18,820 | (88,918 | ) | 30,631 | ||||||||||
| Shares issued for cash | 3,000,000 | 113 | - | - | 113 | |||||||||||
| Shares issued to settle convertible notes | 6 | 12,846,296 | 547 | 291 | - | 838 | ||||||||||
| Shares issued for stock options exercised | 400,000 | 35 | (16 | ) | - | 19 | ||||||||||
| Share-based compensation | - | - | 117 | - | 117 | |||||||||||
| Net loss for the year | - | - | - | (1,711 | ) | (1,711 | ) | |||||||||
| Balance, December 31, 2019 | 217,215,610 | $ | 101,424 | $ | 19,212 | $ | (90,629 | ) | $ | 30,007 |
(See the accompanying notes to the consolidated financial statements)
65
Quaterra Resources Inc. |
| Common Shares | |||||||||||||||
| Number of | Share-based | ||||||||||||||
| Shares | Amounts | payment reserve | Deficit | Total | |||||||||||
| (Restated - Note 2(l)) | (Restated - Note 2(l)) | ||||||||||||||
| Balance, December 31, 2015 | 193,479,416 | $ | 100,051 | $ | 18,424 | $ | (84,330 | ) | $ | 34,145 | |||||
| Share-based compensation | - | - | 136 | - | 136 | ||||||||||
| Net loss for the year | - | - | - | (1,896 | ) | (1,896 | ) | ||||||||
| Balance, December 31, 2016 | 193,479,416 | 100,051 | 18,560 | (86,226 | ) | 32,385 | |||||||||
| Shares issued to settle convertible notes | 7,489,898 | 678 | - | - | 678 | ||||||||||
| Share-based compensation | - | - | 169 | - | 169 | ||||||||||
| Net loss for the year | - | - | - | (1,273 | ) | (1,273 | ) | ||||||||
| Balance, December 31, 2017 | 200,969,314 | 100,729 | 18,729 | (87,499 | ) | 31,959 | |||||||||
| Share-based compensation | - | - | 91 | - | 91 | ||||||||||
| Net loss for the year | - | - | - | (1,419 | ) | (1,419 | ) | ||||||||
| Balance, December 31, 2018 | 200,969,314 | $ | 100,729 | $ | 18,820 | $ | (88,918 | ) | $ | 30,631 | |||||
(See the accompanying notes to the consolidated financial statements)
66
| Notes to the Consolidated Financial Statements |
For the year ended December 31, |
| 2019 (In U.S. Dollars, tabular amounts in thousands of U.S. dollars except per share amount) |
| 1. | NATURE OF OPERATIONS AND LIQUIDITY RISK | |
Quaterra Resources Inc. (together with its subsidiaries, “Quaterra” or the “Company”) is a copper exploration company working on its mineral properties located in Nevada and Alaska, United States. The Company is incorporated in British Columbia, Canada. Its head office is located at 1100 - 1199 West Hastings Street, Vancouver, British Columbia, Canada, V6E 3T5. The Company’s common shares are listed on the TSX Venture Exchange (“TSXV”) under the symbol “QTA” and trade on the OTCQB Market under the symbol “QTRRF”. | ||
The Company acquires its mineral properties by way of option or lease agreements and defers all acquisition, exploration and evaluation costs related to the properties. The underlying value of the amounts recorded as mineral properties does not reflect current or future values. The Company’s continued existence is dependent upon the | ||
| ||
These consolidated financial statements are prepared on a going concern basis, which assumes that the Company will be able to realize its assets and discharge its liabilities in the normal course of business. As of December 31, | ||
| 2. | SIGNIFICANT ACCOUNTING POLICIES | |
| ||
These consolidated financial statements have been prepared | ||
| a) | Basis of presentation and consolidation | |
| ||
These consolidated financial statements have been prepared on a historical cost basis, except for marketable securities and | ||
The Company consolidates an entity when it has power over that entity, is exposed, or has rights, to variable returns from its involvement with that entity and | ||
These consolidated financial statements incorporate the financial statements of Quaterra and its wholly-owned subsidiaries: Quaterra Alaska Inc., Singatse Peak Services, LLC (“SPS”), and Six Mile Mining | ||
| b) | Accounting estimates and judgments | |
The preparation of the financial statements in conformity with IFRS requires management to make judgments, estimates and assumptions that affect the application of policies, reported amounts and disclosures. Actual results could differ from those estimates. |
67
Judgment is required in assessing whether certain factors would be considered an indicator of impairment. Both internal and external information |
Quaterra Resources Inc. Notes to the Consolidated Financial Statements For the year ended December 31, 2019 (In U.S. Dollars, tabular amounts in thousands of U.S. dollars except per share amount) |
The critical judgments that have been made that may have a significant impact on the Company’s consolidated financial statements are related to the economic recoverability of its | ||
| c) | Translation of foreign currencies | |
The Company’s presentation currency is the U.S. dollar (“$” or “USD”). The functional currency of the Company and its significant subsidiaries is the USD. | ||
In preparing the financial statements, transactions in currencies other than an entity’s functional currency (“foreign currencies”) are recorded at the rates of exchange prevailing at the dates of the transactions. At each balance sheet date, monetary assets and liabilities are translated using the period end foreign exchange rate. Non-monetary assets and liabilities are translated using the historical rate on the date of the transaction. All gains and losses on translation of these foreign currency transactions are included in the statement of loss. | ||
| d) |
| |
Direct costs related to the acquisition and exploration of mineral properties held or controlled by the Company are capitalized on an individual property basis until the property transitions to the development stage, is | ||
| ||
Proceeds from the sale of properties, property water rights or cash proceeds received from farm-out option agreements are recorded as a reduction of the related mineral | ||
Although the Company has taken steps to verify title to mineral properties in which it has an interest, these procedures do not guarantee the Company’s title. Such properties may be subject to prior agreements or transfers, or title may be affected by undetected defects. | ||
