Exhibit 99.1
(Formerly Prophecy Development Corp.)
Condensed Interim Consolidated Financial Statements
For the three months ended March 31, 2020 and 2019
(Expressed in Canadian Dollars)
Unaudited – Prepared by Management
1
TABLE OF CONTENTS
Condensed Interim Consolidated Statements of Financial Position | 4 | |
Condensed Interim Consolidated Statements of Operations and Comprehensive Loss | 5 | |
Condensed Interim Consolidated Statements of Changes in Equity | 6 | |
Condensed Interim Consolidated Statements of Cash Flows | 7 | |
1 | DESCRIPTION OF BUSINESS AND NATURE OF OPERATIONS | 8 |
2 | BASIS OF PRESENTATION | 9 |
3 | SEGMENTED INFORMATION | 9 |
4 | CASH AND CASH EQUIVALENTS | 10 |
5 | RIGHT-OF-USE ASSET | 10 |
6 | EQUIPMENT | 10 |
7 | MINERAL PROPERTIES | 12 |
8 | ACCOUNTS PAYABLE AND ACCRUED LIABILITIES | 16 |
9 | LEASE LIABILITY | 16 |
10 | SHARE CAPITAL | 17 |
11 | FAIR VALUE MEASUREMENTS AND FINANCIAL INSTRUMENTS | 20 |
12 | FINANCIAL RISK MANAGEMENT DISCLOSURES | 21 |
13 | RELATED PARTY DISCLOSURES | 23 |
14 | KEY MANAGEMENT PERSONNEL COMPENSATION | 24 |
15 | SUPPLEMENTAL CASH FLOW INFORMATION | 24 |
16 | CONTINGENCIES | 24 |
17 | EVENTS AFTER THE REPORTING DATE | 25 |
2
NOTICE OF NO AUDITOR REVIEW OF CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS
The accompanying unaudited condensed interim consolidated financial statements have been prepared by management of the Company and approved by the Company’s Audit Committee. The Company’s independent auditors have not performed a review of these condensed interim consolidated financial statements in accordance with the standards established for a review of interim financial statements by an entity’s auditors.
3
SILVER ELEPHANT MINING CORP.
(formerly Prophecy Development Corp.)
(Expressed in Canadian Dollars) (Unaudited)
As at | March 31, | December 31, | |
Notes | 2020 | 2019 | |
Assets | |||
Current assets | |||
Cash | 4 | $930,856 | $3,017,704 |
Receivables | 221,537 | 246,671 | |
Prepaid expenses | 131,913 | 135,767 | |
Marketable securities | - | - | |
1,284,306 | 3,400,142 | ||
Non-current assets | |||
Restricted cash equivalents | 4 | 34,500 | 34,500 |
Reclamation deposits | 21,055 | 21,055 | |
Right-of-use asset | 5 | 42,125 | 50,023 |
Equipment | 6 | 164,919 | 159,484 |
Mineral properties | 7 | 25,240,483 | 23,782,884 |
$26,787,388 | $27,448,088 | ||
Liabilities and Equity (Deficiency) | |||
Current liabilities | |||
Accounts payable and accrued liabilities | 8 | $1,855,865 | $2,420,392 |
Lease liability | 9 | 24,559 | 32,285 |
1,880,424 | 2,452,677 | ||
Non-current liabilities | |||
Lease liability | 9 | 20,533 | 20,533 |
Provision for closure and reclamation | 266,790 | 266,790 | |
2,167,747 | 2,740,000 | ||
Equity (Deficiency) | |||
Share capital | 10 | 181,774,743 | 181,129,012 |
Reserves | 10 | 24,264,282 | 24,058,336 |
Deficit | (181,419,384) | (180,479,260) | |
24,619,641 | 24,708,088 | ||
$26,787,388 | $27,448,088 |
Approved on behalf of the Board: | ||
"John Lee" | "Greg Hall" | |
John Lee, Director | Greg Hall, Director |
Contingencies (Note 16)
Events after the reporting date (Note 17)
The accompanying notes form an integral part of these unaudited condensed interim consolidated financial statements.
4
SILVER ELEPHANT MINING CORP.
(formerly Prophecy Development Corp.)
Condensed Interim Consolidated Statements of Operations and Comprehensive Loss
(Expressed in Canadian Dollars) (Unaudited)
Three Months Ended March 31, | |||
Notes | 2020 | 2019 | |
General and Administrative Expenses | |||
Advertising and promotion | $50,625 | $134,048 | |
Consulting and management fees | 13 | 387,500 | 58,552 |
Depreciation and accretion | 10,573 | 10,690 | |
Director fees | 13 | 43,200 | 22,500 |
Insurance | 24,546 | 21,966 | |
Office and administration | 10,163 | 16,527 | |
Professional fees | 90,245 | 58,330 | |
Salaries and benefits | 199,589 | 296,237 | |
Share-based payments | 10 | 203,191 | 51,085 |
Stock exchange and shareholder services | 62,845 | 45,361 | |
Travel and accommodation | 55,521 | 78,802 | |
(1,137,998) | (794,098) | ||
Other Items | |||
Costs in excess of recovered coal | (118,803) | (21,002) | |
Foreign exchange gain/(loss) | 316,677 | 19,549 | |
Impairment of mineral property | - | (113,308) | |
197,874 | (114,761) | ||
Net Loss for Period | (940,124) | (908,859) | |
Comprehensive Loss for Period | $(940,124) | $(908,859) | |
Loss Per Common Share, basic and diluted | $(0.01) | $(0.01) | |
Weighted Average Number of Common Shares Outstanding | 121,469,898 | 94,257,059 |
The accompanying notes form an integral part of these unaudited condensed interim consolidated financial statements.
5
SILVER ELEPHANT MINING CORP.
(formerly Prophecy Development Corp.)
Condensed Interim Consolidated Statements of Changes in Equity
(Expressed in Canadian Dollars, except number of shares) (Unaudited)
Number of Shares | Share Capital | Reserves | Deficit | Total Equity (Deficiency) | |
Balance, December 31, 2018 | 95,316,127 | $173,819,546 | $23,413,830 | $(197,993,114) | $(759,738) |
Share-based payments | - | $- | $112,657 | $- | $112,657 |
Loss for the period | - | - | - | (908,859) | (908,859) |
Balance, March 31, 2019 | 95,316,127 | $173,819,546 | $23,526,487 | $(198,901,973) | $(1,555,940) |
Balance, December 31, 2019 | 121,299,508 | $181,129,012 | $24,058,336 | $(180,479,260) | $24,708,088 |
Share-based payments | - | $- | $208,277 | $- | $208,277 |
Bonus shares | 1,601,000 | 640,400 | - | - | 640,400 |
Exercise of stock options | 15,000 | 5,331 | (2,331) | - | 3,000 |
Loss for the period | - | - | - | (940,124) | (940,124) |
Balance, March 31, 2020 | 122,915,508 | $181,774,743 | $24,264,282 | $(181,419,384) | $24,619,641 |
The accompanying notes form an integral part of these unaudited condensed interim consolidated financial statements.
6
SILVER ELEPHANT MINING CORP.
(formerly Prophecy Development Corp.)
