The following Management’s Discussion and Analysis (“MD&A”) of Antioquia Gold Inc. (the “Company” or “Antioquia”) should be read in conjunction with the audited consolidated financial statements for the year ended December 31, 2023, and the notes thereto. The Company’s audited consolidated financial statements have been prepared in accordance with IFRS Accounting Standards (“IFRS Accounting Standards”) as issued by the International Accounting Standards Board (“IASB”). Unless otherwise stated, all amounts discussed herein are denominated in Canadian dollars. This MD&A was prepared as of September 18, 2024, and all information is current as of such date. Readers are encouraged to read the Company’s public information filings on SEDAR at www.sedar.com.
This discussion provides management’s analysis of Antioquia’s historical financial and operating results and provides estimates of Antioquia’s future financial and operating performance based on information currently available. Actual results will vary from estimates and the variances may be significant. Readers should be aware that historical results are not necessarily indicative of future performance.
ANTIOQUIA BUSINESS
Antioquia Gold Inc. (the “Company” or “Antioquia”) is a mineral Company engaged in the operation of primarily gold resource properties in Colombia. The Company has an office in Toronto, Canada with operations and office and field facilities located in Colombia. The Company trades on the TSX-V under the symbol “AGD” and on the OTC pink sheets.
The Company’s primary focus is its Cisneros underground gold operation (“Cisneros Operation”) consisting of two underground mines and a processing plant located outside Medellin, Colombia, along with the exploration and development of additional properties. The Company controls a total of 17,147.59 hectares of mineral leases in the Cisneros Operation area. Commercial production was declared on March 1, 2019.
Additional information relating to Antioquia, Antioquia’s business and activities, including Antioquia’s most recently filed annual information form, can be found on SEDAR at www.sedar.com and on the Company’s website at www.antioquiagoldinc.com.
CORPORATE HISTORY, BACKGROUND AND GENERAL DEVELOPMENT
Antioquia was formerly known as High American Gold Inc. which was originally formed pursuant to an amalgamation agreement dated April 25, 1997, involving Stromatalite Resource Corp. and Intex Mining Company Limited.
The Company owns 100% of Antioquia Gold Ltd., a Barbados company, which in turn has a branch registered to conduct business in Colombia, South America. On December 2, 2009, the Company completed the 100% acquisition of Ingenieria y Gestion Del Territorio S.A. (“IGTER”), a company incorporated under the laws of Colombia. All the mineral exploration activities of the Company are in Colombia.
In October 2015, the Company started construction of the Cisneros project, which consists of two underground mines (Guaico and Guayabito), a 1,200 tpd treatment plant, tailings deposit and a 10 km pipeline.
On March 1, 2019, the Company declared commercial production at the Cisneros Mine in Antioquia, Colombia. The Company has generated positive cash flows from operations except for 2023,and continues to further optimize production and minimize financing costs
Qualified Persons
Dr. Roger Moss, a Qualified Person under National Instrument 43-101 Standards of Disclosure for Mineral Projects of the Canadian Securities Administrators, has approved the scientific and technical disclosure in this Management Discussion and Analysis.
Mining assets
The Company’s only asset is its Cisneros Operation, covering 17,145.69 hectares, located 55 kilometers northeast of Medellin in the Department of Antioquia, Colombia. The property is subject to a 4% royalty payable to the Colombian government and is comprised of nine 100% owned mining concessions with individual royalties as follows:
Mineral Tenure Location:
Resource Estimate Update
During 2022, Mine Technical Services (MTS) audited the Cisneros Mineral Resource estimate and completed an independent mineral resource estimate for validation purposes. Differences were generally less than 10% in tonnes, grade and contained metal.
Mineral Resources for the project were classified under the 2014 CIM Definition Standards for Mineral Resources and Mineral Reserves by applying a cut-off grade that incorporated mining costs, process operating costs, metallurgical recovery parameters and commodity prices.
The Qualified Person for the Mineral Resource estimate is David G. Thomas, P.Geo of MTS. Mineral resources are reported using a long-term metal price of $1,800/troy oz USD. Variable marginal cut-off grades were applied depending on the anticipated mining method. Resources have an effective date of October 1, 2022. A summary of the Mineral Resource estimate is shown in Table 1. The Mineral Resources are shown by mining area in Table 2, Table 3 and Table 4.
Table 1: Summary Cisneros Project Mineral Resource Estimate David Thomas, P. Geo. (Effective Date: October 1, 2022)
- Domains were modelled in 3D to separate mineralized rock types from surrounding waste rock. The domains were modelled based on quartz veining and structural interpretations of the vein geometries. At Nus and the massive bodies at Guayabito, a probability assisted constrained kriging (PACK) method was used to further constrain block grade estimates.
