MD&A

MANAGEMENT’S DISCUSSION AND ANALYSIS FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2017 AND 2016

 

On August 17, 2017, Tethyan Resources plc obtained a receipt in connection with the filing of a non-offering final prospectus in the province of British Columbia, Canada. As a result, the Company is now a reporting issuer in the province of British Columbia and is required to report its financial statements quarterly, which includes the requirement to prepare a Management’s Discussion and Analysis document (“MD&A”).

This MD&A, prepared as of August 25, 2017, should be read in conjunction with the condensed consolidated interim financial statements of Tethyan Resources Plc., (“Tethyan” or the “Company”) formerly Aurasian Minerals plc, for the three and six months ended June 30, 2017, and related notes thereto, which have been prepared in accordance with International Financial Reporting Standards (“IFRS”). All amounts are stated in Great British Pounds (“GBP” or “£”) unless otherwise indicated. Additional information on the Company’s website at www.tethyan-resources.com. 

Statements in this MD&A that are not historical facts are “forward-looking statements” that are subject to risk factors set out in a cautionary note contained herein.  Readers are cautioned not to put undue reliance on forward-looking statements.

 

COMPANY OVERVIEW

Tethyan Resources Plc (“Tethyan” or the “Company”) is a publicly listed company listed on AIM under the symbol “TETH” on the London Stock Exchange. The Company is a junior mineral explorer of resource properties with a focus on gold and base metals. The Company initially listed on AIM as Triple Plate Junction Plc, in January 2004, and focussed on copper and gold projects located in South East Asia, more specifically Vietnam, Papua New Guinea and Indonesia. The Company traded under the name Triple Plate Junction Plc from January 2004 until it changed its name to Aurasian Minerals Plc on May 13, 2014. Subsequently, the Company changed its name from Aurasian Minerals Plc to Tethyan Resources Plc on July 20, 2016.

On August 17, 2017, the Company obtained a receipt in connection with the filing of a non-offering final prospectus in the province of British Columbia, Canada. As a result, the Company is now a reporting issuer in the province of British Columbia. In addition, the TSX Venture Exchange (“TSX-V”) has conditionally approved the Company’s application to list its ordinary shares on the TSX-V. Final approval of listing on the TSX-V is subject to the Company satisfying certain customary conditions required by the TSX-V.

Currently, Tethyan is an active explorer for gold and base metals within Eastern Europe, more specifically Serbia and Bulgaria. The Company has two active exploration projects in Serbia, the “Suva Ruda” project (a copper and gold porphyry target) and “Gokcanica” project (an epithermal and porphyry gold system).

To date, the Company has not generated revenues from operations and is considered to be in the exploration stage. The Company conducts its activities through wholly-owned subsidiaries, limited liability companies, partnerships and joint ventures.

 

FINANCIAL SNAPSHOT

June 30, 2017

(£,000)

December 31, 2016

(£,000)

Total assets

£             1,603

£             1,671

Exploration properties

245

Total non-current liabilities

Working capital

910

1,015

Net loss

(1,152)

(1,296)

Basic and diluted loss per share (in pence)

                     (0.79)

                     (1.38)

At the date of this MD&A, Tethyan had approximately £910,000 in working capital. The Company did not generate any revenues and did not declare any dividends.

RECENT EVENTS

On April 25, 2017, Tethyan Resources announced that it had commenced drilling at the Rudnitza porphyry prospect, within the Suva Ruda Project. The drilling was conducted by local contractor Drillex International d.o.o.  On July 3rd, 2017, Tethyan announced the completion of this drilling, having drilled 2,127.6 metres in four drill holes. Assay results from this drill programme are expected to be announced in early September 2017. Tethyan Resources is also preparing for a large geophysical survey at Rudnitza and on the Gokcanica Project. The survey will be carried out by Canadian company Quantec Geoscience, utilizing their proprietary TITAN 24 survey method, and is expected to commence in late-August. In preparation, Tethyan has successfully obtained all the requisite land access permissions to carry out this geophysical survey. In addition to the planned field programme, Tethyan is reviewing all of its previous work and utilizing Simon Meldrum, an experienced geologist from South America, to assist with its understanding of the Rudnitza porphyry system and surrounding area.

On March 28, 2017, Tethyan announced that it had successfully raised £1,000,000 before expenses from the issue of 22,222,223 new ordinary shares of 0.1 pence each in the capital of the Company (“Placing Shares”) at a placing price of 4.5 pence per share (“the Placing”). The Placing was supported by both new and existing investors, including Southern Arc Minerals Inc. (“Southern Arc”) and a number of the Directors and senior management at Tethyan, further details of which are set out below. The net proceeds of the Placing attributable to the Company (being approximately £950,000 after fees and expenses) are being used for its planned drilling programmes at the Company’s Suva Ruda project and general working capital requirements.  As at 30 June 2017, the total number of ordinary shares in issue was 168,182,052. The Company does not hold any ordinary shares in treasury.

On February 28, 2017, the Company confirmed that it made the first Milestone Payment of €100,000 to Deep Research d.o.o. (“Deep Research”, a private Serbian company) in order to retain its option to purchase 100% of the Suva Ruda Project.