Condensed Interim Consolidated Statements of Cash Flows
(Expressed in Canadian Dollars) (Unaudited)
Three Months Ended March 31, | ||
2020 | 2019 | |
Operating Activities | ||
Net loss for period | $(940,124) | $(908,859) |
Adjustments to reconcile net loss to net cash flows: | ||
Depreciation and accretion | 10,573 | 10,690 |
Share-based payments | 203,191 | 51,085 |
Unrealized foreign exchange (gain)/loss | - | (169,218) |
Impairment of mineral property | - | 113,308 |
(726,360) | (902,994) | |
Working capital adjustments | ||
Receivables | 25,134 | (3,184) |
Prepaid expenses and reclamation deposits | 3,854 | 66,087 |
Accounts payable and accrued liabilities | 213,181 | (83,412) |
242,169 | (20,509) | |
Cash Used in Operating Activities | (484,191) | (923,503) |
Investing Activities | ||
Purchase of property and equipment | (15,810) | - |
Mineral property expenditures | (1,580,701) | (719,476) |
Cash Used in Investing Activities | (1,596,511) | (719,476) |
Financing Activities | ||
Proceeds from exercise of stock options | 3,000 | - |
Lease payments | (9,146) | (8,929) |
Cash Used in Financing Activities | (6,146) | (8,929) |
Net Decrease in Cash and Cash equivalents | (2,086,848) | (1,651,908) |
Cash and cash equivalents- beginning of period | 3,017,704 | 5,304,097 |
Cash and cash equivalents - end of period | $930,856 | $3,652,189 |
Supplemental cash flow information (Note 15)
The accompanying notes form an integral part of these unaudited condensed interim consolidated financial statements.
7
SILVER ELEPHANT MINING CORP.
(formerly Prophecy Development Corp.)
Notes to the Condensed Interim Consolidated Financial Statements
For the three months ended March 31, 2020 and 2019
(Expressed in Canadian Dollars) (Unaudited)
1. DESCRIPTION OF BUSINESS AND NATURE OF OPERATIONS
Silver Elephant Mining Corp. (formerly Prophecy Development Corp.) (the “Company”) is incorporated under the laws of the province of British Columbia, Canada. The Company’s common shares (the “Shares”) are listed for trading on the Toronto Stock Exchange (the “TSX”) under the symbol “ELEF”, the OTCQX® Best Market under the symbol “SILEF”, and the Frankfurt Stock Exchange under the symbol “1P2N”.
The Company is an exploration stage company. The Company holds a mining joint venture interest in the Pulacayo Paca silver-lead-zinc property located in Bolivia. The Company also has a 100% interest in two vanadium projects in North America including the Gibellini vanadium project which is comprised of the Gibellini and Louie Hill vanadium deposits and associated claims located in the State of Nevada, USA and the Titan vanadium-titanium-iron property located in the Province of Ontario, Canada. The Company also has a 100% interest in the Ulaan Ovoo coal property located in Selenge province, Mongolia and a 100% interest in the Chandgana Tal coal property and Khavtgai Uul coal property located in Khentii province, Mongolia.
The Company maintains its registered and records office at Suite 1610 – 409 Granville Street, Vancouver, British Columbia, Canada, V6C 1T2.
These condensed interim consolidated financial statements have been prepared under the assumption that the Company is a going concern, which contemplates the realization of assets and the payment of liabilities in the ordinary course of business. The Company has a deficit of $181 million.
The business of mineral exploration involves a high degree of risk and there can be no assurance that the Company’s current operations, including exploration programs, will result in profitable mining operations. The recoverability of the carrying value of mineral properties, and property and equipment interests and the Company’s continued on going existence is dependent upon the preservation of its interest in the underlying properties, the discovery of economically recoverable reserves, the achievement of profitable operations, the ability of the Company to raise additional sources of funding, and/or, alternatively, upon the Company’s ability to dispose of some or all of its interests on an advantageous basis. Additionally, the current capital markets and general economic conditions are significant obstacles to raising the required funds. These conditions may cast significant doubt upon the Company’s ability to continue as a going concern.
In assessing whether the going concern assumption is appropriate, management takes into account all available information about the future, which is at least, but not limited to, twelve months from the end of the reporting period. Management is aware, in making its assessment, of uncertainties related to events or conditions that may cast significant doubt upon the entity’s ability to continue as a going concern that these uncertainties are material and, therefore, that it may be unable to realize its assets and discharge its liabilities in the normal course of business. Accordingly, they do not give effect to adjustments that would be necessary should the Company be unable to continue as a going concern and therefore to realize its assets and discharge its liabilities and commitments in other than the normal course of business and at amounts different from those in the accompanying financial statements. These adjustments could be material.
In March 2020 the World Health Organization declared coronavirus COVID-19 a global pandemic. This contagious disease outbreak, which has continued to spread, and any related adverse public health developments, has adversely affected workforces, economies, and financial markets globally, potentially leading to an economic downturn. It is not possible for the Company to predict the duration or magnitude of the adverse results of the outbreak and its effects on the Company’s business or results of operations at this time.
8
SILVER ELEPHANT MINING CORP.
(formerly Prophecy Development Corp.)
Notes to the Condensed Interim Consolidated Financial Statements
For the three months ended March 31, 2020 and 2019
(Expressed in Canadian Dollars) (Unaudited)
2. BASIS OF PRESENTATION
(a)
Statement of compliance
These unaudited condensed interim consolidated financial statements have been prepared in accordance with IAS 34, Interim Financial Reporting. They do not include all the information and disclosures required in the annual financial statements and should be read in conjunction with the Company’s annual financial statements as at and for the year ended December 31, 2019 (“Annual Financial Statements”). However, selected explanatory notes are included to explain events and transactions that are significant to an understanding of the changes in the Company’s financial position and performance since the last annual consolidated financial statements as at and for the year ended December 31, 2019.
These unaudited condensed interim consolidated financial statements were approved and authorized for issue by the Audit Committee on May 11, 2020.
(a)
Use of judgments and estimates
In preparing these interim financial statements, management makes judgements, estimates and assumptions that affect the application of accounting policies and the reported amounts of assets and liabilities, income and expense. Actual results may differ from these estimates. The significant judgements made by management in applying the Company’s accounting policies and the key sources of estimation uncertainty were the same as those that applied to the Annual Financial Statements.
(b)
Significant accounting policies and changes in accounting standards
These interim financial statements follow the same accounting policies and methods of application as the Annual Financial Statements. Accordingly, they should be read in conjunction with the Annual Financial Statements. Unless otherwise stated, these policies have been consistently applied to all period presented.
3.
SEGMENTED INFORMATION
The Company operates in one operating segment, being the acquisition, exploration and development of mineral properties. Geographic segmentation of Prophecy’s assets is as follows:
March 31, 2020 | |||||
Canada | USA | Mongolia | Bolivia | Total | |
Reclamation deposits | $- | $- | $21,055 | $- | $21,055 |
Equipment | 11,389 | 85,335 | 2,723 | 65,472 | 164,919 |
Mineral properties | - | 9,418,889 | - | 15,821,594 | 25,240,483 |
$11,389 | $9,504,224 | $23,778 | $15,887,067 | $25,426,457 |
December 31, 2019 | |||||
Canada | USA | Mongolia | Bolivia | Total | |
Reclamation deposits | $- | $- | $21,055 | $- | $21,055 |
Equipment | 12,005 | 89,826 | 35,721 | 21,932 | 159,484 |
Mineral properties | - | 8,600,658 | - | 15,182,226 | 23,782,884 |
$12,005 | $8,690,484 | $56,776 | $15,204,158 | $23,963,423 |
9
SILVER ELEPHANT MINING CORP.
