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TERM LOAN | 9 Months Ended
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Sep. 30, 2024
Debt Disclosure [Abstract] |
TERM LOAN | 7. TERM LOAN On June 28, 2023, the Company closed a financing with Cymbria Corporation (“Cymbria”), EdgePoint Investment Group Inc. and certain other entities managed by it (“EdgePoint”) for aggregate gross proceeds to the Company of $33,999,200. The financing included three concurrent and inter-conditional transactions (collectively the “2023 Financing Transactions”) comprised of an equity offering of units for $16,249,200 (the “Equity Financing”), a three year term loan of $15,000,000 (the “Term Loan”) and option payments of $2,750,000 (the “Option Payment”) to acquire a 0.5% net smelter returns royalty on the Mines in certain circumstances upon payment of further consideration (Note 10). The Term Loan has a principal amount of $15,000,000 and bears interest at a rate of 10% per annum payable quarterly in arrears. The principal amount of the Term Loan will mature and be payable on June 28, 2026. The obligations of the Company pursuant to the Term Loan are fully and unconditionally guaranteed by each of the Company’s existing and future subsidiaries. The Term Loan is secured by a pledge of all the shares of the Company’s subsidiaries as well as by way of a general security agreement at the parent level and debentures and hypothecations at the subsidiary level. The Term Loan is subject to certain covenants and provisions on events of default, repayments and mandatory prepayments, including:
| ● | increase in the interest rate payable on the Term Loan to 15% per annum upon the occurrence of an event of default;
| ● | the Company may prepay all or any portion of the principal amount outstanding with a minimum repayment amount of $500,000 and in an integral multiple of $100,000, together with all accrued and unpaid interest on the principal amount being repaid;
| ● | if prepayment occurs within one year of the closing date, a prepayment fee in an amount equal to 10% of the principal amount of the Term Loan being prepaid less interest paid or payable on or prior to the date of prepayment attributable to the portion of the Term Loan (“Prepayment Fee”); and
| ● | mandatory prepayment shall be made when the Company has non-ordinary course asset sales or other dispositions of property or the Company receives cash from the issuance of indebtedness for borrowed money.
Notes to the Unaudited Condensed Interim Consolidated Financial Statements For the three and nine months ended September 30, 2024 and 2023 (Expressed in Canadian dollars) In connection with the Term Loan, the Company issued an aggregate of 2,000,000, non-transferable common share purchase warrants (the “Non-Transferable Warrants”) to Cymbria. Each Non-Transferable Warrant is exercisable by Cymbria to purchase one Common Share at a cash purchase price of $1.4375 per Common Share until June 28, 2026. Further, on December 14, 2023, the Company and Cymbria closed an amendment to the terms of their existing Term Loan, increasing the principal amount of the Term Loan by $5,882,353 (the “Additional Principal Amount”) from $15,000,000 to $20,882,353. The Additional Principal Amount was subject to an original issue discount of approximately 15% and was advanced by the lender to the Company as a single advance of $5,000,000. The Additional Principal Amount forms a part of the Term Loan and is on the same terms and conditions applicable to the Term Loan. As consideration for entering into the amended Term Loan, the Company issued an additional 700,000 non-transferable common share purchase warrants (the “Additional Warrants”) to the lender, with each Additional Warrant entitling the lender to acquire one Common Share at a price of $1.4375 per Common Share until June 28, 2026. The shares issued for exercise of the Additional Warrants are subject to a hold period of four months plus a day from the date of issue and the resale rules of applicable securities legislation and policies of the TSXV. The Company evaluated the amendment of the Term Loan and determined that it qualified as a non-substantial modification under ASC 470. Therefore, a new