UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington,
D.C. 20549
FORM 6-K
Report
of Foreign Private Issuer
Pursuant
to Rule 13a-16 or 15d-16
UNDER
the Securities Exchange Act of 1934
For the month of August, 2023
Commission File Number: 001-39766
ORLA MINING LTD.
(Translation of registrant's name into English)
Suite 1010, 1075 West Georgia Street
Vancouver, British Columbia,
V6E 3C9, Canada
(Address of principal executive offices)
Indicate by check mark whether the registrant files or will file annual
reports under cover Form 20-F or Form 40-F.
Form 20-F ¨ Form 40-F x
Indicate by check mark if the registrant is submitting the Form 6-K
in paper as permitted by Regulation S-T Rule 101(b)(1): ¨
Indicate by check mark if the registrant is submitting the Form 6-K
in paper as permitted by Regulation S-T Rule 101(b)(7): ¨
INCORPORATION BY REFERENCE
Exhibit 99.1 (Condensed Interim Consolidated Financial Statements
for the Three and Six Months ended June 30, 2023 and 2022) and Exhibit 99.2 (Management's Discussion and Analysis for the Three and
Six Months ended June 30, 2023) to this Report on Form 6-K are incorporated by reference into this report and are hereby
incorporated by reference into and as an exhibit to the registrant's Registration Statement on Form F-10 (File No. 333-271236) and
Registration Statement on Form S-8 (File No. 333-272171), in both cases as amended or supplemented, to the extent not superseded by
documents or reports subsequently filed or furnished by us under the Securities Act of 1933 or the Securities Exchange Act of 1934,
in each case as amended.
SIGNATURE
Pursuant to the requirements of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
|
ORLA MINING LTD. |
|
|
Date: August 3, 2023 |
/s/ Etienne Morin |
|
Name: |
Etienne Morin |
|
Title: |
Chief Financial Officer |
EXHIBIT INDEX
Exhibit 99.1
Condensed Interim Consolidated Financial Statements
Three and six months ended June 30, 2023 and
2022
Presented in United States dollars
ORLA MINING LTD.
Condensed Interim Consolidated Balance Sheets
(Unaudited
- thousands of United States dollars)
As at | |
June 30, 2023 | | |
December 31, 2022 | |
ASSETS | |
| | | |
| | |
Current assets | |
| | | |
| | |
Cash and cash equivalents | |
$ | 114,530 | | |
$ | 96,278 | |
Trade and other receivables | |
| 333 | | |
| 365 | |
Value added taxes recoverable (note 10) | |
| 7,506 | | |
| 8,659 | |
Inventory (note 9) | |
| 26,998 | | |
| 22,446 | |
Prepaid expenses | |
| 4,429 | | |
| 2,824 | |
Restricted cash | |
| — | | |
| 2,290 | |
| |
| 153,796 | | |
| 132,862 | |
Restricted cash | |
| 1,156 | | |
| 1,142 | |
Value added taxes recoverable (note 10) | |
| 5,338 | | |
| 5,229 | |
Long term inventory (note 9) | |
| 4,956 | | |
| 4,096 | |
Property, plant and equipment (note 11) | |
| 217,207 | | |
| 224,416 | |
Exploration and evaluation properties (note 12) | |
| 242,743 | | |
| 242,743 | |
Deferred tax asset | |
| 4,568 | | |
| 2,405 | |
Other non-current assets | |
| 1,090 | | |
| 923 | |
TOTAL ASSETS | |
$ | 630,854 | | |
$ | 613,816 | |
| |
| | | |
| | |
LIABILITIES | |
| | | |
| | |
Current liabilities | |
| | | |
| | |
Trade payables and accrued liabilities (note 13) | |
$ | 16,678 | | |
$ | 19,675 | |
Current portion of long term debt (note 14) | |
| 45,000 | | |
| 45,000 | |
Taxes payable | |
| 11,420 | | |
| 33,102 | |
| |
| 73,098 | | |
| 97,777 | |
Lease obligations (note 15) | |
| 2,071 | | |
| 2,327 | |
Long term debt (note 14) | |
| 89,958 | | |
| 100,795 | |
Deferred revenue | |
| 7,500 | | |
| 7,500 | |
Site closure provisions (note 16) | |
| 8,129 | | |
| 8,261 | |
Other long term liabilities | |
| 276 | | |
| 172 | |
TOTAL LIABILITIES | |
| 181,032 | | |
| 216,832 | |
| |
| | | |
| | |
SHAREHOLDERS' EQUITY | |
| | | |
| | |
Share capital (note 17) | |
| 470,616 | | |
| 445,316 | |
Reserves | |
| 23,980 | | |
| 24,009 | |
Accumulated other comprehensive loss | |
| (78 | ) | |
| (1,583 | ) |
Accumulated deficit | |
| (44,696 | ) | |
| (70,758 | ) |
TOTAL SHAREHOLDERS' EQUITY | |
| 449,822 | | |
| 396,984 | |
| |
| | | |
| | |
TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY | |
$ | 630,854 | | |
$ | 613,816 | |
|
/s/ Jason Simpson |
|
/s/ Elizabeth McGregor |
|
|
Jason Simpson, Director |
|
Elizabeth McGregor, Director |
|
The accompanying notes are an integral part of
these condensed interim consolidated financial statements.
ORLA MINING LTD.
Condensed Interim Consolidated Statements of Income (Loss) and Comprehensive
Income (Loss)
(Unaudited - thousands of United
States dollars)
| |
Three months ended June 30 | | |
Six months ended June 30 | |
| |
2023 | | |
2022 | | |
2023 | | |
2022 | |
REVENUE (note
4) | |
$ | 59,272 | | |
$ | 47,797 | | |
$ | 110,403 | | |
$ | 87,442 | |
| |
| | | |
| | | |
| | | |
| | |
COST OF SALES | |
| | | |
| | | |
| | | |
| | |
Operating costs (note 5(a)) | |
| (13,458 | ) | |
| (10,776 | ) | |
| (25,250 | ) | |
| (20,142 | ) |
Depletion and depreciation (note 5(b)) | |
| (6,827 | ) | |
| (5,019 | ) | |
| (12,681 | ) | |
| (5,019 | ) |
Royalties (note 5(c)) | |
| (1,448 | ) | |
| (1,099 | ) | |
| (2,754 | ) | |
| (2,163 | ) |
| |
| (21,733 | ) | |
| (16,894 | ) | |
| (40,685 | ) | |
| (27,324 | ) |
| |
| | | |
| | | |
| | | |
| | |
EARNINGS FROM MINING OPERATIONS | |
| 37,539 | | |
| 30,903 | | |
| 69,718 | | |
| 60,118 | |
| |
| | | |
| | | |
| | | |
| | |
EXPLORATION AND EVALUATION EXPENSES (note
6) | |
| (7,201 | ) | |
| (2,541 | ) | |
| (14,067 | ) | |
| (5,007 | ) |
GENERAL AND ADMINISTRATIVE EXPENSES
(note 7) | |
| (3,107 | ) | |
| (2,887 | ) | |
| (6,372 | ) | |
| (5,830 | ) |
| |
| | | |
| | | |
| | | |
| | |
OTHER | |
| | | |
| | | |
| | | |
| | |
Interest income | |
| 1,189 | | |
| 766 | | |
| 2,320 | | |
| 934 | |
Depreciation | |
| (120 | ) | |
| (41 | ) | |
| (238 | ) | |
| (77 | ) |
Share based payments (note 19) | |
| (806 | ) | |
| (538 | ) | |
| (1,913 | ) | |
| (1,403 | ) |
Interest and accretion expense (note 8) | |
| (2,655 | ) | |
| (2,842 | ) | |
| (5,902 | ) | |
| (3,335 | ) |
Loss on early settlement of project loan | |
| — | | |
| (13,219 | ) | |
| — | | |
| (13,219 | ) |
Foreign exchange and other gain (loss) | |
| (1,240 | ) | |
| 2,428 | | |
| (2,042 | ) | |
| 1,065 | |
| |
| (3,632 | ) | |
| (13,446 | ) | |
| (7,775 | ) | |
| (16,035 | ) |
| |
| | | |
| | | |
| | | |
| | |
INCOME BEFORE TAXES | |
| 23,599 | | |
| 12,029 | | |
| 41,504 | | |
| 33,246 | |
Income taxes (note 26) | |
| (10,772 | ) | |
| (12,626 | ) | |
| (15,442 | ) | |
| (15,061 | ) |
| |
| | | |
| | | |
| | | |
| | |
INCOME (LOSS) FOR THE PERIOD | |
$ | 12,827 | | |
$ | (597 | ) | |
$ | 26,062 | | |
$ | 18,185 | |
| |
| | | |
| | | |
| | | |
| | |
OTHER COMPREHENSIVE INCOME (LOSS) | |
| | | |
| | | |
| | | |
| | |
Items that may in future periods be reclassified to profit or loss: | |
| | | |
| | | |
| | | |
| | |
Foreign currency differences arising on translation | |
| 1,444 | | |
| (1,936 | ) | |
| 1,505 | | |
| (873 | ) |
TOTAL COMPREHENSIVE INCOME (LOSS) | |
$ | 14,271 | | |
$ | (2,533 | ) | |
$ | 27,567 | | |
$ | 17,312 | |
| |
| | | |
| | | |
| | | |
| | |
WEIGHTED AVERAGE NUMBER OF
COMMON SHARES OUTSTANDING (note 18) | |
| | | |
| | | |
| | | |
| | |
Basic (millions) | |
| 311.2 | | |
| 253.3 | | |
| 308.8 | | |
| 250.6 | |
Diluted (millions) | |
| 329.4 | | |
| 253.3 | | |
| 327.5 | | |
| 275.9 | |
| |
| | | |
| | | |
| | | |
| | |
EARNINGS (LOSS) PER SHARE (note
18) | |
| | | |
| | | |
| | | |
| | |
Basic | |
$ | 0.04 | | |
$ | (0.00 | ) | |
$ | 0.08 | | |
$ | 0.07 | |
Diluted | |
$ | 0.04 | | |
$ | (0.00 | ) | |
$ | 0.08 | | |
$ | 0.07 | |
The accompanying notes are an integral part of
these condensed interim consolidated financial statements.
ORLA MINING LTD.
Condensed Interim Consolidated Statements of Cash Flows
(Unaudited
- thousands of United States dollars)
| |
Three months ended June 30 | | |
Six months ended June 30 | |
| |
2023 | | |
2022 | | |
2023 | | |
2022 | |
OPERATING ACTIVITIES | |
| | | |
| | | |
| | | |
| | |
Income (loss) for the period | |
$ | 12,827 | | |
$ | (597 | ) | |
$ | 26,062 | | |
$ | 18,185 | |
Adjustments for: | |
| | | |
| | | |
| | | |
| | |
Interest and accretion expense (note 8) | |
| 2,655 | | |
| 2,842 | | |
| 5,902 | | |
| 3,335 | |
Income tax expense | |
| 10,772 | | |
| 12,626 | | |
| 15,442 | | |
| 15,061 | |
Income taxes paid | |
| (12,580 | ) | |
| (617 | ) | |
| (39,109 | ) | |
| (861 | ) |
Payment of cash settled RSUs and DSUs | |
| — | | |
| — | | |
| (466 | ) | |
| (1,723 | ) |
Adjustments for items not affecting cash: | |
| | | |
| | | |
| | | |
| | |
Depreciation and depletion | |
| 6,947 | | |
| 6,254 | | |
| 12,919 | | |
| 6,629 | |
Share based payments (note 19) | |
| 806 | | |
| 538 | | |
| 1,913 | | |
| 1,403 | |
Unrealized foreign exchange loss (gain) | |
| 1,097 | | |
| (1,634 | ) | |
| (706 | ) | |
| (621 | ) |
Loss on early settlement of project loan | |
| — | | |
| 13,219 | | |
| — | | |
| 13,219 | |
Other | |
| (120 | ) | |
| 28 | | |
| 399 | | |
| 50 | |
Cash provided by operating activities before changes in non-cash working capital | |
| 22,404 | | |
| 32,659 | | |
| 22,356 | | |
| 54,677 | |
Accounts receivable and prepaid expenses | |
| (692 | ) | |
| 2,558 | | |
| (1,547 | ) | |
| (1,282 | ) |
Inventory | |
| (1,546 | ) | |
| (5,383 | ) | |
| (3,962 | ) | |
| (7,191 | ) |
Valued added taxes | |
| 1,494 | | |
| (4,482 | ) | |
| 2,777 | | |
| (4,482 | ) |
Trade payables and accrued liabilities | |
| 1,636 | | |
| (5,416 | ) | |
| (1,250 | ) | |
| (1,293 | ) |
Cash provided by operating activities | |
| 23,296 | | |
| 19,936 | | |
| 18,374 | | |
| 40,429 | |
| |
| | | |
| | | |
| | | |
| | |
INVESTING ACTIVITIES | |
| | | |
| | | |
| | | |
| | |
Purchase of plant and equipment | |
| (1,515 | ) | |
| (1,218 | ) | |
| (2,674 | ) | |
| (2,146 | ) |
Mineral properties | |
| (3,284 | ) | |
| — | | |
| (4,873 | ) | |
| (5,643 | ) |
Deposits and other payments on long term assets | |
| (38 | ) | |
| (243 | ) | |
| (166 | ) | |
| (243 | ) |
Restricted cash and environmental bonding | |
| (7 | ) | |
| 89 | | |
| 2,277 | | |
| 49 | |
Value added taxes received | |
| — | | |
| 10,161 | | |
| — | | |
| 12,621 | |
Cash provided by (used in) investing activities | |
| (4,844 | ) | |
| 8,789 | | |
| (5,436 | ) | |
| 4,638 | |
| |
| | | |
| | | |
| | | |
| | |
FINANCING ACTIVITIES | |
| | | |
| | | |
| | | |
| | |
Proceeds from issuance of common shares (note 17(b)) | |
| 18,551 | | |
| — | | |
| 18,551 | | |
| — | |
Share issuance costs | |
| (117 | ) | |
| — | | |
| (117 | ) | |
| — | |
Proceeds from exercise of stock options and warrants | |
| 1,917 | | |
| 14,935 | | |
| 4,885 | | |
| 16,312 | |
Repayment of the Camino Rojo project loan | |
| — | | |
| (127,500 | ) | |
| — | | |
| (127,500 | ) |
Repayment of the Newmont loan | |
| — | | |
| (10,836 | ) | |
| — | | |
| (10,836 | ) |
Proceeds from Credit Facility, net of transaction costs (note 14(a)) | |
| — | | |
| 128,134 | | |
| — | | |
| 128,134 | |
Repayments of Credit Facility (note 14(a)) | |
| (5,550 | ) | |
| — | | |
| (11,100 | ) | |
| — | |
Interest paid | |
| (2,658 | ) | |
| (1,385 | ) | |
| (6,952 | ) | |
| (4,622 | ) |
Lease payments | |
| (268 | ) | |
| (123 | ) | |
| (430 | ) | |
| (255 | ) |
Cash provided by financing activities | |
| 11,875 | | |
| 3,225 | | |
| 4,837 | | |
| 1,233 | |
| |
| | | |
| | | |
| | | |
| | |
Effects of exchange rate changes on cash | |
| 394 | | |
| (245 | ) | |
| 477 | | |
| (73 | ) |
| |
| | | |
| | | |
| | | |
| | |
Net increase in cash | |
| 30,721 | | |
| 31,705 | | |
| 18,252 | | |
| 46,227 | |
Cash, beginning of period | |
| 83,809 | | |
| 35,038 | | |
| 96,278 | | |
| 20,516 | |
CASH, END OF PERIOD | |
$ | 114,530 | | |
$ | 66,743 | | |
$ | 114,530 | | |
$ | 66,743 | |
Supplemental cash flow information (note 21)
The accompanying notes are an integral part of
these condensed interim consolidated financial statements.
ORLA MINING LTD.
Condensed Interim Consolidated Statements of Changes in Equity
(Unaudited - thousands of United
States dollars)
| |
Common
shares | | |
Reserves | | |
Accumulated | | |
| | |
| |
| |
Number
of shares
(thousands) | | |
Amount | | |
Share
based
payments
reserve | | |
Warrants
reserve | | |
Total | | |
Other
Comprehensive
Income (loss) | | |
Accumulated
deficit | | |
Total | |
Balance at January 1,
2022 | |
| 247,600 | | |
$ | 269,198 | | |
$ | 10,051 | | |
$ | 19,255 | | |
$ | 29,306 | | |
$ | 2,441 | | |
$ | (116,528 | ) | |
$ | 184,417 | |
Warrants
exercised (note 17) | |
| 7,698 | | |
| 15,137 | | |
| — | | |
| (2,067 | ) | |
| (2,067 | ) | |
| — | | |
| — | | |
| 13,070 | |
Options
exercised (note 19) | |
| 3,032 | | |
| 6,016 | | |
| (2,774 | ) | |
| — | | |
| (2,774 | ) | |
| — | | |
| — | | |
| 3,242 | |
RSUs redeemed
(note 19) | |
| 36 | | |
| 138 | | |
| (138 | ) | |
| — | | |
| (138 | ) | |
| — | | |
| — | | |
| — | |
RSUs settled
in cash (note 19) | |
| — | | |
| (1,320 | ) | |
| (403 | ) | |
| — | | |
| (403 | ) | |
| — | | |
| — | | |
| (1,723 | ) |
DSUs redeemed
(note 19) | |
| 112 | | |
| 165 | | |
| (165 | ) | |
| — | | |
| (165 | ) | |
| — | | |
| — | | |
| — | |
DSUs settled
in cash (note 19) | |
| — | | |
| (167 | ) | |
| (159 | ) | |
| — | | |
| (159 | ) | |
| — | | |
| — | | |
| (326 | ) |
Share based
payments (note 19) | |
| — | | |
| — | | |
| 1,403 | | |
| — | | |
| 1,403 | | |
| — | | |
| — | | |
| 1,403 | |
Income for
the period | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| 18,185 | | |
| 18,185 | |
Other
comprehensive loss | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| (873 | ) | |
| — | | |
| (873 | ) |
Balance
at June 30, 2022 | |
| 258,478 | | |
$ | 289,167 | | |
$ | 7,815 | | |
$ | 17,188 | | |
$ | 25,003 | | |
$ | 1,568 | | |
$ | (98,343 | ) | |
$ | 217,395 | |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Balance at January 1,
2023 | |
| 305,809 | | |
$ | 445,316 | | |
$ | 9,897 | | |
$ | 14,112 | | |
$ | 24,009 | | |
$ | (1,583 | ) | |
$ | (70,758 | ) | |
$ | 396,984 | |
Shares issued
pursuant to top up right, net (note 17(b)) | |
| 3,987 | | |
| 18,434 | | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| 18,434 | |
Shares issued
for property payments | |
| 61 | | |
| 242 | | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| 242 | |
Warrants
exercised (note 17) | |
| 864 | | |
| 2,149 | | |
| — | | |
| (230 | ) | |
| (230 | ) | |
| — | | |
| — | | |
| 1,919 | |
Options
exercised (note 19) | |
| 2,598 | | |
| 4,247 | | |
| (1,281 | ) | |
| — | | |
| (1,281 | ) | |
| — | | |
| — | | |
| 2,966 | |
RSUs redeemed
(note 19) | |
| 58 | | |
| 228 | | |
| (228 | ) | |
| — | | |
| (228 | ) | |
| — | | |
| — | | |
| — | |
Share based
payments (note 19) | |
| — | | |
| — | | |
| 1,710 | | |
| — | | |
| 1,710 | | |
| — | | |
| — | | |
| 1,710 | |
Income for
the period | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| 26,062 | | |
| 26,062 | |
Other
comprehensive income | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| 1,505 | | |
| — | | |
| 1,505 | |
Balance
at June 30, 2023 | |
| 313,377 | | |
$ | 470,616 | | |
$ | 10,098 | | |
$ | 13,882 | | |
$ | 23,980 | | |
$ | (78 | ) | |
$ | (44,696 | ) | |
$ | 449,822 | |
The accompanying notes are an integral part of
these condensed interim consolidated financial statements.
ORLA MINING LTD.
Notes to the Condensed Interim Consolidated Financial Statements
Three and six months ended June 30, 2023 and 2022
(United
States dollars, unless otherwise stated. All currency figures in tables are in thousands, except per-share amounts)
| 1. | CORPORATE INFORMATION AND NATURE OF OPERATIONS |
Orla Mining Ltd. was incorporated in Alberta in
2007 and was continued into British Columbia in 2010 and subsequently into Ontario under the Business Corporations Act (Ontario) in 2014.
In 2016, the Company was continued as a federal company under the Canada Business Corporations Act. The “Company”, “Orla”,
“we”, and “our” refer to Orla Mining Ltd. and its subsidiaries. The registered office of the Company is located
at Suite 1010, 1075 West Georgia Street, Vancouver, Canada.
The Company is engaged in the acquisition, exploration,
development, and exploitation of mineral properties, and holds the Camino Rojo gold and silver mine in Zacatecas State, Mexico, Cerro
Quema gold project in Panama, and the South Railroad and Lewis gold projects in Nevada, USA.
These condensed interim consolidated financial
statements have been prepared on the assumption that the Company will continue as a going concern, meaning it will continue in operation
for the foreseeable future and will be able to realize assets and discharge liabilities in the ordinary course of operations. Different
bases of measurement may be appropriate if the Company is not expected to continue operations for the foreseeable future. The Company
declared commercial production at Camino Rojo, effective April 1, 2022.
| (a) | STATEMENT OF COMPLIANCE AND BASIS OF PRESENTATION |
These condensed interim consolidated financial
statements have been prepared in accordance with IAS 34 «Interim Financial Reporting» and do not include all the information
required for full annual financial statements.
The preparation of these condensed interim consolidated
financial statements requires management to make judgments, estimates and assumptions that affect the application of accounting policies
and the reported amounts of assets, liabilities, income and expenses. Actual results may differ from these estimates.
These condensed interim consolidated financial
statements are presented in United States dollars and include the accounts of the Company and its wholly owned subsidiaries. All material
intercompany transactions and balances have been eliminated upon consolidation.
On August 3, 2023, the Board of Directors
approved these condensed interim consolidated financial statements for issuance.
ORLA MINING LTD.
Notes to the Condensed Interim Consolidated Financial Statements
Three and six months ended June 30, 2023 and 2022
(United
States dollars, unless otherwise stated. All currency figures in tables are in thousands, except per-share amounts)
| 3. | SIGNIFICANT ACCOUNTING POLICIES |
These condensed interim consolidated financial
statements should be read in conjunction with the Company’s audited consolidated financial statements as at and for the years ended
December 31, 2022 and 2021.
We applied the same accounting policies in these
condensed interim consolidated financial statements as those applied in the Company’s audited consolidated financial statements
as at and for the year ended December 31, 2022, except as noted herein. In preparing these condensed interim consolidated financial
statements, the significant judgements we made in applying the Company’s accounting policies and the key sources of estimation uncertainty
were the same as those that applied to the audited consolidated financial statements as at and for the year ended December 31, 2022.
| |
Three months ended
June 30 | | |
Six months ended
June 30 | |
| |
2023 | | |
2022 | | |
2023 | | |
2022 | |
Gold | |
$ | 58,797 | | |
$ | 47,600 | | |
$ | 109,504 | | |
$ | 87,026 | |
Silver | |
| 475 | | |
| 197 | | |
| 899 | | |
| 416 | |
Revenue | |
$ | 59,272 | | |
$ | 47,797 | | |
$ | 110,403 | | |
$ | 87,442 | |
| |
| | | |
| | | |
| | | |
| | |
Customer A | |
$ | 18,049 | | |
$ | 42,004 | | |
$ | 29,837 | | |
$ | 81,649 | |
Customer B | |
| 17,828 | | |
| 5,793 | | |
| 54,422 | | |
| 5,793 | |
Customer C | |
| 19,181 | | |
| — | | |
| 19,181 | | |
| — | |
Others | |
| 4,214 | | |
| — | | |
| 6,963 | | |
| — | |
Revenue | |
$ | 59,272 | | |
$ | 47,797 | | |
$ | 110,403 | | |
$ | 87,442 | |
| |
Three months ended
June 30 | | |
Six months ended
June 30 | |
| |
2023 | | |
2022 | | |
2023 | | |
2022 | |
Mining and processing costs | |
$ | 13,275 | | |
$ | 10,516 | | |
$ | 24,898 | | |
$ | 19,642 | |
Refining and transportation costs | |
| 183 | | |
| 260 | | |
| 352 | | |
| 500 | |
| |
$ | 13,458 | | |
$ | 10,776 | | |
$ | 25,250 | | |
$ | 20,142 | |
ORLA MINING LTD.