(formerly Prophecy Development Corp.)
Notes to the Condensed Interim Consolidated Financial Statements
For the three months ended March 31, 2020 and 2019
(Expressed in Canadian Dollars) (Unaudited)
4.
CASH AND CASH EQUIVALENTS
Cash and cash equivalents of Prophecy are comprised of bank balances and a guaranteed investment certificate which can be readily converted into cash without significant restrictions, changes in value or penalties.
March 31, 2020 | December 31, 2019 | |
Cash | $930,856 | $3,017,704 |
Restricted cash equivalents | 34,500 | 34,500 |
$965,356 | $3,052,204 |
Restricted Cash Equivalents
As at March 31, 2020, a guaranteed investment certificate of $34,500 (2019 - $34,500) has been pledged as collateral for the Company’s credit card.
5.
RIGHT-OF-USE ASSET
During the first-time application of IFRS 16 to the Company’s office lease, the recognition of a right of use asset was required and the leased asset was measured at the amount of the lease liability using the Company’s current incremental borrowing rate of 10%. The following table presents the right-of-use-asset from January 1, 2019 to March 31, 2020:
Initial recognition, January 1, 2019 | $81,617 |
Additions | - |
Depreciation | (31,594) |
Balance at December 31, 2019 | $50,023 |
Depreciation | (7,898) |
Balance at March 31, 2020 | $42,125 |
6.
EQUIPMENT
The impaired value of $Nil for deferred development costs at Ulaan Ovoo property at March 31, 2020 (December 31, 2019 - $Nil) remains unchanged.
The following table summarized information regarding the Company’s equipment as at March 31, 2020 and December 31, 2019:
10
SILVER ELEPHANT MINING CORP.
(formerly Prophecy Development Corp.)
Notes to the Condensed Interim Consolidated Financial Statements
For the three months ended March 31, 2020 and 2019
(Expressed in Canadian Dollars) (Unaudited)
6.
EQUIPMENT (cont’d…)
Computer | Furniture & | Mining | |||
Equipment | Equipment | Vehicles | Equipment | Total | |
Cost | |||||
Balance, December 31, 2018 | $103,254 | $278,845 | $172,692 | $24,476 | $579,267 |
Additions/Disposals | - | - | 46,914 | - | 46,914 |
Balance, December 31, 2019 | $103,254 | $278,845 | $219,606 | $24,476 | $626,181 |
Accumulated depreciation | |||||
Balance, December 31, 2018 | $98,011 | $233,424 | $143,179 | $3,491 | $478,105 |
Disposals | - | - | (39,178) | - | (39,178) |
Depreciation for year | 792 | 12,445 | 10,641 | 3,892 | 27,770 |
Balance, December 31, 2019 | $98,803 | $245,869 | $114,642 | $7,383 | $466,697 |
Carrying amount at December 31, 2019 | $4,451 | $32,976 | $104,964 | $16,238 | $159,484 |
Cost | |||||
Balance, December 31, 2019 | $103,254 | $278,845 | $219,606 | $24,476 | $626,181 |
Additions/Disposals | - | - | 40,874 | - | 40,874 |
Balance, March 31, 2020 | $103,254 | $278,845 | $260,480 | $24,476 | $667,055 |
Accumulated depreciation | |||||
Balance, December 31, 2018 | $98,803 | $245,869 | $114,642 | $7,383 | $466,697 |
Depreciation for period | 311 | 1,799 | 32,474 | 855 | 35,439 |
Balance, March 31, 2020 | $99,114 | $247,668 | $147,116 | $8,238 | $502,136 |
Carrying amount at March 31, 2020 | $4,140 | $31,177 | $113,364 | $16,238 | $164,919 |
11
SILVER ELEPHANT MINING CORP.
(formerly Prophecy Development Corp.)
Notes to the Condensed Interim Consolidated Financial Statements
For the three months ended March 31, 2020 and 2019
(Expressed in Canadian Dollars) (Unaudited)
7.
MINERAL PROPERTIES
Gibellini | Chandgana Tal | Khavtgai Uul | Pulacayo Paca | Total | |
Balance, December 31, 2017 | $490,356 | $- | $- | $12,809,550 | $13,299,906 |
Additions: | |||||
Acquisition cost | $425,605 | $- | $- | $- | $425,605 |
Deferred exploration costs: | |||||
Licenses, tax, and permits | 387,149 | 1,271 | 261,168 | - | 649,588 |
Geological and consulting | 1,509,587 | - | - | 51,112 | 1,560,699 |
Personnel, camp and general | 831,023 | 20,590 | 3,741 | 847,538 | 1,702,892 |
2,727,759 | 21,861 | 264,909 | 898,650 | 3,913,179 | |
Impairment | - | (21,861) | (264,909) | (13,708,200) | (13,994,970) |
Balance, December 31, 2018 | $3,643,720 | $- | $- | $- | $3,643,720 |
Additions: | |||||
Acquisition cost | $- | $- | $- | $- | $- |
Deferred exploration costs: | |||||
Licenses, tax, and permits | 286,158 | - | - | - | 286,158 |
Geological and consulting | 3,200,773 | - | - | 970,955 | 4,171,728 |
Personnel, camp and general | 1,470,007 | - | - | 503,071 | 1,973,079 |
4,956,939 | - | - | 1,474,026 | 6,430,965 | |
Impairment Recovery | - | - | - | 13,708,200 | 13,708,200 |
Balance, December 31, 2019 | $8,600,659 | $- | $- | $15,182,226 | $23,782,885 |
Additions: | |||||
Acquisition cost | $- | $- | $- | $- | $- |
Deferred exploration costs: | |||||
Licenses, tax, and permits | - | - | - | - | - |
Geological and consulting | 355,529 | - | - | 564,955 | 920,484 |
Personnel, camp and general | 462,701 | - | - | 74,413 | 537,114 |
818,230 | - | - | 639,368 | 1,457,598 | |
Balance, March 31, 2020 | $9,418,889 | $- | $- | $15,821,594 | $25,240,483 |
12
SILVER ELEPHANT MINING CORP.
(formerly Prophecy Development Corp.)
Notes to the Condensed Interim Consolidated Financial Statements
For the three months ended March 31, 2020 and 2019
(Expressed in Canadian Dollars) (Unaudited)
7.
MINERAL PROPERTIES (cont’d…)
Gibellini Project, Nevada, United States
Gibellini Project
The Gibellini Project consists of a total of 354 unpatented lode mining claims that include: the Gibellini group of 40 claims, the VC Exploration group of 105 claims, and the Company group of 209 claims. All the claims are located in Eureka County, Nevada, USA.
Gibellini Group
The Gibellini group of claims was acquired on June 22, 2017, through lease from the claimant (the “Gibellini Lessor”) and includes an area of approximately 771 acres. Under the Gibellini Mineral Lease Agreement (the “Gibellini MLA”) the Company leased the Gibellini group of claims which originally constituted the Gibellini Project by among other things, agreeing to pay to the Gibellini Lessor, US$35,000 (paid), and annual advance royalty payments which will be tied, based on an agreed formula (not to exceed US$120,000 per year), to the average vanadium pentoxide price of the prior year. Upon commencement of production, The Company will maintain its acquisition through lease of the Gibellini group of claims by paying to the Gibellini Lessor, a 2.5% NSR until a total of US$3,000,000 is paid. Thereafter, the NSR will be reduced to 2% over the remaining life of the mine (and referred to thereafter, as “production royalty payments”). All advance royalty payments made, will be deducted as credits against future production royalty payments. The lease is for a term of 10 years, which can be extended for an additional 10 years at The Company’s option.
