MANAGEMENT DISCUSSION AND ANALYSIS

Transcription

1 Management discussion and analysis February 27, 2012 MANAGEMENT DISCUSSION AND ANALYSIS PERIOD ENDED DECEMBER 31, ND QUARTER NEMASKA LITHIUM INC. 450, RUE DE LA GARE-DU-PALAIS 1 ST FLOOR QUÉBEC (QUÉBEC) G1K 3X2 TEL.: FAX.: TSX-V : NMX OTCQX : NMKEF

2 The following management s discussion and analysis (the MD&A ) objective is to help the reader better understand the activities of the Company and the highlights of its financial situation. It explains the financial situation and the results for the three-month and six-month periods ended December 31, 2012 and the comparison of the Company s statement of financial position as at December 31, 2012, June 30, 2012 and June 30, The MD&A has been prepared in accordance with Regulation and should be read in conjunction with the audited financial statements of the Company for the fiscal year ended June 30, 2012 and the related notes thereto. These unaudited condensed interim financial statements and this MD&A have been reviewed by the Audit Committee and approved by the Company s Board of Directors on February 26, Unless otherwise indicated, all the amounts in this MD&A are in Canadian dollars. Forward looking statements Some statements contained in this MD&A, specially the opinions, the projects, the objectives, the strategies, the estimates, the intent and the expectations of the Company that are not historical data, are forward looking statements. Such statements can be recognized by the terms forecast, anticipate, consider, foresee and other terms and similar expressions. These statements are based on information available at the time they are made, on assumptions established by the management and on the management expectation, acting in good faith, concerning future events and concerning, by their nature, known and unknown risks and uncertainties mentioned herein (see the section Risks and uncertainties). The real results for the Company could differ in an important way of those which state or that these forward looking statements show the possibility for. Consequently it is recommended not to trust unduly these statements. These statements do not reflect the potential incidence of special events which could be announced or take place after the date of this MD&A. Except if the applicable legislation requires it, the Company does not intend to update these prospective statements to reflect, in particular, new information or future events, and it is by no means committed doing so. Reporting entity, nature of operations and going concern Nemaska Lithium Inc. (the Company ) is a company domiciled in Canada, incorporated under the Canada Business Corporations Act. Its shares are listed on the TSX Venture Stock Exchange under the symbol NMX and on the American stock exchange Over-the-Counter QX (OTCQX) under the symbol NMKEF. The Company is engaged in the exploration and development of lithium mining properties and related processing of spodumene into lithium compounds. Its activities are in the Province of Quebec, Canada and the Company has not yet determined whether any of its mining properties have economically recoverable ore reserves. 1

3 Reporting entity, nature of operations and going concern (continued) Although the Company has taken steps to verify and confirm title to mineral properties in which it has an interest, property title might be subject to unregistered prior agreements or non-compliance with regulatory requirements. 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 Company to obtain necessary financing to complete the development, and future profitable production or proceeds from the disposition thereof. As at the date of the financial statements, management determined that the net carrying value of mining properties represents the best estimate of their net recoverable value. This value may nonetheless be reduced in the future. The funds available to the Company at the end of the period are sufficient to complete its exploration budget planned for the fiscal year. However, the Company needs to raise funds of approximately 3 million during the third quarter of the current fiscal year in order to meet its short term liabilities and to cover for the general and administrative expenses for the remaining portion of the current fiscal year and part of the next fiscal year. In parallel, the Company is in the process of raising funds mainly to launch the Phase 1 processing facility project in Salaberry-de-Valleyfield, Québec. In order to accomplish such financing, the Company has: i) received on February 8, 2013, a visa from the Autorité des marchés financiers for a preliminary short form base shelf prospectus dated February 7, 2013; and ii) signed on February 7, 2013 an engagement letter with Euro Pacific Canada Inc to act as the sole and exclusive lead agent for the Company in connection with a commercially reasonable best efforts fully marketed short form prospectus offering of securities pursuant to a prospectus supplement to a short form base shelf prospectus to be filed by the Company to raise gross proceeds of up to 25 million. For more details, see note 15 of the condensed interim financial statements for the period ended December 31, Highlights for the three-month and six-month periods ended December 31, 2012, scope of activities and next steps During the three-month and six-month periods ended December 31, 2012, the Company continued its work and efforts in order to complete a definitive feasibility study for an open pit mine for the production of spodumene concentrate on the Whabouchi project in the region of Nemaska, as well as for a lithium hydroxide and lithium carbonate processing plant in the region of Salaberry-de-Valleyfield, the construction of both in the Province of Québec, Canada. The Company s business plan has evolved as it initialy targeted to solely become a reliable alternative secured source of supply of spodumene concentrate, but is now also targeting to enter into the lithium compounds manufacturing sector. The Company has developped, through the services of SGS Canada, at its Lakefield laboratory in Ontario, Canada, two innovative processes to produce high purity lithium hydroxide from lithium sulfate and high purity lithium carbonate from lithium hydroxide. Two patents applications were filed to protect these processes. In order to properly reflect this specific work within the assets of the Company, it was decided to present these assets as Lithium Chemicals Complex (LCC). Up until now, the LCC asset is related to the material from the Whabouchi property. However, the Company has the possibility to process spodumene concentrate from any sources as well as third parties lithium sulfate. 2

