PolyMet Mining Corp. - Exhibit 99.2 - Filed by newsfilecorp.com
POLYMET MINING CORP.
MANAGEMENT DISCUSSION AND ANALYSIS
For the three and nine months ended October 31,
2016
| PolyMet Mining Corp. |
| Management Discussion and Analysis
|
| As at October 31, 2016 and for the three and
nine months ended October 31, 2016 |
| Tabular amounts in thousands of U.S. Dollars, except for
shares and per share amounts |
| |
General
The following information, prepared as at December 8, 2016,
should be read in conjunction with the unaudited condensed interim
consolidated financial statements of PolyMet Mining Corp. and its subsidiaries
(together “PolyMet” or the “Company”) as at October 31, 2016 and for the three
and nine months ended October 31, 2016 and related notes attached thereto, which
are prepared in accordance with IAS 34, Interim Financial Reporting and in
conjunction with the audited consolidated financial statements for the year
ended January 31, 2016 prepared in accordance with International Financial
Reporting Standards (“IFRS”) as issued by the International Accounting Standards
Board (“IASB”). All amounts are expressed in United States (“US”) dollars unless
otherwise indicated.
Forward Looking Statements
This Management Discussion and Analysis (“MD&A”) contains
statements that constitute "forward-looking statements" within the meaning of
Section 21E of the United States Securities Exchange Act of 1934, as amended
(the “Exchange Act”). These statements appear in a number of different places in
this MD&A and can frequently, but not always, be identified by words such as
“expects”, “anticipates”, “believes”, “intends”, “estimates”, “potential”,
“possible”, “projects”, “plans” and similar expressions, or statements that
events, conditions or results “will”, “may”, “could” or “should” occur or be
achieved or their negatives or other comparable words. Such forward-looking
statements involve known and unknown risks, uncertainties and other factors
which may cause PolyMet’s actual results, performance or achievements to be
materially different from any future results, performance or achievements that
may be expressed or implied by such forward-looking statements. Forward-looking
statements include statements regarding the outlook for the Company’s future
operations, plans and timing for PolyMet’s exploration and development programs,
statements about future market conditions, supply and demand conditions,
forecasts of future costs and expenditures, the outcome of legal proceedings,
and other expectations, intentions and plans that are not historical fact. The
Company’s actual results may differ materially from those in the forward-looking
statements due to risks facing PolyMet or due to actual facts differing from the
assumptions underlying the Company’s predictions.
The forward-looking statements contained in this MD&A are
based on assumptions, which include, but are not limited to:
- Obtaining permits on a timely basis;
- Raising the funds necessary to develop the NorthMet Project and continue
operations;
- Execution of prospective business plans; and
- Complying with applicable governmental regulations and standards.
Such forward-looking statements are subject to risks,
uncertainties and other factors, including those listed or incorporated by
reference under “Risk Factors” in the Form 20-F. These risks, uncertainties and
other factors include, but are not limited to:
- Changes in general economic and business conditions, including changes in
interest rates and exchange rates;
- Changes in the resource market including prices of natural resources,
costs associated with mineral exploration and development, and other economic
conditions;
- Natural phenomena;
- Actions by governments and authorities including changes in government
regulation;
- Uncertainties associated with legal proceedings; and
- Other factors, many of which are beyond the Company’s control.
All forward-looking statements included in this MD&A are
based on information available to the Company on the date of this MD&A. The
Company expressly disclaims any obligation to update publicly, or otherwise,
these statements, whether as a result of new information, future events or
otherwise except to the extent required by law, rule or regulation. Readers
should not place undue reliance on forward-looking statements. Readers should
carefully review the cautionary statements and risk factors contained in this
and all other documents that the Company files from time to time with regulatory
authorities.
2
| PolyMet Mining Corp. |
| Management Discussion and Analysis |
| As at October 31, 2016 and for the three and
nine months ended October 31, 2016 |
| Tabular amounts in thousands of U.S. Dollars, except for
shares and per share amounts |
| |
Cautionary note to U.S. investors: the terms “measured and
indicated mineral resource”, “mineral resource”, and “inferred mineral resource”
used in this MD&A are Canadian geological and mining terms as defined in
accordance with National Instrument 43-101, Standards of Disclosure for Mineral
Projects (“NI 43-101”) under the guidelines set out in the Canadian Institute of
Mining, Metallurgy and Petroleum (the “CIM”) Standards on Mineral Resources and
Mineral Reserves. U.S. investors are advised that while such terms are
recognized and required under Canadian regulations, the SEC does not recognize
these terms. Mineral Resources do not have demonstrated economic viability. It
cannot be assumed that all or any part of a Mineral Resource will be upgraded to
Mineral Reserves. Under Canadian rules, estimates of inferred mineral resources
may not form the basis of or be included in feasibility or other studies. U.S.
investors are cautioned not to assume that any part of an inferred mineral
resource exists, or is economically or legally mineable.
Summary of Business
PolyMet is a TSX and NYSE MKT listed Issuer engaged in the
exploration and development of natural resource properties. The Company’s
primary mineral property and principal focus is the commercial development of
its NorthMet Project (“NorthMet” or “Project”), a polymetallic project in
northeastern Minnesota, USA which hosts copper, nickel, cobalt and platinum
group metal mineralization.
The NorthMet ore body is at the western end of a series of
known copper-nickel-precious metals deposits in the Duluth Complex. Completion
of the Definitive Feasibility Study (“DFS”) in 2006 established proven and
probable reserves, positioning NorthMet as the most advanced of the four
advanced projects in the Duluth Complex: namely, from west to east NorthMet,
Mesaba, Serpentine, and Nokomis.
PolyMet acquired the Erie Plant and associated infrastructure
from Cliffs Erie LLC, a subsidiary of Cliffs Natural Resources Inc. (together
“Cliffs”). The plant is located about six miles west of the NorthMet ore body
and comprises a 100,000 ton-per-day crushing and milling facility, a railroad
and railroad access rights connecting the Erie Plant to the NorthMet ore body,
tailings storage facilities, 120 railcars, locomotive fueling and maintenance
facilities, water rights and pipelines, administrative offices on site, and
approximately 6,000 acres of land to the east and west of and contiguous to the
existing tailings storage facilities.
The NorthMet Project covers a total of approximately 16,700
acres or 25.9 square miles comprising two areas: the NorthMet mine site totaling
approximately 4,300 acres or 6.5 square miles of leased mineral rights and the
Erie Plant site totaling approximately 12,400 acres or 19.4 square miles of
freehold land. Under a proposed land exchange with the U.S. Forest Service
(“USFS”), PolyMet will receive approximately 6,650 acres or 10.4 square miles of
surface rights above and around the leased mineral rights.
