The following discussion and analysis should be read in conjunction with our
unaudited condensed interim consolidated financial statements as of, and for the
three months ended
All currency amounts are stated in thousands of
As used in this report, unless the context otherwise indicates, references to
"we," "our," the "Company," "NioCorp," and "us" refer to
Note Regarding Forward-Looking Statements
This Quarterly Report on Form 10-Q and the exhibits attached hereto contain "forward-looking statements" within the meaning of Section 27A of the Securities Act of 1933, as amended (the "Securities Act"), and Section 21E of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), and "forward-looking information" within the meaning of applicable Canadian securities legislation (collectively, "forward-looking statements"). Such forward-looking statements concern our anticipated results and developments in the operations of the Company in future periods, planned exploration activities, the adequacy of the Company's financial resources, and other events or conditions that may occur in the future.
Forward-looking statements have been based upon our current business and operating plans, as approved by the Company's Board of Directors, and may include statements regarding our cash and other funding requirements and timing and sources thereof; results of feasibility studies; the accuracy of mineral resource and reserve estimates and assumptions on which they are based; the results of economic assessments and exploration activities; and current market conditions and project development plans, and the Transaction (as defined below). The material assumptions used to develop the forward-looking statements and forward-looking information included in this Quarterly Report on Form 10-Q include: our expectations of mineral prices; our forecasts and expected cash flows; our projected capital and operating costs; accuracy of mineral resource estimates and resource modeling and feasibility study results; expectations regarding mining and metallurgical recoveries; timing and reliability of sampling and assay data; anticipated political and social conditions; expected national and local government policies, including legal reforms; successful advancement of the Company's required permitting processes; and the ability to successfully raise additional capital; NioCorp and GXII (as defined below) being able to receive all required regulatory, third-party and shareholder approvals for the proposed Transaction; the amount of redemptions by GXII public stockholders; the execution of definitive agreements relating to the convertible debenture transaction and the standby equity purchase facility contemplated by the term sheets with Yorkville (as defined below); and other current estimates and assumptions regarding the proposed Transaction and its benefits.
Forward-looking statements are frequently, but not always, identified by words such as "expects," "anticipates," "believes," "intends," "estimates," "potential," "possible," and similar expressions, or statements that events, conditions, or results "will," "may," "could," or "should" (or the negative and grammatical variations of any of these terms) occur or be achieved. Any statements that express or involve discussions with respect to predictions, expectations, beliefs, plans, projections, objectives, assumptions, or future events or performance (often, but not always, using words or phrases such as "expects" or "does not expect," "is expected," "anticipates" or "does not anticipate," "plans," "estimates," or "intends," or stating that certain actions, events, or results "may," "could," "would," "might," or "will" be taken, occur or be achieved) are not statements of historical fact and may be forward-looking statements. Such forward-looking statements reflect the Company's current views with respect to future events and are subject to certain known and unknown risks, uncertainties, and assumptions. Many factors could cause actual results, performance, or achievements to be materially different from any future results, performance, or achievements that may be expressed or implied by such forward-looking statements, including, among others, risks related to the following:
15
Risks Related to Our Business:
? risks related to our ability to operate as a going concern; ? risks related to our requirement of significant additional capital; ? risks related to our limited operating history; ? risks related to our history of losses; ? risks related to the restatement of our consolidated financial statements with respect to the Affected Periods and the impact of such restatement on our future financial statements and other financial measures; ? risks related to the material weakness in our internal control over financial reporting, our efforts to remediate such material weakness and the timing of remediation; ? risks related to cost increases for our exploration and, if warranted, development projects; ? risks related to a disruption in, or failure of, our information technology systems, including those related to cybersecurity; ? risks related to equipment and supply shortages; ? risks related to current and future offtake agreements, joint ventures, and partnerships; ? risks related to our ability to attract qualified management; ? risks related to the effects of the COVID-19 pandemic or other global health crises on our business plans, financial condition and liquidity; and ? risks related to the ability to enforce judgment against certain of our directors.
Risks Related to Mining and Exploration:
? risks related to estimates of mineral resources and reserves; ? risks related to mineral exploration and production activities; ? risks related to our lack of mineral production from our properties; ? risks related to the results of our metallurgical testing; ? risks related to the price volatility of commodities; ? risks related to the establishment of a reserve and resource for Rare Earth Elements ("REEs" or "Rare Earths") and the development of a viable recovery process forREEs ; ? risks related to the estimation of mineral resources and mineral reserves; ? risks related to changes in mineral resource and reserve estimates; ? risks related to competition in the mining industry; ? risks related to the management of the water balance at ourElk Creek Project; ? risks related to claims on the title to our properties; ? risks related to potential future litigation; and ? risks related to our lack of insurance covering all our operations.