On February 24, 2017, Tethyan Resources d.o.o, a company incorporated in Serbia, which had been incorporated under the ownership of Fabian Baker, COO of Tethyan Resources Jersey Ltd, formally became a wholly owned subsidiary of Tethyan Resources Jersey Ltd, and therefore part of the Group. The company, along with Global Mineral Resources d.o.o, had been incorporated to secure permits within Serbia. Subsequently, Global Mineral Resources d.o.o also became a wholly-owned subsidiary of Tethyan Resources Serbia d.o.o as of April 3, 2017.

In January 2017, the Company completed 4 diamond drill holes for a total of 2,318 meters on the Rudnitza copper-gold porphyry prospect within the Suva Ruda exploration permit located in Serbia.

On November 21, 2016, the Company announced that Southern Arc Minerals Inc. (“Southern Arc”), a TSX-Venture Exchange listed company, had subscribed for 16,500,000 new ordinary shares in the Company at a price of CAD$0.036 per share, representing approximately 15.44% of the enlarged issued share capital of the Company (“the Southern Arc Subscription”). The Southern Arc Subscription raised CAD$594,000 (or approximately £353,570) before expenses, for the Company to further advance the Suva Ruda and Gokcanica projects in the Republic of Serbia. In addition, Southern Arc purchased 14,653,967 ordinary shares in the Company from Newmont Ventures Limited (“Newmont Acquisition”) as part of becoming a strategic investor in the Company. The Newmont Acquisition, taken together with the 16,500,000 new ordinary shares acquired in the Southern Arc Subscription, represented approximately 29.15% of the then enlarged issued share capital of the Company. As part of the Southern Arc Subscription, the Board resolved to appoint John Proust and Michael Andrews to the Board. In addition, the Company agreed to:

–       grant Southern Arc a first right of refusal on a sufficient share of any further fundraisings undertaken by the Company for a period of 2 years to enable it to increase its holdings to, and maintain its interest at 29.9% of the issued share capital of the Company; and

–       use its commercially reasonable efforts to seek a listing on the TSX Venture Exchange as soon as reasonable practicable following completion of the Southern Arc Subscription.

On November 22, 2016, as part of a placing to raise approximately £852,380 for which shareholder approval was sought and obtained, Southern Arc subscribed for an additional 12,500,000 new ordinary shares of the Company at a price of CAD$0.036 per share, as a result of which, Southern Arc then held a total of 43,653,967 shares of Tethyan representing approximately 29.9% of Tethyan’s issued ordinary share capital.

On October 6, 2016, the Company announced that it had decided to pull out of the joint venture with Balkan Mineral Corporations d.o.o. in relation to the Cadinje polymetallic project located in Serbia. The Company incurred no penalties in regard to this decision and will have no further liabilities over the project. Recent drilling results did not improve on historical assays from the area and gold assays were low. The Company’s technical personnel were of the opinion that the potential to increase the known size of the mineralized resource is limited.

PROPERTY REVIEW AND OUTLOOK

Suva Ruda, Serbia

On 27 September 2016, Tethyan announced that it had signed an option agreement (the “Agreement”) with Deep Research, that gives Tethyan the sole and exclusive right to acquire (the “Option”) a license over the Suva Ruda Project in Serbia (the “License”). The License is located in Southern Serbia near the town of Raska (30,000 inhabitants), 170 km directly south of Belgrade and within the Raska Ore District. The License comprises one exploration permit with a surface area of 87 km2.

Under the terms of the Agreement Tethyan is entitled to purchase 100% of the License or Deep Research (at Tethyan’s discretion) for a cash payment of €6 million, plus a percentage of the eventual capital cost of building the mine (details set out below), at any time during the total duration of the License and any future extensions of the License (a minimum of 7 years from the date of the Agreement). The decision to exercise the Option during this period is at the sole discretion of the Company. The percentage of the capital costs payable by Tethyan in relation to the building of the mine, which will only become clear once a bankable feasibility study has been conducted over the License, will only become payable if Tethyan exercises the Option, secures the necessary financing and proceeds with the building of the mine. The percentage of these costs due to Deep Research will be calculated as follows:

·      4% of CAPEX up to €200m;

·      2% of CAPEX between €200 – 500m;

·      1% of CAPEX in excess of €500m.

Pursuant to the terms of the Agreement, and in order to retain the Option, the Company will arrange to complete, at its sole discretion, the following work program on the License:

·      a minimum of 2,000m drilling before 28 December 2016 (achieved – see below);

·      a minimum of 5,000m additional drilling before 28 December 2018;

·      complete a preliminary economic assessment before the sixth anniversary of the date of the Agreement;

·      complete an economic feasibility study before the seventh anniversary of the Agreement.

The Company will also make certain milestone payments, at its sole discretion, in order to retain the Option:

·      €100,000 by 1 March 2017 (paid);

·      €100,000 on each anniversary of the signing the Agreement up until the third year.

Suva Ruda Work Programme

In 2016 Tethyan Resources completed first-pass geological mapping and the collection of 223 soil samples over the Rudnitza copper-gold porphyry prospect located on its Suva Ruda Project. Detailed soil sampling was completed on 50 metre sample spacing and 200 meter line spacing over the central portion of Rudnitza. This sampling defined a coincident copper, gold and molybdenum anomaly in soils over a 1200 meter by up to 600 meter area, with a maximum molybdenum sample value of 59 ppm. Molybdenum is a good indicator for porphyry mineralisation as it is not generally mobile in the weathering environment. These results combined with geological mapping defined two compelling target areas, a southern zone of outcropping quartz stockwork with dimensions of 600 meters by 500 meters which was previously drilled to shallow depths by Phelps Dodge in 2004, and a northern zone with dimensions of 700 meters by 300 meters which is a significant new target generated by this soil sampling program that has not been drill tested before.