The property is located in St. Louis County in the Mesabi Iron
Range mining district about 60 miles north of Duluth, Minnesota. The NorthMet
Project is easily accessible via state and county roads. The surfaced County
Highway 666 links the plant to the town of Hoyt Lakes, itself approximately 25
miles east of Virginia, Minnesota which is located on State Highway 53. The mine
site is accessible by an all-season gravel road from the plant site and a
private railroad crosses the property immediately south of the deposit and runs
to the plant site. The plant site is serviced by commercial railroad which
connects into the US national and Trans-Canadian railroad systems, as well as a
private railroad providing access to port facilities located on Lake Superior.
High-voltage power lines owned by Minnesota Power, a wholly-owned subsidiary of
ALLETE Inc., supply the plant site and there is ready access to industrial
electric power at the mine site. PolyMet has a long-term power supply contract
with Minnesota Power.
3
| PolyMet Mining Corp. |
| Management Discussion and Analysis |
| As at October 31, 2016 and for the three and
nine months ended October 31, 2016 |
| Tabular amounts in thousands of U.S. Dollars, except for
shares and per share amounts |
| |
Under the Minnesota Environmental Policy Act (“MEPA”) and the
National Environmental Policy Act (“NEPA”), state and federal agencies are
required to complete an Environmental Impact Statement (“EIS”) with periods for
public review and comment before permits to construct and operate the Project
can be issued.
The Minnesota Department of Natural Resources (“MDNR”), the
U.S. Army Corps of Engineers (“USACE”), and the USFS were established as Co-lead
Agencies for preparation of the NorthMet EIS and the U.S. Environmental
Protection Agency (“EPA”) joined as a Cooperating Agency in 2011. In November
2015, the Co-lead Agencies published the Final EIS and the USFS issued its Draft
Record of Decision (“ROD”) on the proposed land exchange.
In March 2016, the MDNR issued its decision that the Final EIS
met the requirements under MEPA and the 30-day period allowed by law to
challenge the state’s decision has passed without any legal challenge being
filed. With the state environmental review process completed, the regulatory
focus moves to formal permits to construct and operate the NorthMet Project.
See additional discussion below.
Summary of Recent Events and Outlook
Highlights of Fiscal 2017 to Date
| • |
On March 3, 2016, the state determined that the NorthMet
Final EIS addresses the objectives defined in the EIS scoping review,
meets procedural requirements and responds appropriately to public
comments. The 30-day period allowed by law to challenge the state’s
decision passed without any legal challenge being filed. The Final EIS
demonstrates that the NorthMet Project can be constructed and operated in
compliance with environmental and human health standards; |
| • |
On June 2, 2016, the Company agreed to issue up to an
additional $14.0 million secured debentures to Glencore AG, a wholly owned
subsidiary of Glencore plc (together “Glencore”), to fund permitting and
general corporate purposes. The debentures are on similar terms as the
existing non-convertible senior secured Tranche F-J Debentures; |
| • |
On July 1, 2016, the Company repaid the $4.0 million
initial principal loan from the Iron Range Resources and Rehabilitation
Board (“IRRRB”); |
| • |
On July 11, 2016, the Company submitted applications for
water-related permits required to construct and operate NorthMet;
|
| • |
On July 12, 2016, the Eastern Region Regional Office of
the USFS issued its response to comments on the draft ROD for the land
exchange and instructed the Superior National Forest to proceed with
completing the final ROD; |
| • |
On August 2, 2016, the Company renewed its request for
Water Quality Certification under Section 401 of the Clean Water Act;
|
| • |
On August 24, 2016, the Company submitted the air quality
permit application required to construct and operate NorthMet; |
| • |
On September 14, 2016, the Company and Glencore agreed to
extend the maturity date of outstanding secured convertible debentures and
outstanding secured non-convertible debentures to the earlier of March 31,
2018, availability of $100 million of debt or equity financing, or when it
is prudent for the Company to repay the debt; |
| • |
On October 18, 2016, the Company closed the initial
tranche of a private placement of 25,963,167 units for gross proceeds of
$19.472 million. See additional details in “Financing Activities”;
|
| • |
On October 28, 2016, the Company closed the second
tranche of a private placement of 14,111,251 units for gross proceeds of
$10.583 million pursuant to Glencore’s right to maintain its pro rata
ownership. See additional details in “Financing Activities”; and
|
| • |
On November 3, 2016, the Company submitted the permit to
mine application required to construct and operate NorthMet.
|
4
| PolyMet Mining Corp. |
| Management Discussion and Analysis |
| As at October 31, 2016 and for the three and
nine months ended October 31, 2016 |
| Tabular amounts in thousands of U.S. Dollars, except for
shares and per share amounts |
| |
Net cash used in operating and investing activities during the
nine months ended October 31, 2016 was $21.624 million, of which approximately
$12 million was spent on environmental review and permitting. PolyMet pays its
own engineering and legal consultants and also reimburses the state of Minnesota
for its internal staff and contractor costs. Other spending relates to
engineering and cost estimates, maintaining existing infrastructure, financing
and general corporate purposes.
Goals and Objectives for the Next Twelve Months
The
environmental review and permitting process is managed by the regulatory
agencies and, therefore, timelines are not within PolyMet’s control. Given these
circumstances, PolyMet’s objectives include:
| • |
USFS issuance of its final ROD on the proposed land
exchange and transfer of title to the surface rights over and around the
NorthMet mineral rights to PolyMet; |
| • |
Decision on 401 Water Quality Certification and USACE
final ROD and 404 wetlands permit under Clean Water Act; |
| • |
Decision on key state permit issuances – Permit to Mine,
air and water permits; |
| • |
Completion of definitive cost estimate and Project update
following permits; |
| • |
Completion of project implementation plan; |
| • |
Repayment, restructuring, and/or conversion of Glencore
loans; and |
| • |
Completion of construction finance plan including
commitment of debt prior to the issuance of permits, subject to typical
conditions precedent such as receipt of key permits.
|
Upon completion of the land exchange, PolyMet will own surface rights to approximately 19,050 acres or 29.8 square miles of contiguous surface rights stretching from west of the Erie Plant to east of the proposed East Pit at NorthMet.
PolyMet expects to spend approximately $30 million during the
year ended January 31, 2017, of which $22 million has been spent during the nine
months ended October 31, 2016. The primary focus continues to be completion of
the permitting process. Other areas of focus include engineering and updated
cost estimates that will be reported in an Updated Technical Report under
National Instrument 43-101, maintaining existing infrastructure and financing.
Prior to receipt of permits, the Company will seek to secure
construction financing that would be available upon receipt of key permits, with
construction and ramp-up to commercial production anticipated to take
approximately 24 months from receipt of key permits. The Company is in
discussion with commercial banks and other financial institutions regarding
construction finance.
See additional discussion below.
