EX-99.16 17 tm2117600d2_ex99-16.htm EXHIBIT 99.16

 

Exhibit 99.16

 

 

 

 

 

 

CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS

 

FOR THE THREE AND SIX MONTHS ENDED

JUNE 30, 2020 AND 2019

 

 

 

 

Ero Copper Corp.

Condensed Consolidated Statements of Financial Position

(Amounts in thousands of US Dollars)

(Unaudited)

 

 

      As at   As at 
ASSETS  Notes  June 30, 2020   December 31, 2019 
Current              
Cash and cash equivalents      $51,617   $21,485 
Restricted cash   7(b)   750    1,500 
Accounts receivable       1,538    7,680 
Inventories   3   20,563    19,377 
Other current assets   4   16,486    25,523 
        90,954    75,565 
Non-Current              
Mineral, property, plant and equipment   5   285,169    339,516 
Exploration and evaluation assets   6   19,771    25,878 
Deposits       493    1,200 
Deferred income tax assets       23,316    13,099 
Other non-current assets       627    7,416 
        329,376    387,109 
Total Assets      $420,330   $462,674 
               
LIABILITIES              
Current              
Accounts payable and accrued liabilities      $33,779   $43,694 
Current portion of loans and borrowings   7   25,793    18,984 
Current portion of value added, payroll and other taxes payable       10,902    13,994 
Current portion of derivatives   15   43,907    650 
Current portion of lease liabilities       2,306    3,159 
        116,687    80,481 
Non-Current              
Loans and borrowings   7   157,482    140,386 
Provisions       24,955    33,581 
Value added, payroll and other taxes       2,726    5,694 
Derivatives   15   20,489    1,059 
Lease liabilities       460    487 
Other non-current liabilities       1,806    1,928 
        207,918    183,135 
Total Liabilities       324,605    263,616 
               
SHAREHOLDERS’ EQUITY              
Share capital   8   122,819    120,492 
Equity reserves       (84,596)   (24,489)
Retained earnings       56,993    102,220 
Equity attributable to owners of the Company       95,216    198,223 
Non-controlling interests       509    835 
        95,725    199,058 
Total Liabilities and Equity      $420,330   $462,674 

 

Nature of operations (Note 1); Contingencies (Note 17)

 

APPROVED ON BEHALF OF THE BOARD:

 

“David Strang” , CEO & Director                         ”Matthew Wubs”                     , Director

 

The accompanying notes are an integral part of these condensed consolidated interim financial statements

Page 1 

 

 

Ero Copper Corp.

Condensed Consolidated Statements of Operations and Comprehensive Income (Loss)

(Amounts in thousands of US Dollars, except share and per share amounts)

(Unaudited)

 

      Three months ended   Three months ended   Six months ended   Six months ended 
   Notes  June 30, 2020   June 30, 2019   June 30, 2020   June 30, 2019 
Revenue   9  $70,760   $76,474   $138,505   $148,515 
Cost of product sold   10   (30,114)   (43,282)   (65,925)   (81,422)
Sales expenses       (1,114)   (1,107)   (2,396)   (2,414)
Gross profit       39,532    32,085    70,184    64,679 
Expenses                        
General and administrative   11   (6,073)   (7,127)   (13,576)   (13,750)
Share-based compensation   8(a) to (c)   (2,723)   (1,292)   (4,772)   (3,135)
Income before the undernoted       30,736    23,666    51,836    47,794 
Other income (expenses)                        
Finance income       530    106    997    242 
Finance expense   12   (2,845)   (6,398)   (9,496)   (13,208)
Foreign exchange gain (loss)   13   (16,322)   1,583    (98,244)   1,295 
Loss on debt settlement       -    (1,783)   -    (1,783)
Other income (expenses)       (802)   109    (1,495)   1,157 
Income (loss) before income taxes       11,297    17,283    (56,402)   35,497 
Income tax recovery (expense)                        
Current       (2,798)   (2,678)   (3,889)   (6,896)
Deferred       (791)   651    15,004    2,138 
        (3,589)   (2,027)   11,115    (4,758)
Net income (loss) for the period       7,708    15,256    (45,287)   30,739 
Other comprehensive income (loss)                        
Foreign currency translation income (loss)       (14,041)   2,701    (63,960)   1,288 
Comprehensive income (loss)      $(6,333)  $17,957   $(109,247)  $32,027 
Net income (loss) attributable to:                        
Owners of the Company       7,526    15,111    (45,227)   30,434 
Non-controlling interests       182    145    (60)   305 
       $7,708   $15,256   $(45,287)  $30,739 
Comprehensive income (loss) attributable to:                        
Owners of the Company       (6,459)   17,801    (108,931)   31,717 
Non-controlling interests       126    156    (316)   310 
       $(6,333)  $17,957   $(109,247)  $32,027 
Net income (loss) per share attributable to                        
owners of the Company   8(e)                    
Net income (loss) per share                        
Basic      $0.09   $0.18   $(0.53)  $0.36 
Diluted      $0.08   $0.17   $(0.53)  $0.34 
Weighted average number of common shares                        
outstanding                        
Basic       85,933,443    85,032,841    85,846,319    84,920,351 
Diluted       91,428,969    90,696,926    85,846,319    90,401,277 

 

The accompanying notes are an integral part of these condensed consolidated interim financial statements

Page 2 

 

 

Ero Copper Corp.

Condensed Consolidated Statement of Changes in Shareholders’ Equity

(Amounts in thousands of US Dollars, except share and per share amounts)

(Unaudited)

 

      Share Capital   Equity Reserves                 
      Number of       Contributed   Foreign   Retained       Non-controlling     
   Notes  shares   Amount   surplus   exchange   earnings   Total   interest   Total equity 
Balance, December 31, 2019     85,703,646   $120,492   $9,084   $(33,573)  $102,220   $198,223   $835   $199,058 
Loss for the period     -    -    -    -    (45,227)   (45,227)   (60)   (45,287)
Other comprehensive loss for the period     -    -    -    (63,704)   -    (63,704)   (256)   (63,960)
Total comprehensive loss for the period     -    -    -    (63,704)   (45,227)   (108,931)   (316)   (109,247)
Shares issued for:                                          
Exercise of options and warrants     594,313    2,327    (671)   -    -    1,656    -    1,656 
Share-based compensation  8(a) to (c)  -    -    4,268    -    -    4,268    -    4,268 
Dividends to non-controlling interest     -    -    -    -         -    (10)   (10)
Balance, June 30, 2020     86,297,959   $122,819   $12,681   $(97,277)  $56,993   $95,216   $509   $95,725 
Balance, December 31, 2018     84,738,650   $117,944   $3,897   $(28,652)  $10,337   $103,526   $296   $103,822 
Income for the period     -    -    -    -    30,434    30,434    305    30,739 
Other comprehensive income for the period     -    -    -    1,283    -    1,283    5    1,288 
Total comprehensive income for the period     -    -    -    1,283    30,434    31,717    310    32,027 
Shares issued for:                                          
Exercise of options and warrants     448,330    1,529    (396)   -    -    1,133    -    1,133 
Share-based compensation     -    -    3,135    -    -    3,135    -    3,135 
Balance, June 30, 2019     85,186,980   $119,473   $6,636   $(27,369)  $40,771   $139,511   $606   $140,117 

 

The accompanying notes are an integral part of these condensed consolidated interim financial statements

Page 3 

 

 

Ero Copper Corp.

