UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 6-K
REPORT OF FOREIGN PRIVATE ISSUER PURSUANT TO RULE 13a-16 OR 15d-16 UNDER THE
SECURITIES EXCHANGE ACT OF 1934
For the month of September, 2014
Commission File Number 001-35100
Quest Rare Minerals Ltd.
(Translation of registrants name into English)
1155 University Street, Suite 906, Montreal, Québec Canada, H3B 3A7
(Address of principal executive office)
Indicate by check mark whether the registrant files or will file annual reports under cover of Form 20-F or Form 40-F.
Form 20-F ¨ Form 40-F þ
Indicate by check mark if the registrant
is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(1):
Note: Regulation S-T Rule 101(b)(1) only permits the submission in paper of a Form 6-K if submitted solely to provide an attached annual report to security holders.
Indicate by check mark if
the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(7):
Note: Regulation S-T Rule 101(b)(7) only permits the submission in paper of a Form 6-K if submitted to furnish a report or other document that the registrant foreign private issuer must furnish and make public under the laws of the jurisdiction in which the registrant is incorporated, domiciled or
legally organized (the registrants home country), or under the rules of the home country exchange on which the registrants securities are traded, as long as the report or other document is not a press release, is not required
to be and has not been distributed to the registrants security holders, and, if discussing a material event, has already been the subject of a Form 6-K submission or other Commission filing on EDGAR.
Indicate by check mark whether the registrant by furnishing the information contained in this Form is also thereby furnishing the information
to the Commission pursuant to Rule 12g3-2(b) under the Securities Exchange Act of
1934. Yes ¨ No ¨
If Yes is marked, indicate below the file number assigned to the registrant in connection with Rule 12g3-2(b):
82- .
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
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QUEST RARE MINERALS LTD.
(Registrant) |
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Date September 12, 2014 |
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By |
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(Signed) Mark Schneiderman |
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(Signature) * Mark Schneiderman |
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Chief Financial Officer |
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Print the name and title under the signature of the signing officer. |
Persons who are to respond to the collection of information contained in this form are not required to respond unless the form displays a currently valid OMB control number.
EXHIBIT INDEX
Exhibit 99.1
Condensed Interim Consolidated Financial Statements
Quest Rare Minerals Ltd.
(An Exploration & Development Stage Corporation)
For the three and nine-months ended July 31, 2014
(Unaudited)
INDEX
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Interim Consolidated Statements of Financial Position |
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1 |
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Interim Consolidated Statements of Comprehensive Loss |
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2 |
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Interim Consolidated Statements of Changes in Equity |
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3 |
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Interim Consolidated Statements of Cash Flows |
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4 |
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Notes to Condensed Interim Consolidated Financial Statements |
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5 28 |
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NOTICE TO READER
Management has compiled the unaudited condensed interim financial statements of Quest Rare Minerals Ltd. as at July 31, 2014 and for the three and nine-month periods then ended. These condensed
interim financial statements have not been audited or reviewed by the Corporations independent auditors.
Quest Rare Minerals Ltd.
INTERIM CONSOLIDATED STATEMENTS
OF FINANCIAL POSITION
(UNAUDITED)
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July 31, 2014 $ |
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October
31, 2013 $ |
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ASSETS |
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Current assets |
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Cash and cash equivalents [notes 7 and 10] |
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3,617,412 |
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7,269,170 |
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Investments [note 10] |
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1,900 |
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1,600 |
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Prepaid expenses and deposits |
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507,556 |
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413,560 |
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Commodity taxes and other receivables |
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252,968 |
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594,525 |
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Tax credits receivable [note 4] |
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5,485,244 |
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6,985,244 |
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9,865,080 |
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15,264,099 |
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Non-current assets |
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Tax credits receivable [note 4] |
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3,792,225 |
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3,237,225 |
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Exploration and evaluation assets [note 4] |
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65,292,134 |
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58,400,176 |
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Other non-current assets [note 5] |
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362,309 |
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Total assets |
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79,311,748 |
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76,901,500 |
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EQUITY AND LIABILITIES |
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Current liabilities |
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Loan facility [note 7] |
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4,338,793 |
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Accounts payable and accrued liabilities [note 9] |
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1,625,813 |
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3,357,441 |
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Premium liabilities |
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72,180 |
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282,519 |
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Total liabilities |
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6,036,786 |
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3,639,960 |
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Equity |
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Share capital |
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80,897,992 |
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79,436,141 |
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Warrants |
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606,915 |
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59,948 |
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Contributed surplus |
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21,519,342 |
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21,106,068 |
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Deficit |
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(29,749,287 |
) |
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(27,340,617 |
) |
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Total equity |
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73,274,962 |
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73,261,540 |
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Total equity and liabilities |
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79,311,748 |
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76,901,500 |
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Going concern uncertainty [note 1]
See accompanying notes
1
Quest Rare Minerals Ltd.
INTERIM CONSOLIDATED STATEMENTS OF
COMPREHENSIVE LOSS
(UNAUDITED)
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Three months
ended July 31 |
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Nine months
ended July 31 |
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2014 $ |
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2013 $ |
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2014 $ |
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2013 $ |
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REVENUES |
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EXPENSES |
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Professional fees [note 9] |
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72,124 |
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138,029 |
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388,380 |
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388,337 |
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Investor relations [notes 6 and 9] |
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199,748 |
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259,908 |
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750,061 |
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1,187,754 |
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Administration expenses [notes 6 and 9] |
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414,880 |
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320,769 |
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1,207,330 |
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984,516 |
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Impairment of exploration and evaluation assets [note 4] |
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9,939 |
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537,379 |
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146,499 |
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781,333 |
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696,691 |
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1,256,085 |
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2,492,270 |
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3,341,940 |
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Operating loss |
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(696,691 |
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(1,256,085 |
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(2,492,270 |
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(3,341,940 |
) |
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Finance income |
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9,038 |
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78,558 |
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34,702 |
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202,551 |
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Finance expense [note 7] |
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(92,943 |
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(161,741 |
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Unrealized gain (loss) on investments held for trading [note 10] |
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(250 |
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(1,000 |
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300 |
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(8,250 |
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Premium liabilities related income |
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55,799 |
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210,339 |
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(28,356 |
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77,558 |
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83,600 |
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194,301 |
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Net loss and comprehensive loss for the period |
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(725,047 |
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(1,178,527 |
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(2,408,670 |
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(3,147,639 |
) |
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Net loss per share |
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Basic and fully diluted |
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(0.01 |
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(0.02 |
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(0.04 |
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(0.05 |
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Weighted average number of outstanding shares |
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Basic and fully diluted |
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69,231,502 |
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62,490,816 |
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67,999,646 |
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62,196,070 |
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Going concern uncertainty [note 1]
See accompanying notes
2
Quest Rare Minerals Ltd.
INTERIM CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
(UNAUDITED)
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Share capital |
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Warrants |
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Contributed surplus $
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Deficit $ |
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Total $ |
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# |
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$ |
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# |
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$ |
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Balance November 1, 2012 |
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61,864,684 |
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77,498,615 |
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21,092,317 |
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(23,358,728 |
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75,232,204 |
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Issuance of shares under flow-through arrangements [note 8] |
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4,065,360 |
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1,742,297 |
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1,742,297 |
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Issuance of shares and warrants [note 8] |
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1,012,000 |
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433,714 |
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506,000 |
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72,286 |
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506,000 |
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Issuance of shares for stock options [note 8] |
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295,000 |
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132,905 |
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(88,655 |
) |
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44,250 |
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Stock-based compensation [note 8] |
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16,357 |
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16,357 |
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Share issue costs [note 8] |
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(349,360 |
) |
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(11,606 |
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(360,966 |
) |
Share issue costs options issued to brokers [note 8] |
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71,083 |
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71,083 |
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Net loss for the period |
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(3,147,639 |
) |
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(3,147,639 |
) |
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Balance July 31, 2013 |
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67,237,044 |
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79,458,171 |
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506,000 |
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60,680 |
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21,091,102 |
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(26,506,367 |
) |
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74,103,586 |
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Balance November 1, 2013 |
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67,237,044 |
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79,436,141 |
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506,000 |
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59,948 |
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21,106,068 |
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(27,340,617 |
) |
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73,261,540 |
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Issuance of shares and warrants [note 8] |
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11,025,485 |
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2,150,926 |
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11,025,485 |
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825,955 |
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2,976,881 |
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Issuance of shares for stock options [note 8] |
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316,667 |
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37,453 |
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(5,786 |
) |
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31,667 |
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Stock-based compensation [note 8] |
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297,071 |
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297,071 |
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Share issue costs [note 8] |
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(726,528 |
) |
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(278,988 |
) |
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(1,005,516 |
) |
Share issue costs units issued to brokers [note 8] |
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121,989 |
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121,989 |
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Net loss for the period |
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(2,408,670 |
) |
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(2,408,670 |
) |
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Balance July 31, 2014 |
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78,579,196 |
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80,897,992 |
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|
11,531,485 |
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|
606,915 |
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21,519,342 |
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(29,749,287 |
) |
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73,274,962 |
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Going concern uncertainty [note 1]
See accompanying notes
3
Quest Rare Minerals Ltd.
INTERIM CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
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Nine months
ended July 31 |
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|
2014 $ |
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|
2013 $ |
|
OPERATING ACTIVITIES |
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Net loss |
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(2,408,670 |
) |
|
|
(3,147,639 |
) |
Items not impacting cash: |
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|
|
|
|
|
|
Impairment of exploration and evaluation assets |
|
|
146,499 |
|
|
|
781,333 |
|
Unrealized (gain) loss on investments held for trading |
|
|
(300 |
) |
|
|
8,250 |
|
Stock-based compensation |
|
|
|
|
|
|
(91,758 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
(2,262,471 |
) |
|
|
(2,449,814 |
) |
Net change in non-cash working capital items |
|
|
(802,372 |
) |
|
|
611,449 |
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|
|
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|
|
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|
Net cash flows used in operating activities |
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|
(3,064,843 |
) |
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|
(1,838,365 |
) |
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|
INVESTING ACTIVITIES |
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|
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|
Investment in exploration and evaluation assets [note 4] |
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|
(7,140,327 |
) |
|
|
(19,382,746 |
) |
Government credits |
|
|
|
|
|
|
3,589,711 |
|
Increase in non-current assets |
|
|
(258,794 |
) |
|
|
|
|
Disposal of investments |
|
|
|
|
|
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4,000,000 |
|
|
|
|
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|
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Net cash flows used in investing activities |
|
|
(7,399,121 |
) |
|
|
(11,793,035 |
) |
|
|
|
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|
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|
FINANCING ACTIVITIES |
|
|
|
|
|
|
|
|
Proceeds from the issuance of shares and warrants |
|
|
2,976,881 |
|
|
|
506,000 |
|
Proceeds from the issuance of shares under flow-through arrangements |
|
|
|
|
|
|
2,235,948 |
|
Proceeds from exercise of share options [note 8] |
|
|
31,667 |
|
|
|
12,000 |
|
Share issue costs [note 8] |
|
|
(735,213 |
) |
|
|
(315,721 |
) |
Increase in loan facility [note 7] |
|
|
4,338,793 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash flows from financing activities |
|
|
6,612,128 |
|
|
|
2,438,227 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Net decrease in cash and cash equivalents |
|
|
(3,651,758 |
) |
|
|
(11,193,173 |
) |
Cash and cash equivalents, beginning of period |
|
|
7,269,170 |
|
|
|
22,423,970 |
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents, end of period |
|
|
3,617,412 |
|
|
|
11,230,797 |
|
|
|
|
|
|
|
|
|
|
Going concern uncertainty [note 1]
See accompanying notes
4
Quest Rare Minerals Ltd.
NOTES TO CONDENSED INTERIM CONSOLIDATED
FINANCIAL STATEMENTS
(UNAUDITED)
July 31, 2014
1. NATURE OF
OPERATIONS AND GOING CONCERN UNCERTAINTY
Quest Rare Minerals Ltd. [Quest or the Parent] was incorporated under the
Canada Business Corporations Act on June 6, 2007. The registered office of Quest is located at 1155 University Street, Suite 906, Montreal, Québec, H3B 3A7. Quest is a publicly-listed Corporation and its shares are listed on both
the Toronto Stock Exchange and NYSE MKT [formerly NYSE Amex] under the symbol QRM.
Quest is a Canadian-based exploration and
development company which, together with its wholly-owned subsidiary, QTM Extraction Ltd [QTM or the Subsidiary], is focused on the development of its Strange Lake rare earth deposit in northeastern Québec and the
identification and discovery of new rare earth element (REE) deposit opportunities. The Parent and its Subsidiary [collectively the Corporation] is currently advancing several projects in Canada as described in note 4. The
Corporations exploration program to date has led to the discovery of a new rare earth element deposit on the Corporations Strange Lake property in northeastern Québec. QTM was incorporated as a vehicle to hold and operate the
Corporations assets related to the processing of ore as part the Corporations Strange Lake project.
Going Concern Uncertainty
These condensed interim consolidated financial statements have been prepared on the basis of accounting principles applicable to a going
concern, which assume that the Corporation will continue in operation for the foreseeable future and will be able to realize its assets and discharge its obligations in the normal course of operations. In assessing whether the going concern
assumption is appropriate, management takes into account all available information about the future, which is at least, but not limited to twelve months from the end of the reporting period. The use of these principles may not be appropriate.
To date, the Corporation has not earned significant revenue and is considered to be in the exploration and development stage.
The investment in, and expenditures on, exploration and evaluation assets comprise a significant portion of the Corporations assets. Mineral
exploration and development is highly speculative and involves inherent risks. Realization of the Corporations investment in these assets is dependent upon the renewed legal ownership of the licenses, and whether an economically viable
operation can be established.
5
Quest Rare Minerals Ltd.
NOTES TO CONDENSED INTERIM CONSOLIDATED
FINANCIAL STATEMENTS
(UNAUDITED)
July 31, 2014
1. NATURE OF OPERATIONS AND GOING CONCERN UNCERTAINTY [Contd]
The Corporations current committed cash resources are insufficient to cover expected expenditures
in the next twelve months. The Corporations ability to continue as a going concern is dependent on being able to obtain the necessary financing to satisfy its liabilities as they become due. There can be no assurance that management will be
successful in securing adequate financing. In addition, while the Corporations Prefeasibility Study and development activities in relation to its Strange Lake project look promising, there can be no assurance that the results of its planned
Feasibility Study will confirm the existence of economically viable quantities of ore or that the project will ultimately go into production.
The Corporation reported a net loss and total comprehensive loss in the nine-months ended July 31, 2014 and the year ended October 31, 2013 of
$2,408,670 and $3,981,889, respectively. These recurring losses and the need for continued financing to further successful exploration and development activities indicate the existence of a material uncertainty that raises substantial doubt as to
the Corporations ability to continue as a going concern.
These condensed interim consolidated financial statements do not give effect
to any adjustments to the carrying values and classifications of assets and liabilities that might be necessary, if the Corporation is unable to continue as a going concern. Such adjustments could be material.
2. BASIS OF PREPARATION AND CHANGES IN ACCOUNTING POLICIES
Statement of Compliance
The condensed interim consolidated financial statements of the
Corporation for the three and nine-months ended July 31, 2014 have been prepared in accordance with International Accounting Standard 34, Interim Financial Reporting. The same accounting policies and methods of computation were followed in the
preparation of these condensed interim consolidated financial statements as were followed in the preparation of the financial statements for the year ended October 31, 2013 except for the new standards and interpretations effective
November 1, 2013. These condensed interim financial statements do not include all of the information required for full annual financial statements and should be read in conjunction with the consolidated financial statements for the year ended
October 31, 2013 which have been prepared in accordance with IFRS, as issued by the IASB.
The Board of Directors approved these
condensed interim consolidated financial statements effective September 8, 2014.
6
Quest Rare Minerals Ltd.
NOTES TO CONDENSED INTERIM CONSOLIDATED
FINANCIAL STATEMENTS
(UNAUDITED)
July 31, 2014
2. BASIS OF PREPARATION AND CHANGES IN ACCOUNTING POLICIES [Contd]
Adoption of new standards
IAS 1 Presentation of Financial Statements Components of Other Comprehensive Income
The amendments to IAS 1 change the grouping of items presented in other comprehensive income (OCI). Items that could be reclassified (or
recycled) to profit or loss at a future point in time would be presented separately from items that will never be reclassified such as remeasurement gain (loss) on employee benefits. The Corporation adopted IAS 1 on November 1, 2013
and the amendment affects presentation only and therefore had no impact on the Corporations condensed interim consolidated financial statements.
