MANAGEMENT DISCUSSION & ANALYSIS

Transcription

1 MANAGEMENT DISCUSSION & ANALYSIS PERIOD ENDED SEPTEMBER 30, 2017 FIRST QUARTER NEMASKA LITHIUM 450, Gare-du-Palais Street, 1 st floor, Québec (Québec) G1K 3X

2 TSX : NMX The following management s discussion and analysis (the MD&A ) objective is to help the reader better understand the activities of Nemaska Lithium Inc. (the Corporation or the Company ) and its wholly owned subsidiaries as well as the highlights of its financial situation. It explains the financial situation and the results for the three-month periods ended September 30, 2017 and 2016 and the comparison of the Corporation s consolidated statement of financial position as at June 30, The MD&A has been prepared in accordance with Regulation and should be read in conjunction with the unaudited consolidated condensed interim financial statements for the three-month period ended September 30, 2017 and the audited consolidated financial statements of the Corporation for the fiscal year ended June 30, 2017 and the related notes thereto. The unaudited consolidated condensed interim financial statements have been prepared on a going concern basis, which assumes that the Corporation will be able to realize its assets and discharge its liabilities in the normal course of business as they come due into the foreseeable future. The unaudited consolidated condensed interim financial statements and this MD&A have been reviewed by the Audit Committee and approved by the Corporation s Board of Directors on November 13, Unless otherwise indicated, all the amounts in this MD&A are in Canadian dollars. Forward looking statements All statements, other than statements of historical fact, contained in this Management Discussion & Analysis ( MD&A ) including, but not limited to, any information as to the future plans and outlook for the Corporation, constitute ''forward-looking information'' or ''forward-looking statements'' within the meaning of certain securities laws, and are based on expectations, estimates and projections as of the time of this MD&A. The words "anticipates", ''plans'', ''expects'', "indicate", "intend", ''scheduled'', ''estimates'', ''forecasts", "guidance", "initiative", "outlook", "potential", "projected", "pursue", "strategy", "study", "targets", or ''believes'', or variations of or similar such words and phrases or statements that certain actions, events or results ''may'', ''could'', ''would'', or ''should'', ''might'', or "way forward", ''will be taken'', ''will occur'' or ''will be achieved'' and similar expressions identify forwardlooking statements. Forward-looking statements are necessarily based upon a number of estimates and assumptions that, while considered reasonable by the Corporation, acting in good faith, as of the time of such statements, are inherently subject to significant business, economic and competitive uncertainties and contingencies. These estimates and assumptions may prove to be incorrect. Many of these uncertainties and contingencies can directly or indirectly affect, and could cause, actual results to differ materially from those expressed or implied in any forward-looking statements. There can be no assurance that forward-looking statements will prove to be accurate, as actual results and future events could differ materially from those anticipated in such statements. Forward-looking statements are provided for the purpose of providing information about management's expectations and plans relating to the future. The Corporation disclaims any intention or obligation to update or revise any forward-looking statements or to explain any material difference between subsequent actual events and such forward-looking statements, except to the extent required by applicable law.

3 Reporting entity, nature of operations, scope of activities and going concern The Corporation is domiciled in Canada and incorporated under the Canada Business Corporations Act. Its shares were listed on the TSX Venture Stock Exchange since January 20, 2010 and are now listed on the Toronto Stock Exchange under the symbol NMX since July 8, 2016 and on the American stock exchange Over-the-Counter QX ( OTCQX ) under the symbol NMKEF. The Corporation s head and registered offices are located at 450 de la Gare-du-Palais Street, 1 st Floor, Québec, Québec G1K 3X2. Intercorporate Relationships The Corporation beneficially owns 100% of the voting shares of 3 subsidiaries, namely Nemaska Lithium P1P Inc., Nemaska Lithium Shawinigan Transformation Inc. and Nemaska Lithium Whabouchi Mine Inc. (collectively, the Subsidiaries ). The following corporate chart is a list of the Subsidiaries, indicating their jurisdiction of incorporation. All assets of the Corporations are located in the province of Québec. In summary, each Corporation has the following main assets: Nemaska Lithium Inc.: property claims, mining lease, surface usage leases and exploration and evaluation assets, intellectual property, computer software & hardware and investment in Monarques Gold Corporation Inc.; Nemaska Lithium Whabouchi Mine Inc.: main assets currently at the Whabouchi mine site, including site preparation, concentrator building, administrative office building and the small DMS equipment; Nemaska Lithium P1P Inc.: equipment required to operate the Phase 1 Plant and also the administrative office in Shawinigan; Nemaska Lithium Shawinigan Transformation Inc.: land and commercial buildings located in Shawinigan; 2