5
| PolyMet Mining Corp. |
| Management Discussion and Analysis |
| As at October 31, 2016 and for the three and
nine months ended October 31, 2016 |
| Tabular amounts in thousands of U.S. Dollars, except for
shares and per share amounts |
| |
Detailed Description of Business
Asset Acquisitions
In November 2005, the Company
acquired the Erie Plant, which is located approximately six miles west of
PolyMet’s NorthMet deposit. The plant was operated by Cliffs for many years and
was acquired by Cliffs from LTV Steel Mining Company (“LTV”) after LTV’s
bankruptcy, at which time the plant was shut down with a view to a potential
restart. The facility includes crushing and milling equipment, comprehensive
spare parts, plant site buildings, real estate, tailings storage facilities and
mine workshops, as well as access to extensive mining infrastructure including
roads, rail, water, and power.
PolyMet plans to refurbish, reactivate and, as appropriate,
rebuild the crushing, concentrating and tailings storage facilities at the Erie
Plant to produce concentrates containing copper, nickel, cobalt and precious
metals. Once it has established commercial operations, the Company may install
an autoclave to upgrade the nickel concentrates to produce a nickel-cobalt
hydroxide and a precious metals precipitate. The autoclave circuit has been
included as an option in the Final EIS.
In December 2006, the Company acquired from Cliffs property and
associated rights sufficient to provide it with a railroad connection linking
the mine development site and the Erie Plant. The transaction also included 120
railcars, locomotive fueling and maintenance facilities, water rights and
pipelines, administrative offices on site and an additional 6,000 acres of land
to the east and west of and contiguous to its existing tailings storage
facilities.
PolyMet indemnified Cliffs for reclamation and remediation
associated with the property under both transactions. In April 2010, Cliffs
entered into a consent decree with the MPCA relating to alleged violations on
the Cliffs Erie Property. This consent decree required both short-term and
long-term mitigation. Field study activities were completed in 2010 and 2011 and
short-term mitigations were initiated in 2011 as outlined in the plans and
approved by the MPCA. In April 2012, long-term mitigation plans were submitted
to the MPCA for its review and approval. In October 2012, a response was
received from the MPCA approving plans for pilot tests of various treatment
options to determine the best course of action. Although there is substantial
uncertainty related to applicable water quality standards, engineering scope,
and responsibility for the financial liability, the October 2012 response from
the MPCA and subsequent communications amongst MPCA, Cliffs and the Company
provide increasing clarification of the potential liability for the long-term
mitigation included in the Company’s environmental rehabilitation provision.
Feasibility Study, Mineral Resources and Mineral
Reserves
With publication of the DFS in September 2006, summarized in a
NI 43-101 Technical Report, PolyMet established proven and probable mineral
reserves estimated at 181.7 million short tons grading 0.31% copper, 0.08%
nickel and 0.012 ounces per short ton ("opt") of precious metals (palladium,
platinum and gold).
In September 2007, PolyMet reported an expansion in these
proven and probable mineral reserves to an estimated 274.7 million short tons
grading 0.28% copper, 0.08% nickel and 0.010 opt of precious metals. These
mineral reserves lie within measured and indicated mineral resources of an
estimated 694.2 million short tons grading 0.27% copper, 0.08% nickel and 0.010
opt of precious metals. The reserves are based on copper at $1.25 per pound,
nickel at $5.60 per pound, and precious metal prices of $210, $800, and $400 per
ounce respectively for palladium, platinum and gold.
From 2008 to 2013, PolyMet incorporated numerous project
improvements that were reflected in the draft and supplemental draft EIS’s
published in 2009 and 2013, respectively. The changes included Phase I
production of separate copper and nickel concentrates with Phase II installation
of an autoclave to upgrade the nickel concentrate as well as numerous
modifications that will result in reduced environmental impacts including:
reductions in sulfur dioxide, mercury and greenhouse gas emissions at the plant site, capture of groundwater and surface seepage with
the construction of an in ground containment system to the north and west of the
existing tailings basin and all contact water discharged from the NorthMet
Project will be treated. An Updated Technical Report under NI 43-101, dated
January 14, 2013, describing these changes is filed on EDGAR and SEDAR.
6
| PolyMet Mining Corp. |
| Management Discussion and Analysis |
| As at October 31, 2016 and for the three and
nine months ended October 31, 2016 |
| Tabular amounts in thousands of U.S. Dollars, except for
shares and per share amounts |
| |
PolyMet plans to complete a definitive cost estimate and
Project update prior to commencement of construction. The Project update will
incorporate numerous process and project improvements, as well as environmental
controls described in the Final EIS. The Project update will also include
detailed capital and operating costs reflecting the advanced stage of
engineering and design.
Environmental Review and Permitting
PolyMet
commenced the environmental review and permitting process in 2004. In 2005, the
MDNR published its Environmental Assessment Worksheet Decision Document
establishing the MDNR as the lead state agency and the USACE as the lead federal
agency for preparation of an EIS for NorthMet.
In November 2009, the Co-lead Agencies published the NorthMet
draft EIS, which marked the start of a period for public review and comment,
including two public meetings.
In June 2010, the Co-lead Agencies announced that they intended
to complete the EIS process by preparing a supplemental draft EIS incorporating
a proposed land exchange with the USFS and expanding government agency
cooperation. The USFS joined the USACE as a federal Co-lead Agency and in June
2011, the EPA joined as a Cooperating Agency.
In December 2013, the Co-lead Agencies published the SDEIS,
which started a new period for public review and comment, including three public
meetings, which ended in March 2014. The EPA issued comments on the supplemental
draft EIS including an EC-2 (“Environmental Concerns”) rating, which is the
highest rating for a proposed mining project, so far as the Company is aware.
The highest rating LO (“Lack of Objections”) is typically applied to
non-industrial projects such as the Upper Mississippi National Wildlife and Fish
Refuge Comprehensive Conservation Plan Implementation. The EC-2 rating is the
same as received by some other notable Minnesota projects including the Central
Corridor Light Rail Project in the Twin Cities and the St. Croix River Crossing
which have been built or are in the process of being constructed.
On November 6, 2015, the Co-lead Agencies published the Final
EIS incorporating responses to comments on the draft and supplemental draft
EIS’s.
On November 17, 2015, the USFS issued its Draft ROD on the
proposed land exchange which concluded that the land exchange was in the public
interest and meets the desired conditions in the Superior National Forest Land
and Resource Management Plan.
On March 3, 2016, the MDNR issued its ROD that the Final EIS
addresses the objectives defined in the EIS scoping review, meets procedural
requirements, and responds appropriately to public comments. The 30-day period
allowed by law to challenge the state’s ROD has passed without any legal
challenge being filed. The state’s decision also lays the foundation for
decisions on permits to construct and operate the NorthMet Project.
After consultation with the MDNR and the MPCA, PolyMet
submitted the various state permit applications that will be required to
construct and operate the Project, with the water-related permit applications
submitted on July 11, 2016, air-related permit application on August 24, 2016,
and the permit to mine on November 3, 2016. These permit applications, together
with supporting technical papers, total more than 23,000 pages of documentation
now under review by the appropriate agencies.