IAS 1 Clarification of the Requirement for Comparative Information (Amendment)
The
amendment to IAS 1 clarifies the difference between voluntary additional comparative information and the minimum required comparative information. An entity must include comparative information in the related notes to the consolidated financial
statements when it voluntarily provides comparative information beyond the minimum required comparative period. The additional voluntary comparative information does not need to be presented in a complete set of financial statements.
IFRS 10 Consolidated Financial Statements
IFRS 10 establishes a single control model that applies to all entities including structured entities. IFRS 10 replaces the parts of previously existing
IAS 27, Consolidated and Separate Financial Statements, that dealt with consolidated financial statements and SIC-12, Consolidation Special Purpose Entities. IFRS 10 changed the definition of control such that an investor controls an investee
when it is exposed, or has rights, to variable returns from its involvement with the investee and has the ability to affect those returns through its power over the investee. To meet the definition of control in IFRS 10, all three criteria must be
met, including: a) an investor has power over the investee; b) the investor has exposure, or rights, to variable returns from its involvement with the investee; and c) the investor has the ability to use its power over the investee to affect the
amount of the investors returns. The Corporation adopted IFRS 10 on November 1, 2013 and it did not have any impact on the Corporations condensed interim consolidated financial statements.
.
7
Quest Rare Minerals Ltd.
NOTES TO CONDENSED INTERIM CONSOLIDATED
FINANCIAL STATEMENTS
(UNAUDITED)
July 31, 2014
2. BASIS OF PREPARATION AND CHANGES IN ACCOUNTING POLICIES [Contd]
IFRS 11 Joint Arrangements
IFRS 11 replaces IAS 31, Interests in Joint Ventures, and SIC-13, Jointly Controlled EntitiesNon-monetary Contributions by Venturers. IFRS 11 removes the option to account for jointly controlled
entities (JCEs) using proportionate consolidation. Instead, JCEs that meet the definition of a joint venture must be accounted for using the equity method. The Corporation adopted IFRS 11 on November 1, 2013 and it did not have any
impact on the Corporations condensed interim consolidated financial statements.
IFRS 12 Disclosure of Interests in Other Entities
IFRS 12 sets out the requirements for disclosures relating to an entitys interest in subsidiaries, joint arrangements, associates
and structured entities. The Corporation adopted IFRS 12 on November 1, 2013. None of these disclosures requirements are applicable for condensed interim consolidated financial statements, unless significant events and transactions in the
interim period require that they are provided. Accordingly, in the absence of such events, the Corporation has not made such disclosures.
IFRS 13 Fair Value Measurement
IFRS 13
establishes a single source of guidance under IFRS for all fair value measurements. IFRS 13 does not change when an entity is required to use fair value, but rather provides guidance on how to measure fair value under IFRS when fair value is
required or permitted. IFRS 13 also defines fair value as an exit price and also requires additional disclosures. The Corporation adopted IFRS 13 on November 1, 2013 and the application of IFRS 13 has not impacted the fair value measurements of
the Corporation. See Note 10 for required disclosures.
New standards issued but not yet effective
IFRS 9 Financial Instruments
In July
2014, the IASB amended IFRS 9, Financial Instruments, to bring together the classification and measurement, impairment and hedge accounting phases of the IASBs project to replace IAS 39, Financial Instruments: Recognition and
Measurement. The standard supersedes all previous versions of IFRS 9 and will be effective on November 1, 2018 for the Corporation with earlier application permitted. The Corporation is currently evaluating the impact of this standard on
its consolidated financial statements.
8
Quest Rare Minerals Ltd.
NOTES TO CONDENSED INTERIM CONSOLIDATED
FINANCIAL STATEMENTS
(UNAUDITED)
July 31, 2014
3. INCOME TAXES
A reconciliation of income tax charge applicable to accounting loss before income tax at the weighted average statutory income tax rate to income tax charge at the Corporations effective income tax
rate for the three and nine-month periods ended July 31 is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three-month period ended July 31 |
|
|
Nine-month period ended
July 31 |
|
|
|
2014 $ |
|
|
2013 $ |
|
|
2014 $ |
|
|
2013 $ |
|
Loss before income tax |
|
|
(725,047 |
) |
|
|
(1,178,527 |
) |
|
|
(2,408,670 |
) |
|
|
(3,147,639 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income tax recovery at the combined Federal and Provincial tax rate 26.68% [2013 26.76%] |
|
|
(193,442 |
) |
|
|
(315,374 |
) |
|
|
(642,633 |
) |
|
|
(842,308 |
) |
Stock based compensation |
|
|
21,762 |
|
|
|
1,891 |
|
|
|
53,381 |
|
|
|
(24,555 |
) |
Share issue costs booked through equity |
|
|
(268,272 |
) |
|
|
(96,595 |
) |
|
|
(268,272 |
) |
|
|
(96,595 |
) |
Premium liability related income |
|
|
(14,887 |
) |
|
|
|
|
|
|
(56,118 |
) |
|
|
|
|
Other |
|
|
(1,645 |
) |
|
|
(10,127 |
) |
|
|
(7,214 |
) |
|
|
11,562 |
|
Changes in valuation allowance |
|
|
456,484 |
|
|
|
420,205 |
|
|
|
920,856 |
|
|
|
951,896 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Tax charge at effective income tax rate |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The deferred tax asset and liability of the Corporation consist of the following:
|
|
|
|
|
|
|
|
|
|
|
July 31, 2014 $ |
|
|
October 31, 2013 $ |
|
Future income tax assets |
|
|
|
|
|
|
|
|
Non-capital loss carry-forwards |
|
|
4,885,703 |
|
|
|
4,088,892 |
|
Share issue costs |
|
|
350,507 |
|
|
|
265,501 |
|
Investments |
|
|
5,483 |
|
|
|
5,523 |
|
|
|
|
|
|
|
|
|
|
|
|
|
5,241,693 |
|
|
|
4,359,916 |
|
|
|
|
|
|
|
|
|
|
Future income tax liabilities |
|
|
|
|
|
|
|
|
Exploration and evaluation assets |
|
|
(2,835,143 |
) |
|
|
(2,874,223 |
) |
|
|
|
|
|
|
|
|
|
Net future income tax assets |
|
|
2,406,550 |
|
|
|
1,485,693 |
|
Unrecognized deferred tax assets |
|
|
(2,406,550 |
) |
|
|
(1,485,693 |
) |
|
|
|
|
|
|
|
|
|
Net future income tax assets (liabilities) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As at July 31, 2014, the Corporations remaining exploration expenditures pursuant to flow-through share
arrangements amounted to $372,136 [October 31, 2013 $1,953,855].
9
Quest Rare Minerals Ltd.
NOTES TO CONDENSED INTERIM CONSOLIDATED
FINANCIAL STATEMENTS
(UNAUDITED)
July 31, 2014
4. EXPLORATION AND EVALUATION ASSETS
During the nine-month period ended July 31, 2014, the Corporation maintained the following properties:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
November 1, 2013 |
|
|
Expenditures |
|
|
Tax credits |
|
|
Write-down |
|
|
July 31, 2014 |
|
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
Québec |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Strange Lake |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Acquisition |
|
|
170,375 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
170,375 |
|
Exploration |
|
|
48,539,549 |
|
|
|
4,756,193 |
|
|
|
947,689 |
|
|
|
|
|
|
|
54,243,431 |
|
|
|
|
|
|
Misery Lake |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Acquisition |
|
|
1,911,891 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,911,891 |
|
Exploration |
|
|
4,134,707 |
|
|
|
1,099,942 |
|
|
|
(2,170 |
) |
|
|
|
|
|
|
5,232,479 |
|
|
|
|
|
|
Other |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Acquisition |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exploration |
|
|
|
|
|
|
16,235 |
|
|
|
(519 |
) |
|
|
(15,716 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
54,756,522 |
|
|
|
5,872,370 |
|
|
|
945,000 |
|
|
|
(15,716 |
) |
|
|
61,558,176 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ontario |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Acquisition |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exploration |
|
|
|
|
|
|
350 |
|
|
|
|
|
|
|
(350 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
350 |
|
|
|
|
|
|
|
(350 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
New Brunswick |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Acquisition |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exploration |
|
|
|
|
|
|
9,326 |
|
|
|
|
|
|
|
(9,326 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
9,326 |
|
|
|
|
|
|
|
(9,326 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nova Scotia |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Acquisition |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exploration |
|
|
|
|
|
|
1,056 |
|
|
|
|
|
|
|
(1,056 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,056 |
|
|
|
|
|
|
|
(1,056 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10
Quest Rare Minerals Ltd.
NOTES TO CONDENSED INTERIM CONSOLIDATED
FINANCIAL STATEMENTS
(UNAUDITED)
July 31, 2014
4. EXPLORATION AND EVALUATION ASSETS [Contd]
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
November 1, 2013 |
|
|
Expenditures |
|
|
Tax credits |
|
|
Write-down |
|
|
July 31, 2014 |
|
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
Newfoundland and Labrador |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Alterra Strange Lake |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Acquisition |
|
|
157,870 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
157,870 |
|
Exploration |
|
|
751,520 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
751,520 |
|
|
|
|
|
|
|
Voiseys Bay |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Acquisition |
|
|
180 |
|
|
|
|
|
|
|
|
|
|
|
(180 |
) |
|
|
|
|
Exploration |
|
|
6,509 |
|
|
|
|
|
|
|
|
|
|
|
(6,509 |
) |
|
|
|
|
|
|
|
|
|
|
Other |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Acquisition |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exploration |
|
|
|
|
|
|
113,362 |
|
|
|
|
|
|
|
(113,362 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
916,079 |
|
|
|
113,362 |
|
|
|
|
|
|
|
(120,051 |
) |
|
|
909,390 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Properties |
|
|
55,672,601 |
|
|
|
5,996,464 |
|
|
|
945,000 |
|
|
|
(146,499 |
) |
|
|
62,467,566 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock-based compensation [note 8] |
|
|
2,727,575 |
|
|
|
96,993 |
|
|
|
|
|
|
|
|
|
|
|
2,824,568 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
58,400,176 |
|
|
|
6,093,457 |
|
|
|
945,000 |
|
|
|
(146,499 |
) |
|
|
65,292,134 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
11
Quest Rare Minerals Ltd.
NOTES TO CONDENSED INTERIM CONSOLIDATED
FINANCIAL STATEMENTS
(UNAUDITED)
July 31, 2014
4. EXPLORATION AND EVALUATION ASSETS [Contd]
During the year ended October 31, 2013, the Corporation maintained the following properties:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
November 1, 2012 |
|
|
Expenditures |
|
|
Tax credits |
|
|
Write-down |
|
|
October 31, 2013 |
|
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
|
|
|
|
|
Québec |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Strange Lake |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Acquisition |
|
|
171,302 |
|
|
|
(927 |
) |
|
|
|
|
|
|
|
|
|
|
170,375 |
|
Exploration |
|
|
32,504,287 |
|
|
|
17,397,572 |
|
|
|
(1,362,310 |
) |
|
|
|
|
|
|
48,539,549 |
|
|
|
|
|
|
|
Misery Lake |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Acquisition |
|
|
1,890,499 |
|
|
|
21,392 |
|
|
|
|
|
|
|
|
|
|
|
1,911,891 |
|
Exploration |
|
|
3,914,029 |
|
|
|
592,602 |
|
|
|
(371,924 |
) |
|
|
|
|
|
|
4,134,707 |
|
|
|
|
|
|
|
Other |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Acquisition |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exploration |
|
|
|
|
|
|
143,920 |
|
|
|
(67,273 |
) |
|
|
(76,647 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
38,480,117 |
|
|
|
18,154,559 |
|
|
|
(1,801,507 |
) |
|
|
(76,647 |
) |
|
|
54,756,522 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ontario |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Acquisition |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exploration |
|
|
|
|
|
|
40,469 |
|
|
|
|
|
|
|
(40,469 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
40,469 |
|
|
|
|
|
|
|
(40,469 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
New Brunswick |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Acquisition |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exploration |
|
|
|
|
|
|
145,633 |
|
|
|
|
|
|
|
(145,633 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
145,633 |
|
|
|
|
|
|
|
(145,633 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nova Scotia |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Acquisition |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exploration |
|
|
|
|
|
|
63,919 |
|
|
|
|
|
|
|
(63,919 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
63,919 |
|
|
|
|
|
|
|
(63,919 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
12
Quest Rare Minerals Ltd.
NOTES TO CONDENSED INTERIM CONSOLIDATED
FINANCIAL STATEMENTS
(UNAUDITED)
July 31, 2014
4. EXPLORATION AND EVALUATION ASSETS [Contd]
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
November 1, 2012 |
|
|
Expenditures |
|
|
Tax credits |
|
|
Write-down |
|
|
October 31, 2013 |
|
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
Newfoundland and Labrador |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Strange Lake |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Acquisition |
|
|
157,054 |
|
|
|
|
|
|
|
|
|
|
|
(157,054 |
) |
|
|
|
|
Exploration |
|
|
177,656 |
|
|
|
6,055 |
|
|
|
|
|
|
|
(183,711 |
) |
|
|
|
|
|
|
|
|
|
|
Misery Lake |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Acquisition |
|
|
(2,250 |
) |
|
|
|
|
|
|
|
|
|
|
2,250 |
|
|
|
|
|
Exploration |
|
|
190 |
|
|
|
|
|
|
|
|
|
|
|
(190 |
) |
|
|
|
|
|
|
|
|
|
|
Alterra Strange Lake |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Acquisition |
|
|
90,728 |
|
|
|
67,142 |
|
|
|
|
|
|
|
|
|
|
|
157,870 |
|
Exploration |
|
|
751,572 |
|
|
|
(52 |
) |
|
|
|
|
|
|
|
|
|
|
751,520 |
|
|
|
|
|
|
|
Voiseys Bay |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Acquisition |
|
|
180 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
180 |
|
Exploration |
|
|
6,509 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6,509 |
|
|
|
|
|
|
|
Other |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Acquisition |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exploration |
|
|
|
|
|
|
314,350 |
|
|
|
|
|
|
|
(314,350 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,181,639 |
|
|
|
387,495 |
|
|
|
|
|
|
|
(653,055 |
) |
|
|
916,079 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Properties |
|
|
39,661,756 |
|
|
|
18,792,075 |
|
|
|
(1,801,507 |
) |
|
|
(979,723 |
) |
|
|
55,672,601 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock-based compensation [note 8] |
|
|
2,609,453 |
|
|
|
118,122 |
|
|
|
|
|
|
|
|
|
|
|
2,727,575 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
42,271,209 |
|
|
|
18,910,197 |
|
|
|
(1,801,507 |
) |
|
|
(979,723 |
) |
|
|
58,400,176 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
13
Quest Rare Minerals Ltd.
NOTES TO CONDENSED INTERIM CONSOLIDATED
FINANCIAL STATEMENTS
(UNAUDITED)
July 31, 2014
4. EXPLORATION AND EVALUATION ASSETS [Contd]
As at July 31, 2014 a total of $1,197,110 of expenditures on exploration and evaluation assets were
unpaid and included in accounts payable and accrued liabilities [October 31, 2013 $2,340,973]. These amounts have been excluded from the statements of cash flows.
The Corporation is entitled to refundable tax credits on qualified expenditures. The refundable tax credits have been applied against the exploration and evaluation assets when such expenditures are
incurred provided that the Corporation has reasonable assurance those credits will be realized.
Management judgment is applied
in determining whether the mining exploration expenses are eligible for claiming such credits. Those benefits are recognized when the Corporation estimates that it has reasonable assurance that the tax credits will be realized. Adjustments to
estimated tax credits receivable, if any, are recorded against exploration and evaluation assets.
During the nine-month period ended
July 31, 2014, management revised the estimated tax credits receivable and reduced them by $1,285,000 with a corresponding increase in exploration and evaluation assets based on the eligibility of such credits. The reduction in the estimated
tax credits receivable follows preliminary communications between management and representatives of Revenu Québec and relates in large part to whether expenses incurred by the Corporation in fiscal years 2012 and 2013 for bench-scale testing,
product testing, metallurgical testwork and pilot plant testing are qualified expenditures.
