UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

 

 

FORM 40-F

 

 

 

x Registration statement pursuant to Section 12 of the Securities Exchange Act of 1934

 

or

 

¨ Annual report pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934

 

For the fiscal year ended__________

 

Commission File Number__________

 

 

 

SIGMA LITHIUM CORPORATION

(Exact name of registrant as specified in its charter)

 

 

 

Canada   1000   N/A

(Province or Other Jurisdiction of

Incorporation or Organization)

 

(Primary Standard Industrial

Classification Code)

 

(I.R.S. Employer

Identification No.)

 

2200 HSBC Building

885 West Georgia Street

Vancouver, British Columbia

V6C 3E8

+55 11-2985-0089

(Address and telephone number of registrant’s principal executive offices)

 

CT Corporation System

28 Liberty Street

New York, New York 10005

(212) 894-8940

(Name, address (including zip code) and telephone number (including area code)

of agent for service in the United States)

 

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

 

Title of Each Class:

Trading
Symbol

Name of Each Exchange On Which Registered:

Common Shares, no par value SGML The Nasdaq Capital Market

 

Securities registered pursuant to Section 12(g) of the Act: None

 

Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act: None

 

For annual reports, indicate by check mark the information filed with this form:

 

¨ Annual Information Form   ¨ Audited Annual Financial Statements

 

 

 

Indicate the number of outstanding shares of each of the registrant’s classes of capital or common stock as of the close of the period covered by the annual report: N/A

 

Indicate by check mark whether the Registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports); and (2) has been subject to such filing requirements for the past 90 days.

 

¨  Yes            x  No

 

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).

 

¨  Yes            ¨  No

 

Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 12b-2 of the Exchange Act.

 

Emerging growth company x

 

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

¨

 

Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report.      ¨

 

 

 

 

 

 

FORWARD LOOKING STATEMENTS

 

This Registration Statement on Form 40-F, including the exhibits hereto (collectively, this “Form 40-F”) includes certain statements that constitute “forward-looking statements”, and “forward-looking information” within the meaning of applicable securities laws (collectively “Forward Looking Information”), which involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of the Registrant, or industry results, to be materially different from any future results, performance or achievements expressed or implied by such Forward Looking Information. These statements appear in a number of places in this Form 40-F and include statements regarding the Registrant’s intent, or the beliefs or current expectations of the Registrant’s officers and directors. All statements, other than statements of historical fact, may be Forward Looking Information, including, but not limited to, mineral resource or mineral reserve estimates (which reflect a prediction of mineralization that would be realized by development). When used in this Form 40-F, such statements generally use words such as “may”, “would”, “could”, “will”, “intend”, “expect”, “believe”, “plan”, “anticipate”, “estimate” and other similar terminology. These statements reflect management’s current expectations regarding future events and operating performance and speak only as of the date of this Form 40-F. Forward Looking Information involves significant risks and uncertainties, should not be read as guarantees of future performance or results, and does not necessarily provide accurate indications of whether or not such results will be achieved. A number of factors could cause actual results to differ materially from the results discussed in the Forward Looking Information, which is based upon what management believes are reasonable assumptions, and there can be no assurance that actual results will be consistent with the Forward Looking Information.

 

In particular (but without limitation), this Form 40-F contains Forward Looking Information with respect to the following matters: statements regarding anticipated decision making with respect to the 27 non-contiguous mineral rights held by Sigma Mineração S.A. located in the Araçuaí and Itinga Regions of the State of Minas Gerais in Brazil, and comprised of: (i) the Northern Complex, being the Grota do Cirilo Property, the Genipapo Property, and the Santa Clara Property; and (ii) the Southern Complex, being the São José Property (collectively, the “Project”); capital expenditure programs; estimates of mineral resources and mineral reserves; development of mineral resources and mineral reserves; government regulation of mining operations and treatment under governmental and taxation regimes; the future price of commodities, including lithium; the realization of mineral resource and mineral reserve estimates, including whether mineral resources will ever be developed into mineral reserves; the timing and amount of future production; currency exchange and interest rates; expected outcome and timing of environmental surveys and permit applications and other environmental matters; the Registrant’s ability to raise capital and obtain project financing; expected expenditures to be made by the Registrant on its properties; successful operations and the timing, cost, quantity, capacity and quality of production; capital costs, operating costs and sustaining capital requirements, including the cost of construction of the processing plant for the Project; and competitive conditions and anticipated trends post-COVID-19 virus and the ongoing uncertainties and effects in respect of the COVID-19 virus.

 

Forward Looking Information does not take into account the effect of transactions or other items announced or occurring after the statements are made. Forward Looking Information is based upon a number of expectations and assumptions and is subject to a number of risks and uncertainties, many of which are beyond the Registrant’s control, that could cause actual results to differ materially from those disclosed in or implied by such Forward Looking Information. With respect to the Forward Looking Information, the Registrant has made assumptions regarding, among other things:

 

·general economic conditions;

·anticipated trends and effects in respect of the COVID-19 virus;

·demand for lithium, including that such demand is supported by growth in the electric vehicle market;

·estimates of, and changes to, the market prices for lithium;

·the impact of increasing competition in the lithium business and the Registrant’s competitive position in the industry;

·the Registrant’s market position and future financial and operating performance;

·the Registrant’s estimates of mineral resources and mineral reserves, including whether mineral resources will ever be developed into mineral reserves;

·anticipated timing and results of exploration, development and construction activities;

·reliability of technical data;

·the Registrant’s ability to develop and achieve production at the Project;

·the Registrant’s ability to obtain financing on satisfactory terms to develop the Project;

 

 

 

 

·the Registrant’s ability to obtain and maintain mining, exploration, environmental and other permits, authorizations and approvals for the Project;

·the timing and possible outcome of regulatory and permitting matters for the Project;

·the exploration, development and construction costs for the Project;

·the accuracy of budget and construction estimates for the Project;

·successful negotiation of definitive commercial agreements, including off-take agreements for the Project; and

·the Registrant’s ability to operate in a safe and effective manner.

 

Although management believes that the assumptions and expectations reflected in such Forward Looking Information are reasonable, there can be no assurance that these assumptions and expectations will prove to be correct. Since Forward Looking Information inherently involves risks and uncertainties, undue reliance should not be placed on such information.

 

The Registrant’s actual results could differ materially from those anticipated in any Forward Looking Information as a result of the risk factors contained in this Form 40-F, including (but not limited to) the factors referred to under the heading “Risk Factors” in the Registrant’s most recently filed Annual Information Form available on SEDAR at www.sedar.com. Such risks include, but are not limited to, the following: the Project may not be developed as planned; there may be uncertainty regarding whether there will ever be production at the Project; cost overruns; risks associated with the Registrant’s ability to successfully secure adequate funding; market prices affecting the ability to develop the Project; risk to the growth of lithium markets; low lithium prices; inability to obtain required governmental permits and operations being limited by government-imposed limitations; inability to achieve and manage expected growth; political risk associated with foreign operations and emerging and developing market risks; risks associated with not having development and production experience; operational risks; changes in government regulation; changes to environmental requirements; insurance risk; receipt and security of mineral property titles and mineral tenure risk; competition risk; market risk; volatility in global financial conditions; uncertainties associated with estimating mineral resources, including relating to the assumptions underlying mineral resource estimates and whether mineral resources will ever be developed into mineral reserves; opposition to development of the Registrant’s mineral properties; risks relating to public health crises, including the COVID-19 virus; surface access risk; geological, technical, drilling or processing problems; uncertainties in estimating capital and operating costs, cash flows and other project economics; liability risks, including environmental liabilities and risks inherent in mineral extraction operations; health and safety risks; unanticipated results of exploration activities; unpredictable weather conditions; unanticipated delays in preparing technical studies; an increase in costs by suppliers, including of any raw materials used in the production process; inability to generate profitable operations; restrictive covenants in debt instruments; lack of availability of additional financing on terms acceptable to the Registrant; shareholder dilution; dependence on key personnel; likelihood of payment of dividends in the future; competition for, amongst other things, capital, undeveloped lands and skilled personnel; fluctuations in currency exchange and interest rates; regulatory risk; conflicts of interest; share price volatility; and cybersecurity risks and threats.