Notes to the Condensed Interim Consolidated Financial Statements
Three and six months ended June 30, 2023 and 2022
(United
States dollars, unless otherwise stated. All currency figures in tables are in thousands, except per-share amounts)
| (b) | DEPLETION AND DEPRECIATION |
| |
Three months ended
June 30 | | |
Six months ended
June 30 | |
| |
2023 | | |
2022 | | |
2023 | | |
2022 | |
Depletion of producing mineral property | |
$ | 3,208 | | |
$ | 3,313 | | |
$ | 5,980 | | |
$ | 3,313 | |
Depreciation of plant and equipment | |
| 3,619 | | |
| 1,706 | | |
| 6,701 | | |
| 1,706 | |
Depletion and depreciation | |
$ | 6,827 | | |
$ | 5,019 | | |
$ | 12,681 | | |
$ | 5,019 | |
| |
Three months ended
June 30 | | |
Six months ended
June 30 | |
| |
2023 | | |
2022 | | |
2023 | | |
2022 | |
Camino Rojo Oxide 2% NSR royalty | |
$ | 1,175 | | |
$ | 860 | | |
$ | 2,184 | | |
$ | 1,721 | |
Mexican 0.5% Extraordinary Mining Duty | |
| 273 | | |
| 239 | | |
| 570 | | |
| 442 | |
| |
$ | 1,448 | | |
$ | 1,099 | | |
$ | 2,754 | | |
$ | 2,163 | |
| 6. | EXPLORATION AND EVALUATION EXPENSES |
| |
Three months ended
June 30 | | |
Six months ended
June 30 | |
| |
2023 | | |
2022 | | |
2023 | | |
2022 | |
Camino Rojo | |
$ | 2,304 | | |
$ | 750 | | |
$ | 3,991 | | |
$ | 2,255 | |
Nevada (South Railroad, Lewis and Monitor Gold) | |
| 3,020 | | |
| 4 | | |
| 5,438 | | |
| 87 | |
Cerro Quema | |
| 1,761 | | |
| 1,716 | | |
| 4,405 | | |
| 2,443 | |
Other | |
| 116 | | |
| 71 | | |
| 233 | | |
| 222 | |
| |
$ | 7,201 | | |
$ | 2,541 | | |
$ | 14,067 | | |
$ | 5,007 | |
ORLA MINING LTD.
Notes to the Condensed Interim Consolidated Financial Statements
Three and six months ended June 30, 2023 and 2022
(United
States dollars, unless otherwise stated. All currency figures in tables are in thousands, except per-share amounts)
| 7. | GENERAL AND ADMINISTRATIVE EXPENSES |
| |
Three months ended
June 30 | | |
Six months ended
June 30 | |
| |
2023 | | |
2022 | | |
2023 | | |
2022 | |
Office and administrative | |
$ | 834 | | |
$ | 714 | | |
$ | 1,544 | | |
$ | 1,347 | |
Professional fees | |
| 516 | | |
| 875 | | |
| 913 | | |
| 1,325 | |
Regulatory and transfer agent | |
| 110 | | |
| 42 | | |
| 396 | | |
| 240 | |
Salaries and benefits | |
| 1,647 | | |
| 1,256 | | |
| 3,519 | | |
| 2,918 | |
| |
$ | 3,107 | | |
$ | 2,887 | | |
$ | 6,372 | | |
$ | 5,830 | |
| 8. | INTEREST AND ACCRETION EXPENSE |
| |
Three months ended
June 30 | | |
Six months ended
June 30 | |
| |
2023 | | |
2022 | | |
2023 | | |
2022 | |
Interest (note 8(a)) | |
$ | 2,389 | | |
$ | 2,358 | | |
$ | 5,346 | | |
$ | 2,372 | |
Accretion (note 8(b)) | |
| 266 | | |
| 484 | | |
| 556 | | |
| 963 | |
Interest and accretion expense | |
$ | 2,655 | | |
$ | 2,842 | | |
$ | 5,902 | | |
$ | 3,335 | |
| |
Three months ended
June 30 | | |
Six months ended
June 30 | |
| |
2023 | | |
2022 | | |
2023 | | |
2022 | |
Credit Facility (note 14(a)) | |
$ | 2,309 | | |
$ | 961 | | |
$ | 4,577 | | |
$ | 961 | |
Fresnillo obligation (note 14(b)) | |
| 291 | | |
| 483 | | |
| 576 | | |
| 483 | |
Project loan | |
| — | | |
| 869 | | |
| — | | |
| 869 | |
Interest expense on leases (note 15) | |
| 40 | | |
| 7 | | |
| 81 | | |
| 20 | |
Other | |
| (251 | ) | |
| 38 | | |
| 112 | | |
| 39 | |
| |
$ | 2,389 | | |
$ | 2,358 | | |
$ | 5,346 | | |
$ | 2,372 | |
ORLA MINING LTD.
Notes to the Condensed Interim Consolidated Financial Statements
Three and six months ended June 30, 2023 and 2022
(United
States dollars, unless otherwise stated. All currency figures in tables are in thousands, except per-share amounts)
| |
Three months ended
June 30 | | |
Six months ended
June 30 | |
| |
2023 | | |
2022 | | |
2023 | | |
2022 | |
Credit Facility (note 14(a)) | |
$ | 145 | | |
$ | 106 | | |
$ | 291 | | |
$ | 106 | |
Newmont loan | |
| — | | |
| — | | |
| — | | |
| 366 | |
Project loan | |
| — | | |
| 261 | | |
| — | | |
| 261 | |
Accretion of site closure provisions | |
| 121 | | |
| 117 | | |
| 265 | | |
| 230 | |
| |
$ | 266 | | |
$ | 484 | | |
$ | 556 | | |
$ | 963 | |
| |
June 30, 2023 | | |
December 31, 2022 | |
Current | |
| | | |
| | |
Stockpiled ore | |
$ | 1,123 | | |
$ | 1,869 | |
In-process inventory | |
| 21,507 | | |
| 15,961 | |
Finished goods inventory | |
| 347 | | |
| 1,406 | |
Materials and supplies | |
| 4,021 | | |
| 3,210 | |
Inventory – current | |
$ | 26,998 | | |
$ | 22,446 | |
| |
| | | |
| | |
Long term | |
| | | |
| | |
Stockpiled ore | |
$ | 4,956 | | |
$ | 4,096 | |
Long term inventory consists of stockpiled ore
that is not expected to be processed within 12 months.
Included within inventory at June 30, 2023
is $8.3 million of depreciation and depletion (December 31, 2022 — $6.3 million).
ORLA MINING LTD.
Notes to the Condensed Interim Consolidated Financial Statements
Three and six months ended June 30, 2023 and 2022
(United
States dollars, unless otherwise stated. All currency figures in tables are in thousands, except per-share amounts)
| 10. | VALUE ADDED TAXES RECOVERABLE |
| |
June 30, 2023 | | |
December 31, 2022 | |
Current portion | |
$ | 7,506 | | |
$ | 8,659 | |
Long term portion | |
| 5,338 | | |
| 5,229 | |
| |
$ | 12,844 | | |
$ | 13,888 | |
Value added taxes (“IVA”) paid in
Mexico are fully recoverable. However, IVA recovery returns in Mexico are subject to complex filing requirements and detailed audit
or review by the fiscal authorities. Consequently, the timing of receipt of refunds is uncertain. We have used judgement in classifying
the current and non-current portions of our Mexican VAT receivables. Factors that we considered include (i) the regularity of payments
received, (ii) discussions with and communications from the Mexican tax authorities with respect to specific claims, and (iii) the
expected length of time for refunds in accordance with Mexico’s regulations.
At June 30, 2023, approximately 86 million
Mexican pesos ($5.0 million) (December 31, 2022 —approximately 86 million Mexican pesos ($4.4 million)) were under dispute
with the taxation authorities. This amount is included within long term value added taxes recoverable.
ORLA MINING LTD.
Notes to the Condensed Interim Consolidated Financial Statements
Three and six months ended June 30, 2023 and 2022
(United
States dollars, unless otherwise stated. All currency figures in tables are in thousands, except per-share amounts)
| 11. | PROPERTY, PLANT AND EQUIPMENT |
Our operating property is the Camino Rojo Oxide
Gold Mine in Mexico and constitute substantially all our buildings, and machinery and equipment.
| |
Producing
mineral
property | | |
Buildings | | |
Machinery
and
equipment | | |
Other assets | | |
Other right
of use assets | | |
Total | |
Cost | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
At December 31, 2021 | |
$ | — | | |
$ | 66 | | |
$ | 5,238 | | |
$ | 1,261 | | |
$ | 2,119 | | |
$ | 8,684 | |
Additions | |
| 6,616 | | |
| 1,788 | | |
| 3,272 | | |
| 666 | | |
| 2,300 | | |
| 14,642 | |
Transfer from construction | |
| 127,002 | | |
| 58,869 | | |
| 36,684 | | |
| 608 | | |
| — | | |
| 223,163 | |
Reclassification of capitalized interest | |
| (19,020 | ) | |
| 11,585 | | |
| 7,341 | | |
| 94 | | |
| — | | |
| — | |
Change in site closure provision (note 16) | |
| 1,155 | | |
| (300 | ) | |
| (190 | ) | |
| — | | |
| — | | |
| 665 | |
Leased assets derecognized | |
| — | | |
| — | | |
| — | | |
| — | | |
| (215 | ) | |
| (215 | ) |
Due to changes in exchange rates | |
| — | | |
| — | | |
| — | | |
| (9 | ) | |
| (44 | ) | |
| (53 | ) |
At December 31, 2022 | |
| 115,753 | | |
| 72,008 | | |
| 52,345 | | |
| 2,620 | | |
| 4,160 | | |
| 246,886 | |
Additions | |
| 4,873 | | |
| 701 | | |
| 1,409 | | |
| 564 | | |
| — | | |
| 7,547 | |
Change in site closure provision (note 16) | |
| — | | |
| (331 | ) | |
| (220 | ) | |
| — | | |
| — | | |
| (551 | ) |
Due to changes in exchange rates | |
| — | | |
| — | | |
| — | | |
| 9 | | |
| 22 | | |
| 31 | |
At June 30, 2023 | |
$ | 120,626 | | |
$ | 72,378 | | |
$ | 53,534 | | |
$ | 3,193 | | |
$ | 4,182 | | |
$ | 253,913 | |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Accumulated depreciation | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
At December 31, 2021 | |
| — | | |
| 6 | | |
| 350 | | |
| 288 | | |
| 405 | | |
| 1,049 | |
Depletion and depreciation | |
| 9,641 | | |
| 6,280 | | |
| 4,541 | | |
| 421 | | |
| 764 | | |
| 21,647 | |
Leased assets derecognized | |
| — | | |
| — | | |
| — | | |
| — | | |
| (215 | ) | |
| (215 | ) |
Due to changes in exchange rates | |
| — | | |
| — | | |
| — | | |
| (4 | ) | |
| (7 | ) | |
| (11 | ) |
At December 31, 2022 | |
$ | 9,641 | | |
$ | 6,286 | | |
$ | 4,891 | | |
$ | 705 | | |
$ | 947 | | |
$ | 22,470 | |
Depletion and depreciation | |
| 6,588 | | |
| 3,988 | | |
| 2,884 | | |
| 252 | | |
| 524 | | |
| 14,236 | |
At June 30, 2023 | |
$ | 16,229 | | |
$ | 10,274 | | |
$ | 7,775 | | |
$ | 957 | | |
$ | 1,471 | | |
$ | 36,706 | |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Net book value | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
At December 31, 2022 | |
$ | 106,112 | | |
$ | 65,722 | | |
$ | 47,454 | | |
$ | 1,915 | | |
$ | 3,213 | | |
$ | 224,416 | |
At June 30, 2023 | |
$ | 104,397 | | |
$ | 62,104 | | |
$ | 45,759 | | |
$ | 2,236 | | |
$ | 2,711 | | |
$ | 217,207 | |
ORLA MINING LTD.
Notes to the Condensed Interim Consolidated Financial Statements
Three and six months ended June 30, 2023 and 2022
(United
States dollars, unless otherwise stated. All currency figures in tables are in thousands, except per-share amounts)
| 12. | EXPLORATION AND EVALUATION PROPERTIES |
Our exploration and evaluation properties consist
of the Cerro Quema Project in Panama and the Nevada projects (South Railroad, Lewis and Monitor Gold projects in Nevada, United States).
Acquisition costs | |
Nevada
projects | | |
Cerro Quema | | |
Total | |
As at June 30, 2023 and December 31, 2022 | |
$ | 160,314 | | |
$ | 82,429 | | |
$ | 242,743 | |
| 13. | TRADE PAYABLES AND ACCRUED LIABILITIES |
| |
June 30, 2023 | | |
December 31, 2022 | |
Trade payables | |
$ | 3,272 | | |
$ | 6,707 | |
Goods or services received awaiting vendor invoices | |
| 6,233 | | |
| 3,139 | |
Payroll related | |
| 3,686 | | |
| 3,380 | |
Royalties payable | |
| 1,763 | | |
| 2,119 | |
Current portion of lease obligations (note 15) | |
| 885 | | |
| 846 | |
Accrued interest on Credit Facility (note 14(a)) | |
| 25 | | |
| 1,660 | |
RSUs and PSUs expected to be cash settled (notes 19(b) and 19(d)) | |
| 92 | | |
| 352 | |
Other | |
| 722 | | |
| 1,472 | |
| |
$ | 16,678 | | |
$ | 19,675 | |
ORLA MINING LTD.
Notes to the Condensed Interim Consolidated Financial Statements
Three and six months ended June 30, 2023 and 2022
(United
States dollars, unless otherwise stated. All currency figures in tables are in thousands, except per-share amounts)
| |
June 30, 2023 | |
| |
Current | | |
Long term | | |
Total | |
Credit Facility (note 14(a)) | |
$ | 22,200 | | |
$ | 89,958 | | |
$ | 112,158 | |
Fresnillo obligation (note 14(b)) | |
| 22,800 | | |
| — | | |
| 22,800 | |
| |
$ | 45,000 | | |
$ | 89,958 | | |
$ | 134,958 | |
| |
December 31, 2022 | |
| |
Current | | |
Long term | | |
Total | |
Credit Facility (note 14(a)) | |
$ | 22,200 | | |
$ | 100,795 | | |
$ | 122,995 | |
Fresnillo obligation (note 14(b)) | |
| 22,800 | | |
| — | | |
| 22,800 | |
| |
$ | 45,000 | | |
$ | 100,795 | | |
$ | 145,795 | |
On April 28, 2022, the Company entered into
a Credit Facility consisting of a $100.0 million term facility and a $50.0 million revolving facility through a syndicate of lenders
composed of The Bank of Nova Scotia, Bank of Montreal, and Canadian Imperial Bank of Commerce. The Credit Facility is secured by the
Company’s present and future assets, property and all proceeds thereof other than present and future assets owned by Cerro Quema,
which is excluded from the collateral.
The Credit Facility consists of two parts:
| 1. | $100.0 million term facility with a five-year
term, repayable in 18 equal quarterly instalments commencing December 31, 2022. |
| 2. | $50.0 million revolving facility, with the
ability to increase to $75.0 million subject to certain conditions and customary consents.
The revolving facility has a three-year term, with an option to extend the term of the revolving
facility by up to one-year intervals subject to certain conditions and customary consents.
Full repayment of the revolving facility is due upon maturity. |
The applicable interest rate for each Credit
Facility is based on the term Secured Overnight Financing Rate (“SOFR”), plus an applicable margin ranging from 2.75% to
3.75% based on the Company’s leverage ratio at the end of each fiscal quarter.
| |
Three months ended June 30 | | |
Six months ended June 30 | |
Average interest rate paid on the outstanding Credit Facility | |
2023 | | |
2022 | | |
2023 | | |
2022 | |
Rate per annum | |
| 7.80 | % | |
| 4.16 | % | |
| 7.59 | % | |
| 4.16 | % |
The Credit Facility is subject to certain covenants
– refer to note 23(c) for details. The Company may prepay all or any portion of the amounts owed under the credit agreement
without penalty.
ORLA MINING LTD.
Notes to the Condensed Interim Consolidated Financial Statements
Three and six months ended June 30, 2023 and 2022
(United
States dollars, unless otherwise stated. All currency figures in tables are in thousands, except per-share amounts)
| |
Term facility | | |
Revolving
facility | | |
Total | |
At December 31, 2022 | |
$ | 93,338 | | |
$ | 29,657 | | |
$ | 122,995 | |
Interest expense during the period | |
| 3,447 | | |
| 1,130 | | |
| 4,577 | |
Accretion during the period | |
| 225 | | |
| 66 | | |
| 291 | |
Interest paid during the period | |
| (4,701 | ) | |
| (1,511 | ) | |
| (6,212 | ) |
Principal repayments during the period | |
| (11,100 | ) | |
| — | | |
| (11,100 | ) |
Reallocated to accrued interest payable | |
| 1,232 | | |
| 375 | | |
| 1,607 | |
At June 30, 2023 | |
$ | 82,441 | | |
$ | 29,717 | | |
$ | 112,158 | |
| |
| | | |
| | | |
| | |
Current | |
| 22,200 | | |
| — | | |
| 22,200 | |
Non-current | |
| 60,241 | | |
| 29,717 | | |
| 89,958 | |
| |
$ | 82,441 | | |
$ | 29,717 | | |
$ | 112,158 | |
The undrawn portion of the revolving facility
is subject to a standby fee ranging from 0.6875% to 0.9375%.
Pursuant to the terms of the Layback Agreement,
we agreed to pay Fresnillo total cash consideration of $62.8 million through the following staged payment schedule:
| i. | $25.0 million upon closing of the transaction
(paid); |
| ii. | $15.0 million on December 1, 2022
(paid); and |
| iii. | $22.8 million on December 1, 2023 |
The amounts payable bear interest at 5% per annum,
payable quarterly. To March 31, 2022, we capitalized the interest on this loan to “Mineral properties”.
On April 1, 2022, we commenced commercial production at the Camino Rojo Oxide Gold Mine and began to expense the interest on this
obligation.
| |
Six months ended June 30, 2023 | | |
Year ended December 31, 2022 | |
Beginning of period | |
$ | 22,800 | | |
$ | 37,800 | |
Interest capitalized during the period | |
| — | | |
| 473 | |
Interest expense during the period (note 8) | |
| 576 | | |
| 1,383 | |
Principal repaid | |
| — | | |
| (15,000 | ) |
Cash interest paid | |
| (576 | ) | |
| (1,856 | ) |
End of period | |
$ | 22,800 | | |
$ | 22,800 | |
| |
| | | |
| | |
ORLA MINING LTD.
Notes to the Condensed Interim Consolidated Financial Statements
Three and six months ended June 30, 2023 and 2022
(United
States dollars, unless otherwise stated. All currency figures in tables are in thousands, except per-share amounts)
The Company has lease contracts for mining equipment,
vehicles and buildings. Leases of mining equipment have lease terms of five years, while vehicles and buildings generally have lease
terms between three and five years.
| |
June 30, 2023 | | |
December 31, 2022 | |
Beginning of period | |
$ | 3,173 | | |
$ | 1,401 | |
Additions | |
| — | | |
| 2,300 | |
Interest expense | |
| 81 | | |
| 87 | |
Lease payments | |
| (511 | ) | |
| (661 | ) |
Due to changes in exchange rates | |
| 213 | | |
| 46 | |
End of period | |
$ | 2,956 | | |
$ | 3,173 | |
| |
| | | |
| | |
Current | |
$ | 885 | | |
$ | 846 | |
Non-current | |
| 2,071 | | |
| 2,327 | |
| |
$ | 2,956 | | |
$ | 3,173 | |
| (b) | LEASE EXPENSES RECOGNIZED |
| |
Three months ended June 30 | | |
Six months ended June 30 | |
| |
2023 | | |
2022 | | |
2023 | | |
2022 | |
Interest on lease liabilities | |
$ | 40 | | |
$ | 7 | | |
$ | 81 | | |
$ | 20 | |
Variable lease payments not included in the measurement of lease liabilities | |
| 3,181 | | |
| 3,680 | | |
| 6,584 | | |
| 6,552 | |
Expenses relating to short-term leases | |
| 50 | | |
| 36 | | |
| 119 | | |
| 42 | |
Expenses relating to leases of low-value
assets, excluding short-term leases | |
| 31 | | |
| 12 | | |
| 64 | | |
| 39 | |
| |
$ | 3,302 | | |
$ | 3,735 | | |
$ | 6,848 | | |
$ | 6,653 | |
ORLA MINING LTD.
Notes to the Condensed Interim Consolidated Financial Statements
Three and six months ended June 30, 2023 and 2022
(United
States dollars, unless otherwise stated. All currency figures in tables are in thousands, except per-share amounts)
| 16. | SITE CLOSURE PROVISIONS |
| |
Camino
Rojo | | |
Cerro
Quema Project | | |
Nevada
projects | | |
Total | |
At December 31, 2021 | |
$ | 5,117 | | |
$ | 343 | | |
$ | — | | |
$ | 5,460 | |
Acquisition of Gold Standard | |
| — | | |
| — | | |
| 1,603 | | |
| 1,603 | |
Changes in cost estimates | |
| 351 | | |
| — | | |
| — | | |
| 351 | |
Change in estimated cash flows resulting from current activities | |
| 427 | | |
| — | | |
| — | | |
| 427 | |
Remediation activities conducted during the period | |
| (88 | ) | |
| — | | |
| — | | |
| (88 | ) |
Accretion during the period (note 8) | |
| 494 | | |
| — | | |
| 14 | | |
| 508 | |
At December 31, 2022 | |
| 6,301 | | |
| 343 | | |
| 1,617 | | |
| 8,261 | |
Changes in cost estimates | |
| (551 | ) | |
| — | | |
| 154 | | |
| (397 | ) |
Accretion during the period (note 8) | |
| 257 | | |
| — | | |
| 8 | | |
| 265 | |
At June 30, 2023 | |
$ | 6,007 | | |
$ | 343 | | |
$ | 1,779 | | |
$ | 8,129 | |
| |
Camino Rojo | | |
Cerro Quema
Project | | |
Nevada
projects | |
Estimated settlement dates | |
| 2033
to 2047 | | |
| | | |
| 2034 | |
| |
| | | |
| | | |
| | |
Undiscounted risk-adjusted cash flows | |
$ | 10,029 | | |
$ | 343 | | |
$ | 1,980 | |
Inflation rate | |
| 4.7 | % | |
| — | | |
| 2.5 | % |
Discount rate | |
| 9.0 | % | |
| — | | |
| 3.4 | % |
| |
| | | |
| | | |
| | |
ORLA MINING LTD.
Notes to the Condensed Interim Consolidated Financial Statements
Three and six months ended June 30, 2023 and 2022
(United
States dollars, unless otherwise stated. All currency figures in tables are in thousands, except per-share amounts)
| (a) | AUTHORIZED SHARE CAPITAL |
The Company’s authorized share capital
consists of an unlimited number of common shares without par value and an unlimited number of preferred shares without par value.
On May 11, 2023, pursuant to the Investor
Rights Agreement between Agnico Eagle Mines Limited (“Agnico Eagle”) and the Company, Agnico Eagle partially exercised its
top-up right and subscribed for 3,987,241 common shares of the Company at a price of C$6.27 per common share, for proceeds of C$25,000,000
($18,551,000). The Company incurred transaction costs of C$156,000 ($117,000).
In accordance with the Investor Rights Agreement,
Agnico Eagle’s top-up right was triggered as a result of its percentage ownership in the Company’s common shares being diluted
by at least 1% due to the exercise or settlement of convertible securities of the Company.
The following summarizes information about the
number of warrants outstanding during the period.
Expiry date | |
Exercise
price | | |
December 31,
2022 | | |
Exercised | | |
Expired | | |
June 30, 2023 | |
December 18, 2026 | |
C$ | 3.00 | | |
| 29,545,000 | | |
| (863,800 | ) | |
| — | | |
| 28,681,200 | |
| |
| | | |
| | | |
| | | |
| | | |
| | |
Weighted average exercise price | |
| | | |
C$ | 3.00 | | |
C$ | 3.00 | | |
C$ | — | | |
C$ | 3.00 | |
Subsequent to the reporting period, the Company
issued 43,000 common shares for proceeds of C$129,000 ($98,000) pursuant to the exercise of warrants.
ORLA MINING LTD.
Notes to the Condensed Interim Consolidated Financial Statements
Three and six months ended June 30, 2023 and 2022
(United
States dollars, unless otherwise stated. All currency figures in tables are in thousands, except per-share amounts)
| 18. | EARNINGS (LOSS) PER SHARE |
Earnings (loss) per share has been calculated
using the weighted average number of common shares outstanding for the three months ended June 30, 2023 and 2022 as follows:
| |
Three months ended June 30 | | |
Six months ended June 30 | |
| |
2023 | | |
2022 | | |
2023 | | |
2022 | |
Income (loss) for the period | |
$ | 12,827 | | |
$ | (597 | ) | |
$ | 26,062 | | |
$ | 18,185 | |
Weighted average number of common shares (thousands) | |
| 311,186 | | |
| 253,306 | | |
| 308,763 | | |
| 250,559 | |
Basic earnings (loss) per share | |
$ | 0.04 | | |
$ | (0.00 | ) | |
$ | 0.08 | | |
$ | 0.07 | |
| |
Three months ended June 30 | | |
Six months ended June 30 | |
| |
2023 | | |
2022 | | |
2023 | | |
2022 | |
Income (loss) for the period | |
$ | 12,827 | | |
$ | (597 | ) | |
$ | 26,062 | | |
$ | 18,185 | |
| |
| | | |
| | | |
| | | |
| | |
Weighted average number of common shares (thousands) | |
| 311,186 | | |
| 253,306 | | |
| 308,763 | | |
| 250,559 | |
Dilutive potential ordinary shares | |
| | | |
| | | |
| | | |
| | |
Warrants | |
| 14,273 | | |
| — | | |
| 14,180 | | |
| 18,135 | |
Options | |
| 2,484 | | |
| — | | |
| 3,166 | | |
| 5,508 | |
RSUs | |
| 246 | | |
| — | | |
| 309 | | |
| 435 | |
DSUs | |
| 661 | | |
| — | | |
| 613 | | |
| 739 | |
Bonus shares | |
| 500 | | |
| — | | |
| 500 | | |
| 500 | |
Weighted average number of ordinary shares | |
| 329,350 | | |
| 253,306 | | |
| 327,531 | | |
| 275,876 | |
| |
| | | |
| | | |
| | | |
| | |
Diluted earnings (loss) per share | |
$ | 0.04 | | |
$ | (0.00 | ) | |
$ | 0.08 | | |
$ | 0.07 | |
ORLA MINING LTD.
