10-Q 1 ppta-20220630x10q.htm FORM 10-Q
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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

FORM 10-Q

(Mark One)

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2022

OR

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from              to             

Commission File Number: 001-39918

Graphic

Perpetua Resources Corp.

(Exact Name of Registrant as Specified in its Charter)

British Columbia, Canada

(State or other jurisdiction
of incorporation or organization)

    

N/A

(I.R.S. Employer
Identification No.)

405 S. 8th Street, Ste 201

Boise, Idaho

(Address of principal executive offices)

83702

(Zip Code)

(208) 901-3060

(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Securities Exchange Act of 1934:

Title of each class

    

Trading Symbol(s)

    

Name of each exchange on which registered

Common Shares, without par value

PPTA

Nasdaq

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.   Yes      No  

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).   Yes     No  

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, an emerging growth company, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer

    

    

Accelerated filer

    

Non-accelerated filer

 

Smaller reporting company

 

Emerging growth company

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).   Yes      No  

As of August 5, 2022, the registrant had 62,987,859 common shares outstanding.

CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

Certain statements contained in this Quarterly Report are “forward-looking statements” within the meaning of “safe harbor” provisions of the United States Private Securities Litigation Reform Act of 1995 and Section 21E of the Securities Exchange Act of 1934 (the “Exchange Act”) and “forward-looking information” within the meaning of applicable Canadian securities laws. All statements, other than statements of historical fact included in this Quarterly Report, regarding our strategy, future operations, financial position, estimated revenues and losses, projected costs, prospects, plans and objectives of management are forward-looking statements. When used in this Quarterly Report, the words “anticipate,” “believe,” “expect,” “estimate,” “intend,” “plan,” “project,” “outlook,” “may,” “will,” “should,” “would,” “could,” “can,” the negatives thereof, variations thereon and other similar expressions are intended to identify forward-looking statements, although not all forward-looking statements contain such identifying words. Forward-looking statements are based on certain estimates, beliefs, expectations and assumptions made in light of management’s experience and perception of historical trends, current conditions and expected future developments, as well as other factors that may be appropriate.

Forward-looking statements necessarily involve unknown risks and uncertainties, which could cause actual results or outcomes to differ materially from those expressed or implied in such statements. Due to the risks, uncertainties and assumptions inherent in forward-looking information, you should not place undue reliance on forward-looking statements. Factors that could have a material adverse effect on our business, financial condition, results of operations and growth prospects can be found in Item 1A, Risk Factors, Item 2, Management’s Discussion and Analysis of Financial Condition and Results of Operations and elsewhere in this Quarterly Report and in Item 1A, Risk Factors and Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations in our Annual Report on Form 10-K for the year ended December 31, 2021. These factors include, but are not limited to, the following:

analyses and other information based on expectations of future performance and planned work programs;
possible events, conditions or financial performance that are based on assumptions about future economic conditions and courses of action;
assumptions and analysis underlying our mineral reserve estimates and plans for mineral resource exploration and development;
timing, costs and potential success of future activities on the Company’s properties, including but not limited to development and operating costs in the event that a production decision is made;
potential results of exploration, development and environmental protection and remediation activities;
future outlook and goals;
permitting timelines and requirements, regulatory and legal changes, requirements for additional capital, requirements for additional water rights and the potential effect of proposed notices of environmental conditions relating to mineral claims;
current or future litigation or environmental liability;
planned expenditures and budgets and the execution thereof, including the ability of the Company to discharge its liabilities as they become due;
access to capital for future exploration and development plans;
global economic, political and social conditions and financial markets;
changes in gold and antimony commodity prices;
our ability to implement our strategic plan and to maintain and manage growth effectively;
loss of our key executives;
labor shortages and disruptions;
cyber-attacks and other security breaches of our information and technology systems; and
other factors and risks described under the heading “Risk Factors” in Item 1A of this Quarterly Report.

Statements concerning mineral resource and mineral reserve estimates may also be deemed to constitute forward-looking information to the extent that such statements involve estimates of the mineralization that may be encountered if a property is developed.

2

With respect to forward-looking information contained herein, the Company has applied several material factors or assumptions including, but not limited to, certain assumptions as to production rates, operating cost, recovery and metal costs; that any additional financing needed will be available on reasonable terms; the exchange rates for the U.S. and Canadian currencies will be consistent with the Company’s expectations; that the current exploration, development, environmental other objectives concerning the Company’s Stibnite Gold Project (the “Project” or “Stibnite Gold Project”) can be achieved and that the Company’s other corporate activities will proceed as expected; that the formal review process under the National Environmental Policy Act (“NEPA”) (including a joint review process involving the United States Forest Service (“USFS” or “Forest Service”), the State of Idaho and other agencies and regulatory bodies) as well as the public comment period and environmental impact statements will proceed in a timely manner and as expected; that the progression of the litigation involving the Nez Perce Tribe will proceed in a timely manner and as expected; that the current price and demand for gold and other metals will be sustained or will improve; that general business and economic conditions will not change in a materially adverse manner and that all necessary governmental approvals for the planned exploration, development and environmental protection activities on the Project will be obtained in a timely manner and on acceptable terms; and that the continuity of economic and political conditions and operations of the Company will be sustained.

These risks are not exhaustive. Because of these risks and other uncertainties, our actual results, performance or achievement, or industry results, may be materially different from the anticipated or estimated results discussed in the forward-looking statements in this Quarterly Report. New risk factors emerge from time to time, and it is not possible for our management to predict all risk factors nor can we assess the effects of all factors on our business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in, or implied by, any forward-looking statements. Our past results of operations are not necessarily indicative of our future results. You should not rely on any forward-looking statements, which represent our beliefs, assumptions and estimates only as of the dates on which they were made, as predictions of future events. We undertake no obligation to update these forward-looking statements, even though circumstances may change in the future, except as required under applicable securities laws. We qualify all of our forward-looking statements by these cautionary statements.