During the nine-months ended July 31, 2014,
significant changes occurred in the following properties:
Strange Lake, Québec
The Corporations 100%-owned Strange Lake property is situated within the George River belt located 220 km northeast of Schefferville, Québec
and 125 km west of the Voiseys Bay Nickel-Copper-Cobalt Mine, and covers an area of approximately 13,333 hectares. The property is a rare earth mineralized zone and consists of 294 mining claims, all of which are in Québec. During the
three and nine-month periods ended July 31, 2014, 210 claims covering 9,147 hectares were allowed to lapse as the Corporation continues to focus its activities on the main area of interest on the property.
14
Quest Rare Minerals Ltd.
NOTES TO CONDENSED INTERIM CONSOLIDATED
FINANCIAL STATEMENTS
(UNAUDITED)
July 31, 2014
4. EXPLORATION AND EVALUATION ASSETS [Contd]
Misery Lake, Québec
The Corporations 100%-owned Misery Lake property is located approximately 120 km south of Strange Lake and consists of 170 mining claims in Québec and covers an area of 8,334 hectares. During
the three and nine-month periods ended July 31, 2014, nil and 754 claims respectively covering nil and 36,522 hectares respectively were allowed to lapse as the Corporation continues to focus its activities on the main area of interest on the
property.
Voiseys Bay, Newfoundland and Labrador
During the nine-month period ended July 31, 2014, all 18 claims of the Corporations 100%-owned Voiseys Bay property were allowed to lapse. As a result, the Corporation wrote off
acquisition costs of $180 and deferred exploration expenditures of $6,509.
Other, Québec, Newfoundland and Labrador, Nova Scotia,
Ontario and New Brunswick
Acquisition and exploration expenditures allocated to Other projects represent the costs incurred on
potential projects.
Based on its ongoing and analysis of these potential projects and their accumulated expenditures, the Corporation decided
to write off all of the incurred mining acquisition costs and deferred exploration expenditures incurred during the quarter ended July 31, 2014.
5. OTHER NON-CURRENT ASSETS
On November 5, 2013, QTM entered into an option agreement
with La Société du Parc Industriel et Portuaire de Bécancour (the Agreement). Under the Agreement, QTM has the right to purchase land in the Bécancour Port industrial site to build a processing facility for
the ore from Strange Lake. The option is for a period of one year and can be extended by QTM for up to an additional three years to November 2017 in five increments of six months each. QTM can cancel the Agreement at any time.
Payments made under the Agreement may be offset and deducted against the eventual purchase price once the option is exercised. QTM therefore has
capitalized the option payments as they are made until such time as either its option is exercised, cancelled or allowed to lapse by the Corporation.
15
Quest Rare Minerals Ltd.
NOTES TO CONDENSED INTERIM CONSOLIDATED
FINANCIAL STATEMENTS
(UNAUDITED)
July 31, 2014
6. EXPENSES BY NATURE
The following is a breakdown of the nature of expenses included in investor relations and administration expenses for the three and nine-month periods ended July 31, 2014 and 2013:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three-month period ended July 31 |
|
|
Nine-month period ended July 31 |
|
|
|
2014 |
|
|
2013 |
|
|
2014 |
|
|
2013 |
|
Investor relations: |
|
|
|
|
|
|
Advertising |
|
|
3,600 |
|
|
|
12,470 |
|
|
|
39,575 |
|
|
|
134,918 |
|
Conferences |
|
|
1,693 |
|
|
|
4,025 |
|
|
|
16,468 |
|
|
|
36,415 |
|
Consulting services |
|
|
24,359 |
|
|
|
31,966 |
|
|
|
85,256 |
|
|
|
80,021 |
|
Dues and subscriptions |
|
|
623 |
|
|
|
7,034 |
|
|
|
13,734 |
|
|
|
15,868 |
|
Investor relations fees |
|
|
5,903 |
|
|
|
|
|
|
|
18,096 |
|
|
|
22,034 |
|
Listing and stock transfer fees |
|
|
25,284 |
|
|
|
18,233 |
|
|
|
98,854 |
|
|
|
79,241 |
|
Meetings |
|
|
1,957 |
|
|
|
55,478 |
|
|
|
76,816 |
|
|
|
182,705 |
|
Printing and filing |
|
|
38,811 |
|
|
|
2,183 |
|
|
|
139,661 |
|
|
|
70,124 |
|
Salaries and other employee benefits |
|
|
83,002 |
|
|
|
100,210 |
|
|
|
213,204 |
|
|
|
399,199 |
|
Travel related costs |
|
|
13,302 |
|
|
|
26,741 |
|
|
|
43,252 |
|
|
|
151,458 |
|
Other |
|
|
1,214 |
|
|
|
1,568 |
|
|
|
5,145 |
|
|
|
15,771, |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
199,748 |
|
|
|
259,908 |
|
|
|
750,061 |
|
|
|
1,187,754 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
16
Quest Rare Minerals Ltd.
NOTES TO CONDENSED INTERIM CONSOLIDATED
FINANCIAL STATEMENTS
(UNAUDITED)
July 31, 2014
6. EXPENSES BY NATURE [Contd]
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three-month period ended July 31 |
|
|
Nine-month period ended July 31 |
|
|
|
2014 |
|
|
2013 |
|
|
2014 |
|
|
2013 |
|
Administration expenses: |
|
|
|
|
Office Expenses: |
|
|
|
|
|
|
|
|
Salaries and other employee benefits |
|
|
146,065 |
|
|
|
140,925 |
|
|
|
435,083 |
|
|
|
413,674 |
|
Directors fees |
|
|
60,000 |
|
|
|
53,750 |
|
|
|
167,500 |
|
|
|
161,250 |
|
Directors and Officers Insurance |
|
|
34,599 |
|
|
|
26,090 |
|
|
|
88,775 |
|
|
|
77,389 |
|
Rent |
|
|
18,618 |
|
|
|
45,551 |
|
|
|
110,318 |
|
|
|
139,146 |
|
Telephone and internet |
|
|
4,755 |
|
|
|
2,658 |
|
|
|
11,465 |
|
|
|
7,990 |
|
Travel Costs |
|
|
12,720 |
|
|
|
5,826 |
|
|
|
28,271 |
|
|
|
45,263 |
|
IT Services |
|
|
18,351 |
|
|
|
15,114 |
|
|
|
60,621 |
|
|
|
64,228 |
|
Education & Training |
|
|
17 |
|
|
|
428 |
|
|
|
2,241 |
|
|
|
4,864 |
|
Recruitment Costs |
|
|
|
|
|
|
10,492 |
|
|
|
5,008 |
|
|
|
50,270 |
|
Moving Expenses |
|
|
21,214 |
|
|
|
|
|
|
|
30,924 |
|
|
|
|
|
Repairs & Maintenance |
|
|
239 |
|
|
|
98 |
|
|
|
434 |
|
|
|
6,547 |
|
Other Office Expenses |
|
|
13,230 |
|
|
|
9,492 |
|
|
|
49,537 |
|
|
|
88,119 |
|
Bank Charges |
|
|
4,455 |
|
|
|
2,496 |
|
|
|
10,405 |
|
|
|
8,063 |
|
Foreign Exchange Loss |
|
|
(951 |
) |
|
|
782 |
|
|
|
6,670 |
|
|
|
9,471 |
|
Stock-based compensation [note 8] |
|
|
81,568 |
|
|
|
7,067 |
|
|
|
200,078 |
|
|
|
(91,758 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
414,880 |
|
|
|
320,769 |
|
|
|
1,207,330 |
|
|
|
984,516 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
17
Quest Rare Minerals Ltd.
NOTES TO CONDENSED INTERIM CONSOLIDATED
FINANCIAL STATEMENTS
(UNAUDITED)
July 31, 2014
7. LOAN FACILITY
The Corporation is entitled to receive Québec Resource Tax Credits (QRTC) at the rate of 38.75% of certain eligible exploration expenditures incurred in Québec.
In order to monetize the QRTC for the year ended October 31, 2012, the Corporation entered into a loan facility with Investissement Québec
(the Loan Facility) on September 11, 2013, as amended on May 5, 2014, under which the Corporation can borrow up to $4,339,000, representing a proportion of the estimated 2012 QRTC. Amounts drawn down under the Loan Facility
must be repaid on the earlier of November 30, 2014 or upon collection of the 2012 QRTC, which were assigned to Investissement Québec. Amounts drawn under the Loan Facility bear interest, payable on a monthly basis, at an annual rate of
prime plus 5.5% [October 31, 2013 prime plus 5.5%]. The Corporation has provided security to Investissement Québec by way of an irrevocable letter of credit in the amount of $150,000 secured by a redeemable term deposit recorded
as cash and cash equivalents at July 31, 2014, a deed of hypothec in the amount of $4,339,000 and an additional hypothec in the amount of $868,000 over its present and future QRTC claims and its accounts receivable, as well as a first ranking
hypothec on the Corporations present and future tax credits.
As at both July 31, 2014 and September 8, 2014, $4,338,793 had
been drawn down pursuant to this Loan Facility.
The Loan Facility contains certain financial and non-financial covenants which were met as at
July 31, 2014.
8. SHARE CAPITAL
Authorized
Common
An unlimited number of no par value shares.
Preferred
An unlimited number of shares issuable in series, non-voting, conditions to be determined by the Board of Directors.
18
Quest Rare Minerals Ltd.
NOTES TO CONDENSED INTERIM CONSOLIDATED
FINANCIAL STATEMENTS
(UNAUDITED)
July 31, 2014
8. SHARE CAPITAL [Contd]
[a] Common shares
Issuances during the three and nine-month periods ended July 31, 2014
[i] |
On July 17, 2014, the Corporation completed a short-form prospectus offering by issuing 11,025,485 units at a price of $0.27, for gross proceeds of $2,976,881 of
which $2,150,926 was allocated to common shares and $825,955 to warrants based on relative fair value (note 8 (c)). Each unit was comprised of one common share and one common share purchase warrant. Each warrant entitles its holder to purchase one
additional common share at a price of $0.40 until July 17, 2017. The units separated into common shares and warrants immediately after the closing and the warrants commenced trading on the Toronto Stock Exchange (TSX) under the stock
symbol QRM.WT. |
Further, on July 17, 2014, the Corporation issued 613,008 broker compensation
units,entitling holders to purchase units of the Corporation at a price of $0.27 per unit at any time until July 17, 2016. Each unit comprises one common share of the Corporation and one common share purchase warrant. Each common share purchase
warrant would entitle its holder to purchase one additional common share of the Corporation at a price of $0.40 per share until July 17, 2017. The total fair value of broker compensation units was $121,989, allocated to contributed surplus.
The fair value of the warrants and the broker compensation units was determined based on the Black-Scholes option pricing
model using the weighted average assumptions as follows:
|
|
|
|
|
|
|
|
|
Assumption |
|
Share Portion of Broker units |
|
|
Warrants and Warrant Portion of Broker units |
|
Risk-free interest rate |
|
|
1.00 |
% |
|
|
1.00 |
% |
Expected volatility |
|
|
80 |
% |
|
|
77 |
% |
Dividend yield |
|
|
Nil |
|
|
|
Nil |
|
Expected life [in years] |
|
|
2.0 |
|
|
|
3.0 |
|
Share Price |
|
$ |
0.25 |
|
|
$ |
0.25 |
|
Fair value at grant date |
|
$ |
0.10 |
|
|
$ |
0.10 |
|
In connection with this financing, the Corporation paid cash commissions to agents of $165,512, issued
broker compensation units of $121,989 and incurred other professional fees and expenses of $718,015 for a total of $1,005,516 which has been prorated between the share capital and warrants of $726,528 and $278,988 respectively.
As at July 31, 2014, none of the broker compensation units issued had been exercised.
19
Quest Rare Minerals Ltd.
NOTES TO CONDENSED INTERIM CONSOLIDATED
FINANCIAL STATEMENTS
(UNAUDITED)
July 31, 2014
8. SHARE CAPITAL [Contd]
[ii] |
No options were exercised during the three-month period ended July 31, 2014. During the nine-month period ended July 31, 2014, the Corporation issued 316,667
common shares at an average exercise price of $0.10 per share for a total cash amount of $31,667 for stock options exercised, and an amount of $5,786 related to exercised stock options was transferred from contributed surplus to capital stock.
|
Issuances during the three and nine-month periods ended July 31, 2013
[iii] |
On July 25, 2013, the Corporation completed a private placement by issuing 4,065,360 flow-through shares at a price of $0.55 per share, for gross proceeds of
$2,235,948. Of the total proceeds received for the flow-through shares, $1,742,297 was allocated to common shares and $493,651 to premium liabilities. |
In addition, on July 25, 2013, the Corporation issued 1,012,000 units at a price of $0.50 per unit, for gross proceeds of $506,000. Each unit is comprised of one common share and one-half of a
common share purchase warrant; each whole warrant entitles its holder to purchase one additional common share at a price of $0.80 until January 25, 2015. If at any time prior to the expiry date of the warrants, the weighted average price
of the Corporations common shares on the Toronto Stock Exchange exceeds $1.20 for a period of not less than 20 consecutive trading days, the Corporation may reduce the period during which the warrants may be exercised, such that the warrants
will expire on the date which is 30 days after the date on which the Corporation sends a notice to warrant holders. An amount of $72,286 related to common share purchase warrants was allocated to warrants (refer also to note 8[c]).
Further, on July 25, 2013, the Corporation also issued broker compensation options entitling the agents for the private placement to
purchase a maximum of 203,094 common shares of the Corporation at a price of $0.50 until January 25, 2015. The total fair value of broker options was $71,083, allocated to contributed surplus. The fair value of broker options was determined
based on the Black-Scholes option pricing model using the weighted average assumptions as follows:
|
|
|
|
|
Risk-free interest rate |
|
|
1.25 |
% |
Expected volatility |
|
|
76 |
% |
Dividend yield |
|
|
Nil |
|
Expected life [in years] |
|
|
1.5 |
|
Share price |
|
$ |
0.72 |
|
Fair value at grant date |
|
$ |
0.35 |
|
20
Quest Rare Minerals Ltd.
NOTES TO CONDENSED INTERIM CONSOLIDATED
FINANCIAL STATEMENTS
(UNAUDITED)
July 31, 2014
8. SHARE CAPITAL [Contd]
As at July 31, 2014, none of the broker options issued had been exercised.
In connection with the private placement, the Corporation paid cash commissions to agents of $224,996, issued broker
compensation options of $71,083 and incurred other professional fees and expenses of $144,145 for a total of $440,224 which has been prorated between the share capital, warrants and premium liabilities of $349,360, $11,606 and $79,258 respectively.
[iv] |
During the nine-month period ended July 31, 2013, the Corporation issued 295,000 common shares at an average exercise price of $0.15 per share for a total cash
amount of $44,250 for stock options exercised, and an amount of $88,655 related to exercised stock options was transferred from contributed surplus to capital stock. |
[b] Stock Options
The outstanding options, excluding broker options and units, as at
July 31, 2014 and October 31, 2013 and the respective changes during the nine-month period and the year then ended are summarized as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine-month period ended July 31,
2014 |
|
|
Year ended October 31, 2013 |
|
|
|
Number of options |
|
|
Weighted average exercise price |
|
|
Number of options |
|
|
Weighted average exercise price |
|
|
|
# |
|
|
$ |
|
|
# |
|
|
$ |
|
Outstanding, beginning of period |
|
|
4,675,834 |
|
|
|
3.15 |
|
|
|
5,353,334 |
|
|
|
3.08 |
|
Granted |
|
|
655,000 |
|
|
|
0.51 |
|
|
|
127,500 |
|
|
|
0.86 |
|
Exercised |
|
|
(316,667 |
) |
|
|
0.10 |
|
|
|
(295,000 |
) |
|
|
0.15 |
|
Expired/cancelled |
|
|
(800,000 |
) |
|
|
1.17 |
|
|
|
(510,000 |
) |
|
|
3.81 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding, end of period |
|
|
4,214,167 |
|
|
|
3.34 |
|
|
|
4,675,834 |
|
|
|
3.15 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The weighted average share price of options exercised during the nine-month period ended July 31, 2014 was $0.49
[2013 $1.05].
21
Quest Rare Minerals Ltd.
