PARAMOUNT GOLD NEVADA: Discussion and analysis by management of the financial position and operating results. (form 10-K)
We are a company engaged in the business of acquiring, exploring and developing precious metal projects in
the United States of America. Paramountowns advanced stage exploration projects in the states of Nevadaand Oregon. We enhance the value of our projects by implementing exploration and engineering programs that are likely to expand and upgrade known mineralized material to reserves. The following discussion updates our outlook and plan of operations for the foreseeable future. It also analyzes our financial condition and summarizes the results of our operations for the years ended June 30, 2021and 2020 and compares each year's results to the results of the prior year.
Highlights of the operation:
April 2021, Paramountpurchased 152 unpatented lode mining claims ("South Sleeper Claims") located two miles south of the Company's Sleeper Gold Project. Paramountpaid a total consideration of $365,441in a combination of cash and common stock of the Company. The mining claims are subject to a mineral production royalty based on net smelter returns of 1%. The South Sleeper Claims are without known mineral reserves. Also, during the three-month period ended March 31, 2021, Paramountcontinued to progress its permitting activities at its Grassy Mountain Project. In addition to conducting several meetings with the State of Oregonto address comments Paramountreceived on its initial Consolidated Mining Application, the Company received acceptance of its wildlife baseline data report for its proposed gold mine in Malheur County. To date, 20 of 22 baseline data reports have been accepted by the state regulators. The final two reports, ground water and geochemistry, are expected to be filed in advance of submitting the revised Consolidated Permit Application. In September 2020, we announced the results of a Canadian NI 43-101 Feasibility Study ("FS") for our Grassy Mountain Projectin Oregon. The FS was completed by a group of industry leading consulting firms led by Ausenco Engineering Canada Inc.("Ausenco") who managed the overall study and were responsible for processing and infrastructure design and oversaw metallurgical testing; Mine Development Associates("MDA") who updated the mineral resource estimate and completed the mine planning and reserves estimation; Golder Associatesdesigned the tailings storage facility; and EM Strategies oversaw the environmental aspects of the FS. This mining scenario in the FS results in an average annual production of 47,000 ounces of gold and 55,000 ounces of silver for eight years. The metal prices used for the economic analysis includes $1,472per ounce of gold sold and $16.64per ounce of silver sold. The life of mine average cash operating costs are estimated to be $583per gold ounce including silver revenues as by product credit and the total initial capital requirements are estimated to be $97.5 millionresulting in a net present value of $105 millionusing a 25
5% discount rate. There can be no assurance that the above scenario can be achieved or, if achieved, that it will generate the anticipated economic return. In October 2020, we filed the completed FE on SEDAR, as required by Canadian securities laws.
July 2020, the Company announced that the Oregon Water Resource Department("OWRD") had reviewed and approved the plans and specifications for the tailings dam proposed for the Grassy Mountain mine and stated that from a safety perspective the plans are construction ready. The OWRD reviewed the data within the Consolidated Permit Application which Paramountsubmitted in November 2019and which included all tailings design drawings, safety analysis, field data collected and laboratory testing. The OWRD and its engineering team are required to review and evaluate the data and design, classify the hazard level (high, significant, or low hazard rating) and evaluate readiness for construction from a dam safety perspective. Considering the project's remote geographic location, low population density, arid nature with no rivers or permanent streams in close proximity, seismic analysis and all other data compiled, OWRD has rated the dam as low hazard, its lowest risk level. The approval for construction is valid for 5 years with extensions possible on request. .
Outlook and plan of operation:
We believe that investors will gain a better understanding of our company if they understand how we measure and talk about our results. As an exploration and development company, we recognize the importance of managing our liquidity and capital resources. We pay close attention to non-discretionary cash expenses and look for ways to minimize them when possible. We ensure we have sufficient cash on hand to meet our annual land holding costs as the maintenance of mining claims and leases are essential to preserve the value of our mineral property assets.
For the next fiscal year, we intend to take the following actions:
Grassy Mountain Project: Paramountexpects to respond to the State of Oregon'sCPA completeness review ("Review") received in February 2019. The Review provided included proposed resolutions and additional information required by the Company and will assist the Company in submitting a revised CPA. The Company expects the revised CPA to address all the comments and requests for additional information with the objective of submitting a complete revised CPA that allows the State of Oregonto determine whether to issue a state mining permit for the Grassy Mountain Project. In addition to the State of Oregonpermitting activities, Paramountexpects to respond to BLM comments it received on its PoO. Once all the comments have been addressed, the BLM will register a Notice in the Federal Registeronce the application is deemed complete. The Notice initiates the EIS process under the National Environmental Policy Act. To complete these activities Paramountwill engage specialized mining consulting firms, work with State and Federal contracted third parties and work directly with both state and federal permitting agencies.