The copper and molybdenum soil anomaly, hosted in phyllic-altered andesitic and dacite porphyry stocks, is surrounded by a broad zinc anomaly greater than 200 ppm which is recognised as a typical geochemical zonation feature seen in many porphyry systems worldwide.

The Company completed 4 diamond drill holes for a total of 2,318 meters on the Rudnitza copper-gold porphyry prospect within the Suva Ruda exploration permit located in Serbia in November December 2016. The drilling program, which was operated by contractor Drillex International d.o.o., successfully achieved the Company’s objectives through consistent drilling rates and positive local community support.

In accordance with the requirements of the Option Agreement between Tethyan and Deep Research d.o.o. over the Suva Ruda Project, Tethyan successfully met the requirement to drill 2,000 meters prior to the 28th December 2016 in order for the Option Agreement to remain in effect. Furthermore, it meets the exploration program requirements set out for the Suva Ruda License granted by the Serbian Government.

Results from Drilling Suva Ruda

Tethyan’s geologists logged all drill core and prepared and sent the drill core for third party analysis to ALS Global’s preparation laboratory located in Bor, Serbia. Assaying is being completed at ALS Global’s laboratory located in Romania. Additionally, Tethyan is immediately rehabilitating the drilling sites and access roads in accordance with the Company’s commitment to sustainable operation.

In its first drill hole RDD-001, Tethyan drilled 567 metres at 0.28% copper and 0.45 g/t gold from surface. Detailed results of the four drill holes are shown in the table below:

Drillhole ID

Easting

Northing

Elevation (m)

Dip

Azimuth

Total Depth (m)

From (m)

To (m)

Length (m)

Copper Grade (%)

Gold Grade (g/t)

RDD-001

473,927

4,787,653

604

-85

140

584.6

0

567

567

0.28

0.45

including

122

158

36

1.22

0.38

RDD-002

474,022

4,787,637

622

-76

162

461.8

6

74

68

0.11

0.23

including

98

320

222

0.24

0.27

354

440

86

0.16

0.30

RDD-003

473,873

4,787,734

581

-63

144

710

42

327

285

0.31

0.33

including

102

118.7

16.7

1.55

0.20

657

695

38

0.14

0.27

RDD-004

474,005

4,787,752

592

-60

214

558.6

48

404

356

0.38

0.31

including

102

132

30

1.45

0.39

476

502

26

0.12

0.19

 These drill holes significantly expanded the footprint of copper-gold porphyry-style mineralisation at Tethyan’s Rudnitza prospect. All drill holes intersected a thick package of dacitic volcanic rocks showing strong phyllic and propylitic alteration with extensive zones of thin (2-20mm) quartz-pyrite±chalcopyrite±chalcocite veining and stockwork.

Supergene enrichment has produced a higher-grade chalcocite rich copper zone observed in three of the drill holes that is in excess of 1 % copper. Drill Hole RDD-004 intersected 30 metres at 1.45 % copper, 0.39 g/t gold from 102 metres. Copper grades are generally seen to be lower in the leached zone above this supergene zone however gold mineralisation was encountered from surface. Beneath the supergene zone gold and copper grades are generally consistent over large intervals exceeding 200 metres.

Tethyan has completed a ground magnetics survey and is planning an extensive induced polarization (IP) geophysical survey over this area to target further drilling.

 

Gokcanica, Serbia 

In May 2016, the Company executed an option agreement with Rockstone Group LLC (“RSG”) to which Tethyan can earn up to 80% interest in the Gokcanica Project licenses in Southern Serbia (“the Gokcanica Permits).

The Gokcanica Permits consist of two adjoining permits with a combined area of 110km² located in southern Serbia, 5 km to the north of the town Josaniska Banja. The area is located within the 500 km² Rashka ore field. A Jurassic ophiolite sequence intruded and overlain by Tertiary andesitic volcanics and intermediate stocks covers the area. The board of Tethyan believes that good potential for porphyry and epithermal style mineralisation as well as deeper-level replacement base metal and gold deposits exists throughout the license.

Under the option agreement, Tethyan had until July 8, 2016 to complete a due diligence period, upon conclusion of which the Company paid RSG EUR10,000 and issued to RSG 333,334 ordinary shares in the capital of the Company (“Ordinary Shares”).

 Following payment of the sums above, Tethyan may earn up to an 80% interest in the Gokcanica project by completing the following:

 (a)           Stage 1:

In order to earn a 51% interest in the Gokcanica Permits, Tethyan must commit a minimum expenditure of USD$500,000 on an exploration program that will include a drilling of a minimum of 1,000m of either reverse circulation and/or diamond drilling within 2 years. This could include, but is not restricted to, mapping, trenching, rock-chip sampling, soil sampling, remote sensing, geophysics as well as other relevant items such as logistics and administration.

(b)            Stage 2:

In order to earn a 70% interest in the Gokcanica Permits, in addition to the drilling commitment outlined above, Tethyan must complete a Pre-Feasibility Study (“PFS”) within 5 years.