- For the Nus shear, raw drill hole assays were composited to 2.0 m lengths broken at domain boundaries. In the Guaico and Guayabito vein models, assays were composited to a maximum length of 1 m with shorter length composites where the veins are less than 1 m in width.
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Indicator correlations and indicator variography were used to define high-grade outlier thresholds and distance restrictions to prevent over-projection of higher-grades into lower-grade areas.
- Block grades for gold were estimated from the composites using ordinary kriging interpolation into 1 x 2 x 2 m blocks at Guaico, into 2 x 2 x 2 m blocks at Nus and 1 x 1 x 2 m blocks at Guayabito. Blocks were coded by domain.
- Dry bulk density was estimated directly from SG measurements by inverse distance cubed where data were available. A dry bulk density of 2.75 g/cm3 was applied in unestimated areas and in veins with no SG measurements.
- MTS classified blocks to the Measured category using multiple levels of mine development generally spaced less than 15 m apart and in areas with grade continuity above the Mineral Resource cut-off grade. Indicated category blocks were classified in areas with multiple levels of mine development spaced more than 15 m apart or with drilling less than 25 m apart. Inferred mineral resources were classified in areas with a single mine development level and drilling spaced less than 50 m apart.
- The QP determined that the material has reasonable prospects of economic extraction by application of a cut-off grade which considers process/G&A, mining costs and by constraining the Mineral Resource estimate to areas in proximity to mine development, by removing isolated blocks and by assuming a 30 m crown pillar below surface topograhpy. In addition, Mineral Resources within veins are reported above a grade-thickness constraint to ensure that material is above cut-off over an assumed minimum mining width of 1 m.
- A metal price of $1,800/oz was used for gold. A metallurgical recovery of 94% for gold was applied together with a smelter payable of 97% and a 3.2% government royalty. Gold cut-off grades of 1.6 g/t (Nus shear), 2.29 g/t (Guaico veins) and 1.82 g/t (Guayabito veins) were estimated by MTS based on a total process and G&A operating cost of $33.0 /t of ore mined. Mining costs were $48/t (Nus shear), $84/t (Guaico veins) and $60/t (Guayabito veins). Antioquia Gold chose cut-off grades of 1.5 g/t (Nus shear), 2.3 g/t (Guaico veins) and 1.8 g/t (Guayabito veins).
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The contained gold figures shown are in situ. No assurance can be given that the estimated quantities will be produced. All figures have been rounded to reflect accuracy and to comply with securities regulatory requirements. Summations within the tables may not agree due to rounding.
Mineral Resources, which are not Mineral Reserves, do not have demonstrated economic viability. The estimate of mineral resources may be materially affected by environmental, permitting, legal, title, taxation, sociopolitical, marketing, or other relevant issues. -
The quantity and grade of reported Inferred resources in this estimation are conceptual in nature and there has been insufficient exploration to define these Inferred resources as an Indicated or Measured Mineral Resource. There is a reasonable expectation that the majority of the Inferred Mineral Resource can be upgraded to Indicated with continued exploration.
Table 3: Guaico Veins Mineral Resource Estimate (2.3 g/t Au cut-off grade)
Table 4: Guayabito Veins and Massive Body Mineral Resource Estimate (1.8 g/t Au cut-off grade for veins and Massive Bodies)
The updated MRE for Cisneros has been completed according to CIM Definition Standards and it is supported by a NI 43-101 independent report published and filed on the Company’s website and SEDAR profile on December 16, 2022.
Accomplishments during the three months and the year ended December 31, 2023
Three months
- Production of 8,439 ounces of gold from the Cisneros Operation.
- Sales of 10,290 ounces of gold at an average realized gold price of $2,292 per ounce.
- Cash costs (1) of $1,865 per ounce of gold sold.
- All-in sustaining costs (1) of $2,067 per ounce of gold sold.
- Loss from mine operations of $3.6 million.
- During Q4, 203 tonnes of third-party mineralized material with an average gold grade of 11.69 g/t were purchased, representing 0.9% of the gold production.
Year-end
- Production of 36,061 ounces of gold from the Cisneros Operation.
- Sales of 35,883 ounces of gold at an average realized gold price (1) of $2,411 per ounce.
- Cash costs (1) of $2,083 per ounce of gold sold.
- All-in sustaining costs (1) of $2,359 per ounce of gold sold.
- Loss from mine operations of $3.2 million.
- During 2023, 11,218 tonnes of third-party mineralized material with an average gold grade of 12.92 g/t were purchased, representing 12% of the monthly gold production.
| (1) Non-IFRS performance measures. For more information, see the “Non-IFRS Measures” section. |
Overall performance during the year
During the year 2023, 36,061 ounces were produced from the processing of 476,906 tonnes with an average head grade of 2.41 g/t and a metallurgical recovery of 97.5%. Of the total ounces produced, 88% came from the Company’s Guaico – Guayabito mine production and 12% from mineralized material acquired from third parties.
