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    FT   CA34967D1015

FORTUNE MINERALS LIMITED

(FT)
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Fortune Minerals : Q2 June 30, 2021 MD&A (PDF 140 KB)

08/19/2021 | 07:54am EDT

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITIONS

AND RESULTS OF OPERATIONS

Three and six months ended June 30, 2021

This Management's Discussion and Analysis of Financial Conditions and Results of Operations ("MD&A") of Fortune Minerals Limited ("Fortune" or the "Company") is dated August 16, 2021 and should be read in conjunction with the Company's unaudited interim condensed consolidated financial statement and the notes thereto for the three and six months ended June 30, 2021 and with the annual audited consolidated financial statements and the notes thereto for the year ended December 31, 2020, prepared in accordance with International Financial Reporting Standards ("IFRS"). This discussion contains certain forward-looking information and is expressly qualified by the cautionary statement at the end of this MD&A. All dollar amounts are presented in Canadian dollars unless indicated otherwise. Unless the context otherwise requires, the terms "Fortune" and "the Company" where used herein refer to Fortune Minerals Limited and its subsidiaries on a consolidated basis.

SUMMARY OF QUARTERLY RESULTS

The following table provides selected consolidated financial information that is derived from the unaudited interim condensed consolidated financial statements and audited consolidated financial statements of the Company. The amounts represent the three-month periods ended:

2021

2020

2019

Jun-30

Mar-31

Dec-31

Sep-30

Jun-30

Mar-31Dec-31Sep-30

Revenue and Other

7,103

7,001

5,461

49,104

22,207

26,589

12,600

8,533

Income

Net income (loss)

1,021,488

(3,813,558)

(436,621)

(181,619)

(1,057,014)

(40,405)

1,196,754

164,075

Basic and fully diluted

-

(0.01)

-

-

-

-

-

-

income (loss) per common

share(1)

Notes:

  1. The sum of quarterly income (loss) per common share for any given period may not equal the year-to-date amount due to rounding.

The Company has undertaken the following activities during the six months ended June 30, 2021 in support of corporate and NICO project financing initiatives, permitting and optimizations to produce a more financially robust development:

  • The Company is assessing a number of sites to build a hydrometallurgical refinery in southern Canada to process NICO metal concentrates to value-added products;
  • Fortune is particularly focused on evalauation of a brownfield location with existing facilities that could materially reduce capital and operating costs for the NICO development;
  • Fortune is engaged with various municipal, territorial, provincial and federal governments to attract political and financial project finance support for the vertically integrated NICO development and enable the respective jurisdictions to participate in the supply chain for Critical Minerals, new technologies and the growing green economy;
  • Fortune continues to review the engineering and execution plans for the NICO development to assess various opportunities to mitigate capital cost escalation and accelerate the planned processing of higher margin ores to improve NICO project economics;
  • The Company filed its final report for the Government of the Northwest Territories ("GNWT") Mining Incentive Program ("MIP") grant received in 2020. The remainder of $21,600 has been received;
  • The Company is preparing a work plan and budget to conduct a 3,200 metre drill program for the fall of 2021. The program will test five high priority targets identified through the geophysical exploration program and comprehensive interpretive report commissioned last summer;
  • The Company has applied for, and was awarded, a matching grant of $144,000 through the MIP Grant from the GNWT for the proposed 2021 drill program. As of June 30, 2021, $122,400 has been received; and
  • The Company continues to compile and review capital and operating costs for the planned NICO Project development in order to make a more financially robust project.

Fortune Minerals Limited

Management's Discussion and Analysis of Financial Conditions and Results of Operations Three and six Months Ended June 30, 2021

OVERVIEW

Fortune's vision is to be a recognized developer, miner, processer and refiner of specialty energy and eco-metals, also now commonly referred to as "Critical Minerals", together with gold and other by-products that contribute to new technologies and the growing green economy. Supporting the vision is Fortune's mission to profitably produce specialty and precious metals to meet the needs of our customers and partners, and to attract and develop an exceptional team of people motivated to acquire, explore, develop, mine and reclaim resource properties in a safe and responsible manner.

The Company's most significant asset is its wholly owned NICO cobalt-gold-bismuth-copper deposit and proposed mine ("NICO") in the Northwest Territories ("NWT") and a related hydrometallurgical refinery ("Refinery") that would be constructed in southern Canada among several greenfield and brownfield site options currently being investigated by the Company (collectively, the "NICO Project").