On April 23, 2018, the Company announced an amendment to the Gibellini MLA, whereby the Company has been granted the right to cause the Gibellini Lessor of the Gibellini mineral claims to transfer their title to the claims to The Company. With the amendment, the Company will have the option to, at any time during the term of the Gibellini MLA, require the Gibellini Lessor to transfer title over all of the leased, unpatented lode mining claims (excluding four claims which will be retained by the Gibellini Lessor (the “Transferred Claims”) to The Company in exchange for US$1,000,000, to be paid as an advance royalty payment (the “Transfer Payment”). A credit of US$99,027 in favour of The Company towards the Transfer Payment is already paid upon signing of the amendment, with the remaining US$900,973 portion of the Transfer Payment due and payable by The Company to the Gibellini Lessor upon completion of transfer of the Transferred Claims from the Gibellini Lessor to The Company. The advance royalty obligation and production royalty will not be affected, reduced or relieved by the transfer of title.
On June 22, 2019, the Company paid US$120,000 (2018 – US$101,943) of the annual royalty payment to the Gibellini Lessor.
VC Exploration Group
On July 13, 2017, the Company acquired (through lease under the mineral lease agreement “Louie Hill MLA”) from the holders (the “Former Louie Hill Lessors”) 10 unpatented lode claims totaling approximately 207 acres that comprised the Louie Hill group of claims located approximately 500 metres south of the Gibellini group of claims. These claims were subsequently abandoned by the holders, and on March 11, 2018 and March 12, 2018, the Company’s wholly owned US subsidiaries, Vanadium Gibellini Company LLC and VC Exploration (US) Inc., staked the area within and under 17 new claims totaling approximately 340 gross acres which now collectively comprise the expanded Louie Hill group of claims.
Under the Louie Hill MLA, the Company is required to make payments as follows: cash payment of US$10,000 (paid), annual advance royalty payments which will be tied, based on an agreed formula (not to exceed US$28,000 per year), to the average vanadium pentoxide price for the prior year. Upon commencement of production, the Company will pay to the Former Louie Hill Lessors, a 2.5% NSR of which, 1.5% of the NSR may be purchased at
13
SILVER ELEPHANT MINING CORP.
(formerly Prophecy Development Corp.)
Notes to the Condensed Interim Consolidated Financial Statements
For the three months ended March 31, 2020 and 2019
(Expressed in Canadian Dollars) (Unaudited)
7.
MINERAL PROPERTIES (cont’d...)
Gibellini Project, Nevada, United States (cont’d…)
any time by the Company for US$1,000,000, leaving the total NSR to be reduced to 1% over the remaining life of the mine (and referred to thereafter, as “production royalty payments”). All advance royalty payments made, will be deducted as credits against future production royalty payments. The lease will be for a term of 10 years, which can be extended for an additional 10 years at The Company’s option.
On October 22, 2018, the Company and Former Louie Hill Lessors entered into a royalty agreement (the “Royalty Agreement”) that terminated the Louie Hill MLA and provides for the Company to pay the following royalties to the Former Louie Hill Lessors as an advance royalty: (i) US$75,000 upon the Company achieving Commercial Production (as defined in the Royalty Agreement) at its Gibellini Project; (ii) US$50,000 upon the Company selling, conveying, transferring or assigning all or any portion of certain claims defined in the Royalty Agreement to any third party and (iii) annually upon the anniversary date of July 10, 2018 and the like day thereafter during the term of the Royalty Agreement: (a) if the average vanadium pentoxide price per pound as quoted on www.metalbulletin.com (the “Metal Bulletin”) or another reliable and reputable industry source as agreed by the parties, remains below US$7.00/lb during the preceding 12 months, US$12,500; or (b) if the average vanadium pentoxide price per pound as quoted on Metal Bulletin or another reliable and reputable industry source as agreed by the parties, remains equal to or above US$7.00/lb during the preceding 12 months, US$2,000 x average vanadium pentoxide price per pound up to a maximum annual advance royalty payment of US$28,000. Further, the Company will pay to the Former Louie Hill Lessors a production royalty of 2.5% of the net smelter returns of vanadium produced from the royalty area and sold. The Company has an option to purchase 1.5% of the 2.5% of the production royalty from the Former Louie Hill Lessors for US$1,000,000.
On June 18, 2019, the Company paid US$28,000 (2018 – US$21,491) of the annual royalty payment to the Louie Hill Lessor.
On February 15, 2018, the Company acquired 105 unpatented lode mining claims located adjacent to its Gibellini Project through the acquisition of 1104002 B.C. Ltd. and its Nevada subsidiary VC Exploration (US) Inc. (“VC Exploration”) by paying a total of $335,661 in cash and issuing 500,000 Share purchase warrants (valued at $89,944) to arm’s-length, private parties. Each warrant entitles the holder upon exercise, to acquire one Share of the Company at a price of $0.50 per Share until February 15, 2021. The acquisition of the VC Exploration has been accounted for as an asset acquisition as their activities at the time of the acquisition consisted of mineral claims only.
The Company Group
During 2017 and 2018, the Company expanded the land position at the Gibellini Project, by staking a total of 209 new claims immediately adjacent to the Gibellini Project covering 4091 acres.
Pulacayo Paca Property, Bolivia
The Pulacayo property, a silver-lead-zinc project located in southwestern Bolivia, was acquired on January 2, 2015 through the acquisition of 100% of Apogee’s interest in ASC Holdings Limited and ASC Bolivia LDC, which together, hold ASC Bolivia LDC Sucursal Bolivia (“ASC”), which in turn, holds a joint venture interest in the Pulacayo Project.
ASC controls the mining rights to the Pulacayo Project through a joint venture agreement entered into between itself and the Pulacayo Ltda. Mining Cooperative on July 30, 2002 (the “ASC Joint Venture”). The ASC Joint Venture has a term of 23 years which commenced the day the ASC Joint Venture was entered into. Pursuant to the ASC Joint Venture, ASC is committed to pay monthly rent of US$1,000 to the state-owned Mining Corporation of Bolivia, COMIBOL and US$1,500 monthly rent to the Pulacayo Ltda. Mining Cooperative until the Pulacayo Project starts commercial production.
14
SILVER ELEPHANT MINING CORP.
(formerly Prophecy Development Corp.)
Notes to the Condensed Interim Consolidated Financial Statements
For the three months ended March 31, 2020 and 2019
(Expressed in Canadian Dollars) (Unaudited)
7.
MINERAL PROPERTIES (cont’d...)
Pulacayo Paca Property, Bolivia (cont’d...)
During the year ended December 31, 2018, the Company determined there were several indicators of potential impairment of the carrying value of the Pulacayo Paca property. The indicators of potential impairment were as follows:
(i)
change in the Company’s primary focus to the Gibellini Project;
(ii)
management’s decision to suspend further exploration activities; and
(iii)
no positive decision from the Bolivian Government to grant mining production contract to develop the project.