4 Business Activities and Objectives, Foreseen Main Work Planned and Milestones to come The Corporation has been actively involved since October 2009, in the exploration and development of what management believes is one of the most significant spodumene lithium hard rock deposits in the world, both in volume and grade, the Whabouchi mine located in the Eeyou Istchee / James Bay Region of the Province of Québec (the Whabouchi Property ). The Corporation has also been actively developing, since summer of 2011, a new process to produce high purity lithium hydroxide and lithium carbonate from spodumene concentrate, using electrochemistry instead of conventional chemistry. The Corporation has finalized in May 2016 the acquisition of the land and existing buildings in Shawinigan, Quebec, to locate its hydro-metallurgical processing plant. The Corporation objective is to become a vertically integrated lithium hydroxide and lithium carbonate producer and supplier to the emerging lithium battery market that is largely driven by electric vehicles, cell phones, tablets and other consumer products as well as energy storage. The mining property Whabouchi has economically recoverable ore reserves, pursuant to a NI feasibility study update with an effective date of April 4, 2016 and deposited on SEDAR on May 19, 2016 and as amended on June 8, 2016 (the Updated Feasibility Study ) prepared by Met-Chem Canada Inc. (a member of the DRA group). The Corporation is in the development stage in respect of its Whabouchi mining property and Shawinigan hydromet plant (the Whabouchi Project ) because it has obtained in July 2016 the initial financing required to start the development and the construction phase of the Whabouchi Project. The recoverability of amounts shown for mining properties and related exploration and evaluation assets is dependent upon the discovery of economically recoverable ore reserves, the ability of the Corporation to obtain necessary financing to complete the development, and future profitable production or proceeds from the disposition thereof. The Corporation s main commercial business objectives, subject to proper project financing being closed on a timely manner, are to commence commissioning of the Whabouchi mine and Concentrator during the second half of the 2018 calendar year and to start the commissioning of the Commercial Hydromet Plant during the second half of the calendar year Given the actual and expected status of the lithium hydroxide and lithium carbonate supply, the Corporation believes it is well timed to enter the chain of supply. In order to achieve its objectives and timing to market, the Corporation needs to put in place the proper financing for the Whabouchi Project in order to continue the construction of the Whabouchi mine and concentrator and commence the construction process at the Commercial Hydromet Plant during the first quarter of the 2018 calendar year. In order for the Corporation to accomplish its main commercial business objectives, additional financing is required for the construction of the Whabouchi mine and concentrator as well as the Hydromet Plant in Shawinigan. The estimated capital cost for the project according to the 2016 Updated Feasibility study is $549 million, including contingencies. Following several discussions with the relevant Authorities and given the elements described in the upcoming sections of this report such as but not limited to the increase by about 20% in the total output of its hydromet plant, the recovery optimization and the revised capital and operational costs; the Corporation took the decision to update the most recent feasibility study. The Corporation expects to have the final NI report in the middle of January This decision should not have any impact on the current Whabouchi Project schedule, as the engineering work and commercial project construction plan will still be ongoing in parallel, pending proper project financing being closed on a timely manner. 3

5 Although the Company has general working capital of $ 33.2M as at September 30, 2017, the Company may be required to delay the construction or discretionary expenditures if additional financing cannot be obtained to continue as planed the construction of the Whabouchi mine and Hydromet Plant. The Corporation remains very active to complete the required project financing to continue the construction of its Project. During the three-month period ended September 30, 2017, more than $25.6M was invested in the commercial project and the Phase 1 Plant (see note 5 and note 6 of the unaudited consolidated condensed interim financial statements for the threemonth period ended September 30, 2017). Highlights for the three-month period ended September 30, 2017 and up to the date of this report and next steps Installation and Operation Progress at the Phase 1 Plant In order to qualify the Corporation s products with customers, gain knowledge and experience making high purity lithium salts to significantly de-risks start-up of its commercial operation, while building the Commercial Hydromet Plant and the Whabouchi mine and Concentrator, the Corporation has built and is currently operating an hydrometallurgical demonstration plant (the Phase 1 Plant ), designed to produce high purity lithium hydroxide and lithium carbonate from spodumene concentrate. The Phase 1 Plant has started producing battery grade lithium hydroxide solution from lithium sulfate provided by a client, in February Since September 2017, the Phase 1 plant is processing spodumene concentrate coming from a bulk sample done at the Whabouchi mine. The Corporation was able to proceed with these steps following the completion of the $38M Phase 1 plant project financing during the first half of calendar year This financing is comprised of $12.87M grant from Sustainable Development Technology Canada ( SDTC ), a $3M grant from the Ministère des Ressources Naturelles under the Technoclimat program, a $10M private placement from Ressources Quebec Inc. and finally a $12M upfront payment from Johnson Matthey Battery Materials Inc. ("JMBM ). The work accomplished at the Phase 1 Plant since July 2016 is impressive. During the three-month period that ended September 30, 2017 and up to the date of this report, the following work was done: Engineering, installation and commissioning of the calcination and acid baking section at the Phase 1 Plant in Shawinigan; Delivery of Lithium hydroxide solution to JMBM for a total of about 20 tonnes between July 1, 2017 up to the date of this report; Start of the operation to convert spodumene concentrate of the Whabouchi mine into lithium hydroxide; Implementation of a new ERP system; Construction Progress at the Commercial Hydromet Plant The Corporation s Commercial Hydromet Plant was initially designed to produce approximately 27,500 tonnes of lithium hydroxide monohydrate and a maximum of approximately 3,250 tonnes of lithium carbonate, or about a total combined 27,500 tonnes LCE (lithium carbonate equivalent) per year. Over the course of the year, the Corporation entered into off-take agreements, re-assessed the current and foreseeable market demands, discussed with potential clients and performed testing and optimization work of its processes. As a result, the Corporation is currently reviewing the total budget of the project, considering a potential increase of the total output of its hydromet plant by about 20%, to approximately 33,000 tonnes LCE per year from the 27,500 tonnes 4