NOTES TO CONDENSED INTERIM CONSOLIDATED
FINANCIAL STATEMENTS
(UNAUDITED)
July 31, 2014
8. SHARE CAPITAL [Contd]
The following options, excluding broker options and units, are outstanding and exercisable as at
July 31, 2014:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options outstanding |
|
Range of exercise price
$ |
|
|
Number outstanding # |
|
|
Weighted average remaining contractual life (in years) |
|
|
Weighted average
exercise price $ |
|
|
Number exercisable # |
|
|
Weighted average
exercise price $ |
|
|
0.01 to 0.749 |
|
|
|
697,500 |
|
|
|
4.54 |
|
|
|
0.52 |
|
|
|
425,833 |
|
|
|
0.51 |
|
|
0.75 to 1.499 |
|
|
|
50,000 |
|
|
|
3.54 |
|
|
|
0.97 |
|
|
|
33,333 |
|
|
|
0.97 |
|
|
1.50 to 2.249 |
|
|
|
305,000 |
|
|
|
4.14 |
|
|
|
2.01 |
|
|
|
305,000 |
|
|
|
2.01 |
|
|
2.25 to 2.999 |
|
|
|
885,000 |
|
|
|
5.74 |
|
|
|
2.71 |
|
|
|
885,000 |
|
|
|
2.71 |
|
|
3.75 to 4.499 |
|
|
|
1,526,667 |
|
|
|
6.26 |
|
|
|
4.44 |
|
|
|
1,526,667 |
|
|
|
4.44 |
|
|
4.50 to 5.249 |
|
|
|
500,000 |
|
|
|
6.22 |
|
|
|
4.69 |
|
|
|
500,000 |
|
|
|
4.69 |
|
|
5.25 to 5.999 |
|
|
|
250,000 |
|
|
|
6.44 |
|
|
|
5.72 |
|
|
|
250,000 |
|
|
|
5.72 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
0.00 to 5.999 |
|
|
|
4,214,167 |
|
|
|
5.69 |
|
|
|
3.32 |
|
|
|
3,925,833 |
|
|
|
3.52 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The fair value of stock options granted during the three and nine-month periods ended July 31, 2014 and 2013 were
estimated at their respective grant dates using the Black-Scholes option pricing model, using the following weighted average assumptions:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three-month period
ended July 31 |
|
|
Nine-month period
ended July 31 |
|
|
|
2014 |
|
|
2013 |
|
|
2014 |
|
|
2013 |
|
Risk-free interest rate |
|
|
1.47 |
% |
|
|
1.13 |
% |
|
|
1.48 |
% |
|
|
1.56 |
% |
Forfeiture rate |
|
|
4.73 |
% |
|
|
3.88 |
% |
|
|
4.90 |
% |
|
|
3.07 |
% |
Expected volatility |
|
|
91 |
% |
|
|
99 |
% |
|
|
90 |
% |
|
|
97 |
% |
Dividend yield |
|
|
Nil |
|
|
|
Nil |
|
|
|
Nil |
|
|
|
Nil |
|
Expected life [in years] |
|
|
5.00 |
|
|
|
5.00 |
|
|
|
5.00 |
|
|
|
5.00 |
|
Fair value at grant date |
|
|
0.36 |
|
|
$ |
0.47 |
|
|
|
0.36 |
|
|
$ |
0.63 |
|
22
Quest Rare Minerals Ltd.
NOTES TO CONDENSED INTERIM CONSOLIDATED
FINANCIAL STATEMENTS
(UNAUDITED)
July 31, 2014
8. SHARE CAPITAL [Contd]
In addition, as at July 31, 2014, the Corporation had outstanding, the following broker
compensation options and units:
|
|
|
Options entitling holders to purchase a maximum of 203,094 common shares of the Corporation at an exercise price of $0.50 [October 31, 2013
203,094]. These options are exercisable until January 25, 2015. |
|
|
|
Units entitling holders to purchase 613,008 units of the Corporation at an exercise price of $0.27 [October 31, 2013 Nil]. These units are
exercisable until July 17, 2016. Each unit comprises one common share of the Corporation and one common share purchase warrant entitling the holder to purchase one additional common share of the Corporation at $0.40 per share. Share purchase
warrants are exercisable until July 17, 2017. |
[c] Warrants
The outstanding warrants as at July 31, 2014 and October 31, 2013 and the respective changes during the quarter and year then ended are
summarized as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarter ended July 31, 2014 |
|
|
Year ended October 31, 2013 |
|
|
|
Number
of warrants # |
|
|
Weighted average exercise
price $ |
|
|
Number
of warrants # |
|
|
Weighted average exercise
price $ |
|
Outstanding balance, beginning of year |
|
|
506,000 |
|
|
|
0.80 |
|
|
|
|
|
|
|
|
|
Granted |
|
|
11,025,485 |
|
|
|
0.40 |
|
|
|
506,000 |
|
|
|
0.80 |
|
Exercised |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expired |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding balance, end of year |
|
|
11,531,485 |
|
|
|
0.42 |
|
|
|
506,000 |
|
|
|
0.80 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As at July 31, 2014, the warrants outstanding had a weighted average life of 2.89 years.
[d] Restricted and Deferred Share Unit Plans
On March 9, 2012, the Board of Directors adopted the Restricted Share Unit [RSU] Plan and the Deferred Share Unit [DSU] Plan to complement the 2012 Stock Option Plan. Under
these plans, RSUs may be granted to executives and key employees, and DSUs may be granted to directors and key executives, as part of their long-term compensation packages.
23
Quest Rare Minerals Ltd.
NOTES TO CONDENSED INTERIM CONSOLIDATED
FINANCIAL STATEMENTS
(UNAUDITED)
July 31, 2014
8. SHARE CAPITAL [Contd]
RSUs vest over the period of a Performance Cycle, defined as the period from the date of
grant of the unit to the end of the Corporations second fiscal year after the fiscal year in which the unit was granted [a period of up to three years]. DSUs vest immediately, and DSU awards can be settled only when the holder ceases to be an
employee of the Corporation.
RSUs and DSUs entitle the holder to receive a payout, at the Corporations discretion in either: [i] common
shares, on the basis of one common share per RSU or DSU vested in the holders account or [ii] cash, based on the Corporations share price at the relevant time. The value of the cash payout, if elected by the Corporation, is determined by
multiplying the RSUs and DSUs vested at the payout date by the average closing price of the Corporations shares over the last ten days prior to the payout date. DSU awards can be settled only when the holder ceases to be an employee of the
Corporation.
Each of the RSU and DSU Plans provides that a maximum of 750,000 common shares can be issued thereunder. All RSUs and DSUs
granted are classified as equity instruments in accordance with IFRS as their terms provide for settlement in either equity or cash at the sole discretion of the Corporation.
The outstanding RSUs and DSUs as at July 31, 2014 and October 31, 2013 and the respective changes during the quarter and the year then ended are summarized as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Restricted Share Units |
|
|
|
Number of units |
|
|
Fair value at grant date |
|
|
Number of units |
|
|
Fair value at grant date |
|
|
|
# |
|
|
$ |
|
|
# |
|
|
$ |
|
|
|
Nine-month period ended July 31, 2014 |
|
|
Year ended October 31, 2013 |
|
Outstanding, beginning of period |
|
|
|
|
|
|
|
|
|
|
125,000 |
|
|
|
1.73 |
|
Granted |
|
|
110,000 |
|
|
|
0.48 |
|
|
|
|
|
|
|
|
|
Exercised |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expired/cancelled |
|
|
|
|
|
|
|
|
|
|
(125,000 |
) |
|
|
1.73 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding, end of period |
|
|
110,000 |
|
|
|
0.48 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Units exercisable |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
24
Quest Rare Minerals Ltd.
NOTES TO CONDENSED INTERIM CONSOLIDATED
FINANCIAL STATEMENTS
(UNAUDITED)
July 31, 2014
8. SHARE CAPITAL [Contd]
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred Share Units |
|
|
|
Number of units |
|
|
Fair value at grant date |
|
|
Number of units |
|
|
Fair value at grant date |
|
|
|
# |
|
|
$ |
|
|
# |
|
|
$ |
|
|
|
Nine-month period ended July 31, 2014 |
|
|
Year ended October 31, 2013 |
|
Outstanding, beginning of period |
|
|
150,000 |
|
|
|
1.73 |
|
|
|
150,000 |
|
|
|
1.73 |
|
Granted |
|
|
175,000 |
|
|
|
0.48 |
|
|
|
|
|
|
|
|
|
Exercised |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expired/cancelled |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding, end of period |
|
|
325,000 |
|
|
|
1.06 |
|
|
|
150,000 |
|
|
|
1.73 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Units exercisable |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
[e] Stock-based compensation
For the three and nine-month periods ended July 31, 2014 included in administration expenses in the statements of comprehensive loss is stock-based compensation expense of $81,568 and $200,078
respectively [2013 $7,067 and $(91,758) respectively]. For the three and nine-month periods ended July 31, 2014, included in exploration and evaluation assets was a stock-based compensation expense of $20,404 and $96,993
[2013 $17,721 and $472,735 respectively].
9. RELATED PARTY TRANSACTIONS
All of the following related party transactions occurred in the normal course of operations.
[a] |
The Corporation retains the services of certain directors of the Corporation to carry out professional activities. During the three and nine-month periods ended
July 31, 2014, the total amount charged for professional services by directors of the Corporation and recorded in exploration and evaluation assets was $18,750 and $56,250 respectively [2013 $18,750 and $56,250 respectively].
|
25
Quest Rare Minerals Ltd.
NOTES TO CONDENSED INTERIM CONSOLIDATED
FINANCIAL STATEMENTS
(UNAUDITED)
July 31, 2014
9. RELATED PARTY TRANSACTIONS [Contd]
[b] |
During the three and nine-month periods ended July 31, 2014, the Corporation incurred fees to law firms of which an officer and director of the Corporation is a
partner. For the three-month period ended July 31, 2014, the total amount for such services provided was $187,293, of which $10,391 was recorded in professional fees, $176,887 was recorded in issue costs and $15 was recorded in exploration and
evaluation assets [2013 $59,745, $62,767 and $21,195 respectively]. For the nine-month period ended July 31, 2014, the total amount for such services provided was $386,798, of which $117,852 was recorded in professional fees,
$19,892 was recorded in investor relations, $237,532 was recorded in issue costs and $11,522 was recorded in exploration and evaluation assets [2013 $177,489, $19,585, $62,767 and $185,861 respectively]. As at July 31, 2014, an
amount of $248,535 [October 31, 2013 $52,731] owing to this law firm was included in accounts payable and accrued liabilities in respect of these fees. |
[c] Compensation of key management personnel and Board of Directors
Excluding the amounts
reported above, during the three and nine-month periods ended July 31, 2014 and 2013, the Corporation recorded the following compensation for key management personnel and the Board of Directors:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three-month period ended
July 31 |
|
|
Nine-month period ended
July 31 |
|
|
|
|
2014 |
|
|
|
2013 |
|
|
|
2014 |
|
|
|
2013 |
|
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
Salaries and employee benefits |
|
|
199,460 |
|
|
|
160,749 |
|
|
|
602,036 |
|
|
|
521,977 |
|
Directors fees |
|
|
60,000 |
|
|
|
53,750 |
|
|
|
167,500 |
|
|
|
161,250 |
|
Stock compensation |
|
|
70,205 |
|
|
|
12,164 |
|
|
|
215,206 |
|
|
|
22,832 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
329,665 |
|
|
|
226,663 |
|
|
|
984,742 |
|
|
|
706,059 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
26
Quest Rare Minerals Ltd.
NOTES TO CONDENSED INTERIM CONSOLIDATED
FINANCIAL STATEMENTS
(UNAUDITED)
July 31, 2014
10. FINANCIAL INSTRUMENTS
Principles of risk management
The Corporations objectives when managing capital are
to safeguard its ability to continue its operations as well as its acquisition and exploration programs. As such, the Corporation has relied primarily on the Loan Facility and the equity markets to fund its activities. In order to carry out planned
exploration and to pay for administrative costs, the Corporation will spend its existing working capital and raise additional funds as needed. The Corporation has not used term debt financing and has not paid any dividends. As well, the Corporation
does not have any externally-imposed capital requirements, either regulatory or contractual, to which it is subject.
The prices of minerals
fluctuate widely and are affected by many factors outside of the Corporations control. The prices of minerals and future expectation of such prices may have a significant impact on the market sentiment for investment in mining and mineral
exploration companies. This in turn may impact on the Corporations ability to raise equity financing for its capital requirements.
The
Corporations financial instruments consist of cash and cash equivalents, tax credits and other receivables, investments and accounts payable and accrued liabilities. Due to the short-term nature of cash and cash equivalents, tax credits and
other receivables and accounts payable and accrued liabilities, the fair value of these financial instruments approximates their carrying value.
The Corporations investments are classified as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
July 31, 2014 |
|
|
October 31, 2013 |
|
|
|
Classification |
|
|
Fair value level |
|
Carrying value $ |
|
|
Fair Value $ |
|
|
Carrying value $ |
|
|
Fair value $ |
|
Financial assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Canadian stocks |
|
|
Held-for-trading |
|
|
I |
|
|
1,900 |
|
|
|
1,900 |
|
|
|
1,600 |
|
|
|
1,600 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The Corporation does not enter into financial instrument agreements, including derivative financial instruments, for
speculative purposes.
Credit risk
Credit risk is the risk of financial loss to the Corporation if a counter-party to a financial instrument fails to meet its contractual obligations; the Corporations maximum exposure to credit loss
is the book value of its financial instruments.
27
Quest Rare Minerals Ltd.
NOTES TO CONDENSED INTERIM CONSOLIDATED
FINANCIAL STATEMENTS
(UNAUDITED)
July 31, 2014
10. FINANCIAL INSTRUMENTS [Contd]
The Corporation is not exposed to any significant credit risk as at July 31, 2014. The
Corporations cash and cash equivalents is deposited with a major Canadian chartered bank and is held in highly-liquid investments.
Liquidity risk
Liquidity risk is the
risk that the Corporation will not be able to meet its financial obligations as they come due. All of the Corporations financial liabilities are due within one year. The Corporation manages liquidity risk through the management of its capital
structure.
As at July 31, 2014, the Corporation had a total of $3,617,412 in cash and cash equivalents. The Corporation manages
liquidity risk through the management of its capital structure.
Market risk analysis
Market risk is the risk that the fair value of the future cash flows of a financial instrument will fluctuate because of changes in market prices. The
Corporations primary market exposures are to interest rate risk.
Interest rate risk
Interest rate risk is the risk that the fair value of future cash flows of a financial instrument will fluctuate due to changes in market interest rates.
The Corporation has a Loan Facility with Investissement Québec. Amounts drawn under the Loan Facility bear interest, payable on a
monthly basis, at an annual rate of prime plus 5.5%. In addition, the Corporations cash and cash equivalents carry interest and therefore, the Corporation is exposed to a variation of interest rates on amounts earned and payable. Based on the
amounts drawn down on its Loan Facility and its exposures to cash and cash equivalents as at July 31, 2014 and assuming that all other variables remain constant, an increase or decrease of 100 basis points of the interest rate during the
quarter would result in a increase or decrease of $180 respectively in comprehensive loss before income taxes.
The rates as at July 31,
2014 for Canadian and U.S. funds ranged from 1.20%-1.50% [October 31, 2013 range of 1.20%-1.50%] and 0.10% [October 31, 2013 0.10%], respectively. The rate as at July 31, 2014 for the Corporations Loan Facility was
8.5% [October 31, 2013 8.5%].
28
Exhibit 99.2
MANAGEMENTS DISCUSSION AND ANALYSIS
As at September 8, 2014
The
following managements discussion and analysis (MD&A) of the results of operations and financial condition of Quest Rare Minerals Ltd. and its wholly-owned subsidiary QTM Extraction Ltd. (collectively Quest or the
Corporation) covers the three and nine-month periods ended July 31, 2014, unless otherwise noted. It should be read in conjunction with the audited consolidated financial statements and related notes as at and for the year ended
October 31, 2013 and the condensed interim consolidated financial statements for the three and nine-month periods ended July 31, 2014.
The condensed interim consolidated financial statements for the three and nine-month periods ended July 31, 2014 have been prepared in accordance with International Accounting Standard 34, Interim
Financial Reporting. These condensed interim consolidated financial statements do not include all of the information required for full annual financial statements and should be read in conjunction with the consolidated financial statements for the
year ended October 31, 2013 which have been prepared in accordance with IFRS, as issued by the International Accounting Standards Board (IASB). All amounts are expressed in Canadian dollars unless otherwise noted.
