POLYMET MINING CORP. |
MANAGEMENT DISCUSSION AND ANALYSIS |
FORM 51-102F1 |
For the period ended April 30, 2006 |
US Fund |
General
The following information, prepared as at 19 June 2006, should be read in conjunction with the unaudited interim consolidated financial statements for the period ended 30 April 2006 and related notes attached thereto, which are prepared in accordance with Canadian generally accepted accounting principles (“GAAP”). All amounts are expressed in United States dollars unless otherwise indicated.
The Audit Committee of the Board of Directors of the Company, consisting of three independent directors, has reviewed this document pursuant to its mandate and charter.
Description of Business and Summary of Recent Events
PolyMet is a TSX Venture Issuer and engaged in the exploration and development, when warranted, of natural resource properties. The Company’s primary mineral property and principal focus is the commercial development of its NorthMet Project, a polymetallic project in northeastern Minnesota, USA which hosts copper, nickel and platinum group metal mineralization. During the year ended 31 January 2006, the Company acquired large portions of the former LTV Steel Mining Company (“LTVSMC”) plant located 10 kilometers from the NorthMet deposit.
During 2005 and 2006 the Company continued to advance its NorthMet Project including environmental and permitting matters, a phase I drilling program which extracted metallurgical ore samples, a phase II drilling program to complete the planned 90,000 feet of in-fill drill required to add definition to the resource, process design, an integrated pilot plant to demonstrate the process, upgrading resource models, a new mine plan and negotiations with prospective industry partners for strategic off-take agreements.
During the financial year ended 31 January 2006, the Company commissioned and received two National Instrument 43-101 technical reports. The first reported a revised resource model based on a geological and drill-hole database, which has been updated and contains over 17,000, validated assayed intervals. The second described a revised mine plan showing an improved ore extraction schedule compared to previously published reports.
The goals for the 2006 fiscal year drill program were met and included:
a 40 ton bulk sample for metallurgical pilot plant test work representing the 10 year mining envelope was successfully processed at SGS Lakefield Laboratories in Ontario during the latter part of 2005;
compilation of geotechnical information for pit slope design and pit slope stability studies by Golder Associates;
enhancement of the comprehensive geological model through in-fill drilling, a new detailed geological and assay model which incorporates all completed work from 2005, the results of which continue to contribute to the ongoing resource evaluation and pit design work;
confirmation of continuity of metal grades;
collection of data supporting the environmental permitting; and
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POLYMET MINING CORP. |
MANAGEMENT DISCUSSION AND ANALYSIS |
FORM 51-102F1 |
For the period ended April 30, 2006 |
US Fund |
- the improvement in the confidence of the resource estimate categorization, resulting from reduced drill hole and sampling space.
On 15 November 2005 the Company, through its Minnesota subsidiary (Poly Met Mining, Inc.), completed the early exercise of PolyMet’s option with Cleveland Cliffs, Inc. (NYSE:CLF) – known as “Cliffs.” The Company now owns 100% of large portions of the former LTVSMC plant. It should be noted that the final option agreement with Cliffs involves substantially more milling and processing equipment compared to the previously announced option agreement.
The LTVSMC facility is 10 kilometers away from the NorthMet deposit. The LTVSMC facility was operated by Cliffs for many years and was acquired in 2000 by Cliffs, after LTV’s bankruptcy. The process plant was placed on care-and-maintenance with a view to a potential restart. With minor modification, the crushing and milling circuits can be used as a concentrator for NorthMet ore. The plant assets now owned by PolyMet include crushing, milling, flotation capacity, comprehensive spare parts, plant site buildings, real estate, tailings impoundments and mine work shops, as well as access to extensive mining infrastructure including roads, rail, water and power. It is planned to use surplus building space to house the new hydrometallurgical plant.
PolyMet will refurbish and reactivate the LTVSMC crushing, concentrating, flotation and tailings facilities to produce a “bulk concentrate” containing the copper, nickel and precious metals. This bulk concentrate will feed new hydrometallurgical metal recovery processing facilities. The metal recovery process eliminates the need to use smelters for metal recovery and is dramatically cleaner and more energy efficient compared to older processes.