3

PART I - FINANCIAL INFORMATION

Item 1. Financial Statements.

Perpetua Resources Corp.

CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited)

June 30, 

December 31, 

    

2022

    

2021

ASSETS

 

  

 

  

CURRENT ASSETS

 

  

 

  

Cash and cash equivalents

$

36,088,536

$

47,852,846

Receivables

 

43,161

 

279,946

Prepaid expenses

 

914,847

 

946,281

 

37,046,544

 

49,079,073

NON-CURRENT ASSETS

 

 

  

Buildings and equipment, net

 

237,045

 

165,256

Right-of-use assets

 

120,034

 

49,103

Environmental reclamation bond (Note 9)

3,000,000

3,000,000

Mineral properties and interest (Note 3)

 

72,204,334

 

72,204,334

TOTAL ASSETS

$

112,607,957

$

124,497,766

LIABILITIES AND SHAREHOLDERS’ EQUITY

 

  

 

  

CURRENT LIABILITIES

 

  

 

  

Trade and other payables

$

2,324,547

$

2,838,214

Lease liabilities

 

97,930

 

69,987

Environmental reclamation liabilities (Note 9)

5,799,685

2,835,000

 

8,222,162

 

5,743,201

NON-CURRENT LIABILITIES

 

  

 

  

Warrant derivative (Note 4)

 

6,025

 

100,770

Lease liabilities

 

22,104

 

Environmental reclamation liabilities (Note 9)

 

3,756,687

 

7,053,200

TOTAL LIABILITIES

 

12,006,978

 

12,897,171

COMMITMENT AND CONTINGENCIES (Note 10)

 

  

 

  

SHAREHOLDERS’ EQUITY (Note 7)

 

  

 

  

Common stock, no par value, unlimited shares authorized, 62,987,859 and 62,971,859 shares outstanding, respectively

 

615,426,460

 

615,359,152

Additional paid-in capital

30,890,037

29,454,696

Accumulated deficit

 

(545,715,518)

 

(533,213,253)

TOTAL SHAREHOLDERS’ EQUITY

 

100,600,979

 

111,600,595

TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY

$

112,607,957

$

124,497,766

See accompanying notes to the unaudited condensed consolidated financial statements

4

Perpetua Resources Corp.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)

For the three months ended June 30, 

For the six months ended June 30, 

    

2022

    

2021

    

2022

    

2021

EXPENSES

 

  

 

  

  

 

  

Consulting

$

7,275

$

122,299

$

18,155

$

227,216

Corporate salaries and benefits

 

524,876

 

507,463

 

828,287

 

1,397,352

Depreciation

 

14,870

 

5,697

 

26,336

 

24,819

Directors’ fees

 

89,526

 

185,589

 

352,474

 

489,800

Exploration

4,306,285

5,995,203

8,866,338

12,576,066

Environmental liability expense

665,370

665,370

7,473,805

Gain on sale of equipment

(44,763)

(44,763)

Office and administrative

 

197,868

 

513,713

 

411,351

 

985,981

Professional fees

 

498,512

 

90,089

 

1,233,041

 

257,425

Shareholder and regulatory

 

116,093

 

126,427

 

275,066

 

378,052

Travel and related costs

 

10,944

 

3,581

 

16,034

 

3,707

OPERATING LOSS

 

6,386,856

 

7,550,061

 

12,647,689

 

23,814,223

OTHER EXPENSES (INCOME)

 

  

 

  

 

  

 

  

Change in fair value of convertible note derivative (Note 6)

 

 

5,903,877

 

 

(5,692,913)

Change in fair value of warrant derivative (Note 4)

 

(79,497)

 

121,167

 

(94,745)

 

(365,232)

Finance costs

 

 

104,713

 

 

361,711

Foreign exchange loss

 

2,595

 

650,302

 

33,346

 

952,779

Interest income

 

(52,583)

 

(2,909)

 

(84,025)

 

(26,780)

Total other loss (income)

 

(129,485)

 

6,777,150

 

(145,424)

 

(4,770,435)

NET LOSS

$

6,257,371

$

14,327,211

$

12,502,265

$

19,043,788

NET LOSS PER SHARE, BASIC AND DILUTED

$

0.10

$

0.28

$

0.20

$

0.39

WEIGHTED AVERAGE COMMON SHARES OUTSTANDING, BASIC AND DILUTED

 

62,987,859

 

50,300,052

 

62,980,051

 

48,932,249

See accompanying notes to the unaudited condensed consolidated financial statements

5

Perpetua Resources Corp.

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY (Unaudited)

For the three and six months ended June 30, 2022 and 2021

Common Stock

Additional Paid

Accumulated

    

Shares

    

Amount

    

in Capital

    

Deficit

    

Total

BALANCE, December 31, 2020

 

47,481,134

$

528,715,788

$

26,176,265

(497,261,227)

57,630,826

Share based compensation

 

 

1,929,352

 

 

1,929,352

Shares issued through stock appreciation rights

 

30,819

 

230,396

(226,229)

 

 

4,167

Exercise of share purchase options

 

82,038

 

446,407

(149,533)

 

 

296,874

Net loss for the period

 

 

 

(4,716,577)

 

(4,716,577)

BALANCE, March 31, 2021

 

47,593,991

529,392,591

27,729,855

(501,977,804)

55,144,642

Share based compensation

726,451

726,451

Shares issued upon conversion of convertible notes

4,345,350

31,154,648

31,154,648

Shares issued through stock appreciation rights

8,970

71,398

(53,640)

17,758

Exercise of share purchase options

31,750

240,549

(83,534)