Condensed Consolidated Statements of Cash Flows

(Amounts in thousands of US Dollars)

(Unaudited)

 

   Three months ended   Three months ended   Six months ended June   Six months ended June 
   June 30, 2020   June 30, 2019   30, 2020   30, 2019 
Cash Flows from / (used in) Operating Activities                    
Net income (loss) for the period  $7,708   $15,256   $(45,287)  $30,739 
Adjustments for:                    
Amortization and depreciation   9,261    11,222    19,742    23,361 
Income tax expense (recovery)   3,589    2,027    (11,115)   4,758 
Loss on debt settlement   -    1,783    -    1,783 
Write-off of plant and equipment   48    940    48    1,268 
Provisions   212    (113)   555    47 
Share-based compensation   2,723    1,292    4,772    3,135 
Finance income   (530)   (106)   (997)   (242)
Finance expenses   2,845    6,398    9,496    13,208 
Foreign exchange loss   16,322    (1,583)   98,244    (1,295)
Changes in:                    
Accounts receivable   (98)   11,568    5,764    (333)
Inventories   (3,044)   3,392    (4,981)   (3,367)
Other assets   2,473    (1,106)   3,914    (1,088)
Accounts payable and accrued liabilities   7,386    (1,976)   6,328    (6,457)
Deferred revenue   -    21    -    4,332 
Value added, payroll and other taxes   (1,724)   (7,174)   1,063    (3,548)
    47,171    41,841    87,546    66,301 
Derivative contract settlements   (4,363)   (14)   (7,014)   709 
Provision settlements   (338)   (715)   (748)   (831)
Income taxes paid   -    (3,808)   -    (3,808)
    42,470    37,304    79,784    62,371 
Cash Flows from / (used in) Investing Activities                    
Additions to mineral property, plant and equipment   (30,375)   (19,065)   (58,742)   (41,016)
Additions to exploration and evaluation assets   (34)   (429)   (88)   (604)
Other investments   47    -    565    17 
    (30,362)   (19,494)   (58,265)   (41,603)
Cash Flows from / (used in) Financing Activities                    
Restricted cash   375    372    750    750 
Lease liability payments   (1,016)   (917)   (2,187)   (1,819)
New loans and borrowings, net of finance costs   5,309    12,865    50,998    17,539 
Loans and borrowings paid   (7,854)   (14,403)   (29,084)   (17,387)
Interest paid on loans and borrowings   (1,284)   (2,570)   (3,732)   (5,390)
Other finance expenses   (540)   (765)   (1,306)   (1,628)
Issuance of share capital, net of issuance costs   1,357    590    1,656    1,133 
    (3,653)   (4,828)   17,095    (6,802)
Effect of exchange rate changes on cash and cash                    
equivalents   (1,176)   1,011    (8,482)   574 
Net increase in cash and cash equivalents   7,279    13,993    30,132    14,540 
Cash and cash equivalents - beginning of period   44,338    19,488    21,485    18,941 
Cash and cash equivalents - end of period  $51,617   $33,481   $51,617   $33,481 

 

The accompanying notes are an integral part of these condensed consolidated interim financial statements

Page 4 

 

 

Ero Copper Corp.

Notes to Condensed Consolidated Interim Financial Statements

(Tabular amounts in thousands of US Dollars, except share and per share amounts)

(Unaudited)

 

1.Nature of Operations

 

Ero Copper Corp. (“Ero" or the "Company") was incorporated on May 16, 2016 under the Business Corporations Act (British Columbia) and maintains its head office at Suite 1050, 625 Howe Street, Vancouver, BC, V6C 2T6. The Company’s shares are publicly traded on the Toronto Stock Exchange under the symbol “ERO”.

 

The Company’s principal asset is its 99.6% ownership interest in Mineração Caraíba S.A. (“MCSA”). The Company also currently owns a 97.6% ownership interest in NX Gold S.A. (“NX Gold”) indirectly through its wholly-owned subsidiary, Ero Gold Corp. (“Ero Gold”).

 

MCSA is a Brazilian company which holds a 100% interest in the Vale do Curaçá Property and the Boa Esperança Property (Note 6). MCSA’s predominant activity is the production and sale of copper concentrate from the Vale do Curaçá Property, with gold and silver produced and sold as by-products. The Company currently mines copper ore from the Pilar underground mine (“Pilar UG Mine”) and the Vermelhos underground mine (“Vermelhos UG Mine”). The Boa Esperança Property is located within the municipality of Tucumã in the southeastern part of the state of Pará, Brazil, and consists of a single mineral concession covering an area of 4,034 hectares (“ha”).

 

NX Gold is a Brazilian gold mining company focused on the exploration and commercialization of gold as its main product and silver as its sub-product. NX Gold wholly owns a 31,096 ha property, located approximately 18 kilometers west of the town of Nova Xavantina, southeastern Mato Grosso State, Brazil, consisting of a single mining concession covering an area of 620 ha, where all gold mining and processing activities occur.

 

On March 11, 2020, the COVID-19 outbreak was declared a pandemic by the World Health Organization. Although COVID-19 has not materially impacted the Company’s operations during the six months ended June 30, 2020, the situation is dynamic and the ultimate duration and magnitude of the impact on the economy and our business are not known at this time. These impacts could include an impact on the Company’s ability to obtain debt and equity financing, impairment of investments, impairments in the value of long-lived assets, continued fluctuation in the value of the Brazilian Reais or potential future decreases in revenue or the profitability of ongoing operations. During the six months ended June 30, 2020, the Company and its subsidiaries have drawn down $14.0 million and BRL $97.6 million ($17.8 million) under various credit facilities as a proactive measure in light of the uncertainty surrounding the COVID-19 pandemic.