4 Highlights for the three-month and six-month periods ended December 31, 2012, scope of activities and next steps (continued) In parallel to the definitive feasibility study that is currently under way, the Company is also completing the environemental, social and economic impacts studies needed to obtain the permits required to operate at Whabouchi. The Company also continued the work related to the development of processes to transform spodumene concentrate into lithium hydroxide and lithium carbonate from lithium hydroxide. The private placement that took place in June 2012 for an amount totalling 1,615,000 in flow-through shares financing allowed the Company to establish and perform an exploration campaign on the Sirmac property which allowed the Company to confirm the presence of mineralized zones at depth with multiple intersections. On September 19, 2012, a former director and officer of the Company exercised 182,875 stock options at an exercise price of per share for a total number of 182,875 common shares issued for a gross proceed of 26,334. During the month of October 2012, 229,900 warrants were exercised by shareholders at an exercise price of per share and 729,625 compensation options brokers were exercised at an average exercise price of 0.43 per share for a total number of 959,525 common shares issued. The gross proceed for these exercise totalled 431,980. In December 2012, the Company also acquired, for a total amount of 20,000, 9 claims totaling 456 hectares located on SNRC sheet 32J11 which are adjacent to the Sirmac property. On October 2, 2012, the Company announced the results of a positive preliminary economic assessment ( PEA ) prepared by independent consultants Met-Chem Canada Inc. and BBA Inc. (Chemical Plant - PEA level / Mine and Concentrator - Feasibility Study level). The summary results of this positive PEA are shown in the following table: [VOLUNTARY PAGE BREAK] 3

5 Highlights for the three-month and six-month periods ended December 31, 2012, scope of activities and next steps (continued) PEA Highlights (All calculations assume a selling price of US8,000/t for Lithium Hydroxide and US6,500/t for Lithium Carbonate using a 6% Li 2 O spodumene concentrate) (All figures are quoted in CAD, unless otherwise specified) Life of Mine Production Life of Mine Revenue Pre-Tax Cash Flow Pre-Tax NPV 8% Discount (base case) Pre-Tax NPV 6% Discount Pre-Tax NPV 10% Discount 3.8 million tonnes of 6 % Li 2 O spodumene concentrate to be converted into approximately 366,000 tonnes of battery grade lithium hydroxide and approximately 177,000 tonnes of battery grade lithium carbonate (average per year: 213,000 tonnes of concentrate, 20,700 tonnes of lithium hydroxide and 10,000 tonnes of lithium carbonate US4.1 billion (average of 220M per year for 18 years) 1.8 billion net of CAPEX (average of 123M per year before deducting initial CAPEX) 567 million 753 million 424 million Pre-Tax Internal Rate of Return (IRR) 23.3% Average Cost Per Tonne Lithium Hydroxide Average Cost Per Tonne Lithium Carbonate Total Initial Capital Costs (CAPEX) Expected Mine Life Pay Back of Capital Costs 3,400/t 3,500/t 454 million (including contingency of 50 million (13%) and 15 million of working capital) 18 years 3.8 years The pre-tax internal rate of return (IRR) presented in the PEA only takes into consideration the facts that the whole projects (Mine/concentrator and processing plant) would be financed through equity financing only. However, when we factor-in debt financing in the cash flow model, we notice an important increase in the NPV as well as in the IRR. 4

6 Highlights for the three-month and six-month periods ended December 31, 2012, scope of activities and next steps (continued) The foreseen main works on the Whabouchi and Sirmac properties are as follows: Properties Whabouchi Sirmac MAIN WORKS PLANNED Work Continue the permitting process for a mine and concentrator on the Whabouchi project by completing and filing the environmental, social and economic impacts report. Complete and release a definitive feasibility study on the construction of a mine and concentrator on the Whabouchi project and a lithium hydroxide and carbonate processing plant in Salaberry-de-Valleyfield, province of Quebec. Finalizing compilation of all data gathered and analytical results obtained during the summer 2012 exploration campaign. Complete an initial NI compliant resource estimate. Additional diamond drilling and metallurgical tests, bench and pilot scale, to follow. Exploration work on the new claims acquired. In summary, the main work realized on the Company's properties during the first quarter and up to the date of this report, are as follows : MAIN WORKS DONE six-month period ended December 31, 2012 Property Works Objective Results Whabouchi Metallurgical lab and pilot scale tests. Confirm a process to produce high purity lithium hydroxide from spodumene concentrate and also to produce high purity lithium carbonate from the lithium hydroxide produced with the first process. Both high purity lithium hydroxide and lithium carbonate were produced on a pilot scale level. Samples were sent to potential end users. Two patent applications were filed to protect these processes. Metallurgical lab and pilot scale tests Additional concentrate processing tests to demonstrate the feasibility to produce a 6 % spodumene concentrate using only dense media separation (DMS) Tests in progress 5