157,015

Net loss for the period

(14,327,211)

(14,327,211)

BALANCE, June 30, 2021

51,980,061

$

560,859,186

$

28,319,132

$

(516,305,015)

$

72,873,303

BALANCE, December 31, 2021

62,971,859

$

615,359,152

$

29,454,696

$

(533,213,253)

$

111,600,595

Share based compensation

 

 

676,249

 

 

676,249

Restricted and performance share units distributed

1,667

12,378

(12,378)

Net loss for the period

 

 

 

(6,244,894)

 

(6,244,894)

BALANCE, March 31, 2022

62,973,526

615,371,530

30,118,567

(539,458,147)

106,031,950

Share based compensation

826,400

826,400

Restricted and performance share units distributed

14,333

54,930

(54,930)

Net loss for the period

(6,257,371)

(6,257,371)

BALANCE, June 30, 2022

 

62,987,859

$

615,426,460

$

30,890,037

$

(545,715,518)

$

100,600,979

See accompanying notes to the unaudited condensed consolidated financial statements

6

Perpetua Resources Corp.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)

For the six months ended June 30, 

    

2022

    

2021

OPERATING ACTIVITIES:

 

  

 

  

Net loss

$

(12,502,265)

$

(19,043,788)

Noncash items included in net loss:

 

 

  

Share based compensation (Note 7)

 

1,502,649

 

2,655,803

Depreciation

 

26,336

 

24,819

Accretion of convertible debt discount (Note 6)

 

 

361,711

Change in fair value of warrant derivative (Note 4)

 

(94,745)

 

(365,232)

Change in fair value of convertible note derivative (Note 6)

 

 

(5,692,913)

Environmental liability expense

665,370

7,473,805

Unrealized foreign exchange loss

 

122

 

911,274

Gain on sale of equipment

(44,763)

Changes in:

 

 

  

Receivables

 

236,785

 

83,344

Prepaid expenses

 

31,434

 

340,353

Trade and other payables

 

(534,552)

 

(188,251)

Environmental reclamation liabilities

(997,198)

(525,205)

Net cash used in operating activities

 

(11,710,827)

 

(13,964,280)

INVESTING ACTIVITIES:

 

  

 

  

Purchase of building and equipment

 

(98,124)

 

(34,884)

Proceeds from sale of equipment

44,763

Purchase of surety bond

(3,000,000)

Net cash used in investing activities

 

(53,361)

 

(3,034,884)

FINANCING ACTIVITIES:

 

  

 

  

Proceeds from exercise of share purchase options (Note 7)

 

 

475,813

Net cash provided by financing activities

 

 

475,813

Effect of foreign exchange on cash and cash equivalents

 

(122)

7,149

Net increase in cash and cash equivalents

 

(11,764,310)

(16,516,202)

Cash and cash equivalents, beginning of period

 

47,852,846

25,037,766

Cash and cash equivalents, end of period

$

36,088,536

$

8,521,564

NONCASH INVESTING AND FINANCING ACTIVITIES

 

  

 

  

Recognition of operating lease liability and right-of-use asset

$

142,487

$

CASH AND CASH EQUIVALENTS

 

  

 

  

Cash

$

16,003,360

$

3,402,110

Investment savings accounts

 

17,081,013

 

3,992,404

GIC and term deposits

 

3,004,163

 

1,127,050

Total cash and cash equivalents

$

36,088,536

$

8,521,564

See accompanying notes to the unaudited condensed consolidated financial statements

7

Perpetua Resources Corp.

NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

1.Nature of Operations and Basis of Presentation

Perpetua Resources Corp. (the “Corporation”, the “Company”, “Perpetua Resources” or “Perpetua”) was incorporated on February 22, 2011 under the Business Corporation Act (British Columbia) (the “BCBCA”). The Company was organized to hold shares in wholly owned subsidiaries that locate, acquire, develop and restore mineral properties located principally in the Stibnite – Yellow Pine mining district in Valley County, Idaho, USA. The Company’s principal asset is 100% ownership in subsidiaries that control the Stibnite Gold Project (“Stibnite Gold Project” or the “Project”). The Company currently operates in one segment, mineral exploration in the United States.

The unaudited condensed consolidated financial statements are prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) and include the accounts of Perpetua Resources Corp. and its wholly owned subsidiaries, Perpetua Resources Idaho, Inc. and Idaho Gold Resource Company, LLC. Intercompany transactions and balances have been eliminated.

The unaudited condensed consolidated financial statements do not include all disclosures required of annual consolidated financial statements and, accordingly, should be read in conjunction with our annual financial statements for the year ended December 31, 2021. Operating results for the six months ended June 30, 2022 may not be indicative of results expected for the full year ending December 31, 2022. Management estimates that the Company’s 2022 effective tax rate will be 0% due to the Company’s cumulative loss position, historical net operating losses (“NOLs”), and other available evidence related to the Company’s ability to generate taxable income. Accordingly, there is no income tax provision or benefit for the six month period ended June 30, 2022.

In the opinion of the Company, the accompanying unaudited condensed consolidated financial statements contain all adjustments, consisting of only normal recurring adjustments, necessary for a fair statement of the results for the interim periods reported.

It is management’s opinion, based on the Corporation’s current capital resources and liquidity that the Corporation will have sufficient assets to discharge its liabilities as they become due, to continue to advance the Stibnite Gold Project for at least 12 months from the date these second quarter 2022 financial statements are issued, and to meet its administrative and overhead requirements for the same period. Future financings to fund additional permitting efforts and construction are anticipated through efforts to raise additional equity, new debt, project specific debt, and/or other means. Our continued operations are dependent on our ability to obtain additional financing prior to the second half of 2023 or alter the timing of controllable expenditures to the extent needed to maintain adequate liquidity to progress critical permitting efforts and maintain environmental baseline data. However, there can be no assurance that we will be successful in our efforts to raise additional capital on terms favorable to us, or at all, or our ability to adequately reduce expenses, if necessary, to maintain sufficient liquidity or capital resources.