As result, in accordance with IFRS 6, Exploration for and Evaluation of Mineral Resources and IAS 36, Impairment of Assets, at December 31, 2018, the Company assessed the recoverable amount of the Pulacayo Paca property exploration costs and determined that its value in use is $nil. As at December 31, 2018, the recoverable amount of $nil resulted in an impairment charge of $13,708,200 against the value of the deferred exploration costs, which was reflected on the consolidated statement of operations.
During the year ended December 31, 2019, the Company assessed whether there was any indication that the previously recognized impairment loss in connection with the Pulacayo Paca property may no longer exist or may have decreased. The Company noted the following indications that the impairment may no longer exist:
●
The Company signed a mining production contract granting the Company the 100% exclusive right to develop and mine at the Pulacayo Paca property;
●
The Company renewed its exploration focus to develop the Pulacayo Paca property in the current year;
●
The Company re-initiated active exploration and drilling program on the property;
●
Completed a positive final settlement of Bolivian tax dispute (note 27).
As the Company identified indications that the impairment may no longer exist, the Company completed an assessment to determine the recoverable amount of the Pulacayo Paca property.
In order to estimate the fair-value of the property the Company engaged a third-party valuation consultant and also utilized level 3 inputs on the fair value hierarchy to estimate the recoverable amount based on the property’s fair value less costs of disposal determined with reference to dollars per unit of metal in-situ.
With reference to metal in-situ, the Company applied US$0.79 per ounce of silver resource to its 36.8 million ounces of silver resources and US$0.0136 per pound of zinc or lead in resource to its 303 million pounds of zinc and lead.
The Company also considered data derived from properties similar to the Pulacayo Paca Property. The data consisted of property transactions and market valuations of companies holding comparable properties, adjusted to reflect the possible impact of factors such as location, political jurisdiction, commodity, geology, mineralization, stage of exploration, resources, infrastructure and property size.
As the recoverable amount estimated with respect to the above was $31.4 million an impairment recovery of $13,708,200 was recorded during the year ended December 31, 2019.
15
SILVER ELEPHANT MINING CORP.
(formerly Prophecy Development Corp.)
Notes to the Condensed Interim Consolidated Financial Statements
For the three months ended March 31, 2020 and 2019
(Expressed in Canadian Dollars) (Unaudited)
7.
MINERAL PROPERTIES (cont’d...)
Previously Impaired Properties
Chandgana Properties, Mongolia
In March 2006, the Company acquired a 100% interest in the Chandgana Tal property, a coal exploration property consisting of two exploration licenses located in the northeast part of the Nyalga coal basin, approximately 290 kilometers east of Ulaanbaatar, Mongolia. In March 2011, the Company obtained a mine permit from Ministry of Mineral Resources and Energy for the Chandgana Tal coal project.
In 2007, the Company acquired a 100% interest in the Chandgana Khavtgai property, a coal exploration property consisting of one license located in the northeast part of the Nyalga coal basin.
During the year ended December 31, 2017, the Company determined there were several indicators of potential impairment of the carrying value of the Chandgana Tal and Khavtgai Uul properties. As result, in accordance with IFRS 6, Exploration for and Evaluation of Mineral Resources and IAS 36, Impairment of Assets, at December 31, 2017, the Company assessed the recoverable amount of the Chandgana Properties deferred exploration costs and determined that its value in use is $nil. As at December 31, 2017, the recoverable amount of $nil resulted in an impairment charge of $14,733,067 against the value of the deferred exploration costs, which was reflected on the consolidated statement of operations. As at and for the three months ended March 31, 2020 and as for years ended December 31, 2019 and 2018, there were no changes to the impairment assessment and accordingly all costs remain impaired.
8.
ACCOUNTS PAYABLE AND ACCRUED LIABILITIES
Accounts payable and accrued liabilities of the Company consist of amounts outstanding for trade and other purchases relating to development and exploration, along with administrative activities. The usual credit period taken for trade purchases is between 30 to 90 days.
March 31, 2020 | December 31, 2019 | |
Trade accounts payable | $1,780,865 | $2,420,392 |
Accrued liabilities | 75,000 | - |
Lease liability | 24,559 | 32,285 |
$1,880,424 | $2,452,677 |
9.
LEASE LIABILITY
As at March 31, 2020, the Company recorded $45,092 of lease liability. The incremental borrowing rate for lease liability initially recognized as of January 1, 2019 was 10%. The Company does not face a significant liquidity risk with regard to its lease liability. Lease liability is monitored within the Company treasury function. The non-current lease liability matures in 2021.
16
SILVER ELEPHANT MINING CORP.
(formerly Prophecy Development Corp.)
Notes to the Condensed Interim Consolidated Financial Statements
For the three months ended March 31, 2020 and 2019
(Expressed in Canadian Dollars) (Unaudited)
9.
LEASE LIABILITY (cont’d…)
IFRS 16 adoption as at January 1, 2019 | $81,617 |
Cash flows: | |
Lease payments for year | (36,528) |
Non-cash changes: | |
Accretion expenses for year | 7,729 |
Balance at December 31, 2019 | $52,818 |
Cash flows: | |
Lease payments for perod | (9,146) |
Non-cash changes: | |
Accretion expenses for period | 1,420 |
Balance at March 31, 2020 | 45,092 |
Current lease liability | $24,559 |
Non-current lease liability | 20,533 |
Balance at March 31, 2020 | $45,092 |
10.
SHARE CAPITAL
(a)
Authorized
The authorized share capital consists of an unlimited number of common shares without par value (the “Shares”). There are no authorized preferred shares. At March 31, 2020, the Company had 122,915,508 (December 31, 2019 – 121,299,508) common shares issued and outstanding.
(b)
Equity issuances
During the three months ended March 31, 2020, the Company issued 1,601,000 Shares with a value of $640,400 as a bonus payments to certain directors, officers, employees, and consultants of the Company.
During the tree months ended March 31, 2020, the Company issued 15,000 Shares on the exercise of stock options for total proceeds of $3,000.
On September 6, 2019, the Company closed its non-brokered private placement for $2,600,000 through the issuance of 13,000,0000 Shares at a price of $0.20 per Share. The Company paid $15,209 and issued 525,000 Shares as a finder’s fee valued at $105,000. $175,000 of the private placement was for prepaid consulting fees for the Company’s executive chairman, of which $35,000 is included in prepaid expenses as at December 31, 2019 and $41,503 for services. Included in accounts receivable as at December 31, 2019 is $30,497 of subscriptions receivable.
On October 18, 2019, the Company closed its non-brokered private placement for gross proceeds of $3,900,000 through the issuance of 9,750,000 Shares at a price of $0.40 per Share. Also, the Company issued 654,500 Shares as a finder’s fee valued at $261,800.
On October 9, 2019, the Company issued 104,951 Shares with a value of $43,030, to its directors to settle director fees debts owing to them.
During the year ended December 31, 2019, the Company issued 622,500 and 651,430 Shares on the exercise of stock options and warrants respectively for total proceeds of $424,822.
17
SILVER ELEPHANT MINING CORP.
(formerly Prophecy Development Corp.)