During our fiscal year-ended
June 30, 2021, Paramountinitiated several targeted programs including metallurgical testing to enhance the value of the Sleeper Gold Project. As a result of a review of all geological, geochemical and geophysical data, the Company has identified several targets for exploration drilling. The purpose of an exploration drill at the Sleeper Gold Projectis to locate additional higher-grade mineralization in the close proximity of the original Sleeper pit or in the large mining claim package owned by the Company and to facilitate further metallurgical testing. This commencement of this exploration program is subject to having sufficient capital on hand.
The Company will implement an initial reverse circulation drilling program to test historical drill results and additional selective targets.
Comparison of operating results for the year ended
Results of Operations We did not earn any revenue from mining operations for the years ended
June 30, 2021and 2020. During the year ended June 30, 2021, we completed various activities and milestones as described above in operating highlights. Other normal course of business activities included filing annual mining claim fees with the BLM, reclamation work at the Sleeper mine site and on-going reviews of its mining claims were completed. 26
Our net loss for the year ended
June 30, 2021was $5,903,618compared to a net loss of $6,430,141in the previous year. The decrease of approximately 8% is fully described below. We will continue to incur losses for the foreseeable future as we continue with our planned exploration and development programs.
Land exploration, reclamation and holding costs
For the year ended
June 30, 2021, exploration expenses were $2,816,685compared to $4,201,138in the prior year. This represents a decrease of 33% or $1,384,453mainly due to the Company not incurring comparable costs as in the previous fiscal year to complete its feasibility study at the Grassy Mountain Projectand incurring a higher level of permitting costs to prepare and submit its CPA with the State of Oregon. The feasibility study for the Grassy Mountain Projectwas commenced in July 2019and completed in October 2020. For the year-ended June 30, 2021, the Company was focused on working with the State of Oregonto address information requests required to advance the permitting process and submit a revised consolidated permit application. Total exploration expenses at Grassy Mountain during the year were $1,949,753. Included, for the year-ended June 30, 2021, were expenses of $324,516(2020 - $723,279) related to the Company's reclamation activities at the Sleeper Project. Reclamation work continues to focus on reclaiming the past mine operation collection ponds and continued monitoring as required by the State of Nevadaand the BLM. These reclamation expenses are reimbursed from funds held in a commutation account as part of the Company's insurance program for outstanding reclamation and environmental obligations at the Sleeper Gold Project. For the year ended June 30, 2020, the Company submitted the consolidated mining permit application with the State of Oregonand submitted a revised POO for its Grassy Mountain Project. It also continued to work on its feasibility study for the Grassy Mountain project.
For the year ended
Salaries and Benefits For the year ended
June 30, 2021, salary and benefits increased by 39% or by $383,849from the prior year to $1,373,451. Salary and benefits are comprised of cash and stock-based compensation of the Company's executive and corporate administration teams. The increase in expenses was primarily due to stock-based compensation incurred for new option grants, as well as bonuses awarded to the Company's employees. Included in the salary and benefits expense amount for the year ended June 30, 2021and 2020 was non-cash stock based compensation of $332,786and $132,286respectively.
Remuneration of directors
For the year ended
compared to the previous year ended
Professional and general and administrative fees
For the year ended
June 30, 2021, professional fees were $174,039compared to $166,894in the prior year. This represents a increase of 4% or $7,145. Professional fees included legal, advisory and consultant expenses incurred on corporate and operational activities being performed by the Company on a period-by-period basis. For the year ended June 30, 2021, general and administration expenses decreased by 2% to $483,608from $495,628in the prior year. In general, these expenses remained stable from the prior year comparable period and any decrease was due to reduced travel related expenses due to restrictions resulting from the COVID-19 global pandemic.
Liquidity and capital resources
As an exploration and development company,
Paramountfunds its operations, reclamation activities and discretionary exploration programs with its cash on hand. At June 30, 2021, we had cash and cash equivalents of $3,113,064compared to $5,434,081as at June 27
-------------------------------------------------------------------------------- 30, 2020. In
May 2020, the Company established an "at the market" equity offering program ("ATM") with Cantor Fitzgerald & Co.and Canaccord Genuity LLCto proactively increase financial flexibility. During the fiscal year ended June 30, 2021the Company issued 3.209,133 shares for net proceeds of $3,722,554under the program and subsequent to the year -ended June 30, 2021issued 2,189,936 shares for gross proceeds of $1,875,521. At June 30, 2021, the Company's prepaid expenses were $1,152,396compared to $442,596for the year-ended June 30, 2020. Included in the total for the year-ended June 30, 2021were annual payments to hold the Company's mining claims in the for all its mineral properties of $548,127. The prepaid expenses also included amounts to secure a drill rig for the Paramount'supcoming drill program at the Frost project. Drill rigs and related services have been in high-demand from an industry perspective as the US economy re-opens from the restrictions placed due to the COVID-19 pandemic.