(c)            Stage 3:

In order to earn an 80% interest in the Gokcanica Permits, in addition to the drilling commitment and PFS, Tethyan must complete a Bankable Feasibility Study (“BFS”) within the time-frame of the exploration permits, their renewals or conversion to a mining permit.

3rd party Finders fee agreement on Gokcanica Project

As a part of this deal a finder’s fee was payable to a 3rd party, a private British Virgin Islands company Pure Nature Limited (“PNL), who previously had an option over the project prior to Tethyan signing the deal with Rockstone. As consideration for Tethyan assuming 100% of Pure Nature Limited’s rights to the Gokcanica Project, Tethyan agreed to pay the following:

(a) pay PNL €20,000 cash within 60 days of exercising an agreement with Rockstone.

(b) pay PNL €10,000 cash by electronic bank transfer within 15 days of the 6 month anniversary of this MoU.

(c) issue to PNL 833,334 Tethyan Resources shares

Should Tethyan complete earn in of 51 % of the project from Rockstone then PNL will be entitled to participate in Tethyan’s share of the project as per the following deal. Within 60 days following Tethyan acquiring a 51% interest in the Permits, Tethyan will elect to either:

–       To Issue 1,666,667 Tethyan Shares to PNL, and

–       Tethyan and PNL shall form a new company under the laws of the Republic of Serbia (“NEWCO”) in order to hold the 51% interest in the Permits and proceed with development of the Permits. The Ownership/interest in NEWCO will be held 90% by Tethyan and 10% by PNL

or,

Transfer 100% of Tethyan’s interest in the Permits and all rights to all existing agreements regarding the Permits to PNL.

Gokcanica Work Program 2016

At Gokcanica, a stream sediment sampling program was completed and has defined a number of strong gold anomalies which require further attention with detailed soil sampling and geological mapping.

All samples were prepared and analysed by ALS Laboratories in Serbia and Romania. Soil samples were sieved to minus 80 mesh and assayed by methods ME-MS41 and AuST43. Stream sediment samples were collected as 5 kg samples, sieved to minus 2 mm then further reduced to minus 80 mesh by ALS Laboratories before analysis by methods ME-MS41L and Au-ST44. Tethyan has implemented a QAQC program for all samples sent to ALS which includes the use of duplicate samples and known standard samples.

The plan is to define targets which can be drilled in the spring of 2018.

SUMMARY OF QUARTERLY RESULTS

           As at and for the three months ended

June 30,

                2017

March 31,

                2017

December 31,

                2016

September 30,

            2016

(£,000)

(£,000)

(£,000)

(£,000)

Total assets

£  1,603

£  1,910

£1,671

£  1,374

Exploration properties

245

Total non-current liabilities

Working capital

910

1,584

1,015

1,335

Net loss

(523)

(601)

(994)

(268)

Basic and diluted loss per share (in pence)

(0.38)

(0.41)

(1.38)

(0.29)

            As at and for the three months ended

June 30,

      2016

March 31,

                2016

December 31,

                2015

September 30,

2015

(£,000)

(£,000)

(£,000)

(£,000)

Total assets

£  1,457

£97

£117

£  31

Exploration properties

Total non-current liabilities

Working capital (deficiency)

910

(92)

10

(31)

Net loss

(346)

(95)

(67)

(27)

Basic and diluted loss per share (in pence)

(0.50)

(0.14)

(0.10)

(0.04)

The Company did not generate any revenues and did not declare any dividends.

Summary of operating expenses

Six months ended June 30, 2017

Six months ended June 30, 2016

£’000

£’000

Director fees

55

20

General exploration

113

2

Consulting

179

29

Filing fees

56

7

Foreign Exchange

4

(4)

Office and administrative

80

17

Professional fees

116

23

Salaries

118

15

Share-based compensation

32

Travel

70

15

Total

823

124

 

Summary of exploration expenditure by project

Suva Ruda Project

Gokcanica Project

Other

Total

£’000

£’000

£’000

£’000

Geological work

173

173

Geological samples

51

51

Geological equipment

1

1

Geophysics

4

4

Geological reports

2

2

Licenses

12

2

14

Balance, as at June 30, 2017

243

2

245

During the six month period ended June 30, 2017, the Company spent £8,484 in exploration permits and applications fees in Kosovo.

RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED JUNE 30, 2017

During the three-month period ended June 30, 2017, the Company had a net loss of £550,000 compared to a loss of £346,000 for the three-month period ended June 30, 2016. Significant fluctuations occurred in the following categories:

a)     During the three month quarter, the Company recorded general exploration costs of £105,000 compared to £2,000 during the same period ended June 30, 2016. The increase in general exploration expenses related to costs incurred on the Suva Ruda project. Increases in professional fees of £52,000 (2016 – £Nil), salaries and director fees totaling £82,000 (2016 – £20,000) and consulting fees of £118,000 (2016 – £13,000) were all due to the increase in activity within the Company and its exploration program in the Suva Ruda region compared to the previous period.