Notes to the Condensed Interim Consolidated Financial Statements
Three and six months ended June 30, 2023 and 2022
(United
States dollars, unless otherwise stated. All currency figures in tables are in thousands, except per-share amounts)
The Company has five different forms of share-based
payments for eligible recipients – stock options, restricted share units (“RSUs”), deferred share units (“DSUs”),
performance share units (“PSUs”), and bonus shares. The bonus shares have fully vested but have not yet been issued.
| |
Three months ended June 30 | | |
Six months ended June 30 | |
Share-based payments expense | |
2023 | | |
2022 | | |
2023 | | |
2022 | |
Stock options (note 19(a)) | |
$ | 364 | | |
$ | 349 | | |
$ | 720 | | |
$ | 748 | |
Restricted share units (note 19(b)) | |
| 275 | | |
| 154 | | |
| 551 | | |
| 347 | |
Deferred share units (note 19(c)) | |
| 75 | | |
| 35 | | |
| 550 | | |
| 308 | |
Performance share units (note 19(d)) | |
| 92 | | |
| — | | |
| 92 | | |
| — | |
Share based payments expense | |
$ | 806 | | |
$ | 538 | | |
$ | 1,913 | | |
$ | 1,403 | |
Stock options granted by the Company prior to
2022 typically had a five-year life, with one third each vesting on grant date, and one year and two years after grant date. Commencing
in 2022, stock options granted by the Company have a five-year life, with one third each vesting one, two, and three years after grant
date.
Stock options of Gold Standard Ventures Inc.
(“Gold Standard”) that were outstanding at the acquisition date of August 12, 2022 were exchanged for options to acquire
common shares of Orla (“Replacement Options”), resulting in the issuance of 1,758,334 Replacement Options, which are exercisable
until their original expiry dates. For those individuals who did not continue on with Orla, the expiry date is capped at August 12,
2024.
| |
Six months ended June 30 | |
| |
2023 | | |
2022 | |
Stock options outstanding | |
Number | | |
Weighted
average
exercise price | | |
Number | | |
Weighted
average
exercise price | |
Outstanding, January 1 | |
| 9,178,889 | | |
C$ | 3.71 | | |
| 9,900,874 | | |
C$ | 1.86 | |
Granted | |
| 457,260 | | |
| 6.57 | | |
| 950,660 | | |
| 5.76 | |
Exercised | |
| (2,597,240 | ) | |
| 1.55 | | |
| (3,032,500 | ) | |
| 1.36 | |
Expired, forfeited or cancelled | |
| (211,222 | ) | |
| 14.39 | | |
| — | | |
| — | |
Outstanding, June 30 | |
| 6,827,687 | | |
C$ | 4.39 | | |
| 7,819,034 | | |
C$ | 2.53 | |
| |
| | | |
| | | |
| | | |
| | |
Vested, June 30 | |
| 5,468,882 | | |
C$ | 4.04 | | |
| 6,525,585 | | |
C$ | 1.95 | |
The stock options granted during the six months
ended June 30, 2023 had a grant date fair value of C$1.4 million ($1.0 million) using the following weighted average assumptions:
| · | Share
prices at grant dates – C$6.58 and C$6.07, expected volatility 50%, expected life -
5 years, risk free interest rate 3.0% and expected dividends – nil. |
ORLA MINING LTD.
Notes to the Condensed Interim Consolidated Financial Statements
Three and six months ended June 30, 2023 and 2022
(United
States dollars, unless otherwise stated. All currency figures in tables are in thousands, except per-share amounts)
Subsequent to the reporting period, 38,300 stock
options were exercised, for gross proceeds to the Company of C$84,600 ($64,000).
| (b) | RESTRICTED SHARE UNITS |
Restricted Share Units (“RSU’s) awarded
by the Company typically vest one-third each one, two, and three years after award date.
| |
Six months ended June 30 | |
Number of RSUs outstanding: | |
2023 | | |
2022 | |
Outstanding, January 1 | |
| 443,267 | | |
| 707,840 | |
Awarded | |
| 295,429 | | |
| 172,301 | |
Vested and settled | |
| (152,203 | ) | |
| (402,430 | ) |
Forfeitures during the period | |
| — | | |
| (34,444 | ) |
Outstanding, June 30 | |
| 586,493 | | |
| 443,267 | |
| |
| | |
Number vesting in the year | |
Number of RSUs outstanding: | |
Total | | |
2022 | | |
2023 | | |
2024 | | |
2025 | | |
2026 | |
Outstanding, June 30, 2022 | |
| 443,267 | | |
| 41,865 | | |
| 220,873 | | |
| 126,812 | | |
| 53,717 | | |
| — | |
Outstanding, June 30, 2023 | |
| 586,493 | | |
| N/A | | |
| — | | |
| 335,811 | | |
| 152,193 | | |
| 98,489 | |
Restricted Share Units (“RSUs”) are
valued based on the closing price of the Company’s common shares on the trading day immediately prior to award. Certain RSUs may
be settled in cash at the option of the Company.
During the six months ended June 30, 2023,
the Company elected to settle 94,063 RSUs in cash for $0.5 million (six months ended June 30, 2022 — 365,935 RSUs cash-settled
for $1.7 million).
Deferred Share Units (“DSUs”) are
awarded by the Company to directors. These DSUs vest immediately but are not settled until the end of the director’s tenure. They
may be settled in cash or common shares at the option of the Company. DSUs are valued using the closing price of the Company’s
common shares immediately prior to award.
ORLA MINING LTD.
Notes to the Condensed Interim Consolidated Financial Statements
Three and six months ended June 30, 2023 and 2022
(United
States dollars, unless otherwise stated. All currency figures in tables are in thousands, except per-share amounts)
| |
Six months ended June 30 | |
Number of DSUs outstanding: | |
2023 | | |
2022 | |
Outstanding, January 1 | |
| 559,725 | | |
| 707,028 | |
Awarded and vested immediately | |
| 117,265 | | |
| 69,290 | |
Settled during the period | |
| — | | |
| (111,834 | ) |
Outstanding, June 30 | |
| 676,990 | | |
| 664,484 | |
| |
| | | |
| | |
Vested, June 30 | |
| 676,990 | | |
| 664,484 | |
| (d) | PERFORMANCE SHARE UNITS |
In March 2023, the Board of Directors approved
a performance share unit (“PSUs”) plan for certain officers of the Company. The PSUs cliff vest after three years and are
settled in cash. The cash payment upon vesting will be based on the number of PSUs, multiplied by the five-day volume weighted average
price of the Company’s shares upon vesting, which is then multiplied by a “performance percentage”. The performance
percentage ranges from 0% to 200% based on the Company’s total shareholder return compared to a peer group, consisting of the constituents
of the S&P/TSX Global Gold Index.
We recognize share-based compensation expense
related to these PSUs over the vesting period. We adjust the amount recognized at each reporting period to reflect changes in quoted
market values of the Company and the peer group, the lapsed portion of the vesting period, the number of PSUs expected to vest, and the
expected performance percentage.
On March 27, 2023, the Company issued a
total of 198,737 PSUs with an estimated aggregate grant date fair value of $1.27 million.
| |
Six months ended June 30 | |
Number of PSUs outstanding: | |
2023 | | |
2022 | |
Outstanding, January 1 | |
— | | |
— | |
Granted during the period | |
| 198,737 | | |
| — | |
Outstanding, June 30 | |
| 198,737 | | |
| — | |
| |
| | | |
| | |
Vested, June 30 | |
| — | | |
| — | |
During 2017, the Board of Directors awarded 500,000
common shares to the non-executive Chairman of the Company as bonus shares. The bonus shares were subject to a vesting period from June 19,
2017, to June 18, 2020 (the “Eligibility Period”). Although the bonus shares have vested, they will become issuable
(1) when the non-executive Chairman ceases to act as a director of the Company, or (2) upon a change of control of the Company.
ORLA MINING LTD.
Notes to the Condensed Interim Consolidated Financial Statements
Three and six months ended June 30, 2023 and 2022
(United States
dollars, unless otherwise stated. All currency figures in tables are in thousands, except per-share amounts)
| 20. | RELATED PARTY
TRANSACTIONS |
The Company’s related parties include:
Related
party | |
Nature
of the relationship |
Key management personnel | |
Key management personnel are the
Chief Executive Officer, the Chief Operating Officer, the Chief Financial Officer, Chief Sustainability Officer, the Senior Vice
President Exploration, and members of the Board of Directors of the Company. |
| (a) | KEY MANAGEMENT PERSONNEL |
Compensation to key management personnel was as
follows:
| |
Three months ended June 30 | | |
Six months ended June 30 | |
| |
2023 | | |
2022 | | |
2023 | | |
2022 | |
Salaries and short term incentives | |
$ | 391 | | |
$ | 1,691 | | |
$ | 2,675 | | |
$ | 3,222 | |
Directors’ fees | |
| 84 | | |
| 78 | | |
| 167 | | |
| 157 | |
Share based payments | |
| 394 | | |
| 441 | | |
| 1,317 | | |
| 1,186 | |
| |
$ | 869 | | |
$ | 2,210 | | |
$ | 4,159 | | |
$ | 4,565 | |
The Company had no other material transactions
with related parties other than key management personnel during the six months ended June 30, 2023, and 2022.
| (c) | OUTSTANDING BALANCES AT THE REPORTING DATE |
At June 30, 2023, estimated accrued short
term incentive compensation totaled $0.6 million and is included in accrued liabilities (December 31, 2022 – $1.1 million).
ORLA MINING LTD.
Notes to the Condensed Interim Consolidated Financial Statements
Three and six months ended June 30, 2023 and 2022
(United States
dollars, unless otherwise stated. All currency figures in tables are in thousands, except per-share amounts)
| 21. | SUPPLEMENTAL
CASH FLOW INFORMATION |
| (a) | CASH AND CASH EQUIVALENTS |
Cash and cash equivalents consists of bank current
accounts and cash on hand.
| (b) | NON-CASH INVESTING AND FINANCING ACTIVITIES |
| |
Three months ended June 30 | | |
Six months ended June 30 | |
| |
2023 | | |
2022 | | |
2023 | | |
2022 | |
Financing activities | |
| | | |
| | | |
| | | |
| | |
Stock options exercised, credited to share capital with an offset to reserves | |
$ | 526 | | |
$ | 1,035 | | |
$ | 1,281 | | |
$ | 2,774 | |
Warrants exercised, credited to share capital with an offset to reserves | |
| 82 | | |
| 985 | | |
| 230 | | |
| 1,067 | |
Common shares issued on maturity of RSUs, credited to share capital with an offset to reserves | |
| 10 | | |
| — | | |
| 228 | | |
| 541 | |
Common shares issued on maturity of DSUs, credited to share capital with an offset to reserves | |
| — | | |
| 324 | | |
| — | | |
| 324 | |
| |
| | | |
| | | |
| | | |
| | |
Investing activities | |
| | | |
| | | |
| | | |
| | |
Marketable securities adjustment included in account receivable with an offset to other gains | |
| (7 | ) | |
| 1 | | |
| (3 | ) | |
| (2 | ) |
Initial recognition of right of use assets, with an offset to lease obligation | |
| — | | |
| (108 | ) | |
| — | | |
| 79 | |
ORLA MINING LTD.
Notes to the Condensed Interim Consolidated Financial Statements
Three and six months ended June 30, 2023 and 2022
(United States
dollars, unless otherwise stated. All currency figures in tables are in thousands, except per-share amounts)
The operating and reportable segments of the Company
are based on the reports which are reviewed by the chief operating decision maker (“CODM”) in making strategic resource allocation
decisions. These operating segments are (1) the Mexican project, (2) the Panamanian project, (3) the Nevada projects and
(4) the corporate office. The operating segments other than corporate office are each managed by a dedicated General Manager and
management team. The corporate office oversees the plans and activities of early stage exploration projects.
We conduct our activities in four geographic areas:
Mexico, Panama, Nevada USA, and Canada (Corporate).
| (i) | Income (loss) for the period by segment |
Six months ended June 30, 2023 | |
Mexico | | |
Panama | | |
Nevada | | |
Corporate | | |
Total | |
Revenue (note 4) | |
$ | 110,211 | | |
$ | — | | |
$ | — | | |
$ | 192 | | |
$ | 110,403 | |
Cost of sales | |
| (40,616 | ) | |
| — | | |
| — | | |
| (69 | ) | |
| (40,685 | ) |
Earnings from mining operations | |
| 69,595 | | |
| — | | |
| — | | |
| 123 | | |
| 69,718 | |
Exploration and evaluation expenses (note 6) | |
| (3,991 | ) | |
| (4,405 | ) | |
| (5,438 | ) | |
| (233 | ) | |
| (14,067 | ) |
General and administrative expenses (note 7) | |
| — | | |
| — | | |
| — | | |
| (6,372 | ) | |
| (6,372 | ) |
Interest income | |
| 1,883 | | |
| — | | |
| — | | |
| 437 | | |
| 2,320 | |
Depreciation | |
| (28 | ) | |
| (8 | ) | |
| (64 | ) | |
| (138 | ) | |
| (238 | ) |
Share based payments (note 19) | |
| (88 | ) | |
| (41 | ) | |
| (146 | ) | |
| (1,638 | ) | |
| (1,913 | ) |
Interest and accretion expense | |
| (869 | ) | |
| — | | |
| (59 | ) | |
| (4,974 | ) | |
| (5,902 | ) |
Foreign exchange and other gain (loss) | |
| (1,062 | ) | |
| — | | |
| — | | |
| (980 | ) | |
| (2,042 | ) |
Income taxes | |
| (14,588 | ) | |
| — | | |
| — | | |
| (854 | ) | |
| (15,442 | ) |
Income (loss) for the period | |
$ | 50,852 | | |
$ | (4,454 | ) | |
$ | (5,707 | ) | |
$ | (14,629 | ) | |
$ | 26,062 | |
ORLA MINING LTD.
Notes to the Condensed Interim Consolidated Financial Statements
Three and six months ended June 30, 2023 and 2022
(United States
dollars, unless otherwise stated. All currency figures in tables are in thousands, except per-share amounts)
Six months ended June 30, 2022 | |
Mexico | | |
Panama | | |
USA | | |
Corporate | | |
Total | |
Revenue (note 4) | |
$ | 87,442 | | |
$ | — | | |
$ | — | | |
$ | — | | |
$ | 87,442 | |
Cost of sales | |
| (27,324 | ) | |
| — | | |
| — | | |
| — | | |
| (27,324 | ) |
Earnings from mining operations | |
| 60,118 | | |
| — | | |
| — | | |
| — | | |
| 60,118 | |
Exploration and evaluation expenses (note 6) | |
| (2,255 | ) | |
| (2,443 | ) | |
| (87 | ) | |
| (222 | ) | |
| (5,007 | ) |
General and administrative expenses (note 7) | |
| — | | |
| — | | |
| — | | |
| (5,830 | ) | |
| (5,830 | ) |
Interest income | |
| 875 | | |
| — | | |
| — | | |
| 59 | | |
| 934 | |
Depreciation | |
| (6 | ) | |
| (7 | ) | |
| — | | |
| (64 | ) | |
| (77 | ) |
Share based payments (note 19) | |
| (14 | ) | |
| (33 | ) | |
| — | | |
| (1,356 | ) | |
| (1,403 | ) |
Interest and accretion expense | |
| (1,104 | ) | |
| — | | |
| — | | |
| (2,231 | ) | |
| (3,335 | ) |
Loss on early settlement of project loan | |
| — | | |
| — | | |
| — | | |
| (13,219 | ) | |
| (13,219 | ) |
Foreign exchange and other gain (loss) | |
| 182 | | |
| — | | |
| — | | |
| 883 | | |
| 1,065 | |
Income taxes | |
| (14,200 | ) | |
| — | | |
| — | | |
| (861 | ) | |
| (15,061 | ) |
Income (loss) for the period | |
$ | 43,596 | | |
$ | (2,483 | ) | |
$ | (87 | ) | |
$ | (22,841 | ) | |
$ | 18,185 | |
At June 30, 2023 | |
Mexico | | |
Panama | | |
Nevada | | |
Corporate | | |
Total | |
Property, plant and equipment | |
$ | 215,559 | | |
$ | 32 | | |
$ | 598 | | |
$ | 1,018 | | |
$ | 217,207 | |
Exploration and evaluation properties | |
| — | | |
| 82,429 | | |
| 160,314 | | |
| — | | |
| 242,743 | |
Total assets | |
| 355,020 | | |
| 83,369 | | |
| 160,878 | | |
| 31,587 | | |
| 630,854 | |
At December 31, 2022 | |
Mexico | | |
Panama | | |
Nevada | | |
Corporate | | |
Total | |
Property, plant and equipment | |
$ | 222,767 | | |
$ | 39 | | |
$ | 577 | | |
$ | 1,033 | | |
$ | 224,416 | |
Exploration and evaluation properties | |
| — | | |
| 82,429 | | |
| 160,314 | | |
| — | | |
| 242,743 | |
Total assets | |
| 348,390 | | |
| 83,291 | | |
| 163,857 | | |
| 18,278 | | |
| 613,816 | |
ORLA MINING LTD.
Notes to the Condensed Interim Consolidated Financial Statements
Three and six months ended June 30, 2023 and 2022
(United States
dollars, unless otherwise stated. All currency figures in tables are in thousands, except per-share amounts)
Our objectives when managing capital are to safeguard
the Company’s ability to continue as a going concern to pursue the exploration, evaluation, development, and exploitation of our
mineral properties and to maintain a flexible capital structure.
We manage our capital structure and adjust it
considering changes in economic conditions and the risk characteristics of the underlying assets. To maintain or adjust the Company’s
capital structure, we may issue new shares, take on additional debt or repay outstanding debt, or acquire or dispose of assets. We currently
do not pay regular dividends.
Our ability to carry out our long range strategic
objectives in future periods depends on our ability to generate positive cash flows from our mining operations and to raise financing
from lenders, shareholders, and new investors. We regularly review and consider financing alternatives to fund the Company’s ongoing
operational, exploration and development activities.
Our investment policy is to invest the Company’s
excess cash in low-risk financial instruments such as demand deposits and savings accounts with major Canadian banks. By using this strategy,
the Company preserves its cash resources and can marginally increase these resources with low risk through the yields on these investments.
Our financial instruments are exposed to certain financial risks, which include currency risk, credit risk, and liquidity risk.
On April 28, 2022, the Company entered into
a Credit Facility which includes a $100 million term facility and a $50 million revolving facility pursuant to which we had drawn $30
million as of June 30, 2023. The agreement includes covenants customary for a facility of this nature, including compliance with
customary restrictive covenants and financial covenants related to maintaining a leverage ratio at less than or equal to 3.00, an interest
service coverage ratio at greater than or equal to 4, a tangible net worth greater than or equal to $151.6 million, and minimum liquidity
in an amount greater than or equal to $15 million. The Company is prohibited from declaring, paying or setting aside for payment any dividends
unless certain financial covenants and ratios are met.
As at June 30, 2023, the Company was in compliance
with all covenants.
ORLA MINING LTD.
Notes to the Condensed Interim Consolidated Financial Statements
Three and six months ended June 30, 2023 and 2022
(United States
dollars, unless otherwise stated. All currency figures in tables are in thousands, except per-share amounts)
To provide an indication of the reliability of
the inputs used in determining fair value, we classify our financial instruments into the three levels prescribed by the accounting standards.
Level 1 |
The fair value of financial instruments traded in active markets (such as publicly traded equity securities) is based on quoted (unadjusted)
market prices as at the reporting date. The quoted market price used for financial assets held by the Company is the closing trading
price on the reporting date. Such instruments are included in Level 1. |
Level 2 |
The fair value of financial instruments that are not traded in an active market is determined using valuation techniques. These valuation
techniques maximize the use of observable market data where it is available and rely as little as possible on entity specific estimates.
If all significant inputs required to fair value an instrument are observable, we include that instrument in Level 2. |
Level 3 |
If one or more of the significant inputs is not based on observable market data, the instrument is included in Level 3. |
The carrying value of cash and cash equivalents,
accounts receivable, restricted cash, trade payables and accrued liabilities approximates the fair value due to the short-term nature
of the instruments. The fair value of the Credit Facility and Fresnillo obligation is determined using discounted cash flows based on
the expected amounts and timing of the cash flows discounted using a market rate of interest adjusted for appropriate credit risk.
The fair value of the Credit Facility at June 30,
2023 was estimated at $113.4 million (December 31, 2022 – $124.5 million) using a discount rate of 8.1% (December 31,
2022 – 7.5%). The fair value of the Fresnillo obligation at June 30, 2023 was estimated at $22.5 million (December 31,
2022 – $22.3 million) using a discount rate of 8.1% (December 31, 2022 – 7.5%).
ORLA MINING LTD.
Notes to the Condensed Interim Consolidated Financial Statements
Three and six months ended June 30, 2023 and 2022
(United States
dollars, unless otherwise stated. All currency figures in tables are in thousands, except per-share amounts)
At June 30, 2023, the carrying values and
fair values of our financial instruments by category were as follows:
| |
| |
| | |
Fair value | |
| |
Classification | |
Carrying value | | |
Level 1 | | |
Level 2 | | |
Level 3 | | |
Short term nature | | |
Total fair value | |
Financial assets | |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Cash and cash equivalents | |
FVTPL | |
$ | 114,530 | | |
$ | 114,530 | | |
$ | — | | |
$ | — | | |
$ | — | | |
$ | 114,530 | |
Accounts receivable | |
Amortized cost | |
| 314 | | |
| 18 | | |
| — | | |
| — | | |
| 296 | | |
| 314 | |
Restricted cash | |
Amortized cost | |
| 1,156 | | |
| 1,156 | | |
| — | | |
| — | | |
| — | | |
| 1,156 | |
| |
| |
$ | 116,000 | | |
$ | 115,704 | | |
$ | — | | |
$ | — | | |
$ | 296 | | |
$ | 116,000 | |
| |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Financial liabilities | |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Trade and other payables | |
Amortized cost | |
$ | 5,058 | | |
$ | — | | |
$ | — | | |
$ | — | | |
$ | 5,058 | | |
$ | 5,058 | |
Accrued liabilities | |
Amortized cost | |
| 8,944 | | |
| 92 | | |
| — | | |
| — | | |
| 8,852 | | |
| 8,944 | |
Lease obligation | |
Amortized cost | |
| 2,956 | | |
| — | | |
| 2,956 | | |
| — | | |
| — | | |
| 2,956 | |
Credit facility | |
Amortized cost | |
| 112,158 | | |
| — | | |
| — | | |
| 113,392 | | |
| — | | |
| 113,392 | |
Fresnillo obligation | |
Amortized cost | |
| 22,800 | | |
| — | | |
| — | | |
| 22,508 | | |
| — | | |
| 22,508 | |
| |
| |
$ | 151,916 | | |
$ | 92 | | |
$ | 2,956 | | |
$ | 135,900 | | |
$ | 13,910 | | |
$ | 152,858 | |
At December 31, 2022, the carrying values
and fair values of our financial instruments by category were as follows:
| |
| |
| | |
Fair value | |
| |
Classification | |
Carrying
value | | |
Level 1 | | |
Level 2 | | |
Level 3 | | |
Short term
nature | | |
Total fair
value | |
Financial assets | |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Cash and cash equivalents | |
FVTPL | |
$ | 96,278 | | |
$ | 96,278 | | |
$ | — | | |
$ | — | | |
$ | — | | |
$ | 96,278 | |
Accounts receivable | |
Amortized cost | |
| 317 | | |
| 21 | | |
| — | | |
| — | | |
| 296 | | |
| 317 | |
Restricted cash | |
Amortized cost | |
| 3,432 | | |
| 3,432 | | |
| — | | |
| — | | |
| — | | |
| 3,432 | |
| |
| |
$ | 100,027 | | |
$ | 99,731 | | |
$ | — | | |
$ | — | | |
$ | 296 | | |
$ | 100,027 | |
| |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Financial liabilities | |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Trade and other payables | |
Amortized cost | |
$ | 8,851 | | |
$ | — | | |
$ | — | | |
$ | — | | |
$ | 8,851 | | |
$ | 8,851 | |
Accrued liabilities | |
Amortized cost | |
| 7,967 | | |
| 352 | | |
| — | | |
| — | | |
| 7,615 | | |
| 7,967 | |
Lease obligation | |
Amortized cost | |
| 3,173 | | |
| — | | |
| 3,173 | | |
| — | | |
| — | | |
| 3,173 | |
Credit facility | |
Amortized cost | |
| 122,995 | | |
| — | | |
| — | | |
| 124,450 | | |
| — | | |
| 124,450 | |
Fresnillo obligation | |
Amortized cost | |
| 22,800 | | |
| — | | |
| — | | |
| 22,296 | | |
| — | | |
| 22,296 | |
| |
| |
$ | 165,786 | | |
$ | 352 | | |
$ | 3,173 | | |
$ | 146,746 | | |
$ | 16,466 | | |
$ | 166,737 | |
We determine whether transfers have occurred between
levels in the hierarchy by re-assessing categorization at the end of each reporting period.
