Item 2. Management’s Discussion and Analysis
of Financial Condition and Results of Operations.
General
We were incorporated under the laws of
British Columbia, Canada in 1984. In 2004, we changed our corporate
jurisdiction from a British Columbia company to a Canadian corporation. In December 2011, we amended our articles to
change our name from “i-minerals inc.” to “I-Minerals Inc.”
The Company is engaged in the exploration,
evaluation and development of our Helmer-Bovill industrial minerals property
(the “Helmer-Bovill Property”). The
Helmer-Bovill Property, in which we hold a 100% interest, is comprised of 11
mineral leases totaling 5,140.64 acres located approximately 6 miles northwest
of Bovill, Latah County, Idaho. Since
inception, the Company has been in the exploration stage but moved into the
development stage in fiscal 2018. In
fiscal 2019, the Company reverted back to the evaluation stage.
Our principal executive office is located
at Suite 880, 580 Hornby Street, Vancouver, British Columbia, Canada and our telephone
number is (877) 303-6573. Our operations
office is located at 13403
N. Government Way, #102, Hayden, Idaho.
To
date, we have not earned
significant revenues from the operation of our Helmer-Bovill Property. Accordingly, we are
dependent on debt and equity financing as our primary source of operating
working capital. Our
capital resources are largely determined by the strength of the junior resource
markets and by the status of our projects in relation
to these markets, and its ability to compete for investor support of its
projects.
Our Principal Projects
Our activities at the Helmer-Bovill
Property are focused on developing the Bovill Project.
The Bovill Project
Our lead project, the Bovill Project, is a
strategically located long term resource of quartz, potassium feldspar
(“K-spar”), halloysite and kaolinite formed through weathering of a border
phase of the Idaho Batholith causing all minerals to be contained within a fine
white clay-sand mixture referred to as “primary clay.” The Bovill
Project is located within 3 miles of state highways with electricity and
natural gas already at the property boundary.
Since 2010, our exploration work has
focused diamond drilling on the Bovill Project.
To date, a total of 322 diamond drill holes have been drilled totaling 35,909
feet. As a result of these drill
campaigns, four deposits have been identified: Kelly’s Hump, Kelly’s Hump
South, Middle Ridge and WBL.
In June 2014, we completed an updated
pre-feasibility study on the Bovill Kaolin Project (the “2014 PFS”) and on
March 8, 2016, we announced the economic results of our initial feasibility
study (the “2016 FS”). However, based on
the results of an updated independent market study it is apparent that
fundamental changes in the businesses that consume our minerals has taken place
over the past several years. These
changes include offshoring and reformulation wherein industries that had
previously used K-spar for example have reformulated their production batches
using alternate minerals. Markets do
exist for all of the minerals contained within the Bovill Kaolin Project but
not in the volumes contemplated in the 2016 FS.
Accordingly, the 2016 FS is considered not to be current and should not
be relied upon.
The mineral resources stated in the 2016
FS remain current and have recently been re-stated in a standalone technical
report prepared by SRK Consulting (U.S.) recently completed an updated resource
estimate. The updated mineral resource
statement from this report, summarized below, contains the same tonnages and
grades as were disclosed in the 2016 FS and is the basis of the reserves
defined in the 2020 Pre-Feasibility Report.
2020 Pre-Feasibility
Study
The Company engaged MillCreek Engineering
of Salt Lake City, Utah to estimate the capital and operating costs for a
smaller plant capable of producing up to 20,000 tons of metakaolin and 10,000
tons of halloysite per year. The
estimated Operating Costs and Capital Cost fell in line with expectations and
the Company retained MillCreek to complete a Pre-Feasibility Study of a
metakaolin and halloysite operation. It
is envisioned that the sand fraction (K-spar and quartz) will be screened and
sold into lower value industrial applications.
On
March 3, 2020, we announced a pre-feasibility study of our metakaolin and
halloysite operation (the “2020 PFS”).
The 2020 PFS was led by Millcreek Engineering, who were responsible for overall
project management and the process plant and infrastructure design (including
OPEX and CAPEX) and economic analyses.