 

RESULTS OF OPERATIONS FOR THE SIX MONTHS ENDED JUNE 30, 2017

During the six-month period ended June 30, 2017, the Company had a net loss of £1,152,000 compared to a loss of £441,000 for the six-month period ended June 30, 2016. Significant fluctuations occurred in the following categories:

a)   During the six month period, the Company recorded general exploration costs of £113,000 compared to £2,000 during the same period ended June 30, 2016. The increase in general exploration expenses related to costs incurred on the Suva Ruda project. Increases in professional fees of £116,000 (2016 – £23,000), salaries and director fees totaling £173,000 (2016 – £20,000) and consulting fees of £179,000 (2016 – £29,000) were all due to the increase in activity within the Company related to the process of listing on the TSX-V and its exploration program in the Suva Ruda region compared to the previous period.

LIQUIDITY AND CAPITAL RESOURCES

The Company’s cash position at June 30, 2017 was £979,000. As at June 30, 2017, the Company’s working capital was £910,000 compared to a working capital of £1,015,000 as at December 31, 2016.

Net cash used in operating activities for the period ended June 30, 2017, was (£691,000) compared to net cash used of (£109,000) during the prior period ended June 30, 2016. The cash used in operating activities reflects the increased corporate and exploration activities during the quarter.

Net cash used in investing activities during the period ended June 30, 2017 included expenditures of £245,000 to exploration properties and £41,000 to property, plant and equipment compared to an investment in a subsidiary of £268,000 in the previous period ended June 30, 2016.

Financing activities during the period ended June 30, 2017 included a proceeds of £1,000,000 received from a private placement completed during the period.

The accompanying consolidated financial statements have been prepared on the basis of accounting principles applicable to a “going concern”, which assumes that the Company will continue its operations for the foreseeable future and will be able to realize its assets and discharge its liabilities in the normal course of operations. The Company does not currently generate any revenues or have operations which generate cash flows. The Company’s ability to continue on a going concern basis depends on its ability to successfully raise financing. Although the Company has been successful in the past in obtaining financing, there is no assurance that it will be able to obtain adequate financing in the future or that such financing will be on terms acceptable to the Company. These condensed consolidated interim financial statements do not give effect to adjustments that would be necessary to the carrying values and classification of assets and liabilities should the Company be unable to continue as a going concern.

RELATED PARTY TRANSACTIONS

Key management and personnel compensation

Key management personnel include the directors of the Company. Key management compensation consists of the following:

Six months ended June 30, 2017

(£’000)

Six months ended June 30, 2016

(£’000)

P Mullens

55

20

C Goss

4

22

F Baker

37

19

S Thacker

32

6

D Fohlen

35

11

G Kantarcigil

6

163

84

The Directors consider that although the balances are recoverable in full they are not repayable on demand and so are regarded as long term in nature (i.e. due in more than one year). The Company engaged the services of J. Proust & Associates Inc., a company controlled by John Proust, a director of both the Company and Southern Arc, its 29.91% shareholder, to provide finance, accounting and administrative services to the Company for a total amount estimated at £25,000. As at June 30, 2017, a balance of £9,300 remains payable.

The above transactions occurred during the normal course of operations and are recorded at the consideration established and agreed to by the related parties.

CURRENT SHARE DATA

As at the date of this MD&A, the Company had 168,182,052 ordinary shares in issue.

On August 10, 2016, the Company granted 7,300,000 share options to directors, officers, employees and consultants with an exercise price of 5.00 pence with an expiry period of 1 year. The options granted do not have any market based vesting conditions and are vested immediately.

On December 21, 2016, the Company granted 3,400,000 options to certain directors and officers of the Company with an exercise price of 2.40 pence with an expiry date of 5 years from the grant date.

As at August 25, 2017, the Company had share options outstanding as follows:

Exercise Period

Number

Weighted average exercise price (pence)

Exercisable until 2019

7,700,000

5.00

Exercisable until 2021

3,400,000

2.40

11,100,000

4.20

As at the date of this MD&A, the Company has 2,447,060 share purchase warrants outstanding with a weighted average exercise price of 2.26 pence per share. Details are as follows:

Weighted

average

exercise

price

Exercise period

Number

(pence)

Exercisable until October 4, 2018

105,560

3.48

Exercisable until December 12, 2019

2,341,500

2.20

Exercisable at the period end

2,447,060

2.26

 

SUBSEQUENT EVENT

On August 17, 2017, the Company obtained a receipt in connection with the filing of a non-offering final prospectus in the province of British Columbia, Canada. As a result, the Company is now a reporting issuer in the province of British Columbia. In addition, the TSX Venture Exchange (“TSX-V”) has conditionally approved the Company’s application to list its ordinary shares on the TSX-V. Final approval of listing on the TSX-V is subject to the Company satisfying certain customary conditions required by the TSX-V.

On August 25, 2017, the Company appointed Fabian Baker, the Chief Operating Officer, to the board of directors of the Company. The Company also appointed Sol Thacker, the Chief Financial Officer, as Corporate Secretary.

RISKS AND UNCERTAINTIES

The nature of the Company’s operations exposes the Company to credit risk, foreign currency risk, liquidity risk, and geopolitical risk, which may have a material effect on cash flows, operations and comprehensive income.

The Company’s risk management policies are established to identify and analyze the risks faced by the Company, to set appropriate risk limits and to monitor market conditions and the Company’s activities. The Board of Directors has overall responsibility for the establishment and oversight of the Company’s risk management framework and policies.