ORLA MINING LTD.
Notes to the Condensed Interim Consolidated Financial Statements
Three and six months ended June 30, 2023 and 2022
(United States
dollars, unless otherwise stated. All currency figures in tables are in thousands, except per-share amounts)
| 25. | COMMITMENTS AND CONTINGENCIES |
The Company has issued purchase orders for construction,
equipment purchases, materials and supplies, and other services at Camino Rojo. At June 30, 2023, these outstanding purchase orders
and contracts totaled approximately $2.0 million (December 31, 2022 – $2.0 million), which we expect will be filled within
the next 12 months.
The Company is committed to making severance payments
totaling approximately $6.6 million (December 31, 2022 – $3.7 million) to certain officers and management in the event of a
change in control. As the likelihood of these events occurring is not determinable, this amount is not reflected in these consolidated
financial statements.
We may, from time to time, be a party to legal
proceedings, which arise in the ordinary course of our business. We are not aware of any pending or threatened litigation that, if resolved
against us, would have a material effect on our consolidated financial position, results of operations or cash flows.
| (b) | DISCRETIONARY MINERAL PROPERTY-RELATED COMMITMENTS |
As is customary in mineral exploration, some of
the mineral properties held by the Company as exploration and evaluation assets have annual minimum work commitments and lease payments
required to maintain these properties in good standing pursuant to their underlying agreements.
Tax expense consists of (i) current income
tax on taxable income, (ii) 7.5% special mining duty ("SMD") on income subject to SMD, and (iii) withholding taxes
attributable to interest charged on intercompany loans to the Mexican operating company, as well as (iv) deferred income tax, and (v) deferred special mining duty.
| |
Three months ended June 30 | | |
Six months ended June 30 | |
| |
2023 | | |
2022 | | |
2023 | | |
2022 | |
Current income tax expense | |
$ | 9,151 | | |
$ | 9,300 | | |
$ | 15,596 | | |
$ | 9,300 | |
Mexican 7.5% Special Mining Duty expense | |
| 3,058 | | |
| 2,709 | | |
| 5,772 | | |
| 4,900 | |
Deferred income tax expense | |
| (2,265 | ) | |
| — | | |
| (6,452 | ) | |
| — | |
Deferred Mexican 7.5% Special Mining Duty expense | |
| 405 | | |
| — | | |
| (328 | ) | |
| — | |
Withholding tax expense | |
| 423 | | |
| 617 | | |
| 854 | | |
| 861 | |
Tax expense | |
$ | 10,772 | | |
$ | 12,626 | | |
$ | 15,442 | | |
$ | 15,061 | |
ORLA MINING LTD.
Notes to the Condensed Interim Consolidated Financial Statements
Three and six months ended June 30, 2023 and 2022
(United States
dollars, unless otherwise stated. All currency figures in tables are in thousands, except per-share amounts)
| 27. | RECLASSIFICATION OF PRIOR PERIOD CASH FLOW FIGURES |
Certain of the prior period’s figures have
been reclassified to conform to the presentation in the current period. These reclassifications were (i) the inclusion of withholding
taxes within tax expense, and (ii) the characterization of tax expense and taxes paid as part of cash flows before changes in non-cash
working capital.
| |
Three months
ended | | |
Six months
ended | |
| |
| | |
| |
| |
June 30, 2022 | |
Other gain (loss) | |
| | | |
| | |
As previously presented | |
$ | (618 | ) | |
$ | (859 | ) |
Withholding taxes reclassified to income taxes | |
| 617 | | |
| 861 | |
As currently presented – negligible, now grouped with foreign exchange and other | |
$ | (1 | ) | |
$ | 2 | |
| |
| | | |
| | |
Income taxes | |
| | | |
| | |
As previously presented | |
$ | 12,009 | | |
$ | 14,200 | |
Withholding taxes reclassified from other gain (loss) | |
| 617 | | |
| 861 | |
As currently presented | |
$ | 12,626 | | |
$ | 15,061 | |
| (b) | STATEMENT OF CASH FLOWS |
| |
Three months
ended | | |
Six months
ended | |
| |
| | |
| |
| |
June 30, 2022 | |
Cash provided by operating activities before changes in non-cash working capital | |
| | | |
| | |
As previously presented | |
$ | 20,650 | | |
$ | 40,477 | |
Income tax expense reclassified from non-cash working capital | |
| 12,626 | | |
| 15,061 | |
Withholding taxes paid reclassified to income taxes | |
| (617 | ) | |
| (861 | ) |
As currently presented | |
$ | 32,659 | | |
$ | 54,677 | |
| |
| | | |
| | |
Changes in non-cash working capital | |
| | | |
| | |
As previously presented | |
$ | (714 | ) | |
$ | (48 | ) |
Income tax expense reclassified from non-cash working capital | |
| (12,626 | ) | |
| (15,061 | ) |
Withholding taxes paid reclassified to income taxes | |
| 617 | | |
| 861 | |
As currently presented | |
$ | (12,723 | ) | |
$ | (14,248 | ) |
| |
| | | |
| | |
Cash provided by operating activities | |
| | | |
| | |
As previously presented | |
$ | 19,936 | | |
$ | 40,429 | |
Net effect of the above adjustments | |
| — | | |
| — | |
As currently presented | |
$ | 19,936 | | |
$ | 40,429 | |
ORLA MINING LTD.
Notes to the Condensed Interim Consolidated Financial Statements
Three and six months ended June 30, 2023 and 2022
(United States
dollars, unless otherwise stated. All currency figures in tables are in thousands, except per-share amounts)
| 28. | EVENTS AFTER THE REPORTING PERIOD |
| (a) | EXERCISE OF STOCK OPTIONS AND WARRANTS |
Subsequent to the reporting period, the Company
issued common shares pursuant to the exercise of stock options (note 19(a)) and warrants (note 17(c)).
Exhibit 99.2
Management’s Discussion and Analysis
Three and six months ended June 30, 2023
Amounts in United States dollars
ORLA MINING LTD. |
|
Management’s Discussion and Analysis |
|
Three and six
months ended June 30, 2023 |
United
States dollars unless otherwise stated |
TABLE OF CONTENTS
I. |
OVERVIEW |
3 |
II. |
HIGHLIGHTS |
4 |
III. |
OUTLOOK AND
UPCOMING MILESTONES |
5 |
IV. |
DISCUSSION
OF OPERATIONS |
5 |
|
A. |
CAMINO ROJO,
MEXICO |
5 |
|
B. |
SOUTH RAILROAD PROJECT,
NEVADA |
11 |
|
C. |
CERRO QUEMA PROJECT,
PANAMA |
13 |
V. |
NON-GAAP
MEASURES |
15 |
VI. |
SUMMARY OF
QUARTERLY RESULTS |
18 |
VII. |
THREE AND
SIX MONTHS ENDED JUNE 30, 2023 |
21 |
VIII. |
LIQUIDITY |
23 |
IX. |
CAPITAL RESOURCES |
24 |
X. |
RELATED PARTY
TRANSACTIONS |
25 |
XI. |
OFF-BALANCE
SHEET ARRANGEMENTS |
25 |
XII. |
PROPOSED
TRANSACTIONS |
25 |
XIII. |
CRITICAL
ACCOUNTING ESTIMATES |
25 |
XIV. |
FINANCIAL
INSTRUMENTS |
27 |
XV. |
OUTSTANDING
SHARE DATA |
27 |
XVI. |
CAUTIONARY
NOTES |
28 |
XVII. |
RISKS AND
UNCERTAINTIES |
30 |
ORLA MINING LTD. |
|
Management’s Discussion and Analysis |
|
Three and six
months ended June 30, 2023 |
United
States dollars unless otherwise stated |
Orla Mining Ltd. is a mineral exploration, development,
and production company that trades on the Toronto Stock Exchange under the ticker symbol “OLA” and on the NYSE American under
the symbol “ORLA”. The “Company”, “Orla”, “we”, and “our” refer to Orla Mining
Ltd. and its subsidiaries unless the context otherwise indicates.
Orla’s corporate strategy is to acquire,
develop, and operate mineral properties where our expertise can substantially increase stakeholder value. We have three material gold
projects, (1) Camino Rojo, located in Zacatecas State, Mexico, (2) South Railroad, located in the state of Nevada, United States,
and (3) Cerro Quema, located in Los Santos Province, Panama.
Camino Rojo consists of the Camino Rojo
oxide gold mine (the “Camino Rojo Oxide Mine” or “Camino Rojo”), which achieved commercial production effective
April 1, 2022, and the Camino Rojo sulphides project (the “Camino Rojo Sulphides”). South Railroad (“South
Railroad” or the “South Railroad Project”) consists of the Dark Star and Pinion deposits and is situated within a prospective
land package, referred to as the Railroad-Pinion property, along the Carlin trend in Nevada. Cerro Quema consists of the Cerro
Quema gold project (the “Cerro Quema Gold Project”), which also includes the Caballito copper-gold deposit (“Caballito”).
This Management’s Discussion and Analysis
(“MD&A”) of the financial condition and results of operations of the Company should be read in conjunction with our condensed
interim consolidated financial statements for the three and six months ended June 30, 2023, and our audited consolidated financial
statements for the year ended December 31, 2022. The Cautionary Notes near the end of this document are an important part of this
MD&A.
Additional information about our Company,
including our most recent consolidated financial statements and Annual Information Form, is available on the Company website at www.orlamining.com,
under the Company’s profile on the System for Electronic Document Analysis and Retrieval + (“SEDAR+”) at www.sedarplus.ca,
and the Company’s documents filed with, or furnished to, the United States Securities and Exchange Commission
(“SEC”), which are available through the SEC’s Electronic Data Gathering and Retrieval System
(“EDGAR”) at www.sec.gov.
This MD&A is current as of August 3,
2023.
Andrew Cormier, P.Eng., the Chief Operating Officer
of the Company, is a Qualified Person, as the term is defined in National Instrument 43-101 (“NI 43-101”) and has reviewed
and approved the technical information disclosed in this MD&A.
ORLA MINING LTD. |
|
Management’s Discussion and Analysis |
|
Three and six
months ended June 30, 2023 |
United
States dollars unless otherwise stated |
Q2 2023 Highlights
| · | 29,773
gold ounces sold during the quarter, generating $59.3 million in revenue. |
| · | All-in
sustaining cost1 for the quarter of $698 per ounce of gold sold. Year to date
AISC is $696 per ounce of gold. AISC guidance for the full year 2023 has been reduced to
a range of $700 to $800 per ounce of gold sold from the original guidance of $750 to $850
per ounce. |
| · | Adjusted
earnings 1 of $14.0 million resulting in adjusted earnings per share of $0.05. |
| · | Net
income of $12.8 million for the quarter resulting in earnings per share of $0.04. |
| · | Cash
flow from operating activities before changes in non-cash working capital of $22.4 million. |
| · | Cash
on hand at June 30, 2023 of $114.5 million. |
| · | During
the quarter, Agnico Eagle Mines Ltd. (“Agnico Eagle”) made a C$25 million equity
investment in the Company through the partial exercise of its top-up right under the amended
and restated investor rights agreement dated December 17, 2019 (the “Investor
Rights Agreement”) between Agnico Eagle and the Company. |
Operating & Financial Results | |
| |
Q2 2023 | | |
YTD Q2 2023 | |
Gold production | |
ounces | |
| 29,058 | | |
| 54,968 | |
Gold sold | |
ounces | |
| 29,773 | | |
| 56,632 | |
Average realized gold price 1 | |
per ounce | |
$ | 1,975 | | |
$ | 1,934 | |
Cost of sales – operating cost | |
million | |
$ | 13.5 | | |
$ | 25.3 | |
Cash cost per ounce 1 | |
per ounce | |
$ | 485 | | |
$ | 479 | |
All-in sustaining cost per ounce 1 | |
per ounce | |
$ | 698 | | |
$ | 696 | |
| |
| |
| | | |
| | |
Revenue | |
million | |
$ | 59.3 | | |
$ | 110.4 | |
Net income | |
million | |
$ | 12.8 | | |
$ | 26.1 | |
Earnings per share – basic | |
$/share | |
$ | 0.04 | | |
$ | 0.08 | |
| |
| |
| | | |
| | |
Adjusted earnings 1 | |
million | |
$ | 14.0 | | |
$ | 25.4 | |
Adjusted earnings per share 1 | |
$/share | |
$ | 0.05 | | |
$ | 0.08 | |
| |
| |
| | | |
| | |
Cash flow from operating activities before changes in non-cash working capital | |
million | |
$ | 22.4 | | |
$ | 22.4 | |
| |
| |
| | | |
| | |
Free cash flow 1 | |
million | |
$ | 18.5 | | |
$ | 12.9 | |
| |
| |
| | | |
| | |
Financial position | |
| |
June 30, 2023 | | |
December 31, 2022 | |
Cash and cash equivalents | |
million | |
$ | 114.5 | | |
$ | 96.3 | |
Net debt 1 | |
million | |
$ | 20.4 | | |
$ | 49.5 | |
1 Non-GAAP measure. Please refer
to section V - NON-GAAP MEASURES of this MD&A for a reconciliation of this measure to the most comparable figures presented in our
financial statements.
ORLA MINING LTD. |
|
Management’s Discussion and Analysis |
|
Three and six
months ended June 30, 2023 |
United
States dollars unless otherwise stated |
| III. | OUTLOOK
AND UPCOMING MILESTONES |
We remain focused on advancing the Company’s
strategic objectives and near-term milestones, which include the following:
| · | Maintaining
robust health and safety protocols, to support the health of our employees and local communities. |
| · | Maintaining
consistent performance at the Camino Rojo Oxide Mine and achieving 2023 annual gold production
and revised AISC guidance of 100,000 to 110,000 ounces and $700-800/oz gold sold. |
| · | Continuing
project permitting activities at Camino Rojo, South Railroad and Cerro Quema. |
| · | Continuing
to advance development activities at Camino Rojo Sulphides. |
| · | Continuing
exploration programs across our portfolio: |
| o | Camino Rojo Sulphides drilling program
to support optimal development scenario. |
| o | Camino Rojo regional exploration program
to discover new mineral resources. |
| o | South Railroad sulphide and oxide exploration
programs to increase reserve and resource base. |
| IV. | DISCUSSION
OF OPERATIONS |
Camino Rojo is a gold-silver-lead-zinc deposit
located in the Municipality of Mazapil, State of Zacatecas, Mexico, near the village of San Tiburcio. The project lies 190 kilometres
northeast of the city of Zacatecas, 48 km south-southwest of the town of Concepción del Oro, Zacatecas, and 54 kilometres south-southeast
of Newmont’s Peñasquito mine.
Refer to the Company’s filed annual information
form dated March 20, 2023, for the year ended December 31, 2022 (the “Annual Information Form”), for historical
context and project background.
CAMINO ROJO OPERATIONAL UPDATE
The Camino Rojo Oxide Gold Mine achieved quarterly
gold production of 29,058 ounces of gold in Q2 2023 at an average ore stacking rate of 19,669 tonnes per day. The average mining rate
during the second quarter was 31,583 tonnes per day with a strip ratio of 0.61. The average grade of ore processed during the first quarter
was 0.77 g/t gold, in line with our plan. Mined ore tonnes continue to reconcile well to the block model and process recoveries to date
are in line with the metallurgical recovery model.
Gold sold during Q2 2023 totaled 29,773 ounces.
ORLA MINING LTD. |
|
Management’s Discussion and Analysis |
|
Three and six
months ended June 30, 2023 |
United
States dollars unless otherwise stated |
Second quarter cash costs and AISC totaled $485
and $698 per ounce of gold sold, respectively. The key contributors to the AISC being at the lower end of the guidance range are (i) lower
waste tonnes mined, (ii) lower blasting costs, (iii) lower maintenance costs. The lower waste tonnes mined during the quarter
resulted from limited access to certain areas of the pit as we await permits from the Secretariat of Environment and Natural Resources
(known by its Spanish acronym, “SEMARNAT”). The permitting process in Mexico, including for amendments of existing permits,
has become protracted and timing uncertain as discussed below under “Other Permits”. We do not expect the delay in obtaining
the permits to have any impact on our 2023 production guidance. However, we expect waste tonnes to remain below average for the remainder
of 2023, resulting in lower mining costs for the year and reducing our overall AISC for 2023. The Company is revising its AISC guidance
for 2023, reducing the range to $700 to $800 per ounce of gold sold from its original guidance of $750 to $850 per ounce. The reduced
cost guidance is mainly driven by lower waste tonnes mined during the first half of 2023 which is expected to continue for the remainder
of the year due to limited access to certain areas of the pit as the Company await permits from SEMARNAT. This has resulted in lower
than planned strip ratio and directly reducing the Company’s expected mining cost for 2023.
The Company remains on track to achieve its gold
production guidance of 100,000 to 110,000 ounces for 2023.Sustaining capital during the second quarter of 2023 totaled $2.1 million.
This covered items such as the construction of a dome over the ore stockpile for dust control, the construction of water wells and IT
network infrastructure, as well as drilling and evaluation work at the Layback Area.
Camino Rojo Operating Highlights | |
| |
Q2 2023 | | |
YTD Q2 2023 | |
Total Ore Mined | |
tonnes | |
| 1,787,125 | | |
| 3,735,668 | |
Ore - processed | |
tonnes | |
| 1,729,374 | | |
| 3,375,968 | |
Low Grade Ore – stockpiled | |
tonnes | |
| 57,752 | | |
| 359,700 | |
Waste Mined | |
tonnes | |
| 1,087,755 | | |
| 2,271,536 | |
Total Mined | |
tonnes | |
| 2,874,880 | | |
| 6,007,204 | |
Strip Ratio | |
w:o | |
| 0.61 | | |
| 0.61 | |
Total Ore Mined Gold Grade | |
g/t | |
| 0.76 | | |
| 0.74 | |
Ore – processed | |
g/t | |
| 0.77 | | |
| 0.79 | |
Low Grade Ore – stockpiled | |
g/t | |
| 0.30 | | |
| 0.29 | |
Ore Crushed | |
tonnes | |
| 1,878,439 | | |
| 3,648,794 | |
Ore Stacked | |
tonnes | |
| 1,789,862 | | |
| 3,491,050 | |
Stacked Ore Gold Grade | |
g/t | |
| 0.77 | | |
| 0.79 | |
Gold Produced | |
oz | |
| 29,058 | | |
| 54,968 | |
Daily Stacking Rate – Average | |
tpd | |
| 19,669 | | |
| 19,288 | |
| |
| |
Q2
2023 | | |
YTD
Q2 2023 | |
Total Crushed Ore Stockpile | |
tonnes | |
| 61,400 | | |
| 61,400 | |
Total Crushed Ore Stockpile Au Grade | |
g/t | |
| 0.87 | | |
| 0.87 | |
Total ROM Ore Stockpile* | |
tonnes | |
| 2,470,555 | | |
| 2,470,555 | |
Total ROM Ore Stockpile Grade | |
g/t | |
| 0.33 | | |
| 0.33 | |
*ROM ore stockpile includes mined ore not yet crushed, and low-grade
stockpiles.
LAYBACK AREA
In December 2020, the Company entered into
a Layback Agreement (the “Layback Agreement”) with Fresnillo plc (“Fresnillo”), granting Orla the right to expand
the Camino Rojo Oxide Mine pit onto 21.8 ha of Fresnillo’s 782 ha “Guachichil D1” mineral concession, located immediately
to the north of Orla’s property.
ORLA MINING LTD. |
|
Management’s Discussion and Analysis |
|
Three and six
months ended June 30, 2023 |
United
States dollars unless otherwise stated |
Surface rights
Fresnillo controlled the surface rights needed
for exploration and mining on the Guachichil D1 mineral concession. Pursuant to the Layback Agreement, 27.5 ha of surface rights (“Layback
Area”) controlled by Fresnillo were acquired by Minera Camino Rojo SA de CV to mine on a portion of the Guachichil D1 mineral concession
that covers the Layback Area, as required for the Camino Rojo Oxide Mine as defined in the 2021 Feasibility Study1 for Camino
Rojo. In December 2022, we completed the ratification process with local communities relating to the transfer of surface access
rights to the Layback Area.
ENVIRONMENTAL AND PERMITTING
Change in Land Use
Permit
As a result of the Layback Agreement, the project
as described in the 2021 Camino Rojo Report will require an additional Change of Land Use (in Spanish, Cambio de Uso de Suelo, or “CUS”)
permit to allow for additional surface disturbances related to development of a pit layback onto lands not considered in the August 2019
CUS permit application. The application for the additional CUS permit was submitted to SEMARNAT in February 2023. In July 2023,
the permit was declined for procedural reasons due to SEMARNAT’s internal process timelines. The Company expects to resubmit the
additional CUS permit application in 2023.
Environmental Impact
Statement
With respect to the Environmental Impact Statement
(in Spanish, Manifesto de Impacto Ambiental, or “MIA”), the project described in the 2021 Camino Rojo Report requires a modification
of the MIA permit to allow for the additional production related to the development of a pit layback onto lands not considered in the
August 2019 permit application. This MIA modification has been submitted and remains under review by SEMARNAT.
Any potential development of Camino Rojo that
would include an open pit encompassing the entire mineral resource estimate, including the sulphide material, will depend on an additional
agreement with Fresnillo (or any potential subsequent owner of the mineral titles) and additional permits from government agencies.
Additional work is required to bring material
on the Fresnillo concession to the measured and indicated mineral resource category, which will then facilitate a mineral resource and
reserve update, planned in late 2023. The Layback Program, consisting of 3,425 metres in 24 drillholes, was completed in late May.
OTHER PERMITS
In March 2022, the Company submitted a request
to SEMARNAT for approval of the open pit east and west expansions, as well as waste and low grade ore stockpiles. Receipt of these permits
is still pending. The Company does not expect the delay in receiving such permit to have an impact on the 2023 production guidance.
NEWMONT OPTION AGREEMENT
The Company and Newmont Corporation (“Newmont”)
are parties to an option agreement, which was entered into in connection with the Company’s acquisition of Camino Rojo. Pursuant
to this agreement, if a sulphide project is defined through a positive Pre-Feasibility Study outlining one of the development scenarios
A or B below, Newmont may, at its option, enter into a joint venture for the purpose of future exploration, advancement, construction,
and exploitation of the sulphide project.
| 1 | The 2021
Feasibility Study in respect of the Camino Rojo Oxide Mine is set forth in the technical
report titled “Unconstrained Feasibility Study NI 43-101 Technical Report on the Camino
Rojo Gold Project, Municipality of Mazapil, Zacatecas, Mexico” dated effective January
11, 2021 (the “2021 Camino Rojo Report”), which is available on the Company’s
website, at www.sedarplus.ca, and at www.sec.gov. |
ORLA MINING LTD. |
|
Management’s Discussion and Analysis |
|
Three and six
months ended June 30, 2023 |
United
States dollars unless otherwise stated |
| ● | Scenario A: A sulphide project where
material from the Camino Rojo Project is processed using the existing infrastructure of the
Peñasquito mine, mill and concentrator facilities. In such circumstances, the sulphide
project would be operated by Newmont, who would earn a 70% interest in the sulphide project,
with the Company owning 30%. |
| ● | Scenario B: A standalone sulphide project
with a mine plan containing at least 500 million tonnes of proven and probable mineral reserves
using standalone facilities not associated with Peñasquito. Under this scenario, the
sulphide project would be operated by Newmont, who would earn a 60% interest in the sulphide
project, with the Company owning 40%. |
EXPLORATION
The Camino Rojo land package is under-explored
and its proximity to the large Camino Rojo mineralized system provides highly prospective opportunities. Exploration on the project is
somewhat challenging due to the presence of a thin alluvial soil and caliche cover restricting geochemical surface expressions, but the
potential to discover mineralization is considered excellent. As such, we continue to conduct regional exploration at Camino Rojo.
In 2023, we continue to focus on increasing oxide
resources and reserves, supporting advancement of the sulphide deposit development scenarios, and testing priority exploration targets
to potentially make new satellite deposit discoveries. Near-mine work currently underway includes continuation of the north-to-south
oriented infill drilling on the sulphide deposit, reducing north-to-south drill spacing to approximately 50m and overall drill spacing
to approximately 25 to 35m. This additional drilling will support an updated resource estimate for the sulphide deposit. In addition,
a portion of the 2023 drill program is designed to test the depth extension of the Camino Rojo sulphide deposit.
Oxide resource drilling on the Fresnillo Layback
Area was completed in Q2 2023 and a mineral reserve and resource update is expected in Q4 2023.
Regional exploration work in the first half of
2023 focused on follow-up diamond drill core drilling at the Guanamero target and testing the southwest extension of structures controlling
mineralization at the Camino Rojo deposit. The regional exploration drill program will continue at other priority exploration targets
through the remainder of 2023.
CAMINO ROJO SULPHIDES
Historical drilling on the Camino Rojo Sulphides,
conducted by the previous project owners, indicated the gold grade of the deposit to be widely disseminated and a large, open-pit mining
scenario was the favored development pathway. A lower grade open pit development scenario would necessitate higher capital expenditures
for a large processing facility, and extensive material handling. To understand if an alternative, more targeted, development approach
was possible, the presence of higher grades had to be confirmed. It was interpreted that portions of the deposit were comprised of higher
grade steeply northwest dipping vein sets. To test for the higher grades and to confirm the geological model, Orla began drilling into
the Camino Rojo Sulphides in the opposite (south) orientation of historical drilling. Since Q4 2020, two phases of drilling have been
conducted with the results indicating the presence of continuous, higher-grade gold domains (>2g/t Au) which could be amenable to
underground mining, allowing for a smaller processing facility and less material handling.
