ALPHAMIN RESOURCES CORPORATION - Management discussion and analysis Quarterly highlights for the three and six months ended 30 June 2018

Release Date: 29/08/2018 14:30
Code(s): APH
 
Wrap Text
Management discussion and analysis 
Quarterly highlights for the three and six months ended 30 June 2018

Alphamin Resources Corp.
Continued in the Republic of Mauritius
Date of incorporation: 12 August 1981
Corporation number: C125884 C1/GBL
TSX-V share code: AFM
JSE share code: APH
ISIN: MU0456S00006
(“Alphamin” or the “Company”)
               
                          MANAGEMENT’S DISCUSSION AND ANALYSIS
                                    QUARTERLY HIGHLIGHTS
                                  (EXPRESSED IN US DOLLARS)
                     FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2018

   C/o ADANSONIA MANAGEMENT SERVICES LIMITED, Suite 1, PERRIERI
 OFFICE SUITES, C2-302, Level 3, Office Block C, La Croisette, Grand Baie 30517,
                                  Mauritius
                           Phone: +230 269 4166
                        www.alphaminresources.com

TABLE OF CONTENTS
INTRODUCTION AND FORWARD LOOKING STATEMENTS .............................................................................. 2
DESCRIPTION OF THE BUSINESS .............................................................................................. 4
KEY OPERATING MILESTONES ................................................................................................. 4
CURRENT COMPANY OBJECTIVES ............................................................................................... 5
SELECTED CONSOLIDATED FINANCIAL INFORMATION .............................................................................. 6
LIQUIDITY AND CAPITAL RESOURCES .......................................................................................... 7
RELATED PARTY TRANSACTIONS ............................................................................................... 7
INTERNAL CONTROL ......................................................................................................... 7
RISK FACTORS.............................................................................................................. 8
OTHER MD&A REQUIREMENTS .................................................................................................. 8
QUALIFIED PERSON ......................................................................................................... 8
APPROVAL ................................................................................................................. 8

MANAGEMENT’S DISCUSSION AND ANALYSIS
FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2018

INTRODUCTION AND FORWARD-LOOKING STATEMENTS
This Management’s discussion and analysis – quarterly highlights (“Quarterly Highlights”) of the
financial position and results of operations of Alphamin Resources Corp. (“Alphamin,” or “the
Company”) should be read in conjunction with the unaudited condensed consolidated interim financial
statements of the Company and the notes thereto for the three and six months ended June 30, 2018
and the audited annual consolidated financial statements of the Company as at December 31, 2017.
In this discussion and analysis, unless the context otherwise dictates, a reference to the Company
refers to Alphamin Resources Corp. and its subsidiaries. Additional information about Alphamin
Resources Corp. is available on SEDAR at www.sedar.com. This Quarterly Highlights is dated August
29, 2018 and information contained herein is presented as of that date, unless otherwise indicated.

This Quarterly Highlights contains certain forward-looking statements and information relating to the
Company that are based on the beliefs of its management as well as assumptions made by and
information currently available to the Company. When used in this document, the words "anticipate",
"believe", "estimate", "expect" and similar expressions, as they relate to the Company or its
management, are intended to identify forward-looking statements. This Quarterly Highlights contains
forward-looking statements relating to, among other things, guidance for production; total cash costs
and all-in sustaining costs, and the factors contributing to those expected results, as well as expected
capital expenditures; mineral reserve and mineral resource estimates; grades expected to be mined at
the Company’s operations; the expected production, costs, economics and operating parameters of the
Bisie Tin Project; planned activities for the Company’s operations and projects, as well as planned
exploration activities; expected production for the Bisie Tin Project; and targeting timing for
commissioning and full production (and other activities) related to the Bisie Tin Project, the sufficiency
of current working capital and the estimated cost and availability of funding for the continued exploration
and development of the Company’s exploration properties. Such statements reflect the current views
of the Company with respect to future events and are subject to certain risks, uncertainties and
assumptions. Many factors could cause the actual results, performance or achievements of the
Company to be materially different from any future results, performance or achievements that may be
expressed or implied by such forward-looking statements. Such factors include, without limitation:
significant capital requirements and the availability and management of capital resources; additional
funding requirements; price volatility in the spot and forward markets for tin and other commodities;
fluctuations in the international currency markets and in the rates of exchange of the currencies of the
Democratic Republic of Congo (DRC) and the United States of America (US); discrepancies between
actual and estimated production, between actual and estimated capital costs to build the Bisie Tin Mine;
between actual and estimated reserves and resources and between actual and estimated metallurgical
recoveries; changes in national and local government legislation in the DRC or any other country in
which Alphamin currently or may in the future conduct business; taxation; controls, regulations and
political or economic developments in the countries in which Alphamin does or may conduct business;
the speculative nature of mineral exploration and development, including the risks of obtaining and
maintaining the validity and enforceability of the necessary licenses and permits and complying with
the permitting requirements of each jurisdiction in which Alphamin operates, including, but not limited
to: obtaining the necessary permits for the Bisie Tin Project in the DRC; the lack of certainty with respect
to foreign legal systems, which may not be immune from the influence of political pressure, corruption
or other factors that are inconsistent with the rule of law; the uncertainties inherent to current and future
legal challenges Alphamin is or may become a party to; diminishing quantities or grades of reserves
and resources; competition; loss of key employees; rising costs of labour, supplies, fuel and equipment;
actual results of current exploration or reclamation activities; uncertainties inherent to mining economic
studies including the Feasibility Study for the Bisie Tin Project; changes in project parameters as plans
continue to be refined; accidents; labour disputes; defective title to mineral claims or property or
contests over claims to mineral properties; risks, uncertainties and unanticipated delays associated with
obtaining and maintaining necessary licenses, permits and authorisations and complying with permitting
requirements, including those associated with the environment. In addition, there are risks and hazards
associated with the business of mineral exploration, development and mining, including environmental
events and hazards, industrial accidents, unusual or unexpected formations, pressures, cave-ins,
flooding and losses of processed tin (and the risk of inadequate insurance or inability to obtain insurance
to cover these risks), as well as “Risk Factors” included in this Quarterly Highlights and Alphamin’s
public disclosure documents filed on and available at www.sedar.com.
                                                                                      