7 MAIN WORKS DONE six-month period ended December 31, 2012 Property Works Objective Results Whabouchi (continued) Sirmac Environmental and socio-economic impacts assessment study. Mechanical trenching (29 trenches from which 506 channel samples were collected), July- August 2012 Have a better understanding of the numerous pegmatite dykes identified at surface. The final report is scheduled to be filed before the end of the current fiscal year. Discovery of new dykes and confirmation of lateral extensions of Dyke #5. Multiple intersections over 1.5% Li 2 O (best result of 1.68% Li 2 O over 27 meters). Diamond drilling (72 holes totalling 3,414 meters from which 1,241 core samples were collected), August- September 2012 Confirm continuity at depth of the mineralized zones identified at surface. Presence of mineralized zones at depth is confirmed. Multiple intersections over 2% Li 2 O (best result of 1.53% Li 2 O over 32.2 meters including 2.56% Li 2 O over 6 meters). Scope of activities The work done by the Company since the acquisition of the Whabouchi property (White Mountain in Cree language), has confirmed the presence of an important spodumene pegmatite deposit, of over 1,400 m long by 200 m wide. All the work done to date led to the completion of a PEA filed on SEDAR on November 16, The results of the PEA are described in the previous pages. The deposit is confirmed by a resource estimate compliant with regulation NI standards for disclosure of mineral projects, dated on July 11, 2011, prepared by Mr. André Laferrière, M.Sc., P. Geo., of SGS Geostat (Blainville), Patrice Live, Eng., of BBA Inc. and Gary Pearse M.Sc., P. Eng. of Equapolar Consultants Ltd., and contains the following resources: Nemaska pre-feasibility study (4.5% 0.34% Li 2 O, 4.5% Ore Loss) Total Resource Estimate (Cog 0.4% Li 2 O) Category Ore (kt) Li 2 0 (%) In-pit measures resources 10, % In-pit indicated resources 9, % Total 19, % 6

8 Scope of activities (continued) The Company s Whabouchi deposit is the second richest deposit in the world. The mine is expected to produce approximately 213,000 tonnes of spodumene concentrate annually that will be transformed in Valleyfield into approximately 20,700 tonnes of lithium hydroxide and approximately 10,000 tonnes of lithium carbonate, both of battery grades using the proprietary processes developed by Nemaska. The Valleyfield plant will have the flexibility to adjust the production to meet the actual demand for both lithium hydroxide and carbonate. Details of the exploration works The exploration works carried out by the company on its properties up to the date of this report are detailed below: Whabouchi property Since its acquisition on September 18, 2009, the following works were carried out on the Whabouchi property: Whabouchi property works Objectives Results Data compilation and surface sampling in Evaluate the lithium grade of the spodumene pegmatite. A NI compliant technical report dated on October 2nd, 2009 has been received. In particular, this report recommends doing a trenching and channel sampling campaign, and diamond drilling. In 2009, 16 mechanical trenches, with a 50m to 100m spacing, have exposed the pegmatite on over 1,000m laterally. 295 channel samples were collected and sent to the laboratory. Acquire geological information on the distribution and the setting of the spodumene pegmatite dykes. The results confirm the mineralized zones and justify additional works. In 2009, diamond drilling, 7 holes totalling 965 meters. Validate historical results and acquire geological information on the distribution and the setting of the spodumene pegmatite dykes. The results confirm the mineralized zones and justify additional works. 7

9 Whabouchi property works Objectives Results In 2010, airborne and ground magnetometric surveys. Determine the geophysical signature of the pegmatite dykes. Search for other pegmatitic occurrences. An interpretation report dated on May 20, 2010 was received. The magnetometry does not demonstrate significant efficacy for this type of geology. In 2010, 16 mechanical trenches and 7 stripping exposed 2,779 meters of outcrops. 670 channel samples were collected and sent to the laboratory. Increase the confidence of the geological continuity of the deposit. Surface geology is completed and the quality of the resources near the surface is increased. In 2010, diamond drilling, 59 holes totalling 11,756 meters. Obtain assay results to complete a NI compliant resource estimate respecting Standards of disclosure for mineral Project and material to initiate metallurgical tests. The mineralized intersections have confirmed the previously defined areas. Enough material has been extracted to begin the metallurgical testing. A NI resources estimate dated on May 28th, 2010 was received. High definition mineralogical assay by Qemscan of nine composite samples from diamond drilling core. Final report released on July 14th, 2010 Increase the comprehension of the composition and the distribution of the mineralization in the pegmatite. The results have confirmed that the lithium oxide contained in the pegmatite is mainly from spodumene. Metallurgical tests by SGS in their Lakefield laboratory facilities (Ontario) from July 2010 to November Confirm the feasibility of producing a commercially acceptable spodumene concentrate. A spodumene concentrate grading 7.25% Li2O has been produced. The actual specification for this market is between 6 and 6.5% Li2O. From the concentrate produced, produce lithium carbonate samples to convince potential clients of the quality of the product. Lithium carbonate samples grading 99.96% have been produced from the spodumene concentrate previously produced. The actual specification for battery grade is 99.5%. 8