7
| PolyMet Mining Corp. |
| Management Discussion and Analysis |
| As at October 31, 2016 and for the three and
nine months ended October 31, 2016 |
| Tabular amounts in thousands of U.S. Dollars, except for
shares and per share amounts |
| |
With completion of the state EIS process and submission of all
major permit applications, PolyMet is now focused on supporting regulatory
review of the permit applications, completion of the USFS ROD and associated
land exchange, and progress toward issuance of the Section 404 Wetlands Final
ROD and Permit.
The permitting process is managed by the regulatory agencies
and, therefore, timelines are not under PolyMet’s control. Under state
guidelines, decisions on draft state permits should be within 150 days of the
applications being accepted, although those guidelines recognize that complex
permit applications could take longer.
The key permits and approvals to be received are:
U.S. Army Corps of Engineers
| • |
Section 404 Individual Permit for
Impacted Wetlands |
Minnesota Department of Natural Resources
| • |
Permit to Mine |
| • |
Water Appropriations Permit
|
| • |
Dam Safety Permit |
| • |
Wetland Replacement Plan
|
Minnesota Pollution Control Agency
| • |
National Pollutant Discharge
Elimination System (NPDES) Permit (storm water) |
| • |
State Disposal System (SDS)
Permit |
| • |
Air Emissions Permit
|
8
| PolyMet Mining Corp. |
| Management Discussion and Analysis |
| As at October 31, 2016 and for the three and
nine months ended October 31, 2016 |
| Tabular amounts in thousands of U.S. Dollars, except for
shares and per share amounts |
| |
Financing Activities
Glencore Financing
Since October 2008, the Company
and Glencore have entered into a series of financing agreements comprising:
| • |
Equity – five separate agreements comprising $25.0
million placement of PolyMet common shares in calendar 2009 in two
tranches; a $30.0 million placement of PolyMet common shares in calendar
2010 in three tranches; a $20.0 million placement of PolyMet common shares
in calendar 2011 in one tranche; a $20.960 million purchase of PolyMet
common shares in the 2013 Rights Offering; and a $10.583 million purchase
of PolyMet common shares in the 2016 Private Placement; |
| |
|
| • |
Convertible debt (“Glencore Convertible Debt”) –
agreement comprising $25.0 million initial principal secured convertible
debentures drawn in four tranches; and |
| |
|
| • |
Non-convertible debt (“Glencore Non-Convertible Debt”) –
three separate agreements comprising $30.0 million initial principal
secured debentures in calendar 2015 drawn in four tranches; an $11.0
million initial principal secured debenture in calendar 2016 drawn in one
tranche; and a $14.0 million initial principal secured debenture in
calendar 2016 drawn in four tranches. |
As a result of these financing transactions and the purchase by
Glencore of PolyMet common shares previously owned by Cliffs, Glencore's
ownership and ownership rights of PolyMet as at October 31, 2016 comprises:
| • |
92,836,072 shares representing 29.2% of PolyMet's issued
shares; |
| |
|
| • |
Glencore Convertible Debt exchangeable through the
exercise of an exchange warrant (“Exchange Warrant”) at $1.2696 per share
into 31,940,430 common shares of PolyMet (including capitalized and
accrued interest as at October 31, 2016) until the Repayment Date, which
is the earlier of March 31, 2018, availability of $100 million of debt or
equity financing, or an earlier date on which PolyMet can demonstrate that
it is prudent to repay the debentures, subject to ten days notice during
which time Glencore can elect to exercise the Exchange Warrant, and where
the exercise price and the number of shares issuable are subject to
conventional anti-dilution provisions; |
| |
|
| • |
Warrants to purchase 6,458,001 common shares at $0.8231
per share at any time until December 31, 2017, subject to mandatory
exercise if the 20-day volume weighted average price (“VWAP”) of PolyMet
common shares is equal to or greater than 150% of the exercise price and
PolyMet has received permits and construction finance is available (“Early
Maturity Event”), and where the exercise price and the number of warrants
are subject to conventional anti-dilution provisions; |
| |
|
| • |
Warrants to purchase 7,055,626 common shares at $1.00 per
share at any time until October 28, 2021, subject to acceleration on the
earlier of receipt of permits necessary to construct NorthMet or the 12
month anniversary of the issue date provided the 20-day VWAP of PolyMet
common shares is equal to or greater than $1.50 (“Acceleration Triggering
Event”), and where the exercise price and the number of warrants are
subject to conventional anti-dilution provisions; and |
| |
|
| • |
Warrants to purchase 625,000 common shares at $0.7797 per
share at any time until October 28, 2021, and where the exercise price and
the number of warrants are subject to conventional anti- dilution
provisions. |
If Glencore were to exercise all of its rights and obligations
under these agreements, it would own 138,915,129 common shares of PolyMet,
representing 38.2% on a partially diluted basis, that is, if no other options or
warrants were exercised or 34.9% on a fully diluted basis, if all other options
and warrants were exercised, whether they are in-the-money or not.
On June 3, 2016, the Company issued $3.0 million Tranche K
secured debenture, on July 1, 2016 it issued $5.0 million Tranche L-1 secured
debenture, on July 26, 2016 it issued $3.0 million Tranche L-2 secured
debenture, and on August 5, 2016 it issued $3.0 million Tranche M secured
debenture to Glencore. Each of these debentures bears interest at 12-month
US dollar LIBOR plus 15.0%. The Company has provided security on these
debentures covering all of the assets of PolyMet, including a pledge of
PolyMet’s 100% ownership of Poly Met Mining, Inc. The due date of these
debentures was the earlier of (i) March 31, 2017 or (ii) the availability of at
least $100 million of debt or equity financing or (iii) when it is prudent for
PolyMet to repay the debt, on which date all principal and interest accrued to
such date will be due and payable.
9
| PolyMet Mining Corp. |
| Management Discussion and Analysis |
| As at October 31, 2016 and for the three and
nine months ended October 31, 2016 |
| Tabular amounts in thousands of U.S. Dollars, except for
shares and per share amounts |
| |
On September 14, 2016, the Company extended the term of the
Glencore Non-Convertible Debt, the term of the Glencore Convertible Debt and the
expiration date of the associated Exchange Warrant to the earlier of the Early
Maturity Event or March 31, 2018. In connection with this extension, the Company
issued warrants to purchase 625,000 common shares at $0.7797 per share at any
time until October 28, 2021, and where the exercise price and the number of
warrants are subject to conventional anti-dilution provisions. All other terms
of the debt were unchanged. The transaction has been accounted for as a
modification of the existing debentures with the $0.250 million fair value of
the warrants allocated on a pro rata basis to the Glencore Non-Convertible Debt
and Glencore Convertible Debt and an offsetting entry to equity reserves.
