Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
Certain statements in this Quarterly Report on Form 10-Q (“Form 10-Q”) constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements give the Company's current expectations and forecasts of future events. All statements other than statements of current or historical fact contained in this quarterly report, including statements regarding the Company's future financial position, business strategy, budgets, projected costs and plans and objectives of management for future operations, are forward-looking statements. The words “anticipate,” “believe,” “continue,” “estimate,” “expect,” “intend,” “may,” “plan,” and similar expressions, as they relate to the Company, are intended to identify forward-looking statements. These statements are based on the Company's current plans, and the Company's actual future activities and results of operations may be materially different from those set forth in the forward-looking statements. These forward-looking statements are subject to risks and uncertainties that could cause actual results to differ materially from the statements made. Any or all of the forward-looking statements in this quarterly report may turn out to be inaccurate. The Company has based these forward-looking statements largely on its current expectations and projections about future events and financial trends that it believes may affect its financial condition, results of operations, business strategy and financial needs. The forward-looking statements can be affected by inaccurate assumptions or by known or unknown risks, uncertainties and assumptions. Factors that could cause or contribute to these differences include those discussed below and elsewhere in this Form 10-Q, and in the risk factors on Form 10-K that was filed with the U.S. Securities and Exchange Commission (SEC) on October 13, 2022. The Company expressly disclaims any obligation or undertaking to disseminate any updates or revisions to any forward-looking statement contained herein, to reflect any change in our expectations with regard thereto, or any other change in events, conditions or circumstances on which any such statement is based.
Cautionary Note to U.S. Investors
We are subject to the reporting requirements of the Securities Exchange Act of 1934, as amended, and applicable Canadian securities laws, and as a result we report our mineral reserves and mineral resources according to two different standards. U.S. reporting requirements, for disclosure of mineral properties, are governed by Item 1300 of Regulation S-K (“S-K 1300”), as issued by the U.S. Securities and Exchange Commission (“SEC”). Canadian reporting requirements for disclosure of mineral properties are governed by National Instrument 43-101 Standards of Disclosure for Mineral Projects (“NI 43-101”), as adopted from the definitions provided by the Canadian Institute of Mining, Metallurgy and Petroleum. Both sets of reporting standards have similar goals in terms of conveying an appropriate level of confidence in the disclosures being reported, but the standards embody slightly different approaches and definitions.
In our public filings in the U.S. and Canada and in certain other announcements not filed with the SEC, we disclose proven and probable reserves and measured, indicated and inferred resources, each as defined in S-K 1300. The estimation of measured resources and indicated resources involves greater uncertainty as to their existence and economic feasibility than the estimation of proven and probable reserves, and therefore investors are cautioned not to assume that all or any part of measured or indicated resources will ever be converted into S-K 1300-compliant reserves. The estimation of inferred resources involves far greater uncertainty as to their existence and economic viability than the estimation of other categories of resources, and therefore it cannot be assumed that all or any part of inferred resources will ever be upgraded to a higher category. Therefore, investors are cautioned not to assume that all or any part of inferred resources exist, or that they can be mined legally or economically.
Overview
We are a company engaged in the business of acquiring, exploring and developing precious metal projects in the United States of America. Paramount owns advanced stage exploration projects in the states of Nevada and Oregon. We enhance the value of our projects by implementing exploration and engineering programs that have the goal to expand and upgrade known mineralized material to reserves. The following discussion updates our outlook and plan of operations for the foreseeable future. It also analyzes our financial condition and summarizes the results of our operations for the three months ended September 30, 2022 and compares these results to the results of the prior year three months ended September 30, 2021.
Operating Highlights:
For the three months ended September 30, 2022, the Company continued with its permitting at its Grassy Mountain Project. Highlights include:
•The Oregon State Technical Review Team ("TRT") accepted and approved both the geo-chemistry and groundwater baseline data reports ("BDR Reports"). Both BDR Reports are required to be approved in order for the State of Oregon to determine, along with other application information, that Company's submitted Consolidated Permit Application (the “CPA”) is complete.