Prior to closing the LTVSMC acquisition, the regionally-based state agency Iron Range Resources (“IRR”), made a substantial non-cash or “in-kind” contribution to the PolyMet project, whereby IRR waived an option it held on the LTVSMC tailings basin near Hoyt Lakes, MN. The agency was created to strengthen the northeastern Minnesota economy and the referenced option was acquired in 2001 as a part of a strategic move by the state of Minnesota to use the LTVSMC bankruptcy to stimulate new enterprise on the LTVSMC lands. This option pre-dated PolyMet Mining’s plan to purchase the plant assets from successor Cliffs.
Under the asset acquisition agreement PolyMet signed a note for $2.4 million payable to Cliffs in addition to the $1,000,000, which has already been paid. The remaining cash component of $2.4 million plus interest is to be paid from working capital in ten quarterly installments of $250,000, the first of which was paid on 31 March 2006, and the balance to be paid on the last day of each calendar quarter. PolyMet also issued 6,200,547 common shares of PolyMet, in addition to the 1,000,000 shares issued to Cliffs as part of the option payment. Upon receipt of certain operating permits, PolyMet will assume Cliffs ongoing site-related environmental and reclamation obligations and PolyMet has indemnified Cliffs for certain on-going liabilities at the LTCSMC facility prior to receipt of permits.
With a total of 7,200,547 shares, Cliffs is now an approximate 6.2% shareholder in PolyMet. Cliffs continues to have the right to participate on a pro-rata basis in future equity financings. PolyMet has the first right of refusal to acquire Cliff’s shares should Cliffs wish to dispose of its interest.
PolyMet’s NorthMet Project is in the closing stages of its Definitive Feasibility Study (“DFS”) and is scheduled to begin commercial operations in the third quarter of 2008. The Company has decided to expand the scope of the DFS to cover an initial mining rate of 32,000 short tons (29,500 metric tonnes) per day, which is the size that is being permitted. At this production rate, the project will provide full-time employment for at least 400 people. The NorthMet project will produce London Metal Exchange or Comex grade copper cathode on site and concentrates for
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POLYMET MINING CORP. |
MANAGEMENT DISCUSSION AND ANALYSIS |
FORM 51-102F1 |
For the period ended April 30, 2006 |
US Fund |
sale off-site comprising: nickel and cobalt-hydroxides and a platinum, palladium and gold precipitate.
The NorthMet Project commenced environmental permitting activities in February 2004 and is currently undergoing intense state and federal environmental review. The Company submitted an environmental assessment worksheet (“EAW”) to the State of Minnesota regulators in August 2005. This EAW step provides essential information to advance the state’s environmental review process and leads directly to the environmental impact statement (“EIS”) and permits to build.
The EIS process was simplified on 14 March 2005 when the Company reached a memorandum of understanding (“MOU”) with federal and state regulators to cooperate in preparing a single EIS on the NorthMet Project. Signatories to the MOU include the U.S. Army Corps of Engineers (“USACE”), U.S. Forest Service (“USFS”), Minnesota Department of Natural Resources (“MDNR”) and the Company’s U.S. based subsidiary, Poly Met Mining, Inc. The MOU provides that the lead state and federal agencies will be the MDNR and USACE, respectively, and that the USFS will be involved as a cooperating agency.
Since a large component of the company’s plan involves the reactivation of the “brown fields” LTVSMC plant and infrastructure, the permitting process has been simplified compared to a “green fields” project.
The Minnesota Pollution Control Agency will also be substantially involved in air and water permitting.
The lead agencies will jointly develop a scope of work for EIS preparation and evaluate MDNR’s selection of a third party contractor which has been hired by the state at the Company’s expense to prepare the EIS.
The Company is continuing to negotiate with several major companies for the off-take of the nickel-cobalt hydroxide.
During the three months ended 30 April 2006:
During the period, the St. Louis County Board of Commissioners confirmed its support for the Company’s plan to restore approximately 3,260-acres of drained and partially drained wetland to wetlands status. These lands are primarily on tax-forfeited land in the southwestern corner of the county. In addition, the Company's restoration plan will create a "wetlands bank" for St. Louis County to use for its own public works projects, such as road construction. The Company will be required to mitigate wetlands that will be disturbed during commercial operations at NorthMet.