Credit risk

Credit risk is the risk of loss associated with a counterparty’s inability to fulfill its payment obligations. Financial instruments that potentially subject the Company to credit risk consist primarily of cash and accounts receivable. The maximum exposure to credit risk is equal to the carrying value of the financial assets. Credit risk is managed by ensuring that surplus funds are deposited only with well-established financial institutions of high quality credit standing. The Company assess the collectability and fair value of this receivable at each reporting period. The Company’s maximum exposure to credit risk is limited to its bank balances and trade and other receivables.

Foreign exchange risk

Foreign currency risk refers to the risk that the value of a financial commitment, recognised asset or liability will fluctuate due to changes in foreign currency rates. The Company reports its financial results in Sterling and is therefore exposed to foreign currency risk as a result of financial assets and future transactions denominated in currencies other than Sterling.

Exchange gains and losses on financial assets or future transactions are recognised directly in profit or loss. A proportion of the Company’s costs are incurred in US Dollars. Accordingly, movements in exchange rates could have a detrimental effect on the Company’s results and financial condition.

The cash balances carried within the Company comprise of the following currency holdings: 

June 30, 2017

£’000

December 31, 2016

£’000

Sterling

979

956

US Dollars

24

Euro

5

979

985

The Group operates within the UK and Europe. All transactions are denominated in Sterling, or US Dollars. As such the Group is exposed to transactional foreign exchange risk. The mix of currencies and terms of trade are such that the Directors believe that the Company’s exposure is minimal and consequently they do not specifically seek to hedge that exposure.

The table below demonstrates the sensitivity of the Group’s consolidated loss before tax to illustrative changes in the value of the US dollar with respect to Sterling, all other variables held constant. The sensitivity analysis includes only US dollars because the effect of other currencies is not significant. The sensitivities reflect the effect on profit before tax and total equity respectively of 5% changes in the exchange rates of US dollars vs. GBP £’s. 

US$ vs. £

US$ vs. £

£’000

£’000

2017

4

4

2016

2

2

Liquidity risk

Liquidity risk relates to the ability of the Group to meet future obligations and financial liabilities. The Group monitors its risk to a shortage of funds using cash flow models, which consider existing financial assets, liabilities and projected cash inflows and outflows from operations.

The table below sets out the maturity profile of financial liabilities as at June 30, 2017: 

June 30, 2017

December 31, 2016

£’000

£’000

Due in less than one month

407

308

Due between one and three months

Due between three months and one year

407

308

To date, the Company has relied upon shareholder funding of its activities. Development of mineral properties, the acquisition of new opportunities, or the recovery of royalty income from third party assets, may be dependent upon the Company’s ability to obtain further financing through joint ventures, equity or debt financing or other means. Although the Company has been successful in the past in obtaining equity financing there can be no assurance that the Group will be able to obtain adequate financing in the future or that the terms of such financing will be favorable.

Geopolitical risk

To date, all of the Company’s properties and operations have been located in Eastern Europe. As such, the Company is subject to political, economic and other uncertainties, including, but not limited to, changes in policies and regulations or the personnel administering them, changes with regard to foreign ownership of property rights, exchange controls and royalty and tax increases, and other risks arising out of foreign governmental sovereignty over the areas in which the Company’s operations are to be conducted, as well as risks of loss due to civil strife, acts of war and insurrections. If a dispute arises regarding the Company’s property interests, the Company cannot rely on western legal standards in defending or advancing its interests.

Industry

The Company is engaged in the acquisition and exploration of resource properties, an inherently risky business, and there is no assurance that an economic mineral deposit will ever be discovered and subsequently put into production. Most exploration projects do not result in the discovery of economically mineable deposits.  The focus of the Company is on areas in which the geological setting is well understood by management.

Gold and metal prices

The price of gold is affected by numerous factors beyond the control of the Company including central bank sales, producer hedging activities, the relative exchange rate of the US$ with other major currencies, demand, political and economic conditions and production levels. In addition, the price of gold has been volatile over short periods of time due to speculative activities. The prices of other metals and mineral products for which the Company may explore all have the same or similar price risk factors.

Trends

Continued strength in the US dollar, decreasing oil prices and the stable gold price increases demand, especially from Asia, and perception of increased risk in major financial markets has supported a discernible need for the development of commodity exploration projects. Junior companies, like Tethyan, are key participants in identifying properties of merit to explore and develop.

 

CRITICAL ACCOUNTING POLICIES

Reference should be made to the Company’s significant accounting policies contained in Note 4 of the Company’s audited consolidated financial statements for the nine months ended December 31, 2016 and year ended March 31, 2016. These accounting policies can have a significant impact on the financial performance and financial position of the Company.

Significant accounting judgment and estimates

The preparation of the financial statements requires management to make certain estimates, judgments and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and reported amounts of expenses during the reporting period. Actual outcomes could differ from these estimates. The financial statements include estimates which, by their nature, are uncertain. The impacts of such estimates are pervasive throughout the financial statements, and may require accounting adjustments based on future occurrences. Revisions to accounting estimates are recognized in the period in which the estimate is revised and future periods if the revision affects both current and future periods. These estimates are based on historical experience, current and future economic conditions and other factors, including expectations of future events that are believed to be reasonable under the circumstances.

