Excelsior Mining : Management's Discussion and Analysis for the Three and Nine Months ended September 30, 2021
MIN.TO
MANAGEMENT'S DISCUSSION AND ANALYSIS
FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2021
EXCELSIOR MINING CORP.
MANAGEMENT'S DISCUSSION & ANALYSIS
FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2021
Management's Discussion and Analysis ("MD&A") is as of November 9, 2021 and relates to the financial condition of Excelsior Mining Corp. and its subsidiaries ("Excelsior" or the "Company") as of September 30, 2021. The MD&A supplements and complements Excelsior's unaudited Condensed Consolidated Interim Financial Statements for the three and nine months ended September 30, 2021 (the "Consolidated Financial Statements") and related notes. Comparison of the financial results in this MD&A is provided to the financial results for the three and nine month periods ended September 30, 2020, or the year ended December 31, 2020. Other relevant documents to be read with this MD&A include the Audited Consolidated Financial Statements for the year ended December 31, 2020, and the Annual Information Form ("AIF") for the year ended December 31, 2020. These documents are available on the Company's website at www.excelsiormining.com, and on the SEDAR website at www.sedar.com.
The unaudited Consolidated Financial Statements for the three and nine months ended September 30, 2021 have been prepared in accordance with International Financial Reporting Standards ("IFRS"), as applicable to interim financial reports including International Accounting Standard 34, Interim Financial Reporting. The condensed consolidated interim financial statements do not include all the information required for full annual financial statements. The accounting policies applied in the condensed consolidated interim financial statements are consistent with those applied in the Company's audited annual consolidated financial statements unless otherwise disclosed. All dollar amounts are expressed and presented in thousands of United States dollars except per share amounts (unless otherwise noted). Canadian dollars are expressed as "CAD$".
Readers are cautioned that this MD&A contains forward-looking statements and that actual events may vary from Management's expectations. Readers are encouraged to read the "Cautionary Statements" section presented later in this MD&A including the factors described in "Risk Factors" and "Forward-Looking Information".
APPROVAL
The Board of Directors of Excelsior Mining Corp. has approved the disclosure contained in this MD&A as of November 9, 2021.
DESCRIPTION OF BUSINESS
Excelsior is a mineral exploration, development and mining company that is advancing the Gunnison Copper Project ("Gunnison Project") located in Cochise County, Arizona. Excelsior was incorporated under the Business Corporations Act of British Columbia on June 9, 2005. The Company is listed on the Toronto Stock Exchange ("TSX") under the symbol "MIN", the top-tier over-the-countermarket ("OTCQX") under the symbol "EXMGF", and the Frankfurt Stock Exchange under the symbol "3XS".
The Gunnison Project is a low-cost, environmentally friendly in-situ recovery copper extraction project that is permitted to 125 million pounds per year of copper cathode production. Excelsior announced the start of construction in December 2018, and the completion of the construction phase in December 2019, including the wellfield drilling and the supporting infrastructure consisting of the electrical power system upgrades, all holding ponds, the pipeline corridor and acid storage tanks. Upgrades to the adjacent Johnson Camp mine ("JCM") Solvent Extraction and Electrowinning ("SX-EW") plant were also completed in December 2019. The injection of mining fluids to the wellfield for copper production started on December 31, 2019 and the Company began the start-up and commissioning phase of the project in January 2020. On April 9, 2020 a decision was made to place the project on Care and Maintenance in response to the COVID-19 global pandemic. On August 12, 2020 the Company announced that a small-scale restart had commenced. As the Company continues to ramp up towards full production, it remains cognizant of the continued health risks to the Company's workforce related to COVID-19. Any significant interruption in the workforce could negatively impact the timing of the Company's ramp up process. The Company has put in place various procedures to mitigate the risk of transmission of COVID-19 on site as the Health and Safety of our employees is our primary concern. The Company continues to maintain the wellfield in accordance with all state and federal permit requirements.
COPPER STREAM
On November 30, 2018 the Company finalized an agreement for a $75,000 project financing package ("Project Financing", or "copper stream" or "copper stream derivative liability") with Triple Flag Mining Finance Bermuda
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EXCELSIOR MINING CORP.
MANAGEMENT'S DISCUSSION & ANALYSIS
FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2021
Ltd. ("Triple Flag") for the purpose of developing the Gunnison Project. In connection with the Project Financing, the Company issued Triple Flag 3.5 million five-year common share purchase warrants (the "warrants"), under a five- year term beginning on November 30, 2018, entitling Triple Flag to purchase 3.5 million Excelsior common shares ata strike price of CAD$1.50 per share issued.