| e) | Impairment | |
The Company’s assets are reviewed for the indication of impairment at each reporting Mineral properties are assessed for impairment if (i) the right to explore the area has expired or will expire in the near future with no expectation of renewal; (ii) Substantive expenditure on further exploration for and evaluation of mineral resources in the area is neither planned nor budgeted; (iii) No commercially viable deposits have been discovered, and the decision had been made to discontinue exploration in the area; and (iv) Sufficient work has been performed to indicate that the carrying amount of the expenditure carried as an asset will not be fully recovered. |
Quaterra Resources Inc. Notes to the Consolidated Financial Statements For the year ended December 31, 2019 (In U.S. Dollars, tabular amounts in thousands of U.S. dollars except per share amount) |
An impairment loss is reversed if there is an indication that there has been a change in the estimates used to determine the recoverable amount. An impairment loss is reversed only to the extent that this does not exceed the original carrying amount that if no impairment loss had been recognized. |
68
| |||
| f) | Share-based compensation | ||
| The fair value of stock options granted to directors, officers, employees and consultants is calculated using the Black Scholes option pricing model and | |||
| g) | Cash and cash equivalents | ||
Cash and cash equivalents consist of cash on hand, bank deposits and highly liquid investments with an original maturity of 90 days or less. | |||
| h) | Financial instruments | ||
Financial instruments are recognized in the statement of financial position when the Company becomes a party to a contractual obligation. At initial recognition, the Company classifies and measures its financial instruments as one of the following: | |||
| • | |||
at amortized cost, if they are held to collect contractual cash flows which solely represent payments of principal and interest; | |||
| • | |||
at fair value, through other comprehensive income (“FVOCI”) if they are held to both collect contractual cash flows and to sell where those cash flows represent | |||
| • | |||
otherwise, they are classified at fair value through profit or loss (“FVPL”). | |||
Financial assets are classified and measured at fair value with subsequent changes in fair value recognized in either profit and loss as they arise unless restrictive criteria are met for classifying and measuring the asset at either amortized cost or FVOCI. Financial liabilities are measured at amortized costs unless they are elected to be or required to be measured at fair value through profit and loss. | |||
Financial assets are derecognized when the rights to receive cash flows from the assets have expired or have been transferred, and the Company has transferred | |||
At each reporting date, the Company uses the expected credit losses model to assess the impairment of its The Company’s accounts payable approximate fair value due to their short-term nature. The marketable securities are a Level 1 fair value measurement; the derivative warrants are a Level 2 fair value measurement. The convertible note is classified as a liability at amortized cost with the conversion feature classified as a derivative liability. The debt liability was initially recorded at fair value and is subsequently measured at amortized cost using the effective interest rate method and will be accreted to the face value over the term of the convertible debenture. | |||
Quaterra Resources Inc. Notes to the Consolidated Financial Statements For the year ended December 31, 2019 (In U.S. Dollars, tabular amounts in thousands of U.S. dollars except per share amount) |
| i) | Provisions | ||
| |||
Provisions are recognized when a present legal or constructive obligation exists as a result of past events where it is probable that an outflow of resources embodying economic benefits will be required to settle the obligation, and the amount of the obligation can be reliably estimated. | |||
The amount recognized as a provision is the best estimate of the consideration required to settle the present obligation at the reporting date, taking into account the risks and uncertainties surrounding the obligation. | |||
The Company had no material provisions | |||
69
| |||
| j) | Earnings (loss) per share | ||
| Basic earnings (loss) per share is calculated using the weighted average number of common shares outstanding during the year. The Company uses the treasury stock method to compute the dilutive effect of options, warrants and similar instruments. Under this method, the dilutive effect on earnings per share is calculated presuming the exercise of in the money outstanding options, warrants and similar instruments. It assumes that the proceeds of such exercise would be used to repurchase common shares at the average market price during the year. However, the calculation of diluted loss per share excludes the effects of various conversions and exercise of options and warrants that would be anti-dilutive. | |||
| k) | Income tax | ||
Income tax comprises current and deferred tax. Income tax is recognized in net loss, except to the extent it is related to items recognized directly in equity or | |||
Deferred tax is recognized in respect of temporary differences arising between the tax bases of assets and liabilities and their carrying amounts in the consolidated financial statements. Deferred tax is determined on a non-discounted basis using tax rates and laws that have been enacted or substantively enacted by the reporting date and are expected to apply when the deferred tax asset or liability is settled. Deferred tax assets are recognized to the extent that | |||
| |||
| |||
| |||
| |||
| |||
Page 11 of 21
The Company’s accounts and loans payable approximate fair value due to their short term nature. The marketable securities are a Level 1 fair value measurement, the derivative warrants are a Level 2 fair value measurement.