Loss per share

Basic loss per share is computed by dividing the net loss by the weighted average number of shares outstanding during the reporting period. Diluted loss per share is computed similar to basic loss per share except that the weighted average shares outstanding are increased to include additional shares for the assumed exercise of share purchase options and warrants, if dilutive. The Company’s potential dilutive shares of common stock include outstanding share purchase options, restricted share units, performance share units, deferred share units, warrants and, in 2021, convertible notes. Potentially dilutive shares as of June 30, 2022 and 2021:

June 30, 

    

2022

    

2021

Share purchase options

1,995,150

2,719,775

Share units

766,603

Warrants

 

200,000

200,000

Convertible notes

6,500

Balance

 

2,961,753

2,926,275

8

All potentially dilutive shares were excluded from the calculation of diluted loss per share as their exercise and conversion would be anti-dilutive.

2.Recently Issued Accounting Pronouncements

In August 2020, the Financial Accounting Standards Board (the “FASB”) issued Accounting Standard Update (“ASU”) No. 2020-06, “Debt—Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging - Contracts in Entity’s Own Equity (Subtopic 815-40),” which simplifies the accounting for convertible instruments. The guidance removes certain accounting models which separate the embedded conversion features from the host contract for convertible instruments, requiring bifurcation only if the convertible debt feature qualifies as a derivative or for convertible debt issued at a substantial premium. The ASU removes certain settlement conditions required for equity contracts to qualify for the derivative scope exception, permitting more contracts to qualify for the exception. In addition, the guidance eliminates the treasury stock method to calculate diluted earnings per share for convertible instruments and requires the use of the if-converted method. The ASU is effective for annual reporting periods beginning after December 15, 2021, including interim reporting periods within those annual periods, with early adoption permitted no earlier than the fiscal year beginning after December 15, 2021. The adoption of this update on January 1, 2022 did not have a material impact on our unaudited condensed consolidated financial statements.

From time to time, new accounting pronouncements are issued by the FASB that are adopted by the Company as of the specified effective date. Unless otherwise discussed, management believes that the impact of recently issued standards did not or will not have a material impact on the Company’s consolidated financial statements upon adoption.

3.Mineral Properties and Interest

The Company’s mineral properties and interest at the Stibnite Gold Project totaled $72,204,334 as of both June 30, 2022 and December 31, 2021.

The Company’s subsidiaries acquired mineral rights to the Stibnite Gold Project through several transactions. All mineral rights held by the Company’s subsidiaries are held through patented and unpatented mineral and mill site claims, except the Cinnabar option claims which are held under an Option to Purchase (“OTP”), and all of the Stibnite Gold Project is subject to a 1.7% net smelter returns royalty upon the sale of project-related production.

Included in mineral properties and interest are annual payments made under option agreements, where the Company is entitled to continue to make annual option payments or, ultimately, purchase certain properties. Annual payments due under option agreements during 2022 are $180,000.

As of June 30, 2022, it has not yet been determined that the Project’s mining deposits can be economically and legally extracted or produced because the Project’s estimated reserves do not yet meet the definition of proven reserves under the United States Securities and Exchange Commission (“SEC”) Regulation S-K 1300.

Accordingly, development costs related to such reserves will not be considered capitalized unless they are incurred after such determination. Upon commencement of commercial production, capitalized costs will be amortized over their estimated useful lives or units of production, whichever is a more reliable measure.

Although the Company has taken steps to review and verify mineral rights to the properties in which it has an interest, in accordance with industry standards for properties in the exploration stage, these procedures do not guarantee the Company’s title and interests. Mineral title may be subject to unregistered prior agreements and noncompliance with regulatory requirements.

4.Warrant Derivative

In May 2013, the Company issued to Franco Nevada Company (“Franco”) 200,000 share purchase warrants (“Franco Warrants”) for gross proceeds of $350,000. The Franco Warrants are exercisable into 200,000 common shares of the Company at C$12.30 per warrant. The Franco Warrants contain a mandatory conversion feature which requires Franco to exercise 100% of the outstanding warrants if, at any time, the volume weighted average trading price of the Corporation’s common shares is equal to or greater than C$32.30 for a period of 30 consecutive trading days. The Franco Warrants expire on May 9, 2023.

9

The exercise price of the Franco Warrants is denominated in Canadian dollars; however, the functional currency of the Company is the U.S. dollar. As a result of this difference in currencies, the proceeds that will be received by the Company are not fixed and will vary based on foreign exchange rates and the warrants are a derivative and are required to be recognized and measured at fair value at each reporting period. Any changes in fair value from period to period are recorded as a gain or loss in the unaudited condensed consolidated statements of operations. There are no circumstances in which the Company would be required to pay any cash upon exercise or expiry of the warrants.