The drilling program during the year consisted of an underground infill and brownfield program that totaled 28,830 meters. This program was development partially with the Company’s drill rigs Diamec U4 (20,013 meters) and by Logan Drilling (8,817 meters)
During 2023, underground development at both mines continued with 12,501 meters of total advance (vertical, horizontal and in ramps). To ensure the continuity of the mining operation, the developments continued to focus on deepeing the ramp and the preparation of levels in different areas of the mine: Guaico, Nus and Guayabito.
SELECTED OPERATING AND FINANCIAL INFORMATION
Selected operating results for the three months ended December 31, 2023 and 2022, and for the three most recently completed years, are as follows:
Production
In March 2023, the regional environmental agency CORNARE ordered Antioquia Gold to halt mineral processing at the Corporation’s 100% owned gold process plant near Cisneros, Antioquia, Colombia. Similarly, in July 2023, the Company’s Guayabito Mine was ordered to close. The Company resumed normal operations at Cisneros and Guayabito in March and October 2023, respectively, after reaching an agreement with CORNARE and meeting all the established requirements. The decrease in ounces of gold produced during 2023 is due to the interruption of Cisneros and Guayabito operations.
A total of 8,439 ounces of gold were produced during Q4 2023 compared to 12,845 ounces of gold during Q4 2022, a decrease of 34.3%. During Q4 2023 the plant processed 122,998 tonnes compared to 132,344 tonnes in Q4 2022. Gold grades decreased in Q4 2023 to 2.17 grams/tonne from 3.13 grams/tonne in Q4 2022.
For the full year ended December 31, 2023 production amounted to 36,061 ounces of gold compared to 48,955 ounces of gold in 2022, a decrease of 27.3%. During 2023 the plant processed 476,906 tonnes compared to 498,414 tonnes in 2022. Gold grades decreased in 2023 to 2.41 grams/tonne from 3.18 grams/tonne in 2022.
A summary of the monthly production results is given in the table below:
Selected information for the three months ended December 31, 2023 and 2021, and for the three most recently completed years, are as follows:
Revenue, Mine operating income and Operating income (loss)
Revenue of $23.7 million for the last quarter of 2023 compared to $27.9 million in the same period of 2022 reflects the decrease in the ounces of gold sold to 10,290 for the last quarter of 2023 compared to 12,593 in the same period of 2022.
The loss from mine operations in the last quarter of 2023 of $3.6 million compared to a gain of $4.2 million in the same period of 2022 shows a decrease of 186%. It reflects the decrease of 18% of gold sold, although the cash cost also increased to $1,865 per ounce sold compared to $1,707 per ounce in the same period of 2022.
The increased loss from operations in the last quarter of 2023 of $28.6 million compared to $2.1 million in Q4 2022 reflects the cost of sales increase and the revenue decrease.
In March 2023, the regional environmental agency CORNARE ordered Antioquia Gold to halt mineral processing at the Corporation’s 100% owned gold process plant near Cisneros, Antioquia, Colombia. Similarly, in July 2023, the Company’s Guayabito Mine was ordered to close. The Company resumed normal operations at Cisneros and Guayabito in March and October 2023, respectively, after reaching an agreement with CORNARE and meeting all the established requirements. The decrease in revenue in 2023 is due to the interruption of Cisneros and Guayabito operations. Operating costs were not reduced in the same proportion due to the high share of fixed costs in the cost structure.
Exploration and evaluation expenditures
Exploration and evaluation expenditures for 2023 increased by $1.1 million due to exploration through diamond drilling (average exploration cost US$130) contracted with Logal Drilling Colombia to increase exploration results.
General and administrative expenses
General and administrative expenses totaled $1.6 million for the last quarter of 2023 compared to $1.0 million in 2023.
Impairment of assets
During the year ended December 31, 2023, the Company recognized impairment losses of $22,732,122 (2022: $nil) related to Property, Plant and Equipment, including mining properties, fully allocated to the mining segment and reported under “Impairment of assets” line in the consolidated statements of loss and comprehensive loss.
This impairment primarily resulted from downward revisions to reserve estimates for the Guaico and Guayabito gold mines, due to verifiable estimates of reserves. The recoverable amount of $61,917,878 was determined based on a value in use calculation using cash flow projections from financial budgets approved by management covering a three-year period. The discount rate applied to the cash flow projections was 13% reflecting current market assessments of the time value of money and risks specific to operation. Key assumptions included a gold price of $2,133 per ounce and an 9
estimated production of 147,937 ounces over the life of mine, derived from life-of-mine plans and resource conversion expectations.
Selected quarterly information
The summary below highlights selected quarterly information:
The quarter over quarter comparison shows a decreasing trend in production resulting from 10,194 oz in Q1 to 8,439 oz in Q4, due to the decrease in grade of gold.