Notes to the Condensed Interim Consolidated Financial Statements
For the three months ended March 31, 2020 and 2019
(Expressed in Canadian Dollars) (Unaudited)
10. SHARE CAPITAL (cont’d…)
(c)
Equity-based compensation plan
The following is a summary of the changes in Company’s stock options from December 31, 2018 to March 31, 2020:
Number of Options | Weighted Average Exercise Price | |
Outstanding, December 31, 2018 | 9,591,000 | $0.34 |
Granted | 3,965,000 | $0.31 |
Expired | (315,000) | $0.65 |
Cancelled | (2,247,000) | $0.32 |
Forfeited | (794,000) | $0.54 |
Exercised | (622,500) | $0.28 |
Outstanding, December 31, 2019 | 9,577,500 | $0.31 |
Granted | 100,000 | $0.41 |
Cancelled | (220,000) | $0.31 |
Exercised | (15,000) | $0.20 |
Outstanding, March 31, 2020 | 9,442,500 | $0.30 |
As of March 31, 2020, the following Company’s stock options were outstanding:
Exercise | Expiry | Options Outstanding | Exercisable | Unvested | ||
Price | Date | March 31 | December 31, | March 31 | March 31 | |
2020 | 2019 | 2020 | 2020 | |||
$0.41 | January 6, 2025 | 100,000 | - | 12,500 | 87,500 | |
$0.33 | November 15, 2024 | 100,000 | 100,000 | 25,000 | 75,000 | |
$0.00 | November 1, 2024 | 1,600,000 | 1,610,000 | 400,000 | 1,200,000 | |
$0.20 | July 29, 2024 | 1,525,000 | 1,565,000 | 571,875 | 953,125 | |
$0.00 | April 1, 2024 | 500,000 | 500,000 | 250,000 | 250,000 | |
$0.33 | October 17, 2023 | 670,000 | 705,000 | 418,750 | 251,250 | |
$0.22 | July 23, 2023 | 400,000 | 400,000 | 300,000 | 100,000 | |
$0.31 | May 1, 2023 | - | 150,000 | - | - | |
$0.28 | April 6, 2023 | 862,500 | 862,500 | 754,688 | 107,813 | |
$0.31 | February 20, 2023 | 200,000 | 200,000 | 200,000 | - | |
$0.35 | September 1, 2022 | 980,000 | 980,000 | 980,000 | - | |
$0.33 | June 12, 2022 | 805,000 | 805,000 | 805,000 | - | |
$0.49 | January 12, 2022 | 620,000 | 620,000 | 620,000 | - | |
$0.20 | June 2, 2021 | 990,000 | 990,000 | 990,000 | - | |
$0.50 | June 22, 2020 | 30,000 | 30,000 | 30,000 | - | |
$0.50 | April 7, 2020 | 60,000 | 60,000 | 60,000 | - | |
$0.65 | May 1, 2019 | - | - | - | - | |
9,442,500 | 9,577,500 | 6,417,813 | 3,024,688 |
18
SILVER ELEPHANT MINING CORP.
(formerly Prophecy Development Corp.)
Notes to the Condensed Interim Consolidated Financial Statements
For the three months ended March 31, 2020 and 2019
(Expressed in Canadian Dollars) (Unaudited)
10. SHARE CAPITAL (cont’d…)
(c)
Equity-based compensation plan (cont’d…)
Share-based payment expenses resulting from stock options are amortized over the corresponding vesting period. The three months ended March 31, 2020, included $203,191 (same period 2018 - $51,085) in share-based payment costs related to stock options expensed as general and administrative expenses and 5,087 (same period 2018 – $61,571) capitalized to mineral properties. The share-based payment expenses were calculated using the Black-Scholes option pricing model and the following weighted average assumptions: risk-free interest rate – 1.40; expected life – 4.3 years; expected volatility – 130%; expected dividends – Nil.
On July 29, 2019, the Company amended the exercise price of 794,000 stock options that had previously been granted to certain directors, officers, and employees with expiry dates on April 7, 2020, June 22, 2020, and November 14, 2023 by reducing the exercise prices (which ranged from $0.50 to $0.65) to $0.20 per share subject to TSX and shareholder approval. Also, the expiry dates of these options were amended to July 29, 2024. The vesting schedule has not been changed and it is a two-year whereby 12.5% per quarter following the date of grant. As at December 31, 2019, the re-issuing of these options had not been approved by the shareholders; consequently, these options were not valued.
As at March 31, 2020, these amended options were ratified by the Company’s shareholders at a special shareholder meeting held on March 16, 2020. Consequently, the incremental fair value of $53,111 of these options was determined using the Black-Scholes option pricing model using the weighted average assumptions as follows: risk free rate – 1.46%, expected life – 5 years, expected volatility - 134%, dividend yield – 0%, and a stock price of $0.18.
(d)
Share purchase warrants
The following is a summary of the changes in the Company’s Share purchase warrants from December 31, 2018 to March 31, 2020.
Number of Warrants | Weighted Average Exercise Price | |
Outstanding, December 31, 2018 | 27,318,027 | $0.44 |
Exercised | (651,430) | $0.38 |
Outstanding, December 31, 2019 | 26,666,597 | $0.44 |
Outstanding, March 31, 2020 | 26,666,597 | $0.44 |
At March 31, 2020, there were 26,666,597 (December 31, 2019 – 26,666,597) warrants outstanding with a weighted-average exercise price of $0.44 (December 31, 2009 - $0.44), as follows:
19
SILVER ELEPHANT MINING CORP.
(formerly Prophecy Development Corp.)
Notes to the Condensed Interim Consolidated Financial Statements
For the three months ended March 31, 2020 and 2019
(Expressed in Canadian Dollars) (Unaudited)
10. SHARE CAPITAL (cont’d…)
(c)
Equity-based compensation plan (cont’d…)
Number of warrants | |||
Exercise Price | Expiry Date | at March 31, 2020 | at December 31, 2019 |
$0.50 | June 13, 2022 | 596,590 | 596,590 |
$0.50 | April 12, 2022 | 1,032,500 | 1,032,500 |
$0.40 | January 13, 2022 | 499,990 | 499,990 |
$0.44 | August 29, 2021 | 1,013,670 | 1,013,670 |
$0.40 | August 13, 2021 | 198,237 | 198,237 |
$0.40 | July 6, 2021 | 3,863,180 | 3,863,180 |
$0.40 | June 2, 2021 | 7,500,000 | 7,500,000 |
$0.50 | February 15, 2021 | 500,000 | 500,000 |
$0.40 | January 25, 2021 | 650,000 | 650,000 |
$0.40 | December 18, 2020 | 211,250 | 211,250 |
$0.70 | November 13, 2020 | 625,000 | 625,000 |
$0.40 | October 16, 2020 | 2,533,020 | 2,533,020 |
$0.70 | September 30, 2020 | 1,112,000 | 1,112,000 |
$0.40 | September 20, 2020 | 3,983,490 | 3,983,490 |
$0.60 | June 24, 2020 | 1,147,670 | 1,147,670 |
$0.50 | May 22, 2020 | 1,200,000 | 1,200,000 |
26,666,597 | 26,666,597 |
11.