10 Whabouchi property works Objectives Results , definition diamond drilling, 51 holes totalling 9,329 meters. Obtain assay results to reclassify previous resources and material to achieve pilot plant metallurgical tests. An updated NI compliant resources estimate dated on July 11th, 2011 was received. Enough material has been extracted to achieve the pilot plant metallurgical tests. Bulk sample, Collect 50 tonnes of mineralized pegmatite to achieve the pilot plant metallurgical tests. 58 tons of mineralized pegmatite has been sent to SGS s facilities in Lakefield (Ontario). The pilot plant metallurgical tests have started in June Condemnation diamond drilling, 2011, 7 holes totalling 2,544 metres. Delineate and condemn sectors for foreseen infrastructures. The results do not indicate the presence of economic mineralisation. Metallurgical lab and pilot scale tests Confirm a process to produce high purity lithium hydroxide from spodumene concentrate and also to produce high purity lithium carbonate from the lithium hydroxide produced with the first process. Both high purity lithium hydroxide and lithium carbonate were produced on a pilot scale level. Samples were sent to potential end users. Two patent applications were filed to protect these processes. Additional concentrate processing tests to demonstrate the feasibility to produce a 6 % spodumene concentrate using only dense media separation (DMS). Tests in progress. Environmental and socioeconomic impacts assessment study. The final report is scheduled to be filed before the end of the current fiscal year. 9

11 Details of the exploration works (continued) The exploration works carried out by the company on its properties up to the date of this report are detailed below (continued): Sirmac property Since its acquisition January 7, 2011, the following works were carried out on the Sirmac property: Sirmac property works Objectives Results Prospection and geological mapping, June Have a better comprehension of the pegmatite dykes. The results are recommending trenching over the pegmatite dykes in first phase and a diamond drilling survey in a second phase. This to increase the geological confidence degree and to confirm the potential continuity at depth of the numerous pegmatite dykes identified at surface. Lab scale metallurgical tests. Confirm the feasibility of producing a commercially acceptable spodumene concentrate from a composite sample of mineralized pegmatite sent to SGS s facilities in Lakefield (Ontario) in March A high quality spodumene concentrate has been obtained. The chemistry results demonstrate a high Li 2 O (7.33%) and low iron (0.34%) contents. The final report is expected shortly. In 2012, 29 mechanical trenches. 506 channel samples were collected and sent to the laboratory. Have a better understanding of the numerous pegmatite dykes identified at surface. Presence of mineralized zones at surface is confirmed and justifies a diamond drilling survey. In 2012, 72 diamond drill holes, totalling 3,414 meters. 1,241 core samples were collected and sent to the laboratory. Confirm continuity at depth of the mineralized zones identified at surface. The results confirm the mineralized zones and justify additional works. An initial NI compliant resource estimate to come. 10

12 Selected Financial Information The following table summarizes the Company s selected key financial data taken from the statement of comprehensive loss for the three-month and six-month periods ended December 31, 2012 and 2011 as well as the statement of financial position as at December 31, 2012, June 30, 2012 and June 30, Statements of comprehensive loss selected financial information Earnings and comprehensive loss Three-month periods ended December Six-month periods ended December Interest income 8, ,542 14,960 Loss (profit) before income taxes 605, ,176 1,108,184 1,267,900 Net loss and comprehensive loss 612, ,117 1,232,811 1,362,406 Loss per share, basic and diluted Statements of Financial Position selected financial information As at Earnings and comprehensive loss December 31, 2012 June 30, 2012 June 30, 2011 Cash and cash equivalents (1) 1,695,518 4,565,506 3,065,329 Working capital (2) 1,405,915 3,569,313 2,039,427 Total assets 23,499,162 23,520,134 17,928,452 Total liabilities 3,969,172 3,459,232 1,797,590 Shareholder s Equity 19,529,990 20,060,902 16,130,862 (1) The cash and cash equivalents includes 627,309 (1,406,234 as at June 30, 2012 and 1,111,400 as at June 30, 2011) of cash reserved for exploration expenses. (2) This is a non GAAP measure defined as the current assets excluding the cash reserved for exploration and subscriptions receivable, less the current liabilities excluding the liability related to flow-through shares. 11

13 Selected Financial Information (continued) Statement of financial position as at December 31, 2012 As at December 31, 2012, the total assets of the Company were at 23,499,162, an increase of 191,093 compared to September 30, 2012 or a decrease of 20,972 when compared to June 30, During this three month and six-month periods ended December 31, 2012, a total of 431,980 or 458,314, respectively, of cash was generated upon the exercise of options, warrants and brokers compensation options. On the other hand, the share of the loss of the equity accounted investee during the three-month and six-month periods ended December 31, 2012 totalled 80,378 or 142,381, respectively, combined with the cash flow used by the operations have mainly contributed in the decrease in the total assets, however mitigated by an increase of 118,189 or 153,700, respectively, in the accounts payable and accrued liabilities. The funds available to the Company at the end of the three-month and six-month periods ended December 31, 2012 are sufficient to complete its exploration budget planned for the fiscal year but, as explained in the later of this report in the section Reporting entity, nature of operations and going concern, the Company will need to raise funds estimated to 3 million during the third quarter of the current fiscal year in order to meet its short term liabilities and general administrative expenses for the remaining portion of the current fiscal year and part of the next fiscal year. Operating results for the three-month period ended December 31, 2012 Condensed Interim Statement of Comprehensive Loss (Unaudited) Three-month period ended December 31, 2012 and Expenses: Salaries and fringe benefits 152,820 58,922 Share-based payments 35,498 53,465 Rent, office expense and other expenses 41,196 20,493 Depreciation and amortization expense 6,236 5,046 Registration, listing fees and shareholders information 67,287 89,170 Promotion and advertising 30,228 57,085 Representation, missions and trade shows 56,353 31,705 Fees and expenses of external directors 16,000 21,123 Consultant fees 96,209 90,440 Professional fees 38,235 50,492 Total expenses 540, ,941 Net finance expense (income): Finance income (8,348) (190) Finance expense 1,119 1,040 (7,229) 850 Loss before other income related to flow-through shares and share of loss in an equity accounted investee 532, ,791 12