Management is working on stabilizing the cash cost without neglecting production and expects an improvement during 2024 compared to previous years with production from higher grade areas and better recoveries.
Mine construction activities and property, plant and equipment investment
The Company began construction activities during 2015. On March 1, 2019, the Company declared it had achieved commercial production. Most of the property, plant and equipment investments are related to mine and plant construction, including the plant expansion to 1,200 tpd completed in 2020. During 2021 and third quarter of 2022 the Company has invested mainly in mine equipment and the expansion of the tailings dam.
Investment has been as follows:
SHARE DATA
The authorized capital of the Company consists of an unlimited number of common shares. As at December 31, 2023, and at the date of issue of this MD&A there were 1,085,328,138 issued and outstanding common shares.
As at December 31, 2023, and the date hereof there were nil warrants outstanding.
As at December 31, 2023, there were 3,000,000 stock options outstanding.
LIQUIDITY AND CAPITAL RESOURCES
During the year ended December 31, 2023, the Company earned revenue in the amount of $ 87,729,781 (December 31, 2022 – $105,274,113) and has increased the term and demand loans by $ 30,336,357 (December 31, 2022 – increase of $12,420,375 ).
At December 31, 2023, the Company’s current assets total $ 56,368,078 (December 31, 2022 – $35,918,319), current liabilities total $ 198,037,840 (December 31, 2022 – $ 167,982,623) giving rise to a working capital deficit of $ 141,669,762 (December 31, 2022 – deficit of $ 132,064,304).
The Company’s ability to continue as a going concern is dependent upon its ability to achieve profitable operations, generate enough funds and/or continue to obtain enough capital from investors to meet its current and future obligations. The recoverability of amounts shown for property and equipment is dependent on future profitable operations or proceeds from disposition of mineral interests. As a result of these risks, there is material uncertainty which may cast 11
significant doubt as to the appropriateness of the going concern assumption. There can be no assurance that the steps management is taking will be successful. The audited consolidated financial statements do not reflect the adjustments to the carrying values of assets and liabilities and the reported expenses and consolidated statements of financial position classifications that would be necessary if the going concern assumption was inappropriate. These adjustments could be material.
The Company prepares annual revenue and expenditure budgets, which are regularly monitored and updated as considered necessary to provide current cash flow estimates. The Company also utilizes authorizations for expenditures on operation and projects to further manage cash flows.
The Company is largely financed by shareholder loans as detailed below in the Related Parties section and has been working on the consolidation of current operations and the implementation of improvement throughout the mining/processing systems and as a result, cash flow projections for 2024 indicate that the Company will generate positive cash flow to continue covering its obligations, strengthening its financial position.
The Company’s approach to managing liquidity is to ensure, as much as possible, that it will have sufficient liquidity to meet its liabilities when due, under both normal and unusual conditions without incurring unacceptable losses, relinquishment of properties or risking harm to the Company’s reputation.
Financing Activities
(i) The Company secured a loan of US $10 million with Banco de Crédito del Perú to finance infrastructure and mine development. Repayment is due January 3, 2026, and loan bears interest at 8.91%. Loan has been guaranteed by Consorcio Minero Horizonte.
(ii) In February 2023, Antioquia Gold enters into a deferred payment property purchase agreement with Fasivar S.A.S. for US $ 918,846. The total contract amount will be paid over a period of eight years in 32 equal quarterly installments beginning in February 2023 and ending in August 2030. A monthly interest rate equal to the Fed Funds Rate + 2% per annum on the unpaid balances will be added to the value of the contract.
(iii) The Company entered into a financing agreement where the Company received US $12.75 million from Trafigura Pte Ltd. The balance as of December 31, 2023 will be gradually reduced through deductions from sales payments of production sold to Trafigura between July 2023 and November 2024 under a gold purchase and sale contract. The interest rate associated with this financing is the 3-month SOFR + 5.8%. The obligations of the Company under the financing agreement have been guaranteed by Consorcio Minero Horizonte, a Company controlled by the same group that controls Infinita.
Off-Balance Sheet Arrangements
There are no off-balance sheet arrangements as at December 31, 2023, nor have any such arrangements been entered into by the Company as of the date of this MD&A.
TRANSACTIONS WITH RELATED PARTIES
During the years ended December 31, 2023 and 2022, the Company had the following related party transactions:
12.1 Key Management
Key management personnel had the following transactions with the Company:
- Compensation that was paid or payable to key management in the amount of $ 304,375 (December 31, 2022 – $298,276).
- Directors of the Company have 3,000,000 options outstanding and exercisable at December 31, 2023.
- The Company has entered into consulting agreements with one director, pursuant to which he receives fees of US $7,500 per month. The contract can be terminated by the Company and the officers, at any time.