A reconciliation of the change in fair values of the derivative is below:

    

Fair Value of Warrant

Derivative

Balance, December 31, 2020

$

874,864

Change in fair value of warrant derivative

(365,232)

Balance, June 30, 2021

$

509,632

Balance, December 31, 2021

$

100,770

Change in fair value of warrant derivative

 

(94,745)

Balance, June 30, 2022

$

6,025

The fair value of the warrants was calculated using the Black-Scholes valuation model. As of June 30, 2022 and 2021, the inputs used in the Black-Scholes valuation model are:

Six months ended June 30,

    

2022

    

2021

Share price

C$4.24

C$9.08

Exercise price

 

C$12.30

 

C$12.30

Expected term (in years)

 

0.9

 

1.9

Expected share price volatility

 

58%

84%

Annual rate of quarterly dividends

 

0%

0%

Risk-free interest rate

 

3.1%

0.5%

5.Convertible Notes

On March 17, 2016, the Company issued unsecured convertible notes (the “2016 Notes”) for gross proceeds of $38.5 (C$50.0) million and a maturity date of March 17, 2023. On March 17, 2020, the Company issued a second round of unsecured convertible notes (the “2020 Notes”) for gross proceeds of $35.0 (C$47.6) million and a maturity date of March 17, 2027. The holders of the convertible notes may convert any portion of their convertible notes at any time prior to the maturity date into common shares of the Company, at a price of C$3.541 per share for the 2016 Notes and a price of C$4.655 for the 2020 Notes.

Each set of convertible notes are deemed to contain an embedded derivative (collectively, the “Convertible Note Derivatives”) relating to the conversion option. The Convertible Note Derivatives were valued upon initial recognition at fair value using partial differential equation methods. At inception, for each set of notes, the face value of the notes was reduced by the estimated fair value of the related convertible note derivative and the transaction costs.

During the years ended December 31, 2021 and 2020, convertible notes in the aggregate principal amount of C$15,409,901 and C$82,102,500, respectively were converted for 4,351,850 and 19,969,280 common shares of the Company, respectively. As of June 30, 2022 and December 31, 2021, the Corporation has no outstanding convertible notes.

6.Convertible Note Derivative

Convertible Note Derivatives related to each set of convertible notes (see Note 5) were valued upon initial recognition at fair value using partial differential equation methods and are subsequently re-measured at fair value at each period end through the unaudited condensed consolidated statements of operations. During the six months ended June 30, 2021, a change in fair value of $5,692,913 was recognized for the convertible note derivative.

In 2021, the Convertible Note Derivatives expired upon conversion of all convertible notes (see Note 5). The balance of the derivative at December 31, 2021 and June 30, 2022 is nil.

10

7.Equity

a.Authorized
Unlimited number of common shares without par value.
Unlimited number of first preferred shares without par value.
Unlimited number of second preferred shares without par value.

On January 27, 2021, the Corporation completed a one-for-ten (1:10) reverse share split of all of its issued and outstanding common shares (“Share Consolidation”), resulting in a reduction of the issued and outstanding common shares from 475,227,060 to 47,522,706. The number of shares reserved under the Corporation’s equity and incentive plans were adjusted to reflect the Share Consolidation. All share, per share data, and warrant and option exercise prices presented in the Company’s consolidated financial statements have been retroactively adjusted to reflect the Share Consolidation unless otherwise noted.

Share based compensation

Share based compensation was recognized in the unaudited condensed consolidated statements of operations for the three and six months ended June 30, 2022 and 2021 as follows:

Three months ended June 30, 

Six months ended June 30, 

    

2022

    

2021

    

2022

    

2021

Exploration

$

396,951

$

396,244

$

632,639

$

1,590,769

Consulting

4,040

 

 

8,080

Corporate salaries and benefits

338,638

223,715

 

513,018

 

650,290

Directors’ fees

90,811

102,452

 

356,992

 

406,664

Total

$

826,400

$

726,451

$

1,502,649

$

2,655,803

Share purchase options

A summary of share purchase option activity within the Company’s share-based compensation plan (the “Plan”) for the year ended December 31, 2021 and six months ended June 30, 2022 is as follows:

Weighted Average

    

 Number of Options

    

 Exercise Price (C$)

Balance December 31, 2020

 

1,959,588

$

7.40

Options granted

 

1,013,500

 

11.40

Options expired

 

(240,550)

 

9.17

Options terminated via SAR

 

(109,850)

 

6.00

Options exercised

 

(125,538)

 

4.99

Balance December 31, 2021

 

2,497,150

$

9.15

Options cancelled or forfeited

 

(224,000)

 

9.05

Options expired

(278,000)

8.86

Balance June 30, 2022

 

1,995,150

$

9.20

During the three and six months ended June 30, 2022 and 2021, the Company’s total share based compensation from options was $296,360 (2021: $726,451) and $549,260 (2021: $2,655,803), respectively.

11

No options were granted during the six months ended June 30, 2022. The grant date fair value of options granted during the six months ended June 30, 2021 was approximately $4.9 million. The fair value of options granted is estimated at the time of the grant using the Black-Scholes option pricing model. The risk-free interest rate is based on the government security rate with an equivalent term in effect as of the date of grant. The expected option lives and volatility assumptions are based on historical data of the Company. The weighted average inputs used in the Black-Scholes option pricing model for options granted during the six months ended June 30, 2021 are:

Six months ended

    

June 30, 2021

Fair value options granted

$

6.52

Risk-free interest rate

 

0.5%

Expected term (in years)

 

5.0

Expected share price volatility

 

72.5%

Expected dividend yield

 

An analysis of outstanding share purchase options as of June 30, 2022 is as follows:

Options Outstanding

    

Options Exercisable

Range of Exercise

Prices (C$)

    

Number

    

Price (C$)1

    

Remaining Life2

    

Number

    

Price (C$)1

    

Remaining Life2

$3.50 - $5.90

 

210,150

5.21

 

1.25

186,400

5.36

 

1.06

$5.91 - $7.20

 

462,875

6.31

 

2.32

353,500

6.34

 

2.27

$7.21 - $9.70

 

536,625

9.46

 

1.98

426,625

9.54

 

1.54

$9.71 - $11.80

 

785,500

11.80

 

3.56

392,750

11.80

 

3.56

$3.50 - $11.80

 

1,995,150

9.20

 

2.61

1,359,275

8.79

 

2.25

1   Weighted Average Exercise Price (C$)

2   Weighted Average Remaining Contractual Life (Years)

As of June 30, 2022, all unvested options are expected to vest and unvested compensation of approximately $948,000 will be recognized. The weighted average remaining period of vested options is 1.06 years. As of June 30, 2022, the intrinsic value of outstanding and exercisable share purchase options is $25,841 and $19,381, respectively. During the six months ended June 30, 2022 and 2021, the intrinsic value of share purchase options exercised was nil and $554,174 respectively.