 

2.Basis of Preparation

 

a)Statement of Compliance

 

These condensed consolidated interim financial statements have been prepared in accordance with International Accounting Standards (“IAS”) 34, Interim Financial Reporting and, except as disclosed in note 2(b) below, follow the same accounting policies and methods of application as the Company’s most recent annual consolidated financial statements for the year ended December 31, 2019. These condensed consolidated interim financial statements do not include all of the information required for full consolidated annual financial statements and should be read in conjunction with the consolidated financial statements of the Company as at and for the year ended December 31, 2019, prepared in accordance with International Financial Reporting Standards (“IFRS”) as issued by the International Accounting Standards Board (“IASB”) and interpretations of the International Financial Reporting Interpretations Committee.

 

These condensed consolidated interim financial statements were authorized for issue by the Board of Directors of the Company (the “Board”) on August 6, 2020.

 

Page 5 

 

 

Ero Copper Corp.

Notes to Condensed Consolidated Interim Financial Statements

(Tabular amounts in thousands of US Dollars, except share and per share amounts)

(Unaudited)

 

b)New Accounting Standards and Interpretations Adopted in the Current Period

 

The following new and amended IFRS pronouncements were adopted effective January 1, 2020 and had no impact to the Company’s financial statements:

 

·Amendments to References to the Conceptual Framework in IFRS Standards

 

·In September 2019, the IASB issued first phase amendments IFRS 9 Financial Instruments, IAS 39 Financial Instruments: Recognition and Hedging and IFRS 7 Financial Instrument Disclosures to address the financial reporting impact of the reform on interest rate benchmarks, such as the discontinuance of the interbank offered rates. The first phase amendment is focused on the impact to hedge accounting requirements. The Company adopted the first phase amendment and there was no material impact on its consolidated financial statements. The Company will continue to assess the effect of amendments related to the interest rate benchmark reform on its consolidated financial statements.

 

The following amendment to accounting standards has been issued but not yet adopted in the financial statements:

 

·On May 14, 2020, the IASB published a narrow scope amendment to IAS 16 Property, Plant and Equipment - Proceeds before Intended Use. The amendment prohibits deducting from the cost of property, plant and equipment amounts received from selling items produced while preparing the asset for its intended use. Instead, amounts received will be recognized as sales proceeds and related cost in profit or loss. The effective date is for annual periods beginning on or after January 1, 2022. The Company is assessing the effect of the narrow scope amendment on its consolidated financial statements.

 

c) Use of Judgments and Estimates

 

In preparing these condensed consolidated interim financial statements, management has made judgments, estimates and assumptions that affect the application of the Company’s accounting policies and the reported amounts of assets, liabilities, income and expense. Actual results may differ. Significant judgments made by management in applying the Company’s accounting policies and key sources of estimation uncertainty were the same as those applied in the most recent annual audited consolidated financial statements for the year ended December 31, 2019, except for those applied for derivatives.

 

The fair value of derivative instruments is determined using either present value techniques or option pricing models that utilize a variety of inputs that are a combination of quoted prices and market-corroborated inputs. The fair value of the Company’s derivative contracts includes an adjustment for credit risk. Derivative instruments are classified within Level 2 of the fair value hierarchy.

 

3.Inventories

 

   June 30, 2020   December 31, 2019 
Supplies and consumables  $15,286   $13,878 
Stockpile   1,368    2,556 
Work in progress   1,474    2,164 
Finished goods   2,435    779 
   $20,563   $19,377 

 

Page 6 

 

 

Ero Copper Corp.

Notes to Condensed Consolidated Interim Financial Statements

(Tabular amounts in thousands of US Dollars, except share and per share amounts)

(Unaudited)

 

4.Other Current Assets

 

   June 30, 2020   December 31, 2019 
Advances to suppliers  $797   $1,046 
Prepaid expenses   2,530    4,779 
Advances to employees (a)   793    2,829 
Value added federal taxes recoverable (b)   12,366    16,869 
   $16,486   $25,523 

 

(a)Advances to employees include short term advances of salary, vacation and other benefits granted to employees of the Company’s subsidiary MCSA.

 

(b)$9.2 million of this balance (December 31, 2019 - $12.2 million) relates to a 2019 favourable legal decision that recognizes MCSA’s right to a tax credit as a result of historical over-payments. MCSA is able to use these tax credits against a variety of taxes, including taxes on future sales. During the three and six months ended June 30, 2020, the Company used $1.6 million and $4.8 million of these credits, respectively, to offset current income taxes payable.

 

5.Mineral, Property, Plant and Equipment


Additions to mineral, property, plant and equipment totaled $33.7 million and $61.5 million during the three and six months ended June 30, 2020 respectively (three and six months ended June 30, 2019 - $22.5 million and $49.7 million, respectively), of which $0.1 million and $6.4 million was obtained through financing arrangements with equipment suppliers, respectively (three and six months ended June 30, 2019 – nil and $2.1 million, respectively).

 

Certain equipment is secured by the equipment finance loans (note 7).

 

Included in mineral, property, plant and equipment is $5.4 million (December 31, 2019 - $7.3 million) related to the value of mineral resources beyond proven and probable reserves not currently being amortized. In addition, $61.8 million (December 31, 2019 - $52.7 million) related to projects in progress are not currently being amortized.

 

6.Exploration and Evaluation Assets

 

Exploration and evaluation assets relate to the Boa Esperança Property located in the Municipality of Tucumã, in the state of Pará, Brazil which consists of a single mineral concession. This prospective copper/gold property is in advanced stages of exploration with various geological mineral resource studies and is the subject of a completed feasibility study.

 

Page 7 

 

 

Ero Copper Corp.