12.2 Related party transactions
Infinita Prosperidad Minera SAC (“Infinita”), a company owning approximately 91% of the outstanding common shares of the Company, had the following transactions with the Company:
- The total term and demand loans and interest thereon at December 31, 2023 amounts to $138,229,021 (US$ 104,513,096) (December 31, 2022 – $109,100,764). The total loans plus interest are unsecured, denominated in US dollars, bear interest at 10%.
- During the year ended December 31, 2023 the Company made repayments in the amount of $2,277,517 (US$1,722,000) (December 31, 2022 – $11,649,289).
- Infinita entered into a debt arrangement with a third party lender for $72 million US$. Infinita has guaranteed the loan with its shares in the Company.
- On June, 2023, the Company completed its restructuring of $1,359,300 of debt under an existing loan agreement with Infinita. Pursuant to the Debt Restructuring, Antioquia issued 135,930,000 common shares at a deemed price of $0.01 per share. Prior to the Debt Restructuring, Infinita owned and controlled 853,351,437 common shares, representing approximately 89.9% of the issued and outstanding common shares of the Company. After closing of the Debt Restructuring, Infinita owns and controls 989,281,437 common shares, representing approximately 91.15% of the issued and outstanding common shares of the Company.
Coripuno SAC, a Company controlled by the same group that controls Infinita, had the following transactions with the Company:
- The total term and demand loans and interest thereon at December 31, 2023 amounts to $15,243,943 (US$ 11,525,740) (December 31, 2022 – $14,539,905). The total loans plus interest are unsecured, denominated in US dollars, bear interest at 7.13% and are due on demand.
Consorcio Minero Horizonte SA (CMH), a Company controlled by the same group that controls Infinita, had the following transactions with the Company:
- The Company sold gold concentrate in the amount of $Nil (US$ Nil) (December 31, 2022 – $14,540,920) to Consorcio Minero Horizonte SA.
- CMH has signed as guarantor in the demand loan obtained by the Company with Banco de Peru for the amount of USD $10,000,000
Batero Gold Corp, a Company controlled by the same group that controls Antioquia, and shares two of the Directors, had the following transactions with the Company:
- During the year ended December 31, 2023, the two companies shared office. The amount of $29,268 (December 31, 2022 $50,247) were billed by the Company to Batero Gold Corp.
- As at December 31, 2023, the Company lent to Batero Gold Corp the amount of $733,590 (December 31, 2022 154,000), over 15 months expiring January 20, 2024. The total loan and interest that Batero owes to the Company at December 31, 2023 is $ 796,546. The total loan plus interest are unsecured, denominated in US dollars, bear interest at the Reference Banking Indicator (IBR) + 7.5%. The IBR is a short-term interest rate for the Colombian Peso.
-INPROSMIN S.A, a Company controlled by the same group that controls Infinita, had the following transactions with the Company:
- During the year ended December 31, 2023, Inprosmin S.A. required a loan of the amount of $72,946 (December 31, 2022 $Nil).
Term and demand loan
PROPOSED TRANSACTIONS
The Company approved the voluntary delisting of the Common Shares at the annual and general and special meeting of the shareholders of the Company held on October 11, 2023.
ADDITIONAL DISCLOSURE FOR VENTURE ISSUERS WITHOUT SIGNIFICANT REVENUE
- Exploration and evaluation assets or expenditures:
- The Company’s policy is to expense exploration and evaluation expenditures as incurred, as a result the Company does not have any expenditures on exploration and evaluation assets during the periods under review, the Company has begun to incur significant revenues and all expenditures are incurred in one property. See note disclosure to the Company’s December 31, 2023 audited consolidated financial statements.
- Expensed research and development costs:
- The Company does not have any expensed research and development costs during the periods under review.
- Intangible assets arising from development:
- The Company does not have any intangible assets arising from development during the periods under review.
- General and administrative expenses:
- See note disclosure to the Company’s December 31, 2023 audited consolidated financial statements.
- Any material costs, whether expensed or capitalized as assets, not included in (a) to (d) above:
- The Company does not have any material costs not included in (a) to (d) above.
Delisting from the TSX Venture Exchange
The Company has applied and has received approval for a voluntary delisting of its common shares in the capital of the Company (the “Common Shares”) from the TSXV Venture Exchange (“TSXV”). Accordingly, it is anticipated that, effective as at the close of trading on Friday, December 1, 2023, Antioquia’s Common Shares will no longer be listed and posted for the trading on the TSXV. A majority of the shareholders of the Company approved the voluntary delisting of the Common Shares at the annual and general and special meeting of the shareholders of the Company held on October 11, 2023. The Company will continue as an unlisted reporting issuer under Canadian securities laws.