As a result of anti-dilution provisions in the agreement, following the private placement which closed on October 18, 2016, the exchange price was adjusted to $1.2696 per share from $1.2920 per share. The adjustment did not impact the financial statements.
On October 28, 2016, the Company issued 14,111,251 units
(“Glencore Units”) to Glencore for gross proceeds of $10.583 million pursuant to
Glencore’s right to maintain its pro rata ownership following the Private
Placement which closed on October 18, 2016. Each Glencore Unit consists of one
common share and one half of one common share purchase warrant, each whole
warrant exercisable for one common share at a price of $1.00 per share for a
period beginning 6 months following the issue date and ending 60 months after
the issue date, subject to the Acceleration Triggering Event, and where the
exercise price and the number of warrants are subject to conventional
anti-dilution provisions.
IRRRB Financing
During the nine months ended October
31, 2016, the Company fully repaid a $4.0 million initial principal loan, drawn
in June 2011 from the IRRRB. The loan was used to exercise the Company’s options
to acquire land as part of the proposed land exchange with the USFS. The loan
was secured by the land acquired and carried a fixed interest rate of 5%,
compounded annually. Warrants giving the IRRRB the right to purchase 461,286
shares of its common shares at $2.1678 per share expired on June 30, 2016.
AG for Waterfowl, LLP ("AG") Financing
In March
2012, the Company acquired a secured interest in land owned by AG that is
permitted for wetland restoration. AG subsequently assigned the agreement to EIP
Minnesota, LLC (“EIP”) in September 2012. EIP will restore the wetlands and,
upon completion, wetland credits are to be issued by the proper governmental
authorities. As part of the initial consideration, AG received warrants to
purchase 1,249,315 common shares at $1.3007 per share. These warrants expired
December 31, 2015.
In April 2015, the Company entered into a revised agreement
with EIP whereby EIP will seek to sell credits that PolyMet does not need to
third parties and, over time, reimburse PolyMet for its costs. The financial
instrument has been designated as available for sale. Upon closing of the
transaction, the Company recognized the receivable at fair value calculated
using a 9.25% discount rate and 12 year term resulting in a receivable of $2.552
million and a non-cash loss of $1.852 million. The Company accounts for
subsequent fair value changes through other comprehensive income or loss. Under
the agreement, PolyMet retains the right to purchase up to 300 credits until
February 28, 2017 with additional payments due only if PolyMet exercises that
right in part or in full.
10
| PolyMet Mining Corp. |
| Management Discussion and Analysis |
| As at October 31, 2016 and for the three and
nine months ended October 31, 2016 |
| Tabular amounts in thousands of U.S. Dollars, except for
shares and per share amounts |
| |
2016 Private Placement
On October 18, 2016, the
Company issued 25,963,167 units (“Placement Units”) in a Private Placement to
subscribers for gross proceeds of $19.472 million. Each Placement Unit consists
of one common share and one half of one common share purchase warrant, each
whole warrant exercisable for one common share at a price of $1.00 per share for
a period beginning 6 months following the issue date and ending 60 months after
the issue date, subject to the Acceleration Triggering Event, and where the
exercise price and the number of warrants are subject to conventional
anti-dilution provisions. A total of 25,963,167 common shares and 13,641,586
purchase warrants were issued under this transaction, including 660,005 broker
warrants issued to the underwriters. The amount attributable to common shares
was $15.881 million and the amount attributable to warrants was $2.174 million,
which includes the broker warrant fair value of $0.151 million. Transaction
costs for the issuance were $1.568 million. The closing triggered customary
anti-dilution provisions for the Exchange Warrant.
On October 28, 2016, the Company issued 14,111,251 units
(“Glencore Units”) to Glencore for gross proceeds of $10.583 million pursuant to
Glencore’s right to maintain its pro rata ownership following the Private
Placement which closed on October 18, 2016. Each Glencore Unit consists of one
common share and one half of one common share purchase warrant, each whole
warrant exercisable for one common share at a price of $1.00 per share for a
period beginning 6 months following the issue date and ending 60 months after
the issue date, subject to the Acceleration Triggering Event, and where the
exercise price and the number of warrants are subject to conventional
anti-dilution provisions. A total of 14,111,251 common shares and 7,055,626
purchase warrants were issued under this transaction. The amount attributable to
common shares was $9.210 million and the amount attributable to warrants was
$1.270 million. Transaction costs for the issuance were $0.103 million.
Other Financings
During the nine months ended
October 31, 2016 the Company issued no shares (October 31, 2015 – 75,000 shares)
pursuant to the exercise of share purchase options for proceeds of $nil (October
31, 2015 - $0.060 million).
During the nine months ended October 31, 2016 the Company
issued 183,236 shares (October 31, 2015 – 153,615 shares) to maintain land
purchase options.
11
| PolyMet Mining Corp. |
| Management Discussion and Analysis |
| As at October 31, 2016 and for the three and
nine months ended October 31, 2016 |
| Tabular amounts in thousands of U.S. Dollars, except for
shares and per share amounts |
| |
Summary of Quarterly Results
(All figures
in thousands of U.S. dollars, except loss per share)
Three Months Ended
|
Oct 31
2016 |
July 31
2016 |
Apr 30
2016 |
Jan 31
2016 |
Oct 31
2015 |
July 31
2015 |
Apr 30
2015 |
Jan 31
2015 |
| Revenues |
- |
- |
- |
- |
- |
- |
- |
- |
| General and Administrative |
(993) |
(1,178) |
(1,840) |
(1,827) |
(1,170) |
(1,168) |
(1,343) |
(1,796) |
| Other Income (Expenses) |
(1,101) |
(377) |
(512) |
(602) |
(491) |
(530) |
(2,215) |
(467) |
| Loss for the Period |
(2,094) |
(1,555) |
(2,352) |
(2,429) |
(1,661) |
(1,698) |
(3,558) |
(2,263) |
| Loss per Share (1)
|
(0.01) |
(0.01) |
(0.01) |
(0.01) |
(0.01) |
(0.01) |
(0.01) |
(0.01) |
| |
|
|
|
|
|
|
|
|
| Cash used in operating activities
|
(1,483) |
(855) |
(1,536) |
(1,717) |
(881) |
(712) |
(1,512) |
(1,186) |
| Cash provided by (used) by
financing activities |
31,085 |
5,832 |
- |
11,156 |
5,880 |
8,025 |
7,954 |
7,896 |
| Cash used in investing activities
|
(6,339) |
(4,553) |
(6,858) |
(7,206) |
(6,138) |
(8,078) |
(5,806) |
(6,258) |
| |
(1) |
Loss per share amounts may not reconcile due to rounding
differences. |
The loss for the period includes share-based compensation
expense for the three months ended:
| October 31, 2016 - $0.137 million |
October 31, 2015 - $0.148
million |
| July 31, 2016 - $0.233 million |
July 31, 2015 - $0.127 million |
| April 30, 2016 - $0.627 million |
April 30, 2015 - $0.126 million
|
| January 31, 2016 - $0.056 million |
January 31, 2015 - $0.622 million
|
Results fluctuate from quarter to quarter based on activity in
the Company including NorthMet development and corporate activities. See
additional discussion of significant items in the sections above and below.