DESCRIPTION OF THE BUSINESS
Alphamin is in the business of location, acquisition, exploration and, if warranted, development of
mineral resource properties. The Company’s exploration, evaluation and development efforts are
focused on Bisie Tin Project in the Democratic Republic of the Congo (“DRC”). The Bisie Tin deposit
occurs within Permis de Exploitation (Mining Permit) PE13155, along with 5 research permits granted
to Alphamin’s DRC-registered subsidiary, Alphamin Bisie Mining SA (“ABM”). ABM is an 80.75%
indirect controlled subsidiary of Alphamin, with the remaining 19.25% owned by the DRC government
(5%) and the Industrial Development Corporation of South Africa Ltd (“IDC”) (14.25%). All tenements
are located within the Walikale District, North Kivu Province of the east-central DRC and lie within one
of the world’s principal gold and tin metallogenic provinces.

KEY OPERATING MILESTONES
     1. Project Funding

             During the quarter ended June 30, 2018 the Company raised an additional $47m for the
             construction of the Bisie Tin Project as laid out below. As at June 30, the remainder of the
             project is expected to be funded by cash on hand and the remaining $45m available under the
             credit facility.

                a. On June 18, the Company announce that it had raised C$19.2 million (US$15.0 million)
                   by issuing a total of 76,800,000 common shares of the Company (the “Common
                   Shares”) at a price of C$0.25 per Common Share (the “Issue Price”) through the closing
                   of its previously announced non-brokered private placement (the “Private Placement”).

                b. On June 8, 2018, the Company announced that it had completed a US$25 million
                   drawdown under its previously announced credit facility of up to US$80 million (the
                   “Credit Facility”). In addition, the Company converted US$3.396 million of debt due to
                   Sprott Private Resource Lending (Collector), L.P., Barak Fund SPC Limited and the
                   Company’s 44.86% shareholder, Tremont Master Holdings, in connection with the
                   Credit Agreement into 17,389,387 common shares of the Company (the “Common
                   Shares”) at a price of C$0.25 per Common Share (the “Debt Settlement”).

                c. Additional equity funding from the Industrial Development Corporation of South Africa
                   (“IDC”) in the amount of approximately US$7.1 million was received by the Company’s
                   80.75% owned subsidiary, Alphamin Bisie Mining SA (“ABM”). The investment
                   maintains the IDC’s 14.25% shareholding in ABM.


     2. Project development progress
                     As at August 29, 2018, construction is 75% complete and on track for commissioning
                     in Q1 2019.

                     Safety

                     The Company has recorded 1,161,188 hours worked by 674 project employees with
                     no lost time injuries reported. EPCM contractor DRA Projects has completed “Total
                     Safety Culture” training on 293 employees.

                     Mine construction

                     The Company’s underground mining contractor, Reliant SARL continued to progress
                     ahead of schedule during and after the six months ended June 30, 2018, despite
                     challenges with respect to explosives permitting and logistics. As at August 26, 2018,
                     Reliant SARL had advanced a cumulative total of 1,709 meters compared to a target
                     of 1,541. The capital footprint contemplates a total of 2,700 meters.
                                                                                              
                 Access road and airstrip

                 The Company completed the construction of a 1200m airstrip, which is located
                 approximately 11 km from the Bisie Tin Project. The Company intends to use the
                 airstrip from Q3, 2018, following completion of the licensing process.