Notes to Condensed Consolidated Interim Financial Statements

(Tabular amounts in thousands of US Dollars, except share and per share amounts)

(Unaudited)

 

 

7. Loans and Borrowings

 

                     

 

Carrying value, including accrued interest

Description  Denomination  Security   Time to Maturity   Coupon rate  

Principal to

be repaid

  

June 30,

2020

   December 31, 2019 
Bank loan (at acquisition)  BRL R$   Unsecured    79 months    CDI + 0.5%   4,599    4,060    5,941 
Bank loan (MCSA)  USD   Unsecured    6 months    4.43%   750    752    1,503 
Bank loan (MCSA)  BRL R$   Unsecured    -    CDI + 3.7%   -    -    204 
Line of credit (MCSA)  BRL R$   Unsecured    9 months    CDI + 9.0%   4,109    4,121    - 
Line of credit (MCSA)  BRL R$   Unsecured    0 - 12 months    13.20%-24.34%   11,360    11,480    - 
Lines of credit (NX Gold)  BRL R$   Unsecured    0 - 8 months    14.34%-14.98%   2,739    2,769    670 
Equipment finance loan (Plural)  BRL R$   Secured    17 months    CDI + 7.0%   1,552    1,562    2,892 
Equipment finance loans  BRL R$   Secured    12 - 49 months    12.95%-16.49%   1,251    1,374    5,585 
Equipment finance loans  EURO   Secured    25 - 31 months    5.5%-7.0%   2,784    2,816    3,996 
Equipment finance loans  USD   Secured    23 - 39 months    6.50%-7.95%   5,142    5,213    4,125 
Senior non-revolving credit facility  USD   Secured    45 months    LIBOR + 2.50%-4.25%   75,000    74,564    79,091 
Senior revolving credit facility  USD   Secured    45 months    LIBOR + 2.50%-4.25%   75,000    74,564    55,363 
Total                    $184,286   $183,275   $159,370 

 

Current portion:                              $25,793   $18,984  
Non-current portion:                              $157,482   $140,386  

 

   June 30,
2020		 

June 30,

2019

 
Balance, beginning of year  $159,370  $152,234 
New senior revolving credit facility, net   13,668   10,623 
New equipment finance loans   8,134   9,089 
New lines of credit   35,584   - 
Principal and interest payments   (32,816)  (22,777)
Interest accretion   5,273   5,860 
Loss on debt settlement   -   1,783 
Effect of foreign exchange rate changes   (5,938)  48 
Balance, end of period  $183,275  $156,860 

 

(a)Senior credit facility

 

The Company has a $150 million facility from a syndicate of Canadian financial institutions. The facility is comprised of a $75 million (December 31, 2019 - $80 million) senior secured amortizing non-revolving credit facility (“Term Facility”) and a $75 million (December 31, 2019 - $70 million) senior secured revolving term credit facility (“Revolving Credit Facility”) (collectively the “Facilities”).

 

Page 8 

 

 

Ero Copper Corp.

Notes to Condensed Consolidated Interim Financial Statements

(Tabular amounts in thousands of US Dollars, except share and per share amounts)

(Unaudited)

 

 

 

On March 31, 2020, the Company amended the Facilities to reduce its cost of borrowing by 25 to 50 basis points, depending on the consolidated leverage ratio, and to defer the scheduled principal payments for two years.

 

The Term Facility now matures on March 31, 2024 and requires principal repayments on a quarterly basis commencing on March 31, 2022, while the Revolving Credit Facility is now payable in full at maturity on March 31, 2024. The Facilities bear interest on a sliding scale at a rate of LIBOR plus 2.50% to 4.25% depending on the Company’s consolidated leverage ratio at the time. Commitment fees for any undrawn portion of the Revolving Credit Facility are also on a sliding scale between 0.63% to 1.06%. The Company determined that the amendments were a non-substantial modification. In March 2020, the Company drew down the remainder of the amount available under the Facilities totaling $14.0 million ($13.7 million net of transaction costs). The Term Facility previously had a five-year term with equal quarterly principal payments beginning on December 13, 2020, while the Revolving Credit Facility was payable at maturity on December 13, 2022. The Facilities previously bore interest on a sliding scale at a rate of LIBOR plus 2.75% to 4.75% depending on the Company’s consolidated leverage ratio at the time.

 

The Facilities include standard and customary terms and conditions with respect to fees, representations, warranties, and financial covenants that remain unchanged from prior amendments.

 

The Facilities are secured by pledges of shares of MCSA, Ero Gold and NX Gold. The Company is required to comply with certain financial covenants. As of the date of these consolidated financial statements, the Company is in compliance with these covenants.

 

In January 2019, the Company entered into an interest rate swap transaction with a Canadian financial institution whereby the floating interest on a notional amount of $65.0 million of the Term Facility was swapped for a fixed interest rate of 2.69%. This interest rate swap transaction is in effect for the majority of term of the Term Facility, with the notional amount reduced as principal payments are made. Interest swap settlements are being made on a quarterly basis.

 

(b)Bank loan and equipment finance loans

 

The bank loan (at acquisition) relates to the Company’s subsidiary, MCSA, and was recognized at the date of acquisition at fair value and has subsequently been recognized at amortized cost, net of settlements. Interest is being recognized using the effective interest rate method at an interest rate of 11.29%.

 

As per the terms of one of MCSA’s bank loans, the Company is required to maintain a separate debt service bank account with sufficient funds to guarantee scheduled principal payments by MCSA. At June 30, 2020, $0.8 million was on deposit (December 31, 2019 - $1.5 million) in the designated debt service account and is presented as restricted cash in the statement of financial position.

 

MCSA is required to comply with certain financial covenants which MCSA is in compliance with at June 30, 2020. The equipment finance loans are secured by the corresponding equipment relating to them and a guarantee by the Company.

 

(c)MCSA and NX Gold lines of credit

 

At June 30, 2020, the Company’s subsidiaries, MCSA and NX Gold, have the following credit facilities available:

 

MCSA entered into a credit agreement in 2019 for a non-revolving line of credit of up to BRL $30.0 million at an interest rate of CDI (“Brazilian Interbank Deposit Rate”) + 9% per annum. MCSA may drawdown on this line of credit at any time until November 30, 2020. In addition, in 2019 MCSA also entered into a second credit agreement for a total of up to BRL $30.0 million at an interest rate of 14.98% per annum. MCSA may drawdown on this line of credit at any time until August 27, 2020. The Company and NX Gold provide unsecured guarantees for these credit agreements. At June 30, 2020, BRL $52.9 million ($9.7 million) (December 31, 2019 - $nil) had been drawn from these credit facilities, which represents the maximum amount available under the credit facilities at June 30, 2020.

 

During the three months ended June 30, 2020, MCSA entered into a credit agreement for a line of credit of up to BRL $14.9 million at an interest rate of 14.3% per annum. MCSA may drawdown on this line of credit at any time until November 23, 2020. The Company provides an unsecured guarantee for this credit agreement. At June 30, 2020, BRL $14.9 million ($2.7 million) had been drawn from this credit facility.

 

Page 9 

 

 

Ero Copper Corp.