14 Selected Financial Information (continued) Operating results for the three-month period ended December 31, 2012 (continued) Condensed Interim Statement of Comprehensive Loss (continued) (Unaudited) Three-month period ended December 31, 2012 and 2011 (continued) Loss before other income related to flow-through shares and share of loss in an equity accounted investee (continued) 532, ,791 Others: Other income related to flow-through shares (7,841) - Share of loss in an equity accounted investee 80, ,385 72, ,385 Loss before income taxes 605, ,176 Current income taxes expenses (recovery) (218,637) - Deferred income and mining taxes 225,634 (29,059) 6,997 (29,059) Net loss and comprehensive loss for the three-month period 612, ,117 Basic and diluted loss per share Basic and diluted weighted average number of shares outstanding 101,818,453 76,130,761 The results for the quarter show a loss before other income related to flow-through shares and share of loss in an equity accounted investee and before income tax of 532,833 (478,791 for the same period in the previous year) as seen in the previous table. Aside from interest revenues of 8,348 (190 for the same period in the previous year), the Company has no revenues from operations. As seen in the above statement of comprehensive loss, the main variations between the current period and the previous year comparative figures are: i) salaries and fringe benefits have increased by 93,898, mainly due to the decrease in the cost sharing amounts charged to the equity accounted investee MQR in the previous year and due to bonus accrual done this year; ii) rent, office expense and other expenses increased by 20,703, mainly due to the decrease in the cost sharing amounts charged to the equity accounted investee MQR in the previous year, which is directly related to the fact that the office space used by the personnel of MQR as decreased significantly and therefore the allocation percentages for such expenses has decreased; iii) sharebased payments, a non-cash item, decreased by 17,967 due to less options issued this year compared to last year; iv) the professional fees have decreased by 12,257 mainly due to the fact that more efforts was done last year for the transition to IFRS and also to the change of auditors last year. During the quarter, cash flow used by the operating activities amounted to 526,716, which were financed by the working capital available. 13

15 Selected Financial Information (continued) Financing activities for the three-month ended December 31, 2012 During the three-month period ended December 31, 2012, 729,625 compensation options were exercised by brokers and 729,625 common shares of the Company were issued at an average price of 0.43 per share for a gross proceed of 311,053. Also, 229,900 warrants were exercised by shareholders and 229,900 common shares of the Company were issued at an average price of 0.53 per share for a gross proceed of 120,927. Investing activities for the three-month ended December 31, 2012 During the quarter, the cash flows used in the investing activities totalling 1,342,729 was mainly for exploration and evaluation assets for a total of 1,321,437, net of the variation during the year in the accounts payables and accrued liabilities amounting to 88,775 capitalized on the Whabouchi property (1,262,529) and on the Sirmac property (43,732), as well as for testing in relation to various options to transform the spodumene concentrate into lithium carbonate or lithium hydroxide (103,951). The expenses are mainly related to the studies related to the permitting process, the definitive feasibility study and for the preliminary work for the Phase 1 processing facility planed to be set up in Salaberry-de-Valleyfield, Québec. On the Sirmac property, limited work was performed during this second quarter. Furthermore, the Company acquired 9 claims adjacent to the Sirmac property for a total amount of 20,000. The exploration and evaluation assets are detailed by projects in the following table: Exploration and evaluation assets for the three-month period Whabouchi Sirmac Lithium Chemicals Complex Balance as of September 30, ,429,155 1,157,739 1,227,443 Salaries and general exploration expenses 28,928 51,169 - Consultants and supervision 891,370 6,920 73,016 Lodging and meals 3,021 12,545 (30) Geology and geophysics - 2,311 - Test, sampling and prospecting 366,188 16,853 30,965 Drilling, equipment rental and other material (26,978) (46,066) - Increase during the period 1,262,529 43, ,951 Balance as of December 31, ,691,684 1,201,471 1,331,394 14