effective interest rate was determined based on the carrying amount of the original debt instrument, adjusted for the fair value of the Additional Warrants resulting from the modification, and the revised cash flows. The fair value of the Non-Transferable Warrants and Additional Warrants was estimated at $1,435,350 and $275,961 respectively, using the Black-Scholes Option Pricing Model. At initial closing, the accounting was based on relative fair value under ASC 470, with proceeds and transaction costs allocated between the Term Loan and the Non-Transferrable Warrants. The Non-Transferrable Warrants were allocated $1,352,054, including $83,296 in transaction costs. The Additional Warrants were accounted for as transaction costs for obtaining the Additional Principal Amount. As such, $1,352,054 and $275,961 respectively were recorded in equity. The fair value of the Non-Transferable Warrants and Additional Warrants was calculated using the following assumptions: SCHEDULE OF FAIR VALUE OF NON-TRANSFERABLE AND ADDITIONAL WARRANTS
|  | Non-Transferable Warrants |  |  | Additional Warrants |
Expected dividend yield |  |  | 0 | % |  |  | 0 | %
Share price |  | $ | 1.35 |  |  | $ | 1.14 |
Expected share price volatility |  |  | 92.06 | % |  |  | 63.54 | %
Risk free interest rate |  |  | 4.13 | % |  |  | 3.73 | %
Expected life of warrant |  |  | 3 years |  |  |  | 2.54 years |
The volatility was determined by calculating the historical volatility of stock prices of the Company over the same period as the expected life of the Transferable Warrants using daily closing prices. The formula used to compute historical volatility is the standard deviation of the logarithmic returns. The Company used $7,637,329 of the proceeds from the Term Loan to prepay all principal, interest and fees owing by the Company pursuant to the A&R Promissory Note (defined in Note 8) in favour of Pinnacle Island LP. For the nine months ended September 30, 2024, the Company paid $1,563,324 of interest costs to Cymbria (September 30, 2023 – $390,411). Notes to the Unaudited Condensed Interim Consolidated Financial Statements For the three and nine months ended September 30, 2024 and 2023 (Expressed in Canadian dollars) The following is a continuity of the Term Loan: SCHEDULE OF CONTINUITY OF TERM LOAN
|  | $ |
Principal amount of the Term Loan |  |  | 15,000,000 |
Fair value of the Non-Transferrable Warrants |  |  | (1,435,350 | )
Term Loan at fair value on issuance, June 28, 2023 |  |  | 13,564,650 |
Transaction costs |  |  | (787,175 | )
Accrued interest |  |  | 390,411 |
Accretion of warrant value and transaction costs |  |  | 631,540 |
Interest paid |  |  | (390,411 | )
Fair value of Term Loan as of December 14, 2023 |  |  | 13,409,015 |
Additional principal amount of Term Loan on December 14, 2023 |  |  | 5,882,353 |
Term Loan issue discount |  |  | (882,353 | )
Fair value of the Additional Warrants |  |  | (275,961 | )
Transaction fee for modification |  |  | (219,212 | )
Fair value of modified Term Loan as of December 14, 2023 |  |  | 17,913,842 |
Accrued interest |  |  | 402,981 |
Accretion of warrant value and transaction costs |  |  | 42,581 |
Interest paid |  |  | (402,981 | )
Term Loan balance, December 31, 2023 |  |  | 17,956,423 |
Accrued interest |  |  | 1,563,324 |
Accretion of warrant value and transaction costs |  |  | 753,854 |
Interest paid |  |  | (1,563,324 | )
Term Loan balance, September 30, 2024 |  |  | 18,710,277 |
Fort Capital Partners acted as financial advisor to the Company on the debt portion of the 2023 Financing Transactions and was paid cash fees of $375,000 and $147,059, equal to 2.5% of the original principal amount and the Additional Principal Amount, respectively. Legal fees related to the 2023 Financing Transactions totaled $736,067, of which $495,471 was allocated to the original Term Loan. Legal fees of $72,153 associated with the Second A&R Commitment Letter were recorded and amortized over the remaining terms of the Term Loan. As noted above, certain transaction costs in relation to the original principal amounts were allocated to the Non-Transferrable Warrants based on the relative fair value method under ASC 470.

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