As of September 30, 2019, the Company has received all funding from the $75,000 project financing, consisting of a $65,000 copper stream (the "Stage 1 Upfront Deposit"), and $10,000 in equity financing.
Under the terms of the Project Financing, Triple Flag committed to fund the Stage 1 Upfront Deposit in return for Excelsior selling to Triple Flag a percentage of the refined copper production from the Gunnison Project at a reduced price equal to 25% of the copper spot price. The exact percentages of copper production to be sold to Triple Flag varies according to the total production capacity, based on a sliding scale.
The percentages applicable at certain projection levels are detailed in the table below.
Following a decision by Excelsior to expand the production capacity, Triple Flag will have the option to invest a further $65,000 in exchange for an increase in its entitlement to copper under the Stream ("Expansion Option"). Upon completion of an expansion, Excelsior has the option to reduce the amount of the Stream by 50% by making a buy- down payment to Triple Flag (the "Buy-Down Payment"). The Buy-Down Payment is calculated as an amount that provides Triple Flag with an internal rate of return of 15% on 50% of the Stage 1 Upfront Deposit and, if applicable, 15% on 50% of the Expansion Upfront Deposit (in each case after evaluating the value of Stream deliveries (net of the 25% purchase price payment for such deliveries) made to Triple Flag prior to its payment).
The table below shows the range of percentage of production to be purchased by Triple Flag based on specified production levels based on various scenarios that include Triple Flag's Expansion Option and Excelsior's Buy-Down Right. Actual amounts will be calculated within the range, based on the proven production history.
The stream obligation and share purchase warrants are recorded at fair value at each statement of financial position date as the Company has determined that the stream obligation and the share purchase warrants are derivative liabilities carried at FVTPL.
The fair value of the stream obligation was valued using a Monte Carlo simulation model. The significant assumptions developed by management used in the Monte Carlo simulation model included: the copper forward price curve based on COMEX futures, the long-term copper price volatility of 25.25% (December 31, 2020 - 22.08%), a discount rate which factors in the Company's credit spread of 7.95% (December 31, 2020 - 9.11%), the life of mine production schedule and expectations including expansion plans and characterization of the stream for tax purposes.
The Monte Carlo simulation model was prepared by an independent valuation specialist and the life of mine production schedule and expectations including expansion plans are based on the information compiled by qualified persons.
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EXCELSIOR MINING CORP.
MANAGEMENT'S DISCUSSION & ANALYSIS
FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2021
On November 30, 2018, pursuant to the Project Financing, the Company issued 3.5 million share purchase warrantsat an exercise price of CAD$1.50 per share and exercisable into 3.5 million common shares of the Company until November 30, 2023. The Company determined that the share purchase warrants are a derivative liability.
NEBARI FINANCING
On October 31, 2019 the Company entered into an agreement with Nebari Natural Resources Credit Fund I LP ("Nebari") for a $15,000 credit facility (the "Credit Facility"). As of May 31, 2020, the $15,000 credit facility has been fully drawn. The Credit Facility is secured against the assets of Excelsior and certain of its subsidiaries. The Credit Facility bears interest at 14.2% per annum, payable monthly. An arrangement fee of 2.0% ($300) of the total available funds under the Credit Facility was paid on closing. The arrangement fee is creditable against interest payable on the draws under the Credit Facility, to a maximum of $100 of interest per each draw. The Credit Facility has aninitial term of 15 months from the date of the Initial Draw which occurred on December 23, 2019.
Nebari has provided an extension of the term of the Credit Facility to March 23, 2022.
PAYCHECK PROTECTION PROGRAM LOAN
On May 21, 2020 the Company signed a Promissory Note with the Bank of America under the Paycheck Protection Program (PPP) and was subsequently advanced a loan in the amount of $1,206.
By March 31, 2021 the Company was notified that the SBA had approved the forgiveness of $1,090 of the PPP loan, and this amount has been recognized in "Other Items".
The remaining loan balance of $116 has been paid.