Risks Related to Government Regulations:
? risks related to our ability to obtain or renew permits and licenses for production; ? risks related to government and environmental regulations that may increase our costs of doing business or restrict our operations; ? risks related to changes in federal and/or state laws that may significantly affect the mining industry; ? risks related to the impacts of climate change, as well as actions taken or required by governments related to strengthening resilience in the face of potential impacts from climate change; and ? risks related to land reclamation requirements. 16 Risks Related to Our Debt: ? risks related to covenants contained in agreements with our secured creditors that may affect our assets; and ? risks related to the extent to which our level of indebtedness may impair our ability to obtain additional financing.
Risks Related to Our Common Shares:
? risks related to qualifying as a "passive foreign investment company" under theU.S. Internal Revenue Code of 1986, as amended; and ? risks related to our Common Shares, including price volatility, lack of dividend payments, dilution and penny stock rules.
Risks Related to the Proposed Transaction
? risks related to the amount of any redemptions by GXII public stockholders being greater than expected, which may reduce the cash in trust available to NioCorp upon the consummation of the Transaction; ? risks related to the occurrence of any event, change or other circumstances that could give rise to the termination of the Business Combination Agreement (as defined below) and/or payment of the termination fees; ? risks related to the outcome of any legal proceedings that may be instituted against NioCorp or GXII following announcement of the Business Combination Agreement and the Transaction; ? risks related to the inability to complete the Transaction due to, among other things, the failure to obtain NioCorp shareholder approval or GXII stockholder approval or the execution of definitive agreements relating to the convertible debenture transaction and the standby equity purchase facility contemplated by the term sheets with Yorkville; ? the risk that the announcement and consummation of the Transaction disrupts NioCorp's current plans; ? risks relating to the ability to recognize the anticipated benefits of the Transaction; ? risks relating to unexpected costs related to the Transaction; and ? the risks that the consummation of the Transaction is substantially delayed or does not occur, including prior to the date on which GXII is required to liquidate under the terms of its charter documents.
Should one or more of these risks or uncertainties materialize, or should
underlying assumptions prove incorrect, actual results may vary materially from
those described herein. This list is not exhaustive of the factors that may
affect any of the Company's forward-looking statements. Forward-looking
statements are statements about the future and are inherently uncertain, and
actual achievements of the Company or other future events or conditions may
differ materially from those reflected in the forward-looking statements due to
a variety of risks, uncertainties, and other factors, including without
limitation those discussed under the heading "Risk Factors" of our Annual Report
on Form 10-K/A for the fiscal year ended
The Company's forward-looking statements contained in this Quarterly Report on Form 10-Q are based on the beliefs, expectations, and opinions of management as of the date of this report. The Company does not assume any obligation to update forward-looking statements if circumstances or management's beliefs, expectations, or opinions should change, except as required by law. For the reasons set forth above, investors should not attribute undue certainty to, or place undue reliance on, forward-looking statements.
17 Qualified Person
All technical and scientific information included in this Quarterly Report on
Form 10-Q derived from the
Company Overview
NioCorp is developing the
Our primary business strategy is to advance our
Recent Corporate Events
On
The business combination pursuant to the Business Combination Agreement will be accounted for as a recapitalization in accordance with GAAP. Under this method of accounting, GXII will be treated as the "acquired" company for financial reporting purposes. Accordingly, the transaction is treated as the equivalent of NioCorp issuing Common Shares for the net assets of GXII, accompanied by a recapitalization. The net assets of GXII will be stated at historical cost, with no goodwill or other intangible assets recorded.
In addition, in connection with the entry into the Business Combination
Agreement, the Company announced the signing of non-binding LOIs for two
separate financing packages with Yorkville. Subject to entering into definitive
agreements, these financings could provide the Company with access to up to an
additional
18
repaid by the Company in either cash or Common Shares, and a standby equity
purchase facility pursuant to which the Company will have the ability to require
Yorkville, subject to the conditions set out in the definitive agreements, to
purchase up to
The proposed Transaction is expected to close in the first calendar quarter of
2023, subject to the satisfaction or waiver of certain customary closing
conditions contained in the Business Combination Agreement, including, among
other things, (i) obtaining required approvals of the Transaction and related
matters by the respective shareholders of NioCorp and GXII, (ii) the
effectiveness of the registration statement on Form S-4 that the Company
originally filed on
Final proceeds will depend upon redemption rates of current GXII shareholders at the consummation of the proposed Transaction. In connection with the closing of the Transaction, a significant number of GXII shareholders may exercise their redemption rights. See Part II, Item 1A, "Risk Factors-If the Transaction is consummated, the combined company may not realize all or any of the anticipated benefits expected as a result of the Transaction."