NICO Project

Fortune continues to advance its wholly-owned NICO Project and the Company's business activities have been focused on certain priority critical path activities required to advance permitting and financing for the planned development. The NICO Project comprises a proposed open pit and underground mine and a mill and concentrator in the NWT, with a related Refinery to be located in southern Canada. The Refinery was previously planned to be constructed at a site in the Rural Municipality of Corman Park in Saskatchewan, ("Saskatchewan Metals Processing Plant" or "SMPP"), but alternative locations are now being evaluated, including brownfield sites with existing facilities that could materially reduce capital costs for the planned development.

Before completing an updated Technical Report for the NICO Project Fortune has been assessing a number of optimizations it has recognized to make a more financially robust project that include:

  • A new Mineral Resource block model has been prepared with a more constrained approach to the mineralization interpolation boundaries to reduce internal and external dilution and differentiate higher grade resource blocks for early processing;
  • The block model also identified some high grades that had been missed in previous Mineral Resource estimates as well as mineralized material at the volcanic sedimentary rock interface that was not included in previous estimates;
  • The grade interpolation wireframe boundaries were also extended to surface where the deposit is known to outcrop and to depth where the gold zone had been too abruptly terminated;
  • A new mine plan and schedule has been completed based on the new Mineral Resource model with a re- optimized open pit shell and selective underground mining of gold-rich ores located close to the existing decline ramp during early years of the mine life; and
  • The open pit mine fleet was optimized with smaller equipment to reduce dilution with waste rock and match the lower mining rate.

The construction of the Tlicho all-season road, a two-lane public highway of approximately 97 km from Highway 3 to the community of Wha Ti (the "Tlicho Road"), is on schedule for completion later this year and will enable the Company to align the construction schedule for the mine with the availability of the all-season road and eliminate construction from winter ice roads in order to reduce capital costs and construction risks.

In light of the foregoing, the Company believes that the development schedule for the NICO Project can be aligned with the deficit in cobalt supply expected to increase in 2022-2023 when demand for batteries in electric vehicles is anticipated to outstrip production from existing mines and development projects. In addition, the Canadian and United States ("U.S.") governments have signed a Joint Action Plan on Critical Mineral Collaboration to enable more North American production of certain minerals identified by the U.S. Government as critical to economic and national security. Minerals considered critical for this purpose have essential use in important industrial and defense applications, cannot be easily substituted by other minerals, and their supply chain is threatened by geographic concentration of production and/or geopolitical risks. Cobalt and bismuth are both identified as Critical Minerals on

- 2 -

Fortune Minerals Limited

Management's Discussion and Analysis of Financial Conditions and Results of Operations Three and six Months Ended June 30, 2021

the U.S. and European Union Critical Minerals Lists. Fortune has been in discussions with the Canadian and U.S. governments and Provincial governments about potential financial support for the NICO Project development, including submission of a White Paper proposal to the U.S. Department of Defense. On March 12, 2021, Natural Resources Canada released the Canadian Critical Minerals List which also includes cobalt, bismuth and copper.

Fortune has experienced personnel focused on advancing the NICO Project towards commercial production, while also minimizing the risks associated with its development. Fortune is committed to developing its project in a socially and environmentally responsible manner.

Fortune continues to work with a number of private sector companies and potential strategic partners interested in the Critical Minerals and/or the gold contained in the NICO Project. If and when the NICO Project is developed, Fortune will be an important new producer of battery grade cobalt products to the rapidly expanding lithium-ion rechargeable battery industry, and support their demand in portable electronic devices, electric vehicles, and stationary storage cells to make electricity use more efficient and allow greater use of renewable energy such as solar and wind. Fortune will also produce environmentally friendly bismuth metals and oxide used in the automotive and pharmaceutical industries and the growing demand as a non-toxic and environmentally safe replacement for lead. The NICO Project will also be a significant producer of gold, and the project will produce copper as a minor by-product. Fortune will be able to demonstrate supply chain transparency and custody control of metals from ores through to the production of value added products and mitigate risks from geographic concentration of supply from the Democratic Republic of the Congo and China.

Background

The NICO Project was engineered in the Front-End Engineering and Design study and a Technical Report entitled "Technical Report and Updated Mineral Reserve Estimate and Front-EndEngineering & Design ("FEED") Study on the NICO Gold-Cobalt-BismuthDeposit, Mazenod Lake Area, Northwest Territories, Canada" dated July 2, 2012 (the "2012 FEED Study") is filed on SEDAR at www.sedar.com by the Company pursuant to National Instrument 43-101.

In 2014, a feasibility study (the "2014 Feasibility Study") was prepared for the NICO Project based primarily on the 2012 FEED study as well as some subsequent improvements to the project and a proposed transaction to develop the asset with Procon Group ("Procon"). The 2014 Feasibility Study was summarized in a Technical Report reflecting the planned development, dated May 5, 2014, prepared by Micon International Limited ("Micon") and entitled "Technical Report on the Feasibility Study for the NICO Gold-Cobalt-Bismuth-CopperProject, Northwest Territories, Canada" (the "Technical Report") was also filed on SEDAR.