Restricted Share Units

The following table summarizes activity for restricted share units (“RSUs”) awarded under the Plan that vest over the required service period of the participant.

    

    

    

Weighted Average

Share

Grant Date

Units

 

Fair Value

Unvested, January 1, 2021

 

$

Granted

63,500

 

5.66

Distributed (vested)

(21,166)

 

5.66

Unvested, December 31, 2021

42,334

 

5.66

Granted

370,098

4.15

Distributed (vested)

(15,000)

4.09

Cancelled

(1,255)

4.03

Unvested, June 30, 2022

396,177

$

4.32

During the six months ended June 30, 2022, the Company awarded 370,098 RSUs with a weighted average grant date fair value of $4.15 per RSU, or approximately $1.5 million in total.

12

During the three and six months ended June 30, 2022, the Company has recognized $321,516 and $432,256, respectively in compensation expense related to RSUs and expects to record an additional $1.3 million in compensation expense over the next 1.7 years. There was no compensation expense for RSUs recorded during the six months ended June 30, 2021. The unvested units at June 30, 2022 are scheduled to vest as follows:

Remainder of 2022

    

21,166

2023

144,116

2024

 

122,948

2025

107,947

Total

 

396,177

Unvested units will be forfeited by participants upon termination of employment in advance of vesting, with the exception of termination due to retirement if certain criteria are met.

Performance Share Units

The following table summarizes activity for performance share units (“PSUs”) and market-based performance share units (“MPSUs”) awarded under the Plan:

    

    

    

Weighted Average

Share

Grant Date

Units

Fair Value

Unvested, January 1, 2021

 

 

$

Granted

 

10,750

 

 

5.66

Unvested, December 31, 2021

 

10,750

 

 

5.66

Granted

257,451

6.90

Distributed

(1,000)

5.66

Cancelled

(2,918)

5.84

Unvested, June 30, 2022

264,283

6.87

During the three and six months ended June 30, 2022, the Company has recognized $161,320 and $216,986, respectively, in compensation expense related to PSUs and MPSUs and expects to record an additional $1.6 million in compensation expense over the next 2.6 years. The PSUs and MPSUs are scheduled to vest as follows: 7,250 awards in September 2022, 7,500 awards in September 2023, and 249,533 in March 2025. There was no compensation expense for PSUs and MPSUs recorded during the six months ended June 30, 2021.

PSUs: These PSUs vest upon completion of the performance period (through September 2022 and 2023) and specific performance conditions set forth for each individual grant for individually defined reporting and operating measurement objectives. The Company determines the factor to be applied to that target number of PSUs, with such percentage based on level of achievement of the performance conditions. Upon the achievement of the conditions, any unvested PSUs become fully vested. During the six months ended June 30, 2022, the Company awarded 7,500 PSUs that had a weighted average grant date fair value of $4.03 per PSU, or $30,225 in total.

Market-based PSUs: On March 5, 2022, the Company granted MPSUs where vesting is based on the Company’s cumulative total shareholder return (“TSR”) as compared to the constituents that comprise the VanEck Junior Gold Miners ETF (“GDXJ Index”) a group of similar junior gold mining companies, over the period from March 5, 2022 to March 5, 2025 (the “Performance Period”). The ultimate number of MPSUs that vest may range from 0% to 200% of the original target number of shares depending on the relative achievement of the TSR performance measure at the end of the Performance Period. Because the number of MPSUs that are earned will be based on the Company’s TSR over the Performance Period, the MPSUs are considered subject to a market condition. Compensation cost is recognized ratably over the Performance Period regardless as to whether the market condition is actually satisfied; however, the compensation cost will reverse if an employee terminates prior to satisfying the requisite service period.

13

During the six months ended June 30, 2022, the Company awarded 249,533 MPSUs that had a weighted grant date fair value of $6.99 per MPSU or approximately $1.75 million in total. The grant date fair value of MPSUs was estimated using a Monte Carlo simulation model. Assumptions and estimates utilized in the model include expected volatilities of the Corporation’s stock and the GDXJ Index, the Company’s risk-free interest rate and expected dividends. The probabilities of the actual number of MPSUs expected to vest and resultant actual number of shares of common stock expected to be awarded are reflected in the grant date fair values of the various MPSU awards. The per MPSU grant date fair value of $6.99 for the market condition was based on the following variables:

    

Six months ended

  

June 30, 2022

Risk-free interest rate

 

1.61%

Expected term (in years)

 

3.0

Expected share price volatility

 

63.35%

Expected dividend yield

 

The expected volatility utilized is based on the historical volatilities of the Corporation’s common stock and the GDXJ Index in order to model the stock price movements. The volatility used was calculated over the most recent three year period. The risk-free interest rates used are based on the implied yield available on a U.S. Treasury zero-coupon bill with a term equivalent to the Performance Period. The expected dividend yield of zero was used since it is the mathematical equivalent to reinvesting dividends in each issuing entity over the Performance Period.