70
Quaterra Resources Inc. |
Notes to the Consolidated Financial Statements |
For the year ended December 31, |
| 2019 (In U.S. Dollars, tabular amounts in thousands of U.S. dollars except per share amount) |
| ||
| 3. | MARKETABLE SECURITIES | |
| ||
The Company | ||
|
| |
During 2019, a | |
| |
| 4. |
|
The Company owns a 100% interest in the MacArthur and Yerington properties and has an option to earn a 100% interest in the Bear, Wassuk, and | |
Total mineral property maintenance and | |
| |
| |
|
71
(In thousands of U.S. Dollars) | MacArthur |
| Yerington |
| Bear | Wassuk | Groundhog | Butte Valley | Total | ||
Balance, December 31, 2016 | $ 17,537 | $ | 9,400 | $ | - $ | 660 | $ | - | $ | - | $ 27,597 |
Add tions : |
|
|
|
|
|
|
|
|
|
|
|
Property maintenance | 151 |
| 160 |
| 895 | 252 |
| 126 |
| - | 1,584 |
Geological & mapping | 47 |
| 639 |
| - | 6 |
| 412 |
| - | 1,104 |
Geophysical & survey | 34 |
| 240 |
| 95 | 1 |
| 525 |
| - | 895 |
Assay & labs | 42 |
| 104 |
| - | 85 |
| - |
| - | 231 |
Drilling | 300 |
| 1,393 |
| 4 | - |
| 200 |
| - | 1,897 |
Other | - |
| 131 |
| 1 | - |
| 248 |
| - | 380 |
| 574 |
| 2,667 |
| 995 | 344 |
| 1,511 |
| - | 6,091 |
Option payments | (223) |
| (1,495) |
| (675) | - |
| - |
| - | (2,393) |
Balance, December 31, 2017 | 17,888 |
| 10,572 |
| 320 | 1,004 |
| 1,511 |
| - | 31,295 |
Property maintenance | 150 |
| 52 |
| 692 | 101 |
| 40 |
| - | 1,035 |
Geological & mapping | 66 |
| 45 |
| - |
|
| 10 |
| - | 121 |
Geophysical & survey | 113 |
| 13 |
| - |
|
| 12 |
| - | 138 |
Environmental |
|
| 196 |
| - |
|
| 6 |
| - | 202 |
Other | 1 |
| 13 |
| - |
|
| 41 |
| - | 55 |
Technical consultant |
|
| - |
| - |
|
| - |
| - | - |
| 330 |
| 319 |
| 692 | 101 |
| 109 |
| - | 1,551 |
Proceeds from water rights sale | - |
| (313) |
| - | - |
| - |
| - | (313) |
Balance, December 31, 2018 | 18,218 |
| 10,578 |
| 1,012 | 1,105 |
| 1,620 |
| - | 32,533 |
Property maintenance | 159 |
| 90 |
| 238 | 110 |
| 64 |
| 168 | 829 |
Geological & mapping | 17 |
| - |
| 17 | - |
| 65 |
| - | 99 |
Geophysical & survey | - |
| - |
| - | - |
| 368 |
| 18 | 386 |
Assay & labs | - |
| - |
| - | - |
| 5 |
| - | 5 |
Environmental | - |
| 189 |
| - | - |
| - |
| - | 189 |
Field support & overhead | - |
| 15 |
| - | - |
| 178 |
| - | 193 |
Technical study | 110 |
| - |
| - | - |
| 20 |
| - | 130 |
| 286 |
| 294 |
| 255 | 110 |
| 700 |
| 186 | 1,831 |
Proceeds from water rights sale | - |
| (5,685) |
| - | - |
| - |
|
| (5,685) |
Balance, December 31, 2019 | 18,504 |
| 5,187 |
| 1,267 | 1,215 |
| 2,320 |
| 186 | 28,679 |
Quaterra Resources Inc. |
Notes to the Consolidated Financial Statements |
For the year ended December 31, |
| 2019 (In U.S. Dollars, tabular amounts in thousands of U.S. dollars except per share amount) |
In April 2017, the Company entered into a lease agreement with Chuchuna Minerals Company (“Chuchuna”) to earn a 90% interest in Groundhog property located in Alaska.