The Company reported the results of its 2005 Pilot Plant Testing of flotation and hydrometallurgical extraction of metals from NorthMet ore samples. The test program was completed at SGS Lakefield Research (Canada) under the supervision of Bateman Engineering (Australia) which is responsible for completion of the Definitive Feasibility Study on behalf of PolyMet.
The 2005 pilot plant program confirmed the technical feasibility of the NorthMet flotation and hydrometallurgical treatment process. Copper, nickel, cobalt, gold, platinum and palladium were successfully floated from three ore composites and extracted via the autoclave process. The extracted precious metals were recovered into a precipitate for off-take/refinery treatment (after a further upgrading step). Copper was recovered as LME grade-A copper cathode by conventional solvent extraction and electro-winning. Nickel and cobalt were recovered as a combined "mixed nickel-cobalt hydroxide precipitate" product for off-take/refinery treatment. The pilot plant provided
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POLYMET MINING CORP. |
MANAGEMENT DISCUSSION AND ANALYSIS |
FORM 51-102F1 |
For the period ended April 30, 2006 |
US Fund |
engineering data for completion of the DFS by Bateman Engineering. The pilot plant also provided environmental data for permitting of the NorthMet metallurgical facility.
The Company also evaluated and compiled all assay results from its 2005 diamond drilling program. The data were integrated into the resource model that will contribute to the DFS. Combined with other operational factors, the Company has expanded the scope of the DFS to cover an 18% increase in the production rate to 32,000 short tons of ore per day from 27,500 short tons per day; production of separate nickel and cobalt concentrates that enjoy significantly better processing terms than the combined concentrate previously contemplated; and a more flexible layout of the metallurgical plant.
As a result of these expansions to the scope of the program, the Company now expects to receive final sign-off of the DFS before the end of the third quarter of calendar year 2006.
Results of Operations
a) | Loss for the Period: |
During the three months ended 30 April 2006, the Company incurred a loss of $5,675,232 ($0.05 loss per share) compared to a loss of $2,286,826 ($0.04 loss per share) in the first quarter of the 2006 financial year. The increase in the net loss for the period was primarily attributable to the increased level of work, the Company’s accounting policy of expensing the costs of pre-feasibility work related to the NorthMet Project of $3,452,587 (2006 - $1,907,726), and an increase in general and administrative costs including non-cash stock compensation expense of $1,952,073 (2006 - $186,876.) | |
The “Loss Before the Undernoted” in the period ended 30 April 2006 excluding non-cash stock based compensation expenses was $392,506 compared with $176,184 for the period ended 30 April 2005. The Company reported an increase/decrease in expenditures for: Administration fees and wages of $56,771 (2006 - $43,155) resulting from increased compensation paid to employees; Consulting fees of $68,563 (2006 - $20,241) as a result of increased activity at both the corporate and project level; Conferences $10,572 (2006 - $Nil) where the Company attended several conferences in the current quarter and none in 2006; Insurance costs of $7,356 (2006 - $1,500) as a result of increased assets under insurance; Interest income of $63,083 (2006 - $13,182) as a result of increased funds on deposit; Investor relations and financing costs of $9,283 (2006 - $25,106) owing to the fact that the Company did not undertake any financing activities during the quarter; Management fees of $60,149 (2006 - $26,855) as a result of increased fees paid under management contracts; Office and telephone of $20,368 (2006 - $11,585) as a result of the Company’s head office relocation and increased activity at the Company’s Minnesota office; Professional fees of $69,233 (2006 - $7,204) owing to increased legal and other advisory fees; Shareholders’ information of $44,844 (2006 - ($1,744)) as a result of increased activity informing shareholders about the Company’s activities; Transfer agent and filing fees of $24,269 (2006 - $5,132) resulting from increased trading in the Company’s stock and the exercise of warrants and stock options; and Travel and automotive of $75,755 (2006 - $32,882) a result of increased travel related to corporate development, the NorthMet project and investor relations activity. | |
b) | Cash Flows: |
Cash used in operating activities in the period ended 30 April 2006 was $4,895,540 compared to cash used in the period ended 30 April 2005 of $2,136,608. The increase in cash used is a consequence of the expenditures described above. |
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POLYMET MINING CORP. |
MANAGEMENT DISCUSSION AND ANALYSIS |
FORM 51-102F1 |
For the period ended April 30, 2006 |
US Fund |
Cash used in investing activities for the period ended 30 April 2006 of $6,324 (2006 - $Nil) for the purchase of office and computer equipment.