6 LCE initially planned. It was also decided, given the current off-take agreements in place, to increase the lithium carbonate production capacity from the 3,250 tonnes initially planned to 16,500 t/y (about 50% of the total capacity of the hydromet plant). With the information available to the Corporation at the date of this report, the increase in the production at the hydromet plant will be mainly driven by the lithium sulfate solution that will be supplied by a client, the spodumene concentrate from the Whabouchi mine, expected to yield an average grade of 6.25% Li2O instead of 6.03 %, and by the internal recycling of lithium rich water, improving recovery. The on-going review of the project budget is also taking into consideration the important additional information gathered through the operation of both the DMS modular concentrator and the Phase 1 Plant and through continued equipment and material testing with various potential equipment suppliers. Finally, the Corporation is also considering additional cash requirements during the commissioning and ramp-up period, until positive cash-flow from operations is reached. During the fiscal three-month period that ended September 30, 2017 and up to the date of this report, the following work was done: Engineering work; Hiring of key support personnel; Demolition of the non-required existing buildings by the former owner is progressing as planned; Implementation of a new ERP system; Following the signing of 2 off-take agreements, combined with the optimization and testing on different fronts during the last 15 months, the main changes that the Corporation is envisaging at the hydromet plant are: Increase in the ability to produce Lithium Carbonate by a factor of 5; Production of Lithium Carbonate from pure LHM crystals; Addition of a second centrifuge after crystallization to split LHM crystals for LC synthesis; Use of a flash calciner instead of a kiln, thus the addition of crushing equipment to allow use of the said flash calciner; Addition of an acid bake cooler in the sulphation area Change from 3 to 2 electrolyzers per rectifier; Internal recycling of lithium rich water to improve recovery, thus the increase in the number of tanks; The construction schedule of the Shawinigan site is directly dependant on the closing of the project financing. Once the project financing is completed, the Corporation expects that the construction and installation at the Hydromet Plant will take about 18 to 22 months. 5

7 Shawinigan Hydromet Plant and P1P Plant operation and infrastructures 6

8 Construction Progress and Operation at the Whabouchi mine site During the three-month period that ended September 30, 2017 and up to the date of this report, the following work was done: Finalization of the production of about 1,050 tonnes spodumene concentrate averaging 6.2% Li2O were produced at the mine site with the DMS concentrator that started in April About 15 tonnes of flotation concentrate averaging 6.2% Li2O were produced at SGS in Lakefield, Ontario. A balance of about 3,600 tonnes of fines at an average grade of 1.3% Li2O as well as about 100 tonnes of middlings at an average grade of 3.8% Li2O produced with the DMS are stockpiled at the mine site. Continued construction of the 13 km hydroelectric transport line from the Nemiscau substation to the mine site with a service target date to be in April 2018; Continued engineering work; Optimization and testing of key elements of the flow sheet; Hiring of key management and support personnel; Implementation of a new ERP system; Following the optimization and testing on different fronts during the last 15 months, the main changes that the Corporation is envisaging at the Whabouchi mine site are: Addition of ore sorting circuit to remove amphibolite; Addition of Hydraulic separator (Xflow) to remove coarse muscovite ahead of DMS circuit; Remove crushing stage ahead of dry magnetic separator on DMS concentrate; Replace muscovite flotation circuit by hydraulic separator (Xflow) ahead of the grinding circuit to remove fine muscovite; Introduction of buffering capacity between circuits; Addition of coarse flotation circuit (Hydrofloat) to float 500 µm x 212 µm particles; Replace mechanical cells by flotation columns to float 212 µm x 20 µm particles; Removal of transshipment facility in Chibougamau from CAPEX (this will be sub-contracted); The construction schedule at the Whabouchi mine site is directly dependant on the closing of the project financing. Once the project financing is completed, the Corporation expects that the Whabouchi mine and concentrator will be built in about 9 to 12 months. 7

9 Whabouchi Mine site operation and infrastructures (Concentrator building at the Whabouchi mine site) 8

10 Whabouchi mine site concentrator building and administrative offices Other work carried out for the Whabouchi Project during the previous fiscal year that ended June 30, 2016 Updated Feasibility Study Ni report completed by DRA/Met-Chem. The results of the Updated Feasibility Study were released with an effective date of April 4, Complete report has been filed on SEDAR on May 19, 2016 and was amended as of June 8, This report was mainly to confirm capital expenditures and operating expenditures for the Whabouchi mine and concentrator, for the Shawinigan Hydromet Plant and also to confirm the logistics and transportation costs of the spodumene concentrate; Metallurgical lab and pilot scale tests in order to optimize the purification and electrolysis processes to produce high purity end product lithium hydroxide and lithium carbonate from spodumene concentrate and to optimize lithium extraction recovery from spodumene concentrate using sulfuric acid. As a result, 9

