Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
Certain statements in this Quarterly Report on Form 10-Q (“Form 10-Q”) constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements give the Company's current expectations and forecasts of future events. All statements other than statements of current or historical fact contained in this quarterly report, including statements regarding the Company's future financial position, business strategy, budgets, projected costs and plans and objectives of management for future operations, are forward-looking statements. The words “anticipate,” “believe,” “continue,” “estimate,” “expect,” “intend,” “may,” “plan,” and similar expressions, as they relate to the Company, are intended to identify forward-looking statements. These statements are based on the Company's current plans, and the Company's actual future activities and results of operations may be materially different from those set forth in the forward-looking statements. These forward-looking statements are subject to risks and uncertainties that could cause actual results to differ materially from the statements made. Any or all of the forward-looking statements in this quarterly report may turn out to be inaccurate. The Company has based these forward-looking statements largely on its current expectations and projections about future events and financial trends that it believes may affect its financial condition, results of operations, business strategy and financial needs. The forward-looking statements can be affected by inaccurate assumptions or by known or unknown risks, uncertainties and assumptions. Factors that could cause or contribute to these differences include those discussed below and elsewhere in this Form 10-Q, and in the risk factors on Form 10-K that was filed with the U.S. Securities and Exchange Commission ("SEC") on October 13, 2022. The Company expressly disclaims any obligation or undertaking to disseminate any updates or revisions to any forward-looking statement contained herein, to reflect any change in our expectations with regard thereto, or any other change in events, conditions or circumstances on which any such statement is based.
Cautionary Note to U.S. Investors
We are subject to the reporting requirements of the Securities Exchange Act of 1934, as amended, and applicable Canadian securities laws, and as a result we report our mineral reserves and mineral resources according to two different standards. U.S. reporting requirements, for disclosure of mineral properties, are governed by Item 1300 of Regulation S-K (“S-K 1300”), as issued by the SEC. Canadian reporting requirements for disclosure of mineral properties are governed by National Instrument 43-101 Standards of Disclosure for Mineral Projects (“NI 43-101”), as adopted from the definitions provided by the Canadian Institute of Mining, Metallurgy and Petroleum. Both sets of reporting standards have similar goals in terms of conveying an appropriate level of confidence in the disclosures being reported, but the standards embody slightly different approaches and definitions.
In our public filings in the U.S. and Canada and in certain other announcements not filed with the SEC, we disclose proven and probable reserves and measured, indicated and inferred resources, each as defined in S-K 1300. The estimation of measured resources and indicated resources involves greater uncertainty as to their existence and economic feasibility than the estimation of proven and probable reserves, and therefore investors are cautioned not to assume that all or any part of measured or indicated resources will ever be converted into S-K 1300-compliant reserves. The estimation of inferred resources involves far greater uncertainty as to their existence and economic viability than the estimation of other categories of resources, and therefore it cannot be assumed that all or any part of inferred resources will ever be upgraded to a higher category. Therefore, investors are cautioned not to assume that all or any part of inferred resources exist, or that they can be mined legally or economically.
Overview
We are a company engaged in the business of acquiring, exploring and developing precious metal projects in the United States of America. Paramount owns advanced stage exploration projects in the states of Nevada and Oregon. We enhance the value of our projects by implementing exploration and engineering programs that have the goal 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 three and six months ended December 31, 2022 and compares these results to the results of the prior year three and six months ended December 31, 2021.
Operating Highlights:
For the three and six months ended December 31, 2022, the Company highlights include:
•The Federal Bureau of Land Management ("BLM") has accepted the Plan of Operation ("PoO") for the proposed underground Grassy Mountain gold mine as complete. With completeness, the BLM will issue a Notice of Intent which initiates the Environmental Impact Statement ("EIS") process under the National Environment Policy Act.
•The Company received the permit from the U.S. Forest Service to drill its Bald Peak Project in Mineral County, Nevada.
•The Oregon State Technical Review Team accepted and approved both the geo-chemistry and groundwater baseline data reports ("BDR Reports"). Both BDR Reports are required to be approved in order for the State of Oregon to determine, along with other application information, that Company's submitted Consolidated Permit Application (the “CPA”) is complete. As of December 31, 2022, the completeness determination has not been made by the State of Oregon.