In 2018, Fortune engaged Hatch Ltd. ("Hatch"), Micon and P&E Engineering Consultants Inc. ("P&E") to produce an updated study of the economics for the NICO Project to support its discussions with potential strategic partners. The study contemplated an approximately 30% expanded mill throughput rate of 6,000 tonnes of ore per day ("tpd"), up from the 4,650 tpd rate used in the earlier study. There were also process improvements that had been identified by Hatch that needed to be included. This updated study was also assessing a potential start-up option of producing metal concentrates and gold doré for direct sale to third party refiners from the Company's proposed mine and concentrator in the NWT. This would eliminate or defer the need to construct a vertically integrated Refinery. The base case for both the earlier 2014 study and the 30% expanded project contemplated a mine and concentrator in the NWT and a related Refinery in southern Canada producing cobalt sulphate used in lithium-ion rechargeable batteries, gold doré, bismuth ingot and copper cement. After assessing the indicative economics of the expanded 6,000 tpd mill throughput rate, the Company concluded that the additional capital required to construct a larger project would not deliver a commensurate increase in cash flows to justify the expansion at prevailing cobalt and bismuth prices. Consequently, work on the expanded, 6,000 tpd mill throughput rate study was terminated.

Fortune has prepared a number of high level financial and operating models assessing the NICO Project indicative economics using different pit sizes and various production rate sensitivities. The engineering and revised cost quotes from the 6,000 tpd case contemplated in 2019 were used as the basis for the factored capital and operating costs used in these different production rate scenarios. The Company concluded from these financial model sensitivities that

- 3 -

Fortune Minerals Limited

Management's Discussion and Analysis of Financial Conditions and Results of Operations Three and six Months Ended June 30, 2021

the 4,650 tpd rate used in the 2014 Feasibility Study was likely optimal to produce the best balance between economies of scale and capital costs, while focusing on a smaller open pit with higher cobalt and gold grades. The analyses also determined that a combined open pit and underground approach to the mine plan in the early years of the mine life, which was contemplated in the 2014 study, would also produce a more attractive indicative rate of return for the development by enabling earlier access to deeper gold-rich ores in the deposit.

On May 1, 2015 the Company's wholly-owned subsidiary, Fortune Coal Limited ("FCL") and POSCO Klappan Coal Ltd., FCL's joint venture partner in the Arctos Anthracite Joint Venture ("AAJV"), sold their interests in the coal licenses comprising the Arctos anthracite coal project in northwest British Columbia to British Columbia Railway Company for $18,308,000. The AAJV partners maintain the exclusive right to purchase back the coal licenses at the same price for a 10-year option period, which expires on May 1, 2025. On March 31, 2017, the Government of British Columbia imposed a 20-year moratorium on major industrial development within parts of the Klappan area. During the 10-year option period currently in effect, the coal licenses are excluded from this moratorium on industrial development within the Klappan area.

RESULTS OF OPERATIONS

Summary

The Company's net income/loss for the three and six months ended June 30, 2021 was a net income of $1,021,488 and a net loss of $2,792,070, respectively, or $0.00 and $0.01 per common share compared to a net loss of $1,057,014 and $1,097,419, respectively, or $0.00 per common share for the same periods in the prior year. The significant change year over year is primarily due to the change in fair value related to derivative liability as discussed in "Expenses" below.

Revenue and Other Income

Revenue and other income decreased in 2021 to $7,103 and $14,104 for the three and six months ended June 30, 2021, respectively, compared to $22,207 and $48,796 for the same periods in the prior year. The decrease is primarily the result of less interest earned on cash and cash equivalents and a smaller recognition of flow-through share premium income during the period.

Expenses

Expenses, excluding change in fair value related to derivative liability, increased in 2021 to $569,370 and $1,459,915 for the three and six months ended June 30, 2021 compared to $588,695 and $1,284,944 for the same periods in the prior year.

The increase year over year is primarily attributable to: (i) an increase in stock-based compensation due to a stock option grant in January 2021; and (ii) an increase in interest expenses related to interest accrued on the Company's long-term debts. This incease was offset by a decrease in general and administrative expenses for the same period.

The change in fair value related to derivative liability recognized a gain of $1,583,755 for the three months ended June 30, 2021 and a loss of $1,346,259 for the six months ended June 30, 2021 compared to a loss of $490,526 and a gain of $138,729, respectively, for the same periods in 2020.