Forward-Looking Statements
Certain of
the information contained in this document may contain forward-looking statements. Forward-looking statements may include, among others, statements regarding the Corporations future plans, costs, objectives or economic performance,
or the assumptions underlying any of the foregoing, including those concerning the Corporations Strange Lake B-Zone Rare Earth Element (REE) property. In this document, words such as may, would,
could, will, likely, believe, expect, anticipate, intend, plan, estimate and similar words and the negative form thereof are used to identify
forward-looking statements. Forward-looking statements should not be read as guarantees of future performance or results, and will not necessarily be accurate indications of whether such future performance will be achieved. Forward-looking
statements are based on information available at the time and/or managements good faith belief with respect to future events and are subject to known or unknown risks, uncertainties and other unpredictable factors, many of which are beyond the
Corporations control. These risks and uncertainties include, but are not limited to, those described under the heading Risk Factors in the Corporations Annual Information Form and the Amended and Restated Annual Information
Form for the fiscal year ended October 31, 2013, which is available on SEDAR at www.sedar.com and on EDGAR at www.sec.gov/edgar, and could cause actual events or results to differ materially from those projected in any forward-looking
statements. The Corporation does not intend, nor does it undertake any obligation, to update or revise any forward-looking statements contained in this MD&A to reflect subsequent information, events or circumstances or otherwise, except if
required by applicable law.
CORPORATE OVERVIEW
Quest is a Canadian exploration and development company focused on the development of its important Strange Lake REE deposit in northeastern Québec, the identification and discovery of new REE
deposit opportunities, and the engineering and construction of a processing facility in southern Québec.
Quests objective is to
become a major stable global supplier of rare earth products. It has a preliminary agreement for the supply of zirconium product, and is continuing discussions with major industrial users of REE in Europe and North America. Quest is poised to
establish a major new North American industrial sector of global importance, able to address the chronic HREE+Yttrium (HREE+Y) supply deficit over a long period of time.
RECENT DEVELOPMENTS
On July 17, 2014, Quest closed a prospectus offering where Quest issued 11,025,485 units at a price of $0.27 per unit, for gross proceeds to Quest of approximately $3 million. Each unit is
comprised of one common share and one common share purchase warrant of Quest. Each warrant entitles its holder to purchase one additional Quest common share at a price of $0.40 for 36 months from the closing date of the offering. The net
proceeds from the offering will be used by Quest primarily toward a feasibility study on its Strange Lake rare earth project in northeastern Québec, and for working capital.
The warrants issued by Quest will trade on the Toronto Stock Exchange under the stock symbol QRM.WT. Quests common shares are listed on the Toronto Stock Exchange and NYSE MKT.
The offering was completed through a syndicate of agents co-led by GMP Securities L.P. and Desjardins Securities Inc. and including
Maison Placements Canada Inc. and Jones, Gable & Company Limited.
Exploration Strategy
The Corporations 2009 exploration program led to the discovery of a major new REE deposit, the B-Zone, on the Corporations Strange Lake
property. In September 2010, the Corporation completed a mineral resource estimate as well as a Preliminary Economic Assessment of the Strange Lake B-Zone deposit. Drilling on 60 m by 80 m centres over the defined limits of the deposit in the summer
of 2010 allowed Quest to develop a revised Indicated and Inferred Resource Estimate in April 2011. The report was used as the basis to develop a program of definition drilling and to commence a pre-feasibility study program at Strange Lake in 2011.
Quest believes Strange Lake has the potential to be one of the worlds largest and highest-grade heavy rare earth (HREE) mining projects.
Strange Lake Rare Earth Project, Québec
The Strange Lake property comprises a total of 294 claims all located in Québec. The property, located 220 km northeast of Schefferville and 125 km west of the Voiseys Bay
Nickel-Copper-Cobalt Mine (Figure 1), covers an area of 13,333 hectares. During the three and nine-month periods ended July 31, 2014, 210 claims covering 9,147 hectares were allowed to lapse as the Corporation continues to focus its activities
on the main area of interest on the property. The project area is accessible by fixed-wing aircraft or helicopter from Schefferville, Québec, or from Nain or Happy Valley-Goose Bay, Newfoundland and Labrador. Vales nickel-copper mine at
Voiseys Bay is the closest mine, located approximately 125 km east of Strange Lake, on the Labrador coast. Exploration work on the Strange Lake Project has been focused around the Strange Lake B-Zone REE deposit discovered by Quest in 2009 and
around additional REE showings identified by Quest crews on the property.
Quests exploration strategy combines prospecting and strong
geological expertise with the use of leading-edge geophysical and geochemical techniques to search for mineral deposits. The Corporation also believes in conducting exploration through joint ventures with other mining firms, in order to share
exploration risk and to benefit from its partners capabilities in mine development and production. In support of the Strange Lake development project work, Quest is currently in the process of building a rare earth and rare metal mine
development team.
Further Operational Improvements and Industry Partnerships
Quest has identified and continues to work toward the implementation of a number of additional operational improvements to the base case assumptions presented by the PEA filed in April 2014, which are
intended to further reduce project capital and operating costs and increase product yields.
2
Strategic Business Plans
The PEA assumes that Quest will execute and operate all aspects of the Strange Lake project within a single corporation. However, Quest recognizes that there may be certain financial advantages to
structuring the project in separate corporate entities. These entities would include a mining company, a transport and logistics company, a materials-processing company and a separation and refining company, either as wholly-owned subsidiaries of
Quest or as joint ventures with industrial partners. There are a number of potential advantages to such an arrangement, including the opportunity to partner with specialized processing or transportation and logistics providers.
Figure 1 Property Location Map, George River Area Projects, Québec and Newfoundland and Labrador
Process Improvements
On September 4, 2014, Quest announced the results for the production of a high purity rare earth and yttrium oxide concentrate from its new and substantially improved process flowsheet outlined in
the April PEA press release for the Strange Lake Project.
The mixed rare earth oxide was produced as part of Quests ongoing
metallurgical testing program at SGS Mineral Services Lakefield site (SGS), and represents the successful completion of the majority of the bench scale testing for the improved process.
Presented in Table 1 below is the analysis of the mixed oxide from SGS. The analysis was confirmed by a highly reputed third party laboratory, Activation
Laboratories Ltd. The mixed oxide contained 98.4% total rare earth oxide (TREO), of which approximately 37% is heavy rare earth oxide (HREO). HREO content is a function of the HREO distribution in the mineral sample that was fed through the
process. According to Quests production plan, higher HREO content mineralized material will be processed in the first 23 years of production, with about 45% HREO expected in the final product mix.
3
Table 1 Composition of the mixed rare earth oxide produced in recent process testing (SGS
Analysis)
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Oxide |
|
La2O3 |
|
CeO2 |
|
Pr6O11 |
|
Nd2O3 |
|
Sm2O3 |
|
Eu2O3 |
|
Gd2O3 |
|
Tb4O7 |
|
Dy2O3 |
Analysis |
|
13.20% |
|
30.62% |
|
3.33% |
|
12.00% |
|
1.95% |
|
0.14% |
|
2.70% |
|
0.55% |
|
3.64% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Oxide |
|
Ho2O3 |
|
Er2O3 |
|
Tm2O3 |
|
Yb2O3 |
|
Lu2O3 |
|
Y2O3 |
|
TREO* |
|
LREO** |
|
HREO*** |
Analysis |
|
0.78% |
|
2.34% |
|
0.33% |
|
1.82% |
|
0.24% |
|
24.80% |
|
98.40% |
|
61.10% |
|
37.30% |
(*) Total Rare Earth Oxides (TREO+Y) include: La2O3, CeO2, Pr6O11, Nd2O3, Sm2O3, Eu2O3, Gd2O3, Tb4O7, Dy2O3, Ho2O3, Er2O3, Tm2O3, Yb2O3, Lu2O3 and Y2O3.
(**) Light Rare Earth Oxides (LREO) include: La2O3,
CeO2, Pr6O11, Nd2O3 and Sm2O3.
(***) Heavy Rare Earth Oxides (HREO+Y)
include: Eu2O3, Gd2O3, Tb4O7, Dy2O3, Ho2O3, Er2O3, Tm2O3, Yb2O3, Lu2O3 and Y2O3.
Industry Partnerships
Quest has begun
discussions aimed toward establishing an industry partnership with rare earth separation/refining companies. Quest would acquire separation technology and the related intellectual property and the partner in return would assist in the process of
building the separation facility at Bécancour. The PEA assumes that a separation plant is built at the same time as the metallurgical plant.
In the event that all of these potential plans are successfully executed, the initial Quest capital requirement could be reduced to just under $1 billion.
In addition, the development plan is sufficiently flexible to allow for expansion of production capacity to meet future rare earth supply demand.
Process Summary
The
substantially improved process flowsheet developed and tested at SGS to produce the mixed rare earth oxide concentrate, which will form the feed to the rare earth separation plant, included the following process steps:
|
|
|
Beneficiation (flotation), which reduced the mass of material treated by approximately 50%, and results in smaller process plant footprint at
Bécancour and reduced energy requirements when compared to the 2013 PFS flowsheet |
|
|
|
Selective sulphation roasting and leaching, which targets recovery of REE+Y to solution, with minimum recovery of impurity elements, including Al, Fe,
and Zr (they mostly remain in residue). The selective sulphation process greatly reduces acid consumption and drastically improves the quality of the leach solution, leading to reduced operating costs and allows for a simplified process flowsheet
|
|
|
|
Impurity removal, which precipitates residual impurities from the leach solution |
|
|
|
Crude concentrate precipitation, which precipitates REE+Y from the leach solution |
|
|
|
Final mixed concentrate production, which includes re-leach of the crude concentrate and final purification steps before producing a high purity mixed
rare earth concentrate |
4
Beneficiation
The beneficiation process is a simple flotation circuit that operates at close to ambient temperature, and uses commercially available chemicals. Approximately 50% of mass can be rejected with rare
earth recoveries of about 90%. The opportunity to raise waste rock mass rejection and potentially further decrease the size of the Bécancour Process Plant, as well as lower the logistics costs associated with transportation of flotation
concentrate is currently under evaluation.
Hydrometallurgy
Quests improved hydrometallurgical process can produce a high purity mixed rare earth oxide without technically complex, risky and costly solvent extraction circuits. The key step in the new process
is the selective thermal sulphation. By careful control of key process parameters, the recovery of REE to solution can be maximized while Al, Fe, Zr and other impurities are rendered insoluble, and the acid level of the leach solution is minimized.
High levels of acid and impurities in solution represent a major technical and economic challenge for many projects. By leaving the impurities behind in the leached residue and minimizing free acid in the leach solution, the flowsheet is
dramatically simplified with reductions in acid consumption, neutralizing agent consumption, process plant footprint, energy consumption and the quantity and quality of residue for disposal. Also of note is the fact that silica in
Quests minerals is not attacked by sulphuric acid, resulting in straightforward liquid solid separation steps.
REE recovery from
flotation concentrate to leach solution is approximately 87% in the new process.
Following sulphation and water leaching, the remaining
process steps include precipitation and filtration stages using customary equipment and relatively low cost reagents. Impurities are selectively precipitated from solution with minimal REE losses. A crude rare earth concentrate is produced by
precipitation. The crude concentrate is then purified to produce the final mixed rare earth concentrate feed to the separation plant.
The
final precipitation of the high purity mixed rare earth concentrate uses oxalic acid, which precipitates the rare earths as oxalates. The mixed rare earth oxalate is calcined to produce the high purity oxide. Options to further improve the purity of
the mixed rare earth concentrate are being evaluated.
Ongoing and Future Metallurgical Programs
Quest is continuing to optimize the process flow sheet and evaluate opportunities for improvement in the beneficiation and hydrometallurgical processing
stages. Ongoing and further metallurgical work includes the following:
|
|
|
Continued evaluation of sensor-based ore sorting (radiometric, photometric) at Helmholtz Institute in Freiberg, Germany (evaluating potential of sensor
based ore sorting as the first step in mass reduction) |
|
|
|
Optimization of the flotation circuit and evaluation of reduced mass pull (which may further decrease the size of the Bécancour, Québec
processing plant, and offer potential reductions in CAPEX and OPEX) |
|
|
|
Mini-pilot plant operation of the hydrometallurgical circuit at SGS to confirm results of bench scale program and optimize operating parameters
|
|
|
|
Beneficiation piloting (for sensor based sorting and or flotation circuits) |
|
|
|
Full scale integrated piloting |
5
Expenditures by Material Component
For the nine-month period ended July 31, 2014, Quest had incurred a total of $4,756,193 in exploration expenditures on the Québec Strange Lake Project compared to $12,505,109 for the
nine-month period ended July 31, 2013. The following table breaks down the capitalized expenditures by its material components.
|
|
|
|
|
|
|
|
|
|
|
2014 |
|
|
2013 |
|
Geophysical Surveys |
|
$ |
540 |
|
|
$ |
72,742 |
|
Geological Surveys |
|
$ |
161,308 |
|
|
$ |
295,388 |
|
Drilling |
|
$ |
153,400 |
|
|
$ |
117,873 |
|
Prefeasibility Studies |
|
$ |
2,641,042 |
|
|
$ |
9,617,715 |
|
Feasibility Studies |
|
$ |
98,776 |
|
|
$ |
599,810 |
|
Metallurgical Work |
|
$ |
939,980 |
|
|
$ |
1,295,216 |
|
Environmental & Permitting |
|
$ |
536,879 |
|
|
$ |
316,910 |
|
Other |
|
$ |
224,268 |
|
|
$ |
189,455 |
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
4,756,193 |
|
|
$ |
12,505,109 |
|
|
|
|
|
|
|
|
|
|
Exploration Activities
Current Exploration Work
Quest has filed an assessment report on its B-Zone Rare
Earth Deposit at Strange Lake with the Québec government authorities.
Future Exploration Work
Planning for a small exploratory diamond drill program and the mechanical stripping, washing, geological mapping and channel or blast sampling of high
grade surface mineralization of the B-Zone is being undertaken. Requests for permitting have been sent to various Quebec Ministries. This program will be conducted between late August and late September 2014. The diamond drilling program will test
new mineralization intersected approximately 1.5 km southwest of the B Zone Deposit.
Misery Lake Rare Earth Project, Québec
The Misery Lake Property consists of a single claim block comprising 170 claims located in Québec. The property is located 120 km
south of the Strange Lake Project and covers a total of 8,334 hectares. During the three and nine-month periods ended July 31, 2014, nil and 754 claims respectively covering nil and 36,522 hectares respectively were allowed to lapse as the
Corporation continues to focus its activities on the main area of interest on the property. The rare earth potential of the Misery Lake area was first recognized by Quest in August 2007 when reconnaissance bedrock sampling over a concentric magnetic
feature returned grab sample results of up to 27% Fe2O3, 1.2% P2O5, 1.5% TiO2 and 2.25% TREO. The Misery Lake property geology is analogous to the Lovozero Peralkaline Complex in Russia, the countrys primary producing area for rare earths,
niobium, tantalum, phosphate and zirconium.
Current Work Activities
In July 2014, Quest announced the drill results from the 2014 winter drill program at its Misery Lake Project. The property is located 120 km south of Quests Strange Lake rare earth development
project. The drill holes intersected strong REE mineralization containing significant concentrations of the element scandium from a new area of mineralization, called the Boulder Zone at the northeastern corner of the property.
6
The Misery Lake drill program commenced on March 30, 2014 and was completed on
April 20, 2014. A total of 7 holes were drilled for 1,437 meters (Table 2, Figure 2). A new mineralized zone, the Boulder Zone, was traced back to its bedrock source from a previously-identified 7-km long, 0650-trending rare earth element (REE) mineralized boulder field (Figure
3). The zone was intersected in three drillholes (ML14026, ML14028 and ML14029) over an east-west strike length of 200 m and vertically to 200 m (Figure 4). Quest has yet to confirm the dip of the new zone but early indications are that it
is sub-vertical to steeply south-dipping and open along strike in both directions and at depth. Mineralized core intersections of between 27.6 m and 199.69 m were returned from the drilling. Best assays returned 1.48% total rare
earth oxides plus yttrium (TREO+Y(1)) over 62.8 m (drillhole ML14026) including 1.72% TREO+Y(1) over 27.6 m. The drilling results also returned important levels of scandium oxide (Sc2O3
) between 0.0235% to 0.0351% (235 to 351 grams/tonne Sc2O3) over the drilled intervals. Highlights of the results, which are interpreted to be apparent thickness, are shown in Table 1 and the location of the drillholes is
presented in Table 2 in NAD 83, Zone 20N projection.