Three months ended October 31, 2016 compared to three months
ended October 31, 2015
The Company’s focus during the three months ended October 31,
2016 was on the environmental review and permitting process for the NorthMet
Project, maintenance of existing infrastructure, and financing.
a) Loss for the Period:
During the three months ended October 31, 2016, the Company
incurred a loss of $2.094 million ($0.01 loss per share) compared to a loss of
$1.661 million ($0.01 loss per share) during the three months ended October 31,
2015. The increase in the loss for the period was primarily due to finance
costs.
b) Cash Flows for the Period:
Cash used in operating activities for the three months ended
October 31, 2016 was $1.483 million compared to cash used in the three months
ended October 31, 2015 of $0.881 million. The variance in cash is primarily due
to the operating variances noted above.
Cash provided by financing activities for the three months
ended October 31, 2016 was $31.085 million compared to cash provided in the
three months ended October 31, 2015 of $5.880 million. The increase was
primarily due to share issuance proceeds during the current year.
12
| PolyMet Mining Corp. |
| Management Discussion and Analysis |
| As at October 31, 2016 and for the three and
nine months ended October 31, 2016 |
| Tabular amounts in thousands of U.S. Dollars, except for
shares and per share amounts |
| |
Cash used in investing activities for the three months ended
October 31, 2016 was $6.339 million compared to cash used in the three months
ended October 31, 2015 of $6.138 million. The increase was primarily due to
efforts in the current year period surrounding the permit application
submissions.
Including the effect of foreign exchange, total cash for the
three months ended October 31, 2016 increased by $23.250 million for a balance
of $25.544 million compared to the three months ended October 31, 2015 where
cash decreased $1.139 million to a balance of $8.029 million.
c) Capital Expenditures for the Period:
During the three months ended October 31, 2016 the Company
capitalized $4.009 million of mineral property, plant, and equipment costs
related to the acquisition, development, and preservation of the NorthMet
Project and other fixed assets as compared to $7.075 million during the three
months ended October 31, 2015. The decrease is due the environmental
rehabilitation provision decreasing by $5.225 million during the three months
ended October 31, 2016 as compared to an increase of $0.347 million during the
three months ended October 31, 2015 as a result of changes in the risk
free-interest rate. This was partially offset by an increase in capitalized
borrowing costs which totaled $3.863 million during the three months ended
October 31, 2016 as compared to $1.460 million during the three months ended
October 31, 2015 due to recent borrowing and refinancing.
Nine months ended October 31, 2016 compared to nine months
ended October 31, 2015
The Company’s focus during the nine months ended October 31,
2016 was on the environmental review and permitting process for the NorthMet
Project, maintenance of existing infrastructure, and financing.
a) Loss for the Period:
During the nine months ended October 31, 2016, the Company
incurred a loss of $6.001 million ($0.01 loss per share) compared to a loss of
$6.917 million ($0.02 loss per share) during the nine months ended October 31,
2015. The decrease in the loss for the period was primarily due to the $1.852
million non-cash loss on disposal of Wetland Credit Intangible in the prior year
period.
b) Cash Flows for the Period:
Cash used in operating activities for the nine months ended
October 31, 2016 was $3.874 million compared to cash used in the nine months
ended October 31, 2015 of $3.105 million. The variance in cash is primarily due
to changes in non-cash working capital balances.
Cash provided by financing activities for the nine months ended
October 31, 2016 was $36.917 million compared to cash provided in the nine
months ended October 31, 2015 of $21.859 million. The increase was primarily due
to share issuance proceeds during the current year.
Cash used in investing activities for the nine months ended
October 31, 2016 was $17.750 million compared to cash used in the nine months
ended October 31, 2015 of $20.022 million. The decrease was primarily due to
efforts in the prior year period surrounding the SDEIS public comment period and
review of comments leading to the publication of the FEIS in November 2015.
Including the effect of foreign exchange, total cash for the
nine months ended October 31, 2016 increased by $15.288 million for a balance of
$25.544 million compared to the nine months ended October 31, 2015 where cash
decreased $1.272 million to a balance of $8.029 million.
13
| PolyMet Mining Corp. |
| Management Discussion and Analysis |
| As at October 31, 2016 and for the three and
nine months ended October 31, 2016 |
| Tabular amounts in thousands of U.S. Dollars, except for
shares and per share amounts |
| |
c) Capital Expenditures for the Period:
During the nine months ended October 31, 2016 the Company
capitalized $29.516 million of mineral property, plant, and equipment costs
related to the acquisition, development, and preservation of the NorthMet
Project and other fixed assets as compared to $17.824 million during the nine
months ended October 31, 2015. The increase is due the environmental
rehabilitation provision increasing by $1.197 million during the nine months
ended October 31, 2016 as compared to a decrease of $5.195 million during the
nine months ended October 31, 2015 as a result of changes in the risk
free-interest rate. In addition, capitalized borrowing costs totaled $10.739
million during the nine months ended October 31, 2016 as compared to $3.099
million during the nine months ended October 31, 2015 due to recent borrowing
and refinancing.
Liquidity and Capital Resources
As at October 31, 2016, the Company had working capital of
$22.034 million compared with working capital of $2.162 million as at January
31, 2016. The increase is the result of share and debt issuance proceeds.
Working capital consists primarily of cash of $25.544 million (January 31, 2016
- $10.256 million), current amounts receivable of $0.842 million (January 31,
2016 - $0.429 million), prepaid expenses of $1.012 million (January 31, 2016 -
$1.285 million), accounts payable and accrued liabilities of $2.705 million
(January 31, 2016 - $3.348 million), non-convertible debt of $nil (January 31,
2016 - $4.962 million) and the current portion of environmental rehabilitation
provision of $2.659 million (January 31, 2016 - $1.498 million).
As at October 31, 2016, the Company had firm commitments
related to the environmental permitting process, land options, consultants, and
rent of approximately $1.6 million with the majority due over the next year and
the remainder due over three years.
As at October 31, 2016, the Company had non-binding commitments
to maintain its mineral lease rights of $0.180 million with all due in the next
year.
As at October 31, 2016, the Company had obligations to issue
3,640,000 shares under the Company’s bonus share incentive plan upon achievement
of Milestone 4 representing commencement of commercial production at NorthMet at
a time when the Company has not less than 50% ownership interest in NorthMet. At
the Company’s Annual General Meeting of shareholders held in June 2008, the
disinterested shareholders approved the bonus shares for Milestone 4. Regulatory
approval is required prior to issuance of these shares.