Other engineering and geological services were provided by Mine
Development Associates (mine modelling; ore scheduling; mineral reserve
estimation); SRK Consulting (U.S.) Inc. (mineral resource estimation); and, HDR
Engineering Inc. (environmental review).
Highlights of the PFS
include:
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20% Pre-Tax IRR; 18% After Tax IRR
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US$48.3 million Pre-Tax NPV; US$33.7 million After Tax NPV
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Initial Capital Cost of US$48.3 million
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Total Life of Operation Capital Costs of US$54.2 million
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25 year mine life with 1.04:1 strip ratio
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The 2020 PFS is based
on the production of two minerals, halloysite and kaolinite. The halloysite is
beneficiated into two mineral products; HalloPure which is about 70% halloysite
and 30% kaolinite and premium quality Ultra-Hallopure which is greater than 90%
halloysite with the balance kaolinite. The quality of Bovill Halloysite is
regarded as being exceptional and the research on halloysite applications has
dramatically increased over the past 5 years involving polymers, filtration,
extruded polystyrene insulation, green technology and life sciences. The
kaolinite is flash calcined to produce metakaolin, a Supplementary Cementitious
Material (“SCM”) and highly reactive pozzolan that when added to concrete
increases strength and durability, reduces permeability, reduces the effect of
alkali-silica reactivity and increases resistance to chloride ingress and
sulfate attack. By using metakaolin the sustainability of the concrete is
increased through longer service life and the carbon footprint is reduced by
lowering the quantity of Portland cement. Feldspathic sand is produced during
the production process which meets the specifications of a number of
applications including arena sand, USGA bunker and top-dressing sand. There is
a potential upside from sale of feldspathic sand which is not included in the
project economics and accordingly the feldspathic sand is not included in the
reserves.
A
conservative approach to the build-up of sales has been assumed with full
production being achieved in the first quarter of the 5th year of
operation as some product applications will require development. There is
potential for full production to be achieved earlier which would have a
corresponding positive effect on the NPV and IRR.
Updated Measured and Indicated Resource Estimate
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Measured Resources of 5.7 million tons containing 76.5% quartz/K-spar sand, 12.3% Kaolinite and 4.0% Halloysite.
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Indicated Resources of 15.5 million tons containing 57.0% quartz/K-spar sand, 15.5% Kaolinite and 2.8% Halloysite.
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667,000 tons of contained halloysite, 3,119,000 tons of contained kaolinite and 13,235,000 tons of contained quartz/K-spar.
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Updated
Mineral Reserves
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Proven
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Probable
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Total P&P
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K Tons
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1,310
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1,868
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3,178
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Halloysite %
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8.8
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8.0
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8.3
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Halloysite K Tons
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115
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149
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264
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Kaolinite %
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11.1
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22.4
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17.7
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Kaolinite K Tons
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145
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418
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563
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NSR
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$ 109
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$ 123
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$ 117
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* Notes on Mineral Reserves:
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Reserves are based on a $40.00 NSR cutoff grade and pit designs.
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Rounding of numbers in mineral reserves listed above may cause apparent inconsistencies.
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The reference point for Mineral Reserves is at the plant stockpile
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The full 2020 PFS was filed on www.sedar.com on April 16, 2020 and
is available on the Company’s website.
Plan of Operation and
Outlook
The company is continuing to take a
sequential approach to the development of the Bovill Project. The Idaho
Department of Lands granted the amended Operations and Reclamation Plan on December
18, 2020. Going forward we intend to initiate a Feasibility Study and a Front
End Engineering Design Study.
During 2021 I-Minerals
developed a solid market for feldspathic sand. The developed markets include
bunker sand and top dressing for golf course along with equestrian sand. In addition, I-Minerals will be looking to
expand the feldspathic sand market to include the tile industry and mortar
sand.
Market development for
halloysite is ongoing with cutting edge research in epoxy coatings and new
developments in wound care. South Korea has received a substantial amount of
I-Minerals halloysite to test in various applications and remains to have
strong interest.