Total mineral property maintenance and exploration costs are listed in the table below:
| (In thousands of U.S. Dollars) | MacArthur | Yerington | Bear | Wassuk | Groundhog | Other | Total | ||||||||||||||
| Balance, December 31, 2015 | $ | 18,332 | $ | 9,084 | $ | (226 | ) | $ | 660 | $ | - | $ | 2,450 | $ | 30,300 | ||||||
| Additions: | |||||||||||||||||||||
| Property maintenance | 150 | 63 | 1,388 | 152 | - | - | 1,753 | ||||||||||||||
| Geological & mapping | - | 376 | 732 | - | - | - | 1,108 | ||||||||||||||
| Geophysical & survey | 79 | 154 | 46 | - | - | - | 279 | ||||||||||||||
| Assay & labs | 4 | 1 | 80 | - | - | - | 85 | ||||||||||||||
| Drilling | - | - | 1,150 | - | - | - | 1,150 | ||||||||||||||
| Other | 47 | 78 | 322 | - | - | - | 447 | ||||||||||||||
| 280 | 672 | 3,718 | 152 | - | - | 4,822 | |||||||||||||||
| Impairment | - | - | - | - | - | (1,480 | ) | (1,480 | ) | ||||||||||||
| Option payments/Recovery | (1,075 | ) | (356 | ) | (3,492 | ) | (152 | ) | - | (970 | ) | (6,045 | ) | ||||||||
| Balance, December 31, 2016 | 17,537 | 9,400 | - | 660 | - | - | 27,597 | ||||||||||||||
| Additions: | |||||||||||||||||||||
| Property maintenance | 151 | 160 | 895 | 252 | 126 | - | 1,584 | ||||||||||||||
| Geological & mapping | 47 | 639 | - | 6 | 412 | - | 1,104 | ||||||||||||||
| Geophysical & survey | 34 | 240 | 95 | 1 | 525 | - | 895 | ||||||||||||||
| Assay & labs | 42 | 104 | - | 85 | - | - | 231 | ||||||||||||||
| Drilling | 300 | 1,393 | 4 | - | 200 | - | 1,897 | ||||||||||||||
| Other | - | 131 | 1 | - | 248 | - | 380 | ||||||||||||||
| 574 | 2,667 | 995 | 344 | 1,511 | - | 6,091 | |||||||||||||||
| Option payments | (223 | ) | (1,495 | ) | (675 | ) | - | - | - | (2,393 | ) | ||||||||||
| Balance, December 31, 2017 | 17,888 | 10,572 | 320 | 1,004 | 1,511 | - | 31,295 | ||||||||||||||
| Property maintenance | 150 | 52 | 692 | 101 | 40 | - | 1,035 | ||||||||||||||
| Geological & mapping | 66 | 45 | - | 10 | - | 121 | |||||||||||||||
| Geophysical & survey | 113 | 13 | - | 12 | - | 138 | |||||||||||||||
| Environmental | 196 | - | 6 | - | 202 | ||||||||||||||||
| Other | 1 | 13 | - | 41 | - | 55 | |||||||||||||||
| Technical consultant | - | - | - | - | - | ||||||||||||||||
| 330 | 319 | 692 | 101 | 109 | - | 1,551 | |||||||||||||||
| Recovery | - | (313 | ) | - | - | - | - | (313 | ) | ||||||||||||
| Balance, December 31, 2018 | $ | 18,218 | $ | 10,578 | $ | 1,012 | $ | 1,105 | $ | 1,620 | $ | - | $ | 32,533 |
Since September 2017, salaries and benefits related to technical employees have been expensed in the statement of profit and loss instead of capitalized in mineral properties when Freeport Nevada was funding SPS, resulting in a higher salary expense for both 2019 and 2018 years. | |
| a) | MacArthur, Nevada |
| The Company earned its 100% interest in the MacArthur property by |
72
| ||
| b) | Yerington, Nevada | |
The Company acquired a 100% interest in the Yerington property from the Arimetco bankruptcy proceeding in April 2011 for | ||
| ||
The property has a 2% NSR royalty capped at On September 17, 2018, the Company announced a purchase and sale agreement to sell certain primary groundwater rights associated with its Yerington property to Desert Pearl Farms LLC (“Desert Pearl”), a local company involved in agriculture in the Yerington district, Nevada, for $6,260,000. The Company closed the sale on March 3, 2019, for a final value of $6,020,000 after adjusting for a small correction to one of the original permits. Total net proceeds of $5,685,000 and $313,000 were recognized as a reduction in the carrying value of the Yerington property in 2019 and 2018, respectively. On December 19, 2019, the Company announced two separate purchase and sale agreements to sell certain primary ground water rights to Desert Pearl and Desert Hills Dairy, LLC for $1,880,000, subject to relevant governmental approval. | ||
| c) | Bear, Nevada | |
| ||
Under the terms of these option agreements, as amended, the Company is required to make approximately Aggregate payments | ||
| ||
| ||
| ||
| ||
| ||
| ||
| ||
| ||
Quaterra Resources Inc. Notes to the Consolidated Financial Statements For the year ended December 31, 2019 (In U.S. Dollars, tabular amounts in thousands of U.S. dollars except per share amount) |
| d) | Wassuk, Nevada | |
| ||
The Company has an option, as amended, to earn a 100% interest in certain unpatented mining claims in Lyon County, Nevada, over ten years and is required to make | ||
The property is subject to a 3% NSR royalty upon commencing commercial production, which can be reduced to a 2% NSR royalty in consideration for | ||
| e) | Groundhog, Alaska | |