The condensed interim consolidated financial statements have
been prepared on a going concern basis, which contemplates the realization of
assets and the settlement of liabilities in the normal course of operations.
Prior to the start of construction of NorthMet, the Company
will complete an Updated Feasibility Study including updated capital cost
estimates. The Company is in active discussion with commercial banks and other
sources of both debt and equity finance. The Company intends to secure debt and
equity financing commitments sufficient to fund the capital costs prior to
starting construction.
14
| PolyMet Mining Corp. |
| Management Discussion and Analysis |
| As at October 31, 2016 and for the three and
nine months ended October 31, 2016 |
| Tabular amounts in thousands of U.S. Dollars, except for
shares and per share amounts |
| |
Financial Instruments and Risk Management
The Company’s financial instruments are classified as loans and
receivables, available for sale, and other financial liabilities.
Fair Value Measurements
The fair value hierarchy prioritizes the inputs to valuation
techniques used to measure fair value. The hierarchy gives the highest priority
to unadjusted quoted prices in active markets for identical assets or
liabilities (Level 1 measurements) and the lowest priority to unobservable
inputs (Level 3 measurements). The three levels of the fair value hierarchy are
described below:
| Level 1 – |
Quoted prices (unadjusted) in
active markets for identical assets or liabilities. |
| |
|
| Level 2 – |
Inputs other than quoted prices included in Level 1 that
are observable for the asset or liability, either directly or indirectly.
|
| |
|
| Level 3 – |
Inputs for the asset or liability that are not based on
observable market data. |
The fair values of cash, current amounts receivable, and
accounts payable and accrued liabilities approximate their carrying amounts due
to their short-term nature.
Liquidity Risk
Liquidity risk is the risk the Company will not be able to meet
its financial obligations as they become due and arises through the excess of
financial obligations over available financial assets due at any point in time.
The Company’s objective in managing liquidity risk is to maintain sufficient
readily available reserves in order to meet its liquidity requirements at any
point in time and is achieved by maintaining sufficient cash. See additional
discussion in the “Liquidity and Capital Resources” section above.
Related Party Transactions
The Company conducted transactions with senior management,
directors and persons or companies related to these individuals, and paid or
accrued amounts as follows:
| |
|
Nine months ended October 31, |
|
| |
|
2016(1) |
|
|
2015(2) |
|
| Salaries and other short-term benefits |
$ |
872 |
|
$ |
827 |
|
| Other long-term benefits |
|
33 |
|
|
29 |
|
| Share-based payment (3) |
|
908 |
|
|
352 |
|
|
Total |
$ |
1,813 |
|
$ |
1,208 |
|
| |
(1) |
Nine months ended October 31, 2016 includes Directors
(Jonathan Cherry, Matthew Daley, David Dreisinger, W. Ian L. Forrest,
Helen Harper, Alan Hodnik, William Murray, Stephen Rowland, and Michael
Sill) and senior management (Jonathan Cherry, Douglas Newby, and Bradley
Moore). |
| |
(2) |
Nine months ended October 31, 2015 includes Directors
(Jonathan Cherry, Matthew Daley, David Dreisinger, W. Ian L. Forrest, Alan
Hodnik, William Murray, Stephen Rowland, and Michael Sill) and senior
management (Jonathan Cherry, Douglas Newby, and Bradley Moore). |
| |
(3) |
Share-based payment represents the amount expensed during
the period. |
There are agreements with key employees (Jonathan Cherry,
Douglas J. Newby and Bradley Moore) that contain severance provisions for
termination without cause or in the event of a take-over. Other than the
President and Chief Executive officer, none of PolyMet’s other directors has a
service contract with the Company providing for benefits upon termination of
their employment.
15
| PolyMet Mining Corp. |
| Management Discussion and Analysis |
| As at October 31, 2016 and for the three and
nine months ended October 31, 2016 |
| Tabular amounts in thousands of U.S. Dollars, except for
shares and per share amounts |
| |
As a result of Glencore’s ownership of 29.2 % of the Company it
is also a related party. PolyMet has entered into a Technical Services Agreement
with Glencore whereby PolyMet reimburses Glencore for costs associated with
providing technical support to PolyMet, primarily in detailed project design and
mineral processing where PolyMet requests assistance under an agreed scope of
work. During the nine months ended October 31, 2016, the Company recorded $nil
(year ended January 31, 2016 - $3.350 million) for services under this
agreement. PolyMet has also entered into a Financing Advisory Agreement with
Glencore whereby PolyMet reimburses Glencore for costs associated with providing
financing advisory support to PolyMet. During the nine months ended October 31,
2016, the Company recorded $0.730 million (year ended January 31, 2016 - $nil)
for services under this agreement. See additional discussion in the “Financing
Activities” section above.
Off Balance-Sheet Arrangements
The Company does not utilize off-balance sheet arrangements.
Proposed Transactions
There are no proposed transactions that will materially affect
the performance of the Company.
Critical Accounting Estimates and Judgments
The preparation of the consolidated financial statements in
conformity with IFRS requires the use of certain critical accounting estimates.
These critical accounting estimates require management to make judgments and
estimates that affect the reported amounts of assets and liabilities and
disclosures of contingent assets and liabilities as at the date of the financial
statements.
Critical accounting estimates and judgments used in the
preparation of these consolidated financial statements are as follows:
(i) Determination of mineral
reserves
Reserves are estimates of the amount of product that can be
economically and legally extracted from the Company’s property. In order to
estimate reserves, estimates are required about a range of geological, technical
and economic factors, including quantities, production techniques, production
costs, capital costs, transport costs, demand, prices and exchange rates.
Estimating the quantity of reserves requires the size, shape and depth of
deposits to be determined by analyzing geological data. This process may require
complex and difficult geological judgments to interpret the data. In addition,
management will form a view of forecast sales prices, based on current and
long-term historical average price trends. Changes in the proven and probable
reserves estimates may impact the carrying value of property, plant and
equipment, restoration provisions, recognition of deferred tax amounts and
depreciation, depletion and amortization.
(ii) Impairment of non-financial assets
The carrying amounts of the Company’s non-financial assets,
including mineral property, plant and equipment, and wetland credit intangible
are reviewed at each reporting date or when events or changes in circumstances
occur that indicate the asset may not be recoverable to determine whether there
is any indication of impairment. If any such indication exists, the asset’s
recoverable amount is estimated at the greater of its value in use and its fair
value less costs of disposal. In assessing value in use, the estimated future
cash flows are discounted to their present value using a pre-tax discount rate
that reflects current market assessments of the time value of money
and the risks specific to the asset. An impairment loss is recognized if the
carrying amount of an asset exceeds its estimated recoverable amount. An
impairment loss previously recorded is reversed if there has been a change in
the estimates used to determine the recoverable amount resulting in an increase
in the estimated service potential of an asset.