FAIR VALUE MEASUREMENTS AND FINANCIAL INSTRUMENTS
Fair Value Measurements
Fair value hierarchy
Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The fair value hierarchy establishes three levels to classify the inputs to valuation techniques used to measure fair value. Level 1 inputs are quoted prices (unadjusted) in active markets for identical assets or liabilities. Level 2 inputs are quoted prices in markets that are not active, quoted prices for similar assets or liabilities in active markets, inputs other than quoted prices that are observable for the asset or liability (for example, interest rate and yield curves observable at commonly quoted intervals, forward pricing curves used to value currency and commodity contracts and volatility measurements used to value option contracts), or inputs that are derived principally from or corroborated by observable market data or other means. Level 3 inputs are unobservable (supported by little or no market activity). The fair value hierarchy gives the highest priority to Level 1 inputs and the lowest priority to Level 3 inputs. The Company utilizes a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value as follows:
Level 1 – quoted prices (unadjusted) in active markets for identical assets or liabilities;
Level 2 – inputs are quoted prices in markets that are not active, quoted prices for similar assets or liabilities in active markets, inputs other than quoted prices that are observable for the asset or liability (for example, interest rate and yield curves observable at commonly quoted intervals, forward pricing curves used to value currency and commodity contracts and volatility measurements used to value option contracts), or inputs that are derived principally from or corroborated by observable market data or other means; and
20
SILVER ELEPHANT MINING CORP.
(formerly Prophecy Development Corp.)
Notes to the Condensed Interim Consolidated Financial Statements
For the three months ended March 31, 2020 and 2019
(Expressed in Canadian Dollars) (Unaudited)
11.
FAIR VALUE MEASUREMENTS AND FINANCIAL INSTRUMENTS (cont’d…)
Fair Value Measurements (cont’d…)
Fair value hierarchy (cont’d…)
Level 3 – inputs for the asset or liability that are not based on observable market data (unobservable inputs).
The fair value hierarchy gives the highest priority to Level 1 inputs and the lowest priority to Level 3 inputs. The following table sets forth Prophecy’s financial assets measured at fair value by level within the fair value hierarchy.
Level 1 | Level 2 | Level 3 | Total | |
Financial assets | ||||
Cash, March 31, 2020 | $930,856 | $- | $- | $930,856 |
Cash, December 31, 2019 | $3,017,704 | $- | $- | $3,017,704 |
Categories of financial instruments
The fair values of financial assets and financial liabilities approximate their carrying amounts in the condensed interim consolidated balance sheet. The Company does not offset financial assets with financial liabilities. There were no changes to the method of fair value measurement during the period. The Company’s financial assets and financial liabilities are categorized as follows:
Categories of financial instruments
March 31, 2020 | December 31, 2019 | |
Fair value through profit or loss | ||
Cash | $930,856 | $3,017,704 |
Fair value through other comprehensive income | ||
Marketable securities | $- | $- |
Amortized cost | ||
Receivables | $221,537 | $246,671 |
Restricted cash equivalents | $34,500 | $34,500 |
$1,186,893 | $3,298,875 | |
Amortized cost | ||
Accounts payable and accrued liabilities | $1,855,865 | $2,420,392 |
Lease liability | $24,559 | $32,285 |
$1,880,424 | $2,420,392 |
12.
FINANCIAL RISK MANAGEMENT DISCLOSURES
(a)
Liquidity risk
Liquidity risk is the risk that an entity will be unable to meet its financial obligations as they fall due. The Company manages liquidity risk by preparing cash flow forecasts of upcoming cash requirements. As at March 31, 2020, the Company had a cash balance of $930,856 (December 31, 2019 – $3,017,704). As at March 31, 2020, the Company had accounts payable and accrued liabilities of $1,855,865 (December 31, 2019 - $2,420,392), which have contractual maturities of 90 days or less.
21
SILVER ELEPHANT MINING CORP.
(formerly Prophecy Development Corp.)
Notes to the Condensed Interim Consolidated Financial Statements
For the three months ended March 31, 2020 and 2019
(Expressed in Canadian Dollars) (Unaudited)
12.
FINANCIAL RISK MANAGEMENT DISCLOSURES (cont’d…)
(b)
Credit risk (cont’d…)
Credit risk is the risk that one party to a financial instrument will fail to discharge an obligation and cause the other party to incur a financial loss. The Company is exposed to credit risk primarily associated to cash and restricted cash equivalents and receivables, net of allowances. Management believes that the credit risk concentration with respect to these financial instruments is remote as the balances primarily consist of amounts on deposit with a major financial institution and amounts receivable from the Government of Canada. The carrying amount of assets included on the statements of financial position represents the maximum credit exposure.
(c)
Market risk
The significant market risks to which the Company is exposed are interest rate risk, foreign currency risk, and commodity and equity price risk. The objective of market risk management is to manage and control market risk exposures within acceptable limits, while maximizing returns.
(i)
Interest rate risk
Interest rate risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate due to changes in market interest rates. The Company’s cash and restricted cash equivalents primarily include highly liquid investments that earn interest at market rates that are fixed to maturity. Due to the short‐ term nature of these financial instruments, fluctuations in market rates do not have significant impact on the fair values of the financial instruments as of March 31, 2020.
(ii)
Foreign currency risk
The Company is exposed to foreign currency risk to the extent that monetary assets and liabilities held by the Company are not denominated in Canadian dollars.
The Company has exploration and development projects in the United States, Mongolia and Bolivia and undertakes transactions in various foreign currencies. The Company is therefore exposed to foreign currency risk arising from transactions denominated in a foreign currency and the translation of financial instruments denominated in US dollars, Mongolian tugrik, and Bolivian boliviano into its functional and reporting currency, the Canadian dollar.
Based on the above, net exposures as at March 31, 2020, with other variables unchanged, a 10% (December 31, 2018 – 10%) strengthening (weakening) of the Canadian dollar against the Mongolian tugrik would impact net loss with other variables unchanged by $28,000. A 10% strengthening (weakening) of the Canadian dollar against the Bolivian boliviano would impact net loss with other variables unchanged by $42,000. A 10% strengthening (weakening) of the US dollar against the Canadian dollar would impact net loss with other variables unchanged by $32,000. The Company currently does not use any foreign exchange contracts to hedge this currency risk.
(iii)
Commodity and equity price risk
Commodity price risk is defined as the potential adverse impact on earnings and economic value due to commodity price movements and volatilities. Commodity prices fluctuate on a daily basis and are affected by numerous factors beyond the Company’s control. The supply and demand for these commodities, the level of interest rates, the rate of inflation, investment decisions by large holders of commodities including governmental reserves and stability of exchange rates can all cause significant fluctuations in prices. Such external economic factors are in turn influenced by changes in international investment patterns and monetary systems and political developments.
22
SILVER ELEPHANT MINING CORP.
(formerly Prophecy Development Corp.)
Notes to the Condensed Interim Consolidated Financial Statements
For the three months ended March 31, 2020 and 2019
(Expressed in Canadian Dollars) (Unaudited)
12.
FINANCIAL RISK MANAGEMENT DISCLOSURES (cont’d…)
(c)
Market risk (cont’d…)
(iii)
Commodity and equity price risk (cont’d…)
The Company is also exposed to price risk with regards to equity prices. Equity price risk is defined as the potential adverse impact on the Company’s earnings due to movements in individual equity prices or general movements in the level of the stock market.
The Company closely monitors commodity prices, individual equity movements and the stock market to determine the appropriate course of action to be taken by the Company. Fluctuations in value may be significant.
13.
RELATED PARTY DISCLOSURES
The Company had related party transactions with the following companies, related by way of directors and key management personnel:
●
Linx Partners Ltd., a private company controlled by John Lee, Director, CEO and Executive Chairman of Prophecy, provides management and consulting services to the Company.