 

Readers are cautioned that the foregoing lists of assumptions and factors is not exhaustive. The Forward Looking Information contained in this Form 40-F is expressly qualified by these cautionary statements. All Forward Looking Information in this Form 40-F speaks as of the date of this Form 40-F. The Registrant does not undertake any obligation to update or revise any Forward Looking Information, whether as a result of new information, future events or otherwise, except as required by applicable securities law. Additional information about these assumptions, risks and uncertainties is contained in the Registrant’s filings with securities regulators, including the Registrant’s most recent annual and interim MD&A, which are available on SEDAR at www.sedar.com.

 

DIFFERENCES IN UNITED STATES AND CANADIAN REPORTING PRACTICES

 

Technical disclosure regarding the Registrant’s properties included herein and in the documents incorporated herein by reference has not been prepared in accordance with the requirements of U.S. securities laws. Without limiting the foregoing, such technical disclosure uses terms that comply with reporting standards in Canada and certain estimates are made in accordance with National Instrument 43-101 — Standards of Disclosure for Mineral Projects (“NI 43-101”). NI 43-101 is a rule developed by the Canadian Securities Administrators that establishes standards for all public disclosure an issuer makes of scientific and technical information concerning mineral projects. Unless otherwise indicated, all mineral reserve and mineral resource estimates contained in the technical disclosure have been prepared in accordance with NI 43-101 and the Canadian Institute of Mining, Metallurgy and Petroleum Definition Standards on Mineral Resources and Reserves (“CIM Definition Standards”).

 

 

 

 

Canadian standards, including NI 43-101, differ significantly from the historical requirements of the Securities and Exchange Commission (the “SEC”), and mineral reserve and resource information contained or incorporated by reference herein may not be comparable to similar information disclosed by U.S. companies.

 

The SEC has adopted amendments to its disclosure rules to modernize the mineral property disclosure requirements for issuers whose securities are registered with the SEC. These amendments became effective February 25, 2019 (the “SEC Modernization Rules”) and, following a two-year transition period, the SEC Modernization Rules replaced the historical property disclosure requirements for mining registrants that are included in SEC Industry Guide 7. U.S. companies are required to provide disclosure on mineral properties under the SEC Modernization Rules for fiscal years beginning January 1, 2021 or later.

 

Under the SEC Modernization Rules, the definitions of “proven mineral reserves” and “probable mineral reserves” have been amended to be substantially similar to the corresponding CIM Definition Standards and the SEC has added definitions to recognize “measured mineral resources”, “indicated mineral resources” and “inferred mineral resources” which are also substantially similar to the corresponding CIM Definition Standards; however, there are still differences in the definitions and standards under the SEC Modernization Rules and the CIM Definition Standards. Therefore, the Registrant’s mineral resources and reserves as determined in accordance with NI 43-101 may be significantly different than if they had been determined in accordance with the SEC Modernization Rules.

 

DOCUMENTS FILED PURSUANT TO GENERAL INSTRUCTIONS

 

In accordance with General Instruction B.(l) of Form 40-F, the Registrant hereby incorporates by reference Exhibit 99.1 through Exhibit 99.32, as set forth in the Exhibit Index attached hereto.

 

DESCRIPTION OF THE SECURITIES

 

The Registrant is authorized to issue an unlimited number of Common Shares, without par value.  The holders of Common Shares are entitled to: (i) one vote per Common Share at all meetings of shareholders; (ii) receive dividends as and when declared by the board of directors of the Registrant; and (iii) upon liquidation, dissolution or winding-up of the Registrant, on a pro rata basis, the net assets of the Registrant after payment of debts and other liabilities. There are no pre-emptive, redemption, purchase or conversion rights attached to the Common Shares.

 

OFF-BALANCE SHEET TRANSACTIONS

 

The Registrant does not have any off-balance sheet transactions that have or are reasonably likely to have a current or future effect on the Registrant’s financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that are material to investors.

 

TABULAR DISCLOSURE OF CONTRACTUAL OBLIGATIONS

 

At December 31, 2020, the Registrant had the following contractual obligations outstanding:

 

(C$ in thousands)   

Total

    

Less than 1
year

    

1-3 years

    

4-5 years

    

More than 5
Years

 
Accounts payable  $1,953.6   $1,953.6   $-   $-   $- 
Discounted lease payments   252.2    9.1    20.8    26.8    195.5 
Revolving credit facility   2,683.9    2,683.9    -    -    - 
Note payable   2,204.0    1,941.3    262.7    -    - 
Total contractual obligations  $7,093.7   $6,587.9   $283.5   $26.8   $195.5 

 

 

 

 

UNDERTAKINGS

 

The Registrant undertakes to make available, in person or by telephone, representatives to respond to inquiries made by the Commission staff, and to furnish promptly, when requested to do so by the Commission staff, information relating to: the securities registered pursuant to this Form 40-F; the securities in relation to which the obligation to file an annual report on Form 40-F arises; or transactions in said securities.

 

CONSENT TO SERVICE OF PROCESS

 

Concurrently with the filing of the Registration Statement on Form 40-F, the Registrant will file with the Commission a written irrevocable consent and power of attorney on Form F-X. Any change to the name or address of the Registrant’s agent for service shall be communicated promptly to the Commission by amendment to the Form F-X referencing the file number of the Registrant.

 

 

 

 

EXHIBIT INDEX

 

The following documents are being filed with the Commission as exhibits to this registration statement on Form 40-F.

 

Exhibits   Documents
     
99.1   Management’s Discussion and Analysis for the three months ended March 31, 2021
     
99.2   Unaudited Condensed Interim Consolidated Financial Statements for the three months ended March 31, 2021 and 2020
     
99.3   Management’s Discussion and Analysis for the year ended December 31, 2020
     
99.4   Audited Consolidated Financial Statements for the years ended December 31, 2020 and 2019
     
99.5   Management’s Discussion and Analysis for the three and nine months ended September 30, 2020
     
99.6   Unaudited Condensed Interim Consolidated Financial Statements for the three and nine months ended September 30, 2020 and 2019
     
99.7   Management’s Discussion and Analysis for the three and six months ended June 30, 2020
     
99.8   Unaudited Condensed Interim Consolidated Financial Statements for the three and six months ended June 30, 2020 and 2019
     