Elk Creek Project Update
On
On
The demonstration plant will process
? Phase 1 is designed to demonstrate a new approach to the initial processing of
the ore that NioCorp expects to mine from the Project site, subject to receipt
of necessary project funding, including calcination, initial leaching, and rare
earth extraction;
? Phase 2 is designed to demonstrate an improved process for the second stage of
leaching along with Niobium and Titanium separation; and
? Phase 3 is designed to demonstrate the technical viability of separating
high-purity versions of several target magnetic rare earth products from Elk
Creek ore samples, as well as confirming previously achieved high recovery
rates for high-purity Scandium trioxide.
The potential magnetic rare earth products include Neodymium-Praseodymium ("NdPr") oxide, Dysprosium oxide, and Terbium oxide. NioCorp will utilize conventional solvent extraction ("SX") technology to test a rare earth separation approach developed by NioCorp and L3 Process Innovation ("L3").
19
On
The well-known and time-tested process NioCorp is employing to remove calcium and magnesium carbonates from the ore using thermal treatment and leaching is part of the demonstration plant's Phase I flowsheet. This step operated successfully, and the removed calcium and magnesium were produced at demonstration scale as a mixed calcium and magnesium carbonate. Removing carbonate minerals in this fashion is expected to reduce the size of the follow-on planned production steps and make them more efficient. Characterization of the calcium and magnesium carbonate from the completed demonstration plant production runs has demonstrated very low levels of impurities, and an overall 99% purity of the mixed calcium-magnesium carbonate. Phase I demonstration plant operations will continue with calcination and a ramp-up of leaching operations as testwork and assembly of Phase II and Phase III of the demonstration plant's planned operations proceed in parallel.
Other Activities
Our long-term financing efforts continued during the quarter ended
? Continuation of the Company's efforts to secure federal, state and local permits; ? Continued evaluation of the potential to produce Rare Earth products; ? Negotiation and completion of offtake agreements for the remaining uncommitted production from the project; ? Negotiation and completion of engineering, procurement and construction agreements; ? Completion of the final detailed engineering for the underground portion of theElk Creek Project ; ? Initiation and completion of the final detailed engineering for surface project facilities; ? Construction of natural gas and electrical infrastructure under existing agreements to serve theElk Creek Project site; ? Completion of water supply agreements and related infrastructure to deliver fresh water to the project site; ? Initiation of revised mine groundwater investigation and control activities; ? Land clearing operations intended to prepare property owned by ECRC for the commencement of project construction, ? Initiation of long-lead equipment procurement activities; and ? Operation of a small-scale demonstration plant to address process recommendations contained in the NI 43-101 technical report for theElk Creek Project filed on SEDAR onMay 29, 2019 and to quantify REE metallurgical performance. 20
Financial and Operating Results
The Company has no revenues from mining operations. Operating expenses incurred related primarily to performing exploration activities, as well as the activities necessary to support corporate and shareholder duties, and are detailed in the following table.
For the Three Months Ended September 30, 2022 2021 Operating expenses Employee-related costs$ 293 $ 319 Professional fees 164 90 Exploration expenditures 1,288 621 Other operating expenses 337 226 Total operating expenses 2,082 1,256 Foreign exchange loss 173 225 Interest expense 300 605 Loss (gain) on equity securities (1 ) 2 Income tax benefit - - Net loss$ 2,554 $ 2,088
Three months ended
Significant items affecting operating expenses are noted below:
Employee-related costs decreased in 2022 as compared to 2021 due to timing of the retirement of our general counsel in the second quarter of fiscal 2021.
Professional fees increased in 2022 as compared to 2021, primarily due to the
timing of legal services related to the TRS filed with the
Exploration expenditures increased in 2022 as compared to 2021, primarily due to
the timing of demonstration plant development and start-up costs incurred in
2022, as well as costs related to the completion and filing of the TRS filed
with the
Other operating expenses include investor relations, general office expenditures, equity offering and proxy expenditures, board-related expenditures and other miscellaneous costs. These costs increased in 2022 as compared to 2021 primarily due to increased financial advisory fees and investor relations fees associated with our ongoing financing efforts.
