OCEANIC IRON ORE CORP. Oceanic Iron Ore Corp.
Management's Discussion and Analysis of Financial Condition and Results of Operations Years ended December 31, 2020 and 2019
The following is management's discussion and analysis ("MD&A") of the results and financial condition of Oceanic Iron Ore Corp. ("Oceanic" or the "Company") and should be read in conjunction with the accompanying audited consolidated financial statements and related notes for the year ended December 31, 2020 (the "Annual Financial Statements"). The Annual Financial Statements have been prepared in accordance with International Financial Reporting Standards ("IFRS") as issued by the International Accounting Standards Board. All figures are reported in Canadian dollars unless otherwise indicated.
Certain information included in this discussion may constitute forward looking statements. Forward looking statements are based on current expectations and entail various risks and uncertainties. These risks and uncertainties could cause or contribute to actual results that are materially different from those expressed or implied. Please see the section entitled "Forward Looking Statements" of this document for further detail on forward looking statements. The effective date of this report is April 27, 2021.
Description of Business
The Company was incorporated on March 8, 1986 under the British Columbia Business Corporations Act. Its common shares are traded on the TSX Venture Exchange (the "TSXV") under the symbol "FEO".
The Company is focused on the exploration and development of the Ungava Bay iron property (the "Property") in Nunavik, Québec, which the Company acquired in November 2010. The Property comprises three project areas: Hopes Advance (also referred to as the "Project" throughout), Morgan Lake and Roberts Lake, which cover over 35,999 hectares of iron formation and are located within 20 - 50 km of tidewater. The Company has a 100% interest, subject to a 2% net smelter returns royalty ("NSR") in the Property. The Company's NSR holders are each entitled to annual advance NSR payments of $100,000 until the commencement of commercial production on the Company's Hopes Advance Project. Advanced royalty payments are deductible from actual royalty payments subsequent to the commencement of commercial production.
In December 2019, the Company announced the results of a revised and re-scoped National Instrument 43-101 Preliminary Economic Assessment in respect of the Company's Hopes Advance Project ("Study"). The objective of the Study was to rescope the Project profile and production scale using Measured and Indicated Mineral Resources estimated within three of the 10 defined deposits from Hopes Advance in order to reduce the up-front capital required to bring the Project to commercial production.
Qualified Person
Eddy Canova, P.Geo., OGQ(403), a Qualified Person as defined by NI 43-101, has reviewed and is responsible for the technical information contained in this document.
Highlights and key business developments
Since the prior quarter, the Company has:
- reached an agreement with 154619 Canada Inc. in respect of its 2018 and 2019 advance NSR payments of $200,000 through the issuance of 1,131,221 common shares at a price of $0.1768 per share. In addition, settlement of the 2020 advance NSR payment has been deferred to a date being on or before November 30, 2021, whereby the Company has the election to settle such payments either by cash payment or by way of issuance of common shares of the Company at a price per share equal to the volume weighted average trading price of the Company's common shares on the TSXV for the 20 trading days ending on November 26, 2021. The common shares issued will be subject to the statutory four-month hold period.
Page 1
Oceanic Iron Ore Corp.
Management's Discussion and Analysis of Financial Condition and Results of Operations Years ended December 31, 2020 and 2019
- completed a non-brokered private placement of convertible debentures issued on March 10, 2021 in the amount of $1,557,548 (the "Financing"). The subscribers to the Financing were issued Series C convertible debentures (the "2021 Debentures") which earn interest at a rate of 8.5% per annum over a 60-month term (the "Term"), payable quarterly. The principal amount of the 2021 Debentures is convertible to Units ("Unit") during the Term at the election of the subscriber at a price of $0.19 per Unit. Each Unit will consist of 1 common share of the Company and 1 share purchase warrant of the Company, with each whole warrant entitling the holder to purchase one common share of the Company at a price of $0.19 per common share until March 10, 2026. The 2021 Debentures are secured with a first ranking charge against the assets of the Company, ranking pari-passu with all other secured debenture holders. The 2021 Debentures and any Units acquired on conversion thereof are subject to a hold period expiring on July 10, 2021. No finder's fees were paid in connection with the Financing.