●
MaKevCo Consulting Inc., a private company 50% owned by Greg Hall, Director of the Company, provides consulting services to the Company.
●
Sophir Asia Ltd., a private company controlled by Masa Igata, Director of the Company, provides consulting services to the Company.
A summary of amounts paid or accrued to related parties is as follows:
Three Months Ended March 31, | ||
Related parties | 2020 | 2019 |
Directors and officers | $641,035 | $467,463 |
Linx Partners Ltd. | 105,000 | 84,000 |
MaKevCo Consulting Inc. | 11,500 | 5,700 |
Sophir Asia Ltd. | 10,900 | 5,400 |
$768,435 | $562,563 |
A summary of the transactions by nature among the related parties is as follows:
Three Months Ended March 31, | ||
Related parties | 2020 | 2019 |
Consulting and management fees | $52,500 | $106,950 |
Directors' fees | 43,200 | 22,500 |
Mineral properties | 493,585 | 175,910 |
Salaries | 179,149 | 257,203 |
$768,435 | $562,563 |
As at March 31, 2019, amounts due to related parties totaled $37,813 (December 31, 2019 – $30,533).
23
SILVER ELEPHANT MINING CORP.
(formerly Prophecy Development Corp.)
Notes to the Condensed Interim Consolidated Financial Statements
For the three months ended March 31, 2020 and 2019
(Expressed in Canadian Dollars) (Unaudited)
14.
KEY MANAGEMENT PERSONNEL COMPENSATION
Key management personnel are those persons having authority and responsibility for planning, directing and controlling the activities of the Company, including directors of the Company.
Three Months Ended March 31, | ||
Key Management Personnel | 2020 | 2018 |
Salaries and short term benefits | $206,313 | $289,919 |
Directors' fees | 43,200 | 22,500 |
Share-based payments | 138,410 | 121,096 |
$387,924 | $433,515 |
15.
SUPPLEMENTAL CASH FLOW INFORMATION
Three months ended March 31 | ||
2020 | 2019 | |
Supplementary information | ||
Non-Cash Financing and Investing Activities | ||
Bonus shares | $640,400 | $- |
Depreciation included in mineral property | $18,617 | $9,621 |
Equipment expenditures included in accounts payable | $481,711 | $489,890 |
Mineral property expenditures included in accounts payable | $1,105,991 | $1,505,207 |
Share-based payments capitalized in mineral properties | $5,088 | $61,572 |
16.
CONTINGENCIES
ASC tax claim
On January 2, 2015, the Company acquired ASC Holdings Limited and ASC Bolivia LDC (which together, hold ASC Bolivia LDC Sucursal Bolivia, which in turn, held Apogee Silver Ltd.’s (“Apogee”) joint venture interest in the Pulacayo Project) and Apogee Minerals Bolivia S.A. Pursuant to the terms of the Agreement, the Company agreed to assume all liabilities of these former Apogee subsidiaries, including legal and tax liabilities associated with the Pulacayo Project. During Apogee’s financial year ended June 30, 2014, it received notice from the Servicio de Impuestos Nacionales, the national tax authority in Bolivia, that ASC Bolivia LDC Sucursal Bolivia, now the Company’s wholly-owned subsidiary, owed approximately Bs42,000,000 in taxes, interest and penalties relating to a historical tax liability in an amount originally assessed at approximately $760,000 in 2004, prior to Apogee acquiring the subsidiary in 2011.
Apogee disputed the assessment and disclosed to the Company that it believed the notice was improperly issued. The Company continued to dispute the assessment and hired local legal counsel to pursue an appeal of the tax authority’s assessment on both substantive and procedural grounds. The Company received a positive Resolution issued by the Bolivian Constitutional Court that among other things, declared null and void the previous
Resolution of the Bolivian Supreme Court issued in 2011 (that imposed the tax liability on ASC Bolivia LDC Sucursal Bolivia) and sent the matter back to the Supreme court to consider and issue a new resolution.
24
SILVER ELEPHANT MINING CORP.
(formerly Prophecy Development Corp.)
Notes to the Condensed Interim Consolidated Financial Statements
For the three months ended March 31, 2020 and 2019
(Expressed in Canadian Dollars) (Unaudited)
16.
CONTINGENCIES (cont’d...)
ASC tax claim (cont’d...)
On November 18, 2019 the Company received Resolution No. 195/2018 issued by the Supreme Court of Bolivia which declared the tax claim brought by Bolivia’s General Revenue Authority against the Company’s Bolivian subsidiary as not proven.
The Resolution is final and binding. Hence neither the Company nor the Company’s Bolivian subsidiaries owe any outstanding back taxes to the Bolivian General Revenue Authority.
During the year ended December 31, 2019, the Company and legal counsel reassessed the status of tax rulings and determined that the probability of a re-issuance of a tax claim against the Company in connection with the above was remote. As a result, the Company has written off the tax liability and recorded a debt settlement gain in the amount of $7,952,700 on its consolidated statements of operations and comprehensive loss.
Red Hill tax claim
During the year ended December 31, 2014, the Company’s wholly-owned subsidiary, Red Hill Mongolia LLC (“Red Hill”) was issued a letter from the Sukhbaatar District Tax Division notifying it of the results of the Sukhbaatar District Tax Division’s VAT inspection of Red Hill’s 2009-2013 tax imposition and payments that resulted in validating VAT credits of only MNT235,718,533 from Red Hill’s claimed VAT credit of MNT2,654,175,507. Red Hill disagreed with the Sukhbaatar District Tax Division’s findings as the tax assessment appeared to the Company to be unfounded. The Company disputed the Sukhbaatar District Tax Division’s assessment and submitted a complaint to the Capital City Tax Tribunal. On March 24, 2015, the Capital City Tax Tribunal resolved to refer the matter back to the Sukhbaatar District Tax Division for revision and separation of the action between confirmation of Red Hill’s VAT credit, and the imposition of the penalty/deduction for the tax assessment. Due to the uncertainty of realizing the VAT balance, the Company has recorded an impairment charge for the full VAT balance in the year ended December 31, 2015.
In June 2019, the Company received a positive resolution issued from the City tax tribunal regarding the Company’s VAT dispute with the Mongolia tax office. The resolution, which is binding and final, affirmed Red Hill’s outstanding VAT credit of 1.169 billion MNT resulted from past mining equipment purchases.
The VAT credit can be used to offset Red Hill’s taxes and royalty payments; or be refunded in cash by Mongolia’s Ministry of Finance within 12 to 24 months processing time. Due to the credit risk associated with the VAT credit, the Company has provided a full valuation provision against the balance.
17.
EVENTS AFTER THE REPORTING DATE
The following events occurred subsequent to March 31, 2020:
On May 1, 2020, the Company closed the first tranche of the non-brokered private placement (the “Placement”) announced on April 15, 2020. The first tranche raised gross proceeds of $1,330,940 through the issuance of 10,238,000 units (the “Units”) of the Company of $0.13 per Unit. Each Unit is comprised of one Share and one Share purchase warrant (the “Warrants”). Each Warrant entitles the holder to purchase an additional Share of the Company at an exercise price of $0.16 for a period of three years from the closing of the first tranche of the Placement. The Company paid $3,250 in cash and issued 156,900 Units as finder’s fee. The Placement proceeds are expected to be used for the Company’s mineral project development and for general working capital purposes.
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