During the three months ended September 30, 2020, the Company primarily focused on planning for the 2020/2021 field program at its Filo del Sol Project, which looks to follow on the exploration successes of the preceding two seasons and further drill test the sulphide mineralization beneath and adjacent to the current oxide Mineral Resource. In addition to its routine field season planning, preparation for the upcoming 2020/2021 field program also includes significant effort by the Company, in consultation with local health authorities, to develop a comprehensive COVID-19 operating protocol for the undertaking of an exploration program at Filo del Sol in a safe and controlled manner amidst the current novel coronavirus backdrop.
Mobilization Underway for 2020/2021 Field Program to Further Drill Test Exploration Target
The 2020/2021 field program contemplates the completion of approximately 8,000 metres of diamond drilling, subject to being able to operate safely and effectively in accordance with the Company’s COVID-19 protocols, as discussed further below. Drill hole placement this season will benefit from the results of the 3D geophysical surveys conducted in the previous season.
Key objectives for the planned field program include:
- Step-out drilling to the north to explore the 1.7 km gap between holes FSDH032 and a mineralized intersection in hole VRC093, completed in a past season;
- Drill testing and investigating the geological controls on the high-grade copper, gold and silver mineralization present within the overall mineralized envelope; and
- Tightening of drill spacing, where appropriate, to enable the Company to add a portion of the sulphide mineralization underlying the deposit’s oxide cap to Filo del Sol’s Mineral Resource estimate.
Step-out drilling to the north has the potential to expand on the initial exploration target developed internally by the Company in June 2020.This exploration target is modelled on predicted volumes based on the east-west extents of the current Mineral Resource, depths below surface drilled by the deeper diamond drill holes completed in the preceding two drill programs, and the north-south extent drilled by these deeper holes. The resulting conceptual exploration target was estimated to total between 1.2 to 1.6 billion tonnes with a copper equivalent (“CuEq”) grade of between 0.7 and 1.0%. As an exploration target, the aforementioned potential quantities and grades are conceptual in nature, and there has not yet been sufficient exploration for it to constitute a Mineral Resource. In addition, it is uncertain if further exploration will result in the target being delineated as a Mineral Resource.
As of the date of this MD&A, the Company has commenced mobilization of its personnel and equipment to Filo del Sol. To start, the Company has mobilized two diamond rigs to site, with plans to scale up and add two more rigs towards the end of the year, subject to being able to operate safely and effectively in accordance with the Company’s COVID-19 protocols, as discussed below. In accordance with the Company’s plans and timelines, drilling will resume once again at Filo del Sol in November 2020.
COVID-19 Operating Protocol Approved by Local Health Authorities
In addition to the normal technical and logistical planning required to operate, for the 2020/2021 season, the Company’s preparation included substantial effort to create a robust operating protocol in response to the prevalent COVID-19 risks.
The health and safety of the Company’s employees, contractors, visitors, and stakeholders (collectively, “Stakeholders”) remain Filo Mining’s top priority, and after months of consultation with local governments, health officials and health experts, the Company has developed a COVID-19 operating protocol, which includes a comprehensive testing and quarantine plan applicable for all personnel travelling to the Filo del Sol project site, as well as detailed response measures for actual or suspected COVID-19 cases at site. This protocol, which meets or exceeds all current government requirements, was presented to the San Juan provincial health authority, where it has been approved for implementation in October 2020.
As COVID-19-related health and safety regulations continue to evolve both globally and at the Company’s operations, certain practices and procedures have been adopted to stay abreast of, and remain adaptable to, the fluid situation. Such practices and procedures include, but are not limited to: analysis of alternate staffing schedules, rotations and accommodation arrangements; temporary relocation of staff to mitigate travel; continued development of internal testing and quarantine protocols; and regular dialogue with local government, health officials and health experts. As a result of its current strategies, the Company anticipates that it can safely and effectively carry out a 2020/2021 field program, however, this expectation will be continuously evaluated as the situation with respect to the COVID-19 pandemic in Argentina develops.
As of the date of this MD&A, the Company has encountered one case of COVID-19 during the mobilization phase for the 2020/2021 field season, which was identified pursuant to the mandatory testing requirements of its operating protocol and resulted in no further known transmissions. The Company has not incurred any lost-time incidents at its operations with respect to COVID-19.
Closing of Equity Financings for $41.7 Million
On July 30, 2020 the Company closed the sale of 6,325,000 common shares of the Company, including 825,000 common shares sold pursuant to the full exercise of an over-allotment option, on a bought deal basis to a syndicate of underwriters led by PI Financial Corp. and Canaccord Genuity Corp. (the “Underwriters”), at a price of $1.85 per share (the “Issue Price”) for total gross proceeds of approximately $11.7 million (the “Offering”).
On July 30, 2020, the Company also closed a concurrent private placement of 16,213,235 common shares at the Issue Price for additional gross proceeds of approximately $30.0 million (the “Concurrent Private Placement”, and together with the Offering, the “Financings”). The Concurrent Private Placement was to certain investors introduced to the Company by SpareBank 1 Markets AS ("SpareBank"), and to certain other investors, including Lorito Holdings S.à.r.l ("Lorito") and Zebra Holdings and Investments S.à.r.l ("Zebra" and together with Lorito, the "Significant Shareholders"). The Significant Shareholders each purchased 3,515,004 common shares in the Concurrent Private Placement to maintain their approximate combined pro rata interest in the Company. No commission or other fee was paid to the Underwriters or any other party in connection with the sale of common shares pursuant to the Concurrent Private Placement, except for broker fees paid by the Company to SpareBank equal to 5% of the gross proceeds raised by investors introduced to the Company by SpareBank. The common shares issued pursuant to the Concurrent Private Placement are subject to a statutory hold period in Canada expiring on December 1, 2020.
Zebra and Lorito report their shareholding in the Company as joint actors, as the term is defined by Canadian securities regulations, and are related parties of the Company by virtue of their combined shareholding in the Company in excess of 20%. Immediately following the close of the Offering and Concurrent Private Placement, Zebra and Lorito held 25.05% and 9.96%, respectively, of the then issued and outstanding common shares of the Company.
Shortly after closing of the Offering and Concurrent Private Placement, approximately $1.3 million of the resulting net proceeds was used by the Company to fully repay amounts drawn under an existing credit facility extended by Zebra (see “Liquidity and Capital Resources”). The Company plans to use the remaining net proceeds for exploration and development of the Filo del Sol Project, as well as for working capital, corporate overhead and general and administrative purposes.
Appointment of Director
Effective September 1, 2020 the Company appointed Ms. Carmel Daniele to its Board of Directors, in replacement of Mr. Paul McRae, who had resigned. Ms. Daniele is the founder and Chief Investment Officer of the CD Capital Management Group, a fund manager of a number of private equity and mining natural resource funds, which have been key early investors and supporters of the Lundin Group of Companies.