CRITICAL ACCOUNTING JUDGEMENTS AND ESTIMATES, POLICIES AND CHANGES
The Company makes estimates and assumptions about the future that affect the reported amounts of assets and liabilities. Estimates and judgements are continually evaluated based on historical experience and other factors, including expectations of future events that are believed to be reasonable under the circumstances. In the future, actual results may differ from these estimates and assumptions. The effect of a change in an accounting estimate is recognized prospectively by including it in profit or loss in the period of the change.
Information about critical judgments and estimates in applying accounting policies are disclosed in Note 2 to the Company’s December 31, 2023 audited consolidated financial statements.
CHANGES IN ACCOUNTING POLICIES
Adoption of new accounting standards
The Company has adopted the following amendments to IFRS standards:
Amendments to IAS 1 Presentation of Financial Statements (effective January 1, 2023):
These amendments clarify the classification of liabilities as current or non-current and promote consistency in application. The Company has reviewed its liabilities and their presentation in light of these changes. The adoption of these amendments had no impact on the Company’s financial statements.
Amendments to IAS 8 ‘Accounting Policies, Changes in Accounting Estimates and Errors’ (effective January 1, 2023):
These amendments introduce a new definition of accounting estimates and clarify the distinction between changes in accounting estimates and changes in accounting policies. The Company has applied this guidance in preparing these financial statements. The adoption of these amendments had no impact on the Company’s financial statements.
Amendments to IAS 12 “Income Taxes” (effective January 1, 2023):
These amendments narrow the scope of the initial recognition exemption under IAS 12, clarifying its application to transactions that give rise to both deductible and taxable temporary differences. The adoption of these amendments had no impact on the Company’s financial statements
New standards, interpretations and amendments not yet effective
At the date of the authorization of these financial statements, several new, but not effective Standards and amendments to existing Standards, and Interpretations have been published by the IASB. None of these Standards or amendments to existing Standards have been adopted early by the Company. Management anticipates that all relevant pronouncements will be adopted for the first period beginning on or after the effective date of the pronouncement.
Classification of Liabilities as Current or Non-Current (Amendments to IAS 1)
The IASB has published Classification of Liabilities as Current or Non-Current (Amendments to IAS 1) which clarifies the guidance on whether a liability should be classified as either current or non-current. The amendments:
• Clarify that the classification of liabilities as current or non-current should only be based on rights that are in place “at the end of the reporting period”
• Clarify that classification is unaffected by expectations about whether an entity will exercise its right to defer settlement of a liability
• Make clear that settlement includes transfers to the counterparty of cash, equity instruments, other assets or services that result in extinguishment of the liability.
This amendment is effective for annual periods beginning on or after January 1, 2024. Earlier application is permitted. The extent of the impact of adoption of this amendment has not yet been determined.
FINANCIAL INSTRUMENTS AND FINANCIAL RISK MANAGEMENT
The Company’s financial instruments consist of cash and cash equivalents, accounts receivables, amounts due from Government, term and demand loans, loan for equipment and accounts payable. None of the Company’s financial instruments are subsequently measured at fair value through profit and loss. The Company’s activities expose it to risks, including financial and operational risks which could affects its ability to achieve its strategic objectives for mine development and shareholder returns.
Financial instruments disclosures require the Company to provide information about: a) the significance of financial instruments for the Company’s financial position and performance and, b) the nature and extent of risks arising from financial instruments to which the Company is exposed during the period and at the statement of financial position date, and how the Company manages those risks. Please refer to Note 3 of the Company’s financial statements for a discussion of the factors that affects the Company.
RISKS AND UNCERTAINTIES
The Company’s principal activity is mineral exploration, development and mining operations. Companies in this industry are subject to many and varied kinds of financial and other risks, including but not limited to, environmental risks, changes in metal prices, and political and economic uncertainties.
The decision to proceed with construction and mining of the Cisneros project commenced on the basis of a Preliminary Economic Assessment (as compared to a pre-feasibility or a feasibility study), there is increased uncertainty and higher risk of economic and technical failure associated with the Company’s decision. Production and economic variables may vary considerably, due to the absence of a pre-feasibility or a feasibility study prepared in accordance with NI 43-101 standards. In particular, there is additional risk that mineral volumes and grades will be lower than management expected and the risk that construction or ongoing mining operations will be more difficult or more expensive than management expected. Project failure may materially adversely impact the Company’s future profitability, its ability to repay existing loans, and its overall ability to continue as a going concern.
The construction investment has been funded via debt financing, mainly from Infinita, which is a related party to the Company. The Company may not be able to get additional loans from Infinita or other potential creditors. Re-payment of the term loan payable to Infinita was to have been in 24 equal monthly installments commencing on October 1, 2017. The Company has not made the payments as required, and as a result is in default of the term loan. As a result of being in default if Infinita makes a demand for payment the entire term loan would be immediately due and payable. A demand for payment has not been made, and management believes that Infinita will not demand re-payment of the term loan.