Table 1: Winter Diamond Drill Results, Misery Lake Project,
Québec
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Hole ID |
|
From m |
|
|
To m |
|
|
Thickness m |
|
|
TREO+Y(1) % |
|
|
LREO(2) % |
|
|
HREO+Y(3) % |
|
|
HREO+Y/ TREO+Y |
|
|
Sc2O3 % |
|
ML14026 |
|
|
14.77 |
|
|
|
182.60 |
|
|
|
167.83 |
|
|
|
1.1760 |
|
|
|
1.0013 |
|
|
|
0.1747 |
|
|
|
14.86 |
|
|
|
0.0262 |
|
ML14026 |
|
|
14.77 |
|
|
|
42.40 |
|
|
|
27.63 |
|
|
|
1.7206 |
|
|
|
1.4686 |
|
|
|
0.2521 |
|
|
|
14.65 |
|
|
|
0.0351 |
|
ML14026 |
|
|
14.77 |
|
|
|
77.55 |
|
|
|
62.78 |
|
|
|
1.4779 |
|
|
|
1.2607 |
|
|
|
0.2172 |
|
|
|
14.70 |
|
|
|
0.0304 |
|
ML14028 |
|
|
13.22 |
|
|
|
212.91 |
|
|
|
199.69 |
|
|
|
1.0800 |
|
|
|
0.9178 |
|
|
|
0.1621 |
|
|
|
15.01 |
|
|
|
0.0235 |
|
ML14028 |
|
|
13.22 |
|
|
|
91.14 |
|
|
|
77.92 |
|
|
|
1.4065 |
|
|
|
1.1977 |
|
|
|
0.2088 |
|
|
|
14.85 |
|
|
|
0.0280 |
|
ML14029 |
|
|
13.35 |
|
|
|
93.40 |
|
|
|
80.05 |
|
|
|
1.3353 |
|
|
|
1.1362 |
|
|
|
0.1991 |
|
|
|
14.91 |
|
|
|
0.0286 |
|
ML14030 |
|
|
177.00 |
|
|
|
183.04 |
|
|
|
6.04 |
|
|
|
1.1442 |
|
|
|
0.9632 |
|
|
|
0.1810 |
|
|
|
15.82 |
|
|
|
0.0319 |
|
(1)Total |
Rare Earth Oxides (TREO+Y) include: La2O3, CeO2, Pr6O11, Nd2O3, Sm2O3, Eu2O3, Gd2O3, Tb4O7, Dy2O3, Ho2O3, Er2O3, Tm2O3, Yb2O3, Lu2O3 and Y2O3. |
(2)Light |
Rare Earth Oxides (LREO) include: La2O3, CeO2, Pr6O11, Nd2O3 and Sm2O3. |
(3)Heavy |
Rare Earth Oxides (HREO+Y) include: Eu2O3, Gd2O3, Tb4O7, Dy2O3, Ho2O3, Er2O3, Tm2O3, Yb2O3, Lu2O3 and Y2O3. |
Table 2: Winter Diamond
Drillhole Location Table, Misery Lake Project, Québec
|
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|
|
|
|
|
|
HOLE-ID |
|
Easting |
|
|
Northing |
|
|
Elevation m |
|
|
Depth m |
|
|
Dip |
|
|
Az |
|
ML14024 |
|
|
442988 |
|
|
|
6134135 |
|
|
|
475 |
|
|
|
223.83 |
|
|
|
-90 |
|
|
|
0 |
|
ML14025 |
|
|
442988 |
|
|
|
6234135 |
|
|
|
475 |
|
|
|
215.74 |
|
|
|
-90 |
|
|
|
0 |
|
ML14026 |
|
|
443385 |
|
|
|
6134423 |
|
|
|
518 |
|
|
|
204.00 |
|
|
|
-90 |
|
|
|
0 |
|
ML14027 |
|
|
443572 |
|
|
|
6134485 |
|
|
|
475 |
|
|
|
178.11 |
|
|
|
-90 |
|
|
|
0 |
|
ML14028 |
|
|
443484 |
|
|
|
6134401 |
|
|
|
518 |
|
|
|
227.60 |
|
|
|
-90 |
|
|
|
0 |
|
ML14029 |
|
|
443302 |
|
|
|
6134490 |
|
|
|
518 |
|
|
|
213.00 |
|
|
|
-70 |
|
|
|
180 |
|
ML14030 |
|
|
441582 |
|
|
|
6134253 |
|
|
|
525 |
|
|
|
197.33 |
|
|
|
-90 |
|
|
|
0 |
|
About Scandium
Scandium, with atomic number 21 and an atomic weight of 44.95 on the Periodic Table of Elements, is used in solid oxide fuel cells, high-strength aluminum alloys, electronics, high-intensity discharge
(HID) lighting and lasers in research. When alloyed with aluminum (as little as 0.5%), scandium improves durability, weldability, corrosion resistance, and malleability. Highly-durable superalloys are usually made of aluminum and up to
2% scandium; they exhibit the highest strength-to-weight ratio compared to other similar alloys and have been relied on for use in Russian MiG aircraft and in the Mir space station. Airbus uses aluminum-scandium alloys for its aircraft for
significant weight and operational cost savings; the U.S. Navy is also planning to use these superalloys in its new generation of vessels. Scandium stabilizes zirconia cathodes in solid oxide fuel cells to provide the highest level of ionic
conductivity, making it possible to generate power and heat at lower cost in the long term. The current price of the metal oxide from estimates published by USGS indicates that scandium oxide trades at approximately US $3,700/kg for 99.99%
purity.
7
Figure 2 2014 Drillhole Location Map on Ground Magnetics Base, Misery Lake Project,
Québec
Figure 3 Property Geology Map, Misery Lake Project, Québec
8
Figure 4 Drilling Cross-section with Intersection Assays on a Magnetics Base,
Misery Lake Project, Québec
Misery Lake Geology & Geophysics
The Misery Lake property is dominated by a six-km diameter, circular intrusion comprising of multiple concentric rings of varying types of syenite and other minor units such as syenitic pegmatite. This
intrusive complex exhibits gradational contacts with the host Mistastin Batholith, which comprises predominantly rapakivi granite in the Misery Lake area.
Quest completed a high-resolution ground magnetic survey at Misery Lake in the winter of 2013, which allowed continuous data collection over the entire property. This ground magnetics survey revealed that
the circular magnetic features in both the outer and inner rings are in fact each multiple rings rather than a singular rings, suggesting repetitive stages of differentiation and magmatic intrusion. This survey provided increased resolution to
earlier airborne data collected from the property that allowed the identification of multiple east-west oriented, cross-cutting magnetic features that were previously unknown. Most importantly, as described below, a possible source for the
REE-mineralized boulders was identified.
Expenditures by Material Component
For the nine-month period ended July 31, 2014, Quest had incurred a total of $1,099,942 in exploration expenditures on the Québec Misery Lake Project compared to $548,030 for the nine-month
period ended July 31, 2013. The following table breaks down the capitalized expenditures by its material components.
|
|
|
|
|
|
|
|
|
|
|
2014 |
|
|
2013 |
|
Geophysical Surveys |
|
|
|
|
|
$ |
257,974 |
|
Geological Surveys |
|
$ |
12,221 |
|
|
$ |
113,982 |
|
Drilling |
|
$ |
1,002,125 |
|
|
$ |
57,509 |
|
Other |
|
$ |
85,596 |
|
|
$ |
118,565 |
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
1,099,942 |
|
|
$ |
548,030 |
|
|
|
|
|
|
|
|
|
|
9
2014 Exploration Drilling Program
In late March 2014, Quest mobilized a crew to its Misery Lake camp to prepare for a winter drilling program. The purpose of this drilling campaign was to define possible sources of an REE-mineralized
boulder train. One of the key findings from prospecting and mapping over the course of Quests surface exploration programs has been the identification of a prominent REE-mineralized ferrosyenite boulder train. This boulder train, which has
been extensively sampled over a distance of 7 km (Figure 3) comprises predominantly angular to sub-rounded, small (<10 cm) to large (>2 m) moderate-to-strongly magnetic ferrosyenite. Quest used the known ice direction and the very
discrete nature of this boulder trend parallel to the glacial direction to postulate that an unusual east-west trending and cross-cutting magnetic feature may be the source of the ferrosyenite boulders and planned several holes in the
2014 drilling program to test this hypothesis. The magnetic feature is directly down ice of the boulder field.
Drilling successfully intersected well-mineralized ferrosyenite and fayalite syenite while drill testing the cross-cutting magnetic
feature described above. By comparing the TREO+Y, iron oxide (Fe2O3), Sc2O3 (Table 3) and other metal grades from the boulders*, against the upper 10 meters** of core from ML14026, ML14028 and
ML14029, it is clear that they are very similar. The textures of the boulders and core are very similar, with drillcore commonly presenting higher values than the boulders.
The implications of these results are significant because they allow Quest to employ a new exploration model for the discovery of additional REE+Y+Sc mineralized zones in future exploration programs on
the property. ML14030, which was drilled to the west on a possible continuation of the previously-described magnetic feature, intersected strongly REE mineralized ferrosyenite at depth over a narrower thickness. This suggests to Quest that east-west
magnetic features may represent a significant and untested target type at Misery Lake (Figure 5).
Figure 5 Future
East-West Exploration Target Location Map, Misery Lake Project, Québec
10
Table 3 Comparison Chart Showing Boulder and Drill Sampling Results, Boulder Zone,
Misery Lake Project, Québec
|
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|
|
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|
|
|
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|
|
|
|
|
|
|
|
Type |
|
Boulders |
|
|
ML14026 |
|
|
% Diff |
|
|
ML14028 |
|
|
% Diff |
|
|
ML14029 |
|
|
% Diff |
|
TREO+Y (%) |
|
|
1.395 |
|
|
|
1.667 |
|
|
|
19.50 |
|
|
|
1.465 |
|
|
|
5.02 |
|
|
|
1.527 |
|
|
|
9.46 |
|
Fe2O3 Total
(%) |
|
|
33.85 |
|
|
|
37.99 |
|
|
|
12.23 |
|
|
|
35.39 |
|
|
|
4.55 |
|
|
|
39.57 |
|
|
|
16.89 |
|
Sc2O3
(%) |
|
|
0.0339 |
|
|
|
0.0344 |
|
|
|
1.69 |
|
|
|
0.0289 |
|
|
|
14.75 |
|
|
|
0.0316 |
|
|
|
6.73 |
|
** |
based on upper 10 m of core |
Alterra
Strange Lake Option Property Agreement, Newfoundland and Labrador
The property comprises 30 claims covering 750 hectares
contiguous to the east of Quests Strange Lake Project. Quest initiated negotiations in 2010 to acquire a participation in this rare earth property adjacent to Strange Lake. The claims cover geological and airborne geophysical targets that form
the northeastern extension of surface mineralization defined by Quest crews in 2009, known as the SLG occurrence.
On June 15, 2010,
Quest announced that it had entered into an exploration and option agreement with Search Minerals Inc. (Search) and Alterra Resources Inc. (Alterra), a wholly-owned subsidiary of Search, pursuant to which Quest has an option
to acquire up to a 65% undivided working interest in 30 mining claims located on the southeastern contact of the REE-bearing Strange Lake Alkali Complex in western Labrador.
Under the terms of the exploration and option agreement, Quest can earn a 50% undivided working interest in the 30 claims by issuing an aggregate of 80,000 common shares of Quest to Alterra and by
incurring mining exploration expenditures of $500,000 in the aggregate, both over a period of three years. Further, upon completing all of the payments mentioned above, Quest has an option to acquire an additional 15% undivided working interest in
the mining claims by making a payment of $75,000 before the fourth anniversary date of the exploration and option agreement, by issuing an additional 150,000 common shares of Quest to Alterra on or before the fifth anniversary date of the
exploration and option agreement, and by incurring mining exploration expenditures of $1,250,000 in the aggregate on or before the fifth anniversary date of the exploration and option agreement.
On November 7, 2012, the Corporation entered into an agreement with Search and Alterra under which the Corporation agreed to exchange the Operator
fees receivable from Search of $67,141 against its obligation to issue 40,000 common shares of the Corporation to Alterra in order to earn its 50% undivided working interest. As a result, the Corporation has acquired a 50% undivided working interest
in the claims.
During the year ended October 31, 2013, the Corporation did not exercise its option under the exploration and option
agreement to earn an additional 15% undivided interest in the working claims and as a result, this option has now lapsed.
Current Work
and Future Exploration Activities
As at July 31, 2014 a 50:50 joint venture with Search and Alterra had not been formed.
Discussions with Search Minerals Inc. are ongoing.
Project Evaluation and Project Development (PE&PD), Rare Metals
Ontario, Québec, New Brunswick, Nova Scotia, and Newfoundland and Labrador
In December 2012, Quest made a strategic decision to add
new rare metals to its existing commodity project portfolio. Quests goal is to identify and generate new, world-class projects for molybdenum (Mo), tungsten (W), antimony (Sb), lithium (Li), tin (Sn), indium (In), tantalum (Ta), germanium (Ge)
and gallium (Ga). Quest has acquired several government and private geological databases for all eastern Canada. Assessment of exploration data for Ontario, Québec, New Brunswick, Nova Scotia, and Newfoundland and Labrador were used to
identify exploration targets for field evaluation.
11
New Brunswick, Nova Scotia and Newfoundland PE & PD
Some data compilation work continued during this quarter. A property evaluation is scheduled during early October in New-Brunswick.
Qualified Person
Mr. Pierre Guay,
P. Geo., is the qualified person on the exploration projects presented in this MD&A under National Instrument 43-101 Standards of Disclosure for Mineral Projects and is responsible for the technical contents of this report and has
approved the disclosure of the technical information contained herein.
Summary of Quarterly Results
The following table presents unaudited selected financial information for the eight most recently completed financial quarters:
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended October 31,
2014 |
|
|
Year ended October 31,
2013 |
|
|
October 31, 2012 |
|
|
|
Q3 $ |
|
|
Q2 $ |
|
|
Q1 $ |
|
|
Q4 $ |
|
|
Q3 $ |
|
|
Q2 $ |
|
|
Q1 $ |
|
|
Q4 $ |
|
Revenues |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
43 |
|
Net loss and total comprehensive loss |
|
|
(725,047 |
) |
|
|
(713,915 |
) |
|
|
(969,708 |
) |
|
|
(834,250 |
) |
|
|
(1,178,527 |
) |
|
|
(1,042,041 |
) |
|
|
(927,071 |
) |
|
|
(1,153,597 |
) |
Basic and fully diluted net income (loss) per share |
|
|
(0.01 |
) |
|
|
(0.01 |
) |
|
|
(0.01 |
) |
|
|
(0.02 |
) |
|
|
(0.02 |
) |
|
|
(0.01 |
) |
|
|
(0.02 |
) |
|
|
(0.02 |
) |
The Corporation has no intention of paying dividends in the foreseeable future. Any future decision to pay cash dividends
will be left to the discretion of the Board of Directors of the Corporation and will depend on the Corporations financial position, operating results and capital requirements at the time as well as such other factors that the Board of
Directors may consider relevant. The Corporation has paid no dividends and has no retained earnings from which it might pay dividends.
Quarter ended July 31, 2014 compared with the quarter ended July 31, 2013
The Corporations cash is deposited with major Canadian chartered banks and financial institutions and is held in highly-liquid investments. As at July 31, 2014, the Corporation had a total of
$3,617,412 in cash and cash equivalents compared to $11,230,797 in cash and cash equivalents and investments held-to-maturity as at July 31, 2013.
Expenses for the quarter ended July 31, 2014, as detailed in the Interim Consolidated Statements of Comprehensive Loss, totaled $696,691 as compared to $1,256,085 for the quarter ended July 31,
2013.
For the quarter ended July 31, 2014, the Corporation reported a net loss of $725,047 as compared to a net loss of $1,178,527 for
the quarter ended July 31, 2013. The Corporation expects to record losses until such time as an economic ore body is defined and developed and there are revenues from mineral production.
Professional fees, investor relations and administration expenses totaled $686,752 (2013$718,706). The decrease of $31,954 related to the following variations:
12
|
|
|
Professional fees decreased by $65,905 to $72,124 for the quarter ended July 31, 2014 (2013 $138,029) and related lower legal and
consulting fees incurred during the quarter. |
|
|
|
Investor relations expenses totaled $199,748 compared to $259,908 for the quarter ended July 31, 2013. The main components of this net decrease of
$60,160, as detailed in note 6 to the condensed interim consolidated financial statements related mainly to higher printing and filing costs, investor relations, listing and stock transfer fees offset by reductions in annual meeting and conference
expenses, salaries and other employee benefits, meetings, and advertising expenses. |
|
|
|
Administration expenses increased by $94,111 to $414,880 for the quarter ended July 31, 2014 (2013 $320,769). The main components of
this variation, as detailed in note 6 to the condensed interim consolidated financial statements, consisted of mainly higher stock-based compensation costs, directors fees and associated costs and office expenses. |
The costs of exploration and evaluation assets are capitalized until the ore body is defined or the project is abandoned. If the ore body is defined,
these capitalized costs will be amortized over a period of years following commencement of production. If a project is abandoned or if the carrying value is not recoverable and exceeds the estimated fair value, an impairment loss is recognized.
