| 16. |
FINANCIAL RISK MANAGEMENT OBJECTIVES AND POLICIES |
| a) |
Fair value of financial assets and liabilities |
|
The consolidated statements of financial position carrying amounts for cash and cash equivalents, advances receivable, balances due from and due to related parties, accounts payable, accrued liabilities and the employee retention allowance approximate fair value due to their short-term nature. |
|
|
Fair value hierarchy |
|
|
The following table provides an analysis of financial instruments that are measured subsequent to initial recognition at fair value, grouped into Levels 1 to 3 based on the degree to which the fair value is observable: |
| • |
Level 1 fair value measurements are those derived from quoted prices (unadjusted) in active markets for identical assets or liabilities; |
|
| • |
Level 2 fair value measurements are those derived from inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly (i.e. as prices) or indirectly (i.e. derived from prices); |
|
| • |
Level 3 fair value measurements are those derived from valuation techniques that include inputs for the asset or liability that are not based on observable market data (unobservable inputs). |
There were no transfers between Level 1, 2 and 3 during the reporting period. Cash and cash equivalents are ranked Level 1 as the market value is readily observable. The carrying value of cash and cash equivalents approximates fair value, as maturities are less than three months.
The fair value of warrants (note 13c) would be included in the hierarchy as follows:
| 31-Dec-17 | ||||||||||
| Liabilities: | Level 1 | Level 2 | Level 3 | |||||||
| Canadian dollar common share purchase warrants | - | $ 67,305 | - |
| 31-Dec-16 | ||||||||||
| Liabilities: | Level 1 | Level 2 | Level 3 | |||||||
| Canadian dollar common share purchase warrants | - | $ 85,633 | - |
| b) |
Risk Management Policies |
|
The Company is sensitive to changes in commodity prices and foreign-exchange. The Company’s Board of Directors has overall responsibility for the establishment and oversight of the Company’s risk management framework. Although the Company has the ability to address its price-related exposures through the use of options, futures and forward contracts, it does not generally enter into such arrangements. |
|
| c) |
Foreign Currency Risk |
|
Foreign currency risk is the risk that a variation in exchange rates between the United States dollar and Canadian dollar or other foreign currencies will affect the Company’s operations and financial results. A portion of the Company’s transactions are denominated in Canadian dollars. The Company is also exposed to the impact of currency fluctuations on its monetary assets and liabilities. Significant foreign exchange gains or losses are reflected as a separate item in the consolidated statement of comprehensive loss. The Company does not use derivative instruments to reduce its exposure to foreign currency risk. |
The following table indicates the impact of foreign currency exchange risk on net working capital as at December 31, 2017. The table below also provides a sensitivity analysis of a 10 percent strengthening of the US dollar against the Canadian dollar which would have increased (decreased) the Company’s net loss by the amounts shown in the table below. A 10 percent weakening of the US dollar against the Canadian dollar would have had the equal but opposite effect as at December 31, 2017.
| December 31, 2017 | ||||
| Canadian dollar | ||||
| Cash and cash equivalents | 1,913 | |||
| Accounts payable and accrued liabilities | (243,014 | ) | ||
| Employee retention allowance | (261,138 | ) | ||
| Total foreign currency financial assets and liabilities | (502,239 | ) | ||
| Foreign exchange rate at December 31, 2017 | 0.7971 | |||
| Total foreign currency financial assets and liabilities in US $ | (400,334 | ) | ||
| Impact of a 10% strengthening of the US $ on net loss | (40,033 | ) |
| d) |
Credit Risk |
|
Financial instruments which are potentially subject to credit risk for the Company consist primarily of cash and cash equivalents, advances receivable, and due from related parties. Cash and cash equivalents are maintained with several financial institutions of reputable credit and may be redeemed upon demand. It is therefore the Company’s opinion that such credit risk is subject to normal industry risks and is considered minimal. The credit risk of advances receivable is, in management opinion, normal given ongoing relationships with those debtors. |
|
|
The Company limits its exposure to credit risk on any investments by investing only in securities rated R1 (the highest rating) by credit rating agencies such as the DBRS (Dominion Bond Rating Service). Management continuously monitors the fair value of any investments to determine potential credit exposures. Short-term excess cash is invested in R1 rated investments including money market funds and other highly rated short-term investment instruments. Any credit risk exposure on cash balances is considered negligible as the Company places deposits only with major established banks in the countries in which it carries on operations. |
|
|
The carrying amount of financial assets represents the maximum credit exposure. The Company’s gross credit exposure at December 31, 2017 and December 31, 2016 was as follows: |
| December 31, | December 31, | ||||||
| 2017 | 2016 | ||||||
| Cash and cash equivalents | $ | 20,162 | $ | 21,520 | |||
| Advances receivable | $ | 175,501 | $ | 98,352 | |||
| Due from related parties | $ | 4,518 | $ | 0 | |||
| $ | 200,181 | $ | 119,872 |
| e) |
Liquidity Risk |
|
Liquidity risk is the risk that the Company will not be able to meet its financial obligations as they become due. The Company attempts to ensure that there is sufficient cash to meet its liabilities when they are due and manages this risk by regularly evaluating its liquid financial resources to fund current and long-term obligations and to meet its capital commitments in a cost-effective manner. Temporary surplus funds of the Company are invested in short-term investments. The Company arranges the portfolio so that securities mature approximately when funds are needed. The key to success in managing liquidity is the degree of certainty in the cash flow projections. If future cash flows are fairly uncertain, the liquidity risk increases. The Company’s liquidity requirements are met through a variety of sources, including cash and cash equivalents and equity capital markets. All financial obligations of the Company including accounts payable of $359,651, accrued liabilities of $67,132, due to related parties of $237,305, employee retention allowance of $208,153 and a loan of $122,753 are due within one year. |
| f) |
Mineral Property Risk |
|
The Company’s operations in the Congo are exposed to various levels of political risk and uncertainties, including political and economic instability, government regulations relating to exploration and mining, military repression and civil disorder, all or any of which may have a material adverse impact on the Company’s activities or may result in impairment in or loss of part or all of the Company's assets. |
|
| g) |
Capital Management |
|
The Company manages its common shares, warrants and stock options as capital. The Company’s policy is to maintain a sufficient capital base in order to meet its short term obligations and at the same time preserve investors’ confidence required to sustain future development of the business. |
| December 31, | December 31, | ||||||
| 2017 | 2016 | ||||||
| Share capital | $ | 77,286,874 | $ | 77,048,991 | |||
| Reserves | $ | 8,219,502 | $ | 8,197,193 | |||
| Deficit | $ | (58,650,391 | ) | $ | (58,589,102 | ) | |
| Common share purchase warrants | $ | 67,305 | $ | 85,633 | |||
| $ | 26,923,290 | $ | 26,742,715 |
The Company is not subject to any capital requirements imposed by a lending institution or regulatory body, other than the TSX which requires adequate working capital or financial resources to maintain operations and cover general and administrative expenses.