Cash from financing activities for the period ended 30 April 2006 was $10,357,862 compared with $3,953,835 in the period ended 30 April 2005. This comprised $10,654,694 from the exercise of options and share purchase warrants compared to $3,953,835 for the period ended 30 April 2005, which was from the proceeds of private placements, the exercise of share purchase warrants and stock options; less $46,832 (2006 - $Nil) from share subscriptions receivable during the period; and a scheduled repayment of $250,000 (2006 - $Nil) of the note to Cliffs.
Total cash for the period ended 30 April 2006 increased by $5,455,998 for a balance of $17,127,425 compared to the period ended 30 April 2005 where cash increased $1,817,227 to a balance of $2,328,098.
c) | Capital Expenditures |
During the period ended 30 April 2006 the Company purchased office and computer equipment of $6,324 (2006 - $Nil). |
Summary of Quarterly Results
Three Months Ended | Apr. 30 2006 $ | Jan. 31 2006 $ | Oct. 31 2005 $ | July 31 2005 $ | Apr. 30 2005 $ | Jan. 31 2005 $ | Oct. 31 2004 $ | July 31 2004 $ |
Total | - | - | - | - | - | - | - | - |
Loss Before the Undernoted | (2,344,579) | (1,975,508) | (2,189,615) | (502,667) | (363,060) | (702,774) | (298,088) | (1,007,443) |
Other Expenses: Pre-feasibility Costs | (3,452,587) | (4,273,367) | (3,771,607) | (1,167,445) | (1,907,726) | (671,874) | (639,728) | (271,197) |
Net Loss | (5,675,232) | (6,289,064) | (5,756,810) | (1,596,957) | (2,286,826) | (1,285,524) | (969,558) | (1,240,001 |
Loss Per Share | (0.05) | (0.09) | (0.07) | (0.02) | (0.04) | (0.02) | (0.02) | (0.03) |
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POLYMET MINING CORP. |
MANAGEMENT DISCUSSION AND ANALYSIS |
FORM 51-102F1 |
For the period ended April 30, 2006 |
US Fund |
Significant items to report for the quarterly results are as follows:
The Loss before the Undernoted included stock based compensation expense for the quarters ended:
1) | 30 April 2006 - $1,952,073 | |
2) | 31 January 2006 - $1,601,550 | |
3) | 31 October 2005 - $1,605,205 | |
4) | 31 July 2005 - $129,693 | |
5) | 30 April 2005 - $186,876 | |
6) | 31 January 2005 – $213,425 | |
7) | 31 January 2004 – $26,011 | |
8) | 31 July 2004 - $753,232 |
Financing Activities
During the period ended 30 April 2006 the Company issued:
i) | 11,589,426 shares upon the exercise of warrants for proceeds of $10,238,419; and | |
ii) | 1,070,000 shares upon the exercise of options for proceeds of $416,275 |
During the period ended 30 April 2005 the Company issued:
i) | 9,000,000 units at CDN $0.55 per unit, each unit comprising one share plus one half share purchase warrant, one full warrant entitling the holder to acquire one additional share at CDN$ 0.70 at any time prior 7 March 2007 provided that, if the closing price of the Company’s shares exceeded CDN $1.00 for 30 consecutive trading days, the warrants would terminate 30 days thereafter, for net proceeds of $3,945,978 of which $762,804 was received before January 31, 2005; |
Liquidity And Capital Resources
As at 30 April 2006 the Company had working capital of $15,700,405 compared with $9,070,555 at 31 January 2006 consisting primarily of cash of $17,127,425 (31 January 2006 - $11,671,427) and the current portion of the note to Cliffs of $1,000,000 (31 January 2006 - $Nil). The Company expects to pay the remaining balance of $1,170,515 ($Nil) long term note to Cliffs from working capital.