In 2022, the south-oriented Phase 2 drill program
returned higher-grade gold intercepts (>2 g/t) over wide widths (>30m). These results are derived from a 9,174-metre drill program
conducted in 2022 to reinforce the geologic model and to continue to confirm the continuity of wide zones of higher-grade gold mineralization.
Fifteen diamond drill holes were completed during this drill program. Results from the Phase 2 drill program are available on the Company’s
website and in the press releases dated September 12, 2022 (Orla Mining Advances Exploration & Growth Pipeline)
and January 31, 2023 (Orla Mining Continues to Intersect Wide, Higher-Grade Sulphide Zones and Expose Deeper Potential at Camino
Rojo, Mexico).
ORLA MINING LTD. |
|
Management’s Discussion and Analysis |
|
Three and six
months ended June 30, 2023 |
United
States dollars unless otherwise stated |
The first metallurgical results from the Phase
2 drilling confirm the potential for a standalone processing option for the Camino Rojo Sulphides, thereby conserving the potential for
the Company to retain 100% ownership in a potential project. Metallurgical testing will continue as each new phase of drill core becomes
available.
Based on the positive results encountered in
the Phase 1 and 2 programs, more closely spaced, south-oriented drilling will be required to fully capture the extent of a potential
underground resource. At the end of Phase 2, we have completed approximately 15,253m of directional drilling which continues to inform
our perspective on the development approach to the deposit. This drilling has strengthened the possibility and confidence for a Preliminary
Economic Assessment (“PEA”) that contemplates underground mining.
Orla is continuing to drill the Camino Rojo Sulphides
deposit in 2023 with a planned 34,000m, 57 drillhole drill program. This additional drilling will result in higher-grade (>2g/t Au)
portions of the deposit having approximately 50m spacing of south-oriented drill holes and overall drill hole spacing of approximately
25-35m. In the first half of 2023, Orla completed 17,926m of the planned drilling in 24 drill holes, consisting of 15 conventional holes,
2 parent holes and 7 wedge holes, on the Camino Rojo Sulphides. Upon completion of additional south-oriented directional drilling and
test-work programs, a PEA is expected to be completed based on the optimal development method.
LAYBACK AREA
Orla began drilling in the oxide pit layback
area in late April to confirm and delineate mineralization on the Fresnillo plc (“Fresnillo”) property, located immediately
north of and adjacent to the Camino Rojo Oxide Mine open pit. While historical drilling indicates that mineralization continues across
the property boundary onto the Fresnillo layback area, no ounces from this area are currently included in the Camino Rojo mineral resource
and mineral reserve estimate. The layback program, consisting of 3,425 metres in 24 drillholes, was completed in late May. Results of
the layback program will be included in an update of mineral resource and mineral reserve estimates planned in late 2023.
REGIONAL EXPLORATION
The Camino Rojo regional exploration program
continued through the end of 2022, consisting of airborne (drone) magnetic and induced polarization geophysical surveys, as well as soil
geochemical sampling, mechanical trenching, and RC and core drilling. Results from the 2022 drill program are available on the Company’s
website and in our press release dated January 31, 2023 (Orla Mining Continues to Intersect Wide, Higher-Grade Sulphide Zones
and Expose Deeper Potential at Camino Rojo, Mexico).
Regional exploration in 2023 consists of approximately
20,000 metres of drilling to test priority exploration targets along the northeast-southwest mine trend and northwest-southeast regional
trend. Orla resumed drilling at the Guanamero target area in early 2023 and completed 7,464m of core drilling in 9 drill holes in the
first half of 2023. Target generation and development activities, including airborne drone magnetic and ground gravity geophysical surveys,
geochemical sampling and mechanical trenching are also planned in 2023.
COMMUNITY AND SOCIAL
At Camino Rojo during Q2 2023, there were no
community-related operational interruptions. During Q2 2023, 99% of Camino Rojo’s direct employees were Mexican nationals —
56% of employees were from local communities, and a further 24% of the workforce were from Zacatecas State.
ORLA MINING LTD. |
|
Management’s Discussion and Analysis |
|
Three and six
months ended June 30, 2023 |
United
States dollars unless otherwise stated |
The Company maintains and regularly updates its
community, social relations, and environmental management program. The Community Environmental Monitoring Committee continues its participation
in the quarterly water monitoring program and other environmental related activities. The Sustainability Risk Committee, which is comprised
of members of the Company and community relations advisors, continues to hold monthly meetings. Our community relations team continues
to work with local communities to understand how the Company can best provide support.
During Q2 2023, our community relations teams
supported the following activities:
| · | Held
information meetings between the Company and communities to discuss potential opportunities
for local suppliers. |
| · | Signed
an agreement with the Mazapil municipality to collaborate on the improvement of the El Berrendo
road. |
| · | Will
have delivered 17 university scholarships from January to August |
| · | Increased
road safety: 22 kilometers of livestock fence installation in San Francisco de Los Quijanos. |
| · | Received
from the State of Zacatecas the approval of the Crisis Emergency Program at Camino Rojo. |
| · | Held
the first health fair with 190 people attending. |
| · | Held
prevention and awareness campaigns aligning with the framework of the international day of
the fight against breast cancer. |
| · | Deployed
the 8th “Introduction to Mining” course and tour to the surrounding
communities. To date 104 people have attended. |
ORLA MINING LTD. |
|
Management’s Discussion and Analysis |
|
Three and six
months ended June 30, 2023 |
United
States dollars unless otherwise stated |
| B. | SOUTH
RAILROAD PROJECT, NEVADA |
In August 2022, the Company acquired all
the outstanding common shares of Gold Standard Ventures Corp. (“Gold Standard”), a publicly listed company that owned the
South Railroad Project. The South Railroad Project is located along the Pinon mountain range, approximately 24 kilometers south-southeast
of Carlin, Nevada, in the Railroad mining district.
Refer to our latest Annual Information Form filed
on SEDAR+ for historical context and project background.
NEXT STEPS
CONTINUED PERMITTING ACTIVITIES
We continue baseline environmental data collection
to facilitate the environmental studies required to support development of the Plan of Operations, and the permitting process. Orla is
currently expanding on this work to allow flexibility in project planning when working with the Bureau of Land Management (“BLM”)
during the permitting process.
A Plan of Operations for the project was submitted
in November 2020. In December 2020, the BLM determined that the plan was complete. The review and approval process for the
Plan of Operations by the BLM constitutes a federal action under the National Environmental Policy Act (“NEPA”) and BLM regulations.
The BLM is required to comply with the NEPA, and the BLM has determined that an Environmental Impact Statement (“EIS”) is
required. A NEPA contractor was selected in August 2021 which commenced work the following month. The BLM will publish the Notice
of Intent in the Federal Register to officially commence the NEPA process. The NEPA process involves public scoping, the preparation
of the EIS, and culminates in the BLM publishing a Record of Decision for the project. The South Railroad Project will also require an
Individual Section 404 Permit from the United States Army Corps of Engineers, and this agency will be a cooperating agency on the
NEPA documents.
We expect the BLM to file the Notice of Intent
in the Federal Register in late 2023/early 2024. Once the Notice of Intent is filed, public scoping meetings can commence in conjunction
with the development of the EIS. We have engaged SWCA Environmental Consultants to manage the EIS process on behalf of the BLM.
Orla has submitted applications for state air
operating permits and water rights. Orla has also initiated preliminary meetings with the Nevada Bureau of Mining Regulation and Reclamation
(“BMRR”) to facilitate submittal and processing of a Water Pollution Control permit application. Orla anticipates submitting
an application for a Nevada Water Pollution Control Permit in 2023.
DETAILED DESIGN WORK AND AWARDING OF THE EPCM CONTRACT
We anticipate awarding the Engineering, Procurement &
Construction Management contract for the South Railroad Project following the filing of the Notice of Intent by the BLM. Detailed engineering
and design work could then commence in preparation for a construction decision following the conclusion of the NEPA process and receipt
of the Record of Decision document.
EXPLORATION
The South Railroad Project is a prospective land
package for the discovery of additional Carlin- and associated low sulfidation-type gold mineralization outside the already defined gold
resources and reserves at the Pinion and Dark Star deposits. The potential for definition of additional oxide resources is considered
very good. As such, we continue to conduct near-deposit and regional exploration at the South Railroad Project.
ORLA MINING LTD. |
|
Management’s Discussion and Analysis |
|
Three and six
months ended June 30, 2023 |
United
States dollars unless otherwise stated |
Following the acquisition of the South Railroad
Project in August 2022, Orla continued the Gold Standard drill program targeting oxide hosted mineralization at Pinion SB and LT
target areas. Upon completion of drilling at Pinion SB and LT target areas in September, Orla immediately started an oxide resource drill
program. This new drill program was completed in December of 2022. Our drill program targeted resource upgrades at POD, Sweet Hollow,
and Jasperoid Wash targets, as well as advancing the Dixie deposit towards a potential maiden oxide resource estimate. Assay results
are available in our press release dated February 8, 2023 (Orla Mining Drills Significant Gold Intersections at Multiple Oxide
Targets upon Reactivation of Exploration at South Railroad Project, Nevada).
In 2023, Orla intends to update mineral resources
for target areas that were drilled in 2022. Geological modelling and metallurgical testing for these target areas are planned. In addition,
Orla will drill test multiple exploration targets, including the extension of known mineralization (deposits) and newly developed targets
supported by geology, geochemistry, and geophysical data. Key near-deposit exploration targets planned to be drilled in 2023 include
Pinon SB, as well as extensions of gold mineralization at Jasperoid Wash, Dixie, POD, Sweet Hollow, and North Bullion. Regional exploration
will drill test the potential for additional satellite deposits, including Carlin- epithermal- and skarn-type gold and base metal mineralization
as well as geological and geochemical field work to develop and advance early-stage targets to the drill-stage across the >25 km strike
length of the property.
In the first half of 2023, Orla advanced the
update of mineral resources by developing geological and oxidation models, as well as completing planning for geometallurgical testing
for target areas drilled in 2022. The current year drill program began in late Q2 2023, with one diamond drill core and one reverse circulation
drill active at the North Bullion area. The 2023 exploration program is expected to continue into Q4 2023, with drilling focusing on
defining the extension of gold mineralization at satellite deposits, drill testing for additional satellite deposits, and advancing early-stage
regional exploration targets.
COMMUNITY AND SOCIAL
Orla is currently expanding the community engagement
initiatives started by the prior operator. In Q2 2023, Orla conducted a workshop to map out stakeholders and to formulate a strategy
for stakeholder engagement based on an analysis of the local context and local groups’ main concerns and expectations.
ORLA MINING LTD. |
|
Management’s Discussion and Analysis |
|
Three and six
months ended June 30, 2023 |
United
States dollars unless otherwise stated |
| C. | CERRO
QUEMA PROJECT, PANAMA |
The Cerro Quema Gold Project is 100% owned by
the Company and is located on the Azuero Peninsula in Los Santos Province in southwestern Panama, about 45 kilometres southwest of the
city of Chitre and about 190 kilometres southwest of Panama City. The project is at the exploration and development stage for a proposed
open pit mine with heap leach processing. Orla owns the mineral rights as well as the surface rights over the areas of the current mineral
resources and mineral reserves, the proposed mine development, and the priority drill targets.
Refer to the Company’s Annual Information
Form for historical context and project background.
ENVIRONMENTAL AND PERMITTING
Mineral concessions are comprised of three contracts
between the Republic of Panama and Minera Cerro Quema SA, a wholly owned subsidiary of Orla. The original 20-year term for these concessions
expired on February 26, 2017 (Contracts 19 and 20) and March 3, 2017 (Contract 21). The Company has applied for the prescribed
10-year extension to these contracts as it is entitled to under Panamanian mineral law.
As of the date of this MD&A, formal approval
of the extension of these concessions has not yet been received. In March 2017, the Ministry of Commerce and Industry (“MICI”)
provided written confirmation to the Company that it had received the extension applications, and that exploration work could continue
while the Company awaits the renewals. In May 2021, the extension of the exploitation contracts was signed by both MICI and by Orla.
As of the date of this MD&A, the documents are in the final review and approval stage. The final step in the process requires the
publication of the resolution in the official Gazette — this process is pending.
We have received verbal assurances from government
officials that the renewal applications are complete with no outstanding legal issues. Since the expiry of the concessions, we have continued
to receive ongoing exploration permits, and MICI has continued to accept our annual reports and concession fees. In the absence of such
approval, construction or development activities at the Cerro Quema Project cannot proceed.
The mine environmental permitting process has
been ongoing and in May 2023, the Ministry of Environment conducted their latest site inspection of the Cerro Quema Project. As
a result of the positive site inspection review, the Category 3 Environmental & Social Impact Assessment (“ESIA”)
technical aspects were approved. On May 28, 2023, Orla received the resolution approving the Environmental Impact Study and commenced
report preparation and data collection to fulfill the requirements established by the resolution.
NEXT STEP
Upon receipt of concession renewals and applicable
permits, we expect to continue to advance Cerro Quema towards feasibility level which would provide the basis for a construction decision.
Key areas of review include the following:
| · | Complete
additional feasibility-level mine plan studies on areas including drilling and blasting,
detailed equipment sizing, and contractor mining cost trade-off. |
| · | Complete
confirmatory metallurgical test work on representative samples for each metallurgical type,
specifically column leach tests on coarse crushed material and draindown chemistry. |
| · | Complete
additional studies and cost estimates for surface and groundwater flows, quality, storage,
and treatment. |
| · | Complete
additional geotechnical studies at the proposed heap leach, waste rock dump, open pits, and
processing areas. |
| · | Evaluate
the availability of local services and personnel to maximize local hiring and procurement. |
| · | Investigate
power generation opportunities from the overland conveying system to help alleviate the on-site
power generation requirements. |
ORLA MINING LTD. |
|
Management’s Discussion and Analysis |
|
Three and six
months ended June 30, 2023 |
United
States dollars unless otherwise stated |
EXPLORATION
The discovery of the Caballito mineralized zone
in 2017 and follow-up drilling executed by Orla in 2018 led to the definition of significant copper and gold sulphide mineralization
with open pit potential. The Caballito-style mineralization differs from the Pava and Quemita oxide deposits as it consists of copper-gold
sulphide mineralization that will not be amenable to heap leaching and will require a different processing method.
In December 2021, we announced an independent
mineral resource estimate for the Caballito copper-gold deposit at the Cerro Quema project. Please refer to our press release dated December 6,
2021 (Orla Mining Announces Initial Mineral Resource for Caballito Copper-Gold Deposit in Panama).
The Cerro Quema property shows potential for
additional oxide mineralization, but the main upside resides in the sulphide-hosted potential of the project which remains largely under-explored.
Drilling activities at Cerro Quema began in January 2023
and followed up on regional exploration results from the 2022 program. At La Pelona, 4,674m in 27 drill holes was completed during the
first half of 2023 defining a zone of low grade (±0.3 g/t Au) oxide mineralization over an area of approximately 500 m by 120
m, from surface to a depth of 120 m. At La Prieta, approximately 868m of drilling in three drill holes was also completed during the
first half of 2023 to test and evaluate the potential of the Prieta intrusive body to host economic intrusion-related copper-gold mineralization.
At the end of June, we completed the 2023 drill
program and subsequently reduced the number of direct and indirect employees involved in the exploration related activities. Our focus
has now turned to data interpretation of the drill results and continued permitting related activities, for which a large portion of
the work is conducted by external consultants.
COMMUNITY AND SOCIAL
Our community and social focus at Cerro Quema
during Q2 2023 continued, oriented primarily at providing access to the internet and communication and computing facilities for community
members, mainly children and youth. During Q2, we also:
| · | Exhibited
at Expominera International 2023, organized by the Mining Chamber of Panama, in Panama City
with 4,000 participants from 25 countries. The Mining Chamber of Panama joined 12 other mining
associations around the world, in adopting the “Mining Association of Canada –
Towards Sustainable Mining” (“MAC-TSM”) standard. |
ORLA MINING LTD. |
|
Management’s Discussion and Analysis |
|
Three and six
months ended June 30, 2023 |
United
States dollars unless otherwise stated |
We have included herein certain performance measures
(“non-GAAP measures”) which are not specified, defined, or determined under generally accepted accounting principles (“GAAP”).
These non-GAAP measures are common performance measures in the gold mining industry, but because they do not have any mandated standardized
definitions, they may not be comparable to similar measures presented by other issuers. Accordingly, we use such measures to provide
additional information and you should not consider them in isolation or as a substitute for measures of performance prepared in accordance
with GAAP. In this section, all currency figures in tables are in thousands, except per-share and per-ounce amounts.
AVERAGE REALIZED GOLD PRICE
Average realized gold price per ounce sold is
calculated by dividing gold sales proceeds received by the Company for the relevant period by the ounces of gold sold. The Company believes
the measure is useful in understanding the gold price realized by the Company throughout the period.
AVERAGE REALIZED GOLD PRICE | |
Q2 2023 | | |
Q2 2022 | | |
YTD Q2 2023 | | |
YTD Q2 2022 | |
Revenue | |
$ | 59,272 | | |
$ | 47,797 | | |
$ | 110,403 | | |
$ | 87,442 | |
Silver sales | |
| (475 | ) | |
| (197 | ) | |
| (899 | ) | |
| (416 | ) |
Gold sales | |
| 58,797 | | |
| 47,600 | | |
| 109,504 | | |
| 87,026 | |
Ounces of gold sold | |
| 29,773 | | |
| 25,431 | | |
| 56,632 | | |
| 46,315 | |
AVERAGE REALIZED GOLD PRICE | |
$ | 1,975 | | |
$ | 1,872 | | |
$ | 1,934 | | |
$ | 1,879 | |
NET DEBT
Net debt is calculated as total debt adjusted
for unamortized deferred financing charges less cash and cash equivalents and short-term investments at the end of the reporting period.
This measure is used by management to measure the Company’s debt leverage. The Company believes that in addition to conventional
measures prepared in accordance with IFRS, net debt is useful to evaluate the Company’s leverage and is also a key metric in determining
the cost of debt.
NET DEBT | |
June 30, 2023 | | |
December 31, 2022 | |
Current portion of long term debt | |
$ | 45,000 | | |
$ | 45,000 | |
Long term debt | |
| 89,958 | | |
| 100,795 | |
Less: Cash and cash equivalents | |
| (114,530 | ) | |
| (96,278 | ) |
NET DEBT | |
$ | 20,428 | | |
$ | 49,517 | |
ORLA MINING LTD. |
|
Management’s Discussion and Analysis |
|
Three and six
months ended June 30, 2023 |
United
States dollars unless otherwise stated |
ADJUSTED EARNINGS (LOSS) AND ADJUSTED EARNINGS (LOSS) PER SHARE
Adjusted earnings (loss) excludes deferred taxes,
unrealized foreign exchange, changes in fair values of financial instruments, impairments and reversals due to net realizable values,
restructuring and severance, and other items which are significant but not reflective of the underlying operational performance of the
Company. We believe these measures are useful to market participants because they are important indicators of the strength of our operations
and the performance of our core business. With the addition of PSUs at the end of Q1 2023, we expect greater volatility in share-based
payments expense going forward. Accordingly, we have excluded the effect of these PSU’s in our calculation of adjusted earnings.
ADJUSTED EARNINGS | |
Q2 2023 | | |
Q2 2022 | | |
YTD Q2 2023 | | |
YTD Q2 2022 | |
Net income (loss) for the period | |
$ | 12,827 | | |
$ | (597 | ) | |
$ | 26,062 | | |
$ | 18,185 | |
Unrealized foreign exchange | |
| 1,097 | | |
| (1,634 | ) | |
| (706 | ) | |
| (621 | ) |
Share based compensation related to PSUs | |
| 92 | | |
| — | | |
| 92 | | |
| — | |
Loss on early settlement of project loan | |
| — | | |
| 13,219 | | |
| — | | |
| 13,219 | |
ADJUSTED EARNINGS | |
$ | 14,016 | | |
$ | 10,988 | | |
$ | 25,448 | | |
$ | 30,783 | |
| |
| | | |
| | | |
| | | |
| | |
Millions of shares outstanding – basic | |
| 311.2 | | |
| 253.3 | | |
| 308.8 | | |
| 250.6 | |
Adjusted earnings per share – basic | |
$ | 0.05 | | |
$ | 0.04 | | |
$ | 0.08 | | |
$ | 0.12 | |
Companies may choose to expense or
capitalize their exploration expenditures. We expense our exploration costs based on our accounting policy. To assist the reader
in comparing against those companies which capitalize their exploration costs, we note that included within Orla’s net income (loss)
for each period are exploration costs which were expensed, as follows:
| |
Q2 2023 | | |
Q2 2022 | | |
YTD Q2 2023 | | |
YTD Q2 2022 | |
Exploration & evaluation expense | |
$ | 7,201 | | |
$ | 2,541 | | |
$ | 14,067 | | |
$ | 5,007 | |
FREE CASH FLOW
The Company believes market participants use
Free Cash Flow to evaluate the Company’s operating cash flow capacity to meet non-discretionary outflows of cash. Free Cash Flow
is not meant to be a substitute for the cash flow information presented in accordance with IFRS. Free Cash Flow is calculated as the
sum of cash flow from operating activities and cash flow from investing activities, excluding certain unusual transactions.
FREE CASH FLOW | |
Q2 2023 | | |
Q2 2022 | | |
YTD Q2 2023 | | |
YTD Q2 2022 | |
Cash flow from operating activities | |
$ | 23,296 | | |
$ | 19,936 | | |
$ | 18,374 | | |
$ | 40,429 | |
Cash flow from investing activities | |
| (4,844 | ) | |
| 8,789 | | |
| (5,436 | ) | |
| 4,638 | |
FREE CASH FLOW | |
$ | 18,452 | | |
$ | 28,725 | | |
$ | 12,938 | | |
$ | 45,067 | |
| |
| | | |
| | | |
| | | |
| | |
Millions of shares outstanding – basic | |
| 311.2 | | |
| 253.3 | | |
| 308.8 | | |
| 250.6 | |
Free cash flow per share – basic | |
$ | 0.06 | | |
$ | 0.11 | | |
$ | 0.04 | | |
$ | 0.18 | |
ORLA MINING LTD. |
|
Management’s Discussion and Analysis |
|
Three and six
months ended June 30, 2023 |
United
States dollars unless otherwise stated |
CASH COST AND ALL-IN SUSTAINING COST
The Company calculates cash cost per ounce by
dividing the sum of operating costs and royalty costs, net of by-product silver credits, by ounces of gold sold. Management believes
that this measure is useful to market participants in assessing operating performance.
The Company has provided an AISC performance
measure that reflects all the expenditures that are required to produce an ounce of gold from operations. While there is no standardized
meaning of the measure across the industry, the Company's definition conforms to the all-in sustaining cost definition as set out by
the World Gold Council in its guidance dated November 14, 2018. Orla believes that this measure is useful to market participants
in assessing operating performance and the Company's ability to generate free cash flow from current operations.
Figures are presented only from April 1,
2022, as the Camino Rojo Oxide Gold Mine commenced commercial production on that date.
CASH COST | |
Q2 2023 | | |
Q2 2022 | | |
YTD Q2 2023 | | |
YTD Q2 2022 | |
Cost of sales – operating costs | |
$ | 13,458 | | |
$ | 10,776 | | |
$ | 25,250 | | |
$ | 10,776 | |
Related to previous quarter | |
| — | | |
| (503 | ) | |
| — | | |
| (503 | ) |
Royalties | |
| 1,448 | | |
| 1,099 | | |
| 2,754 | | |
| 1,099 | |
Silver sales | |
| (475 | ) | |
| (197 | ) | |
| (899 | ) | |
| (197 | ) |
CASH COST | |
$ | 14,431 | | |
$ | 11,175 | | |
$ | 27,105 | | |
$ | 11,175 | |
| |
| | | |
| | | |
| | | |
| | |
Ounces sold | |
| 29,773 | | |
| 25,431 | | |
| 56,632 | | |
| 25,431 | |
Cash cost per ounce sold | |
| 485 | | |
| 439 | | |
| 479 | | |
| 439 | |
ALL-IN SUSTAINING COST | |
Q2 2023 | | |
Q2 2022 | | |
YTD Q2 2023 | | |
YTD Q2 2022 | |
Cash cost, as above | |
$ | 14,431 | | |
$ | 11,175 | | |
$ | 27,105 | | |
$ | 11,175 | |
General and administrative expenses | |
| 3,107 | | |
| 2,551 | | |
| 6,372 | | |
| 2,551 | |
Share based payments | |
| 620 | | |
| 538 | | |
| 1,727 | | |
| 538 | |
Accretion of site closure provisions | |
| 113 | | |
| 117 | | |
| 257 | | |
| 117 | |
Amortization of site closure provisions | |
| 136 | | |
| 119 | | |
| 261 | | |
| 119 | |
Sustaining capital | |
| 1,443 | | |
| 658 | | |
| 2,588 | | |
| 658 | |
Sustaining capitalized exploration expenses | |
| 696 | | |
| — | | |
| 696 | | |
| — | |
Lease payments | |
| 222 | | |
| 123 | | |
| 384 | | |
| 123 | |
ALL-IN SUSTAINING COST | |
$ | 20,768 | | |
$ | 15,281 | | |
$ | 39,390 | | |
$ | 15,281 | |
| |
| | | |
| | | |
| | | |
| | |
Ounces sold | |
| 29,773 | | |
| 25,431 | | |
| 56,632 | | |
| 25,431 | |
All-in sustaining cost per ounce sold | |
| 698 | | |
| 601 | | |
| 696 | | |
| 601 | |
ORLA MINING LTD. |
|
Management’s Discussion and Analysis |
|
Three and six
months ended June 30, 2023 |
United
States dollars unless otherwise stated |
VI. | SUMMARY
OF QUARTERLY RESULTS |
The figures in the following table are based
on the unaudited consolidated financial statements of the Company which were prepared in accordance with IFRS.