Deferred Share Units

The following table summarizes activity for deferred share units (“DSUs”) awarded under the Plan:

Weighted Average

Share

Grant Date

    

Units

    

Fair Value

Outstanding, January 1, 2021

$

Granted

29,213

5.39

Outstanding, December 31, 2021

 

29,213

 

5.39

Granted

 

76,930

 

3.95

Outstanding, June 30, 2022

 

106,143

 

4.35

Under the Plan, the Company may issue DSUs to non-employee directors. During the three and six months ended June 30, 2022, 14,261 and 76,930 shares with a fair value of $47,204 and $304,147 were granted to the non-employee directors and the related compensation expense was charged to directors’ fees in the unaudited condensed consolidated statements of operations. There was no compensation expense for DSUs recorded during the six months ended June 30, 2021.

b.Warrants

There was a total of 200,000 warrants outstanding as of June 30, 2022. See Note 4.

8.Financial Instruments and Fair Value Measurements

At June 30, 2022, the Company’s financial instruments consist of cash and cash equivalents and environmental reclamation bond which approximate their fair value due to their short-term nature.

14

The Company’s financial instruments also consist of the warrant derivative at June 30, 2022 and December 31, 2021. The derivative is valued at fair value at the end of each reporting period. At June 30, 2022 and December 31, 2021, the levels in the fair value hierarchy into which the Company’s financial assets and liabilities are measured and recognized on the balance sheet at fair value are categorized as follows:

    

Level 1

    

Level 2

    

Level 3

June 30, 2022

Warrant Derivative (Note 4)

$

$

$

6,025

Total

$

$

$

6,025

    

December 31, 2021

Warrant Derivative (Note 4)

 

    

 

    

 

100,770

Total

$

$

$

100,770

The Company uses the Black-Scholes option pricing model or other valuation models for valuation of its warrant derivative. Valuation models require the input of subjective assumptions including expected share price volatility, interest rate and forfeiture rate. Changes in the input assumptions can materially affect the fair value estimate and the Company’s net loss.

9.Environmental Reclamation Liability

On January 15, 2021, the Company agreed to an Administrative Settlement and Order on Consent (“ASAOC”). The Company has accounted for its obligation under the ASAOC as an environmental reclamation liability. The aggregate cost of the obligation was estimated to be approximately $7,473,805. Upon the signing of the ASAOC, the Company recorded an immediate expense of $7,473,805 and a corresponding environmental reclamation liability. The provision for the liability associated with the terms of the ASAOC is based on cost estimates developed with the use of engineering consultants, independent contractor quotes and the Company’s internal development team. The timing of cash flows is based on the latest schedule for early action items. The estimated environmental reclamation liability may be subject to change based on changes to cost estimates and is adjusted for actual work performed. Movements in the environmental reclamation liability during the six months ended June 30, 2022 and 2021, are as follows:

    

Six months ended June 30,

    

2022

    

2021

Balance at beginning of period

    

$

9,888,200

$

Additions

 

665,370

 

7,473,805

Work performed on early action items

 

(997,198)

 

(525,205)

Balance at end of period

 

$

9,556,372

$

6,948,600

Current portion

 

$

5,799,685

$

2,495,799

Long-term portion

3,756,687

4,452,801

Balance at end of period

$

9,556,372

$

6,948,600

The Company provided $7.5 million in financial assurance for Phase 1 projects under the ASAOC. The Company paid $3.0 million in cash collateral for a surety bond related to the ASAOC statement of work in early 2021.

10.Commitments and Contingencies

a.Mining Claim Assessments

The Company currently holds mining claims on which it has an annual assessment obligation to the Bureau of Land Management of $250,470 to maintain the claims in good standing. The Company is committed to these payments indefinitely. Related to the mining claims assessments is a $335,000 bond related to the Company’s exploration activities.

15

b.Stibnite Foundation

Upon formation of the Stibnite Foundation on February 26, 2019, the Company became contractually liable for certain future payments to the Stibnite Foundation based on several triggering events, including receipt of a final Record of Decision issued by the USFS, receipt of all permits and approvals necessary for commencement of construction, commercial production, and of the final reclamation phase. These payments could begin as early as late 2023 based on the current permitting schedule and range from $0.1 million to $1 million (upon commencement of final reclamation phase) in cash and 150,000 shares of the Corporation’s common stock. During commercial production, the Company will make payments to the Stibnite Foundation equal to 1% of Total Comprehensive Income less debt repayments, or a minimum of $0.5 million each year.

The Stibnite Foundation will support projects that benefit the communities surrounding the Stibnite Gold Project and was created through the establishment of the Community Agreement between Perpetua Resources Idaho, Inc. and eight communities and counties throughout the West Central Mountains region of Idaho.

c.Option Payments on Other Properties

The Company is obligated to make option payments on mineral properties in order to maintain an option to purchase these properties. As of June 30, 2022, the option payments due on these properties in 2022 are $180,000, which will be paid this year. The agreements include options to extend.

d.Off balance sheet arrangements

The Company has no off-balance sheet arrangements as of June 30, 2022 and the date of this report.

e.Legal Update

The Company is a party to ongoing legal proceedings with the Nez Perce Tribe for alleged violations of the Clean Water Act related to historical mining activities. In August 2019, the Nez Perce Tribe filed suit in the United States District Court for the District of Idaho. The Company promptly filed a motion to dismiss and, in the alternative, a motion to stay the litigation. Both motions were denied and the Company subsequently filed an answer generally denying liability for the allegations contained in the complaint. Later, the court allowed the Company to amend its answer and file a third-party complaint and the Company also filed a separate citizen suit against the USFS alleging the point source discharges, referred to by the Nez Perce Tribe in its complaint, were occurring on lands owned and controlled by the United States. Pursuant to the terms of the Comprehensive Environmental Response, Compensation, and Liability Act (the “CERCLA”) ASAOC executed with the U.S. EPA and the United States Department of Agriculture, the Company later dismissed its pending actions against USFS. The remaining parties to the ongoing legal proceeding agreed to stay the litigation and explore Alternative Dispute Resolution (“ADR”) options. The stay has been extended on subsequent occasions, and a request to extend the stay through October 31, 2022 was filed jointly by the parties on July 26, 2022 and subsequently ordered by the court on the same date.