Critical accounting estimates

Significant assumptions about the future and other sources of estimation uncertainty that management has made at the end of the reporting period, that could result in a material adjustment to the carrying amounts of assets and liabilities, in the event that actual results differ from assumptions made, relate to, but are not limited to the following:

i)       The calculation of share-based compensation requires estimates of volatility, forfeiture rates and market prices related to the issuance of share options. These estimates impact share-based compensation expense and share-based payment reserve.

ii)     The application of the Company’s accounting policy for exploration expenditure requires estimates in determining whether it is likely that future economic benefits will flow to the Company, which may be based on assumptions about future events or circumstances. Estimates and assumptions made may change if new information becomes available. If, after an expenditure is capitalized, information becomes available suggesting that the recovery of the expenditure is unlikely, the amount capitalized is written off in profit or loss in the year the new information becomes available.

Critical accounting judgments

Critical accounting judgements are accounting policies that have been identified as being complex or involving subjective judgements or assessments.

i)          The Company’s assessment of its ability to continue as a going concern requires judgements about whether sufficient financing will be obtained in the near term. See “Liquidity and Capital Resources”.

ii)         The determination of a subsidiary’s functional currency often requires significant judgement where the primary economic environment in which they operate may not be clear. This can have a significant impact on the consolidated results of the Company based on the foreign currency translation method.

Financial instruments

On initial recognition, all financial assets and financial liabilities, including derivatives, are recorded at fair value. All transactions related to financial instruments are recorded on a trade date basis. The directly attributable transaction costs of financial assets and liabilities are included in the carrying value of financial assets and liabilities except transaction costs related to financial assets and liabilities classified as fair value through profit or loss which are expensed in the period they are incurred. Subsequently, derivatives are measured at fair value and changes in fair value are recognized in profit of loss. For other financial assets and liabilities, subsequent measurement is as follows:

Subsequent measurement

Financial assets

The Company classifies its financial assets into one of the following categories, depending on the purpose for which the asset was acquired. The Company’s accounting policy for each category is as follows:

Fair value through profit or loss – This category comprises derivatives, or assets acquired or incurred principally for the purpose of selling or repurchasing it in the near term. They are carried in the statement of financial position at fair value with changes in fair value recognized in profit or loss.

Loans and receivables – These assets are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. They are carried at amortized cost using the effective interest method less any provision for impairment.  Individually significant receivables are considered for impairment when they are past due or when other objective evidence is received that a specific counterparty will default. Cash and receivable are classified as loans and receivables.

Held-to-maturity investments – These assets are non-derivative financial assets with fixed or determinable payments and fixed maturities that the Company’s management has the positive intention and ability to hold to maturity. These assets are measured at amortized cost using the effective interest method.  If there is objective evidence that the investment is impaired, determined by reference to external credit ratings and other relevant indicators, the financial asset is measured at the present value of estimated future cash flows.  Any changes to the carrying amount of the investment, including impairment losses, are recognized in profit or loss. The Company has not classified any financial assets as held-to-maturity.

Available-for-sale – Non-derivative financial assets not included in the above categories are classified as available-for-sale. They are carried at fair value with changes in fair value recognized directly in other comprehensive income (loss). Where a decline in the fair value of an available-for-sale financial asset constitutes objective evidence of impairment, the amount of the loss is removed from equity and recognized in profit or loss.

All financial assets except for those recognized at fair value through profit or loss are subject to review for impairment at each reporting date. Financial assets are impaired when there is any objective evidence that a financial asset or a group of financial assets is impaired. Different criteria to determine impairment are applied for each category of financial assets, which are described above.

Financial Liabilities

The Company classifies its financial liabilities into one of two categories. The Company’s accounting policy for each category is as follows:

Fair value through profit or loss – This category comprises derivatives, or liabilities acquired or incurred principally for the purpose of selling or repurchasing it in the near term. They are carried in the statement of financial position at fair value with changes in fair value recognized in profit or loss.  The Company does not have any financial liabilities that are classified as fair value through profit or loss.

Other financial liabilities This category includes accounts payable and accrued liabilities and due to related parties which are initially recognized at fair value and subsequently are recognized at amortized cost at the settlement date using the effective interest method of amortization.

Fair value

International Financial Reporting Standards (“IFRS”) require disclosure about fair market value measurements for financial instruments and liquidity risk using a three-level hierarchy that reflects the significance of the inputs used in making the fair value measurements. The three-level hierarchy is as follows:

Level 1 –

Unadjusted quoted prices in active markets for identical assets or liabilities;

Level 2 –

Inputs other than quoted prices that are observable for the asset or liability either directly or indirectly; and

Level 3 –

Inputs that are not based on observable market data.

The carrying value of cash, receivable, accounts payable and accrued liabilities approximate their fair value due to their short-term nature.

Change in fiscal year end

The Company changed its fiscal year end from March 31 to December 31, effective December 31, 2016 in order to coincide the Company’s annual reporting as a public company with its peers in the mining industry.