Notes to Condensed Consolidated Interim Financial Statements

(Tabular amounts in thousands of US Dollars, except share and per share amounts)

(Unaudited)

 

 

During the three months ended June 30, 2020, MCSA entered into various credit agreements for lines of credit of up to a total of BRL $17.5 million at various interest rates. The interest rates on these credit agreements range from 13.20% to 24.34%. At June 30, 2020, BRL $17.5 million ($3.2 million) has been drawn from these credit facilities.

 

NX Gold entered into an agreement in 2019 for a line of credit of up to BRL $7.5 million at an interest rate of 14.98% per annum. NX Gold may drawdown on this line of credit at any time until August 27, 2020. As at June 30, 2020, BRL $7.5 million ($1.4 million) (December 31, 2019 - BRL $2.7 million ($0.7 million)) has been drawn from NX Gold’s line of credit.

 

In addition, during the six months ended June 30, 2020, NX Gold entered into a second credit agreement for a line of credit of up to BRL $7.5 million at an interest rate of 14.34% per annum. NX Gold may drawdown on this line of credit at any time until February 22, 2021. NX Gold is using BRL $1.5 million of this line of credit to provide a letter of credit to a supplier until January 31, 2022. The Company provides unsecured guarantees for these credit agreements. At June 30, 2020, BRL $7.5 million ($1.4 million) (December 31, 2019 - $nil) had been drawn from this line of credit.

 

8. Share Capital

 

As at June 30, 2020, the Company’s authorized share capital consists of an unlimited number of common shares without par value. As at June 30, 2020, 86,297,959 common shares were outstanding.

 

(a)Options

 

As at June 30, 2020, the following stock options were outstanding:

 

   Number of   Weighted Weighted Average   

Vested and Exercisable

Number of

   Weighted

Average

Remaining

 
Expiry Date  Stock Options   Exercise Price    Stock Options   Life in Years 
May 15, 2022   683,890    1.50    USD683,890    1.87 
July 10, 2022   60,000    1.50    USD26,666    2.03 
November 24, 2022   318,000    6.48    CSD212,000    2.40 
December 7, 2022   1,338,336    6.74    CSD891,669    2.44 
January 18, 2023   60,000    7.95    CSD40,000    2.55 
January 23, 2023   41,667    7.76    CSD41,667    2.57 
June 19, 2023   144,000    10.25    CSD94,000    2.97 
July 16, 2023   200,000    9.01    CSD66,666    3.04 
December 31, 2023   1,085,983    9.76    CSD315,637    3.50 
January 2, 2024   125,000    9.80    CSD125,000    3.51 
August 15, 2024   40,000    21.09    CSD40,000    4.13 
December 12, 2024   470,228    20.52    CSD-    4.45 
January 2, 2025   73,456    23.42    CSD43,456    4.51 
    4,640,560    6.44    USD2,580,651    2.92 

 

In determining the weighted average exercise price of all outstanding options in the tables above and below, the CAD prices were converted to USD at the June 30, 2020 exchange rate of 1.3628.

 

    Number of   Weighted Average 
    Stock Options   Exercise Price 
Outstanding stock options, December 31, 2019    5,061,417   $6.23 
Issued    73,456    17.19 

Exercised    (494,313)   3.01 
Outstanding stock options, June 30, 2020    4,640,560   $6.44 

 

Page 10 

 

 

Ero Copper Corp.

Notes to Condensed Consolidated Interim Financial Statements

(Tabular amounts in thousands of US Dollars, except share and per share amounts)

(Unaudited)

 

 

The fair value of options granted in the three and six months ended June 30, 2020 was determined using the Black-Scholes option pricing model. The weighted average inputs used in the measurement of fair values at grant date of the options are the following:

 

Expected term (years)   3.0 
Forfeiture rate   0%
Volatility   50.6%
Dividend yield   0%
Risk-free interest rate   1.63%
Weighted-average fair value per option  $6.46 

 

For the three and six months ended June 30, 2020, the Company recorded share-based compensation of $0.9 million and $2.1 million (three and six months ended June 30, 2019 - $1.0 million and $2.6 million), with respect to its outstanding stock options.

 

(b)Share Unit Plan

 

As at June 30, 2020, 438,463 share units (December 31, 2019 - 437,463 share units) have been issued to certain officers and employees of the Company pursuant to the Company’s Share Unit Plan and are outstanding. These share units will vest three years from the date of grant by the Board and the number of share units that will vest may range from 0% to 200% of the number granted, subject to the satisfaction of certain market and non-market performance conditions. Each vested share unit entitles the holder thereof to receive on or about the applicable date of vesting of such share unit (i) one common share; (ii) a cash amount equal to the fair market value of one common share as at the applicable date of vesting; or (iii) a combination of (i) and (ii), as determined by the Board in its sole discretion. The Company currently intends to settle these share units using common shares. Accordingly, they are classified as equity settled instruments.

 

For the share units with non-market performance conditions, the fair value of the share units granted was determined using the share price at the date of grant. For the share units with market performance conditions, the fair value of the share units granted was determined using a Geometric Brownian Motion model. The weighted average inputs used in the measurement of fair values at grant date of the 1,000 Share Units granted during the six months ended June 30, 2020 are as follows:

 

Expected term (years)   3.0 
Forfeiture rate   0%
Volatility   44.9%
Dividend yield   0%
Risk-free interest rate   1.82%
Weighted-average fair value per Share Unit  $18.38 

 

During the three and six months ended June 30, 2020, the Company recorded share-based compensation of $1.6 million and $2.2 million (three and six months ended June 30, 2019 - $0.3 million and $0.5 million, respectively), with respect to the share units.

 

Page 11 

 

 

Ero Copper Corp.

Notes to Condensed Consolidated Interim Financial Statements

(Tabular amounts in thousands of US Dollars, except share and per share amounts)

(Unaudited)

 

 

(c)Deferred Share Unit Plan

 

On December 12, 2019, a Deferred Share Unit Plan (“DSU Plan”) was established by the Board as a component of our compensation for independent directors. Only independent directors are eligible to participate and to receive deferred share units (“DSUs”) under the DSU Plan.  DSUs may be awarded by the Board from time to time to provide independent directors with appropriate equity-based compensation for the services they render to the Company and may be subject to terms and conditions with respect to vesting of such DSUs.  In addition, independent directors may elect to receive a portion or all of their respective annual cash remuneration in the form of DSUs, which will be fully vested upon such grant.  The number of DSUs to be awarded to a participant under the DSU Plan is determined by dividing the portion of that participant’s annual cash remuneration by the fair market value of a common share on the last day of the quarter in which such portion of the annual cash remuneration was earned. Pursuant to the DSU Plan, DSUs may only be settled by way of cash payment. A participant is not entitled to payment in respect of the DSUs until his or her death, retirement or removal from the Board.  The settlement amount of each DSU is based on the fair market value of a common share on the DSU redemption date multiplied by the number of DSUs being redeemed.