The ORP, FS and FEED
Study is forecasted to take a minimum of 6 months and a maximum of 12 months to
complete. Estimated costs to complete is
estimated as follows:
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Feasibility Study
and FEED Study
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$ 885,000
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Mineral Marketing
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420,000
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General and
administrative
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650,000
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Sub total
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1,955,000
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Contingency
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105,000
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Total
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$
2,060,000
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Results of Operations
Three months ended October 31, 2021 and 2020
We recorded a net loss
of $314,667 ($0.00 per share) for the three months ended October 31, 2021 as
compared to a net loss of $1,203,561 ($0.01 per share) for the three months
ended October 31, 2020. The decrease in the
net loss recorded for the three months ended October 31, 2021 as compared to the net loss for the three months ended
October 31, 2020 is the net result of changes to a
number of expenses. Of note are the
following items:
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Management and consulting fees of $49,552 (2020 - $50,365) are comprised of fees to manage our Company and stock-based compensation. The stock-based compensation recognized in the current period was $nil (2020 - $nil). Approximately 75% of the fees to manage our Company are charged to management and consulting fees and the other 25% is charged to mineral property expenditures.
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Mineral property expenditures of $148,559 (2020 - $159,971) are costs incurred on our Helmer-Bovill Property. The expenditures in the current period are pre-development costs that have been expensed during the period. The main components of costs during the current period included engineering and consulting ($30,000) and metallurgy ($59,017). During the current period, the Company continued to optimize the metallurgical processes and detailed engineering. Effective January 31, 2019, the Company returned to the evaluation stage for accounting purposes and therefore stopped capitalizing development costs.
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General and miscellaneous expenses of $55,640 (2020 - $50,758) are comprised of office and telephone expenses, payroll taxes, medical benefits, insurance premiums, travel expenses, promotional expenses, shareholder communication fees, transfer agent fees and filing fees. The increase during the current period was due primarily to an increase in insurance.
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Professional fees of $48,461 (2020 - $27,069) include legal fees, audit fees and financial consulting fees. The increase during the period was due to additional professional tax fees.
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Interest expense of $11,151 (2020 - $913,544) is from promissory notes that bear interest at the rates of 12%-14% per year up to April 30, 2021 and 0.13% per year effective May 1, 2021. Interest decreased due to the decrease in interest rate.
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Six months ended October 31, 2021 and 2020
We recorded a net loss
of $725,237 ($0.01 per share) for the six months ended October 31, 2021 as
compared to a net loss of $2,387,696 ($0.03 per share) for the six months ended
October 31, 2020. The decrease in the
net loss recorded for the six months ended October 31, 2021 as compared to the net loss for the six months ended
October 31, 2020 is the net result of changes to a
number of expenses. Of note are the
following items:
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Management and consulting fees of $101,666 (2020 - $100,524) are comprised of fees to manage our Company and stock-based compensation. The stock-based compensation recognized in the current period was $nil (2020 - $nil). Approximately 75% of the fees to manage our Company are charged to management and consulting fees and the other 25% is charged to mineral property expenditures.
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Mineral property expenditures of $284,650 (2020 - $298,461) are costs incurred on our Helmer-Bovill Property. The expenditures in the current period are pre-development costs that have been expensed during the period. The main components of costs during the current period included engineering and consulting ($60,000) and metallurgy ($111,907). During the current period, the Company continued to optimize the metallurgical processes and detailed engineering. Effective January 31, 2019, the Company returned to the evaluation stage for accounting purposes and therefore stopped capitalizing development costs.
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General and miscellaneous expenses of $108,164 (2020 - $88,670) are comprised of office and telephone expenses, payroll taxes, medical benefits, insurance premiums, travel expenses, promotional expenses, shareholder communication fees, transfer agent fees and filing fees. The increase during the current period was due primarily to an increase in insurance.
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Professional fees of $147,781 (2020 - $97,451) include legal fees, audit fees and financial consulting fees. The increase during the period was due to additional professional tax fees.
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Interest expense of $81,860 (2020 - $1,803,653) is from promissory notes that bear interest at the rates of 12%-14% per year up to April 30, 2021 and 0.13% per year effective May 1, 2021. Interest decreased due to the decrease in interest rate, offset by recognizing $60,000 of interest expense due to the Canada Revenue Agency relating to the withholding tax payable.