Other significant items impacting the change in the Company's net loss are noted below:
Foreign exchange loss is primarily due to changes in the
Interest expense decreased in 2022 as compared to 2021 due to the impacts of conversions on the outstanding balance of the Lind III Convertible Security.
Liquidity and Capital Resources
We have no revenue generating operations from which we can internally generate funds. To date, our ongoing operations have been financed by the sale of our equity securities by way of private placements, convertible securities issuances, the exercise of incentive stock options and share purchase warrants, and related party loans.
21
As of
We expect that the Company will operate at a loss for the foreseeable future.
The Company's current planned cash needs are approximately
The Company anticipates that it does not have sufficient cash to continue to
fund basic operations for the next twelve months, and additional funds totaling
On
? Anticipated Acceleration of Financing Efforts. The Transaction has the potential to (1) provide NioCorp with up to$285.0 million in net cash proceeds at the consummation of the Transaction, depending upon the amount of redemptions by GXII public stockholders, and up to an additional$81.0 million over the next three years (as further discussed below), depending on the consummation of other additional financing arrangements that NioCorp and GXII intend to pursue prior to and following the expected closing of the Transaction and (2) significantly accelerate NioCorp's efforts to obtain the requiredElk Creek Project financing by increasing exposure to institutional investors looking to make strategic investments in critical minerals plays that are crucial to the world's clean energy transition; ? Non-Binding Yorkville Term Sheets. The signing of non-binding LOIs for two separate financing packages with Yorkville, where, subject to entering into definitive agreements, such financings could provide NioCorp with access to up to an additional$81.0 million to help advance theElk Creek Project . The financings contemplated by the LOIs include$16.0 million in convertible debentures that are expected to be funded at the closing of the Transaction, and subject to certain limitations can be repaid by NioCorp in either cash or NioCorp Common Shares, and a standby equity purchase facility pursuant to which NioCorp will have the ability to require Yorkville, subject to the conditions set out in the definitive agreements, to purchase up to$65.0 million of NioCorp Common Shares; ? Anticipated Benefits of Nasdaq Listing. A listing on Nasdaq, which is an established national exchange inthe United States , would provide broader access to capital and financing alternatives and would otherwise enhance NioCorp's public profile; and ? Minimum Cash Condition. The consummation of the Transaction is subject to the satisfaction or waiver of certain closing conditions contained in the Business Combination Agreement, including, among other things, that, at the closing, NioCorp and its subsidiaries (including GXII, as successor by merger to ECRC) will have received cash in an amount equal to or greater than$15.0 million , subject to certain adjustments. 22
The NioCorp Board also considered a variety of uncertainties and risks and other potentially negative factors concerning the Transaction, including, but not limited to, the following:
? Risks of Failure to Complete the Transaction. The risks that:
o the Transaction may not be completed despite the parties' efforts, including
the possibility that the conditions to the parties' obligations to complete the
Transaction (which include certain conditions that are not within the control
of the parties to the Business Combination Agreement) may not be satisfied or
that completion of the Transaction may be unduly delayed, and any resulting
adverse impacts on NioCorp, its business and the trading price of NioCorp
Common Shares;
o the circumstances under which the Business Combination Agreement could be
terminated and the impact of such termination, including the requirement that
NioCorp must pay GXII (1) a Base Termination Fee of
terminates the Business Combination Agreement in order to enter into an
agreement providing for a Superior Proposal (as defined in the Business
Combination Agreement), for a change of recommendation of the NioCorp Board, or
a material breach of certain of NioCorp's covenants relating to soliciting
acquisition proposals or (2) an Intentional Breach Termination Fee of
million if GXII terminates the Business Combination Agreement as a result of a
willful and material breach by NioCorp or as a result of NioCorp's failure to
consummate the closing of the Transaction within five business days after all
the conditions to closing have been satisfied;
o if GXII is entitled to the Base Termination Fee or the Intentional Breach
Termination Fee upon termination of the Business Combination Agreement, NioCorp
is also required to pay all documented and reasonable out-of-pocket expenses
paid or payable by GXII and its sponsor in connection with the Business
Combination Agreement and the Transaction, not to exceed
o the substantial costs to be incurred in connection with the Transaction,
including those incurred regardless of whether the Transaction are completed;
? Risks Relating to the Benefits of the Transaction. The risks of:
o not realizing all the anticipated benefits expected as a result of the
Transaction, including the anticipated acceleration of its financing efforts
and the benefits of the expected Nasdaq listing, and that general economic and
market conditions outside the control of the parties to the Business
Combination Agreement could deteriorate, any of which could result in NioCorp
being unable to achieve the financing necessary to advance, complete
construction and commence operation of the
o the substantial costs to be incurred in connection with the Transaction,
including those incurred regardless of whether the anticipated benefits of the
Transaction are realized;
? Risks Relating to the Financing. The absence of committed financing and that
the parties may not be able to negotiate definitive documentation related to
the Yorkville LOIs or may not otherwise be able to consummate the financing
transactions contemplated thereby, which could cause NioCorp to encounter
difficulties in completing the Transaction with financing terms as favorable as
anticipated or at all; and
? Restrictions on the Conduct of Business. The Business Combination Agreement
places certain restrictions on the conduct of the NioCorp business prior to the
consummation of the Transaction and other alternatives reasonably available to
NioCorp if it did not pursue the Transaction, including continuing to pursue
alternative financing arrangements.