On April 25, 2017, the Company announced it signed a five-year lease agreement, amended to six years, with Chuchuna Minerals Company (“Chuchuna”) The Company is required to fund a minimum of $500,000 each year with excessive funding in any one year carried forward to the following year. The Company has met the annual work commitments and can terminate the agreement at its discretion. | ||
| f) | Butte Valley, Nevada | |
On August 22, 2019, the Company entered into an option agreement with North Exploration, LLC, to earn a 100% interest in 600 unpatented mining claims in White Pine County, Nevada, for $600,000 over five years. North Exploration will retain a 2.5% NSR, of which 1% can be purchased for $1,000,000. A further 0.5% NSR can be purchased within the first ten years for $5,000,000. On December 3, 2019, the Company entered another option agreement with Nevada Select Royalty, Inc., to purchase a 100% interest in 78 unpatented claims associated with the Butte Valley project, for $250,000 over five years. Nevada Select Royalty will retain a 2% NSR, of which 1% can be purchased by Quaterra for $10,000,000. Aggregate payments to maintaining the two option agreements by year are as follows: • $20,000 due 2019 (paid); • $80,000 due in 2020; • $100,000 due in 2021; • $150,000 due in 2022; and • $250,000 each due in 2023 and 2024. | ||
| 5. | LOAN PAYABLE | |
On May 8, 2015, the Company entered into a $500,000 secured note (the “Loan”) with Freeport Nevada to facilitate a real property interest acquisition within the Bear deposit area. The Loan bore an annual interest rate of 5%, compound daily, and was due 180 days following the termination notice of the Option Agreement. | ||
Quaterra Resources Inc. |
Notes to the Consolidated Financial Statements |
For the year ended December 31, |
| 2019 (In U.S. Dollars, tabular amounts in thousands of U.S. dollars except per share amount) |
| |
The | |
| |
| |
| |
| |
| |
| 6. | CONVERTIBLE NOTES |
On August 28, 2018, and September 20, 2018, the Company completed | |
The | |
| |
The Company evaluated the convertible debentures and determined the conversion feature is a derivative liability based on the fact the conversion into units could result in a variable number of shares to be issued. | |
The derivative liability is fair valued at each reporting period. The debt component was measured at fair valued at the time of issue and then accounted for at amortized cost and accreted to the face value over the life of the convertible notes. As such, the net proceeds were initially allocated as $618,572 to the debt component and $342,535 to the derivative In August 2019, the USD convertible notes of $550,000 and a portion of the CAD convertible notes in the amount of CAD 50,000 were converted into units at $0.05 and CAD 0.065, comprising 11,769,230 shares and 11,769,230 warrants. Of the interest then due, $44,507 was paid by issuing 1,077,066 common shares and $13,012 interest was paid in cash. The share capital for the conversion was valued as $547,409, including interest, using the closing stock price of the Company on conversion dates, with the residual amount of $291,000 allocated to the warrants and recognized in contributed surplus. The remaining principal balance of CAD 500,000 is convertible into units at CAD 0.1 per unit, amended to expire on August 28, 2020. In the event that the Company’s water rights sale (note 4(b)) has not completed by August 28, 2020, the maturity date will be further extended to February 21, 2021. There are no other changes to the term of the convertible | |
Interest and accretion expense on the convertible notes for the year ended December 31, 2019 was $203,000 (2018 - $102,000). At inception, the fair value of the convertible note was calculated using the Black-Scholes model with the following assumptions: volatility 99%, expected term 1.5 |
Quaterra Resources Inc. |
Notes to the Consolidated Financial Statements |
For the year ended December 31, |
| 2019 (In U.S. Dollars, tabular amounts in thousands of U.S. dollars except per share amount) |
| (In thousands of U.S. Dollars) | Convertible debenture | ||
| Cash received | $ | 973 | |
| Transaction costs | (11 | ) | |
| Derivative liability | (343 | ) | |
| Fair value of convertible debt component at date of issue | 619 | ||
| Interest expense and accretion | 102 | ||
| Balance, December 31, 2018 | 721 | ||
| Settlement of convertible notes | (522 | ) | |
| Interest payments | (57 | ) | |
| Interest expense and accretion | 260 | ||
| Balance, December 31, 2019 | $ | 402 |
| 7. | DERIVATIVE LIABILITIES |
The Company has certain warrants that are either exercisable in a different currency from the Company’s functional currency, or the number of shares to be issued upon | |
| |
As of December 31, |
| Derivative | |||
| (In thousands of U.S. Dollars) | liabilities | ||
| Balance, December 31, 2017 | $ | 587 | |
| Derivative related to convertible notes | 343 | ||
| Change in fair value estimates | (358 | ) | |