Selected Annual Information
The following table presents selected annual information extracted from the relevant audited financial statements under IFRS:
December 31, | December 31, | December 31, |
2020 (Note 1) | 2019 (Note 1) | 2018 (Note 1) |
Total Assets
Non-current financial liabilities Net loss for the year
Basic and diluted loss per share Weighted average number of common shares outstanding
$ | 43,664,476 | $ | 43,774,328 | $ | 43,986,486 |
$ | 5,974,024 | $ | 2,309,698 | $ | 3,409,501 |
$ | (4,580,500) | $ | (839,492) | $ | (624,303) |
$ | (0.05) | $ | (0.01) | $ | (0.01) |
92,761,760 | 70,398,314 | 68,220,243 |
Note 1 - During 2018 the Company changed its financial year-end from March 31st to December 31st. The annual information at December 31, 2018 is for the nine-month period then ended.
Note 2 - As the Company has yet to achieve commercial production from its mineral asset, the Company has no revenue to report during the financial reporting periods noted above. Nor has the Company declared any dividends in the past three fiscal years.
The decrease in total assets from December 31, 2019 to December 31, 2020 was predominantly the result of cash outflows from operating activities of $150,234 associated with the cost of the Company's compliance with regulatory and public filing requirements. The increase in non-current financial liabilities was predominantly due to a $3,573,688 change in fair value of non-cash the derivative liability component contained within convertible debentures, as a result of the increase in the Company's share price during the year.
Additional factors that have caused changes in results of operations from year ended December 31, 2019 to the year ended December 31, 2020 have been disclosed under the section entitled "Overall Performance and Results of Operations" below.
Discussion of Operations and Fourth Quarter Results
The following information for the years ended December 31, 2020 and 2019 ("FY2020" and "FY2019", respectively) has been derived from the Annual Financial Statements and should be read in conjunction
Page 2
Oceanic Iron Ore Corp.
Management's Discussion and Analysis of Financial Condition and Results of Operations Years ended December 31, 2020 and 2019
with the Company's Annual Financial Statements. The information for the three months ended December 31, 2020 and 2019 ("Q4 2020" and "Q4 2019", respectively) was derived in conjunction with the Unaudited Condensed Interim Financial Statements for the three months ended September 30, 2020 and 2019 which are available on www.sedar.com.
Q4 2020 | Q4 2019 | FY2020 | FY2019 | |||||
Expenses | $ | 58,750 | $ | 235,000 | ||||
Consulting and management fees | $ | 58,750 | $ | 235,000 | ||||
Directors' fees | 7,500 | 7,500 | 34,000 | 25,000 | ||||
License and insurance | 6,552 | 5,168 | 25,768 | 19,540 | ||||
Office and general | 11,205 | 21,963 | 27,585 | 40,842 | ||||
Professional fees expense | 29,434 | 48,884 | 41,705 | 79,271 | ||||
Rent | 2,816 | 2,893 | 11,223 | 28,123 | ||||
Share-based payments | 71,650 | 19,803 | 313,707 | 179,601 | ||||
Transfer agent and regulatory | 6,569 | 13,079 | 19,768 | 20,954 | ||||
Wages and benefits | 17,312 | 16,751 | 69,729 | 90,323 | ||||
Loss from operations | (211,789) | (194,791) | (778,485) | (718,654) | ||||
Other (expenses) income | (2,709,576) | (3,573,688) | ||||||
(Loss) gain on convertible debenture derivative liability | 1,563,568 | 226,273 | ||||||
Convertible debenture accretion expense | (58,526) | (100,785) | (228,327) | (347,111) | ||||
Net loss and comprehensive loss for the year | $ | (2,979,890) | $ | 1,267,992 | $ | (4,580,500) | $ | (839,492) |
The factors affecting the change in net loss for the periods presented included:
Share-based compensation
Share-based compensation for Q4 2020 and FY2020 increased by $51,846 and $134,105, respectively, compared to Q4 2019 and FY2019. This was due to the fact that the Company granted an additional 3,405,000 stock options during FY2020 at a weighted average exercise price of $0.14 per option, compared to 1,990,000 options granted during FY2019 at a weighted average exercise price of $0.09 per option.