On March 1, 2019, the Company declared the successful start of production at the Cisneros Operation in Antioquia, Colombia. Since then, the Company has received significant cash flow from sales. Although during 2019 cash flow was not enough to cover all of its operating costs, since 2020 the operation has generated a positive operations cash flow, except for 2023. During 2023 the Company made repayments in the amount of US$ 6,031,790, and management believes that with the permanent improvements in operation, the Company will be profitable during 2024 generating sufficient cash flow to continue repaying the outstanding loans.
The other property interests that the Company has or has an option with which to earn an interest are in the exploration stages only. Currently there are no confirmed deposits of commercial mineralization on those properties. Mineral exploration involves a high degree of risk. There are few properties that are explored and ultimately developed into producing mines. Exploration of the Company’s mineral properties may not result in any discoveries of commercial deposits of mineralization.
The Company may be subject to risks which could not reasonably be predicted in advance. Events such as labour disputes, environmental issues, natural disasters or estimation errors are prime examples of industry related risks. Since the Company operates in Colombia, it is subject to political, legal, tax and other risks associated with operating in a foreign jurisdiction.
The Company is in the business of metals exploration and mine development and as such, its prospects are largely dependent on movements in the price of various metals. Prices fluctuate on a daily basis and are affected by a number of factors well beyond the control of the Company. The mineral exploration industry in general is a competitive market and there is no assurance that, even if commercial quantities of proven and probable reserves are discovered, a profitable market may exist. Currently, the Company does not enter into price hedging programs.
The Company is subject to the laws and regulations relating to environmental matters in all jurisdictions in which it operates, including provisions relating to property reclamation, discharge of hazardous material and other matters.
Foreign currency risk is the risk that the fair value or future cash flows will fluctuate as a result of changes in foreign currency exchange rates. The Company is exposed to foreign currency fluctuations as certain transactions are denominated in Colombian Pesos and United States dollars.
Although the Company has taken steps to verify title to mineral properties in which it has an interest, these procedures do not guarantee the Company’s title. Such properties may be subject to prior agreements or transfers and title may be affected by undetected defects.
The Company’s audited consolidated financial statements have been prepared using IFRS Accounting Standards applicable to a going concern, which assumes continuity of operations and realization of assets and settlement of liabilities in the normal course of business for the foreseeable future. The Company’s ability to continue as a going concern is dependent upon its ability to achieve profitable operations, generate sufficient funds and continue to obtain sufficient capital from investors to meet its current and future obligations. The Company is subject to risks and challenges similar to companies in a comparable stage of operation. As a result of these risks, there is significant doubt as to the appropriateness of the going concern assumption.
NON-IFRS MEASURES
The Company has included non-IFRS measures in this MD&A, these measures are intended to provide additional information and should not be considered in isolation or as a substitute for measures of performance prepared in accordance with IFRS Accounting Standards. These measures do not have any standardized meaning prescribed under IFRS Accounting Standards and therefore may not be comparable to other issuers.
Non-IFRS measures referred to in this MD&A are defined as follows:
EBITDA and Adjusted EBITDA:
EBITDA represents earnings before interest (including non-cash accretion of financial obligations and lease obligations), income taxes and depreciation and amortization.
Adjusted EBITDA excludes impairment charges and reversals, gains or losses on asset dispositions, wealth taxes, gains/losses on financial instruments, and foreign exchange gains/losses. Excludes exchange gain/loss on translation of foreign operations. The Company believes that Adjusted EBITDA provides useful information to investors and other users of the financial statements for the following reasons: a) It allows an assessment of the Company’s operating performance, excluding the impact of non-recurring items. b) It facilitates the comparison of operating income between different periods and with other companies in the industry, which have not been affected by non-recurring items. c) It is a measure commonly used by analysts and investors in the mining industry.
The following tables provides a reconciliation of EBITDA and Adjusted EBITDA to the Financial Statements:
Average realized gold price:
Represents the sale price of gold per ounce before deducting production costs, depreciation, and mining royalties.
The following table provides a reconciliation of the average realized gold price:
Cash Costs:
Cash costs per ounce sold represents all direct and indirect operating costs related to the physical activities of producing gold, including on-site mining costs, processing, on-site general and administrative costs, community site relations, and royalties. Cash costs incorporate the Company’s share of production costs but exclude, among other items, the impact of depreciation, depletion and amortization (“DD&A”), financing costs, capital development and exploration and income taxes.
Cash costs per ounce is a common performance measure in the mining industry, but does not have any standardized meaning. A Company’s adoption of the standard is voluntary and other companies may quantify these measures differently as a result of different underlying principles and policies applied.