The timing and ending date of the periods, including the comparative periods, of each interim financial report and the annual financial statements to be filed for the Company’s transition year and its new financial year are as follows:

Transition Year

Comparative Annual Financial Statements to Transition Year

Interim Periods for Transition Year

Comparative Interim Periods in Transition Year

9 months ended December 31, 2016

12 month audited annual financial statements for year ended March 31, 2016

3 month interim financial statements for period ended

June 30, 2016

3 month interim financial statements for period ended

June 30, 2015

New Financial Year

Comparative Annual Financial Statements to New Financial Year

Interim Periods for New Financial Year

Comparative Interim Periods to Interim Periods in New Financial Year

12 months ended

December 31, 2017

9 month audited annual financial statements for year ended December 31, 2016

12 month audited annual financial statements for the year ended March 31, 2016

3 month interim financial statements for period ended

March 31, 2017

3 and 6 month interim financial statements for period ended

June 30, 2017

3 and 9 month interim financial statements for period ended

September 30, 2017

3 month interim financial statements for period ended

March 31, 2016

3 and 6 month interim financial statements for period ended

June 30, 2016

3 and 9 month interim financial statements for period ended

September 30, 2016

New accounting standards and pronouncements

·     IFRS 9 – Financial Instruments introduces new requirements for the classification and measurement of financial assets. Under IFRS 9 (2014), financial assets are classified and measured based on the business model in which they are held and the characteristics of their contractual cash flows. IFRS 9 (2014) also introduces additional changes relating to financial liabilities, amends the impairment model for financial assets and provides a new general hedge accounting standard. The required adoption date for the Company of IFRS 9 is January 1, 2018.

·      IFRS 15 – Revenue from Contracts with Customers contains a single model that applies to contracts with customers and two approaches to recognizing revenue: at a point in time or over time. The model features a contract-based five-step analysis of transactions to determine whether, how much and when revenue is recognized.  New estimates and judgmental thresholds have been introduced, which may affect the amount and/or timing of revenue recognized. IFRS 15 will be effective for the Company on January 1, 2018, with early adoption permitted.

·      IFRS 16 – Leases introduces a single lessee accounting model and requires a lessee to recognize assets and liabilities for all leases with a term of more than 12 months, unless the underlying asset is of low value. A lessee is required to recognize a right-of-use asset representing its right to use the underlying asset and a lease liability representing its obligation to make lease payments. IFRS 16 is effective for the Company on January 1, 2019 with early adoption permitted if IFRS 15 has also been applied.

 

QUALIFIED PERSON AND QUALITY CONTROL AND ASSURANCE

The technical information in this document has been reviewed by Peter Mullens, Tethyan’s Chief Executive Officer, FAusIMM who has sufficient experience relevant to the style of mineralization under consideration and qualifies as a Qualified Person as defined by National Instrument 43-101.

CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

Certain of the statements made and information contained herein is “forward-looking information” within the meaning of the British Columbia Securities Act.  These statements relate to future events or the Company’s future performance.  All statements, other than statements of historical fact, may be forward-looking statements.  Generally, these forward-looking statements can be identified by the use of forward-looking  terminology such as “anticipates”, “plans”, “budget”, “scheduled”, “continue”, “estimates”, “forecasts”, “expect”, “is expected”, “project”, “propose”, “potential”, “targeting”, “intends”, “believes” or variations of such words and phrases or statements that certain actions, events or results “may”, “could”, “would”, “might”, or “will be taken”, “occur” or “be achieved” or the negative connotation thereof.  These statements involve known and unknown risks, uncertainties and other factors that may cause actual results or events to differ materially from those anticipated in such forward-looking statements.  The Company believes that the expectations reflected in those forward-looking statements are reasonable, but no assurance can be given that these expectations will prove to be correct and such forward-looking statements included in this MD&A should not be unduly relied upon by readers, as actual results may vary.  These statements speak only as of the date of this MD&A and are expressly qualified, in their entirety, by this cautionary statement.  In particular, this MD&A contains forward-looking statements, pertaining to the following: capital expenditure programs, development of resources, treatment under governmental and taxation regimes, expectations regarding the Company’s ability to raise capital, expenditures to be made by the Company and its joint venture partners on its properties and work plans to be conducted. 

With respect to forward-looking statements listed above and contained in the MD&A, the Company has made assumptions regarding, among other things:

·      uncertainties relating to receiving mining, exploration and other permits in Serbia;

·      the impact of increasing competition;

·      unpredictable changes to the market prices for gold, copper and other commodities;

·      availability of additional financing and farm-in or joint-venture partners;

·      anticipated results of exploration and development activities;

·      the Company’s ability to sell the securities in its investments for a profit, or at all;

·      the Company’s ability to obtain additional financing on satisfactory terms or at all.

The Company’s actual results could differ materially from those anticipated in these forward-looking statements as a result of the risk factors set forth below and elsewhere in this MD&A: volatility in the market price for minerals; uncertainties associated with estimating resources; geological, technical, drilling and processing problems; liabilities and risks, including environmental liabilities and risks, inherent in mineral and oil and gas operations; fluctuations in currencies and interest rates; incorrect assessments of the value of acquisitions; unanticipated results of exploration activities; competition for, amongst other things, capital, undeveloped lands and skilled personnel; lack of availability of additional financing and farm-in or joint venture partners and unpredictable weather conditions. Although the Company has attempted to identify important factors that could cause results to differ materially from those contained in forward-looking statements, there may be other factors that cause results not to be as anticipated, estimated or intended. 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. Accordingly, readers should not place undue reliance on forward-looking statements. Readers are cautioned that the foregoing lists of factors are not exhaustive.  Forward looking statements are made as of the date hereof and accordingly are subject to change after such date. The forward-looking statements contained in this MD&A are expressly qualified by this cautionary statement.  The Company does not undertake to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise, except in accordance with applicable securities laws.