The CERCLA ASAOC entered into by the Company, the U.S. EPA, and the United States Department of Agriculture requires numerous voluntary early cleanup actions to occur over the next several years. Perpetua Resources Idaho, Inc. is presently executing the development of the Phase 1 early cleanup actions (known under CERCLA as “time critical removal actions”) that, upon final work plan approval by the federal agencies, will be designed and constructed to efficiently improve water quality in a number of areas on the Site while other, longer-term proposed actions relating to Project operations are being evaluated through the NEPA process.

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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

You should read the following discussion and analysis of our financial condition and results of operations for the three and six months ended June 30, 2022 and 2021 with our consolidated financial statements and related notes and other financial information appearing in this Quarterly Report. Some of the information contained in this discussion and analysis or set forth elsewhere in this Quarterly Report, including information with respect to our plans and strategy for our business, operations, and product candidates, includes forward-looking statements that involve risks and uncertainties. You should review the sections of this Quarterly Report captioned “Risk Factors” and “Cautionary Note Regarding Forward-Looking Statements” for a discussion of important factors that could cause our actual results to differ materially from the results described in or implied by the forward-looking statements contained in the following discussion and analysis.

Overview

Perpetua Resources (formerly Midas Gold Corp.) was incorporated on February 22, 2011 under the Business Corporations Act (British Columbia) (the “BCBCA”). The Corporation was organized to hold shares in wholly owned subsidiaries that locate, acquire, develop and restore mineral properties located principally in the Stibnite – Yellow Pine mining district in Valley County, Idaho, USA. The Corporation’s principal asset is 100% ownership in subsidiaries that control the Stibnite Gold Project. The Corporation currently operates in one segment, mineral exploration in the United States. The registered office of the Perpetua Resources is Suite 1008-550 Burrard St, Vancouver, BC, V6C 2B5, Canada and the corporate head office is located at 201-405 S 8th St, Boise, ID 83702, USA.

COVID-19 Response

The Company has implemented policies at its offices in Boise and Donnelly designed to ensure the safety and well-being of all employees and the people associated with them. In that regard, to reduce risk, our employees have been encouraged to get fully vaccinated against COVID-19, have been asked to work remotely, avoid non-essential business travel, when possible, adhere to good hygiene practices, and engage in social distancing. Continuation of COVID-19 in 2022 and beyond could impact employee health, workforce productivity, insurance premiums, ability to travel, the availability of industry experts, personnel and equipment, restrictions or delays to field work, studies, and assay results, and other factors that will depend on future developments that may be beyond our control.

Recent Key Developments

2022 Outlook and Goals

Perpetua Resources’ vision is to provide the United States with a domestic source of the critical mineral antimony, develop one of the largest and highest-grade open pit gold mines in the country and restore an abandoned brownfield site. In 2022, Perpetua Resources continues to focus on advancing the permitting for the Stibnite Gold Project through the National Environmental Policy Act (“NEPA”) process. The NEPA process is intended to ensure that federal agencies and the public are informed of a proposed action’s potential environmental impacts before a final decision is made by the agency regarding the action.

In response to public comments received on the Draft Environmental Impact Statement (“DEIS”), Perpetua Resources submitted a refined proposed action to the USFS in December 2020. To ensure a full analysis of the improved Project, the USFS will issue a Supplemental Draft Environmental Impact Statement (“SDEIS”) followed by an opportunity for public comment. The preliminary SDEIS was circulated for cooperating agency review in April 2022. The publication of the SDEIS for public review and comment is expected in the third quarter of 2022. The USFS is expected to provide a formal schedule later this year regarding the remaining steps in the NEPA review process.

Second Quarter 2022 Highlights

Zero lost time incidents or reportable environmental spills
Received first permit, the Clean Air Act Permit to Construct from the Idaho Department of Environmental Quality
Launched Sustainability Roadmap which outlines 13 goals to guide the Company as it advances the Stibnite Gold Project towards development
Held 2022 Annual General Meeting and shareholders voted in favor of all proposals
Welcomed value-oriented Kopernik as a new shareholder
Awarded contract for stream diversion work this summer as part of Phase 1 early cleanup activities
Published 2021 Sustainability Report, the Company’s ninth annual sustainability report

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The forward‐looking information contained in this section is subject to the risk factors and assumptions contained in the “Cautionary Note Regarding Forward-Looking Statements” and “Risks Factor” sections.

Results of Operations

Three and six months ended June 30, 2022 compared to three and six months ended June 30, 2021

    

For the three months ended June 30,

    

For the six months ended June 30,

    

2022

    

2021

    

2022

    

2021

EXPENSES

  

 

  

  

 

  

Consulting

$

7,275

$

122,299

$

18,155

$

227,216

Corporate salaries and benefits

 

524,876

 

507,463

 

828,287

 

1,397,352

Depreciation

 

14,870

 

5,697

 

26,336

 

24,819

Directors’ fees

 

89,526

 

185,589

 

352,474

 

489,800

Exploration

 

4,306,285

 

5,995,203

 

8,866,338

 

12,576,066

Environmental liability expense

 

665,370

 

 

665,370

 

7,473,805

Gain on sale of equipment

 

(44,763)

 

 

(44,763)

 

Office and administrative

 

197,868

 

513,713

 

411,351

 

985,981

Professional fees

 

498,512

 

90,089

 

1,233,041

 

257,425

Shareholder and regulatory

 

116,093

 

126,427

 

275,066

 

378,052

Travel and related costs

 

10,944

 

3,581

 

16,034

 

3,707

OPERATING LOSS

6,386,856