99.9   Annual Information Form for the year ended December 31, 2019
     
99.10   Management’s Discussion and Analysis for the three months ended March 31, 2020
     
99.11   Unaudited Condensed Interim Consolidated Financial Statements for the three months ended March 31, 2020 and 2019
     
99.12   Management’s Discussion and Analysis for the year ended December 31, 2019
     
99.13   Audited Consolidated Financial Statements for the years ended December 31, 2019 and 2018
     
99.14   Grota do Cirilo Lithium Project: Araçuaí and Itinga Regions, Minas Gerais, Brazil, Phase 2 (Barreiro) Update of the NI 43-101 Technical Report Feasibility Study dated July 15, 2021
     
99.15   Certificate of Amendment of Sigma Lithium Corporation dated July 5, 2021
     
99.16   Management information circular dated May 28, 2021 with respect to the annual and special meeting of Sigma Lithium Resources Corporation shareholders to be held on June 29, 2021
     
99.17   Material Change Report dated February 19, 2021
     
99.18   Management information circular dated December 2, 2020 with respect to the annual meeting of Sigma Lithium Resources Corporation shareholders held on December 29, 2020
     
99.19   Material Change Report dated August 17, 2020
     
99.20   7th Amendment to the Agreement for the Purchase and Sale of Shares, Assignment of Mineral Rights and Other Covenants dated as of June 29, 2020, between Arqueana Empreendimentos e Participações S.A., Sigma Lithium Holdings Inc., Sigma Mineração S.A., and in the capacity of Consenting Intervening Party, RI-X Mineração e Consultoria S.A.
     
99.21   Consent of KPMG LLP
     
99.22   Consent of Guilherme Gomides Ferreira, B.Sc., M.Eng.
     
99.23   Consent of Marc-Antoine Laporte, P.Geo.
     
99.24   Consent of Jacques Parent, P.Eng., Ph.D.
     
99.25   Consent of Jarrett Quinn, P.Eng.
     
99.26   Consent of Porfirio Cabaleiro Rodriguez, B.Sc., M.Eng.
     
99.27   Consent of Pedro P. Veliz, P.Eng.
     
99.28   Consent of Jacqueline Wang, P.Eng.
     
99.29   Management’s Discussion and Analysis for the three and six months ended June 30, 2021
     
99.30   Unaudited Condensed Interim Consolidated Financial Statements for the three and six months ended June 30, 2021 and 2020
     
99.31   News Release dated September 2, 2021
     
99.32   News Release dated September 8, 2021

 

 

 

 

SIGNATURES

 

Pursuant to the requirements of the Exchange Act, the Registrant certifies that it meets all of the requirements for filing on Form 40-F and has duly caused this Registration Statement to be signed on its behalf by the undersigned, thereunto duly authorized.

 

  SIGMA LITHIUM CORPORATION
 

 

 

/s/ Ana Cabral-Gardner

  Name: Ana Cabral-Gardner
  Title: Co-Chief Executive Officer

 

Date: September 8, 2021

 

 

 

Exhibit 99.1

 

 

 

SIGMA LITHIUM RESOURCES CORPORATION

 

MANAGEMENT’S DISCUSSION AND ANALYSIS

 

FOR THE THREE MONTHS ENDED MARCH 31, 2021

 

Registered Office:

 

Suite 2200, 885 West Georgia Street, Vancouver, British Columbia, V6E 3E8. 

 

 

 

Sigma Lithium Resources Corporation

Management’s Discussion and Analysis

Three Months Ended March 31, 2021

Discussion dated: June 1, 2021

 

Introduction

 

The following interim management’s discussion and analysis (“MD&A”) of the financial condition and results of operations of Sigma Lithium Resources Corporation (the “Company”) constitutes management’s review of the factors that affected the Company’s financial and operating performance for the three months ended March 31, 2021. This MD&A should be read in conjunction with the audited annual financial statements of the Company for the years ended December 31, 2020 and 2019, together with the notes thereto, and the unaudited condensed interim financial statements for the three months ended March 31, 2021, together with the notes thereto. Results are reported in Canadian dollars, unless otherwise noted. The Company’s financial statements and the financial information contained in this MD&A are prepared in accordance with International Financial Reporting Standards (“IFRS”) as issued by the International Accounting Standards Board and interpretations of the IFRS Interpretations Committee.

 

The unaudited condensed interim financial statements have been prepared in accordance with International Accounting Standard 34, Interim Financial Reporting. Accordingly, they do not include all of the information required for full annual financial statements required by IFRS. In the opinion of management, all adjustments (which consist only of normal recurring adjustments) considered necessary for a fair presentation have been included. Information contained herein is presented as of June 1, 2021, unless otherwise indicated.

 

For the purposes of preparing this MD&A, management, in conjunction with the Company’s Board of Directors (the “Board”), considers the materiality of information. Information is considered material if: (i) such information results in, or would reasonably be expected to result in, a significant change in the market price or value of the Company’s common shares (“Common Shares”); (ii) there is a substantial likelihood that a reasonable investor would consider it important in making an investment decision; or (iii) it would significantly alter the total mix of information available to investors. Management, in conjunction with the Board, evaluates materiality with reference to all relevant circumstances, including potential market sensitivity.

 

Unless inconsistent with the context, references in this MD&A to the “Company” are references to the Company and its subsidiaries.

 

Further information about the Company and its operations is available on the Company’s website at www.sigmalithiumresources.com or at www.sedar.com.

 

The information herein should be read in conjunction with the the technical report titled “Grota do Cirilo Lithium Project, Araçuaí and Itinga Regions, Minas Gerais, Brazil, National Instrument 43-101 Technical Report on Feasibility Study Final Report” dated October 18, 2019 and with an effective date of September 16, 2019 (the “Feasibility Study Report”).

 

Readers should refer to and carefully consider the sections below titled “Risk Factors”, “Cautionary Note Regarding Forward-Looking Information” and “Cautionary Note Regarding Mineral Reserve and Mineral Resource Estimates”.

 

Company Business

 

The Company, through its indirectly wholly-owned subsidiary Sigma Mineração S.A. (“SMSA”), is developing, with an environmental sustainability focused strategy, the largest hard rock lithium deposits in the Americas, located in its wholly-owned Grota do Cirilo Project in Brazil (the “Project”) with the goal of participating in the rapidly expanding global supply chain of electric vehicles (“EVs”).

 

Page | 1

 

 

Sigma Lithium Resources Corporation

Interim Quarterly Management’s Discussion and Analysis

Three Months Ended March 31, 2021

Discussion dated: June 1, 2021

 

The first phase of production (“Production Phase 1”) for the Project will utilize as feedstock spodumene from the Project’s Xuxa deposit. The next production phase of the Project (“Production Phase 2”) would be increased production including feedstock from the Project’s Barreiro deposit. 

 

Based on the Feasibility Study Report, the Company plans to produce 220,000 tonnes annually of battery grade lithium concentrate (33,000 tonnes of lithium carbonate equivalent (“LCE”)) in Production Phase 1 and expects to be amongst the world’s lowest cost producers. In Production Phase 2, if warranted after ongoing feasibility study, production would be increased to 440,000 tonnes (65,000 tonnes of LCE) annually.

 

The Company is in pre-construction and detailed engineering of an environmentally friendly, fully automated, dense media separator (“DMS”) production plant that applies proprietary algorithms to digitally control the dense media (the “Production Plant”). The Production Plant will be vertically integrated into the Company´s mining operations, exclusively utilizing as feedstock the high purity spodumene ore with exceptional mineralogy from the Project. The Production Plant will process the spodumene ore into a high purity 6% battery-grade lithium concentrate engineered to the specifications of its customers in the lithium-ion battery supply chain for EVs.