11 high purity lithium hydroxide was produced on a pilot scale level and samples were sent to potential end users. Patent applications were also filed to protect these processes. Extraction recovery from spodumene concentrate using sulfuric acid was as expected and is reflected in the 2016 updated feasibility study. Environmental and social impacts assessment study in order to obtain the necessary permits to build and operate a mine and a concentrator at the Whabouchi mine. A positive federal environmental assessment decision for the Whabouchi Project from the Minister of Environment of Canada was received on July 29, 2015 and on September 4, 2015, the Corporation received the General Certificate of Authorization (CA) for the Whabouchi Lithium Project from the Quebec Ministry of Sustainable Development, Environment and The Fight Against Climate Change ( MSDEFCC ). Intellectual Property and Patents The Company has identified specific markets of interest for lithium compounds produced from the transformation of spodumene concentrate and has completed, among other things, numerous metallurgical bench scale, pilot plant scale and demonstration scale production in order to develop different processes to produce lithium hydroxide from spodumene concentrate and to produce lithium carbonate from lithium hydroxide. The Company has obtained issuance of United States Patent No. US 9,677,181 and Canadian Patent No. 2,871,092 that describes its proprietary process of preparing lithium hydroxide from spodumene sources using membrane electrolysis. The Company has also obtained issuance of United States Patent No. US 9,382,126 and Australian Patent No that describes its proprietary process of preparing lithium hydroxide and lithium carbonate from spodumene sources using membrane electrolysis. Furthermore, the Company has obtained issuance of Canadian Patents Nos. 2,905,197, 2,928,227 and 2,940,027 that specifically protects improvements of the electrolysis membrane process for preparing lithium hydroxide and Canadian Patent No. 2,928,224 that describes its proprietary process of preparing lithium carbonate. Finally, the Company has obtained issuance of Australian Patent No that specifically protects improvements of the electrolysis membrane process for preparing lithium hydroxide, has received confirmation of other patent applications covering such processes that have been published and has also filed additional patent applications which cover optimization and evolution of the technology as a result of the Company s ongoing optimization programs. The main benefits of these processes include, among other things: low and predictable operating costs; virtually eliminates costly reagents such as soda ash thus eliminating sodium sulfate by-product which has no market value and is environmentally harmful; significant reduction of green house gas emissions (GHG); Significant reduction of the sulfuric acid consumption by reusing the sulfuric acid generated by the electrochemical lithium sulfate salt splitting process; 10

12 Other highlights during the three-month period ended September 30, 2017 and up to the date of this report Following the approval of the restauration plan by the Ministère de l Énergie et des Ressources Naturelles, the Company received on November 9, 2017 the mining lease# 1022 (fully executed on October 26, 2017) covering 138 hectares for the Whabouchi mine. Consequently, the Company will have to make the first payment of approximately $4.6M, covering 50% of the restauration estimated costs, within 90 days. The remaining two payments of approximately $2.3M each, covering the remaining 50% of the restauration estimated costs, will be payable during the fiscal year and Between July 1, 2017 and up to the date of this report, 465,000 options were exercised by an officer, an employee and consultants at prices varying between $0.12 and $0.92 and brokers exercised 358,065 broker warrants at a price of $1.15 for an aggregate total value of $579,150; which resulted in the Corporation issuing 823,065 common shares. On July 17, 2017, Johnson Matthey Battery Materials Ltd ("JMBM") of Candiac, Québec, a wholly owned subsidiary of Johnson Matthey Plc (LSE: JMAT), JMBM has made the final payment of $1,000,000 following the completion of the final milestone as per the existing agreement between JMBM and the Company, announced on May 11, 2016, provides for an aggregate $12,000,000 advance payment for goods and services, of which the Company has now received the full amount. Sirmac project As for the Sirmac project, the last drilling campaign and metallurgical tests done did not allow to confirm the presence of technical grade spodumene (low iron content) required for direct use. The latest tests results and reports recommend that additional work be undertaken on the property. However, given the fact that the priority is the Whabouchi project, no further work is planned in the short term on the Sirmac project which has over $1.1M in credits from the Ministère de l Énergie et des Ressources naturelles in order to renew its claims. The Corporation has received an offer and has signed a term sheet (combination of cash and shares of the buyer) in order to sell this property; this transaction should be finalized during the month of November The main reason for this decision is that the Corporation, while focusing 100% of its resources in order to put into production the Whabouchi Project, wants a third party to advance in the exploration of this Sirmac property. The Corporation has retained, combined with other provisions, a right of first refusal in the interest and in the production of concentrate or other products that could arise from this property. 11

13 Updated Feasibility Study Highlights, Mineral Resources and Mineral Reserves As at the date of this report, the Corporation owns two (2) mining properties consisting of 57 claims, one mining lease and 3 surface usage leases (Whabouchi and Sirmac) in the Eeyou Istchee / James Bay territory, province of Quebec. The Corporation also owns the Shawinigan Site and infrastructures that house the Corporation s Phase 1 Plant and will house the future Commercial Hydromet Plant that will convert spodumene concentrate into high purity lithium hydroxide and lithium carbonate. 12

14 The table below highlights selected information taken from the Updated Feasibility Study filed on SEDAR on May 19, 2016 and as amended on June 8, 2016: 13