14
•The Company made progress with the BLM by responding and providing additional information that will allow the Company to submit an updated PoO. Once the PoO is accepted by the BLM and a notice in the Federal Registry is filed, the Environmental Impact Statement process will begin.
•Completed new technical reports summaries ("TRS") for the Grassy Mountain Property and the Sleeper Gold Property under Item 1300 of Regulation S-K.
Outlook and Plan of Operation:
We believe that investors will gain a better understanding of the Company if they understand how we measure and disclose our results. As a development stage company, we do not generate cash flow from our operations. We recognize the importance of managing our liquidity and capital resources. We pay close attention to all 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.
Having accomplished many of the activities we outlined in our Annual Report on Form 10-K for the year ended June 30, 2022, the Company now expects to undertake the following activities in the next several months:
Grassy Mountain Project:
Paramount expects to continue with both state and federal permitting activities for its proposed underground gold mine. With 22 baseline studies approved and accepted by the State of Oregon and the submitted modified CPA, the Company will continue working with the appropriate permitting agencies to ensure a complete permit application. Once the State of Oregon determines that the CPA is complete it will proceed to the drafting permits process which includes issuing an environmental evaluation and socio-economic impact analysis and the drafting of all relevant permits for the project. Under Oregon law the drafting permits process, which includes public notice and public hearing period, must be completed within 225 days. Subsequent to the drafting permit process if draft permits are issued, up to an additional 120 days is provided for further public consultation and the development and distribution of final permits. The costs incurred by the State of Oregon for the drafting permit and final permit processes will be reimbursed by the Company directly through cost recovery invoices received from the Oregon Department of Geology and Mineral Industries or by permit fees established by individual permitting agencies. In addition to the state incurred costs, the Company will engage with its permitting and technical advisors and consultants to respond to any further information requests from the state's permitting agencies.
With respect to federal permitting, once a Notice of Intent is registered and the Environmental Impact Statement has commenced, Paramount will also engage with its permitting and technical advisors to assist in the process.
Sleeper Gold Project:
In completing the Sleeper TRS, the Company undertook a comprehensive review of the project’s database which included over 4,000 drill holes dating back to the early 1980s from the time of the first discovery of mineralization to when the mine was closed in 1996. Given the lack of digitization of the original drill hole database, the Company has, under the direction of QP RESPEC Company LLC, engaged in digitizing and re-verifying the entire Sleeper database.
Once the data verification is complete and a higher confidence level can be applied to the resources and allowing for additional 3D modeling, Paramount will continue to advance the evaluation of Sleeper to update the Sleeper TRS in 2023.
COVID-19 Update
Paramount continues to monitor the evolution of the COVID-19 pandemic and continues to evaluate its business activities and plans. Our priority is to ensure the health and safety of our employees and consultants. We continue to perform the majority of our activities remotely with a limited amount of on-site or in-office attendance only when required.
Comparison of Operating Results for the three and six months ended December 31, 2022 and 2021
We did not earn any revenue from mining operations for the three and six months ended December 31, 2022 and 2021.
Net Loss
Our net loss for the three-months ended December 31, 2022 was $1,432,485 compared to a net loss of $2,702,425 in the previous three-month period ended December 31, 2021. The drivers of the decrease in net loss of 47% are fully described below.
Our net loss for six months ended December 31, 2022, was $3,272,701 compared to a net loss of $4,616,170 in the previous six-month period ended December 31, 2021. The drivers of the decrease in net loss of 29% are fully described below.
The Company expects to incur losses for the foreseeable future as we continue with our planned exploration and development programs.
15
Expenses
Exploration and Land Holding Costs
For the three months ended December 31, 2022 and 2021, exploration expenses were $465,402 and $1,907,861, respectively. This represents a decrease of 76% or $1,442,459. Expenses related to our exploration or development activities are generally not comparable from period to period as activities will vary based on several factors. At Grassy Mountain the Company continued with permitting activities with state and federal permitting agencies. These expenses totaled $294,971. At Sleeper, the Company continued with the digitizing and reverification of its geological database and redesigned its E-Cell conversion plans for upcoming reclamation work totaling $170,431. In the prior year comparable period, the Company focused its efforts on preparing its modified permit applications for the Grassy Mountain Project, completed a drill program at its Frost property and incurred expenses related to reclamation activities its Sleeper Gold Project.