 

During the three and six months ended June 30, 2020, 4,994 DSUs and 37,321 DSUs, respectively, (three and six months ended June 30, 2019 - nil) were issued to independent directors.

 

As at June 30, 2020, the fair value of the DSU liability was $0.5 million (December 31, 2019 - $nil) which has been recognized in other non-current liabilities with a corresponding $0.2 million and $0.5 million recognized in share-based compensation expense for the three and six months ended June 30, 2020, respectively.

 

(d)Warrants

 

As at June 30, 2020, 2,766,662 (December 31, 2019 - 2,866,662) common share purchase warrants were outstanding with a weighted average exercise price of $1.20 and a weighted average remaining contractual life of 1.45 years.

 

(e)Net Income (Loss) per Share

 

   Three months   Three months 
   ended    ended  
   June 30, 2020   June 30, 2019 
Weighted average number of common shares outstanding   85,933,443    85,032,841 
Dilutive effect of warrants   2,540,190    2,876,266 
Dilutive effect of stock options   2,297,641    2,787,819 
Dilutive effect of Share Units   657,695    - 
Weighted average number of diluted common shares outstanding   91,428,969    90,696,926 
Net income attributable to owners of the Company  $7,526   $15,111 
Basic net income per share attributable to owners of the Company   0.09    0.18 
Diluted net income per share attributable to owners of the Company   0.08    0.17 

 

Page 12 

 

 

Ero Copper Corp.

Notes to Condensed Consolidated Interim Financial Statements

(Tabular amounts in thousands of US Dollars, except share and per share amounts)

(Unaudited)

 

 

   Six months ended   Six months ended 
   June 30, 2020   June 30, 2019 
Weighted average number of common shares outstanding   85,846,319    84,920,351 
Dilutive effect of warrants   -    2,902,700 

Dilutive effect of stock options   -    2,578,226 
Weighted average number of diluted common shares outstanding   85,846,319    90,401,277 
Net income (loss) attributable to owners of the Company  $(45,227)  $30,434 
Basic net income (loss) per share attributable to owners of the Company   (0.53)   0.36 
Diluted net income (loss) per share attributable to owners of the Company   (0.53)   0.34 

 

For the six months ended June 30, 2020, the potentially dilutive effect of warrants and stock options are excluded from the dilutive net loss per share calculation as the Company incurred a loss for the period and all dilutive instruments would be anti-dilutive.

 

9. Revenue

 

   Three months ended   Three months ended   Six months ended   Six months ended 
   June 30, 2020   June 30, 2019   June 30, 2020   June 30, 2019 
Copper concentrate                    
- sales within Brazil  $26,315   $44,924   $77,536   $93,156 
- export sales   27,596    19,414    36,439    28,392 
- price adjustments on provisionally priced sales   2,634    373    (1,285)   2,658 
Gold                    
- export sales   14,215    11,763    25,815    24,309 
   $70,760   $76,474   $138,505   $148,515 

 

Under the terms of the Company’s contract with its primary customer, sales are provisionally priced on the date of sale based on the previous month’s average copper price.  The final sales price for all shipments in a month is determined at the end of the month in which the sale is recognized.  As at June 30, 2020, there were no sales subject to provisional pricing.  During the three and six months ended June 30, 2020, the Company recognized $2.6 million and $(1.3 million), respectively, (three and six months ended June 30, 2019 - $0.4 million and $2.7 million) in price adjustments related to provisionally priced sales. 

 

10. Cost of Product Sold

 

   Three months ended   Three months ended   Six months ended   Six months ended 
   June 30, 2020   June 30, 2019   June 30, 2020   June 30, 2019 
Materials  $4,374   $6,024   $9,356   $10,641 
Salaries and benefits   6,767    11,042    15,457    20,155 
Depreciation and depletion   9,228    11,181    19,677    23,279 
Contracted services   4,329    7,086    9,852    12,788 
Maintenance costs   3,422    4,734    7,015    8,828 
Utilities   1,886    2,958    4,289    5,271 
Other costs   108    257    279    460 
   $30,114   $43,282   $65,925   $81,422 

 

Page 13 

 

 

Ero Copper Corp.

Notes to Condensed Consolidated Interim Financial Statements

(Tabular amounts in thousands of US Dollars, except share and per share amounts)

(Unaudited)

 

 

11. General and Administrative Expenses

 

   Three months ended   Three months ended   Six months ended   Six months ended 
   June 30, 2020   June 30, 2019   June 30, 2020   June 30, 2019 
Accounting and legal  $307   $421   $505   $758 
Amortization and depreciation   33    41    65    82 
Office and sundry   1,431    1,562    3,037    2,888 
Provisions   212    (113)   555    47 
Salaries and consulting fees   3,305    3,997    6,856    7,571 
Incentive payments   682    567    1,855    1,134 
Transfer agent and filing fees   54    38    172    123 
Travel and conference   49    614    531    1,147 
   $6,073   $7,127   $13,576   $13,750 

 

12.Finance Expense

 

   Three months ended   Three months ended   Six months ended   Six months ended 
   June 30, 2020   June 30, 2019   June 30, 2020   June 30, 2019 
Interest on loans and borrowings  $2,542   $2,740   $5,274   $5,873 
Loss on interest rate swap derivative   195    992    2,018    1,828 
Accretion of mine closure and rehabilitation provision   191    1,440    459    2,731 
Interest on lease liabilities   60    72    137    201 
Other finance expenses   (143)   1,154    1,608    2,575 
   $2,845   $6,398   $9,496   $13,208 

 

13.Foreign Exchange Loss

 

The following foreign exchange gains (losses) arise as a result of balances and transactions in the Company’s Brazilian subsidiaries that are denominated in currencies other than the Brazilian Reais (BRL$), which is their functional currency.

 

   Three months ended   Three months ended   Six months ended   Six months ended 
   June 30, 2020   June 30, 2019   June 30, 2020   June 30, 2019 
Foreign exchange on USD denominated debt in Brazil  $(2,996)  $1,574   $(29,869)  $1,438 
Realized foreign exchange on derivative contracts (note 15)   (4,363)   (14)   (7,014)   709 
Unrealized foreign exchange on derivative contracts (note 15)   (8,485)   9    (61,140)   (256)
Other   (478)   14    (221)   (596)
   $(16,322)  $1,583   $(98,244)  $1,295 

 

Page 14 

 

 

Ero Copper Corp.