15 Mineral Resources and Mineral Reserves The Mineral Resources were estimated based on the following geological and resources block modeling parameters which are based on the Memorandum received from SGS Geostat, prepared by Jean-Philippe Paiement, M.SC., P.Geo and dated January 23, 2014: Mineral resources were evaluated from the diamond drill holes and channels analytical results completed by Nemaska since Historical drill holes and channels were not used for the current mineral resources estimate. A total of 479 drill holes/channels and 9,358 assays were used for the mineral resources model. The mineral resources 3-D modeling of mineralized pegmatite dyke was conducted using a minimal modeling grade of 0.50% Li2O over a 2m horizontal thickness. The interpolation was conducted using composited assays of 2m in length. The Mineral Resources were modeled and estimated using Genesis software. Block Model Interpolation was done using Ordinary Kriging. The block model was defined by a block size of 5m long by 3m wide by 5m thick and covers a strike length of 1,315 m to a maximal depth of 520 m below surface. The In-pit Mineral Resources were limited inside an optimized pit shell. The interpolated blocks of the model located below the optimised pit shell are not included in the updated Mineral Resources. The Inpit Mineral Resources reach 320 m below surface (maximum depth of optimised pit). The cut-off grade of the reported Mineral Resources is 0.43% Li2O. 14

16 In-Pit Mineral Resources - Whabouchi Project Resource Category Tonnage (t)* Li2O Grade (%) Measured 12,998, Indicated 14,993, Measured + Indicated 27,991, Inferred 4,686, *Note: The mineral resources estimate has been calculated using the Canadian Institute of Mining, Metallurgy and Petroleum (CIM) Definitions Standards for mineral resources in concordance with National Instrument Standards of Disclosure for Mineral Projects. Mineral resources which are not mineral reserves do not have demonstrated economic viability. Inferred mineral resources are exclusive of the Measured and Indicated resources. Bulk density of 2.70 t/m 3 is used. Effective date January 22, * Rounded to the nearest thousand. The Mineral Reserves estimate used in the Updated Feasibility Study was prepared using the same Mineral Resource block model that was used in the 2014 Feasibility Study. The Mineral Reserves are included in the Measured and Indicated Mineral Resources that have been identified as being economically extractable and which incorporate mining losses and the addition of waste dilution. Mineral Reserves - Whabouchi Project Reserve Category Tonnage (Mt) Li2O Grade (%) Open Pit Proven Probable Proven and probable Underground Proven Probable Proven and probable Reserves categories are compliant with Canadian Institute of Mining, Metallurgy and Petroleum (CIM) Definitions Standards for mineral resources in concordance with National Instrument Standards of Disclosure for Mineral Projects. The cut-off grade for the open pit Mineral Reserves Li 2O 0.43% and the cut-off grade for the underground Mineral Reserves is Li 2O 0.80%. The effective date of the Mineral Reserves estimate is May 13, * Rounded to the nearest thousand. 15

17 Selected Financial Information The following table summarizes the Corporation s selected key financial data taken from the unaudited consolidated condensed interim financial statements of loss for the period ended September 30, 2017 and 2016 as well as the consolidated condensed interim statement of financial position as at September 30, 2017, June 30, 2017 and June 30, Consolidated statements of loss selected financial information Periods ended September 30 Earnings and loss 2017 ($) 2016 ($) Interest income 86,120 89,287 Loss before income taxes 2,510,084 1,249,167 Net loss 2,488,766 1,169,351 Comprehensive Loss or (Profit) 2,351,589 (202,420) Loss per share, basic and diluted Consolidated Statements of Financial Position selected financial information As at September 30, 2017 ($) June 30, 2017 ($) June 30, 2016 ($) Cash and cash equivalents 41,796,002 66,567,210 19,563,445 Working capital (1) 33,226,554 60,131,206 17,119,140 Total assets 200,497, ,042,706 63,515,382 Total liabilities 48,333,808 47,593,940 15,808,688 Shareholder s Equity 152,163, ,448,766 47,706,694 (1) This is a non GAAP financial measure which does not have any standardized meaning prescribed by the Corporation s GAAP and is therefore unlikely to be comparable to similar measures presented by other issuers. This financial measure is defined as the current assets less the current liabilities which presents the actual working capital available to the Corporation for general administrative purposes. 16

18 Consolidated statement of financial position as at September 30, 2017 As at September 30, 2017, the total assets of the Corporation were at $200,497,607; a decrease of $1,545,099 when compared to June 30, The decrease in the total assets during the three-month period ended September 30, 2017 is mostly due to: i) the cash flow used for the share issuance expenses for $444,603 and ii) the operating activities also contributed in the decrease of the total assets. On the other hand, the following main elements contributed to the increase in the total assets during the three-month period ended September 30, 2017: i) the reception of $1,000,000 relating to the advanced payment from JMBM and ii) the proceeds of $165,500 following the exercises of options. Consolidated Condensed Interim Statement of Loss and Comprehensive Loss or (Profit) Three-month periods ended September 30, 2017 and $ $ EXPENSES: Compensation 1,128, ,539 Share-based payments 345, ,113 Rent, office expense and other expenses 45,994 50,273 Depreciation and amortization expense 65,618 1,954 Registration, listing fees and shareholders information 33, ,427 Promotion and advertising 20,353 41,912 Representation, missions and trade shows 289, ,817 Consultants fees 47,580 41,534 Professional fees 132,356 39,513 Operating loss 2,109,151 1,336,082 NET FINANCE (INCOME) EXPENSE: Finance income (86,120) (89,287) Finance expense 7,211 2,372 Loss on foreign exchange 479, ,933 (86,915) Loss before income taxes 2,510,084 1,249,167 Current income taxes and mining taxes recovery - (45,568) Deferred income taxes and mining taxes recovery (21,318) (34,248) (21,318) (79,816) Net loss for the period 2,488,766 1,169,351 OTHER COMPREHENSIVE LOSS: Increase in fair value of the investments (158,495) (1,584,946) Deferred income taxes 21, ,175 (137,177) (1,371,771) Comprehensive loss (profit) for the period 2,351,589 (202,420) Basic and diluted loss (profit) per share (0.004) Basic and diluted weighted average number of shares outstanding 377,120, ,484,390 17