Expenses associated with convertible debentures
Accretion expense for Q4 2020 and FY2020 decreased by $42,259 and $118,784, respectively, compared to Q4 2019 and FY2019. This was due to the partial conversion in FY2019 of $1,087,501 convertible debentures (that were originally issued in 2018), which reduced the principal of convertible debentures carried at amortized costs (and which continues to be accreted back to face value).
During Q4 2020 and FY2020 the Company recorded fair value losses associated with the convertible debentures in the amount of $2,709,575 and $3,573,688, respectively. This compares to fair value gains recorded in Q4 2019 and FY2019. The negative fair value adjustments on convertible debentures were predominantly driven by increases in the Company's share price from $0.09 per share to $0.22 per share as at December 31, 2020. The convertible debentures issued in 2017 and 2018 are convertible into units at a price of $0.10 per unit. Units related to the 2017 convertible debentures will be comprised of one common share and one warrant exercisable at $0.10 per warrant. Units related to the 2018 convertible debentures will be comprised of one common share and one warrant exercisable at $0.05 per warrant.
Page 3
Oceanic Iron Ore Corp.
Management's Discussion and Analysis of Financial Condition and Results of Operations Years ended December 31, 2020 and 2019
Liquidity and Capital Resources
While the financial statements have been prepared on the basis that the Company will continue as a going concern, which contemplates the realization of assets and settlement of liabilities in the normal course of business as they come due, certain conditions and events result in a material uncertainty casting significant doubt on the validity of this assumption. For FY2020, the Company incurred a net loss of $4,580,500 and as at December 31, 2020 had an accumulated deficit of $35,958,290. The Company's working capital deficit at December 31, 2020 was $1,163,336.
The Company's ability to continue on a going concern basis for and beyond the next twelve months depends on its ability to successfully raise additional financing for continued operations and for the necessary capital expenditures required to achieve planned principal operations. The Company continues to pursue a number of options to improve its financial capacity, including securing a strategic partner to further advance the Hopes Advance project. While the Company has been successful in the past in obtaining financing, there is no assurance that it will be able to obtain adequate financing in the future or that such financing will be on terms acceptable to the Company. These material uncertainties cast significant doubt upon the Company's ability to continue as a going concern.
Factors that could affect the availability of financing include the Company's performance, the state of international debt and equity markets which may be adversely impacted by uncertainty arising from the ongoing novel coronavirus ("COVID-19") pandemic, investor perceptions and expectations, the retention of key executive management and the state of global financial and metals markets.
The Company's cash flow activities have been summarized as follows:
Q4 2020 | Q4 2019 | FY2020 | FY2019 | |||||
Cash used in operating activities | $ | (31,283) | $ | (52,694) | $ | (150,234) | $ | (295,339) |
Cash used in investing activities | - | (114,959) | (90,134) | (430,803) | ||||
Cash used in financing activities | (33,947) | (46,651) | (135,788) | (210,578) | ||||
Change in cash and cash equivalents during the year | (65,230) | (214,304) | (376,156) | (936,720) | ||||
Cash and cash equivalents, beginning of year | 111,862 | 637,091 | 422,788 | 1,359,508 | ||||
Cash and cash equivalents, end of year | $ | 46,632 | $ | 422,787 | $ | 46,632 | $ | 422,788 |
The Company's undiscounted commitments as at December 31, 2020 were as follows:
December 31, 2020 | ||||||||
Less than 1 year | 1 - 3 years | 4 - 5 years | Total | |||||
Accounts payable and accrued liabilities | $ | 348,541 | $ | - | $ | - | $ | 348,541 |
Due to related parties | 501,613 | - | - | 501,613 | ||||
Convertible debenture - liability component | 135,788 | 1,780,249 | - | 1,916,038 | ||||
Advance royalty payable | 400,000 | 400,000 | 400,000 | 1,200,000 | ||||
$ | 1,385,942 | $ | 2,180,249 | $ | 400,000 | $ | 3,966,192 |
Additionally, in order to maintain current rights of tenure to exploration tenements, the Company is required to incur minimal expenditures of $77,653 in respect of claim renewal fees and minimum work requirements during 2021.