Notes to Condensed Consolidated Interim Financial Statements

(Tabular amounts in thousands of US Dollars, except share and per share amounts)

(Unaudited)

 

 

14.Related Party Transactions

 

Key management personnel consist of the Company’s directors and officers and their compensation includes director retainer fees and management salaries paid to these individuals, as well as share-based compensation. The aggregate value of compensation paid to key management personnel for the three and six months ended June 30, 2020 was $1.8 million and $3.6 million, respectively ($1.5 million and $2.9 million for the three and six months ended June 30, 2019, respectively). In addition, 43,456 options and 37,321 DSUs were issued to non-executive directors during the six months ended June 30, 2020, respectively (125,000 options for the six months ended June 30, 2019). $1.6 million and $2.9 million was recognized in share-based compensation expense for the three and six months ended June 30, 2020, respectively, for options, Share Units, and DSUs issued ($1.3 million and $3.1 million for the three and six months ended June 30, 2019, respectively).

 

During the three and six months ended June 30, 2020, key management personnel exercised 223,555 and 248,555 options, as well as 100,000 warrants, for cash proceeds to the Company of $0.5 million and $0.6 million, respectively (110,000 options for cash proceeds of $0.2 million for the three and six months ended June 30, 2019, respectively).

 

15.Financial Instruments

 

Fair value

 

Fair values of financial assets and liabilities are determined based on available market information and valuation methodologies appropriate to each situation. However, some judgments are required in the interpretation of the market data to produce the most appropriate fair value estimates. The use of different market information and/or evaluation methodologies may have a material effect on the fair value amounts.

 

As at June 30, 2020, derivatives were measured at fair value based on Level 2 inputs.

 

The carrying values of cash and cash equivalents, restricted cash, accounts receivable, deposits, financial investments and accounts payable and accrued liabilities approximate their fair values due to their short terms to maturity or market rates of interest used to discount amounts. The carrying value of value added, payroll and other taxes approximate fair value based on the discount rate applied. At June 30, 2020, the carrying value of loans and borrowings is $183.3 million while the fair value is approximately $184.3 million. The effective interest rates used to amortize these loans are a close approximation of market rates of interest at June 30, 2020 (Level 2 of the fair value hierarchy).

 

Credit risk

 

Credit risk is the risk of financial loss to the Company if a customer or counterparty to a financial instrument fails to meet its contractual obligations and arises principally from the Company’s receivables from customers. The carrying amount of the financial assets below represents the maximum credit risk exposure as at June 30, 2020 and December 31, 2019:

 

  

June 30,

2020

   December 31, 2019 
Cash and cash equivalents  $51,617   $21,485 
Restricted cash   750    1,500 
Accounts receivable   1,538    7,680 
Deposits and other non-current assets   1,011    2,396 
   $54,916   $33,061 

 

Page 15 

 

 

Ero Copper Corp.

Notes to Condensed Consolidated Interim Financial Statements

(Tabular amounts in thousands of US Dollars, except share and per share amounts)

(Unaudited)

 

 

The Company invests cash and cash equivalents as well as restricted cash with financial institutions that are financially sound based on their credit rating. The Company’s exposure to credit risk associated with accounts receivable is influenced mainly by the individual characteristics of each customer. The Company currently has only three significant customers, all of which have no history of credit default with the Company. The Company has not incurred credit losses during the six months ended June 30, 2020 nor recognized a provision for credit losses.

 

(i) Foreign exchange currency risk

 

The Company may use derivatives, including forward contracts, collars and swap contracts, to manage market risks. At June 30, 2020, the Company has entered into foreign exchange collar contracts at zero cost for notional amounts of $399.4 million with an average floor rate of 4.00 BRL to US Dollar and an average cap rate of 4.67 BRL to US Dollar (December 31, 2019 - notional amount of $336.6 million in foreign exchange forward collar contracts). The maturity dates of these contracts are from July 1, 2020 to March 29, 2022 and are financially settled on a net basis. The fair value of these contracts at June 30, 2020 was a liability of $61.2 million, (December 31, 2019 - $nil) which was included in Derivatives in the statement of financial position. The change in fair value of foreign exchange collar contracts was a loss of $8.5 million and $61.1 million for the three and six months ended June 30, 2020, respectively, (a nominal gain and a loss of $0.3 million for the three and six months ended June 30, 2019, respectively) and has been recognized in foreign exchange loss. In addition, during the three and six months ended June 30, 2020, the Company recognized a realized loss of $4.4 million and $7.0 million, respectively (a nominal loss and a realized gain of $0.7 million for the three and six months ended June 30, 2019, respectively) related to the settlement of foreign currency forward collar contracts.

 

(ii) Interest rate risk

 

The Company is principally exposed to the variation in interest rates on loans and borrowings with variable rates of interest. Management reduces interest rate risk exposure by entering into loans and borrowings with fixed rates of interest or by entering into derivative instruments that fix the ultimate interest rate paid.

 

The Company is principally exposed to interest rate risk through its Term Facilities of $150.0 million, Brazilian Real denominated bank loans of $4.6 million, Brazilian Real denominated lines of credit of $4.1 million, and Brazilian Real denominated equipment finance loans of $2.1 million. Based on the Company’s net exposure at June 30, 2020, a 1% change in the variable rates would have an impact of $1.6 million on pre-tax annual net income, without consideration of the effects of the interest rate swap contract below.

 

In order to mitigate the above volatility due to variable rates on loans, as at June 30, 2020, the Company has entered into an interest rate swap contract to manage interest rate risk (see note 7). The floating interest on a notional amount of $65 million was swapped for a fixed interest rate of 2.69%. The fair value of this contract at June 30, 2020 was a liability of $3.2 million (December 31, 2019 - $1.7 million) and was included in Derivatives in the statement of financial position. The change in fair value of $0.2 million and $2.0 million for the three and six months ended June 30, 2020, respectively, was included in finance expense.

 

(iii) Price risk

 

The Company may use derivatives, including forward contracts, collars and swap contracts, to manage commodity price risks. At June 30, 2020, the Company has not entered into any commodity derivative contracts.

 

Page 16 

 

 

Ero Copper Corp.

 

Notes to Condensed Consolidated Interim Financial Statements

(Tabular amounts in thousands of US Dollars, except share and per share amounts)

(Unaudited)

 

16. Segment Disclosure

 

The Company’s operations are segmented by entity between MCSA, NX Gold and corporate head office, which is consistent with internal reporting purposes. The Company monitors the operating results of its operating segments separately for the purpose of making decisions about resource allocation and performance assessment.