                 The Company’s 36km access road from the nearest national road to the Bisie Tin
                 Project has also been completed and deliveries are travelling the road without difficulty.

                 Process plant construction

                 The cut to fill operation continues and 180,448m3 of earth has been moved against a
                 target of 178,306 m3.

                 Steel erection commenced during the quarter with a cumulative total of 256 tonnes
                 erected as August 29. Plant construction is ahead of schedule.

                 Project logistics and procurement

                 The access routes to site are moving freely with approximately 400 out of a total of 550
                 loads delivered to site. Port congestion in Mombasa caused some concern early in the
                 quarter but this has eased. Procurement is progressing well with approximately 90%
                 of packages placed by value. To date Alphamin has committed to $98 million in project
                 packages.

     3. Corporate and other developments
                 Management changes

                 On April 30, 2018 Mr Maritz Smith joined the board of directors. On May 28, Mr
                 Bernard Swanepoel resigned from the board of directors of the Company.

                 DRC Mining Code changes

                 On March 28, 2018 a revised mining code was published in the official gazette in the
                 Democratic Republic of Congo (“DRC”), becoming law following the signing in by
                 president Joseph Kabila on March 9. The Company is in the process of assessing the
                 revised mining code and regulations, and their impact on Alphamin. At present, it
                 appears that the Company could be subject to a higher royalty rate of 3.5%, up from
                 2%, and potentially higher taxes, as a result of a reduction in tax deductible expenses.
                 The Company notes that article 220 states that companies developing projects in
                 infrastructure poor provinces may be able to avail of certain exemptions.

CURRENT COMPANY OBJECTIVES

The current Company objectives are:

     1. Complete the construction of the Bisie Tin Mine on time and on budget.

     2. Continue to foster strong relationships with key stakeholders in the DRC, in particular in the
        local communities of the project affected areas as well as with provincial and national
        government stakeholders.
                                                                                   
SELECTED CONSOLIDATED FINANCIAL INFORMATION

Mine under Construction costs

                                                                  June 30,     December 31,
                                                                      2018             2017
                                                                       USD              USD
 Opening balance                                                99,504,474                -
 Additions                                                      46,480,782                -
 Transfer from Exploration and Evaluation Assets (Note 7)                -       97,529,580
 Rehabilitation and closure asset (Note 12)                              -        1,974,894
                                                               145,985,256       99,504,474

Mine under construction costs incurred of $46,480,782 consists primarily of underground mining,
earthworks and EPC contractor expenses, and acquisition of capital items required for the Bisie Tin
Mine.

Exploration and evaluation expenditures

 Deferred exploration and                              Balance, as at
 development costs
 Bisie                                         June 30, 2018      December
                                                                  31, 2017
 Drilling & assays                                   666,450       666,450
 Annual license fees                                 360,000       360,000
 Mineral license acquisition costs                   975,000       975,000
 Sampling and field costs                            200,000       200,000
 Total exploration and evaluation assets           2,201,450     2,201,450

The Company carried out no exploration and evaluation expenditures during the quarter ended June
30, 2018 as a result of the focus of expenditure on the development of the Bisie Tin Project.

Loss for the three (“Q2, 2018”) and six months (“H1, 2018”) ended June 30, 2018, compared to
the three (“Q2, 2017”) and six months (“H1 2017”) ended June 30, 2017

The loss for H1 2018 was $2,306,184 compared to a loss for H1 2017 of $3,600,279. The H1 2018
figures includes warrants credit of $2,531,962 (H1 2017: Nil). The warrants credit relates to the period
end fair value revaluation of the warrant liability on the balance sheet using the Black Scholes method
as outlined in note 11 to the financial statements. The large credit was a result in changing volatility,
share price and remaining life of the warrants during the period. There was no corresponding
income/expense in 2017 as there were no warrants in issue during the corresponding period of 2017.

Significant bank charges were incurred in ABM as a result of capitalising ABM with the funds received
from the by the Company and the IDC. A loss on write off of assets was recorded in the amount of
$503,345 as a result of damage inflicted on a newly acquired Manitou forklift which was in route to the
Bisie Tin Mine site. Share based payment expenses increased as a result of more options being in
issue. Management fees and salaries have increased due to staff increases as the Company’s
development activities have ramped up.

The loss of Q2 2018 was $713,390 compared to a loss in Q2 2017 of $1,996,941. The warrants credit,
as outlined above accounted for $1,668,823 of the difference on a quarterly comparison basis.
                                                                                            
LIQUIDITY AND CAPITAL RESOURCES
As at June 30, 2018 the Company had a consolidated cash balance of $37,104,533 and working capital
of $37,988,198. Current liabilities as at June 30, 2018 were $8,067,561 excluding the warrant liability
of $9,954,606, which cannot result in a cash outflow for the Company.