19 The results for the three-month period ended September 30, 2017 show a net loss of $2,488,766 ($1,169,351) for the same period in the previous year) as seen in the previous table. Aside from interest revenues of $86,120 ($89,287 for the same period in the previous year), the Corporation has no revenues from operations. As seen in the previous consolidated statement of (profit) or loss, the main variations between the current year three-month period and the previous year comparative figures having an impact on the net loss are: i) compensation increased by $709,133 mainly due to headcount increases and severance expense; ii) registration, listing fees and shareholders information decreased by $139,678 mainly due to the fees that were charged in the previous year in relation to the transition from the TSX-V to the TSX; iii) promotion and advertising combined with representation, missions and trade shows increased by $83,728 mainly due to increased presence in Europe, Asia and North America in order to promote the Corporation and to increase the exposure of the Corporation to potential partners and end users for the development and financing of the Whabouchi project; iv) professional fees increased by $92,843 mainly due to associated fees related to accounting, audit and fiscal support; and v) loss on foreign exchange had an impact of $479,842 on the results for the quarter. The fluctuation in the fair market value of the investment in Monarques Gold Corporation resulted in other comprehensive income of $158,495, before taxes. Financing activities for the three-month period ended September 30, 2017 Between July 1, 2017 and September 30, 2017, 450,000 options were exercised by an officer, an employee and a consultant at prices varying between $0.12 and $0.92. for an aggregate total value of $165,500; this resulted in the Corporation issuing 450,000 common shares. Investing activities for the three-month period ended September 30, 2017 During the three-month period ended September 30, 2017, a net amount of $25,613,267 was used in the investing activities. The cash flows used for investments in the property, plant and equipment, including the increase in the deposits to suppliers of $8,588,543, totalled an amount of $25,344,293; while the investments in the intangible assets required cash flows for a total amount of $265,415. For details on the investment activities, please refer to the Highlights for the three-month period ended September 30, 2017 and up to the date of this report and next steps section at the beginning of this document under the sub-sections Installation and Operation Progress at the Phase 1 Plant, Construction Progress at the Commercial Hydromet Plant, Construction Progress and Operation at the Whabouchi mine site and Intellectual Property and Patents. 18

20 SELECTED QUARTERLY DATA Operating results for each of the last 8 quarters are presented in the table below. The data related to these quarters were prepared in the same manner as that of the audited financial statements for the fiscal year ended June 30, Operating results: Operating results as at: Finance income $ Loss (Profit) before income taxes $ Net (Profit) or Loss $ (Profit) Loss per share basic and diluted $ September 30, ,120 2,510,084 2,488, June 30, ,744 3,464,782 4,018, March 31, ,821 2,165,615 2,108, December 31, ,978 2,630,877 2,748, September 30, ,287 1,249,167 1,169, June 30, ,802 (1,457,121) 1 (1,457,121) 1 (0.006) 1 March 31, , , , December 31, ,996 1,106,860 1,106, The profit was generated by a gain of $5,468,062 resulting from the reclassification of the investment in Monarques Gold Corporation from an equity accounted investee to an investment as a financial asset. Activities in the Common shares, Share purchase option, Warrants issued to shareholders and Compensation options to brokers: Between July 1, 2017 and September 30, 2017, 450,000 options were exercised by an officer, an employee and a consultant at prices varying between $0.12 and $0.92. for an aggregate total value of $165,500; this resulted in the Corporation issuing 450,000 common shares. Common shares: Outstanding information as at: shares Common shares outstanding Number of weighted average Common shares outstanding As at the date of this report 377,809, ,606,080 September 30, ,436, ,120,744 June 30, ,986, ,769,706 March 31, ,400, ,289,155 December 31, ,933, ,909,942 September 30, ,833, ,484,390 June 30, ,433, ,537,529 March 31, ,423, ,582,183 December 31, ,615, ,908,843 19