As at 30 April 2006 the Company, in addition to its obligation to Cliffs as described herein, has obligations to issue shares under the Company’s Bonus Share Plan. The Company has received shareholder approval for the Bonus Shares of Milestones 1 – 4 and regulatory approval for Milestones 1 and 2. Milestones 3 and 4 are subject to regulatory approval, which will be sought when the Company is closer to completing these Milestones. To date 1,590,000 shares have been issued for the achievement of Milestone 1. The bonus shares allocated for Milestones 1 thru 4 are valued using the Company’s closing trading price on 5 November 2003 of CDN$0.19 per share, the date of the approval of the bonus plan by the board of directors.
Under the terms of the warrant agreements in connection with the Company’s private placement of units comprising shares plus a half warrant undertaken in September-October 2005, the Company had the right to trigger the early expiry of warrants in the event that the Company’s
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POLYMET MINING CORP. |
MANAGEMENT DISCUSSION AND ANALYSIS |
FORM 51-102F1 |
For the period ended April 30, 2006 |
US Fund |
common stock closed at C$2.50 or better for 20 consecutive trading days. On 10 April 2006, the Company announced that all of the remaining warrants would expire on 10 May, 2006. All of the warrants were exercised prior to May 10, 2006.
As part of certain employment and management contracts the Company has agreed to severance allowances for key employees and management in the event of a take-over bid. These allowances will be based upon the Company’s implied market capitalization at the time, calculated by multiplying the number of shares outstanding on a fully diluted basis by the take-over bid price per share.
As a result of the recent private placements as described above, the Company is funded to meet its current obligations and the financial requirements for the completion of the DFS and to service and repay its debt to Cliffs.
Should the Company wish to continue to further advance the NorthMet project to commercial production PolyMet will require additional funds. As the Company has no operating revenues, the only source of liquidity consists primarily of cash flows from proceeds of equity issues and eventual project financing.
There can be no assurance that the Company will be able to continue to raise funds, in which case it may be unable to continue to advance the NorthMet project. Should PolyMet be unable to realize on its assets and discharge its liabilities in the normal course of business, the realizable value of its assets may be materially less than the amounts recorded on the balance sheets.
Shareholder Rights Plan
Effective 4 December 2003, the Company adopted a Shareholder Rights Plan (“Rights Plan”), which was approved by the Company’s shareholders’ on 27 May 2004. Under the Rights Plan, the Company has issued one right for no consideration in respect of each outstanding common share of the Company to all holders of record of common shares on 4 December 2003. All common shares issued by the Company during the term of the Rights Plan will have one right represented for each common share held by the shareholder of the Company. The term of the Rights Plan is 10 years, unless the rights are earlier redeemed or exchanged. The Rights issued under the Rights Plan become exercisable only if a party acquires 20% or more of the Company's common shares without complying with the Rights Plan or without the approval of the Board of Directors of the Company.
Each Right entitles the registered holder thereof to purchase from the Company on the occurrence of certain events, one common share of the Company at the price of CDN$50 per share, subject to adjustment (the “Exercise Price”). However, if a Flip-in Event (as defined in the Rights Plan) occurs, each Right would then entitle the registered holder to receive, upon payment of the Exercise Price, that number of common shares that have a market value at the date of that occurrence equal to twice the Exercise Price. The Rights are not exercisable until the Separation Time as defined in the Rights Plan.
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POLYMET MINING CORP. |
MANAGEMENT DISCUSSION AND ANALYSIS |
FORM 51-102F1 |
For the period ended April 30, 2006 |
US Fund |
Related Party Transactions
The Company has conducted transactions with officers, directors and persons or companies related to directors and paid or accrued amounts as follows:
30 April | 30 April | |||||
2006 | 2005 | |||||
Management fees and wages | $ | 102,370 | $ | 48,000 | ||
Consulting fees | 38,543 | 12,515 | ||||
Legal fees | 14,584 | 5,132 | ||||
$ | 155,497 | $ | 65,647 |
The amounts charged to the Company for the services provided have been determined by negotiation among the parties and, in certain cases, are covered by signed agreements. These transactions were in the normal course of operations and were measured at the exchange value, which is the amount of consideration established and agreed to by the related parties.