| Balance, December 31, 2018 | 572 | ||
| Change in fair value estimates | (105 | ) | |
| Fair value of warrants issued on conversion | (291 | ) | |
| Balance, December 31, 2019 | $ | 176 |
| 8. | SHARE CAPITAL | |
The Company is authorized to issue an unlimited number of common shares without par value. In August 2019, the Company issued 12,846,296 common shares on conversion of certain of the convertible notes (note 6) as settlement of both principal and a portion of the interest accrued. On January 21, 2019, the Company closed a non-brokered private placement by issuing 3,000,000 common shares at CAD 0.05 per share for gross proceeds of CAD 150,000. |
Quaterra Resources Inc. Notes to the Consolidated Financial Statements For the year ended December 31, 2019 (In U.S. Dollars, tabular amounts in thousands of U.S. dollars except per share amount) |
| 9. | SHARE-BASED COMPENSATION | |
| Stock options | |
| ||
| ||
The Company has a stock option plan under which the Company is authorized to grant stock options of up to 10% of the number of common shares issued and outstanding of the Company at any given time. | ||
The following table presents changes in stock options outstanding and exercisable: | ||
75
| December 31, 2019 | December 31, 2018 | |||||||||||
| Number of | Weighted Average | Number of | Weighted Average | |||||||||
| Options | Exercise Price | Options | Exercise Price | |||||||||
| (CAD) | (CAD) | |||||||||||
| Outstanding, beginning of year | 14,860,000 | 0.09 | 16,050,000 | 0.16 | ||||||||
| Granted | 3,450,000 | 0.065 | 2,570,000 | 0.060 | ||||||||
| Expired | (3,815,000 | ) | (0.10 | ) | (3,760,000 | ) | 0.16 | |||||
| Exercised | (400,000 | ) | (0.06 | ) | - | - | ||||||
| Outstanding, end of year | 14,095,000 | 0.08 | 14,860,000 | 0.09 | ||||||||
| Exercisable, end of year | 13,695,000 | 0.08 | 14,860,000 | 0.09 | ||||||||
The following table summarizes stock options outstanding by expiry dates with an exercise price at the date of recording in Canadian dollars:
| Exercise Price | Number of Options Outstanding | |
Expiry Date | (CAD$) | December 31, 2019 | December 31, 2018 |
June 25, 2019 | 0.10 | - | 2,815,000 |
December 31, 2019 | 0.05 | - | 1,000,000 |
March 26, 2020 | 0.05 | 200,000 | 200,000 |
July 16, 2020 | 0.13 | 2,380,000 | 2,380,000 |
April 14, 2021 | 0.065 | 2,795,000 | 2,995,000 |
June 23, 2022 | 0.095 | 2,900,000 | 2,900,000 |
September 20, 2023 | 0.06 | 2,370,000 | 2,570,000 |
June 21, 2024 | 0.065 | 2,950,000 | - |
August 8, 2024 | 0.06 | 500,000 | - |
|
| 14,095,000 | 14,860,000 |
400,000 stock options exercised at CAD 0.05 per share on December 31, 2019, shares were issued on January 3, 2020 due to holiday season. The Company used the following assumptions in the Black-Scholes option pricing model: |
Quaterra Resources Inc. |
Notes to the Consolidated Financial Statements |
For the year ended December 31, |
| 2019 (In U.S. Dollars, tabular amounts in thousands of U.S. dollars except per share amount) |
| December 31, 2018 | December 31, 2017 | ||||||||||||
| Number of | Weighted Average | Number of | Weighted Average | ||||||||||
| Options | Exercise Price (CAD$) | Options | Exercise Price (CAD$) | ||||||||||
| Outstanding, beginning of year | 16,050,000 | 0.16 | 15,710,000 | 0.16 | |||||||||
| Granted | 2,570,000 | 0.06 | 2,900,000 | 0.095 | |||||||||
| Expired | (3,760,000 | ) | 0.16 | (2,500,000 | ) | (0.45 | ) | ||||||
| Forfeiture | - | - | (60,000 | ) | (0.10 | ) | |||||||
| Outstanding, end of year | 14,860,000 | 0.09 | 16,050,000 | 0.16 | |||||||||
| Exercisable, end of year | 14,860,000 | 0.09 | 15,850,000 | 0.17 | |||||||||
The following table summarizes stock options outstanding by expiry dates with exercise price at the date of recording in Canadian dollars:
| Exercise Price | Number of Options Outstanding | ||||||||
| Expiry Date | (CAD$) | December 31, 2018 | December 31, 2017 | ||||||
| September 19, 2018 | 0.16 | - | 3,760,000 | ||||||
| June 25, 2019 | 0.10 | 2,815,000 | 2,815,000 | ||||||
| December 31, 2019 | 0.05 | 1,000,000 | 1,000,000 | ||||||
| March 26, 2020 | 0.05 | 200,000 | 200,000 | ||||||
| July 16, 2020 | 0.13 | 2,380,000 | 2,380,000 | ||||||
| April 14, 2021 | 0.065 | 2,995,000 | 2,995,000 | ||||||
| June 23, 2022 | 0.095 | 2,900,000 | 2,900,000 | ||||||
| September 20, 2023 | 0.06 | 2,570,000 | - | ||||||
| 14,860,000 | 16,050,000 | ||||||||
| Year ended December 31, |
| |
| 2019 | 2018 | 2017 |
Weighted average share price | CAD 0.65 | CAD 0.05 | CAD 0.06 |
Risk-free interest rate | 1.40% | 1.32% | 0.60% |
Expected share price volatility | 103% | 103% | 85% |
Expected option life in years | 5.0 | 5.0 | 5.0 |
Forfeiture rate | 0% | 0% | 0% |
Expected dividend yield | 0% | 0% | 0% |
Subsequent to year end 2018, 400,000 stock options were exercised for proceeds of CAD $25,000.