 

Since 2018, SMSA has been producing low carbon high purity lithium concentrate at an on-site demonstration pilot plant with the objective to ship samples to potential customers for product certification and testing (the “Pilot Plant”). This pilot production has been an important part of the successful commercial strategy of the Company for its low carbon high purity lithium.

 

The Company plans to achieve net zero carbon emission targets by 2023, partly as a result of its strategic decision to pursue generation of carbon credits through “in-setting” carbon credits (preserving and developing the agroforestry systems within its regional ecosystem).

 

In order to secure a leading position supplying the clean mobility and green energy storage value chains, the Company has adhered consistently to the highest principles, guidances and standards of environmental, social and governance (“ESG”) practices, which were established as part of its core purpose at inception in 2012. Its production process will be powered by clean energy and the Company will use water efficiently as a result of using state-of-the art water recirculation circuits in its processing combined with dry stacking tailings management, therefore not having a tailings dam. The DMS process of the Production Plant does not utilize hazardous chemicals, as a result its tailings are 100% recyclable into ancillary industries, such as ceramics.

 

The Company is currently undergoing an independent assessment of its net carbon footprint, conducting an independent ISO 14000 compliant audit of its life cycle analysis together with an independent expert validation of its carbon credits generated by its internal preservation, reforestation, and compensation forestry programs. The Company expects to complete this workstream in the second half of 2021.

 

Lithium Properties

 

The Project comprises four properties owned by SMSA and is divided into the Northern Complex (the Grota do Cirilo, where the Phase 1 and Phase 2 deposits of the Project are located, Genipapo and Santa Clara properties) and the Southern Complex (the São José property). The Project consists of 27 mineral rights (which include mining concessions, applications for mining concessions, exploration authorizations and applications for mineral exploration authorizations) spread over 191 km2. The Project area includes nine past producing lithium mines and 11 first-priority exploration targets. Granted mining concessions are in good standing with the Brazilian authorities. The Project is located in Northeastern Minas Gerais State, in the municipalities of Araçuaí́ and Itinga, approximately 25 km east of the town of Araçuaí́ and 600 km northeast of Belo Horizonte.

 

Page | 2

 

 

Sigma Lithium Resources Corporation

Interim Quarterly Management’s Discussion and Analysis

Three Months Ended March 31, 2021

Discussion dated: June 1, 2021

 

Highlights

 

Project Development and Operations Overview

 

The Company continues to advance toward initiating commercial production in 2022 and has successfully completed several workstreams involved in the pre-construction of the Project within the scheduled and budgeted parameters. In the first quarter of 2021, the Company reached major milestones towards construction, despite the challenging circumstances created by the global pandemic. This includes critical field-based activities required for the front-end engineering design/FEED and detailed engineering (taken together, “Detailed Engineering”), as well as the completion of critical field-based activities for other pre-construction workstreams for both the Production Plant (“Plant Pre-Construction”) and for the pre-construction of the Xuxa deposit mine (the “Phase 1 Mine Pre-Construction”).

 

These activities have been followed by the several trade-off analyses and plant design workstreams, which are ongoing, including a review of non-plant design infrastructure in Detailed Engineering seeking to streamline construction and contemplate a subsequent potential expansion of production capacity.

 

The Company expects Detailed Engineering and Plant Pre-Construction to be finalized in the third quarter of 2021. Subsequently, Board approval for the Production Phase 1 construction plan could be made. Immediately thereafter, Company intends to place orders for long lead items and reserve manufacturing slots with the key vendors in order to avoid any surprise in delivery schedules of critical equipment. and utilizing cash currently earmarked for such (and which is already in the Company treasury).

 

The Company added a number of workstreams to the pre-construction activities at the Project, with the objective of solidifying its unique market position as a future supplier of “low-carbon” high-purity 6% battery-grade green lithium concentrate and potentially respond to a significant increase in demand from its customers. By demonstrating its ability to expand production in the near term, the Company would take advantage of the current strong demand, and solidify its unique commercial advantage in delivering environmentally, socially sustainable and low carbon high purity battery grade green lithium products to like-minded cathode and battery producers.

 

As a result, the Company commenced a further feasibility study to target a higher production capacity than the 220,000 tpa of low carbon high purity lithium it will have once Production Phase 1 comes onstream (expected in 2022) through the addition of a second processing line with similar capacity. This scenario would consist of utilizing most of the same Production Phase 1 Production Plant infrastructure with the addition of a second production line that could potentially double its capacity to 440,000tpa of battery grade high purity low carbon lithium. In May 2021, The Company completed a preliminary economic assessment (the “PEA”) which projects exceptional economies of scale for Production Phase 2, resulting from the low capital expenditures of adding a second environmentally-friendly lithium processing line and vertically integrating it to the Project, mining an average of 1.68Mt per year during approximately 12.7 years of projected mine life. In the first half of 2021, the Company expects to complete an updated pre-feasibility study for Production Phase 2, utilizing feedstock of either or both of the Project’s first or second deposits (respectively, Xuxa deposit and Barreiro deposit), as described below (see Feasibility Studies for Increased Scale of Project in Production Phase 2).

 

This approach is the result of a thorough review of the Company´s strategic priorities in light of the significant change in lithium market conditions and aims to significantly increase both the scale of the Project and its commercial and market importance on three fronts: future production, scale of mineral reserves and scale of mineral resources, all while maintaining its battery grade green lithium products and Sigma’s strategic leadership in ESG in the lithium supply chain. 

 

Page | 3

 

 

Sigma Lithium Resources Corporation

Interim Quarterly Management’s Discussion and Analysis

Three Months Ended March 31, 2021

Discussion dated: June 1, 2021

 

In September 2020, the Company (prior to the severe second wave of COVID-19) revised its strategy regarding certain international third-party engineering service providers by substituting them with Brazil-based specialists, anticipating severely restrictive global travel bans in a second wave. This pre-emptive change enabled the Company to successfully complete all field activities on time and on budget and to continue to execute engineering activities.

 

The Company has made significant progress in further strengthening its project team, aligning and defining scope requirements and the Project execution strategy. The Company has added several senior professionals as part of its project implementation team. Key Project consultants include a mix of Brazilian and international engineers actively engaged on or off site, and currently includes GE21 Consultoria Mineral (“GE21”), MDGeo, APL Engenharia (“APL”), Primero Group Ltd. (“Primero”), SGS Canada Lakefield (“SGS”), Metso-Outotec and SRK Consulting Inc. An average of 86 people worked at the Project site during the first four months of 2021, of which two personnel tested positive for COVID. They received prompt medical assistance and have fully recovered.

 

The Company added two senior project management engineers to lead the Project Management Office (“PMO”), a senior mineral processing engineer, and senior geotechnical geologist, each reporting to the Company’s CEO, who has primary responsibility for all technical workstreams and has been based full time at the Project since August 2020. This core team has been providing valuable oversight on project delivery, while interfacing with the Detailed Engineering team, construction contractors, equipment vendors and other stakeholders, aligning them to the Project objectives. The PMO has established standard management processes and strategies regarding project execution, contract management, project delivery and document controls.

 

Primero and the Company are refining the strategy for the construction of the Production Plant, which will be based on the outcome of the final stage of a selection and bidding process for a Brazilian based construction and engineering company, which is expected to be selected during the second quarter of 2021 (the “Brazilian EPCM Firm”) to partner with Primero on the engineering, procurement, construction, and management (“EPCM”) for the Project, as described below (see Next Steps in Detailed Engineering and Pre-Construction Activities).