Subsequent Events
a) | The Company issued 3,223,277 common shares pursuant to the exercise of share purchase warrants at a prices between CDN$1.25 and CDN$2.00 per share; | |
b) | The Company issued 300,000 common shares pursuant to the exercise of stock options at a price of CDN$0.13 per share; | |
c) | On 19 June 2006, the Company granted 325,000 stock options to consultants at an exercise price of CDN$2.97 with an expiry date of 19 June 2011; and | |
d) | The Company’s shares have been approved for listing on the American Stock Exchange under the ticker symbol PLM. This approval is contingent upon the Company being in compliance with all applicable listing standards on the date it begins trading on the Exchange, and may be rescinded if the Company is not in compliance with such standards. |
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POLYMET MINING CORP. |
MANAGEMENT DISCUSSION AND ANALYSIS |
FORM 51-102F1 |
For the period ended April 30, 2006 |
US Fund |
Changes in Accounting Policies Including Initial Adoption
Variable Interest Entities
Effective 1 February 2005, the Company adopted the recommendations of Canadian Institute of Chartered Accountants (“CICA”) Handbook Accounting Guideline 15 (AcG-15), Consolidation of Variable Interest Entities, effective for annual and interim periods beginning on or after 1 November 2004. Variable interest entities (VIEs) refer to those entities that are subject to control on a basis other than ownership of voting interests. AcG-15 provides guidance for identifying VIEs and criteria for determining which entity, if any, should consolidate them. Adoption of this accounting policy has not affected the Company’s financial statements.
Impairment of Long-Lived Assets
The Company has adopted CICA Section 3063 “Impairment of Long-Lived Assets”. This statement establishes standards for the recognition, measurement and disclosure or the impairment of non-monetary long-lived assets, included property, plant and equipment, intangible assets with finite useful lives, deferred pre-operating costs and long-term prepaid assets. The adoption of this standard did not have a material impact on the Company’s financial position or results of operations.
Other MD&A Requirements
Outstanding Share Data
Authorized Capital:
Unlimited common shares without par value.
Issued and outstanding:
As at 19 June 2006, 116,355,876 common shares were issued and outstanding.
Outstanding options, warrants and convertible securities as at 19 June 2006:
Type of Security | Number | Exercise Price | Expiry Date |
Stock options | 328,700 | $0.10 | 18 July 2008 |
Stock options | 150,000 | $0.13 | 3 October 2008 |
Stock options | 250,000 | $0.40 | 1 March 2009 |
Stock options | 150,000 | $0.75 | 28 April 2009 |
Stock options | 1,175,000 | $0.66 | 5 July 2009 |
Stock options | 50,000 | $0.79 | 18 October 2009 |
Stock options | 575,000 | $0.65 | 30 March 2010 |
Stock options | 350,000 | $0.85 | 1 May 2010 |
Stock options | 40,000 | $0.94 | 15 June 2010 |
Stock options | 1,790,000 | $1.36 | 19 September 2010 |
Stock options | 280,000 | $1.20 | 24 October 2010 |
Stock options | 275,000 | $1.15 | 5 December 2010 |
Stock options | 3,200,000 | $2.76 | 20 March 2011 |
Stock options | 325,000 | $2.79 | 19 June 2011 |
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POLYMET MINING CORP. |
MANAGEMENT DISCUSSION AND ANALYSIS |
FORM 51-102F1 |
For the period ended April 30, 2006 |
US Fund |
Risks Inherent in Mining
Exploration for economic deposits of minerals is subject to a number of risk factors. While the rewards for mining companies can be substantial if an economically viable discovery is made, few of the properties explored are ultimately developed into producing mines. The Company's ability to continue exploration and development of its properties is dependent upon its ability to raise significant additional funds in the future. Should the Company not be able to obtain such financing, a portion of its interest in properties may be lost to joint venture partners, or its properties may be lost entirely.
The Company's mineral operations are subject to governmental legislation, policies and controls relating to prospecting, development, production, environmental protection, mining taxes and labor standards. In addition, the profitability of a particular mining prospect is affected by the market for base and precious metals, which entails the assessment of many factors, some of which include changing production costs, the supply and demand for metals, the rate of inflation, the inventory of metal producing corporations, the political environment and changes in international investment patterns.