21 Options: Outstanding share purchase options as at: Options issued Options exercisable Average exercise strike price $ As at the date of this report 16,224,484 13,582, September 30, ,239,484 13,272, June 30, ,956,150 13,035, March 31, ,056,150 12,626, December 31, ,681,150 12,856, September 30, ,781,150 12,706, June 30, ,506,150 12,881, March 31, ,660,575 9,610, December 31, ,720,575 9,614, As at September 30, 2017, the Corporation had 16,239,484 outstanding options to purchase Common Shares. These options allow their holders to subscribe to one (1) common share at a price varying between $0.10 and $1.41 per common share at different dates until September 2022, subject to the conditions established under the Common Share Purchase Option Plan. Warrants issued to shareholders: Outstanding warrants issued to shareholders as at: Warrants issued to shareholders Warrants exercisable Average exercise strike price $ As at the date of this report 49,117,698 49,117, September 30, ,117,698 49,117, June 30, ,117,698 49,117, March 31, ,933,348 59,933, December 31, ,525,348 64,525, September 30, ,575,348 64,575, June 30, ,575,298 34,575, March 31, ,721,915 22,721, December 31, ,235,150 19,235, As at September 30, 2017, the Corporation had a total of 49,117,698 exercisable warrants outstanding. Each warrant allows its holder to subscribe to one (1) common share at a price varying between $0.48 per share to $1.50 per share for a period varying from 24 months to 36 months following their issue date. 20

22 Compensation options or warrant units to brokers: Outstanding compensation options or warrant units to brokers as at: Compensation options or warrant units issued to brokers Compensation options or warrant units exercisable Average exercise strike price $ As at the date of this report 3,361,296 3,361, September 30, ,600,006 3,600, June 30, ,600,006 3,600, March 31, ,600,006 3,600, December 31, ,600,006 3,600, September 30, ,600,006 3,600, June 30, March 31, December 31, As at September 30, 2017, the Corporation had the equivalent of 3,361,296 broker warrant units outstanding, collectively entitling the holders thereof to purchase an aggregate of up to 3,361,296 units of the Corporation, at a price of $1.15 per unit, each being comprised of one common share of the Corporation and one-half of one common share purchase warrant. Subject to acceleration provisions as described in the July Warrant Indenture, each whole common share purchase warrant is exercisable up to July 8, 2019 to purchase one common share of the Corporation at a price of $1.50 per common share. Related Party Transactions and Commercial Objectives During the three-month and twelve-month periods ended June 30, 2017, the Corporation incurred expenses for services rendered by executive officers of the Corporation. These services were rendered in the normal course of operations and are measured at the exchange amount, which is the amount agreed between the parties. Three-month periods ended September 30 Compensation paid to key management personnel 763, ,376 Stock-based compensation paid to key management personnel - 92,789 Fees and expenses towards the external directors 37,873 39, ($) 2016 ($) 21

23 Off Balance sheet agreements The Corporation has not concluded any off balance sheet agreements. Obligations and contractual commitments The Corporation had the following commitments as at the date of this report: Whabouchi Property Of the 33 claims comprising the Whabouchi property, 16 claims were acquired from Victor Cantore and 10 claims were acquired from Golden Goose Resources Inc. The Whabouchi deposit is located on the Cantore claims. In September 2009, the Corporation acquired a 100% interest in 16 mining claims included in the Whabouchi property. The vendors kept a 3% royalty on the 16 claims and on 4 of the 7 claims acquired by map designation by the Corporation. 1% of this royalty may be purchased for an amount of $1,000,000. In case of commercial production on any of the 10 claims acquired from Golden Goose Resources Inc. in January 2010 related to the Whabouchi property, the Corporation has to pay a 2% NSR royalty on all metals. The Corporation has the option to purchase 1% of this NSR royalty for an amount of $1,000,000. Sirmac Property The Sirmac property is composed of 24 claims, covering approximately 1,101 hectares, located in SNRC sheet 32J11 in the province of Québec, Canada. The property is subject to a 1% NSR royalty, on 15 of the 24 claims forming the property, which can be purchased by the Corporation for $1,000,000. Lease The Company leases office space and the lease was renewed in December 2016 for a period of four years, from February 1, 2017 to January 31, 2021, with the option to terminate the lease after the first year of this renewal. The monthly amount of the lease is $6,062 until January 2020 and will be $6,142 for the remaining term. As at September 30, 2017, the total contractual payments remaining until then, assuming the lease will not be terminated before the end of the term, will amount to $243,

24 Financing sources The financing sources for the last 8 quarters and up to the date of this report are listed in the following table: Financing sources table Date Type Financings Amount ($) General description of the use of proceeds Between July 1, 2015 and June 30, 2016 Between July 1, 2015 and June 30, 2016 Options exercises Shareholder warrants and compensation options to brokers exercises Common shares Common shares 232,219 4,137,859 January 29, 2016 Grant SDTC grant 2,117,969 March 23, 2016 March 24, 2016 April 29, 2016 Between May 24, 2016 and June 14, 2016 Grant Non-brokered Private Placement Assets paid by share issuance Non-brokered Private Placement Ministère des Ressources Naturelles (Technoclimat grant) Common shares and Warrants Common shares Common shares and Warrants 450,000 3,000,000 1,500,000 10,000,000 The net proceeds of the financing was used to: i) Fund the general administrative expenses, investing activities and other working capital needs. The net proceeds of the financing was used to: i) Fund the general administrative expenses, investing activities and other working capital needs. The net proceeds of the financing was used to: i) Fund the investing activities and other working capital needs of the Phase 1 Plant. The net proceeds of the financing was used to: i) Fund the investing activities and other working capital needs of the Phase 1 Plant. The net proceeds of the financing was used to: i) Fund the general administrative expenses, investing activities and other working capital needs. The net proceeds of the financing was used to: i) Purchase the new self-contained dense media separation (DMS) portable mill being installed at the Whabouchi mine site. The net proceeds of the financing was used to: i) Fund the investing activities and other working capital needs of the Phase 1 Plant. 23