 

The Company continued to demonstrate the unique extent and high-purity quality of its hard rock lithium mineralization at the Project and its commercial and market relevance by having significantly advanced its strategic goals on three fronts: short term production scheduled for 2022, the viability of a near-term production expansion contemplated for 2023, and the determination of the ultimate extent of mineral resources at the Project, all while maintaining its strategic leadership in ESG in the lithium supply chain.

 

Detailed Engineering and Pre-Construction Activities for the Production Plant

 

The Company together with Primero has been advancing Detailed Engineering and Pre-Construction for the entire Project covering both plant and non-plant infrastructure activities. At the end of the Detailed Engineering, plant design will be optimized considering near term expansion with infrastructure designed to suit current and future expansion needs. The procurement strategy will be formulated to derive maximum benefits and engineering will be completed to augment construction readiness. At the end of Detailed Engineering, the Project will move to the Implementation/Deployment Stage (FEL 3 / Class 3) with increased accuracy from the capital estimates included in the Feasibility Study Report.

 

Page | 4

 

 

Sigma Lithium Resources Corporation

Interim Quarterly Management’s Discussion and Analysis

Three Months Ended March 31, 2021

Discussion dated: June 1, 2021

 

Overall, the Company made significant progress towards a construction decision, despite the circumstances created by the COVID-19 pandemic. The Company’s overall goal for Detailed Engineering and Plant Pre-Construction was to provide a solid foundation for the execution plan for construction decision of the Production Plant, seeking to significantly minimize overall construction risk. Ongoing engineering review is finalizing the Production Plant designs (civil & structural, electro-mechanical, piping, electrical & Instrumentation & control), while conducting appropriate capital cost projections, including the procurement and “contract readiness” of core construction suppliers and the EPCM agreements with both Primero and the Brazilian EPCM Firm.

 

The Company is focused in advancing all pre-construction workstreams, such as site early works (clearing and grubbing, laydowns & topsoil removal) managed by the Company’s team on site. Subsequently, once structural foundation works are finalized, the Brazilian EPCM Firm will conclude these workstreams with additional topsoil removal and foundation preparations, as soon as analysis of results and geotechnical modelling of Production Plant foundation are concluded.

 

The Company has finalized an efficient fit for purpose Project Delivery system. Detailed Engineering is proceeding, with delivery as follows: i) Plant Technical under Primero, and non-plant technical under the Brazilian ECPM Firm (“Brazilian Engineering”), ii) Procurement by the Company and specialized procurement, tax and customs consultancy, iii) constructability (using Primero’s expertise from comparable lithium production plants in Australia and the Brazilian EPCM Firm´s local expertise), iv) the Company leading the final capital expenditures quote coordination with a procurement consultancy firm, v) the Company coordinating the operational readiness, financial model and budget, vi) long lead time items ordering and procurement coordinated by Primero and a Company procurement consultant; and viii) geotechnical and civil engineering coordination, including site early works (clearing and grubbing, laydowns & topsoil removal) managed by the Brazilian EPCM Firm.

 

During construction, the Company should have its team overseeing Primero, the technology provider, and the Brazilian EPCM Firm. Primero, which has successfully designed, supplied and commissioned similar production plants in Australia, will be primarily responsible for design of the production plant, detailed engineering and will assist the Company with overseas procurement, while the Brazilian EPCM Firm will be support Primero’s engineering efforts on the Detailed Engineering of plant and conform them to Brazilian technical construction standards, as well as undertake engineering of non-plant infrastructure and provide construction management services.

 

Pre-Construction

 

The Company concluded all field Pre-Construction activities for the Production Plant. The Company engaged the services of APL to perform detailed geotechnical investigations on the proposed plant and waste pile storage sites, including core samples and several test pits for geotechnical sampling and testing. Completed field work included the following:

 

·Geotechnical structural assessment for the civil engineering and foundations for the initial Production Plant area as well as waste pile geotechnical investigations;
·Priority results have been released;and
·Analysis of results and geotechnical modelling of Production Plant foundation are in progress.

 

Primero conducted a review of the current designs, assessing the impact on the foundation design and earthwork quantities, based on the geotechnical assessment for the civil engineering and concluded that the soil condition does not create any risk for construction of the foundations of the Production Plant. Primero is concluding calculations to determine the quantity of top soil to be removed during bulk earth works..

 

Page | 5

 

 

Sigma Lithium Resources Corporation

Interim Quarterly Management’s Discussion and Analysis

Three Months Ended March 31, 2021

Discussion dated: June 1, 2021

 

Detailed Engineering

 

The Company finalized the Work Breakdown Structure (WBS) for Detailed Engineering as well as the master target implementation schedule for construction of the Production Plant. The Company, Primero and Metso-Outotec (crushing plant designer) have completed trade-off studies for the optimization and expandability/scalability of the overall plant design, evaluating multiple design options, performing tests and analysis to select the preferred option.

 

The Company evaluated operational and capital expenditure trade-offs to be achieved as a result of the different possible design alternatives for the crushing circuit to be installed at the Production Plant. The Feasibility Study Report dated October 18, 2019 and with an effective date of September 16, 2019 filed at www.sedar.com, contemplates the crushing circuit as an operational expenditure, with a crushing cost per tonne included in the total cash production cost of the Xuxa Mine. These trade off studies aimed to further de-risk and optimize the construction of the Production Plant. The scalability of the Production Plant is also being studied to determine expansion design features to allow for the incorporation of a second production line for Production Phase 2.

 

The trade-off studies, including the associated cost-benefit evaluations conducted as part of the Detailed Engineering, are as follows:

 

· Crushing plant sizing, mine ore movements and layout: selection of capacity for crushing module of the Production Plant and ore handling as well as evaluation of alternatives for an expansion of the crushing plant. A larger capacity primary crusher to accept larger top size combined with an arrangement which leads to an optimum layout from point of efficiency and material movement;
· Crushed ore storage and reclaim;
·A straight transfer via conveyor and intermediate bin from discharge of crushing circuit to DMS plant to minimize transfer points, eliminate manual handlings and maximize DMS plant feeding efficiency;
· Evaluation of size alternatives for the DMS module for the Production Plant, comparing a dual 220ktpa versus 440ktpa capacity; and
·  Cost benefit analysis of the ultra-fines circuit and fines minimization tests to achieve higher recovery.

 

The remaining test work being undertaken is to reconfirm data reflected in the Feasibility Study Report and is not expected to cause major design changes. The following trade-off tests are in progress:

 

·  Metallurgical test work: SGS Lakefield and Primero are testing additional Production Phase 1 variability samples for the re-validation of recoveries obtained by DMS reflected in the Feasibility Study Report, including the validation of equipment efficacy in scaling up the capacity of the Production Plant;
· Dry stacking tailing equipment selection and additional equipment test-work reflux classification;
·   Analysis of “build own operate” contract crushing with Metso (operating costs) in comparison with Company purchased crushing (capital expenditures);
·   Magnetic separation for Iron removal trade off studies; and
·Thickener settling .test-work in the dry stacking circuit.