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Liquidity and Capital
Resources
Our aggregate operating, investing and
financing activities during the six months ended October 31, 2021 resulted in a net cash outflow of $93,349
(2020 – outflow of $294,846). As at October 31, 2021, we had a working capital
deficiency of $35,495,056.
During the six months ended October 31, 2021, $568,349 was used in operations (2020 - $543,967). During the six months ended October 31, 2021, spent $nil on investing activities (2020
- $879) and we received $475,000 from financing activities (2020 - $250,000).
We have been financed by advances pursuant
to promissory notes advanced by BV Lending LLC, an entity controlled by Allen
L. Ball, a member of our Board of Directors and our largest shareholder (the
“Lender”). During the six months ended October
31, 2021, the Company was receiving advances pursuant to the Sixth Promissory
Notes. As at October 31, 2021, the
balance of the promissory notes was $34,129,894. Subsequent
to October 31, 2021, the Company entered into an amending agreement whereby the
Lender agreed to advance an additional $500,000, under the same terms as the
Sixth Promissory Notes.
As at July 31, 2020, the Third Promissory
Notes, the Fifth Promissory Notes and the Sixth Promissory Notes had a maturity
date of the earlier of (i) June 30, 2020 and (ii) 60 days after a
pre-feasibility study has been filed on SEDAR. On June 4, 2020, the promissory
notes maturity date was extended from June 30, 2020 to December 15, 2020 for no
consideration. All other terms remained
the same. On December 3, 2020, the
Lender agreed to extend the maturity date of the promissory notes to March 15,
2021 for no consideration. On March 9,
2021, the Lender agreed to extend the maturity date to April 15, 2021 for no
consideration. On April 15, 2021 the maturity date was extended
to May 15, 2021 for no consideration. On May 10, 2021 the maturity date was
extended to June 15, 2021 for no consideration. On June 15, 2021 the maturity
date was extended to July 15, 2021 for no consideration. On July 15, 2021 the
maturity date was extended to August 15, 2021. In addition, the interest rate
was decreased to 0.13% per annum effective May 1, 2021 for no consideration. On August 12, 2021, the maturity date was
extended to September 15, 2021 for no consideration. On September 13, 2021, the maturity date was
extended to October 15, 2021 for no consideration. On October 13, 2021, the
maturity date was extended to November 15, 2021 for no consideration. On November 15, 2021, the maturity date was extended to
December 15, 2021 for no consideration.
We have not as yet put into
commercial production any mineral properties and as such have no operating
revenues. Accordingly, we are dependent on debt and equity financing as its primary
source of operating working capital. Our capital resources are largely determined by the strength
of the junior resource markets and by the status of our projects in relation to these markets, and our ability
to compete for investor support of our projects.
We remain dependent
on additional financing to fund development requirements on the Helmer-Bovill
property and for general corporate costs.
With respect to funds required for capital cost items, State-sponsored
debt financing instruments may be available on attractive terms, and we intend
to pursue such financial instruments to cover portions of the capital costs
associated with placing the Bovill Project deposits into production.
We do not have the
ability to internally generate sufficient cash flows to support our operations
for the next twelve months. We have been
receiving funds from a company controlled by a director of the Company through
promissory notes. We have no formal plan
in place to address this going concern issue but consider that we will be able
to obtain additional funds by equity financing and/or debt financing; however,
there is no assurance of additional funding being available.
During 2020 and 2021,
there was an outbreak of COVID-19 that has impacted the economic environment
and the capital markets. As the Company
is at the stage of exploration and evaluation and is looking to fund mine
development leading to production, the impacts of COVID-19 are not determinable
at this date. COVID-19 however, could
have a material impact on the Company's financial position, results of operation
and cash flows. The Company's liquidity and its ability to continue as a going
concern may also be impacted.
Off-Balance Sheet Arrangements
We have no
significant off-balance sheet arrangements that have or are reasonably likely
to have a current or future effect on our financial condition, changes in
financial condition, revenues or expenses, results of operations, liquidity,
capital expenditures or capital resources that is material to shareholders.