Page 4
Oceanic Iron Ore Corp.
Management's Discussion and Analysis of Financial Condition and Results of Operations Years ended December 31, 2020 and 2019
As at December 31, 2020, the Company recorded the convertible debentures issued in 2017 and 2018 at a combined carrying value of $5,548,487, representing the discounted face value of the debentures of $744,147 and the fair value of the non-cash embedded derivative liability of $4,804,340. However, the total future cash outflows associated with the repayment of the principal of the 2017 Debentures ($760,000) and 2018 Debentures ($837,500) cannot exceed the combined amount of principal of $1,597,500 plus any accrued interest. Furthermore, provided that the Company's share price remains in excess of the prevailing conversion price of the 2017 Debentures and 2018 Debentures of $0.10 per common share, management expects that the 2017 Debentures and 2018 Debentures will be converted into units (comprised of one common share and one share purchase warrant each) and that the future cash outflows associated with the redemption of convertible debentures would be as low as $nil. The fair value of the non-cash embedded derivative liabilities does not represent a future cash liability to the Company.
In addition, management expects that the conversion of the 2017 Debentures and 2018 Debentures could in fact result in cash inflows to the Company as the associated warrants are exercisable at prices of $0.10 per warrant and $0.05 per warrant, respectively, both of which are lower than the Company's current prevailing share price.
On March 10, 2021, the Company completed the $1,557,548 Financing.
Off-Balance Sheet Arrangements
As at December 31, 2020, the Company had no off-balance sheet arrangements.
Summary of Quarterly Results
Below is a summary of results for the eight most recently completed quarters in accordance with IFRS:
December 31, September 30, | June 30, | March 31, | ||||||
2020 | 2020 | 2020 | 2020 | |||||
Revenues (Note 1) | $ | - | $ | - | $ | - | $ | - |
Share-based compensation | $ | (71,650) | $ | (88,045) | $ | (146,742) | $ | (7,270) |
Loss from Operations | $ | (211,789) | $ | (191,512) | $ | (256,381) | $ | (118,806) |
(Loss) gain on convertible debenture derivative liability | $ | (2,709,576) | $ | (507,102) | $ | (573,086) | $ | 216,076 |
Net (loss) income | $ | (2,979,890) | $ | (756,147) | $ | (886,053) | $ | 41,588 |
Basic and diluted (loss) income per share | $ | (0.03) | $ | (0.01) | $ | (0.01) | $ | 0.00 |
Revenues (Note 1) Share-based compensation Loss from Operations
(Loss) gain on convertible debenture derivative liability Net (loss) income
Basic and diluted (loss) income per share
December 31, September 30, | June 30, | March 31, | |||||
2019 | 2019 | 2019 | 2019 | ||||
$ | - | $ | - | $ | - | $ | - |
$ | (19,803) | $ | (33,932) | $ | (41,427) | $ | (84,439) |
$ | (194,791) | $ | (152,206) | $ | (168,813) | $ | (202,843) |
$ | 1,563,568 | $ | 135,577 | $ | (695,591) | $ | (777,281) |
$ | 1,267,992 | $ | (99,833) | $ | (946,570) | $ | (1,061,081) |
$ | 0.02 | $ | (0.00) | $ | (0.01) | $ | (0.02) |
Page 5
This is an excerpt of the original content. To continue reading it, access the original document here.
Attachments
- Original document
- Permalink
Disclaimer
Oceanic Iron Ore Corp. published this content on 27 April 2021 and is solely responsible for the information contained therein. Distributed by Public, unedited and unaltered, on 27 April 2021 23:52:02 UTC.