 

 

Page | 6

 

 

Sigma Lithium Resources Corporation

Interim Quarterly Management’s Discussion and Analysis

Three Months Ended March 31, 2021

Discussion dated: June 1, 2021

 

Primero concluded the definition of the streamlined scope and design of the non-process, non-plant infrastructure (building infrastructure). The basis of the review was a comparison of the layout developed for the Feasibility Study Report with buildings and Infrastructure to support a 1.5Mtpa DMS plant and Primero benchmarked against a 4Mtpa semi-remote operation in Australia (considered adequate for the Project) which allowed for infrastructure to accommodate personnel to operate, maintain and manage a 1.5Mtpa DMS plant. The proposed infrastructure was deemed excessive when compared to similar operations in Australia which undertake a more practical and cost efficient approach to supporting infrastructure. Based on this review, it is believed that the non-plant infrastructure as sized for the Feasibility Study Report can be reduced, resulting in potential capital expenditure reduction.

 

The following workstreams are also in progress as part of the Detailed Engineering:

 

· A review of contract model for power substation to contemplate potential Production Phase 2 expansion and a review of a “build own operated” strategy for power substation;
·Analysis of Production Plant key design elements for increased yield and validation of their efficacy in scaling up the capacity of the Production Plant; and
·Final allocation of design deliverables for detailed design based on capabilities, between Primero and the Brazilian EPCM Firm.

 

Next Steps in Detailed Engineering and Plant Pre-Construction Activities

 

Primero is preparing to work with the Brazilian EPCM Firm to complete the next steps in Detailed Engineering and Plant Pre-Construction Activities, including:

 

·Preparing the Project Execution Plan, developing a schedule to distribute deliverables, as well as systems and a joint execution plan;
·Updating and adapting the scope of work from the original EPC scope into an EPCM approach for the build;
·Reviewing costing for the non-Production Plant/processing infrastructure with recommendations for Capex optimization: Ongoing review of facilities (air, water, power services) in order to formulate recommendations to reduce capital expenditures and to streamline and expedite construction, aligning originally proposed infrastructure with benchmarking of other similar mining operations in Australia; and
·Completing the capital expenditures plan, incorporating the FEL-3/ Implementation level of detailed engineering accuracy of +/- 10%.

 

Primero and the Brazilian EPCM Firm will be progressing on the design of the entire Production Phase 1, including the Production Plant and non-plant infrastructure and services, to enable a rapid start to the Project on final investment decision, while ensuring the design incorporates the tie in of a future parallel concentrator processing line for Production Phase 2. In that process, the following design tasks will be completed:

 

·Processing: updating process design, refining mass balance and flowsheets, preliminary piping and instrumentation diagrams, process control philosophy and automation of process controls;
·Plant layout and 3D model: general arrangement drawings and 3D model for entire site covering both process and non-process facilities. Site layout developed to include future Production Phase 2 plant and revised linear crushing circuit and continuous automatic feeding of crushed ore to DMS plant via conveyor and crushed ore bin;
·Earthworks drawings and bulk material take-offs;
·Standard documentation: standard drawings and standard specification; design criteria, site conditions, including definition of concrete, structural, mechanical, piping and electrical required for detailed design;
· Mechanical: equipment datasheets with specifications and requirements, equipment request for quotations with all major equipment with long lead items and complete evaluations on major equipment, mechanical equipment list, platework material take-off, crushing plant datasheets;  

 

 

Page | 7

 

 

Sigma Lithium Resources Corporation

Interim Quarterly Management’s Discussion and Analysis

Three Months Ended March 31, 2021

Discussion dated: June 1, 2021

 

·Piping: complete standard piping systems and specifications required to complete detailed design, detailed piping material take off including piping by spec and diameter, valve list;
·Concrete and structural: preliminary calculations and critical member sizing, concrete and structural take off broken down by commodity code and area; and
·Electrical, instrumentation and controls: equipment datasheets and specifications for major equipment, electrical load list electrical, single line diagrams, equipment list and instrument list, and high level electrical distribution drawings.

 

Primero and the Brazilian EPCM Firm will also be preparing the high voltage substation scope of work and specifications for the potential bid of a third party provider to deliver it on a build own operate basis.

 

The overall division of responsibilities for the various participants in executing the ongoing and next steps in Detailed Engineering and Plant Pre-Construction activities has been defined according to the work breakdown structure (WBS) code in the Feasibility Study Report as follows:

 

·Site Wide (WBS 100):
oBulk Earthworks: Brazilian EPCM Firm.
·Crushing (WBS 200):
oStructural steel, platework, mechanical equipment, piping, electrical & instrument: Metso-Outotec; and
oCivil/ Concrete: Primero.
·Wet Plant (WBS 300):
oStructural Steel, Mechanical equipment, piping, platework; and
oElectrical and instrument, Civil/concrete: Primero
·Non-Plant Infrastructure (600):
oPower/Water/Building/Compressed Air/ Roads: Brazilian EPCM Firm.
·Xuxa Mine / Mining (700):
oMining general: Mining contractor; and
oMining facilities: Mining contractor/ Brazilian EPCM Firm.
·Project Execution Plan, Construction readiness, Constructability Review, Estimation, Master Schedule, Procurement packages, Construction Packages: Each party for their respective scope area and coordinated by Brazilian EPCM firm.

 

Pre-Construction Outlook for Production Phase 1 Open Pit Mine

 

The Production Phase 1 Open Pit Mine (The “Phase 1 Mine” or “Xuxa Mine”) will supply 100% of the feedstock for the Production Plant during Phase 1 Production for a period of nine years, creating a fully integrated and low-cost operation. Moreover, the south pit of the Xuxa Mine could be opened simultaneously to the north pit to supply the feedstock to kickstart a second processing line for the Production Plant during the initial years of Production Phase 2, should the Company decide to rapidly increase scale in 2023 if forecasted lithium supply shortages become effective.

 

The Company has successfully completed several critical workstreams involved in the Pre-Construction of the Phase 1 Mine within the scheduled and budgeted parameters. This includes all field-based activities required for the geotechnical validation at detailed engineering level, as well as critical field work of hydrogeological validation (including the installation of 12 piezometers for water measurements).

 

There are three main workstreams involved in the Pre-Construction activities for the Phase 1 Mine: geotechnical validations at higher (detailed engineering) confidence levels, hydrogeology validations at higher (detailed engineering) confidence levels and optimization of the mining plan with two pit layouts under consideration.

 

Page | 8

 

 

Sigma Lithium Resources Corporation

Interim Quarterly Management’s Discussion and Analysis

Three Months Ended March 31, 2021

Discussion dated: June 1, 2021

 

These validations at detailed engineering confidence levels are in process as a result of the ESG-centered strategy of the Company. Certain key elements of the environmental strategy for the Phase 1 Production, as detailed in the Feasibility Study Report, are: (i) the decision to open the Xuxa Mine as two separate pits, as detailed in the Feasibility Study Report, including preserving the Piauí river’s seasonal “stream” and its surrounding ecosystems (collectively, the “Piauí”), resulting from its role in providing the only source of freshwater for the surrounding communities for four to five months of the year during the rainy season (the Project is located in a semi-arid region); (ii) dry stacking for tailings from the processing plant; and (iii) overall minimization of vegetation and tree suppression in both pit and tailings areas to less than 50 hectares and provision of environmental compensation lands at a 2:1 ratio per hectare (at tropical forest levels) for suppressed vegetation.