The following table reconciles total cash costs per ounce sold as disclosed in this MD&A to the Financial Statements:
All-in Sustaining Costs (AISC):
AISC include total production cash costs incurred at the Company’s mining operations. Additionally, the Company includes sustaining capital expenditures which are expended to maintain existing levels of production (to which costs do not contribute to a material increase in annual gold ounce production over the next 12 months) and general and administrative expenses. The measure seeks to reflect the full cost of production from current operations, therefore expansionary capital is excluded. Certain other expenditures, including taxes and financing costs are also excluded. The Company reports AISC on a per ounce sold basis.
This performance measure was adopted as a result of an initiative undertaken within the gold mining industry; however, this performance measure has no standardized meaning and should not be considered in isolation or as a substitute for measures of performance prepared in accordance with IFRS Accounting Standards. A Company’s adoption of the standard is voluntary and other companies may quantify these measures differently as a result of different underlying principles and policies applied.
The following table reconciles AISC per ounce sold as disclosed in this MD&A to the Financial Statements:
All-in Costs:
Includes AISC (as defined above) and adds non-sustaining capital and E&E costs. Non-sustaining capital is related to new projects that are not associated with gold production from the current operations, and similar to AISC, excludes certain other cash expenditures such as income and other tax payments, financing costs and debt repayments.
The Company reports All in Cost on a per ounce sold basis.
The following table reconciles All-in Costs per ounce sold as disclosed in this MD&A to the Financial Statements:
FORWARD-LOOKING INFORMATION
Certain statements contained in this MD&A constitute forward-looking statements. Such forward-looking statements involve a number of known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of the Company to be materially different from actual future results and achievements expressed or implied by such forward-looking statements. Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date the statements were made. Readers are also advised to consider such forward-looking statements while considering the risks set forth below.
Caution regarding forward looking statements:
Except for statements of historical fact relating to the Company, certain information contained in this MD&A constitutes “forward-looking information” under Canadian securities legislation. Forward-looking information in this MD&A includes, but is not limited to, statements with respect to the potential of the Company’s properties; the future price of gold; success of exploration activities; cost and timing of future exploration and development; the expectation of gold recoveries; the planned focus of activities at the Company’s Cisneros Project (as hereinafter defined); the Company’s plans with respect to its Strategic Properties (hereinafter defined); requirements for additional capital; and other statements relating to the financial and business prospects of the Company.
Generally, forward-looking information can be identified by the use of forward-looking terminology such as “plans”, “expects” or “does not expect”, “is expected”, “budget”, “scheduled”, “estimates”, “forecasts”, “intends”, “anticipates” or “does not anticipate”, “believes”, or variations of such words and phrases. Forward-looking information may also be identified in statements where certain actions, events or results “may”, “could”, “would”, “might” or “will be taken”, “occur” or “be achieved”.
Forward-looking information is based on the reasonable assumptions, estimates, analysis and opinions of management made in light of its experience and its perception of trends, current conditions and expected developments, as well as other factors that management believes to be relevant and reasonable in the circumstances at the date that such statements are made.
Forward-looking information is inherently subject to known and unknown risks, uncertainties and other factors that may cause the actual results, level of activity, performance or achievements of the Company to be materially different from those expressed or implied by such forward-looking information, including but not limited to risks related to:
- The Company’s goal is to create shareholder value by concentrating on the development of properties that have the potential to contain economic gold and other precious metals;
- Management’s assessment of future plans for the Company’s operations in Colombia;
- Management’s economic outlook regarding future trends;
- The Company’s ability to meet its working capital needs at the current level in the short term;
- Sensitivity analysis on financial instruments may vary from amounts disclosed; and
- Governmental regulation and environmental liability.
In addition, the Company has also made certain assumptions that the Company believes are reasonable. These assumptions include, but are not limited to, the actual results of exploration projects being equivalent to or better than estimated results than prior exploration and results, future costs and expenses being equivalent to historical costs and expenses, and the ability of the Company to obtain additional financing.
Although management of the Company has attempted to identify important factors that could cause actual results to differ materially from those contained in forward-looking information, other factors could also cause materially different results. 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.
Accordingly, readers should not place undue reliance on forward-looking information. The Company does not undertake to update any forward-looking information.
SUBSEQUENT EVENT
No subsequent event identified.
DISCLOSURE CONTROLS AND PROCEDURES
In connection with National Instrument 52-109 (Certification of Disclosure in Issuer’s Annual and Interim Filings) (“NI 52-109”), the Chief Executive Officer and Chief Financial Officer of the Company have filed a Venture Issuer Basic Certificate with respect to the financial information contained in the audited financial statements for the year ended December 31, 2023 and 2022 and in this accompanying MD&A (together the “Filings”).
In contrast to the full certificate under NI 52-109, the Venture Issuer Basic Certificate does not include representations relating to the establishment and maintenance of disclosure controls and procedures and internal control over financial reporting, as defined in NI 52-109. For further information the reader should refer to the Venture Issuer Basic Certificates filed by the Company with the Interim Filings on SEDAR at www.sedar.com.