$ thousands | |
Q2 2023 | | |
Q1 2023 | | |
Q4 2022 | | |
Q3 2022 | | |
Q2 2022 | | |
Q1 2022 | | |
Q4 2021 | | |
Q3 2021 | |
Revenue | |
$ | 59,272 | | |
$ | 51,131 | | |
$ | 56,758 | | |
$ | 49,030 | | |
$ | 47,797 | | |
$ | 39,645 | | |
$ | 4,091 | | |
$ | — | |
Cost of sales | |
| (21,733 | ) | |
| (18,952 | ) | |
| (18,572 | ) | |
| (19,473 | ) | |
| (16,894 | ) | |
| (10,430 | ) | |
| (1,358 | ) | |
| — | |
| |
| 37,539 | | |
| 32,179 | | |
| 38,186 | | |
| 29,557 | | |
| 30,903 | | |
| 29,215 | | |
| 2,733 | | |
| — | |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Exploration expense | |
| (7,201 | ) | |
| (6,866 | ) | |
| (5,605 | ) | |
| (8,327 | ) | |
| (2,541 | ) | |
| (2,466 | ) | |
| (2,863 | ) | |
| (3,573 | ) |
Office and administrative | |
| (834 | ) | |
| (710 | ) | |
| (805 | ) | |
| (769 | ) | |
| (714 | ) | |
| (633 | ) | |
| (557 | ) | |
| (487 | ) |
Professional fees | |
| (516 | ) | |
| (397 | ) | |
| (555 | ) | |
| (357 | ) | |
| (875 | ) | |
| (450 | ) | |
| (408 | ) | |
| (241 | ) |
Regulatory and transfer agent | |
| (110 | ) | |
| (286 | ) | |
| (17 | ) | |
| (44 | ) | |
| (42 | ) | |
| (198 | ) | |
| (83 | ) | |
| (162 | ) |
Salaries and wages | |
| (1,647 | ) | |
| (1,872 | ) | |
| (1,364 | ) | |
| (1,172 | ) | |
| (1,256 | ) | |
| (1,662 | ) | |
| (826 | ) | |
| (759 | ) |
Depreciation | |
| (120 | ) | |
| (118 | ) | |
| (115 | ) | |
| (85 | ) | |
| (41 | ) | |
| (36 | ) | |
| (34 | ) | |
| (52 | ) |
Share based payments | |
| (806 | ) | |
| (1,107 | ) | |
| (526 | ) | |
| (518 | ) | |
| (538 | ) | |
| (865 | ) | |
| (432 | ) | |
| (416 | ) |
Foreign exchange and other | |
| (1,240 | ) | |
| (802 | ) | |
| (1,856 | ) | |
| 3,846 | | |
| (10,791 | ) | |
| (1,363 | ) | |
| (2,341 | ) | |
| (3,414 | ) |
Interest and finance costs | |
| (1,466 | ) | |
| (2,116 | ) | |
| (2,018 | ) | |
| (2,304 | ) | |
| (2,076 | ) | |
| (325 | ) | |
| (207 | ) | |
| (450 | ) |
Tax expense | |
| (10,772 | ) | |
| (4,670 | ) | |
| (6,635 | ) | |
| (10,932 | ) | |
| (12,626 | ) | |
| (2,435 | ) | |
| — | | |
| — | |
Net income (loss) | |
| 12,827 | | |
| 13,235 | | |
| 18,690 | | |
| 8,895 | | |
| (597 | ) | |
| 18,782 | | |
| (5,018 | ) | |
| (9,554 | ) |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Net income (loss) per share (basic) | |
$ | 0.04 | | |
$ | 0.04 | | |
$ | 0.07 | | |
$ | 0.03 | | |
$ | (0.00 | ) | |
$ | 0.08 | | |
$ | (0.02 | ) | |
$ | (0.04 | ) |
Net income (loss) per share (diluted) | |
$ | 0.04 | | |
$ | 0.04 | | |
$ | 0.06 | | |
$ | 0.03 | | |
$ | (0.00 | ) | |
$ | 0.07 | | |
$ | (0.02 | ) | |
$ | (0.04 | ) |
REVENUE AND COST OF SALES
The Camino Rojo Oxide Gold Mine was in construction
throughout 2021. In Q4 2021, while the mine was still under construction and not yet in commercial production, we produced and sold a
small amount of gold. We declared commercial production effective April 1, 2022.
Upon commercial production, we commenced recording
depletion, depreciation and amortization (“DD&A”) on the mine and related plant and equipment.
EXPLORATION EXPENSE
Throughout 2021 and into Q1 2022, we constructed
the Camino Rojo Oxide Gold Mine and conducted ramp-up activities. In 2021, we completed the Layback Agreement with Fresnillo, which gave
us access to the Layback Area, and we filed the 2021 Camino Rojo Report which incorporated the Layback Area. We also conducted work to
update technical studies and issued a technical report for our Cerro Quema Oxide Project.
In Q3 2022, we acquired the South Railroad and
Lewis projects, and continued significant exploration and evaluation activities at South Railroad. We also continued further exploration
activities at Camino Rojo and Cerro Quema.
ORLA MINING LTD. |
|
Management’s Discussion and Analysis |
|
Three and six
months ended June 30, 2023 |
United
States dollars unless otherwise stated |
ADMINISTRATIVE COSTS
Administrative costs and professional fees have
trended with the level of activity of the Company, and with major transactions such as the Company’s refinancing of the Project
Loan and the acquisition of South Railroad in 2022.
SALARIES AND WAGES
Salaries have generally increased from 2021 to
2023 as a result of growth during the construction and operation phases at Camino Rojo and of the Company as a whole.
SHARE BASED PAYMENTS
Share-based payments expense is generally related
to the number of stock options, restricted share units (“RSUs”), deferred share units (“DSUs”), and performance
share units (“PSUs”) vesting during the quarter. The grants typically occur during the first quarter of each year; consequently,
those quarters tend to be greater than the others as a percentage of awards and grants vest (and are therefore expensed) immediately.
INTEREST AND FINANCE COSTS
From December 2019 until April 2022,
the Company had project financing outstanding of $125 million (the “Project Loan”), the interest on which was expensed prior
to commencement of construction. In December 2020, we commenced construction at Camino Rojo; consequently, we began capitalizing
interest on the Project Loan, which decreased interest expense in subsequent quarters.
In April 2022, we refinanced the Project
Loan and replaced it with a credit facility of $150 million (the “Credit Facility”), of which $130 million was drawn down
upon closing of the refinancing. In January 2021, we acquired the Layback Area, which included obligations of $37.8 million (the
“Fresnillo obligations”) bearing interest at 5%. This interest was capitalized and therefore had no effect on earnings from
December 1, 2020 to March 31, 2022.
Upon commencement of commercial production on
April 1, 2022, borrowing costs such as interest and accretion on the Project Loan, the Fresnillo obligations and the Credit Facility
are once again expensed, rather than capitalized as they had been during construction of the Camino Rojo mine. Consequently, we expect
earnings to be impacted by such interest each quarter.
FOREIGN EXCHANGE
Foreign exchange gains and losses vary based
on fluctuation of the Canadian dollar and the Mexican peso versus the US dollar. Effective January 1, 2022, the US dollar became
the functional currency of Minera Camino Rojo SA de CV.
We funded the construction of the Camino Rojo
Oxide Mine by funding US-dollar-denominated loans from the Canadian parent company to our Mexican operating subsidiary. The balance is
significant, and since the Canadian parent is Canadian-dollar functional, this leads to foreign exchange gains or losses arising from
changes in the USD-CAD exchange rate. Our Mexican operating subsidiary is US-dollar functional; consequently, no offsetting foreign exchange
was recorded. This has been the single largest contributor to volatility in our foreign exchange after Q1 2021.
ORLA MINING LTD. |
|
Management’s Discussion and Analysis |
|
Three and six
months ended June 30, 2023 |
United
States dollars unless otherwise stated |
OTHER EXPENSES
At inception of the $125 million Project Loan
in 2019, we incurred loan initiation transaction costs totaling approximately $12.1 million, and these costs were being amortized over
the originally expected life of the loan.
In Q2 2022, we repaid the Project Loan in its
entirety ahead of its expiry date. At that time, an amount of $10.7 million, mainly related to the value of the warrants issued in conjunction
with the Project Loan, remained unamortized, which we then expensed immediately, along with the $2.5 million early repayment cash premium
paid.
TAX EXPENSE
Prior to Q1 2022, the Company had incurred losses
each quarter and consequently no income taxes were payable in those quarters. In Q4 2021, we commenced earning revenues from gold sales.
During 2022, we accrued income taxes and recorded deferred taxes each quarter. In Q1 2023, we paid income taxes and mining duties in
respect of 2022. In Q2 2023 we commenced making routine monthly instalment payments in respect of our Mexican tax liabilities.
In common with all other mining companies operating
in Mexico, the Company is subject to a 7.5% Special Mining Duty (“SMD”) on earnings from mining operations, in addition to
corporate income tax.
ORLA MINING LTD. |
|
Management’s Discussion and Analysis |
|
Three and six
months ended June 30, 2023 |
United States dollars unless otherwise
stated |
VII. THREE
AND SIX MONTHS ENDED JUNE 30, 2023
The following commentaries are based on accompanying
(i) unaudited condensed interim consolidated financial statements for the three and six months ended June 30, 2023, and (ii) audited
consolidated financial statements for the year ended December 31, 2022, each of which were prepared in accordance with IFRS.
BALANCE SHEET
Comparison of balance sheets at June 30,
2023 to December 31, 2022.
| |
June 30, 2023 | | |
Dec 31, 2022 | | |
Commentary |
Cash | |
$ | 114,530 | | |
$ | 96,278 | | |
Significant inflows are operating earnings and the issuance of common shares, partly offset by tax payments, purchases of PP&E and capitalized exploration, and repayment of principal on the Credit Facility and related interest. |
| |
| | | |
| | | |
|
Other current assets | |
| 39,266 | | |
| 36,584 | | |
|
| |
| | | |
| | | |
|
Property, plant and equipment | |
| 217,207 | | |
| 224,416 | | |
Change is primarily related to depreciation. |
| |
| | | |
| | | |
|
Exploration and evaluation properties | |
| 242,743 | | |
| 242,743 | | |
|
| |
| | | |
| | | |
|
Other long term assets | |
| 17,108 | | |
| 13,795 | | |
Increase primarily due to buildup of low-grade stockpile. |
| |
| | | |
| | | |
|
Current liabilities, excluding current portion of long term debt | |
| 28 ,098 | | |
| 52,777 | | |
Decrease is driven substantially by the payment of income taxes which had been accrued at year end. |
| |
| | | |
| | | |
|
Long term debt (current + long term) | |
| 134,958 | | |
| 145,795 | | |
In March and June 2023, we repaid an aggregate of $11.1 million of principal related to the Credit Facility. |
| |
| | | |
| | | |
|
Other long term liabilities | |
| 17,976 | | |
| 18,260 | | |
|
INCOME (LOSS)
FOR THE QUARTER
COMPARISON
TO LAST QUARTER (Q2 2023 vs Q1 2023)
The number of gold ounces produced was higher
in Q2 2023 than Q1 2023 due to a higher mining and stacking rate this quarter (19,669 tpd in Q2 2023 vs 18,900 tpd in Q1 2023). Additionally,
the ore mined grade was higher this quarter (0.76 g/t in Q2 2023 vs 0.72 g/t in Q1 2023). The average realized price was higher in Q2
2023 than Q1 2023 ($1,975 vs $1,888). Revenues were higher in Q2 2023 than Q1 2023 due to more ounces sold at a higher price.
ORLA MINING LTD. |
|
Management’s Discussion and Analysis |
|
Three and six
months ended June 30, 2023 |
United States dollars unless otherwise
stated |
The decrease in general and administrative expenses
in Q2 2023 over Q1 2023 is driven primarily by the timing of services and expenses incurred, some of which typically occur in Q1 of each
year, such as the payment of annual bonuses and annual filing fees.
Our exploration activities were higher in Q2 2023
than Q1 2023 due to increased activity at Mexico and Nevada, partly offset by a planned decrease in drilling activities at Cerro Quema.
Share based payments were lower in Q2 2023 than
Q1 2023 because DSUs are typically granted in Q1 each year and vest immediately.
COMPARISON
TO SAME QUARTER LAST YEAR (Q2 2023 vs Q2 2022)
The number of gold ounces produced was higher
in Q2 2023 because of higher mining and stacking rates this quarter (19,669 tpd in Q2 2023 vs 18,245 tpd in Q2 2022). Ore mined grade
was also higher this quarter (0.76 g/t in Q2 2023 vs 0.71 g/t in Q2 2022).
The higher revenues in Q2 2023 were driven by
increased ounces sold at a higher price ($1,975 vs $1,872).
The increase in general and administrative expenses
is driven primarily by bonuses, pay increases and staffing increases over the prior year as a result of increased activity of the Company.
The increase in exploration and evaluation expenses
over Q2 2022 is due to (1) the drilling program at the Camino Rojo Project in 2023 (we did not have a drilling program in Q2 2022
at Camino Rojo due to our focus on ramp-up activities), and (2) South Railroad, which we did not own in Q1 2022.
Interest income is higher this year due to higher
cash balances on hand at higher interest rates.
Interest expense is higher in Q2 2023 than Q2
2022 because of generally higher interest rate.
CASH
FLOWS
Comparison of six months ended June 30, 2023
to six months ended June 30, 2022.
| |
Six months ended June 30 | | |
|
| |
2023 | | |
2022 | | |
Commentary |
Cash flow from operating activities | |
$ | 18,374 | | |
$ | 40,429 | | |
The decrease is driven substantially by the $26.5 million payment of income taxes after our first year of production. |
Cash flow from investing activities | |
| (5,436 | ) | |
| 4,638 | | |
Q2 2022 included a lump sum IVA tax refund of $12.6 million. |
Cash flow from financing activities | |
| 4,837 | | |
| 1,233 | | |
Current year includes the payment of $11.1 million principal and $7.0 million of interest on the Credit Facility. |
ORLA MINING LTD. |
|
Management’s Discussion and Analysis |
|
Three and six
months ended June 30, 2023 |
United States dollars unless otherwise
stated |
VIII. LIQUIDITY
As at June 30, 2023, the Company had cash
and cash equivalents of $114.5 million and positive working capital of $80.7 million. During the three and six months ended June 30,
2023, the Company generated revenues of $59.3 million and $110.4 million, respectively.
At June 30, 2023 and at the date of this
MD&A, the Company had the following debt outstanding:
| ● | Credit Facility term loan of $83.4 million. |
| ● | Credit Facility revolving loan of $30.0 million. |
| ● | Fresnillo obligation of $22.8 million which is
due in December 2023. |
HISTORICAL
CONTEXT
Prior to 2022, the Company's primary source of
funding had been the issuance of equity securities for cash through prospectus offerings and private placements to sophisticated investors
and institutions, debt financing, and from the exercise of warrants and options. Prior to April 1, 2022, Camino Rojo was in startup
and testing, although the mine had started producing gold during these startup and testing activities. We declared commercial production
on April 1, 2022.
EXPECTED
SOURCES OF CASH
We began earning cash flow from metal sales in
December 2021. We expect to fund the operating costs and the operating and strategic objectives of the Company over the next twelve
months with existing cash on hand and metal sales, although we may also receive proceeds from exercises of options and warrants over time.
MEXICAN
VALUE ADDED TAXES RECOVERABLE (“VAT”)
Our Mexican entities pay value added taxes on
certain goods and services we purchase in country. Value added taxes paid in Mexico are fully recoverable. VAT recovery returns in Mexico
are subject to complex filing requirements and detailed audit or review by the fiscal authorities. Consequently, the amount and timing
of refunds is uncertain.
A summary of the claims outstanding at June 30,
2023 for Mexican VAT paid each year (table expressed in US$ 000’s):
Arising in the year | |
Mexican VAT paid on acquisition of Camino Rojo | | |
Mexican VAT paid on acquisition of Layback Area | | |
Construction and operations | | |
Total | |
2017 | |
$ | 4,191 | | |
$ | — | | |
$ | — | | |
$ | 4,191 | |
2018 | |
| — | | |
| — | | |
| 250 | | |
| 250 | |
2019 | |
| — | | |
| — | | |
| 302 | | |
| 302 | |
2020 | |
| — | | |
| — | | |
| 158 | | |
| 158 | |
2021 | |
| — | | |
| 817 | | |
| 125 | | |
| 942 | |
2022 | |
| — | | |
| — | | |
| 302 | | |
| 302 | |
2023 | |
| — | | |
| — | | |
| 6,655 | | |
| 6,655 | |
Total Mexican VAT recoverable | |
$ | 4,191 | | |
$ | 817 | | |
$ | 7,792 | | |
$ | 12,800 | |
ORLA MINING LTD. |
|
Management’s Discussion and Analysis |
|
Three and six
months ended June 30, 2023 |
United States dollars unless otherwise
stated |
CONTRACTUAL
OBLIGATIONS
Contractual obligations | |
Payments due by period | |
As at June 30, 2023 (thousands of US dollars) | |
Total | | |
12 months or less | | |
13 months to 36 months | | |
37 months to 60 months | | |
After 60 months | |
Purchase commitments | |
$ | 2,022 | | |
$ | 2,022 | | |
$ | — | | |
$ | — | | |
$ | — | |
Trade payables | |
| 5,058 | | |
| 5,058 | | |
| — | | |
| — | | |
| — | |
Accrued liabilities | |
| 8,944 | | |
| 8,944 | | |
| — | | |
| — | | |
| — | |
Lease commitments | |
| 3,239 | | |
| 999 | | |
| 1,124 | | |
| 1,116 | | |
| — | |
Credit Facility and related interest | |
| 131,295 | | |
| 30,694 | | |
| 83,136 | | |
| 17,465 | | |
| — | |
Fresnillo obligation and related interest | |
| 23,278 | | |
| 23,278 | | |
| — | | |
| — | | |
| — | |
Total contractual obligations | |
$ | 173,836 | | |
$ | 70,995 | | |
$ | 84,260 | | |
$ | 18,581 | | |
$ | — | |
IX. CAPITAL
RESOURCES
DEBT
FRESNILLO
OBLIGATIONS
Pursuant to the terms of the Layback Agreement,
Fresnillo agreed to deferred payments of $62.8 million, of which $40.0 million had been paid as of June 30, 2023, with the balance
expected to be repaid in December 2023 ($22.8 million). This amount bears interest at 5% per annum, payable quarterly.
CREDIT
FACILITY
The Credit Facility includes a $100 million term
facility and a $50 million revolving facility through a syndicate of lenders composed of The Bank of Nova Scotia, Bank of Montreal, and
Canadian Imperial Bank of Commerce. The proceeds from the Credit Facility were used to repay the Project Loan, with the balance of the
revolving facility being available for general corporate purposes and working capital.
The Credit Facility consists of two parts:
| 1. | $100 million term facility with a five-year term, repayable in 18 equal quarterly instalments commencing
December 31, 2022. |
| 2. | $50 million revolving facility, with the ability to increase to $75 million, subject to certain conditions
and customary consents. The revolving facility has a three-year term, with an option to extend the term of the revolving facility by up
to one-year intervals, subject to certain conditions and customary consents. Full repayment of the revolving facility is due upon maturity. |
The applicable interest rate for each Credit Facility
is based on the term Secured Overnight Financing Rate (“SOFR”), plus an applicable margin based on the Company’s leverage
ratio at the end of each fiscal quarter. The undrawn portion of the revolving facility is subject to a standby fee. Interest is payable
at the end of each interest period, or at least every three months. The Company may prepay all or any portion of the amounts owed under
the Credit Facility without penalty.
Refer to the Liquidity section above for current
outstanding amounts in respect of the term and revolving components of this Credit Facility, and note 15 of the accompanying condensed
interim consolidated financial statements for details on payments and accruals during the current year to date.
EQUITY
The Company filed a base shelf prospectus on April 13,
2023, which is valid for 25 months.
ORLA MINING LTD. |
|
Management’s Discussion and Analysis |
|
Three and six
months ended June 30, 2023 |
United States dollars unless otherwise
stated |
As of the date of this MD&A, 28.6
million warrants remain outstanding, all of which have an exercise price less than the market value of the underlying shares.
X. RELATED
PARTY TRANSACTIONS
The Company’s related parties include “key
management personnel”, whom we define as the Chief Executive Officer, the Chief Operating Officer, the Chief Financial Officer,
the Chief Sustainability Officer, the Senior Vice President Exploration, and members of the Board of Directors of the Company.
Other than compensation in the form of salaries
or directors’ fees, and termination benefits and share based payments (options, RSUs, DSUs, PSUs, and bonus shares), there were
no other material transactions with this group of individuals.
Compensation to key management personnel was as
follows:
| |
Q2 2023 | | |
Q2 2022 | |
Salaries and STIP 1 | |
$ | 391 | | |
$ | 1,691 | |
Directors’ fees | |
| 84 | | |
| 78 | |
Share based payments | |
| 394 | | |
| 441 | |
| |
$ | 869 | | |
$ | 2,210 | |
| |
YTD 2023 | | |
YTD 2022 | |
Salaries and STIP | |
$ | 2,675 | | |
$ | 3,222 | |
Directors’ fees | |
| 167 | | |
| 157 | |
Share based payments | |
| 1,317 | | |
| 1,186 | |
| |
$ | 4,159 | | |
$ | 4,565 | |
During the period covered by this MD&A, and
to the date of this MD&A, there are no other related parties.
XI. OFF-BALANCE
SHEET ARRANGEMENTS
We have no off-balance sheet arrangements requiring
disclosure under this section.
XII. PROPOSED
TRANSACTIONS
We have no proposed transactions requiring disclosure
under this section.
XIII. CRITICAL
ACCOUNTING ESTIMATES
In preparing the accompanying unaudited consolidated
interim financial statements, we have made judgements, estimates and assumptions that affect the application of accounting policies and
the reported amounts of assets, liabilities, income, and expenses. Actual results may differ from these estimates.
We review estimates and their underlying assumptions
on an ongoing basis. Revisions to estimates are recognized prospectively.
Judgements, estimates, and assumptions that we
have made in applying accounting policies that have the most significant effects on the amounts recognized in the accompanying consolidated
financial statements include:
MINERAL RESOURCE AND MINERAL RESERVE ESTIMATES
Mineral resource and mineral reserve estimates
are estimates of the quantity of ore that can be economically extracted from the Company’s mining properties. Such estimates impact
the financial statements in the following ways:
| ● | Mineral resource and mineral reserve estimates
are key factors considered in determining whether technical feasibility and commercial viability of extracting a mineral resource are
demonstrable which influences the classification of expenditure, |
1 STIP = Short term incentive plans
ORLA MINING LTD. |
|
Management’s Discussion and Analysis |
|
Three and six
months ended June 30, 2023 |
United States dollars unless otherwise
stated |
| ● | The carrying value of assets may be affected
due to changes in estimated mineral reserves and resources if the change is considered an indicator of impairment, |
| ● | Depreciation of producing mineral properties
is affected by changes in reserve estimates, |
| ● | Site closure provisions may change where reserve
estimate changes affect expectations about when such activities will occur and the associated cost of these activities. |
The mineral resource and mineral reserve estimates
are based on information compiled by qualified persons within the meaning of NI 43-101. Such information includes geological and technical
data on the size, depth, shape and grade of the ore body and suitable production techniques and recovery rates. Such an analysis requires
complex geological judgements to interpret the data. The estimation of recoverable reserves is based upon factors such as estimates of
foreign exchange rates, commodity prices, future capital requirements and production costs, along with geological assumptions and judgements
made in estimating the size and grade of the ore body.
As the economic assumptions used may change and
as additional geological information is produced during the operation of a mine, estimates of mineral resources and mineral reserves may
change.
VALUATION OF METAL-IN-PROCESS INVENTORY
The measurement of inventory, including the determination
of its net realizable value (“NRV”), especially as it relates to metal production inventory involves the use of estimates.
NRV is calculated as the estimated price at the
time of sale based on prevailing metal prices, less estimated future production costs to convert the inventory into saleable form and
associated selling costs, discounted where applicable. In determining the value of metal on the leach pads, we make estimates of rock
densities, tonnages, grades, and the recoverability of ore stacked on leach pads to estimate its value. Changes in these estimates can
result in a change in carrying amounts of inventory, which could result in charges to cost of sales. The determination of forecast sales
prices, recovery rates, grade, assumed contained metal in stockpiles, work-in-process and leach pad inventory and production and selling
costs all requires significant assumptions that impact the carrying value of production inventories.