For the three months ended December 31, 2022 and 2021, land holding costs were $157,143 and $173,134, respectively. The decrease in land holding costs was primarily due to 2021 costs associated with staking additional mining claims with respect to the Bald Peak Project in Nevada.
For the six months ended December 31, 2022 and 2021, exploration expenses were $1,304,997 and $3,164,668, respectively. This represents a decrease of 59% or $1,859,671. Expenses related to our exploration or development activities are generally not comparable from period to period as activities will vary based on several factors. At Grassy Mountain the Company continued with permitting activities with state and federal permitting agencies and completed a TRS on the property. These expenses totaled $693,222. At Sleeper, the Company has re-assayed historical drill holes, digitized and re-verified its geological database, completed a TRS on the property and redesigned its E-cell pond conversion plans for upcoming reclamation work for expenses totaling $611,775. In the prior year comparable period, the Company continued with permitting activities for the Grassy Mountain Project, completed a drill program at the Frost Project and incurred on-going reclamation expenses at its Sleeper Gold Project.
For the six months ended December 31, 2022 and 2021, land holding costs were $318,199 and $314,327, respectively.
Salaries and Benefits
For the three-month period ended December 31, 2022 and 2021, salary and benefits were $260,920 and $216,063, respectively. This represents an increase of 21% . Salary and benefits are comprised of cash and equity based compensation of the Company’s executive and corporate administration teams. The increase primarily reflects higher equity based compensation that was recorded during the three-month period ended December 31, 2022 compared to the three-month period ended December 31, 2021. Included in the salary and benefits expense amount for the three months ended December 31, 2022 and 2021 was non-cash equity based compensation of $60,268 and $33,575, respectively.
For the six months ended December 31, 2022 and 2021, salary and benefits were $568,294 and $463,478, respectively. This represents an increase of 23%. The increase is a result of higher equity based compensation that was recorded during the six months ended December 31, 2022 compared to the six months ended December 31, 2021. Included in the salary and benefits expense amount for the six months ended December 31, 2022 and 2021 was non-cash equity based compensation of $165,439 and $79,669, respectively.
Directors’ Compensation
For the three-month period ended December 31, 2022 and 2021, directors’ compensation expenses were $23,233 and $19,281, respectively. This represents an increase of 20%. Directors’ compensation consists of cash and stock-based compensation of the Company’s board of directors. The increase reflects higher equity based compensation recorded in the current quarter compared to the prior year’s comparable period.
For the six months ended December 31, 2022 and 2021, directors compensation expenses were $58,574 and $33,118, respectively. This represents an increase of 77%. The increase in costs reflects a higher equity based compensation and the addition of a new board member in the current year compared to the prior year's comparable period.
Professional Fees and General and Administration
For the three months ended December 31, 2022 and 2021, professional fees were $135,295 and $21,050, respectively. This represents an increase of $114,245. The increase was mainly due to one-time consulting fees and legal fees incurred in the period. Professional fees include legal, advisory and consultant expenses incurred on corporate and operational activities being performed by the Company on a period-by-period basis.
For the three-month period ended December 31, 2022, general and administration expenses decreased by 2% to $214,365 from $217,735 from the three-month period ended December 31, 2021. The decrease in general and administration expenses from the previous year’s comparable period was mainly due to reduced office related expenses.
16
For the six months ended December 31, 2022 and 2021, professional fees were $268,622 and $66,014, respectively. This represents an increase of $202,608. The increase was due to the timing of the recording the audit fees for the fiscal year ended June 30, 2022 after engaging the Company's new auditor in the current period and incurring one-time consulting and legal fees in the period.
For the six months ended December 31, 2022 and 2021, general and administration expenses were $373,539 and $395,819, respectively. This represents a decrease of 6% and was mainly due to reduced office related expenses.
Liquidity and Capital Resources
As an exploration and development company, Paramount funds its operations, reclamation activities and discretionary exploration programs with its cash on hand. At December 31, 2022, we had cash and cash equivalents of $1,311,359 compared to $2,484,156 as at June 30, 2022.