Except as set forth above, we currently have no further funding commitments or arrangements for additional financing at this time, other than the potential exercise of options and warrants, and there is no assurance that we will be able to obtain any such additional financing on acceptable terms, if at all. Notwithstanding the restrictions set forth in the Business Combination Agreement, there is significant uncertainty that we would be able to secure any
23
additional financing in the current equity or debt markets. The quantity of funds to be raised and the terms of any proposed equity or debt financing that may be undertaken will be negotiated by management as opportunities to raise funds arise. In addition to the proposed Transaction and subject to receipt of the consent of GXII as may be required pursuant to the Business Combination Agreement, management may pursue funding sources of both debt and equity financing, including but not limited to the issuance of equity securities in the form of Common Shares, Warrants, subscription receipts, or any combination thereof in units of the Company pursuant to private placements to accredited investors or pursuant to equity lines of credit or public offerings in the form of underwritten/brokered offerings, at-the-market offerings, registered direct offerings, or other forms of equity financing and public or private issuances of debt securities including secured and unsecured convertible debt instruments or secured debt project financing. Management does not currently know the terms pursuant to which such financings may be completed in the future, but any such financings will be negotiated at arm's length. Future financings involving the issuance of equity securities or derivatives thereof will likely be completed at a discount to the then-current market price of the Company's securities and will likely be dilutive to current shareholders. In addition, we could raise funds through the sale of interests in our mineral properties, although current market conditions and the impacts of the COVID-19 pandemic and other recent worldwide events have substantially reduced the number of potential buyers/acquirers of any such interests. However, we cannot provide any assurances that we will be able to be successful in raising such funds.
Based on the conditions described within, management has concluded and the audit
opinion and notes that accompany our financial statements for the year ended
We have no exposure to any asset-backed commercial paper. Other than cash held
by our subsidiaries for their immediate operating needs in
Operating Activities
During the three months ended
Financing Activities
Financing inflows were nil during the three months ended
24 Cash Flow Considerations
The Company has historically relied upon debt and equity financings to finance its activities. The Company may pursue additional debt and/or equity financing in the medium term; however, there can be no assurance the Company will be able to obtain any required financing in the future on acceptable terms.
The Company has limited financial resources compared to its proposed expenditures, no source of operating income, and no assurance that additional funding will be available to it for current or future projects, although the Company has been successful in the past in financing its activities through the sale of equity securities.
The ability of the Company to arrange additional financing in the future will
depend, in part, on the prevailing capital market conditions, including the
impacts of the COVID-19 pandemic on the timing and availability of funding, and
its success in developing the
Historically, the Company has used net proceeds from issuances of Common Shares
to provide sufficient funds to meet its near-term exploration and development
plans and other contractual obligations when due. However, development and
construction of the
Critical Accounting Estimates
There have been no material changes in our critical accounting estimates
discussed in "Management's Discussion and Analysis of Financial Condition and
Results of Operations" under the heading "Critical Accounting Estimates and
Recent Accounting Pronouncements" as of
Certain
NioCorp believes that it qualified as a "passive foreign investment company"
("PFIC") as defined under Section 1297 of the
25 Other
The Company has one class of shares, being Common Shares. A summary of
outstanding shares, share options, warrants, and convertible debt option as of
Common Shares Outstanding (fully diluted) Common Shares 279,450,884 Stock options1 14,364,000 Warrants1 18,516,253 Convertible Debt2 1,155,200
1 Each exercisable into one Common Share
2 Represents Common Shares issuable on conversion of aggregate outstanding
principal amounts of
assuming a market price per Common Share of
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