 

The following workstreams of the Pre-Construction for the Phase 1 Mine have been completed:

 

·Completed field work of geotechnical validations at higher (detailed engineering) confidence levels and refined North and South pit designs and pit wall slopes of the Xuxa Mine. All planned additional geotechnical holes were successfully drilled with core orientations targeting all wall orientations (i.e. hanging wall, end walls, and footwall). Geotechnical modelling and analysis are ongoing:
oConducted core drilling of 12 new orientated core holes (2,436 meters in total) over the Xuxa north and south pit areas dedicated to geotechnical modelling of the pit wall slopes to update and refine the mine design;
oAll required drill sample holes have been drilled, logged and samples sent for geotechnical laboratory test work; and
oSuccessfully performed down hole geophysical surveys, engaging an acoustic televiewer for geotechnical survey of 40 holes (all of the new holes and 20 of the historical drill holes), providing quality data for a comprehensive geotechnical investigation.

 

·The Company, GE21 and MD Geo completed the field work of hydrogeological test work in and around the Xuxa Mine area. Piezometers have been installed and there is ongoing analysis of data from piezometers for subsequent geo-hydrogeological modelling by GE21:
oWater levels have been measured in historical drill holes (wells) and all piezometer installations have been completed. The ongoing analysis includes pressure and pump testing conducted on holes with information incorporated into the existing hydrogeological model for calibration purposes. This information will later be integrated into the final geotechnical report for the Xuxa Mine as well as in the updated execution mine plan;
oThe Company, GE21 and MD Geo are currently performing hydrogeological monitoring in order to execute validations at higher confidence (detailed engineering levels) of the following hydrogeological and hydraulic connections between the Piauí and the Xuxa deposit: (a) connections between the Piauí and the pegmatite dyke, which could develop through a fractured joint and/or fault systems; and (b) connection between the Piaui and the weathered zone of the Xuxa deposit; and
oThe Company decided to conduct a hydrogeology detailed assessment and model of these two groundwater pathways because it will increase confidence that, in the event climate change substantially alters rainfall patterns in the region (increasing seasonal water flows at the Piaui), the Company would be equipped with information to determine the most suitable pit dewatering methodology.

Page | 9

 

 

Sigma Lithium Resources Corporation

Interim Quarterly Management’s Discussion and Analysis

Three Months Ended March 31, 2021

Discussion dated: June 1, 2021

 

The Company and GE21 are currently executing the following Pre-Construction activities for the Phase 1 Mine:

 

·Conducting the optimization of the mining plan based on the new geotechnical data and design parameters with two pit layouts under consideration: (a) layouts used in the Feasibility Study Report, which feature two separate pits excavated to a maximum depth of about 320 meters; and (b) including an initial starter pit that would be excavated to a depth of 225 meters;
·Generation of an operational monthly mining sequencing plan for the first three years of the life of mine, then quarterly for year four and annually for years five through nine;
·Design of final pit (with final operating parameters: berm, ramp, ultimate wall slope angles); and
·Development of a comprehensive grade control program utilizing geostatistical methods to ensure feed grades are maintained within the expected range. The proposed grade control system will be designed to minimize schist waste rock dilution with the pegmatite ore recovery in pit.

 

Each mining plan under consideration will have a different configuration for the waste and tailings piles to be in areas of pastures (with low-to-none mid-stage vegetation suppression). This optimization has the benefit of both lowering the capex for pre-stripping, while enhancing the life cycle analysis of the Company by substantially decreasing its carbon footprint, as follows: (i) decreasing the vegetation suppression of trees in the construction of the pit to less than 50 hectares; and (ii) segregating the piles of mined waste and processed tailings with the goal of recycling most of the tailings into ancillary industries, promoting a circular economy.

 

Preliminary Economic Assessment, Pre-Feasibility and Feasibility Studies for Increased Scale - Production Phase 2

 

The Company significantly advanced multiple Project workstreams in geology, geotechnical, metallurgical, environmental and regulatory permitting with the objective of preparing for Production Phase 2 after 2023, as follows:

 

·Preliminary Economic Assessment, Pre-Feasibility and Feasibility Studies for Production Phase 2: The Company has engaged SGS and Primero to prepare pre-feasibility and feasibility studies for Production Phase 2, adding to the Production Plant a second similar DMS processing line with capacity of 220,00ktpa (33,000 LCE) of battery grade high purity lithium concentrate. The results of the various workstreams are planned to be completed in three stages: the PEA was completed in May 2021, the pre-feasibility study is also expected to be completed in the second quarter of 2021 and the feasibility study is expected in the fourth quarter of 2021.

oThe studies contemplate utilizing as feedstock the spodumene ore from the Project’s second deposit Barreiro (the “Second Deposit” or “Barreiro”) with the objective of significantly increasing production.

 

oBarreiro is the Project’s largest deposit. It is a high-purity, high-grade lithium deposit, with 20.485Mt of measured and indicated mineral resources at 1.43% Li2O and 1.909Mt of inferred mineral resources at 1.44% Li2O and shallow, near surface mineralization ideal for open pit mining. Its mineral reserve is expected to be declared later this quarter when the ongoing pre-feasibility study is completed.

 

oThe PEA demonstrated the significant cost benefit of vertically integrating a second production line and utilizing as feedstock spodumene ore from the Project´s Barreiro deposit, mining an average of 1.68Mt per year during 12.7 years of mine life.

 

oThe Company and Primero completed all the metallurgical and variability pre-feasibility test work at SGS laboratories with the aim of customizing a flowsheet for the processing line of Production Phase 2 with the Barreiro deposit. The heavy liquid separation testing results achieved 66% Li2O recovery. They were followed by pilot plant scale DMS metallurgical testing, which achieved 60.7% Li2O recovery producing a battery grade concentrate of 6.11% Li2O.

 

 

Page | 10

 

 

 

Sigma Lithium Resources Corporation

Interim Quarterly Management’s Discussion and Analysis

Three Months Ended March 31, 2021

Discussion dated: June 1, 2021

 

oThe processing and metallurgy tests of the PEA concluded that the lithium achieved good recoveries in an environmentally friendly DMS plant, with similar flowsheet (and capital costs) to the first production line, without requiring a significantly more capital-intensive flotation process. These DMS recoveries are a result of the Second Deposit having a similar exceptional mineralization to the Project´s first deposit, Xuxa, with large crystals of coarse spodumene.

 

oThe Company completed all field work for the preparation of Phase 2 pre-feasibility study, including geotechnical drilling and hydrogeology test work.

 

oGE21 is leading the preparation of the mining plan, geotechnical program and modelling of the Barreiro deposit. The drilling of three new geotechnical orientated core holes and relogging (geotechnically) of 20 selected exploration holes were completed. The Company engaged Comprobe, a specialist engineering service, to conduct downhole geotechnical surveys using an acoustic televiewer to probe exploration drill holes. These surveys were completed for the new and historic exploration holes

 

oThe field work required for the hydrogeological section of the pre-feasibility study has been completed, as all water level measurements have been completed.

 

·Environmental Impact Study: Starting in the dry season of the second quarter of 2020, the Company has been conducting detailed environmental impact studies for the fauna and the flora in the area of the Barreiro deposit where the pit and waste piles will be located. These studies continued in the wet season during the third and fourth quarters of 2020. The environmental impact studies as well as a comprehensive environmental and social impact assessment report (EIA/RIMA) were prepared and concluded by the Company. The design proposed by the Company in the EIA/RIMA for the ADA (Directly Impacted Area by the Project) has followed the Company´s ESG-centric approach to minimize vegetation suppression and contemplated the location of its processing tailings dry stacking piles in the vicinity of the Production Plant with the selection of areas for waste piles targeting the overall minimization of vegetation and tree suppression which, in combination with the vegetation suppression required for the pit areas, amounts to less than 50 hectares. As a result, the life cycle analysis of the Company is substantially enhanced, decreasing its the environmental and carbon footprints. Once the EIA/RIMA is submitted and approved by regulators, additional ancillary construction and operation permits from environmental authorities will be required prior to construction.
  