•The Company made progress with the Bureau of Land Management ("BLM) by responding and providing additional information that will allow the Company to submit an updated Plan of Operation ("PoO"). Once the PoO is accepted by the BLM and a notice in the Federal Registry is filed, the Enviromental Impact Statement process will begin.
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•Completed new technical reports summaries ("TRS") for the Grassy Mountain Property and the Sleeper Gold Property under Item 1300 of Regulation S-K.
Outlook and Plan of Operation:
We believe that investors will gain a better understanding of the Company if they understand how we measure and disclose our results. As a development stage company, we do not generate cash flow from our operations. We recognize the importance of managing our liquidity and capital resources. We pay close attention to all cash expenses and look for ways to minimize them when possible. We ensure we have sufficient cash on hand to meet our annual land holding costs as the maintenance of mining claims and leases are essential to preserve the value of our mineral property assets.
Having accomplished many of the activities we outlined in our Annual Report on Form 10-K for the year ended June 30, 2022, the Company now expects to undertake the following activities in the next several months:
Grassy Mountain Project:
Paramount expects to continue with both state and federal permitting activities for its proposed underground gold mine. With 22 baseline studies approved and accepted by the State of Oregon and the submitted modified CPA, the Company will continue working with the appropriate permitting agencies to ensure a complete permit application. Once the State of Oregon determines that the CPA is complete it will proceed to the drafting permits process which includes issuing an environmental evaluation and socio-economic impact analysis and the drafting of all relevant permits for the project. Under Oregon law the drafting permits process, which includes public notice and public hearing period, must be completed within 225 days. Subsequent to the drafting permit process if draft permits are issued, up to an additional 120 days is provided for further public consultation and the development and distribution of final permits. The costs incurred by the State of Oregon for the drafting permit and final permit processes will be reimbursed by the Company directly through cost recovery invoices received from the Oregon Department of Geology and Mineral Industries or by permit fees established by individual permitting agencies. In addition to the state incurred costs, the Company will engage with its permitting and technical advisors and consultants to respond to any further information requests from the State's permitting agencies.
With respect to federal permitting, once the Notice is registered and the Environmental Impact Statement has commenced, Paramount will also engage with its permitting and technical advisors to assist in the process.
Sleeper Gold Project:
In completing the Sleeper TRS, the Company undertook a comprehensive review of the project’s database which included over 4,000 drill holes dating back to the early 1980s from the time of the first discovery of mineralization to when the mine was closed in 1996. Given the lack of digitization of the original drill hole database, the Company has, under the direction of QP RESPEC Company LLC, engaged in digitizing and re-verifying the entire Sleeper database.
Once the data verification is complete and a higher confidence level can be applied to the resources and allowing for additional 3D modeling, Paramount will continue to advance the evaluation of Sleeper to update the Initial Assessment in 2023.
COVID-19 Update
Paramount continues to monitor the evolution of the COVID-19 pandemic and continues to evaluate its business activities and plans. Our priority is to ensure the health and safety of our employee and consultants. We continue to perform the majority of our activities remotely with a limited amount of on-site or in-office attendance only when required.
Comparison of Operating Results for the three months ended September 30, 2022 and 2021
Results of Operations
We did not earn any revenue from mining operations for the three months ended September 30, 2022 and 2021.
Net Loss
Our net loss for the three-months ended September 30, 2022 was $1,840,216 compared to a net loss of $1,913,746 in the previous three-month period ended September 30, 2021. The drivers of the decrease in net loss of 4% are fully described below.
The Company expects to incur losses for the foreseeable future as we continue with our planned exploration and development programs.
Expenses
Exploration and Land Holding Costs
For the three months ended September 30, 2022 and 2021, exploration expenses were $839,594 and $1,256,805, respectively. This represents a decrease of 33% or $417,211. Expenses as they relate to our exploration or development activities are generally not comparable from period to period as activities will vary based on several factors. At Grassy Mountain the Company continued with
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permitting activities with state and federal permitting agencies and completed a TRS on the property. These expenses totaled $398,250. At Sleeper, the Company re-assayed historical drill holes, digitized and re-verified its geological database and completed a TRS on the property for total expenses of $441,344. In the prior year comparable period the Company focused its efforts on preparing its modified permit applications for the Grassy Mountain Project, completed a drill program at its Frost property and incurred expenses related to reclamation activities its Sleeper Gold Project.