2021 "BOUGHT DEAL" FINANCING
On February 22, 2021, the Company closed a "bought deal" public offering (the "Offering") of units of the Company (the "Units") with Scotiabank and PI Financial Corp. as joint bookrunners and underwriters. The Company issued a total of 33,350,000 Units at a price of CAD$0.95 per Unit. Each Unit consisted of one common share and one common share purchase warrant. Each warrant is exercisable to acquire a common share at an exercise price of CAD$1.25 until August 22, 2022. The Company received $23,163 as net proceeds from the Offering. The net proceeds of the "bought deal" financing were allocated for the continued ramp up and operation of the Company's Gunnison Project including operating, corporate, business development, legal and sustaining capital costs.
GUNNISON PROJECT
Wellfield Start-up and Commissioning Status
The Company received approval in December 2019 from the Environmental Protection Agency to commence mining operations and began injecting mining fluids to the copper ore body on December 31, 2019. The mining fluids will circulate through a volume of rock of approximately 400ft x 400ft x 700ft, in a closed-loop system until the concentration of copper held in solution meets a sufficient grade to be treated through the SX-EW facilities to extractthe copper and produce LME grade copper cathode sheets.
During the start-up process in January 2020, initial copper recovery grades exceeded feasibility study expectations. Pregnant leach solution grade measured 0.15 grams per liter of copper in the primary recovery pond, which also exceeded start-up expectations. Acid injection was steadily increased during the start-up process, up to approximately50% of the full production rate.
In February 2020, in order to improve efficiency for long-term production performance the Company initiated several optimization changes to the production wellfield. The goal of the wellfield optimization is to assist in acid breakthrough and continued copper mobilization. Breakthrough will be achieved when free acid is detected at designated recovery wells; thereby maintaining the desired pH level (acidity level) where copper will remain insolution.
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EXCELSIOR MINING CORP.
MANAGEMENT'S DISCUSSION & ANALYSIS
FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2021
Specific optimizations that were completed in February and March 2020 include making the wellfield reversible in terms of fluid flow. Injection wells were retrofitted with pumps, allowing them to be used as recovery wells whenneeded. In addition, recovery wells were reconfigured to allow for injection. By making the wellfield reversible,
Excelsior will have the option of moving mobilized copper only a portion of the full distance between the wells before reversing the fluid flow, and thus reducing the effective distance that the copper must travel before it is recovered. This new capacity to move fluids back and forth (or "push and pull") is expected to help achieve breakthrough, atwhich point copper would remain in solution throughout the production process.
In parallel during February and March 2020, infrastructure was installed that will allow for concentrated acid to be injected into each well, which will dissolve any reprecipitated copper (copper sulphate) in the area of the pumps, thereby ensuring effective fluid flow. Preventative maintenance programs to limit pump and wellfield down-timearealso in place.
On April 9, 2020 a decision was made to place the project on Care and Maintenance in response to the COVID-19 global pandemic. The Company has put in place various procedures to mitigate the risk of transmission of COVID- 19 on site as the Health and Safety of our employees is our primary concern. On August 12, 2020 the Companyannounced that a small-scalerestart had commenced, thus exiting the care and maintenance mode.
On November 10, 2020 the Company announced that following the small-scale restart copper recovery has achieved concentrations that now allow for initial production to commence at the Gunnison Project. The Company also confirmed its wellfield optimization program had been successful. Highlights from the wellfield optimization programinclude:
On December 21, 2020, Excelsior announced that first copper cathode production had been achieved at the Gunnison Project. On January 28, 2021 Excelsior announced that it had sold its first copper cathode from the Gunnison Project. Assays confirm that the copper content achieved 99.998%.
During February 2021, the copper purity achieved 99.999% as per the feasibility design and is anticipated for all future copper harvests.
The Company is continuing with ramp up activities to attain commercial production levels. The ramp up process has been slowed by the formation of CO2 in the wellfield which occurs when the acidified raffinate comes into contact with secondary calcite within the permeable fracture system. Cycling periods of fresh water injection with acid injection and recovery has demonstrated sustained flow improvements on individual wells. To resolve this issue throughout the existing wellfield, the Company has announced plans to design, construct and operate a raffinate neutralization plant that will be used to provide approximately pH neutral solutions for use in the earlier described cycling process. Additionally, the Company recently announced that it is planning to restart of the Johnson Camp copper oxide open pits to supplement copper production during the period required to design, construct, and operate
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Excelsior Mining Corp. published this content on 19 November 2021 and is solely responsible for the information contained therein. Distributed by Public, unedited and unaltered, on 19 November 2021 17:53:02 UTC.