16 Operating results for the six-month period ended December 31, 2012 Condensed Interim Statement of Comprehensive Loss (Unaudited) Six-month period ended December 31, 2012 and Expenses: Salaries and fringe benefits 254, ,093 Share-based payments 243, ,023 Rent, office expense and other expenses 65,914 46,510 Depreciation and amortization expense 11,706 8,571 Registration, listing fees and shareholders information 117, ,512 Promotion and advertising 95,845 85,240 Representation, missions and trade shows 97,463 79,870 Fees and expenses of external directors 29,253 30,456 Consultant fees 151, ,338 Professional fees 63, ,268 Total expenses 1,130, ,881 Net finance expense (income): Finance income (27,542) (14,960) Finance expense 2,580 1,307 (24,962) (13,653) Loss before other income related to flow-through shares and share of loss in an equity accounted investee 1,105, ,228 Others: Other income related to flow-through shares (139,652) - Share of loss in an equity accounted investee 142, ,672 2, ,672 Loss before income taxes 1,108,184 1,267,900 Current income taxes expenses (recovery) (371,265) (36,567) Deferred income and mining taxes 495, , ,627 94,506 Net loss and comprehensive loss for the six-month period 1,232,811 1,362,406 Basic and diluted loss per share Basic and diluted weighted average number of shares outstanding 101,299,067 75,103,044 The results for the six-month period show a loss before other income related to flow-through shares and the share of loss in an equity accounted investee and before income tax of 1,105,455 (901,228 for the same period in the previous year) as seen in the previous table. Aside from interest revenues of 27,542 (14,960 for the same period in the previous year), the Company has no revenues from operations. 15

17 Selected Financial Information (continued) Operating results for the six-month period ended December 31, 2012 (continued) As seen in the previous statement of comprehensive loss, the main variations between the current period and the previous year comparative figures are: i) salaries and fringe benefits have increased by 141,209, mainly due to the decrease in the cost sharing amounts charged to the equity accounted investee MQR in the previous year and due to bonus accrual done this year; ii) rent, office expense and other expenses increased by 19,404, mainly due to the decrease in the cost sharing amounts charged to the equity accounted investee MQR in the previous year, which is directly related to the fact that the office space used by the personnel of MQR as decreased significantly and therefore the allocation percentages for such expenses has decreased; iii) sharebased payments, a non-cash item, increased by 106,562; iv) promotion / advertising / representation / missions / trade shows increased by 28,198, mainly due to the fact that a video was produced this year on the Whabouchi project at a cost of 50,000 combined to less promotions done this year in the USA and Europe; v) the professional fees have decreased by 72,048 mainly due to the fact that more efforts was done last year for the transition to IFRS and also due to the change of auditors last year. During the six-month period ended December 31, 2012, cash flow used by the operating activities amounted to 562,956, mainly due to the net change of 287,208 in non-cash operating working capital which increased the cash-flow; while the remaining decrease of 850,164 is directly related to the operating expenses. The operating activities were financed by the working capital available. Financing activities for the six-month period ended December 31, 2012 During the six-month period ended December 31, 2012, 729,625 compensation options were exercised by brokers and 729,625 common shares of the Company were issued at an average price of 0.43 per share for a gross proceed of 311,053. Also, 229,900 warrants were exercised by shareholders and 229,900 common shares of the Company were issued at an average price of 0.53 per share for a gross proceed of 120,927. Also during the six-month period, the Company issued 182,875 common shares to a former director and officer due to the exercise of 182,875 stock options at an exercise price of per share. Investing activities for the six-month period ended December 31, 2012 During the six-month period ended December 31, 2012, the cash flows used in the investing activities totalling 2,765,346 was mainly for exploration and evaluation assets for a total of 2,943,476, net of the variation during the year in the accounts payables and accrued liabilities amounting to 156,394 capitalized on the Whabouchi property (2,120,112) and on the Sirmac property (778,925), as well as for testing in relation to various options to transform the spodumene concentrate into lithium carbonate or lithium hydroxide (200,831). The expenses are mainly related to the studies related to the permitting process, the definitive feasibility study and for the preliminary work for the Phase 1 processing facility planed to be set up in Salaberry-de-Valleyfield, Québec. On the Sirmac property, a campaign in exploration and evaluation assets started in June 2012 and continued during the first quarter of the current fiscal year, but limited work was performed during this second quarter. Furthermore, the Company acquired 9 claims adjacent to the Sirmac property for a total amount of 20,

18 Selected Financial Information (continued) Investing activities for the six-month period ended December 31, 2012 (continued) The exploration and evaluation assets are detailed by projects in the following table: Exploration and evaluation assets for the six-month period Whabouchi Sirmac Lithium Chemicals Complex Balance as of June 30, ,571, ,546 1,130,563 Salaries and general exploration expenses 49, ,237 - Consultants and supervision 1,376,856 19, ,358 Lodging and meals 3,021 67,433 1,618 Geology and geophysics 2,529 91,357 - Test, sampling and prospecting 688,624 16,935 78,855 Drilling, equipment rental and other material - 328,919 - Increase during the period 2,120, , ,831 Balance as of December 31, ,691,684 1,201,471 1,331,394 Selected quarterly data Operating results for each of the last 8 quarters are presented in the table below. The Company s management is of the opinion that 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 before income taxes Comprehensive Loss (Profit) Loss (profit) per share basic and diluted December 31, , , , September 30, , , ,