 

Total revenue from MCSA is from two customers while total revenue from NX Gold is from one customer.

 

Segmented information is as follows:

 

Three months ended June 30, 2020  MCSA (Brazil)   NX Gold (Brazil)   Corporate (Canada)   Consolidated 
Revenue  $56,545   $14,215   $-   $70,760 
Depreciation and depletion   (8,565)   (663)   -    (9,228)
Other cost of product sold expenses   (17,080)   (3,806)   -    (20,886)
Cost of product sold   (25,645)   (4,469)   -    (30,114)
Sales expenses   (1,114)   -    -    (1,114)
Gross profit   29,786    9,746    -    39,532 
Expenses                    
General and administrative   (3,817)   (213)   (2,043)   (6,073)
Share-based compensation   -    -    (2,723)   (2,723)
Finance income   168    18    344    530 
Finance expenses   (780)   (196)   (1,869)   (2,845)
Foreign exchange loss   (15,861)   (440)   (21)   (16,322)
Other income   (413)   (389)   -    (802)
Income (loss) before taxes   9,083    8,526    (6,312)   11,297 
Current taxes   (1,506)   (1,292)   -    (2,798)
Deferred taxes   (849)   58    -    (791)
Net Income (Loss)  $6,728   $7,292   $(6,312)  $7,708 

 

Page 17 

 

 

Ero Copper Corp.

 

Notes to Condensed Consolidated Interim Financial Statements

(Tabular amounts in thousands of US Dollars, except share and per share amounts)

(Unaudited)

 

Six months ended June 30, 2020  MCSA (Brazil)   NX Gold (Brazil)   Corporate (Canada)   Consolidated 
Revenue  $112,690   $25,815   $-   $138,505 
Depreciation and depletion   (18,131)   (1,546)   -    (19,677)
Other cost of product sold expenses   (37,468)   (8,780)   -    (46,248)
Cost of product sold   (55,599)   (10,326)   -    (65,925)
Sales expenses   (2,396)   -    -    (2,396)
Gross profit   54,695    15,489    -    70,184 
Expenses                    
General and administrative   (8,565)   (693)   (4,318)   (13,576)
Share-based compensation   -    -    (4,772)   (4,772)
Finance income   285    58    654    997 
Finance expenses   (3,421)   (528)   (5,547)   (9,496)
Foreign exchange loss   (95,510)   (2,704)   (30)   (98,244)
Other income   (963)   (532)   -    (1,495)
Income (loss) before taxes   (53,479)   11,090    (14,013)   (56,402)
Current tax expense   (1,923)   (1,966)   -    (3,889)
Deferred tax recovery   14,575    429    -    15,004 
Net Income (Loss)  $(40,827)  $9,553   $(14,013)  $(45,287)
Assets                    
Current  $53,789   $16,238   $20,927   $90,954 
Non-current   306,776    19,830    2,770    329,376 
Total Assets  $360,565   $36,068   $23,697   $420,330 
Total Liabilities  $149,855   $16,590   $158,160   $324,605 

 

Three months ended June 30, 2019   MCSA (Brazil)    NX Gold (Brazil)    Corporate (Canada)    Consolidated 
Revenue  $64,711   $11,763   $-   $76,474 
Depreciation and depletion   (9,542)   (1,639)   -    (11,181)
Other cost of product sold expenses   (27,198)   (4,903)   -    (32,101)
Cost of product sold   (36,740)   (6,542)   -    (43,282)
Sales expenses   (1,107)   -    -    (1,107)
Gross profit   26,864    5,221    -    32,085 
Expenses                    
General and administrative   (3,671)   (784)   (2,672)   (7,127)
Share-based compensation   -    -    (1,292)   (1,292)
Finance income   93    4    9    106 
Finance expenses   (3,069)   (362)   (2,967)   (6,398)
Foreign exchange gain (loss)   1,601    -    (18)   1,583 
Loss on debt settlement   (1,783)   -    -    (1,783)
Other income   140    (31)   -    109 
Income (loss) before taxes   20,175    4,048    (6,940)   17,283 
Current taxes   (1,778)   (900)   -    (2,678)
Deferred taxes   490    161    -    651 
Net Income (Loss)  $18,887   $3,309   $(6,940)  $15,256 

 

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Ero Copper Corp.

 

Notes to Condensed Consolidated Interim Financial Statements

(Tabular amounts in thousands of US Dollars, except share and per share amounts)

(Unaudited)

 

Six months ended June 30, 2019  MCSA (Brazil)   NX Gold (Brazil)   Corporate (Canada)    Consolidated  
Revenue  $124,206   $24,309   $-   $148,515 
Depreciation and depletion   (19,304)   (3,975)   -    (23,279)
Other cost of product sold expenses   (48,287)   (9,856)   -    (58,143)
Cost of product sold   (67,591)   (13,831)   -    (81,422)
Sales expenses   (2,414)   -    -    (2,414)
Gross profit   54,201    10,478    -    64,679 
Expenses                    
General and administrative   (7,166)   (1,291)   (5,293)   (13,750)
Share-based compensation   -    -    (3,135)   (3,135)
Finance income   110    114    18    242 
Finance expenses   (6,528)   (647)   (6,033)   (13,208)
Foreign exchange gain (loss)   1,309    -    (14)   1,295 
Loss on debt settlement   (1,783)   -    -    (1,783)
Other income   822    335    -    1,157 
Income (loss) before taxes   40,965    8,989    (14,457)   35,497 
Current taxes   (4,804)   (2,092)   -    (6,896)
Deferred taxes   1,767    371    -    2,138 
Net Income (Loss)  $37,928   $7,268   $(14,457)  $30,739 
Assets                    
Current  $56,321   $9,472   $5,151   $70,944 
Non-current   314,697    19,493    2,871    337,061 
Total Assets  $371,018   $28,965   $8,022   $408,005 
Total Liabilities  $115,392   $13,996   $138,500   $267,888 

 

17.Contingencies

 

MCSA is subject to a number of claims (including claims related to tax, labour and social security matters and civil action) in the course of its business which individually are not material and have not been accrued for in the Company’s financial statements as it is not probable that a cash outflow will occur. While the Company believes that these claims are unlikely to be successful, if all such existing claims were decided against it, the Company could be exposed to a liability of up to approximately $20.4 million as at June 30, 2020 (December 31, 2019 - $31.1 million), which could have an adverse impact on the Company’s business, financial condition, results of operations, cash flows or prospects.

 

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