In May 2020, the Company established an $8.0 million “at the market” equity offering program with Cantor Fitzgerald & Co. and Canaccord Genuity LLC to proactively increase its financial flexibility. During the six-months ended December 31, 2022, the Company issued 455,099 shares under the program for net proceeds of $158,513.
In December 2022, the Company issued the Note to Seabridge, an entity affiliated with the Chairman of our Board of Directors, Rudi Fronk, and an owner of approximately 5.7% of our outstanding common stock, pursuant to which the Company may borrow, in one or more advances, the principal amount of up to $1,500,000. The Loan bears interest at a per annum rate of 12%, payable upon maturity or prepayment, and matures on September 30 2023. The Company has the right to prepay the Loan, in whole or in part, at any time without penalty. During the six-months ended December 31, 2022, the Company borrowed $1,000,000 from Seabridge.
The main uses of cash for the six months ended December 31, 2022 was:
•cash used in operating activities of $2,301,310 were mainly used to fund our permitting and exploration activities at our projects, salary and benefits costs of our employees and ongoing general and administration costs.
Going Concern and Capital Resources
The Consolidated Financial Statements of the Company have been prepared on a “going concern” basis, which means that the continuation of the Company is presumed even though events and conditions exist that, when considered in aggregate, raise substantial doubt about the Company’s ability to continue as a going concern because it is possible that the Company will be required to adversely change its current business plan or many be unable to meet its obligations as they become due with one year after the date of that these financial statements were issued.
Paramount expects to continue to incur losses as a result of costs and expenses related to maintaining its properties and general and administrative expenses. Since 2015, the Company has relied on equity financings, debt financings and sale of royalties to fund its operations and the Company expects to rely on these forms of financing to fund operations into the near future. The Company will also continue to identify ways to reduce its cash expenditures.
Paramount’s current business plan requires working capital to fund non-discretionary expenditures for its exploration and development activities on its mineral properties, mineral property holding costs and general and administrative expenses. It also requires approximately $5.3 million in capital to repay the 2019 convertible notes and the note payable to Seabridge which both become due in September 2023.
We anticipate our twelve-month cash expenditures to be as follows:
•$3.2 million on corporate, land claim maintenance and general expenses
We anticipate our twelve-month cash discretionary exploration and development, subject to available cash on hand as follows:
•$3.0 million on the Grassy Mountain Project state and federal permitting activities
•$0.25 million on the Sleeper Gold Project
For the planned reclamation activities required by state and federal regulators at Sleeper, the Company expects that these expenditures will be reimbursed by insurance proceeds. For any interest that accrues and is owing on the outstanding convertible debt, the Company expects to elect to pay the semi-annual interest payment in shares of its Common Stock.
Subsequent to February 13, 2023, the Company expects to fund operations as follows:
•Existing cash on hand and working capital.
•The existing ATM program with Cantor Fitzgerald & Co. and Canaccord Genuity LLC.
•The existing Note facility with Seabridge.
•Other debt, equity financings or sale of royalties.
17
Historically, we have been successful in accessing capital through equity and debt financing arrangements or by the sale of royalties on its mineral properties, no assurance can be given that additional financing will be available to it in amounts sufficient to meet its needs, or on terms acceptable to the Company. In the event that we are unable to obtain additional capital or financing, our operations, exploration and development activities will be significantly adversely affected. The continuation of the Company as a going concern is dependent on having sufficient capital to maintain our operations and to repay debt which become due in September 2023. In considering our financing plans, our current working capital position and our ability to reduce operating expenses the Company believes there is substantial doubt about its ability to continue as a going concern twelve months after the date that our financial statements are issued.
Critical Accounting Policies and Estimates
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 costs, stock-based compensation, asset retirement obligations and foreign currency translation.
Mineral property acquisition costs
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.
The amounts recorded as mineral properties reflect actual costs incurred to acquire the properties and do not indicate any present or future value of economically recoverable reserves.
Exploration expenses
We record exploration expenses as incurred. When we determine that a 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 expenses as incurred.
Stock Based Compensation
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’s stock 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, 2021, 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.
Use of Estimates
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 to long-lived assets and asset retirement obligations. 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.
Off-Balance Sheet Arrangements
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.
18