19 Operating results as at: Finance income Loss before income taxes Comprehensive Loss (Profit) Loss (profit) per share basic and diluted June 30, ,482 4,004,231 4,144, March 31, , , , December 31, , , September 30, , , , June 30, ,333 1,043,737 (1,052,046) (0.017) March 31, , ,732 1,552, Common shares: Outstanding shares information as at: Common shares outstanding Number of weighted average Common shares outstanding As at the date of this report 101,877, ,378,138 December 31, ,877, ,299,067 September 30, ,917, ,779,682 June 30, ,734,674 97,036,543 March 31, ,004,674 95,558,520 December 31, ,254,674 75,103,044 September 30, ,154,674 74,054,674 June 30, ,054,674 62,659,090 March 31, ,704,674 55,131,948 During the three-month period ended December 31, 2012, 729,625 compensation options were exercised by brokers and 729,625 common shares of the Company were issued at an average price of 0.43 per share for a gross proceed of 311,053. Also, 229,900 warrants were exercised by shareholders and 229,900 common shares of the Company were issued at an average price of 0.53 per share for a gross proceed of 120,

20 Share purchase option plan: Outstanding share purchase options as at: Options issued Options exercisable Average exercise strike price As at the date of this report 6,669,075 5,619, December 31, ,294,075 5,569, September 30, ,085,950 5,810, June 30, ,468,825 5,265, March 31, ,667,450 5,451, December 31, ,667,450 5,326, September 30, ,574,200 4,999, June 30, ,575,075 5,068, March 31, ,550,000 4,386, As at December 31, 2012, the Company had 6,294,075 outstanding options to purchase Common Shares. These options allow their holder to subscribe Common Shares at a price varying between 0.14 and 0.51 per Common Share until November 2017, subject to the conditions established under the Common Share Purchase Option Plan. Between January 1, 2013 and the date of this report, 375,000 options were issued allowing their holder to subscribe Common Shares at a price of 0.50 per Common Share until January 2018, subject to the conditions established under the Common Share Purchase Option Plan. Warrants and compensation options to brokers: Outstanding warrants to shareholders as at: Warrants issued to shareholders Warrants exercisable Average strike price As at the date of this report 1,865,000 1,865, December 31, ,385,000 2,385, September 30, ,872,553 19,872, June 30, ,274,353 24,274, March 31, ,795,425 33,795,

21 Outstanding warrants to shareholders as at: Warrants issued to shareholders Warrants exercisable Average strike price December 31, ,081,139 38,081, September 30, ,081,139 38,081, June 30, ,081,139 38,081, March 31, ,432,989 36,432, During the month of October 2012, 229,900 warrants were exercised at a price of for an aggregate cash value of 120,927 and 229,900 common shares were issued. On November 2, 2012, 17,257,653 outstanding warrants with an exercise price of expired. As at December 31, 2012, the Company had issued a total of 2,385,000 exercisable warrants to shareholders. Each warrant allows its holder to subscribe 1 common share at a price varying between 0.58 per share to 0.65 per share for a period varying from 18 months to 24 months following their issue date. Outstanding compensation options to brokers as at: Compensation options issued to brokers Compensation options exercisable Average exercise strike price As at the date of this report 891, , December 31, , , September 30, ,454,042 2,454, June 30, ,781,874 2,781, March 31, ,555,774 2,555, December 31, ,780,399 2,780, September 30, ,796,424 2,796, June 30, ,796,424 2,796, March 31, ,679,101 2,679, During the month of October 2012, 729,625 share purchase options to brokers and intermediaries were exercised at a weighted average price of for an aggregate cash value of 311,062 and 729,625 common shares were issued. On November 2, 2012, 832,913 outstanding share purchase options to brokers and intermediaries with an exercise price of expired. As at December 31, 2012, the Company had issued a total of 891,504 exercisable compensation options to brokers. Each compensation options allows its holder to subscribe 1 common share at a price varying between 0.40 per share to 0.50 per share for a period of 18 months following their issue date. 20

22 Related Party Transactions and Commercial Objectives During the three-month and six-month periods that ended December 31, 2012, the Company incurred expenses for services rendered by executive officers of the Company. These services were rendered in the normal course of operations and are measured at the exchange amount, which is at cost, and which is the amount agreed between the parties. Three-month period ended December 31 Salary and fringe benefits paid to key management personnel 65,042 42,888 Share-based payments paid to key management personnel 16,203 9,551 Fees towards the external directors 16,000 19,083 Share-based payments towards the external directors Six-month period ended December Salary and fringe benefits paid to key management personnel 105,429 83,513 Share-based payments paid to key management personnel 118,286 21,802 Fees towards the external directors 28,833 28,416 Share-based payments towards the directors - 3,284 Inter-company transactions carried out during the three-month period between the Company and its equity accounted investee, MQR, totalled a net amount of 31,912 (excluding sales tax), charged by the Company to MQR and split as follows: 1,811 as exploration and evaluation assets; 24,208 as compensation while the balance of 5,893 was mainly as general administrative and office expenses. Inter-company transactions carried out during the six-month period between the Company and its equity accounted investee, MQR, totalled a net amount of 141,690 (excluding sales tax), split as follows: 225,398 of exploration and evaluation assets charged to the Company by MQR, while the Company charged to MQR for the following: 70,542 as compensation while the balance of 13,166 was mainly as general administrative and office expenses. The transactions are in the normal course of operations and are measured at the exchange amount, which is at cost, and which is the amount of consideration established and agreed to by the related parties. The intercompany balance receivable by the Company from MQR as at December 31, 2012, totalled 1,165 (71,982 as at June 30, 2012) and is included in the other receivables. 21