25 Financing sources table Date Type Financings Amount ($) General description of the use of proceeds June 10, 2016 Advance payment Johnson Matthey Battery Materials Ltd 6,000,000 June 29, 2016 Grant SDTC grant 2,117,969 July 8, 2016 Between July 1, 2016 and June 30, 2017 Between July 1, 2016 and June 30, 2016 February 10, 2017 Brokered Short Form Prospectus Options exercises Shareholder warrants exercises Advance payment Common shares and Warrants Common shares Common shares Johnson Matthey Battery Materials Ltd 69,000, ,000 3,503,705 3,000,000 The net proceeds of the financing was used to: Fund the investing activities and other working capital needs of the Phase 1 Plant. The net proceeds of the financing was used to: i) Fund the investing activities and other working capital needs of the Phase 1 Plant. The net proceeds of the financing was mainly used to: i) Fund the general administrative expenses, investing activities and other working capital needs; ii) Diamond drilling program on the Whabouchi mine site; iii) Detailed engineering work and other projects development costs for the Whabouchi and Shawinigan sites; iv) Installation of the portable mill at the Whabouchi mine site in order to do a bulk sample and training; v) Site preparation and construction of the concentrator building at the Whabouchi mine site. The net proceeds of the financing was used to: i) Fund the general administrative expenses, investing activities and other working capital needs. The net proceeds of the financing was or is being used to: i) Fund the general administrative expenses, investing activities and other working capital needs. The net proceeds of the financing was used to: Fund the investing activities and other working capital needs of the Phase 1 Plant. 24

26 Financing sources table Date Type Financings Amount ($) General description of the use of proceeds April 3, 2017 Lump payment sum FMC 13,357,987 (US10,000,000) The net proceeds of the financing was and is being used to: i) Fund the general administrative expenses, investing activities and other working capital needs. May 5, 2017 Advance payment Johnson Matthey Battery Materials Ltd 2,000,000 The net proceeds of the financing was used to: Fund the investing activities and other working capital needs of the Phase 1 Plant. The net proceeds of the financing is being mainly used to: June 29, 2017 Brokered Short Form Prospectus Common shares and Warrants 50,001,000 i) Detailed engineering work, Corporation s costs and other projects development costs for the Whabouchi and Shawinigan sites; ii) Place orders on long lead equipment; iii) Construction of the power line for the Whabouchi mine site; iv) Site preparation and buildings infrastructures work. Between July 1, 2017 and September 30, 2017 Options exercises Common shares 165,500 The net proceeds of the financing is being used to: i) Fund the general administrative expenses, investing activities and other working capital needs. Between October 1, and the date of this report Brokers warrants and option Common shares 413,650 The net proceeds of the financing is being used to: i) Fund the general administrative expenses, investing activities and other working capital needs. 25

27 SIGNIFICANT ACCOUNTING POLICIES AND BASIS OF PRESENTATION BASIS OF PRESENTATION (A) STATEMENT OF COMPLIANCE: These consolidated financial statements have been prepared in accordance with IFRS. The accounting policies applied in these consolidated financial statements are based on IFRS issued and in effect as at year-end. On November 13, 2017, the Board of Directors approved for issuance these consolidated financial statements. (B) BASIS OF MEASUREMENT: The consolidated financial statements have been prepared on the historical cost basis, except for investment which are recorded at fair value. The consolidated financial statements have been prepared on a going concern basis, meaning the Company would be able to realize its assets and discharge its liabilities in the normal course of operations. (C) FUNCTIONAL AND PRESENTATION CURRENCY: These consolidated financial statements are presented in Canadian dollars, which is the Company s functional currency. (D) USE OF ESTIMATES AND JUDGMENTS: The preparation of the consolidated financial statements in conformity with IFRS requires management to make judgments, estimates and assumptions that affect the application of accounting policies and the reported amounts of assets, liabilities, income and expenses. Actual results may differ from these estimates. Estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognized in the year in which the estimates are revised and in any future years affected. Information about critical judgments in applying accounting policies that have the most significant effect on the amounts recognized in the consolidated financial statements is included in Note 1 - the determination that the Company is in the development stage, Note 3 (N) - which relates to the accounting for refundable credit for mining duties and in Note 5 - recoverability of property, plant and equipment and intangible assets. It also includes the following critical judgment: Commercial production Prior to reaching pre-determined levels of operating capacity intended by management, costs incurred are capitalized as part of Phase 1 Plant and Commercial Plant, Buildings and Sites Preparation in progress within property, plant and equipment, and proceeds from sales are offset against capitalized costs. Depletion of capitalized costs for mining properties begins when pre-determined levels of operating capacity intended by management have been reached. Management considers several factors in determining when a mining property has reached levels of operating capacity intended by management, including: 26