For the three months ended September 30, 2022 and 2021, land holding costs were $161,055 and $141,193, respectively. The increase of land holding costs was primarily due to the acquisition of Bald Peak Project in Nevada.
Salaries and Benefits
For the three-month period ended September 30, 2022, salary and benefits increased by 33% or by $76,625 to $307,374 from the prior year’s three-month period ended September 30, 2021. Salary and benefits are comprised of cash and stock-based compensation of the Company’s executive and corporate administration teams. The increase primarily reflects higher stock-based compensation that was recorded during the three-month period ended September 30, 2022 compared to the three-month period ended September 30, 2021. Included in the salary and benefits expense amount for the three months ended September 30, 2022 and 2021 was a non-cash stock-based compensation of $105,171 and $42,671, respectively.
Directors’ Compensation
For the three-month period ended September 30, 2022, directors’ compensation increased by 155% or by $21,504 to $35,341 from the three-month period ended September 30, 2021. Directors’ compensation consists of cash and stock-based compensation of the Company’s board of directors. The increase reflects higher stock-based compensation recorded in the current quarter compared to the prior year’s comparable period and the addition of one new board member.
Professional Fees and General and Administration
For the three months ended September 30, 2022 and 2021, professional fees were $133,328 and $44,963, respectively. This represents an increase of 197% or $88,365. The increase was mainly due to recording the audit fees for the fiscal year ended June 30, 2022 after engaging the Company's new auditor in the current period. Professional fees included legal, advisory and consultant expenses incurred on corporate and operational activities being performed by the Company on a period-by-period basis.
For the three-month period ended September 30, 2022, general and administration expenses decreased by 14% to $103,309 from $119,863 from the three-month period ended September 30, 2021. The decrease in general and administration expenses from the previous year’s comparable period was mainly due to reduced office related expenses.
Liquidity and Capital Resources
As an exploration and development company, Paramount funds its operations, reclamation activities and discretionary exploration programs with its cash on hand. At September 30, 2022, we had cash and cash equivalents of $1,271,450 compared to $2,484,156 as at June 30, 2022. In May 2020, the Company established an $8.0 million “at the market” equity offering program with Cantor Fitzgerald & Co. and Canaccord Genuity LLC to proactively increase its financial flexibility. During the three-months ended September 30, 2022, the Company did not issue any shares under the program.
The main uses of cash for the three months ended September 30, 2022 was:
•cash used in operating activities of $1,212,706
Going Concern and Capital Resources
The Consolidated Financial Statements of the Company have been prepared on a “going concern” basis, which means that the continuation of the Company is presumed even though events and conditions exist that, when considered in aggregate, raise substantial doubt about the Company’s ability to continue as a going concern because it is possible that the Company will be required to adversely change its current business plan or many be unable to meet its obligations as they become due with one year after the date of that these financial statements were issued.
Paramount expects to continue to incur losses as a result of costs and expenses related to maintaining its properties and general and administrative expenses. Since 2015, the Company has relied on equity financings, debt financings and sale of royalties to fund its operations and the Company expects to rely on these forms of financing to fund operations into the near future. The Company will also continue to identify ways to reduce its cash expenditures.
Paramount’s current business plan requires working capital to fund non-discretionary expenditures for its exploration and development activities on its mineral properties, mineral property holding costs and general and administrative expenses. It also requires approximately $4.3 million in capital to repay the 2019 convertible notes which become due in September 2023.
We anticipate our twelve-month cash expenditures to be as follows:
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•$3 million on corporate, land claim maintenance and general expenses
We anticipate our twelve-month cash discretionary exploration and development, subject to available cash on hand as follows:
•$3.1 million on the Grassy Mountain Project state and federal permitting activities
•$0.25 million on the Sleeper Gold Project
For the planned reclamation activities required by state and federal regulators at Sleeper, the Company expects that these expenditures will be reimbursed by insurance proceeds. For any interest that accrues and is owing on the outstanding convertible debt, the Company expects to elect to pay the semi-annual interest payment in shares of its Common Stock.