23 Off Balance sheet agreements The Company has not concluded any off balance sheet agreements. Obligations and contractual commitments The Company 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 Company acquired a 100% interest in 16 mining claims included in the Whabouchi property. At the date of the financial statements, in relation with the agreement, the Company paid a total amount of 510,000 in cash. Furthermore, the Company issued 4,000,000 common shares for a total amount of 958,000 since the signing of the agreement. The vendors kept a 3% royalty on the 16 claims and on 4 of the 7 claims acquired by map designation by the Company. 1% (one percent) of this royalty may be purchased for an amount of 1,000,000. The Company is also committed to pay to the vendors 500,000 and to issue 500,000 common shares if an independent feasibility study confirming the feasibility of production stage of the property is obtained. In case of commercial production on any of the 10 claims acquired from Golden Goose Resources Inc. in January 2010, the Company has to pay a 2% NSR royalty on all metals. The Company 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 Company for 1,000,000. Lease On October 7, 2009, the Company signed a lease agreement, which was amended in January 2011 and in October 2011 to reflect the new monthly rent for its office space for a monthly amount of 3,604. That lease will terminate in January 2014 and the total contractual payments remaining until then will amount to 46,852. At the end of the lease, there is an option to renew for two additional periods of one year. Flow-through shares The Company is committed to incur eligible exploration and evaluation expenses pursuant to the Canada Tax Act and Québec Taxation Act of 1,615,000 by December 31, 2013 and to transfer the tax deductions related to these expenditures to the subscribers of its flow-through shares underwriting completed on June 20, As at December 31, 2012, the Company had incurred 987,691 of eligible expenses (208,766 as at June 30, 2012) and had funds reserved for exploration amounting to 627,309 (1,406,234 as at June 30, 2012). 22

24 Additional information required from junior issuers with no significant income The Company reports the information on its exploration and evaluation assets in note 7 of its unaudited condensed interim financial statements for the period that ended December 31, The Company has no research and development expenses. The Company has no other deferred expenses than those related to its mining properties and explorations & evaluation assets. The office and general administrative expenses for the three-month and six-month periods ended December 31, 2012 as well as the same period for the previous year are composed of the following expenses: Office and general administrative expenses for the three-month period ended December 31 Office supplies and mailing 2,908 3,144 Insurances, taxes and permits 8,692 4,067 Office lease and maintenance 19,658 5,105 Mining titles fees renewal or acquisition Telecommunications 4,400 1,896 Training, HR activities and other expenses 5,002 4,104 (Gain) / Loss on exchange and other adjustments 536 1,964 Total 41,196 20, Office and general administrative expenses for the six-month period ended December 31 Office supplies and mailing 4,469 4,183 Insurances, taxes and permits 17,831 7,696 Office lease and maintenance 27,198 12,615 Mining titles fees renewal or acquisition 720 5,421 Telecommunications 7,009 3,611 Training, HR activities and other expenses 9,162 9,833 (Gain) / Loss on exchange and other adjustments (475) 3,151 Total 65,914 46,

25 Financing sources The financing sources since July 1, 2009 up to the date of this report are listed in the following table: Financing sources table Amount Date Type Financings July to November 2009 Private Placements Common shares 960,188 Flow-through shares 352,900 Use of proceeds General administrative expenses and mining properties acquisition. Exploration work on the Whabouchi property. December 31, 2009 June 30, 2010 November 2, 2010 March 4, 2011 December 22, 2011 Prospectus, Initial public offering Private Placements Private Placements Private Placement Private Placement Common shares 1,754,600 Flow-through shares 3,472,160 General administrative expenses and mining properties acquisition. Exploration work on the Whabouchi property and on the Lac Levac, Lac Arques and Lac des Montagnes properties. Common shares 1,160,000 General administrative expenses. Flow-through shares 1,332,500 Continue exploration work on the Whabouchi property and on the Lac Levac, Lac Arques and Lac des Montagnes properties. Common shares 2,013,000 General administrative expenses. Flow-through shares 5,851,000 Continue exploration work on the Whabouchi property and on the Lac Levac, Lac Arques and Lac des Montagnes properties. Common shares 3,685,234 General administrative expenses. Common shares 8,000,000 Feasibility study on Whabouchi project, exploration work on Sirmac and general administrative expenses. January 18, 2012 Private Placement Common shares 700,000 Feasibility study on Whabouchi project, exploration work on Sirmac and general administrative expenses. June 20, 2012 Private Placement Flow-through shares 1,365,000 Exploration work on the Sirmac and Whabouchi properties. June 29, 2012 Private Placement Flow-through shares 250,000 Exploration work on the Sirmac and Whabouchi properties. 24