As at quarter end the Company had long-term debt of $36,194,512 (including capitalised interest of
$1,194,512 and excluding net capitalised fees of ). The Company believes it will continue to be able to
access the Credit Facility and, if required, additional equity at the Company and subsidiary levels.

Operating activities

Cash used in operating activities for the three and six months ended June 30, 2018 was $3,646,319
and $10,905,645 respectively (three and six months ended June 30, 2017: $1,399,753 and $3,209,201
respectivey). The large increase is primarily as a result of prepayments.

Investing activities

Cash used in investing activities for the three and six months ended June 30, 2018 was $27,765,667
and $46,548,458 respectively (three and six months ended June 30, 2017: $4,250,491 and 7,687,060
respectively). The majority of costs incurred relate to mine construction costs and related plant and
equipment. The increase was the result of the ramp up in construction activity at the Bisie Tin Project
and uninterrupted availability of funding in the H1 2018.

Financing activities

During the quarter ended June 30, 2018, the Company received net $25,000,000 from the second draw
down on the Credit Facility. In addition, the Company completed a private placement for gross proceeds
of $15,000,000 and received additional equity investment in ABM of $7,086,834. The Company raised
$7,606,020 in the corresponding period in 2017.

Liquidity outlook

As at quarter end the Company had $37.1m in cash and undrawn debt in the amount of $45m.

RELATED PARTY TRANSACTIONS
For the quarter ending June 30, 2018, $9,000 (H1 2018: $18,000) was paid to Adansonia Management
Services Limited for corporate secretarial services performed by Mrs Zain Madarun. Adansonia
Management Services Limited are owned by Adansonia Holdings Limited, which is ultimately owned
by Brendon Jones and Rudolf Pretorius (Directors of the Company) and Mrs Zain Madarun, Company
Secretary. All potential conflicts have been disclosed via the Company’s interest register.

Under the terms of the agreements with the IDC announced on November 11, 2015, the Company
entered into a shareholders’ agreement which grants the IDC certain director appointment, offtake
purchases, pre-emptive and share exchange rights. See note 10 of the interim financial statements for
further details.

INTERNAL CONTROL

In accordance with National Instrument 52-109, Certification of Disclosure in Issuers’ Annual and
Interim Filings (“NI 52-109”), the Chief Executive Officer and Chief Financial Officer of the Company
will file a Venture Issuer Basic Certificate with respect to the financial information contained in the
unaudited condensed consolidated financial statements and respective accompanying Management’s
Discussion and Analysis.

In contrast to the full certificate under NI 52-109, the Venture Issuer Basic Certification does not include
representations relating to the establishment and maintenance of disclosure controls and procedures
and internal control over financial reporting, as defined in NI 52-109.
6894025 v2                                                                                                
RISK FACTORS
An investment in the securities of the Company is highly speculative and involves numerous and
significant risks. Such investment should be undertaken only by investors whose financial resources
are sufficient to enable them to assume these risks and who have no need for immediate liquidity in
their investment. Prospective investors should carefully consider the risk factors that have affected, and
which in the future are reasonably expected to affect, the Company and its financial position. Please
refer to the section entitled "Risk and Uncertainties" in the Company’s Annual MD&A for the fiscal year
ended December 31, 2017, available on SEDAR at www.sedar.com for a description of these risk
factors.

OTHER MD&A REQUIREMENTS
Outstanding share data

Balance as at;
                                 June 30 and August 29, 2018

Common shares outstanding                 786,233,993
Warrants issued and outstanding           131,129,346
Options outstanding                         8,411,754
Options exercisable                           887,550

QUALIFIED PERSON
Mr Gordon Mark Cresswell (PrEng MSc, FSAIMM, MIMMM, ARSM) is a Minerals Processing
Consulting Engineer of DRA Projects, an independent EPCM consulting company to Alphamin and a
Qualified Person as defined in National Instrument 43-101 Standards of Disclosure of Mineral Projects.
Mr Cresswell has reviewed and approved the scientific and technical information contained in this
MD&A.

Mr John Anthony Cox (PrEng ECSA, BSc Mining, ARSM, FSAIMM) is a Principal Consultant for DRA
Projects, an independent EPCM consulting company to Alphamin and a Qualified Person as defined in
National Instrument 43-101 Standards of Disclosure of Mineral Projects. Mr Cox has reviewed and
approved the scientific and technical information contained in this MD&A.

APPROVAL
The Board of Directors of the Company has approved the disclosure contained in this Quarterly
Highlights. Readers of this Quarterly Highlights and other filings can review and obtain copies of the
Company’s filings from SEDAR at www.sedar.com and copies will also be provided upon request.

JSE Designated Advisor
Nedbank Corporate and Investment Banking

29 August 2018
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