Critical Accounting Policies
Measurement Uncertainty
The preparation
of these consolidated financial statements in conformity with US GAAP requires
us to make estimates and assumptions that affect the reported amounts of assets
and liabilities and disclosure of contingent assets and liabilities at the date
of the consolidated financial statements and the reported amounts of revenues
and expenses during the reporting period.
We regularly evaluate estimates and assumptions related to the useful
life and recoverability of long lived assets, stock-based compensation,
valuation of convertible debentures and derivative liabilities, and deferred
income tax asset valuation allowances.
We base our estimates and assumptions on current facts, historical
experience and various other factors that it believes to be reasonable under
the circumstances, the results of which form the basis for making judgments
about the carrying values of assets and liabilities and the accrual of costs
and expenses that are not readily apparent from other sources. The actual results experienced by us may
differ materially and adversely from our estimates. To the extent there are material differences
between the estimates and the actual results, future results of operations will
be affected. The most significant
estimates with regard to our condensed consolidated financial statements relate
to the determination of fair values of derivative liabilities and stock-based
transactions.
Stock-based Compensation
We account for all
stock-based payments and awards under the fair value based method. Stock-based payments to non-employees are
measured at the fair value of the consideration received, or the fair value of
the equity instruments issued, or liabilities incurred, whichever is more
reliably measurable.
We account for the
granting of stock options using the fair value method whereby all awards will
be recorded at fair value on the date of the grant. The fair value of all stock options is
expensed over their vesting period with a corresponding increase to additional
paid-in capital.
Compensation costs
for stock-based payments that do not include performance conditions are
recognized on a straight-line basis. Compensation cost associated with a share
based award having a performance condition is recognized on the probable
outcome of that performance condition during the requisite service period.
Share based awards with a performance condition are accrued on an award by
award basis.
We use the
Black-Scholes option valuation model to calculate the fair value of stock
options at the date of the grant. Option pricing models require the input of
highly subjective assumptions, including the expected price volatility. Changes
in these assumptions can materially affect the fair value estimates.
Mineral Property Acquisition and Exploration Costs
Mineral property
acquisition costs are capitalized when incurred. Acquisition costs include cash consideration
and the fair market value of shares issued on the acquisition of mineral
property claims.
Costs related to the development of our mineral
reserves are capitalized when it has been determined an ore body can be
economically developed. The development
stage begins when an ore body is determined to be economically recoverable
based on proven and probable reserves and appropriate permits are in place, and
ends when the production stage or exploitation of reserves begins. Major mine development expenditures are
capitalized, including primary development costs such as costs of building
access ways, tailings impoundment, development of water supply and
infrastructure developments.
Exploration costs include those relating to
activities carried out (a) in search of previously unidentified mineral
deposits, or (b) at undeveloped concessions.
Pre-development activities involve costs incurred in the exploration
stage that may ultimately benefit production that are expensed due to the lack
of evidence of economic development, which is necessary to demonstrate future
recoverability of these expenses.
Secondary development costs are incurred for preparation of an ore body
for production in a specific ore block or work area, providing a relatively
short-lived benefit only to the mine area they relate to, and not to the ore
body as a whole.
Once production has commenced, capitalized costs
will be depleted using the units-of-production method over the estimated life
of the proven and probable reserves. If mineral properties are subsequently
abandoned or impaired, any capitalized costs will be charged to the
Consolidated Statements of Loss in that period.
We assess the carrying cost of our mineral
properties for impairment whenever information or circumstances indicate the
potential for impairment. Such
evaluations compare estimated future net cash flows with our carrying costs and
future obligations on an undiscounted basis.
If it is determined that the future undiscounted cash flows are less
than the carrying value of the property, a write down to the estimated fair
value is charged to the Consolidated Statements of Loss for the period. Where estimates of future net cash flows are
not available and where other conditions suggest impairment, management
assesses if the carrying value can be recovered.
For significant
exploration and development projects, interest is capitalized as part of the
historical cost of developing and constructing assets in accordance with ASC
835-20. Interest is capitalized until the asset is ready for service.
Capitalized interest is determined by multiplying the Company’s
weighted-average borrowing cost on general debt by the average amount of
qualifying costs incurred. Once an asset subject to interest capitalization is
completed and placed in service, the associated capitalized interest is
expensed through depletion or impairment.