Deferred Taxes

The Company has not recognized a net deferred income tax recovery or provision for the three and six months ended June 30, 2021 and 2020. During the six months ended June 30, 2021, the Company recognized (i) $755,000 from the estimated tax loss; (ii) $362,000 for non-deductible change in fair value of derivative; (iii) $171,000 for tax rate difference; and (iv) $3,500 for non-taxableflow-through share premium resulted in a tax recovery which was offset

- 4 -

Fortune Minerals Limited

Management's Discussion and Analysis of Financial Conditions and Results of Operations Three and six Months Ended June 30, 2021

by: (i) a tax provision of $1,098,500 for a loss carryforward not recognized; and (ii) $193,000 for non-deductiblestock-based compensation and other expenses.

During the same period in 2020, the Company recognized (i) $291,500 from the estimated tax loss; (ii) $173,000 for tax rate difference; and (iii) $6,500 for non-taxableflow-through share premium resulted in a tax recovery which was offset by: (i) a tax provision of $336,000 for a loss carryforward not recognized; (ii) $98,000 for non-deductiblestock-based compensation and other expenses; and (iii) $37,000 for non-deductible change in fair value of derivative.

During the three months ended June 30, 2020, the Company recognized (i) $1,138,000 for non-deductible change in fair value of derivative; (ii) $1,500 for non-taxableflow-through share premium; and (iii) $1,000 for tax rate difference resulted in a tax recovery which was offset by: (i) $813,500 for a loss carryforward not recognized; (ii) $270,000 from the estimated tax loss; and (iii) $57,000 for non-deductiblestock-based compensation and other expenses. During the same period in 2020, the Company recognized (i) $280,500 from the estimated tax loss; (ii) $130,000 for non-deductible change in fair value of derivative; (iii) $2,500 for non-taxableflow-through share premium; and (iv) $1,000 for tax rate difference resulted in a tax recovery which was offset by: (i) $364,000 for a loss carryforward not recognized; and (ii) $50,000 for non-deductiblestock-based compensation and other expenses.

A valuation allowance of $18,218,000 has been recognized related to the uncertainty of realizing the benefit of deferred income tax assets in future years.

Cash Flow

Cash used in operating activities during the three and six months ended June 30, 2021 was $194,619 and $497,192 compared to $268,676 and $185,540, respectively, for the same periods in 2020. The increase in use of cash in operating activities year over year is mainly attributed to a significant decrease in the change in accounts receivable from the prior year.

Cash used in investing activities was $19,390 and 62,985 compared to $158,842 and $358,461 for the three and six months ended June 30, 2021 and 2020, respectively. This decrease is related primarily to a decrease in expenditures of capital assets included in mining properties and exploration and evaluation expenditures due to a decrease in activity on the NICO Project, offset by a receipt of $45,000 for a return of reclamation security deposit.

The NICO Project, and the Company's other exploration projects are classified as exploration and evaluation stage projects for accounting purposes. Exploration and evaluation cash expenditures incurred by Fortune on its properties during the three and six months ended June 30, 2021 were $6,956 and $69,884 respectively, all of which was spent on NICO.

Three months ended

Six months ended

June 30, 2021

June 30, 2021

NICO

$ 6,956

$ 69,884

Total cash exploration and evaluation expenditures

$ 6,956

$ 69,884

For comparison, exploration and evaluation expenditures incurred by Fortune on its properties during the three and six months ended June 30, 2020 were $149,312 and $342,536, respectively, and were spent on the projects as follows:

Three months ended

Six months ended

June 30, 2020

June 30, 2020

NICO

$ 149,312

$ 340,787

All Other Projects

1,749

Total cash exploration and evaluation expenditures

$ 149,312

$ 342,536

- 5 -

This is an excerpt of the original content. To continue reading it, access the original document here.

Disclaimer

Fortune Minerals Limited published this content on 19 August 2021 and is solely responsible for the information contained therein. Distributed by Public, unedited and unaltered, on 19 August 2021 11:53:03 UTC.


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Financials
Sales 2020 - - -
Net income 2020 -1,72 M -1,39 M -1,39 M
Net Debt 2020 9,28 M 7,50 M 7,50 M
P/E ratio 2020 -15,7x
Yield 2020 -
Capitalization 47,6 M 38,5 M 38,4 M
EV / Sales 2019 -
EV / Sales 2020 -
Nbr of Employees 6
Free-Float 86,5%
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Mean consensus BUY
Number of Analysts 1
Last Close Price 0,13 CAD
Average target price 0,54 CAD
Spread / Average Target 315%
Managers and Directors
Robin Ellis Goad President, CEO & Non-Independent Director
Patricia Penney Chief Financial Officer & Controller
Mahendra Naik Chairman
Glen Koropchuk Director & Technical Director
Edward Alfred Yurkowski Independent Director
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