Subsequent to November 10, 2022, the Company expects to fund operations as follows:
•Existing cash on hand and working capital.
•The existing ATM with Cantor Fitzgerald & Co. and Canaccord Genuity LLC.
•Other debt, equity financings and sale of royalties.
Historically, we have been successful in accessing capital through equity and debt financing arrangements or by the sale of royalties on its mineral properties, no assurance can be given that additional financing will be available to it in amounts sufficient to meet its needs, or on terms acceptable to the Company. In the event that we are unable to obtain additional capital or financing, our operations, exploration and development activities will be significantly adversely affected. The continuation of the Company as a going concern is dependent on having sufficient capital to maintain our operations and to repay the convertible notes which become due in September 2023. In considering our financing plans, our current working capital position and our ability to reduce operating expenses the Company believes there is substantial doubt about its ability to continue as a going concern twelve months after the date that our financial statements are issued.
Critical Accounting Policies and Estimates
Management considers the following policies to be most critical in understanding the judgments that are involved in preparing the Company’s consolidated financial statements and the uncertainties that could impact the results of operations, financial condition and cash flows. Our financial statements are affected by the accounting policies used and the estimates and assumptions made by management during their preparation. Management believes the Company’s critical accounting policies are those related to mineral property acquisition costs, exploration and development cost, stock-based compensation, asset retirement obligations and foreign currency translation.
Mineral property acquisition costs
The Company capitalizes the cost of acquiring mineral properties and will amortize these costs over the useful life of a property following the commencement of production or expense these costs if it is determined that the mineral property has no future economic value or the properties are sold or abandoned. Costs include cash consideration and the fair market value of shares issued on the acquisition of mineral properties. Properties acquired under option agreements, whereby payments are made at the sole discretion of the Company, are recorded in the accounts of the specific mineral property at the time the payments are made.
The amounts recorded as mineral properties reflect actual costs incurred to acquire the properties and do not indicate any present or future value of economically recoverable reserves.
Exploration expenses
We record exploration expenses as incurred. When we determine that a precious metal resource deposit can be economically and legally extracted or produced based on established proven and probable reserves, further exploration expenses related to such reserves incurred after such a determination will be capitalized. To date, we have not established any proven or probable reserves and will continue to expense exploration expenses as incurred.
Stock Based Compensation
For stock option grants with market conditions that affect vesting, the Company uses a lattice approach incorporating a Monte Carlo simulation to value stock options granted.
Option awards are generally granted with an exercise price equal to the market price of Paramount’s stock at the date of grant and have contractual lives of 5 years. To better align the interests of its key executives, employee and directors with those of its shareholders a significant portion of those share option awards will vest contingent upon meeting certain stock price appreciation performance goals and other performance conditions. Option and share awards provide for accelerated vesting if there is a change in control (as defined in the employee share option plan). For stock option grants made in the fiscal years ended June 30, 2021, the Company used the Black-Scholes option valuation model to value stock options granted. The Black-Scholes option valuation model was developed for use in estimating the fair value of traded options that have no vesting restrictions and are fully transferable. The
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model requires management to make estimates which are subjective and may not be representative of actual results. Changes in assumptions can materially affect estimates of fair values.
Use of Estimates
The Company prepares its consolidated financial statements and notes in conformity to United States Generally Accepted Accounting Principles (“U.S. GAAP”) and requires management to make estimates and assumptions that affect the reported amount of assets and liabilities and the reported amounts of revenue and expenses during the reporting period. On an ongoing basis, management evaluates these estimates, including those related to long-lived assets and asset retirement obligations. Management bases these estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis of making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions.
Off-Balance Sheet Arrangements
We are not currently a party to, or otherwise involved with, any off-balance sheet arrangements that have or are reasonably likely to have a current or future material effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, or capital resources.
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