16
| PolyMet Mining Corp. |
| Management Discussion and Analysis |
| As at October 31, 2016 and for the three and
nine months ended October 31, 2016 |
| Tabular amounts in thousands of U.S. Dollars, except for
shares and per share amounts |
| |
For its mineral property interest, the Company considers both
external and internal sources of information in assessing whether there are any
indications of impairment. External sources of information the Company considers
include changes in the market, economic and legal environment in which the
Company operates that are not within its control and affect the recoverable
amount of mineral property interests. Internal sources of information the
Company considers include indications of economic performance of the asset. No
impairment loss on the mineral property interests was recorded for the nine
months ended October 31, 2016 or the year ended January 31, 2016.
(iii) Provision for Environmental Rehabilitation
Costs
Provisions for environmental rehabilitation costs associated
with mineral property, plant and equipment, are recognized when the Company has
a present legal or constructive obligation that can be estimated reliably, and
it is probable an outflow of economic benefits will be required to settle the
obligation. Provisions are determined by discounting the expected future cash
flows at a pre-tax rate that reflects current market assessments of the time
value of money and the risks specific to the liability.
It is possible that the Company’s estimates of its ultimate
environmental rehabilitation liabilities could be affected by changes in
regulations, changes in the extent of environmental rehabilitation required,
changes in the means of rehabilitation, changes in the extent of responsibility
for the financial liability or changes in cost estimates. The operations of the
Company may in the future be affected from time to time in varying degrees by
changes in environmental regulations, including those for future removal and
site restoration costs. Both the likelihood of new regulations and their overall
effect upon the Company may vary greatly and are not predictable.
The Company’s provision for environmental rehabilitation cost
obligations represents management’s best estimate of the present value of the
future cash outflows required to settle the liability.
17
| PolyMet Mining Corp. |
| Management Discussion and Analysis |
| As at October 31, 2016 and for the three and
nine months ended October 31, 2016 |
| Tabular amounts in thousands of U.S. Dollars, except for
shares and per share amounts |
| |
Other MD&A Requirements
Outstanding Share Data
Authorized Capital: Unlimited common shares without par value.
The following table summarizes the outstanding share
information as at December 5, 2016:
Type of Security |
Number
Outstanding |
Weighted Average
Exercise Price (US$) |
| Issued and outstanding common shares |
318,352,217 |
$
- |
| Restricted share units |
1,305,302 |
$
- |
| Share options * |
18,512,002 |
$
1.16 |
| Share purchase warrants |
27,780,213 |
$ 0.95 |
| Convertible debt including capitalized interest |
31,505,865 |
$ 1.27 |
| |
* |
For information purposes, those share options granted
with an exercise price in Canadian dollars (“CDN$”) have been translated
to the Company’s reporting currency using the exchange rate as at December
5, 2016 of US$1.00 = CDN$1.3307. |
Risks and Uncertainties
An investment in the Company’s common shares is highly
speculative and subject to a number of risks and uncertainties. Only those
persons who can bear the risk of the entire loss of their investment should
participate. An investor should carefully consider the risks described in
PolyMet’s Form 20-F/Annual Information Form for the year ended January 31, 2016
on file with the SEC and Canadian securities regulators and other information
filed with the Canadian and United States securities regulators before investing
in the Company’s common shares. The risks described in PolyMet’s Form
20-F/Annual Information Form are not the only ones faced. Additional risks that
the Company currently believes are immaterial may become important factors that
affect the Company’s business. If any of the risks described in PolyMet’s Form
20-F/Annual Information Form for the year ended January 31, 2016 occur, the
Company’s business, operating results and financial condition could be seriously
harmed and investors could lose all of their investment.
Disclosure controls and procedures
Disclosure controls and procedures are designed to ensure that
information required to be disclosed in reports filed or submitted by the
Company under U.S. and Canadian securities legislation is recorded, processed,
summarized and reported within the time periods specified in those rules,
including providing reasonable assurance that material information is gathered
and reported to senior management, including the Chief Executive Officer (“CEO”)
and Chief Financial Officer (“CFO”), as appropriate, to permit timely decisions
regarding public disclosure. Management, including the CEO and CFO, have
evaluated the effectiveness of the design and operation of the Company’s
disclosure controls and procedures, as defined in Rule 13a-15(e) and 15d-15(e)
of the US Exchange Act and the rules of Canadian Securities Administration.
Based on this evaluation, the CEO and CFO have concluded the Company’s
disclosure controls and procedures were effective as at January 31, 2016.
There have been no adverse changes in the Company’s disclosure
controls and procedures during the nine-month period ended October 31, 2016 and
they continue to remain effective.
18
| PolyMet Mining Corp. |
| Management Discussion and Analysis |
| As at October 31, 2016 and for the three and
nine months ended October 31, 2016 |
| Tabular amounts in thousands of U.S. Dollars, except for
shares and per share amounts |
| |
Management’s Responsibility for Financial Statements
The information provided in this report including the financial
statements, is the responsibility of management. In the preparation of these
statements, estimates are sometimes necessary to make a determination of future
values for certain assets or liabilities. Management believes such estimates
have been based on careful judgments and have been properly reflected in the
accompanying financial statements.
Management maintains a system of internal controls to provide
reasonable assurances that the Company’s assets are safeguarded and to
facilitate the preparation of relevant and timely information.
Management’s report on internal control over financial
reporting
Management is responsible for establishing and maintaining
adequate internal control over financial reporting as defined in Rule 13a-15(f)
and 15d-15(f) of the U.S. Exchange Act and National Instrument 52-109
Certification of Disclosure in Issuer’s Annual and Interim filings. Any system
of internal control over financial reporting, no matter how well designed, has
inherent limitations. Therefore, even those systems determined to be effective
can provide only reasonable assurance with respect to financial statement
preparation and presentation. Management has used the criteria established in
Internal Control – Integrated Framework (2013) issued by the Committee of
Sponsoring Organizations of the Treadway Commission to evaluate the
effectiveness of the Company’s internal control over financial reporting. Based
on this assessment, management concluded the Company’s internal control over
financial reporting was effective as at January 31, 2016.
There have been no changes in the Company’s internal control
over financial reporting during the nine- month period ended October 31, 2016
that have materially affected, or are reasonably likely to material affect, its
internal control over financial reporting.
The effectiveness of the Company’s internal control over
financial reporting as at January 31, 2016 has been audited by
PricewaterhouseCoopers LLP, an independent registered public accounting firm,
and their opinion is included with the Company’s annual consolidated financial
statements.
Additional Information
Additional information related to the Company is available
for view on SEDAR and EDGAR, respectively, at www.sedar.com
and at www.sec.gov, and at the Company’s website
www.polymetmining.com.
19