During the quarter ended July 31, 2014, the Corporation performed impairment reviews of its exploration and evaluation assets and recorded $9,939 (2013 $537,379) in impairment charges on its exploration and evaluation assets.
The sale of an interest in claims or a grant received is credited directly to expenditures until such time as all related expenditures are
recovered. Direct costs incurred to maintain claims are capitalized. Expenditures on exploration and evaluation assets totaled $956,335 for the quarter ended July 31, 2014 (2013 $3,332,598) and consisted of $935,931
(2013 $3,284,846) in exploration expenses; nil (2013 $30,143) in acquisition costs; and $20,404 (2013 $17,609) in stock-based compensation expense.
For the quarter ended July 31, 2014, finance income totaled $9,038 compared to $78,558 for the quarter ended July 31, 2013. The net decrease of $69,520 was as a result of the decrease in funds
on deposit during the quarter ended July 31, 2014 as compared to the quarter ended July 31, 2013.
Finance expense related to the
Loan Facility, as detailed in note 7 to the condensed interim consolidated financial statements, totaled $92,943 for the quarter ended July 31, 2014 (2013 nil).
The Corporation has recognized its investments held for trading on the balance sheet at their fair value and changes in fair value are recognized as income or loss in the period in which the change
arises. As at July 31, 2014 and October 31, 2013, the fair value of the investments held for trading was $1,900 resulting in an unrealized loss on investments held for trading of $250 compared to an unrealized loss on investments held for
trading of $1,000 for the quarter ended July 31, 2013.
Nine-month period ended July 31, 2014 compared with the nine-month period
ended July 31, 2013
Expenses for the nine-month period ended July 31, 2014, as detailed in the Interim Consolidated Statements
of Comprehensive Loss, totaled $2,492,270 as compared to $3,341,940 for the nine-month period ended July 31, 2013.
For the nine-month
period ended July 31, 2014, the Corporation reported a net loss of $2,408,670 as compared to a net loss of $3,147,639 for the nine-month period ended July 31, 2013. The Corporation expects to record losses until such time as an economic
ore body is defined and developed and there are revenues from mineral production.
Professional fees, investor relations and administration
expenses totaled $2,345,771 (2013 $2,560,607). The decrease of $214,836 related to the following variations:
13
|
|
|
Investor relations expenses totaled $750,061 compared to $1,187,754 for the nine-month period ended July 31, 2013. The main components of this net
decrease of $437,693, as detailed in note 6 to the condensed interim consolidated financial statements related mainly to higher printing and filing costs and listing and stock transfer fees offset by significant reductions in expenses related to the
costs associated with the annual meeting, advertising and promotion, and salaries and other employee benefits. |
|
|
|
Administration expenses increased by $222,814 to $1,207,330 for the nine-month period ended July 31, 2014 (2013 $984,516). The main
components of this variation, as detailed in note 6 to the condensed interim consolidated financial statements, consisted of higher stock-based compensation costs and directors fees and associated costs offset by reductions in office expenses,
recruitment and travel costs, IT services and repairs and maintenance expenses. |
The costs of exploration and evaluation
assets are capitalized until the ore body is defined or the project is abandoned. If the ore body is defined, these capitalized costs will be amortized over a period of years following commencement of production. If a project is abandoned or if the
carrying value is not recoverable and exceeds the estimated fair value, an impairment loss is recognized. During the nine-month period ended July 31, 2014, the Corporation performed impairment reviews of its exploration and evaluation assets
and recorded $146,499 (2013 $781,333) in impairment charges on its exploration and evaluation assets.
The sale of an interest in
claims or a grant received is credited directly to expenditures until such time as all related expenditures are recovered. Direct costs incurred to maintain claims are capitalized. Expenditures on exploration and evaluation assets totaled $6,093,457
for the nine-month period ended July 31, 2014 (2013 $13,749,392) and consisted of $5,996,464 (2013 $13,556,022) in exploration expenses; nil (2013 $85,255) in acquisition costs; and $96,993 (2013
$108,115) in stock-based compensation expense.
The Corporation is entitled to refundable tax credits on qualified expenditures. The
refundable tax credits have been applied against the exploration and evaluation assets when such expenditures are incurred provided that the Corporation has reasonable assurance those credits will be realized.
Management judgment is applied in determining whether the mining exploration expenses are eligible for claiming such credits. Those benefits are
recognized when the Corporation estimates that it has reasonable assurance that the tax credits will be realized. Adjustments to estimated tax credits receivable, if any, are recorded against exploration and evaluation assets.
During the nine-month period ended July 31, 2014, management revised the estimated tax credits receivable and reduced them by $1,285,000 with a
corresponding increase in exploration and evaluation assets based on the eligibility of such credits. The reduction in the estimated tax credits receivable follows preliminary communications between management and representatives of Revenu
Québec and relates in large part to whether expenses incurred by the Corporation in fiscal years 2012 and 2013 for bench-scale testing, product testing, metallurgical testwork and pilot plant testing are qualified expenditures.
For the nine-month period ended July 31, 2014, finance income totaled $34,702 compared to $202,551 for the nine-month period ended July 31,
2013. The net decrease of $167,849 was as a result of the decrease in funds on deposit during the nine-month period ended July 31, 2014 as compared to the nine-month period ended July 31, 2013.
Finance expense related to the Loan Facility, as detailed in note 7 to the condensed interim consolidated financial statements, totaled $161,741 for the
nine-month period ended July 31, 2014 (2013 nil).
The Corporation has recognized its investments held for trading on the
balance sheet at their fair value and changes in fair value are recognized as income or loss in the period in which the change arises. As at July 31, 2014 and October 31, 2013, the fair value of the investments held for trading was $1,900
and $1,600 respectively. The corresponding unrealized gain on investments held for trading was $300 compared to an unrealized loss of $8,250 for the nine-month period month period ended July 31, 2013.
14
Liquidity and Capital Resources
Given that the Corporations operations are focused on the exploration and development of mining properties, the most relevant financial information, in its view, relates to current liquidity,
solvency, and planned property expenditures. The Corporations financial success will be dependent on the economic viability of its resource properties and the extent to which it can develop its Strange Lake ore deposit and discover and develop
new ore deposits. A number of factors determine the economic viability of a property including: the size of the deposit; the quantity and quality of the reserves; the proximity of the deposit to current or planned infrastructure; the forecasted
development and operating costs and the costs to finance the planned expenditures and the projected cash flows. Such development may take several years to complete and the amount of resulting income, if any, is difficult to determine. The economic
value of any mineralization discovered by the Corporation is largely dependent on factors beyond the Corporations control, including the market value of the metals and minerals to be produced.
The Corporations main sources of short-term and long-term funding are debt and equity markets, private placements and outstanding warrants and
options.
The Corporations current cash resources are insufficient to cover budgeted expenditures in fiscal 2014 and additional
financing will be required to fund the Feasibility Study and forecast development and operating costs as detailed in note 1 to the condensed interim consolidated financial statements. Management has conducted a comprehensive rationalization of
current and planned expenditures and has implemented a series of cost saving measures to reduce and control the professional fees, investor relations and administration expenses. Quest has also identified numerous efficiency and operational
improvements to the base case assumptions presented in the Prefeasibility Study which will reduce project capital and operating costs, lessen product supply risks and simplify the process plant design. These improvements will be evaluated in the
Feasibility Study work to be initiated in 2014.
On July 17, 2014, the Corporation completed a short-form prospectus offering by issuing
11,025,485 units at a price of $0.27, for gross proceeds of $2,976,881 of which $2,150,926 was allocated to common shares and $825,955 to warrants based on relative fair value (note 8 (c)). Each unit was comprised of one common share and one common
share purchase warrant. Each warrant entitles its holder to purchase one additional common share at a price of $0.40 until July 17, 2017. The units separated into common shares and warrants immediately after the closing and the warrants
commenced trading on the Toronto Stock Exchange (TSX) under the stock symbol QRM.WT.
Further, on July 17, 2014, the
Corporation issued 613,008 broker compensation units. entitling holders to purchase units of the Corporation at a price of $0.27 per unit at any time until July 17, 2016. Each unit comprises one common share of the Corporation and one common
share purchase warrant. Each common share purchase warrant would entitle its holder to purchase one additional common share of the Corporation at a price of $0.40 per share until July 17, 2017. The total fair value of broker compensation units
was $121,989, allocated to contributed surplus.
In connection with this financing, the Corporation paid cash commissions to agents of
$165,512, issued broker compensation units of $121,989 and incurred other professional fees and expenses of $718,015 for a total of $1,005,516 which has been prorated between the share capital and warrants of $726,528 and $278,988 respectively.
As at September 8, 2014, none of the broker compensation units issued had been exercised.
15
Going Concern Uncertainty
Our condensed interim consolidated financial statements have been prepared on the basis of accounting principles applicable to a going concern, which assume that the Corporation will continue in operation
for the foreseeable future and will be able to realize its assets and discharge its obligations in the normal course of operation. In assessing whether the going concern assumption is appropriate, management takes into account all available
information about the future, which is at least, but not limited to twelve months from the end of the reporting period. The use of these principles may not be appropriate.
To date, the Corporation has not earned significant revenue and is considered to be in the exploration and development stage.
The investment in, and expenditures on, exploration and evaluation assets comprise a significant portion of the Corporations assets. Mineral exploration and development is highly speculative and
involves inherent risks. Realization of the Corporations investment in these assets is dependent upon the renewed legal ownership of the licenses, and whether an economically viable operation can be established.
The Corporations ability to continue as a going concern is dependent on being able to obtain the necessary financing to satisfy its liabilities as
they become due. There can be no assurance that management will be successful in securing adequate financing. In addition, while the Corporations development activities in relation to its Strange Lake project look promising, there can be no
assurance that the results of its planned Feasibility Study will confirm the existence of economically viable quantities of ore or that the project will ultimately go into production.
The Corporation reported a net loss and total comprehensive loss in the nine-month period ended July 31, 2014 and the year ended October 31, 2013 of $2,408,670 and $3,981,889 respectively. These
recurring losses and the need for continued financing to further successful exploration and development activities indicate the existence of a material uncertainty that raises substantial doubt as to the Corporations ability to continue as a
going concern.
Our condensed interim consolidated financial statements do not give effect to any adjustments to the carrying values and
classifications of assets and liabilities that might be necessary, if the Corporation is unable to continue as a going concern. Such adjustments could be material.
Loan Facility
The Corporation is entitled to receive Québec Resource Tax Credits
(QRTC) at the rate of 38.75% of certain eligible exploration expenditures incurred in Québec.
In order to monetize the
QRTC for the year ended October 31, 2012, the Corporation entered into a loan facility with Investissement Québec (the Loan Facility) on September 11, 2013 under which the Corporation can borrow up to $4,339,000,
representing a proportion of the estimated 2012 QRTC. The loan facility was extended on May 5, 2014. Amounts drawn down under the Loan Facility must be repaid on the earlier of November 30, 2014 or upon collection of the 2012 QRTC, which
were assigned to Investissement Québec. Amounts drawn under the Loan Facility bear interest, payable on a monthly basis, at an annual rate of prime plus 5.5% (October 31, 2013 prime plus 5.5%). The Corporation has provided security to
Investissement Québec by way of an irrevocable letter of credit in the amount of $150,000 secured by a redeemable term deposit recorded as cash and cash equivalents at July 31, 2014, a deed of hypothec in the amount of $4,339,000 and an
additional hypothec in the amount of $868,000 over its present and future QRTC claims and its accounts receivable, as well as a first ranking hypothec on the Corporations present and future tax credits.
As at both July 31, 2014 and September 8, 2014, $4,338,793 had been drawn down pursuant to this Loan Facility.
16
The Loan Facility contains certain financial and non-financial covenants which were met as at July 31,
2014.
Nine-month period ended July 31, 2014 compared with the nine-month period ended July 31, 2013
As at July 31, 2014, the Corporation had cash and cash equivalents of $3,617,412 (2013 $11,230,797) and $1,900 (2013 $1,500)
invested in Canadian equity securities pursuant to mining property agreements. The investment in cash which comprises most of Quests invested capital, presents no significant risk.
As at July 31, 2014, the Corporations remaining exploration expenditures pursuant to flow-through share arrangements amounted to $372,136 (October 31, 2013 $1,953,855).
The Corporation has no long-term borrowings.
During the nine-month period ended July 31, 2014, the Corporation raised cash of $31,667 from the exercise of stock options (2013 $12,000).
Outstanding Share Data
As
at September 8, 2014, there were 78,579,196 common shares, stock options in respect of 4,214,167 common shares, 325,000 deferred share units, 110,000 restricted share units and 11,531,485 warrants, 203,094 broker compensation options and
613,008 broker compensation units outstanding.
Commitments
On November 5, 2013, QTM entered into an option agreement with La Société du Parc Industriel et Portuaire de Bécancour (the Agreement). Under the Agreement, QTM has
the right to purchase land in the Bécancour Port industrial site to build a processing facility for the ore from Strange Lake. The option is for a period of one year and can be extended by QTM for up to an additional three years to November
2017 in five increments of six months each. QTM can cancel the Agreement at any time.
Payments made under the Agreement may be offset and
deducted against the eventual purchase price once the option is exercised. QTM therefore has capitalized the option payments as they are made until such time as either its option is exercised, cancelled or allowed to lapse by the Corporation.
Off-Balance Sheet Arrangements
The Corporation does not have any off-balance sheet arrangements.
Related Party Transactions
All of the following related party transactions were in the normal course of operations and were measured at the exchange amounts.
The Corporation retains the services of certain directors of the Corporation to carry out professional activities. During the three and
nine-month periods ended July 31, 2014, the total amount charged for professional services by directors of the Corporation and recorded in exploration and evaluation assets was $18,750 and $56,250 respectively (2013 $18,750 and $56,250
respectively).
During the three and nine-month periods ended July 31, 2014, the Corporation incurred fees to law firms of which an
officer and director of the Corporation is a partner. For the three-month period ended July 31, 2014, the total amount for such services provided was $187,293, of which $10,391 was recorded in professional fees, $176,887 was recorded in issue
costs and $15 was recorded in exploration and evaluation assets (2013 $59,745, $62,767 and $21,195 respectively). For the nine-month period ended July 31, 2014, the total amount for such services provided was $386,798, of which $117,852
was recorded in professional fees, $19,892 was recorded in investor relations, $237,532 was recorded in issue costs and $11,522 was recorded in exploration and evaluation assets (2013 $177,489, $19,585, $62,767 and $185,861 respectively). As
at July 31, 2014, an amount of $248,535 (October 31, 2013 $52,731) owing to this law firm was included in accounts payable and accrued liabilities in respect of these fees.
17
Excluding the amounts reported above, during the three and nine-month periods ended July 31, 2014 and
2013, the Corporation recorded the following compensation for key management personnel and the Board of Directors:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three-month period ended
July 31 |
|
|
Nine-month period ended
July 31 |
|
|
|
2014 |
|
|
2013 |
|
|
2014 |
|
|
2013 |
|
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
Salaries and employee benefits |
|
|
199,460 |
|
|
|
160,749 |
|
|
|
602,036 |
|
|
|
521,977 |
|
Directors fees |
|
|
60,000 |
|
|
|
53,750 |
|
|
|
167,500 |
|
|
|
161,250 |
|
Stock compensation |
|
|
70,205 |
|
|
|
12,164 |
|
|
|
215,206 |
|
|
|
22,832 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
329,665 |
|
|
|
226,663 |
|
|
|
984,742 |
|
|
|
706,059 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financial Instruments
The Corporations objectives when managing capital are to safeguard its ability to continue its operations as well as its acquisition and exploration programs. The Corporation has relied primarily on
the equity markets to fund its activities. In order to carry out planned exploration and to pay for administrative costs, the Corporation will spend its existing working capital, use its Loan Facility and raise additional funds as needed. The
Corporation has not paid any dividends. As well, other than those reported in note 7 to the condensed interim consolidated financial statements, the Corporation does not have any externally-imposed capital requirements, either regulatory or
contractual to which it is subject.
The Corporations financial instruments consist of cash and cash equivalents, investments, accounts
payable and accrued liabilities and loans payable.