The Company used the following assumptions in the Black-Scholes option pricing model:
| Year ended December 31, | |||||||||
| 2018 | 2017 | 2016 | |||||||
| Weighted average share price | CAD 0.05 | CAD 0.06 | CAD 0.09 | ||||||
| Risk-free interest rate | 1.32% | 0.60% | 0.60% | ||||||
| Expected share price volatility | 103% | 85% | 141% | ||||||
| Expected option life in years | 5.0 | 5.0 | 5.0 | ||||||
| Forfeiture rate | 0% | 0% | 0% | ||||||
| Expected dividend yield | 0% | 0% | 0% | ||||||
Share-based payment expenses were allocated as follows:
76
| Year ended December 31, | |||||||||
| (In thousands of U.S. Dollars) | 2019 | 2018 | 2017 | ||||||
| Consultants | $ | 38 | $ | 22 | $ | 55 | |||
| Directors and officers | 60 | 53 | 88 | ||||||
| Employees | 19 | 16 | 26 | ||||||
| $ | 117 | $ | 91 | $ | 169 | ||||
| Year ended December 31, | |||||||||
| (In thousands of U.S. Dollars) | 2018 | 2017 | 2016 | ||||||
| Consultants | $ | 22 | $ | 55 | $ | 30 | |||
| Directors and officers | 53 | 88 | 85 | ||||||
| Employees | 16 | 26 | 21 | ||||||
| $ | 91 | $ | 169 | $ | 136 | ||||
| b) | Share purchase warrants | |
The following table summarizes warrants outstanding as of December 31, | ||
| Expiry date | Exercise price | December 31, 2018 | December 31, 2017 | Exercise price | December 31, 2019 | December 31, 2018 | ||||||||||||
| January 2, 2018 | CAD 0.16 | - | 5,721,000 | |||||||||||||||
| September 13, 2018 | $ | 0.15 | - | 29,810,000 | ||||||||||||||
| October 3, 2019 | $ | 0.16 | 19,000,000 | 19,000,000 | $ | 0.16 | - | 19,000,000 | ||||||||||
| August 28, 2022 | $ | 0.05 | 11,000,000 | - | ||||||||||||||
| September 20, 2022 | CAD | 0.065 | 769,230 | - | ||||||||||||||
| 19,000,000 | 54,531,000 | 11,769,230 | 19,000,000 | |||||||||||||||
| 10. | RELATED PARTY TRANSACTIONS | |
| a) | The Company’s related parties include its directors and officers who are the key management of the Company. The remuneration of directors and officers was as follows, subject to change of control provisions for officers: | |
| Year ended December 31, | |||||||||
| (In thousands of U.S. Dollars) | 2018 | 2017 | 2016 | ||||||
| Salaries | $ | 432 | $ | 431 | $ | 367 | |||
| Directors' fees | 36 | 36 | 36 | ||||||
| Share-based compensation | 53 | 88 | 85 | ||||||
| $ | 521 | $ | 555 | $ | 488 | ||||
|
| Year ended December 31, | |||||||||
| (In thousands of U.S. Dollars) | 2019 | 2018 | 2017 | ||||||
| Salaries | $ | 410 | $ | 432 | $ | 431 | |||
| Directors' fees | 36 | 36 | 36 | ||||||
| Share-based payments | 60 | 53 | 88 | ||||||
| $ | 506 | $ | 521 | $ | 555 | ||||
| b) | Manex Resource Group (“Manex”) is a private company owned by the Company’s Corporate Secretary, Mr. Lawrence Page. Manex |
Quaterra Resources Inc. Notes to the Consolidated Financial Statements For the year ended December 31, 2019 (In U.S. Dollars, tabular amounts in thousands of U.S. dollars except per share amount) |
As of December 31, | ||
| c) | On June 13, 2018, and July 11, 2018, Mr. Thomas Patton, |
77
The Company repaid $100,000 (CAD 130,000) to Mr. Patton in August 2018 and repaid the remaining principal and accrued interest totaling CAD 292,134 in March 2019.