ASSET RETIREMENT AND SITE CLOSURE OBLIGATIONS
We make estimates and assumptions in determining
the provisions for asset retirement and site closure. The estimates and assumptions include determining the amount and timing of future
cash flows, inflation rates, and discount rates. The ultimate rehabilitation costs are uncertain, and cost estimates can vary in response
to many factors, including judgements of the extent of rehabilitation activities, technological changes, and regulatory changes.
Consequently, there could be significant adjustments
to the site closure provision recorded, which would affect future financial position, results of operations, and changes in financial
position. The provision is management’s best estimate of the present value of the future asset retirement and site closure obligation.
Actual future expenditures may differ from the amounts currently provided.
FAIR VALUE MEASUREMENT
Management uses valuation techniques in measuring
the fair value of mineral properties acquired, share options granted and restricted share units, deferred share units, and bonus shares
awarded.
We determine the
fair value of share-based payments awarded using the Black Scholes option pricing model which requires us to make certain estimates, judgements,
and assumptions in relation to the expected life of the share options, expected volatility, expected risk-free
rate, and expected forfeiture rate.
Changes to these assumptions could have a material
impact on the recorded value of mineral properties acquired during the period and share-based compensation expense recognized in the Company’s
financial statements.
ORLA MINING LTD. |
|
Management’s Discussion and Analysis |
|
Three and six
months ended June 30, 2023 |
United States dollars unless otherwise
stated |
ASSESSMENT OF IMPAIRMENT INDICATORS
We apply judgement in assessing whether indicators
of impairment exist for our exploration and evaluation (“E&E”) properties and for our mineral properties which could result
in a test for impairment.
For our E&E properties, we consider internal
and external factors, such as our rights to explore, planned expenditures on E&E activities, the changes in mineral resources and
mineral reserves, the potential for viable operations, significant decline in the market value of the Company, changes in metal prices
and costs and changes in interest rates to determine whether there are any indicators of impairment or reversal of a previous impairment.
For our mineral properties, we consider external
factors such as changes in technology, the market, the economy, or the legal environment, interest rates, and the market capitalization
of the Company compared to the book value of the asset. We also consider internal factors such as economic performance of the asset, idle
properties and plans to discontinue operations, useful life of the property, our ability to repatriate or use profits from the property,
restrictions on access, environmental restrictions, and political instability.
We consider other factors such as typical practice
in foreign jurisdictions related permit renewals, our continued ability to operate as usual while awaiting renewals, our continued performance
under regulatory requirements, and the ongoing acceptance by authorities of our annual fees.
INCOME TAXES AND VALUE ADDED TAXES
Our operations involve dealing with uncertainties
and judgements in the application of complex tax regulations in multiple jurisdictions.
We recognize potential tax liabilities for uncertain
tax positions and matters identified based on our judgement of whether, and the extent to which, additional taxes will be due. We adjust
these liabilities after considering changing facts and circumstances. However, due to the complexity of some of these uncertainties, the
ultimate outcome may result in a payment that is materially different from our estimate of the tax liabilities.
VAT receivables are generated on the purchase
of supplies and services by our companies. The timing and collection of VAT receivables is uncertain as VAT refund procedures in certain
jurisdictions require a significant amount of documentation and follow-up. We are exposed to liquidity risk, credit risk and currency
risk with respect to our VAT recoverable balances if tax authorities are unwilling to make payments in a timely manner pursuant to our
refund filings.
XIV. FINANCIAL
INSTRUMENTS
In the normal course of business, the Company
is inherently exposed to certain financial risks, including market risk, credit risk, and liquidity risk, through its use of financial
instruments. The timeframe and the way we manage these risks varies based upon our assessment of these risks and available alternatives
for mitigation.
We do not acquire or issue derivative financial
instruments for trading or speculative purposes. All transactions undertaken are to support our operations.
XV. OUTSTANDING
SHARE DATA
As of the date of this MD&A, the Company had
the following equity securities outstanding:
| ● | 313,458,327 common
shares |
| ● | 586,493 restricted
share units |
| ● | 676,990 deferred
share units |
Further details about these potentially issuable
securities are provided in the notes to the accompanying unaudited condensed interim consolidated financial statements for the three and
six months ended June 30, 2023 and in the audited consolidated financial statements as at and for the year ended December 31,
2022.
ORLA MINING LTD. |
|
Management’s Discussion and Analysis |
|
Three and six
months ended June 30, 2023 |
United States dollars unless otherwise
stated |
XVI. CAUTIONARY
NOTES
CAUTIONARY NOTE TO UNITED STATES INVESTORS REGARDING
PRESENTATION OF MINERAL RESERVE AND MINERAL RESOURCE ESTIMATES
This MD&A has been prepared in accordance
with Canadian standards for the reporting of mineral resource and mineral reserve estimates, which differ from the previous and current
standards of the United States securities laws. In particular, and without limiting the generality of the foregoing, the terms “mineral
reserve”, “proven mineral reserve”, “probable mineral reserve”, “inferred mineral resources”,
“Indicated mineral resources”, “measured mineral resources”, and “mineral resources” used or referenced
in this MD&A are Canadian mineral disclosure terms as defined in accordance with NI 43-101 and the Canadian Institute of Mining, Metallurgy
and Petroleum Definition Standards on mineral reserves and mineral resources adopted by the CIM Council on May 10, 2014 (the “CIM
Standards”).
For United States reporting purposes, the United
States Securities and Exchange Commission (the “SEC”) has adopted amendments to its disclosure rules (the “SEC
Modernization Rules”) to modernize the mining property disclosure requirements for issuers whose securities are registered with
the SEC under the Securities Exchange Act of 1934, as amended. The SEC Modernization Rules more closely align the SEC’s disclosure
requirements and policies for mining properties with current industry and global regulatory practices and standards, including NI 43-101,
and replace the historical property disclosure requirements for mining registrants that were included in Industry Guide 7 under the Securities
Act of 1933, as amended (the “Securities Act”). As a foreign private issuer that is eligible to file reports with the SEC
pursuant to the multijurisdictional disclosure system, the Company is not required to provide disclosure on its mineral properties under
the SEC Modernization Rules and provides disclosure under NI 43-101 and the CIM Standards. Accordingly, mineral reserve and mineral
resource information contained in this MD&A may not be comparable to similar information disclosed by United States companies.
As a result of the adoption of the SEC Modernization
Rules, the SEC now recognizes estimates of “measured mineral resources”, “indicated mineral resources” and “inferred
mineral resources.” In addition, the SEC has amended its definitions of “proven mineral reserves” and “probable
mineral reserves” to be “substantially similar” to the corresponding CIM Standards that are required under NI 43-101.
While the above terms are “substantially similar” to CIM Standards, there are differences in the definitions under the SEC
Modernization Rules and the CIM Standards. There is no assurance any mineral reserves or mineral resources that the Company may report
as “proven mineral reserves”, “probable mineral reserves”, “measured mineral resources”, “indicated
mineral resources” and “inferred mineral resources” under NI 43-101 would be the same had the Company prepared the reserve
or resource estimates under the standards adopted under the SEC Modernization Rules or under the prior standards of Industry Guide
7. Accordingly, information contained in this MD&A may not be comparable to similar information made public by U.S. companies subject
to the reporting and disclosure requirements under the United States federal securities laws and the rules and regulations thereunder.
CAUTIONARY NOTE REGARDING FORWARD-LOOKING INFORMATION
This MD&A contains “forward-looking
statements” or “forward-looking information” within the meaning of applicable securities legislation (collectively referred
to herein as “forward-looking information” or “forward-looking statements”). Forward-looking statements are included
to provide information about management’s current expectations and plans that allows investors and others to get a better understanding
of the Company’s operating environment, the business operations and financial performance and condition. Forward-looking information
is provided as of the date of such documents only and the Company does not intend, and does not assume any obligation, to update this
forward-looking information, except as required by law.
Forward-looking statements include, but are not
limited to, statements regarding: mine production plans; projected mining and process recovery rates; the Company’s cost outlook,
including AISC and operating costs; timeline for receipt of any required agreements, approvals, or permits; exploration plans and the
timing and results thereof; interpretations and assumptions regarding joint venture and potential contract terms; the expected additional
material to be included in a future mine plan as a result of the Layback Agreement; terms of and ability to reach a subsequent agreement
with Fresnillo to access the sulphide mineral resource at Camino Rojo and obtaining regulatory approvals related thereto; expectations
on the potential extension of the expired mineral concessions with respect to the Cerro Quema Project; proposed exploration plans and
expected results of exploration from each of the Camino Rojo Project, South Railroad Project, and Cerro Quema Project; Orla’s ability
to obtain required mine licences, mine permits, required agreements with third parties, and regulatory approvals required in connection
with exploration plans and future mining and mineral processing operations; community and ejido relations; changes in commodity prices
and exchange rates; currency and interest rate fluctuations and the ability to secure the required capital to conduct planned exploration
programs, studies, and construction; the timing of revised reserve and resource estimates; the ability to cover debt obligations under
the Credit Facility; the duration, extent and other implications of COVID-19; and the Company’s development objectives and strategies.
Any statements that express or involve discussions with respect to predictions, expectations, beliefs, plans, projections, objectives,
assumptions or future events or performance (often, but not always, identified by words or phrases such as “expects”, “is
expected”, “anticipates”, “believes”, “plans”, “projects”, “estimates”,
“assumes”, “intends”, “strategy”, “goals”, “objectives”, “potential”,
“possible” or variations thereof or stating that certain actions, events, conditions or results “may”, “could”,
“would”, “should”, “might” or “will” be taken, occur or be achieved (or the negative of
any of these terms and similar expressions)) are not statements of fact and may be forward-looking statements.
ORLA MINING LTD. |
|
Management’s Discussion and Analysis |
|
Three and six
months ended June 30, 2023 |
United States dollars unless otherwise
stated |
Forward-looking statements are necessarily based
upon a number of factors and assumptions that, if untrue, could cause actual results, performance, or achievements to be materially different
from future results, performance or achievements expressed or implied by such statements. Forward-looking statements are based upon a
number of estimates and assumptions that, while considered reasonable by the Company at this time, are inherently subject to significant
business, economic and competitive uncertainties and contingencies that may cause the Company’s actual financial results, performance,
or achievements to be materially different from those expressed or implied herein. Some of the material factors or assumptions used to
develop forward-looking statements include, without limitation, the future price of gold, silver, and copper; anticipated costs and the
Company’s ability to fund its programs; the Company’s ability to carry on exploration, development, and mining activities;
tonnage of ore to be mined and processed; ore grades and recoveries; decommissioning and reclamation estimates; the Company’s ability
to secure and to meet obligations under property agreements, including the Layback Agreement; that all conditions of the Company’s
Credit Facility will be met; the timing and results of drilling programs; mineral reserve and mineral resource estimates and the assumptions
on which they are based; the discovery of mineral resources and mineral reserves on the Company’s mineral properties; the obtaining
of a subsequent agreement with Fresnillo to access the sulphide mineral resource at the Camino Rojo Project and develop the entire Camino
Rojo Project mineral resources estimate; that political and legal developments will be consistent with current expectations; the timely
receipt of required approvals and permits, including those approvals and permits required for successful project permitting, construction,
and operation of projects; the timing of cash flows; the costs of operating and exploration expenditures; the Company’s ability
to operate in a safe, efficient, and effective manner; the Company’s ability to obtain financing as and when required and on reasonable
terms; the impact of the COVID-19 pandemic on the Company’s operations; that the Company’s activities will be in accordance
with the Company’s public statements and stated goals; and that there will be no material adverse change or disruptions affecting
the Company or its properties.
Forward-looking statements are subject to a variety
of known and unknown risks, uncertainties and other factors that could cause actual events or results to differ from those expressed or
implied. There can be no assurance that such statements will prove to be accurate, as actual results and future events could differ materially
from those anticipated in such statements. Certain important factors that could cause actual results, performance or achievements to differ
materially from those in the forward-looking statements include, among others: uncertainty and variations in the estimation of mineral
resources and mineral reserves; the Company’s dependence on the Camino Rojo Oxide Mine; risks related to the Company’s indebtedness;
risks related to exploration, development, and operation activities; risks related to natural disasters, terrorist acts, health crises,
and other disruptions and dislocations, including the COVID-19 pandemic; foreign country and political risks, including risks relating
to foreign operations and expropriation or nationalization of mining operations; concession risks at the Cerro Quema Project; delays in
obtaining or failure to obtain governmental permits, or non-compliance with permits; environmental and other regulatory requirements;
delays in or failures to enter into a subsequent agreement with Fresnillo with respect to accessing certain additional portions of the
mineral resource at the Camino Rojo Project and to obtain the necessary regulatory approvals related thereto; the mineral resource estimations
for the Camino Rojo Project being only estimates and relying on certain assumptions; loss of, delays in, or failure to get access from
surface rights owners; uncertainties related to title to mineral properties; water rights; financing risks and access to additional capital;
risks related to guidance estimates and uncertainties inherent in the preparation of feasibility and pre-feasibility studies; uncertainty
in estimates of production, capital, and operating costs and potential production and cost overruns; the fluctuating price of gold, silver,
and copper; unknown labilities in connection with acquisitions; global financial conditions; uninsured risks; climate change risks; competition
from other companies and individuals; conflicts of interest; risks related to compliance with anti-corruption laws; volatility in the
market price of the Company's securities; assessments by taxation authorities in multiple jurisdictions; foreign currency fluctuations;
the Company’s limited operating history; litigation risks; the Company’s ability to identify, complete, and successfully integrate
acquisitions; intervention by non-governmental organizations; outside contractor risks; risks related to historical data; the Company
not having paid a dividend; risks related to the Company’s foreign subsidiaries; risks related to the Company’s accounting
policies and internal controls; the Company’s ability to satisfy the requirements of the Sarbanes-Oxley Act of 2002; enforcement
of civil liabilities; the Company’s status as a passive foreign investment company for U.S. federal income tax purposes; information
and cyber security; gold industry concentration; shareholder activism; and risks associated with executing the Company’s objectives
and strategies.
ORLA MINING LTD. |
|
Management’s Discussion and Analysis |
|
Three and six
months ended June 30, 2023 |
United States dollars unless otherwise
stated |
This list is not exhaustive of the factors that
may affect any of the Company’s forward-looking statements. Although the Company believes its expectations are based upon reasonable
assumptions and have attempted to identify important factors that could cause actual actions, events, or results to differ materially
from those described in forward-looking statements, there may be other factors that cause actions, events or results not to be as anticipated,
estimated or intended. See the section entitled “Risk Factors” below, and in the section entitled “Risk Factors”
in the Annual Information Form, for additional risk factors that could cause results to differ materially from forward-looking statements.
Investors are cautioned not to put undue reliance
on forward-looking statements. The forward-looking statements contained herein are made as of the date of this MD&A only and, accordingly,
are subject to change after such date. The Company disclaims any intent or obligation to update publicly or otherwise revise any forward-looking
statements or the foregoing list of assumptions or factors, whether as a result of new information, future events or otherwise, except
in accordance with applicable securities laws. Investors are urged to read the Company’s filings with Canadian securities regulatory
agencies, which can be viewed online under the Company’s profile on SEDAR+ at www.sedarplus.ca and the Company’s documents
filed with, or furnished to, the SEC, which are available through EDGAR at www.sec.gov.
XVII. RISKS
AND UNCERTAINTIES
For more extensive discussion on risks and
uncertainties refer to the Annual Information Form for additional information regarding these risks and other risks and uncertainties
in respect of the Company's business and share price.
The risks described below are not the only
risks and uncertainties that the Company faces. Although the Company has done its best to identify the risks to its business, there is
no assurance that it has captured every material or potentially material risk and the risks identified below may become more material
to the Company in the future or could diminish in importance. Additional existing risks and uncertainties not presently identified by
the Company, risks that the Company currently does not consider to be material, and risks arising in the future could cause actual events
to differ materially from those described in the Company's forward-looking information, which could materially affect the Company's business,
results of operations, financial condition, and Company’s share price.
ORLA MINING LTD. |
|
Management’s Discussion and Analysis |
|
Three and six
months ended June 30, 2023 |
United States dollars unless otherwise
stated |
ESTIMATES OF MINERAL RESOURCES AND MINERAL RESERVES
AND PRODUCTION RISKS
The figures for mineral reserves and mineral resources
contained in the Company’s public disclosure record are estimates only and no assurance can be given that the anticipated tonnages
and grades will be achieved, that the indicated level of recovery will be realized, or that mineral reserves or mineral resources will
be mined or processed profitably. The Company cannot give any assurance that such estimates will be achieved. Failure to achieve such
estimates could have an adverse impact on the Company’s future cash flows, profitability, results of operations, and financial condition.
Until a deposit is actually mined and processed,
the quantity of metal and grades must be considered as estimates only. Actual mineral reserves or mineral resources may not conform to
geological, metallurgical, or other expectations, and the volume and grade of ore recovered may differ from estimated levels. There are
numerous uncertainties inherent in estimating mineral reserves and mineral resources, including many factors beyond the Company’s
control. Such estimation is a subjective process, and the accuracy of any mineral reserve or mineral resource estimate is a function of
the quantity and quality of available data and of the assumptions made and judgments used in engineering and geological interpretation.
It is inherently impossible to have full knowledge of particular geological structures, faults, voids, intrusions, natural variations
in and within rock types and other occurrences. Failure to identify such occurrences in the Company’s assessment of mineral reserves
and mineral resources may have a material adverse effect on the Company’s future cash flows, results of operations, and financial
condition.
DEPENDENCE ON THE CAMINO ROJO OXIDE MINE
The Camino Rojo Oxide Mine accounts for all of
the Company's current production and is expected to continue to account for all of its production in the near term. Any adverse condition
affecting mining, processing conditions, expansion plans, or ongoing permitting at the Camino Rojo Oxide Mine could have a material adverse
effect on the Company's financial performance and results of operations. Even though the Company has established mining operations and
estimates of future production, various factors, including costs, actual mineralization, consistency and reliability of ore grades, processing
rates, and commodity prices can affect cash flow and profitability, and there can be no assurance that current or future estimates of
these factors will reflect actual results and performance. The cost and availability of suitable machinery, supplies, mining equipment,
and skilled labour, the existence of competent operational management and prudent financial administration, as well as the availability
and reliability of appropriately skilled and experienced consultants, can also affect successful project operations. The activities of
the Company at the Camino Rojo Oxide Mine may also be subject to prolonged disruption from a variety of risks normally encountered in
production of precious metals as further described under “Mining Industry” below. The failure of the Company to achieve
its production estimates could have a material and adverse effect on future cash flows, profitability, results of operations, and financial
condition.
INDEBTEDNESS
As of the date of this MD&A, Orla had aggregate
consolidated indebtedness under its Credit Facility as discussed above in section VIII – “Liquidity”. As a result, the
Company is required to use a portion of its cash flow to service principal and interest on its debt, which will limit the cash flow available
for other business opportunities. The Company’s ability to make scheduled payments of the principal of, to pay interest on, or to
refinance indebtedness depends on its future performance, which is subject to economic, financial, competitive, and other factors beyond
its control. The Company may not generate cash flow from operations in the future sufficient to service debt and make necessary capital
expenditures. If the Company is unable to generate such cash flow, it may be required to adopt one or more alternatives, such as selling
assets, restructuring debt, or obtaining additional equity capital on terms that may be onerous or highly dilutive. The Company’s
ability to refinance its indebtedness will depend on the capital markets and its financial condition at such time. The Company may not
be able to engage in any of these activities or engage in these activities on desirable terms, which could result in a default. The terms
of the Credit Facility also require the Company to satisfy various affirmative and negative covenants and financial ratios. These covenants
and ratios limit, among other things, the Company’s ability to incur further indebtedness, create certain liens on assets, engage
in certain types of transactions, or pay dividends. The Company can provide no assurances that in the future, it will not be limited in
its ability to respond to changes in its business or competitive activities or be restricted in its ability to engage in mergers, acquisitions,
or dispositions or acquisitions of assets. Furthermore, a failure to comply with these covenants and ratios would likely result in an
event of default under the Credit Facility and would allow the lenders to accelerate the debt, which could materially and adversely affect
the Company’s business, financial condition, and results of operations, as well as the market price of the Company’s securities.
ORLA MINING LTD. |
|
Management’s Discussion and Analysis |
|
Three and six
months ended June 30, 2023 |
United States dollars unless otherwise
stated |
EXPLORATION, DEVELOPMENT, AND PRODUCTION RISKS
The business of exploring for minerals, development,
and mining involves a high degree of risk. The operations of the Company may be disrupted by a variety of risks and hazards normally encountered
in the exploration, development, and production of precious metals, including, without limitation, unusual and unexpected geologic formations,
seismic activity, rock bursts, cave-ins, flooding, and other conditions involved in the drilling and removal of material, any of which
could result in damage to, or destruction of, mines and other producing facilities, personal injury or loss of life, and damage to tailings
dams, property, and environmental damage, all of which may result in possible legal liability. The occurrence of any of these events could
result in a prolonged interruption of the Company’s activities that would have a material adverse effect on its business, financial
condition, results of operations, and prospects. Further, the Company may be subject to liability or sustain losses in relation to certain
risks and hazards against which it cannot insure or for which it may elect not to insure. The occurrence of operational risks and/or a
shortfall or lack of insurance coverage could have a material adverse impact on the Company’s results of operations and financial
condition.
The exploration for and development of mineral
deposits involves significant risks, which even a combination of careful evaluation, experience, and knowledge may not eliminate. While
the discovery of an ore body may result in substantial rewards, few properties that are explored are ultimately developed into producing
mines. Even when mineralization is discovered, it may take several years until production is possible, during which time the economic
feasibility of production may change. Major expenses may be required to locate and establish mineral reserves, to develop metallurgical
processes, and to construct mining and processing facilities at a particular site. It is impossible to ensure that the exploration or
development programs planned by the Company will result in a profitable commercial mining operation. Whether a mineral deposit will be
commercially viable depends on a number of factors, some of which are: the particular attributes of the deposit, such as size, grade and
proximity to infrastructure, metal prices that are highly cyclical, and government regulations, including regulations relating to prices,
taxes, royalties, land tenure, land use, importing and exporting of minerals, and environmental protection. The exact effect of these
factors cannot be accurately predicted, but the combination of these factors may result in the Company not receiving an adequate return
on invested capital. There is no certainty that the expenditures made towards the search and evaluation of mineral deposits will result
in discoveries or development of commercial quantities of ore. Development projects have no operating history upon which to base estimates
of future capital and operating costs. For development projects, mineral resource estimates and estimates of operating costs are, to a
large extent, based upon the interpretation of geologic data obtained from drill holes and other sampling techniques, and feasibility
and pre-feasibility studies, which derive estimates of capital and operating costs based upon anticipated tonnage and grades of ore to
be mined and processed, ground conditions, the configuration of the ore body, expected recovery rates of minerals from ore, estimated
operating costs, and other factors. As a result, actual production, cash operating costs, and economic returns could differ significantly
from those estimated. It is not unusual for new mining operations to experience problems during the start-up phase, and delays in the
commencement of production can often occur.
OUR ACTIVITIES MAY BE ADVERSELY AFFECTED BY NATURAL
DISASTERS, TERRORIST ACTS, HEALTH CRISES AND OTHER DISRUPTIONS AND DISLOCATIONS, INCLUDING BY THE COVID-19 PANDEMIC, WHETHER THOSE
EFFECTS ARE LOCAL, NATIONWIDE, OR GLOBAL
Upon the occurrence of a natural disaster, pandemic,
or upon an incident of war, riot, or civil unrest, the impacted country, and the overall global economy, may not efficiently and quickly
recover from such an event, which could have a material adverse effect on the Company. Terrorist attacks, public health crises including
epidemics, pandemics, outbreaks of new infectious diseases or viruses, and related events can result in volatility and disruption to global
supply chains, operations, mobility of people, patterns of consumption and service, and the financial markets, which could affect interest
rates, credit ratings, credit risk, inflation, business, financial conditions, results of operations, and other factors relevant to the
Company.
ORLA MINING LTD. |
|
Management’s Discussion and Analysis |
|
Three and six
months ended June 30, 2023 |
United States dollars unless otherwise
stated |
Global markets have been adversely impacted by
emerging infectious diseases and/or the threat of outbreaks of viruses, other contagions or epidemic diseases, including the novel COVID-19,
and many industries, including the mining industry, have been impacted. The outbreak has led to a widespread crisis that is adversely
affecting the economies and financial markets of many countries. If increased levels of volatility continue, or in the event of a rapid
destabilization of global economic conditions, there may be an adverse effect on commodity prices, demand for metals, availability of
equity or credit, investor confidence, and general financial market liquidity, all of which may adversely affect the Company’s business
and the market price of the Company’s securities. In addition, there may not be an adequate response to emerging infectious diseases,
or significant restrictions may be imposed by a government, either of which may impact mining operations. There are potentially significant
economic and social impacts, including labour shortages and shutdowns, delays and disruption in supply chains, social unrest, government
or regulatory actions or inactions, including quarantines, travel restrictions, declaration of national emergencies, permanent changes
in taxation or policies, decreased demand or the inability to sell and deliver doré or concentrates and resulting commodities,
declines in the price of commodities, delays in permitting or approvals, suspensions or mandated shut downs of operations, governmental
disruptions, or other unknown events with potentially significant impacts. At this time, the Company cannot accurately predict what impacts
there will be or what effects these conditions will have on the business, including those uncertainties relating to the ultimate geographic
spread, the duration of the outbreak, and the length of restrictions or responses that have been or may be imposed by the governments.