The main uses of cash consisted of the following significant amounts:
• Cash used to finance our operations, including general and administrative costs
expenses, land holding fees, exploration programs at our Grassy Mountain
In addition to cash used in operating activities, the Company used and received cash as follows:
• Money used to buy mining claims in the
• Cash received from equity financing of
We forecast our cash expenditure over twelve months for our year ending
For discretionary exploration and permit programs, subject to available liquidity and additional share issuances, we budget the following amounts:
$0.7 millionon the Frost Projectexploration programs • $1.25 millionon the Sleeper Gold Projectexploration programs Our anticipated expenditures will be funded by our cash on hand and other capital resources. Historically, we and other similar exploration and development public companies have accessed capital through equity financing arrangements or by the sale of royalties on its mineral properties. If, however we are unable to obtain additional capital or financing, our exploration and development activities will be significantly adversely affected.
The following table summarizes our obligations and commitments as of
June 30, 2021to make future payments under certain contracts, aggregated by category of contractual obligation, for specified time periods: Payments due by period Contractual Obligations Total Less than 1 year 1-3 years 4-5 years More than 5 years Accounts Payable & Accrued Liabilities $ 638,950$ 638,950 - - - Asset Retirement Obligations $ 1,849,644$ 310,022 $ 581,575 $ 44,892$ 913,156 Total $ 2,488,594$ 948,972 $ 581,575 $ 44,892$ 913,156 Critical Accounting Policies Management considers the following policies to be most critical in understanding the judgments that are involved in preparing the Company's consolidated financial statements and the uncertainties that could impact the results of operations, financial condition and cash flows. Our financial statements are affected by the accounting policies used and the estimates and assumptions made by management during their preparation. Management believes the Company's critical accounting policies are those related to mineral property acquisition costs, exploration and development cost, stock-based compensation, derivative accounting and foreign currency translation. 28
The Company prepares its consolidated financial statements and notes in conformity to United States Generally Accepted Accounting Principles ("
U.S.GAAP") and requires management to make estimates and assumptions that affect the reported amount of assets and liabilities and the reported amounts of revenue and expenses during the reporting period. On an ongoing basis, management evaluates these estimates, including those related the adequacy of the Company's reclamation and environmental obligation, share based compensation, valuation of deferred tax asset and assessment of impairment of mineral properties. Management bases these estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis of making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions.
Costs of acquiring mining properties
The Company capitalizes the cost of acquiring mineral properties and will amortize these costs over the useful life of a property following the commencement of production or expense these costs if it is determined that the mineral property has no future economic value or the properties are sold or abandoned. Costs include cash consideration and the fair market value of shares issued on the acquisition of mineral properties. Properties acquired under option agreements, whereby payments are made at the sole discretion of the Company, are recorded in the accounts of the specific mineral property at the time the payments are made.
Amounts recognized as mining properties reflect the actual costs incurred to acquire the properties and do not indicate any present or future value of economically recoverable reserves.
We record exploration expenses as incurred. When we determine that precious metal resource deposit can be economically and legally extracted or produced based on established proven and probable reserves, further exploration expenses related to such reserves incurred after such a determination will be capitalized. To date, we have not established any proven or probable reserves and will continue to expense exploration costs as incurred.
Obligation to take out of service
The fair value of the Company's asset retirement obligation ("ARO") is measured by discounting the expected cash flows using a discount factor that reflects the credit-adjusted risk free rate of interest, while taking into account the inflation rate. The Company prepares estimates of the timing and amounts of expected cash flows and ongoing reclamation expenditures are charged against the ARO as incurred to the extent they relate to the ARO. Significant judgments and estimates are made when estimating the fair value of ARO.
For stock option grants with market conditions that affect vesting, the Company uses a lattice approach incorporating a Monte Carlo simulation to value stock options granted. Option awards are generally granted with an exercise price equal to the market price of
Paramount'sstock at the date of grant and have contractual lives of 5 years. To better align the interests of its key executives, employee and directors with those of its shareholders a significant portion of those share option awards will vest contingent upon meeting certain stock price appreciation performance goals and other performance conditions. Option and share awards provide for accelerated vesting if there is a change in control (as defined in the employee share option plan). For stock option grants made in the fiscal years ended June 30, 2021and 2020, the Company used the Black-Scholes option valuation model to value stock options granted. The Black-Scholes option valuation model was developed for use in estimating the fair value of traded options that have no vesting restrictions and are fully transferable. The model requires management to make estimates which are subjective and may not be representative of actual results. Changes in assumptions can materially affect estimates of fair values. For purposes of the calculation, the following assumptions were used for the fiscal years ended June 30, 2021and 2020: 2021 2020 WA Risk free interest rate .22% 1.60% WA Expected dividend yield 0% 0% WA Expected stock price volatility 60% 61% WA Expected life of options 5 years 5 years 29
Off-balance sheet provisions
We are not currently a party to, or otherwise involved with, any off-balance sheet arrangements that have or are reasonably likely to have a current or future material effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, or capital resources.
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