During 2018, the Company repaid $100,000 (CAD $130,000) to Mr. Patton. As of December 31, 2018, $210,462 or CAD $287,112 including interest remained outstanding. Subsequent to the year end, the principal and interest totaling CAD $292,134 was repaid.
| 11. | SEGMENTED INFORMATION | |
The Company has one business segment, the exploration of mineral properties. As of December 31, | ||
| 12. | COMMITMENTS | |
To acquire certain mineral property interests associated with the Bear deposit as per Note 4, the Company must make optional acquisition expenditures | ||
| 13. | DEFERRED INCOME TAXES | |
A reconciliation of income tax provision computed at Canadian statutory rates to the reported income tax provision is provided as follows: | ||
| 2018 | 2017 | 2016 | ||||||||
| Loss for the year | $ | (1,419 | ) | $ | ( 1,273 | ) | $ | ( 1,896 | ) | |
| Canadian statutory tax rate | 27% | 26% | 26% | |||||||
| Income tax benefit computed at statutory rates | (383 | ) | (331 | ) | (493 | ) | ||||
| Foreign tax rates different from statutory rates | 14 | (32 | ) | (2,885 | ) | |||||
| Other | 89 | - | 157 | |||||||
| Rate difference between current and deferred taxes | - | 4,317 | (285 | ) | ||||||
| Foreign exchange gains or losses | 225 | (425 | ) | - | ||||||
| Permanent differences | (43 | ) | (33 | ) | (155 | ) | ||||
| Change in unused tax losses and tax offsets | 98 | (3,496 | ) | 3,661 | ||||||
| $ | - | $ | - | $ | - |
The Company recognizes tax benefits on losses or other deductible amounts generated in countries where it is probable the deferred tax assets will be recovered. The Company’s unrecognized deductible temporary differences and unused tax losses for which no deferred tax asset is recognized consist of the following amounts:
| 2018 | 2017 | 2016 | ||||||||
| Non-capital losses | $ | 9,405 | $ | 9,255 | $ | 11,225 | ||||
| Capital loss | 2,273 | 2,337 | 2,102 | |||||||
| Tax value over book value of mineral properties | 3,335 | 3,352 | 5,111 | |||||||
| Tax value over book value of equipment | 12 | 12 | 13 | |||||||
| Tax value over book value of investments and share issue costs | 43 | 16 | 20 | |||||||
| Unrecognized deductible temporary differences | $ | 15,068 | $ | 14,972 | $ | 18,471 |
78
| 2019 | 2018 | 2017 | |||||||
| The loss for the year | $ | (1,711 | ) | $ | (1,419 | ) | $ | (1,273 | ) |
| Canadian statutory tax rate | 27% | 27% | 26% | ||||||
| Income tax benefit computed at statutory rates | (462 | ) | (383 | ) | (331 | ) | |||
| Foreign tax rates different from statutory rates | 31 | 14 | (32 | ) | |||||
| Other | 2 | 89 | - | ||||||
| The rate difference between current and deferred taxes | - | - | 4,317 | ||||||
| Foreign exchange gains or losses | 55 | 225 | (425 | ) | |||||
| Permanent differences | 5 | (43 | ) | (33 | ) | ||||
| Change in unused tax losses and tax offsets | 369 | 98 | (3,496 | ) | |||||
| $ | - | $ | - | $ | - |
| The Company recognizes tax benefits on losses or other deductible amounts generated in countries where it is probable the | |
| 2019 | 2018 | 2017 | |||||||
| Non-capital losses | $ | 9,796 | $ | 9,405 | $ | 9,255 | |||
| Capital loss | 2,257 | 2,273 | 2,337 | ||||||
| Tax value over book value of mineral properties | 3,331 | 3,335 | 3,352 | ||||||
| Tax value over book value of equipment | 12 | 12 | 12 | ||||||
| Tax value over book value of investments and share issue costs | 41 | 43 | 16 | ||||||
| Unrecognized deductible temporary differences | $ | 15,437 | $ | 15,068 | $ | 14,972 |
- 86 -
The Company’s unused non-capital losses expire as follows:
| Canada | United States | |||||
| 2020 - 2026 | $ | 542 | $ | 713 | ||
| 2027 - 2037 | 17,814 | 19,098 | ||||
| Total | $ | 18,356 | $ | 19,811 |
The Company’s unused capital losses of $16.8 Canada United States 2020 - 2026 $ 538 $ 713 2027 - 2037 19,546 20,302 Total $ 20,084 $ 21,015