Given the global nature of the Company’s operations, the Company may not be able to accurately predict which operations will be
impacted. Any outbreak or threat of an outbreak of a contagious or epidemic disease could have a material adverse effect on the Company,
its business and operational results, and the market price of its securities.
FOREIGN COUNTRY AND POLITICAL RISK
The Company’s principal mineral properties
are located in Mexico, Panama, and the United States. The Company is subject to certain risks as a result of conducting foreign operations,
including, but not limited to: currency fluctuations; possible political or economic instability that may result in the impairment or
loss of mineral titles or other mineral rights; opposition from environmental or other non-governmental organizations; government regulations
relating to the mining industry; renegotiation, cancellation, or forced modification of existing contracts; expropriation or nationalization
of property; changes in laws or policies or increasing legal and regulatory requirements including those relating to taxation, royalties,
imports, exports, duties, currency, or other claims by government entities, including retroactive claims and/or changes in the administration
of laws, policies, and practices; uncertain political and economic environments; war, terrorism, narco-terrorist actions or activities,
sabotage, and civil disturbances; delays in obtaining or the inability to obtain or maintain necessary governmental or similar permits
or to operate in accordance with such permits or regulatory requirements; currency fluctuations; import and export regulations, including
restrictions on the export of gold or other minerals; limitations on the repatriation of earnings; and increased financing costs. Any
changes in regulations or shifts in political attitudes are beyond the control of the Company and may adversely affect its business.
The introduction of new tax laws, regulations,
or rules, or changes to, or differing interpretation of, or application of, existing tax laws, regulations, or rules in any of the
countries in which the Company currently conducts business or in the future may conduct business, could result in an increase in taxes,
or other governmental charges, duties, or impositions. No assurance can be given that new tax laws, rules, or regulations will not be
enacted or that existing tax laws will not be changed, interpreted, or applied in a manner that could result in the Company being subject
to additional taxation or that could otherwise have a material adverse effect on the Company.
ORLA MINING LTD. |
|
Management’s Discussion and Analysis |
|
Three and six
months ended June 30, 2023 |
United States dollars unless otherwise
stated |
Although the Company believes that its exploration
and production activities are currently carried out in accordance with all applicable rules and regulations, new rules and regulations
may be enacted, and existing rules and regulations may be applied in a manner that could limit or curtail production or development
of the Company’s properties. Amendments to current laws and regulations governing the operations and activities of the Company or
more stringent implementation thereof could have a material adverse effect on the Company’s business, financial condition, and results
of operations.
The Company’s primary operations are currently
conducted in Mexico. Violence in Mexico is well documented and has, over time, been increasing. Conflicts between the drug cartels and
violent confrontations with authorities are not uncommon. Other criminal activity, such as kidnapping and extortion, is also an ongoing
concern. Many incidents of crime and violence go unreported and efforts by police and other authorities to reduce criminal activity are
challenged by a lack of resources, corruption, and the pervasiveness of organized crime. Incidents of criminal activity have occasionally
affected the communities in the vicinity of the Company’s operations. Such incidents may prevent access to the Company’s mines
or offices; halt or delay operations and production; result in harm to employees, contractors, visitors, or community members; increase
employee absenteeism; create or increase tension in nearby communities; or otherwise adversely affect the Company’s ability to conduct
business. The Company can provide no assurance that security incidents, in the future, will not have a material adverse effect on its
operations.
Additionally, on May 8, 2023, the Mexican
government completed a decree reforming various provisions of the mining law (the "Decree"), which was published in the Official
Gazette and became law on May 9, 2023. The Decree makes significant changes to the current mining laws, including but not limited
to: reducing new mining license concession terms; restricting the granting of mining concessions requiring public auctions; imposing conditions
on water use and availability; imposing regulations on mining concession transfers; imposing additional grounds for cancellation of mining
concessions and further limitations on mining in protected areas; granting preferential rights to mining strategic minerals to state owned
enterprises; imposing additional requirements for financial instruments to be provided to guarantee preventive, mitigation, and compensation
measures resulting from the social impact assessment, as well as potential damages that may occur during mining activities; and potentially
requiring Indigenous Peoples’ (ILO 169) consultation. The full impact of the Decree on the Company is currently unknown, as the
Mexican Government has yet to publish the associated regulations.
On June 16, 2023, the Company filed an “Amparo”
in the Second District Court of the State of Zacatecas against the Decree on various grounds. An Amparo is a judicial action to protect
a party’s rights from acts or omissions of governmental authorities that violate the rights and guarantees of such party that are
protected by the Mexican Constitution. On July 12, 2023, the District Court judge declined to grant a provisional suspension of the
Decree, pending a decision on a final suspension, which is expected to occur in August 2023. The suspension is an interim order while
the Company awaits a hearing and judgment on its Amparo. A judgement from the District Court can be appealed to the Circuit Court. If
our challenge to the Decree is not successful, the changes to the mining law may have material impacts on our current and future exploration
activities and operations in Mexico, the extent of which is yet to be determined.
In addition, one of the Company’s material
mineral properties is located in Panama. Panama remains a developing country. If the economy of Panama fails to continue growth or suffers
a recession, it may have an adverse effect on the Company’s operations in that country.
The Company does not carry political risk insurance.
PERMITS AND LICENSES
The Company’s operations in each of the
jurisdictions in which it operates are subject to receiving and maintaining permits (including environmental permits) from appropriate
governmental authorities. Furthermore, prior to any development on any of its properties, the Company must receive permits from appropriate
governmental authorities. The Company can provide no assurance that necessary permits will be obtained, that previously issued permits
will not be suspended for a variety of reasons, including through government or court action, or that delays will not occur in connection
with obtaining all necessary permits, renewals of permits for existing operations, or additional permits for any possible future changes
to operations, or additional permits associated with new legislation. In addition, the timing of permits is uncertain and processing times
may be negatively affected by COVID-19. The Company can provide no assurance that it will continue to hold or obtain, if required to,
all permits necessary to develop or continue operating at any particular site, which would materially adversely affect its operations.
ORLA MINING LTD. |
|
Management’s Discussion and Analysis |
|
Three and six
months ended June 30, 2023 |
United States dollars unless otherwise
stated |
GOVERNMENT REGULATION
The exploration, development, and mining activities
of the Company are subject to various federal, provincial/state, and local laws governing prospecting, development, taxes, labour standards,
toxic substances, and other matters. Exploration, development, and mining activities are also subject to various federal, provincial/state,
and local laws and regulations relating to the protection of the environment. These laws mandate, among other things, the maintenance
of air and water quality standards, and land reclamation. These laws also set forth limitations on the generation, transportation, storage,
and disposal of solid and hazardous waste. Although the Company’s exploration, development, and mining activities are currently
carried out in accordance with all applicable rules and regulations governing operations and exploration activities, no assurance
can be given that new rules and regulations, amendments to current laws and regulations or more stringent implementation thereof
could have a substantial adverse impact on the Company’s activities.
ENVIRONMENTAL RISKS AND HAZARDS
All phases of the Company’s mineral exploration,
development, and mining operations are subject to environmental regulation in the various jurisdictions in which it operates. Environmental
legislation is evolving in a manner which will require stricter standards and enforcement, increased fines and penalties for non-compliance,
more stringent environmental assessments of proposed projects and a heightened degree of responsibility for companies and their officers,
directors, and employees. There is no assurance that future changes in environmental regulations, laws, and permits, if any, will not
adversely affect the Company’s operations. Environmental hazards may exist on the properties on which the Company holds interests
which are unknown to the Company at present, which have been caused by previous or existing owners or operators of the properties. The
Company may become liable for such environmental hazards caused by previous owners and operators of the properties even where it has attempted
to contractually limit its liability.
Government approvals and permits are currently,
and may in the future be, required in connection with the Company’s operations. To the extent such approvals are required and not
obtained; the Company may be curtailed or prohibited from proceeding with planned exploration, development, or mining of mineral properties.
Failure to comply with applicable laws, regulations,
and permitting requirements may result in enforcement actions thereunder, including orders issued by regulatory or judicial authorities
causing operations to cease or be curtailed, and may include corrective measures requiring capital expenditures, installation of additional
equipment, or remedial actions. Parties engaged in mining operations may be required to compensate those suffering loss or damage by reason
of the mining activities and may have civil or criminal fines or penalties imposed for violations of applicable laws or regulations.
THE CAMINO
ROJO MINERAL RESOURCE ESTIMATE ASSUMES THAT THE COMPANY CAN ACCESS MINERAL TITLES AND LANDS THAT ARE NOT CONTROLLED BY THE COMPANY
All of the mineralization comprised in the Company’s
mineral resource estimate with respect to the Camino Rojo Project is contained on mineral titles controlled by Orla. However, the mineral
resource estimate assumes that the north wall of the conceptual floating pit cone used to demonstrate reasonable prospects for eventual
economic extraction extends onto lands where mineral title is held by Fresnillo and that waste would be mined on Fresnillo’s mineral
titles. On December 21, 2020, Orla announced that it had completed the Layback Agreement. The Layback Agreement allows Orla to expand
the Camino Rojo Oxide Mine pit onto part of Fresnillo’s mineral concession located immediately north of Orla’s property. This
expansion will increase oxide ore available for extraction on Orla’s property below the pit outlined in Orla’s previous, 2019
technical report on the project.
ORLA MINING LTD. |
|
Management’s Discussion and Analysis |
|
Three and six
months ended June 30, 2023 |
United States dollars unless otherwise
stated |
However, the Layback Agreement is only with respect
to the portion of the heap leach material included in the current mineral reserve. As such, any potential development of the Camino Rojo
Project that includes an open pit encompassing the entire mineral resource estimate would be dependent on an additional agreement with
Fresnillo (or any potential subsequent owner of the mineral titles). It is estimated that approximately two-thirds of the mill resource
estimate and one-quarter of the leach resource estimate comprising the mineral resource estimate are dependent on this additional agreement
being entered into with Fresnillo. The leach mineral resource dependent on the additional agreement is mainly comprised of less oxidized
transitional material with the lowest predicted heap-leach recoveries.
Delays in, or failure to obtain, an additional
agreement with Fresnillo would affect the development of a significant portion of the mineral resources of the Camino Rojo Project that
are not included in the 2021 Camino Rojo Report mine plan, in particular by limiting access to significant mineralized material at depth.
There can be no assurance that the Company will be able to negotiate such additional agreement on terms that are satisfactory to the Company
and Fresnillo or that there will not be delays in obtaining the necessary additional agreement. Should such a subsequent agreement with
Fresnillo not be obtained on favourable terms, the economics of any potential mine development using the full mineral resource estimate
would be significantly negatively impacted.
MINERAL RESOURCE ESTIMATIONS FOR CAMINO ROJO ARE ONLY
ESTIMATES AND RELY ON CERTAIN ASSUMPTIONS
The estimation of mineral resources relies on
the judgment of the independent Qualified Person preparing the estimates. The process relies on the quantity and quality of available
data and is based on knowledge, mining experience, analysis of drilling results, and industry practices. Valid estimates made at a given
time may significantly change when new information becomes available.
In particular, the estimation of mineral resources
for the Camino Rojo Project has assumed that there is a reasonable prospect for reaching an additional agreement with Fresnillo with respect
to the mill resource included in the mineral resource estimate. While the Company believes that the mineral resource estimates for the
Camino Rojo Project are well established and reflect best estimates, by their nature resource estimates are imprecise and depend on inferences
that may ultimately prove to be inaccurate, including the assumption that an additional agreement with Fresnillo will be reached.
Although all mineralization included in the Company’s
mineral resource estimate for the Camino Rojo Project are located on mineral concessions controlled by the Company, failure to reach an
additional agreement with Fresnillo would result in a significant reduction of the mineral resource estimate by limiting access to mineral
resources below the current mineral reserves. Any material changes in mineral resource estimates may have a material adverse effect on
the Company.
SURFACE RIGHTS
There are four ejido communities in the vicinity
of the main area of drilling at the Camino Rojo Project and other ejido lands cover most of the rest of the property. The lands that are
used by the Company for the open pit mine and heap leach facility are subject to an expropriation agreement between the Company and the
Ejido San Tiburcio. Currently, the Company has the legal possession of such lands until 2043. For exploration activities, the Company
enters into temporary occupation agreements with the ejido communities, which allow the Company to use the surface of the lands for its
mining activities for a set period of time. In Mexico, mining rights that are covered under a concession do not include direct ownership
or possession rights over the surface, or surface access, and at any particular time the Company may be involved in negotiations with
various ejido communities to enter into new temporary occupation agreements or other surface access agreements or amend existing agreements.
Failure to reach new agreements or disputes regarding existing agreements may cause, blockades, suspension of operations, delays to projects,
and, on occasion, may lead to legal disputes. Any such failure to reach new agreements or disputes regarding existing agreements may have
a material adverse effect on the Company’s business.
The Company currently owns all surface rights
required for exploration and development of the Cerro Quema Project.
Access to the Company’s South Railroad Project
and certain mineral properties at the project are or will be governed by surface use agreements or other forms of access rights or agreements
such as easements and rights-of-way. Failure to meet or otherwise satisfy required contractual obligations and make payments with respect
to such agreements and rights or to otherwise obtain such agreements or rights may result in loss of access to the project or to certain
mineral properties.
ORLA MINING LTD. |
|
Management’s Discussion and Analysis |
|
Three and six
months ended June 30, 2023 |
United States dollars unless otherwise
stated |
TITLE MATTERS
The acquisition of title to mineral tenures in
Mexico, Panama and the United States is a detailed and time-consuming process. Although the Company has diligently investigated title
to all mineral tenures and, to the best of its knowledge, title to all of its properties is in good standing, this should not be construed
as a guarantee of title. The Company can provide no assurances that there are no title defects affecting its properties. Other parties
may dispute title to any of the Company’s mineral properties and any of the Company’s properties may be subject to prior unregistered
liens, agreements, transfers or claims, and title may be affected by, among other things, undetected encumbrances or defects or governmental
actions. Title to the Company’s properties may also be affected by undisclosed and undetected defects. If any claim or challenge
is made regarding title, the Company may be subject to monetary claims or be unable to develop properties as permitted or to enforce its
rights with respect to its properties.
Certain of the Company’s mineral rights
at the South Railroad Project consist of unpatented mining claims. Unpatented mining claims are unique real property interests and are
generally considered to be subject to greater risk than other real property interests because the legal validity of unpatented mining
claims is often uncertain. Unpatented mining claims provide only possessory title and their legal validity is often subject to contest
by third parties or the federal government. These uncertainties relate to such things as the sufficiency of mineral discovery, proper
posting and marking of mining claim boundaries and location monuments, assessment work, unregistered agreements, undetected defects and
possible conflicts with other mining claims. Since a substantial portion of all mineral exploration, development and mining in the western
United States now occurs on unpatented mining claims, this uncertainty is inherent in the mining industry.
The South Railroad Project is also subject to
annual compliance with assessment work or fee requirements, property taxes, lease payments and other contractual payments and obligations.
Any failure to make such payments or comply with such requirements or obligations could result in the loss of all or a portion of the
Company’s interest in the South Railroad Project.
In addition, certain of the Company’s subsurface
mineral rights to the South Railroad Project are secured or controlled by a contractual interest in private surface and mineral property
in the form of various surface use agreements and mining/mineral leases. Subject to the terms of those agreements and leases, certain
of those agreements and leases may not have provisions for automatic renewal. If the Company is not able to negotiate for the extension
of those agreements and leases they may expire and no longer form part of the Company’s mineral portfolio, which may have a material
adverse effect on the Company’s business.
COMMODITY PRICES
The profitability of mining operations is significantly
affected by changes in the market price of gold and other minerals. The level of interest rates, the rate of inflation, world supply of
these minerals and stability of exchange rates can all cause significant fluctuations in metal prices. Such external economic factors
are in turn influenced by changes in international investment patterns and monetary systems and political developments. The price of gold
and other minerals has fluctuated widely in recent years, and future serious price declines could cause commercial production to be impracticable.
UNKNOWN LIABILITIES IN CONNECTION WITH ACQUISITIONS
As part of the Company’s acquisitions, including
its recent acquisition of Gold Standard, the Company has assumed certain liabilities and risks. While the Company conducted thorough due
diligence in connection with such acquisitions, there may be liabilities or risks that the Company failed, or was unable, to discover
in the course of performing the due diligence investigations or for which the Company was not indemnified. Any such liabilities, individually
or in the aggregate, could have a material adverse effect on the Company’s financial position and results of operations.
ORLA MINING LTD. |
|
Management’s Discussion and Analysis |
|
Three and six
months ended June 30, 2023 |
United States dollars unless otherwise
stated |
UNINSURED RISKS
The Company carries insurance to protect against
certain risks in such amounts as it considers adequate. Risks not insured against include environmental pollution or other hazards against
which such corporations cannot insure or against which they may elect not to insure.
ACQUISITIONS AND INTEGRATION
From time to time, the Company examines opportunities
to acquire additional mining assets and businesses. An example is the Company’s recent acquisition of Gold Standard. Any acquisition
that the Company may choose to complete may be of a significant size, may change the scale of the Company’s business and operations,
and may expose the Company to new geographic, political, operating, financial, and geological risks. The Company’s success in its
acquisition activities depends on its ability to identify suitable acquisition candidates, negotiate acceptable terms for any such acquisition,
and integrate the acquired operations successfully with those of the Company.
LITIGATION RISK
All industries, including the mining industry,
are subject to legal claims, with and without merit. Defence and settlement costs of legal claims can be substantial, even with respect
to claims that have no merit. Due to the inherent uncertainty of the litigation and dispute resolution process, the litigation process
could take away from management time and efforts and the resolution of any particular legal proceeding to which the Company may become
subject could have a material adverse effect on the Company’s financial position, results of operations, or the Company’s
property development or operations.
CONFLICTS OF INTEREST
Certain directors of the Company also serve as
directors and/or officers of other companies involved in natural resource exploration and development. Consequently, there exists the
possibility for such directors to be in a position of conflict. Any decision made by such directors involving the Company will be made
in accordance with their duties and obligations to deal fairly and in good faith with the Company and such other companies. In addition,
such directors will declare, and refrain from voting on, any matter in which such directors may have a conflict of interest.
COMPLIANCE WITH ANTI-CORRUPTION LAWS
The Company is subject to various anti-corruption
laws and regulations including, but not limited to, the Canadian Corruption of Foreign Public Officials Act, the US Foreign
Corrupt Practices Act, and similar laws in any country in which the Company conducts business. In general, these laws prohibit a company
and its employees and intermediaries from bribing or making other prohibited payments to foreign officials or other persons to obtain
or retain business or gain some other business advantage. In recent years, there has been a general increase in both the frequency of
enforcement and the severity of penalties under such laws, resulting in greater scrutiny and punishment to companies convicted of violating
anti-corruption and anti-bribery laws. Furthermore, a company may be found liable for violations by not only its employees, but also by
its contractors and third-party agents.
The Company’s Camino Rojo Project is located
in Mexico and the Cerro Quema Project is located in Panama, both of which countries which are perceived as having fairly high levels of
corruption. Orla cannot predict the nature, scope, or effect of future anti-corruption regulatory requirements to which the Company’s
operations might be subject or the manner in which existing laws might be administered or interpreted.
Failure to comply with the applicable legislation
and other similar foreign laws could expose the Company and/or its senior management to civil and/or criminal penalties, other sanctions
and remedial measures, legal expenses, and reputational damage, all of which could materially and adversely affect the Company’s
business, financial condition, and results of operations. Likewise, any investigation of any potential violations of the applicable anti-corruption
legislation by Canadian, American, or foreign authorities could also have an adverse impact on the Company’s business, financial
condition, and results of operations.
As a consequence of these legal and regulatory
requirements, the Company has instituted policies with regard to business ethics, which have been designed to ensure that Orla and its
employees comply with applicable anti-corruption laws and regulations. However, there can be no assurance or guarantee that such efforts
have been and will be completely effective in ensuring the Company’s compliance, and the compliance of its employees, consultants,
contractors, and other agents, with all applicable anti-corruption laws and regulations.
Exhibit 99.3
FORM 52-109F2
CERTIFICATION OF INTERIM FILINGS
FULL CERTIFICATE
I, Jason Simpson, Chief Executive Officer of Orla
Mining Ltd, certify the following:
| 1. | Review: I have reviewed the interim financial report and interim MD&A (together, the “interim filings”) of
Orla Mining Ltd. (the “issuer”) for the interim period ended June 30, 2023. |
| 2. | No misrepresentations: Based on my knowledge, having exercised reasonable diligence, the interim filings do not contain any
untrue statement of a material fact or omit to state a material fact required to be stated or that is necessary to make a statement not
misleading in light of the circumstances under which it was made, with respect to the period covered by the interim filings. |
| 3. | Fair presentation: Based on my knowledge, having exercised reasonable diligence, the interim financial report together with
the other financial information included in the interim filings fairly present in all material respects the financial condition, financial
performance and cash flows of the issuer, as of the date of and for the periods presented in the interim filings. |
| 4. | Responsibility: The issuer’s other certifying officer and I are responsible for establishing and maintaining disclosure
controls and procedures (“DC&P”) and internal control over financial reporting (“ICFR”), as those terms are
defined in National Instrument 52-109 Certification of Disclosure in Issuers’ Annual and Interim Filings, for the issuer. |
| 5. | Design: Subject to the limitations, if any, described in paragraphs 5.2 and 5.3, the issuer’s other certifying officer
and I have, as at the end of the period covered by the interim filings |
| (a) | designed DC&P, or caused it to be designed under our supervision, to provide reasonable assurance that |
| (i) | material information relating to the issuer is made known to us by others, particularly during the period in which the interim filings
are being prepared; and |
| (ii) | information required to be disclosed by the issuer in its annual filings, interim filings or other reports filed or submitted by it
under securities legislation is recorded, processed, summarized and reported within the time periods specified in securities legislation;
and |
| (b) | designed ICFR, or caused it to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial
reporting and the preparation of financial statements for external purposes in accordance with the issuer’s GAAP. |
| 5.1 | Control framework: The control framework the issuer’s other certifying officer and I used to design the issuer’s
ICFR is "Internal Control – Integrated Framework (2013)" published by the Committee of Sponsoring Organizations of the
Treadway Commission ("COSO"). |
| 5.2 | ICFR – material weakness relating to design: Not applicable |
| 5.3 | Limitation on scope of design: Not applicable |
| 6. | Reporting changes in ICFR: The issuer has disclosed in its interim MD&A any change in the issuer’s ICFR that occurred
during the period beginning on April 1, 2023 and ended on June 30, 2023 that has materially affected, or is reasonably likely
to materially affect, the issuer’s ICFR. |
/s/ Jason Simpson |
|
Jason Simpson |
|
Chief Executive Officer |
|
Exhibit 99.4
FORM 52-109F2
CERTIFICATION OF INTERIM FILINGS
FULL CERTIFICATE
I, Etienne Morin, Chief Financial Officer of Orla
Mining Ltd, certify the following:
| 1. | Review: I have reviewed the interim financial report and interim MD&A (together, the “interim filings”) of
Orla Mining Ltd. (the “issuer”) for the interim period ended June 30, 2023. |
| 2. | No misrepresentations: Based on my knowledge, having exercised reasonable diligence, the interim filings do not contain any
untrue statement of a material fact or omit to state a material fact required to be stated or that is necessary to make a statement not
misleading in light of the circumstances under which it was made, with respect to the period covered by the interim filings. |
| 3. | Fair presentation: Based on my knowledge, having exercised reasonable diligence, the interim financial report together with
the other financial information included in the interim filings fairly present in all material respects the financial condition, financial
performance and cash flows of the issuer, as of the date of and for the periods presented in the interim filings. |
| 4. | Responsibility: The issuer’s other certifying officer and I are responsible for establishing and maintaining disclosure
controls and procedures (“DC&P”) and internal control over financial reporting (“ICFR”), as those terms are
defined in National Instrument 52-109 Certification of Disclosure in Issuers’ Annual and Interim Filings, for the issuer. |
| 5. | Design: Subject to the limitations, if any, described in paragraphs 5.2 and 5.3, the issuer’s other certifying officer
and I have, as at the end of the period covered by the interim filings |
| (a) | designed DC&P, or caused it to be designed under our supervision, to provide reasonable assurance that |
| (i) | material information relating to the issuer is made known to us by others, particularly during the period in which the interim filings
are being prepared; and |
| (ii) | information required to be disclosed by the issuer in its annual filings, interim filings or other reports filed or submitted by it
under securities legislation is recorded, processed, summarized and reported within the time periods specified in securities legislation;
and |
| (b) | designed ICFR, or caused it to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial
reporting and the preparation of financial statements for external purposes in accordance with the issuer’s GAAP. |
| 5.1 | Control framework: The control framework the issuer’s other certifying officer and I used to design the issuer’s
ICFR is "Internal Control – Integrated Framework (2013)" published by the Committee of Sponsoring Organizations of the
Treadway Commission ("COSO"). |
| 5.2 | ICFR – material weakness relating to design: Not applicable |
| 5.3 | Limitation on scope of design: Not applicable |
| 6. | Reporting changes in ICFR: The issuer has disclosed in its interim MD&A any change in the issuer’s ICFR that occurred
during the period beginning on April 1, 2023 and ended on June 30, 2023 that has materially affected, or is reasonably likely
to materially affect, the issuer’s ICFR. |
/s/ Etienne Morin |
|
Etienne Morin |
|
Chief Financial Officer |
|
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