Ownership of mineral interests involves certain inherent risks due to the difficulties of determining the validity of certain claims, as well as the potential for problems arising from the frequently ambiguous transfer history characteristic of many mineral interests. The Company has investigated ownership of its mineral interests and, to the best of its knowledge, ownership interests are in good standing.
The Company may become subject to liability for certain hazards against which it cannot insure, or against which it may elect not to insure, because of high premium costs or other reasons. Payment of such liabilities would reduce funds available for acquisition of mineral properties or exploration and development.
Conflicts of Interest
Certain directors, officers or promoters of the Company are directors, officers, significant shareholders or promoters of other publicly listed companies. As a result, potential conflicts of interest may arise with respect to the exercise by such persons of their respective duties for the Company. In the event that such a conflict of interest arises at a meeting of the directors of the Company, a director who has such a conflict will abstain from voting for or against the approval of such participation or such terms. In the appropriate cases, the Company will establish a special committee of independent directors to review a matter in which several directors, or management, may have a conflict. Other than as indicated, the Company has no other procedures or mechanisms to deal with conflicts of interest.
Absence of Dividends
The Company has never declared or paid cash dividends on its Common Shares and does not anticipate doing so in the foreseeable future. There can be no assurance that the Company's board of directors will ever declare cash dividends, which action is exclusively within its discretion. Investors cannot expect to receive a dividend on the Company's Common Shares in the foreseeable future, if at all.
10
POLYMET MINING CORP. |
MANAGEMENT DISCUSSION AND ANALYSIS |
FORM 51-102F1 |
For the period ended April 30, 2006 |
US Fund |
Dilution
The Company may in the future grant to some or all of its own and its subsidiaries'directors, officers, insiders and key employees options to purchase the Company's Common Shares as non-cash incentives to those employees. Such options may be granted at exercise prices equal to market prices at a time when the public market is depressed. To the extent that significant numbers of such options may be granted and exercised, the interests of the then existing shareholders of the Company may be subject to additional dilution.
Also, the Company may in the future award certain bonus shares for achieving certain critical milestone events related to the NorthMet project, to some or all of its own and its subsidiaries' directors, officers, insiders and key employees as non-cash incentives to those employees. To the extent that significant numbers of such bonus shares may be awarded, the interests of the then existing shareholders of the Company may be subject to additional dilution.
The Company is currently without a source of revenue and will most likely be required to issue additional securities to finance its operation and may also issue substantial additional securities to finance the development of any or all of its projects.
Volatility of Common Share Price and Volume
The Company's Common Shares are listed for trading on the TSX Venture Exchange. Shareholders of the Company may be unable to sell significant quantities of the Common Shares into the public trading markets without a significant reduction in the price of the shares, if at all. The market price of the Common Shares may be affected significantly by factors such as changes in the Company's operating results, the availability of financings, fluctuations in the price of metals, the interest of investors, traders and others in small exploration stage public companies and general market conditions. In recent years the securities markets have experienced a high level of price and volume volatility, and the market price of securities of many companies, particularly small capitalization exploration companies similar to the Company, have experienced wide fluctuations, which have not necessarily been related to the operating performances, underlying asset values or future prospects of such companies. There can be no assurance that future fluctuations in the price of the Company's shares will not occur.
Forward Looking Statements
This MD&A may contain forward-looking statements including, but not limited to, comments regarding the timing and content of upcoming work programs, geological interpretations, receipt of property titles, potential mineral recovery processes etc. Forward-looking statements address future events and conditions and therefore involve inherent risks and uncertainties. Actual results may differ materially from those currently anticipated in such statements.
Management’s Responsibility for Financial Statements
The information provided in this report including the financial statements, is the responsibility of management. In the preparation of these statements, estimates are sometimes necessary to make a determination of future values for certain assets or liabilities. Management believes such estimates have been based on careful judgments and have been properly reflected in the accompanying financial statements.
Management maintains a system of internal controls to provide reasonable assurances that the Company’s assets are safeguarded and to facilitate the preparation of relevant and timely information.
11
POLYMET MINING CORP. |
MANAGEMENT DISCUSSION AND ANALYSIS |
FORM 51-102F1 |
For the period ended April 30, 2006 |
US Fund |
Additional Information
Additional information related to the Company is available for view on SEDAR at www.sedar.com and at the Company’s website www.polymetmining.com.
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