The Corporation does not enter into financial instrument agreements, including derivative
financial instruments, for speculative purposes.
The Corporation is not exposed to any significant credit risk as at July 31, 2014. The
Corporations cash is deposited with a major Canadian chartered bank and is held in highly-liquid investments.
As at July 31, 2014,
the Corporation had a total of $3,617,412 in cash and cash equivalents. The Corporation manages liquidity risk through the management of its capital structure.
The Corporation has a loan facility with Investissement Québec. Amounts drawn under the Loan Facility bear interest, payable on a monthly basis, at an annual rate of prime plus 5.5%. In addition,
the Corporations cash and cash equivalents carry interest and therefore, the Corporation is exposed to a variation of interest rates on amounts earned and payable. Based on the amounts drawn down on its loan facility and its exposures to cash
and cash equivalents as at July 31, 2014 and assuming that all other variables remain constant, an increase or decrease of 100 basis points of the interest rate during the quarter would result in a decrease or increase of $180 respectively in
comprehensive loss before income taxes.
The rates as at July 31, 2014 for Canadian and U.S. funds ranged from 1.20%-1.50% (October 31,
2013 range of 1.20%-1.50%) and 0.10% (October 31, 2013 0.10%), respectively. The rate as at July 31, 2014 for the Corporations loan from Investissement Québec was 8.5% (October 31, 2013 8.5%).
18
Critical Accounting Estimates
The Corporations condensed interim consolidated financial statements include estimates and assumptions made by management. Actual results may vary from these estimates. Critical accounting estimates
are discussed under Note 2 of the consolidated financial statements for the year ended October 31, 2013.
Changes in Significant
Accounting Policies
The Corporations significant accounting policies are disclosed under the note 3 of the consolidated financial
statements for the year ended October 31, 2013. As a result of adoption of new IFRS standards noted below, there have been no changes in the Corporations significant accounting policies during the quarter ended July 31, 2014.
Adoption of new standards
IAS 1 Presentation of Financial Statements Components of Other Comprehensive Income
The amendments to IAS 1 change the grouping of items presented in other comprehensive income (OCI). Items that could be reclassified (or recycled) to profit or loss at a future
point in time would be presented separately from items that will never be reclassified such as remeasurement gain (loss) on employee benefits. The Corporation adopted IAS 1 on November 1, 2013 and the amendment affects presentation only and
therefore had no impact on the Corporations condensed interim consolidated financial statements.
IAS 1 Clarification of the
Requirement for Comparative Information (Amendment)
The amendment to IAS 1 clarifies the difference between voluntary additional
comparative information and the minimum required comparative information. An entity must include comparative information in the related notes to the consolidated financial statements when it voluntarily provides comparative information beyond the
minimum required comparative period. The additional voluntary comparative information does not need to be presented in a complete set of financial statements.
IFRS 10 Consolidated Financial Statements
IFRS 10 establishes a single control model that
applies to all entities including structured entities. IFRS 10 replaces the parts of previously existing IAS 27, Consolidated and Separate Financial Statements, that dealt with consolidated financial statements and SIC-12, Consolidation
Special Purpose Entities. IFRS 10 changed the definition of control such that an investor controls an investee when it is exposed, or has rights, to variable returns from its involvement with the investee and has the ability to affect those returns
through its power over the investee. To meet the definition of control in IFRS 10, all three criteria must be met, including: a) an investor has power over the investee; b) the investor has exposure, or rights, to variable returns from its
involvement with the investee; and c) the investor has the ability to use its power over the investee to affect the amount of the investors returns. The Corporation adopted IFRS 10 on November 1, 2013 and it did not have any impact on the
Corporations condensed interim consolidated financial statements.
IFRS 11 Joint Arrangements
IFRS 11 replaces IAS 31, Interests in Joint Ventures, and SIC-13, Jointly Controlled Entities Non-monetary Contributions by Venturers. IFRS 11
removes the option to account for jointly controlled entities (JCEs) using proportionate consolidation. Instead, JCEs that meet the definition of a joint venture must be accounted for using the equity method. The Corporation adopted IFRS
11 on November 1, 2013 and it did not have any impact on the Corporations condensed interim consolidated financial statements.
IFRS 12 Disclosure of Interests in Other Entities
IFRS 12 sets out the requirements for disclosures relating to an entitys interest in subsidiaries, joint arrangements, associates and structured entities. The Corporation adopted IFRS 12 on
November 1, 2013. None of these disclosures requirements are applicable for condensed interim consolidated financial statements, unless significant events and transactions in the interim period require that they are provided. Accordingly, in
the absence of such events, the Corporation has not made such disclosures.
19
IFRS 13 Fair Value Measurement
IFRS 13 establishes a single source of guidance under IFRS for all fair value measurements. IFRS 13 does not change when an entity is required to use fair value, but rather provides guidance on how to
measure fair value under IFRS when fair value is required or permitted. IFRS 13 also defines fair value as an exit price and also requires additional disclosures. The Corporation adopted IFRS 13 on November 1, 2013 and the application of IFRS
13 has not impacted the fair value measurements of the Corporation. See Note 10 for required disclosures.
New standards issued but not yet
effective
IFRS 9 Financial Instruments
In July 2014, the IASB amended IFRS 9, Financial Instruments, to bring together the classification and measurement, impairment and hedge accounting phases of the IASBs project to replace
IAS 39, Financial Instruments: Recognition and Measurement. The standard supersedes all previous versions of IFRS 9 and will be effective on November 1, 2018 for the Corporation with earlier application permitted. The Corporation is
currently evaluating the impact of this standard on its consolidated financial statements.
Risk Factors
Resource exploration and development is a highly speculative business, involves a high degree of risk and is frequently unsuccessful. There is no
certainty that the expenditures to be made by the Corporation in the exploration of its properties or otherwise will result in discoveries of commercial quantities of minerals. The exploration for and development of mineral deposits involves
significant risk, which even a combination of careful evaluation, experience and knowledge may not eliminate. Although the discovery of an ore body may result in substantial rewards, few properties explored are ultimately developed into producing
mines. Significant expenditures may be required to locate and establish ore reserves, to develop metallurgical processes and to construct mining and processing facilities at a particular site. It is impossible to ensure that the Corporations
current exploration programs will result in a profitable commercial mining operation.
Significant capital investment is required to achieve
commercial production from successful exploration efforts. The commercial viability of a mineral deposit is dependent upon a number of factors. These include: (i) deposit attributes such as size, grade and proximity to infrastructure;
(ii) current and future metal prices (which can be cyclical); (iii) government regulations, including those relating to prices, taxes, royalties, land tenure, land use, importing and exporting of minerals and necessary supplies and
environmental protection; (iv) First Nations negotiations and agreements; and (v) technological risks and changes. The complete effect of these factors, either alone or in combination, cannot be entirely predicted, and their impact may
result in the Corporation not receiving an adequate return on invested capital.
The Corporation has not generated any revenues since its
incorporation. The Corporations plan of operations involves the implementation and execution of exploration and development programs on its properties. There is no assurance that these exploration and development activities will result in the
establishment of commercially-exploitable mineral deposits on these properties. Even if commercially-exploitable mineral deposits are discovered, the Corporation may require substantial additional financing in order to carry out the full exploration
and development of its properties before it is able to achieve revenues from sales of mineral resources that the Corporation is able to extract. Failure to obtain such additional financing could result in delay or indefinite postponement of further
exploration and development plans.
The prices of minerals fluctuate widely and are affected by many factors outside of the Corporations
control. The prices of minerals and future expectation of such prices may have a significant impact on the market sentiment for investment in mining and mineral exploration companies. This in turn may affect the Corporations ability to raise
equity financing for its capital requirements.
20
Reference is made to the section of the Corporations 2013 Annual Information Form entitled Risk
Factors for a discussion of the risk factors applicable to the Corporation and its business.
Disclosure Controls and Internal
Controls over Financial Reporting
Management, including the Chief Executive Officer (CEO) and the Chief Financial Officer
(CFO), have designed disclosure controls and procedures, or have caused them to be designed under their supervision, to provide reasonable assurance that all material information relating to the Corporation has been made known to them
and has been properly disclosed in the Corporations annual and interim filings and other reports filed or submitted under applicable Canadian and United States securities laws.
Management of the Corporation, with the participation of the CEO and the CFO, has evaluated the effectiveness of the design and operation of the Corporations disclosure controls and procedures as at
October 31, 2013. Based on this evaluation, the CEO and the CFO have concluded that the Corporations disclosure controls and procedures were effective as of October 31, 2013 to provide reasonable assurance that information required
to be disclosed in the Corporations annual filings and other reports filed or submitted were recorded, processed, summarized and reported within the time period specified in those rules.
An evaluation, under management supervision, was carried out on the effectiveness of the Corporations internal control over financial reporting as
at October 31, 2013 using the criteria established in Internal Control Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (1992 framework) (the COSO criteria). Based on this evaluation,
management has concluded that internal control over financial reporting was effective as at October 31, 2013.
There have been no changes
in the Corporations design of internal controls over financial reporting during the quarter ended July 31, 2014 that materially affected, or are reasonably likely to affect, the Corporations internal control over financial
reporting.
Presentation of Mineral Reserve and Resource Information
This MD&A has been prepared in accordance with the requirements of Canadian securities laws, which differ from the requirements of United States securities laws. Unless otherwise indicated, all
reserve and resource estimates included in this MD&A have been prepared in accordance with National Instrument 43-101 Standards of Disclosure for Mineral Projects (Nl 43-101). Nl 43-101 is a rule developed by the Canadian
Securities Administrators which establishes standards for all public disclosure an issuer makes of scientific and technical information concerning mineral projects.
21
Canadian standards, including Nl 43-101, differ significantly from the requirements of the SEC and reserve
and resource information contained in this MD&A may not be comparable to similar information disclosed by United States companies. In particular, and without limiting the generality of the foregoing, the term resource does not equate
to the term reserve. Under United States standards, mineralization may not be classified as a reserve unless the determination has been made that the mineralization could be economically and legally produced or extracted at
the time the reserve determination is made. The SECs disclosure standards normally do not permit the inclusion of information concerning measured mineral resources, indicated mineral resources or inferred mineral
resources or other descriptions of the amount of mineralization in mineral deposits that do not constitute reserves by United States standards in documents filed with the SEC. United States investors should also understand that
inferred mineral resources have a great amount of uncertainty as to their existence and as to their economic and legal feasibility. It cannot be assumed that all or any part of an inferred mineral resource exists, is
economically or legally mineable, or will ever be upgraded to a higher category. Under Canadian rules, estimated inferred mineral resources may not form the basis of feasibility or pre-feasibility studies except in rare cases. Disclosure
of contained ounces in a resource estimate is permitted disclosure under Canadian regulations; however, the SEC normally permits issuers to report mineralization that does not constitute reserves by SEC standards only as
in-place tonnage and grade without reference to unit measures. The requirements of Nl 43-101 for identification of reserves are also not the same as those of the SEC, and reserves reported by Quest in compliance with Nl 43-101 may not
qualify as reserves under SEC standards. Accordingly, information concerning mineral deposits set forth herein may not be comparable with information made public by companies that report in accordance with United States standards.
Other Information
Additional information on the Corporation is available under the Corporations profile on SEDAR at www.sedar.com and on EDGAR at www.sec.gov/edgar
and on the Corporations website at www.questrareminerals.com.
22
Exhibit 99.3
FORM 52-109F2
CERTIFICATION OF INTERIM FILINGS
FULL CERTIFICATE
I,
Peter J. Cashin, President and Chief Executive Officer of Quest Rare Minerals Ltd., certify the following:
1. |
Review: I have reviewed the interim financial statements and interim MD&A (together, the interim filings) of Quest Rare Minerals
Ltd. (the issuer) for the interim period ended July 31, 2014. |
2. |
No misrepresentations: Based on my knowledge, having exercised reasonable diligence, the interim filings do not contain any untrue statement of a material
fact or omit to state a material fact required to be stated or that is necessary to make a statement not misleading in light of the circumstances under which it was made, for the period covered by the interim filings. |
3. |
Fair presentation: Based on my knowledge, having exercised reasonable diligence, the interim financial statements together with the other financial
information included in the interim filings fairly present in all material respects the financial condition, financial performance and cash flows of the issuer, as of the date of and for the periods presented in the interim filings.
|
4. |
Responsibility: The issuers other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures
(DC&P) and internal control over financial reporting (ICFR), as those terms are defined in National Instrument 52-109 Certification of Disclosure in Issuers Annual and Interim Filings, for the issuer. |
5. |
Design: Subject to the limitations, if any, described in paragraphs 5.2 and 5.3, the issuers other certifying officer and I have, as at end of
the period covered by the interim filings: |
|
(a) |
designed DC&P, or caused it to be designed under our supervision, to provide reasonable assurance that: |
|
(i) |
material information relating to the issuer is made known to us by others, particularly during the period in which the interim filings are being prepared; and
|
|
(ii) |
information required to be disclosed by the issuer in its annual filings, interim filings or other reports filed or submitted by it under securities legislation is
recorded, processed, summarized and reported within the time periods specified in securities legislation; and |
|
(b) |
designed ICFR, or caused it to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation
of financial statements for external purposes in accordance with the issuers GAAP. |
5.1 |
Control framework: The control framework the issuers other certifying officer and I used to design the issuers ICFR is the control framework
entitled Internal Control Integrated Framework, published by the Committee of Sponsoring Organizations of the Treadway Commission. |
5.2 |
ICFR material weakness relating to design: N/A. |
5.3 |
Limitation on scope of design: N/A. |
6. |
Reporting changes in ICFR: The issuer has disclosed in its interim MD&A any change in the issuers ICFR that occurred during the period beginning
on May 1, 2014 and ended on July 31, 2014 that has materially affected, or is reasonably likely to materially affect, the issuers ICFR. |
Date: September 12, 2014
(Signed) Peter J. Cashin
Peter J. Cashin
President
and Chief Executive Officer
Exhibit 99.4
FORM 52-109F2
CERTIFICATION OF INTERIM FILINGS
FULL CERTIFICATE
I, Mark
Schneiderman, Chief Financial Officer of Quest Rare Minerals Ltd., certify the following:
1. |
Review: I have reviewed the interim financial statements and interim MD&A (together, the interim filings) of Quest Rare Minerals
Ltd. (the issuer) for the interim period ended July 31, 2014. |
2. |
No misrepresentations: Based on my knowledge, having exercised reasonable diligence, the interim filings do not contain any untrue statement of a material
fact or omit to state a material fact required to be stated or that is necessary to make a statement not misleading in light of the circumstances under which it was made, for the period covered by the interim filings. |
3. |
Fair presentation: Based on my knowledge, having exercised reasonable diligence, the interim financial statements together with the other financial
information included in the interim filings fairly present in all material respects the financial condition, financial performance and cash flows of the issuer, as of the date of and for the periods presented in the interim filings.
|
4. |
Responsibility: The issuers other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures
(DC&P) and internal control over financial reporting (ICFR), as those terms are defined in National Instrument 52-109 Certification of Disclosure in Issuers Annual and Interim Filings, for the issuer. |
5. |
Design: Subject to the limitations, if any, described in paragraphs 5.2 and 5.3, the issuers other certifying officer and I have, as at end of
the period covered by the interim filings: |
|
(a) |
designed DC&P, or caused it to be designed under our supervision, to provide reasonable assurance that: |
|
(i) |
material information relating to the issuer is made known to us by others, particularly during the period in which the interim filings are being prepared; and
|
|
(ii) |
information required to be disclosed by the issuer in its annual filings, interim filings or other reports filed or submitted by it under securities legislation is
recorded, processed, summarized and reported within the time periods specified in securities legislation; and |
|
(b) |
designed ICFR, or caused it to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation
of financial statements for external purposes in accordance with the issuers GAAP. |
5.1 |
Control framework: The control framework the issuers other certifying officer and I used to design the issuers ICFR is the control framework
entitled Internal Control Integrated Framework, published by the Committee of Sponsoring Organizations of the Treadway Commission. |
5.2 |
ICFR material weakness relating to design: N/A. |
5.3 |
Limitation on scope of design: N/A. |
6. |
Reporting changes in ICFR: The issuer has disclosed in its interim MD&A any change in the issuers ICFR that occurred during the period beginning
on May 1, 2014 and ended on July 31, 2014 that has materially affected, or is reasonably likely to materially affect, the issuers ICFR. |
Date: September 12, 2014
(Signed) Mark Schneiderman
Mark Schneiderman
Chief
Financial Officer
(AMEX:QRM)
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(AMEX:QRM)
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