·Regulatory & Mining Permitting - Phase 2: The Company obtained a key approval for Production Phase 2 plan with the Agência Nacional de Mineração (the “ANM”) approving its economic feasibility study (“Plano Econômico de Avaliação” - PAE). This approval advanced the Production Phase 2 permitting process to the mining concession request stage (“Requerimento de Concessão de Lavra”).

 

 

 

Page | 11

 

 

Sigma Lithium Resources Corporation

Interim Quarterly Management’s Discussion and Analysis

Three Months Ended March 31, 2021

Discussion dated: June 1, 2021

 

Exploration & Development of other Project Deposits

 

The Company is accelerating its site exploration activities for the Project with the goal of increasing the Project mine life at the expanded production levels of 440,000tpa of Production Phase 2. The Company own dedicated geological team and a QP from SGS Canada are carrying out an exploration program to determine the ultimate extent and more rapidly increase the scale of the Project’s mineral resources, while demonstrating the uniqueness of the high-purity quality of hard rock lithium mineralization at the Project. The Company continued diamond drilling to define by prospective mineralized structures identified by historical mining, and surface trenching and representing a geological continuum with known deposits. The objective of the exploration program is to increase estimated mineral resources by at least 50% by the end of 2021.

 

This workstream does not impact the Phase 1 Production pre-construction workstreams. Following the completion of the Pre-Construction activities of the Xuxa Mine involving geotechnical and geohydrology drilling, certain drilling rigs on site were redeployed to conduct this program.

 

·In 2020, the Company´s own geological teams continued to evaluate the potential of certain of the Project’s deposits that were not included in the mineral resource estimate in the Feasibility Study Report. They evaluated two deposits with significant potential that were targeted for core diamond drilling campaigns. In 2021 the Company´s geological team is expanding this exploration analysis by evaluating the potential of areas of the Lithium Properties in the south of the Project.

 

·The Company focused the 2021 drilling campaign in particular on an area with pegmatite surface exposure that in the 2018-2019 drilling program yielded promising results.

 

·SGS validated a drill plan with ~6,500m of diamond HQ drilling, mostly split between two pegmatites in the immediate geological vicinity of the Barreiro deposit, and across its mineral concession border. In 2019, 350m of drilling was carried out in the area, intercepting 110m of pegmatite with an average grade of 1.6% Li2O and average thickness of 20m, demonstrating a exploration target of high interest.

 

·50% of the drilling campaign has been completed thus far, with 31 holes (approximately 3,750m) drilled at 100m x 50m spacing along a 500m open-ended portion of pegmatite dyke. Results are promising, with preliminary Li2O results with weighted average at 1.28% in the mineralized holes and pegmatites intersections “thickness” averaged 22m, with 30m in the middle of the deposit. Fresh rock started at 13m until 240m at maximum drill depth. Augmenting the 500m portion drilled thus far, some 220m of trenching successfully delineated a further continuous 1,100m of pegmatite dyke, which remains open-ended to the north. To evaluate the exposed pegmatite, an additional 3,000m of diamond drilling is planned on a 100m x 50m grid.

 

·Based on the area´s “brownfield status” (one of the deposits was a former artisanal mine) and the results thus far, SGS believes that the resource potential for this deposit could be approximately 15-18Mt (such range being conceptual in nature, since there has been insufficient exploration to define a mineral resource and it is uncertain if the target will ultimately be delineated as a mineral resource).

 

 

Page | 12

 

 

 

Sigma Lithium Resources Corporation

Interim Quarterly Management’s Discussion and Analysis

Three Months Ended March 31, 2021

Discussion dated: June 1, 2021

 

ESG & Sustainability

 

As a result of the ESG-centered strategy of the Company, sustainability considerations and actions are intrinsically incorporated into the various execution workstreams. Consistent with the Company’s leadership in ESG within the lithium industry, the Company has demonstrated its alignment with the Paris Climate Accord and targeted to potentially reach net zero carbon emissions in its first year of production in 2022.

 

Life Cycle Analysis and Net Zero Strategy

 

The Company has engaged Minviro Ltd. for the preparation of an independent ISO 14000 compliant life cycle assessment (“LCA”). The Company has engaged BeZero Carbon Ltd for the assessment of the Company´s internal carbon offsetting projects (“in-setting projects”) and advisory on a portfolio of carbon additional in-setting projects and initiatives which the company may undertake in order to make a robust net zero declaration by 2023.

 

The objectives of both workstreams are to understand the greenhouse gas emissions associated with the positive activities of carbon sequestering undertaken by the Company, link the results to the overall carbon footprint of existing and planned operations, create an in-setting and offsetting plan for residual emissions and provide an evidence-based assessment for the Company´s net zero targets. The Company will take responsibility for all of its expected scope 1, 2, and 3 emissions, as is the expectation in today’s international carbon accounting environment for maximizing the robustness and defensibility of the Company’s strategy. Net Zero plans will be undertaken in two phases: (i) Net zero phase 1 (current): incorporating scope 3 emissions from mine to port of shipment in Brazil; (ii) Net Zero phase 2 incorporating scope 3 emissions at port of delivery.

 

The study and the audit are contemplating two different production routes to be followed by the Company to deliver lithium products to its customers: (i) spodumene mining and lithium purification and concentration production in Brazil and (ii) purified spodumene concentrate shipped to be converted by two different chemical producers, in two different jurisdictions, into battery quality lithium hydroxide monohydrate. The final ISO 14000 audit report for the first route is ongoing and will be completed in approximately 20 weeks and will include: (i) a cradle to grave life cycle inventory and impact assessment to generate impact data for climate change, water consumption, land use and certain impact categories selected by the Company, and (ii) a complete contribution analysis outlining the major inputs contributing to the impact categories.

 

The Company expects to publish results from the LCA in the third quarter of 2021, including more information on its carbon in-setting and offsetting strategy. The Company is acutely aware of the historical issues with carbon offsetting, and plans to adapt to the most up to date norms in the industry. This is an important pillar of the Company’s plans to develop and maintain a defensible net zero strategy, while the expectations and norms for offsetting and emissions reporting continue to involve.

 

 

 

Page | 13

 

 

Sigma Lithium Resources Corporation

Interim Quarterly Management’s Discussion and Analysis

Three Months Ended March 31, 2021

Discussion dated: June 1, 2021

 

Environmental Programs

 

The Company has ongoing comprehensive environmental and social programs in process, consistent with its leadership role in ESG in the lithium mining sector and its commitment to sustainable mining. The mitigating social and environmental programs already initiated or to commence during construction phase aim to establish actions to proactively mitigate, prevent, control and compensate for the environmental impacts that could be caused by the mining activity to be carried out by the Company once it enters the production phase. These programs and actions, which are described below, are based on the United Nations Sustainable Development Goals (“UN-SDGs”):

 

·Programs and Actions initiated in 2020
·Solid waste management program;
·Waste reuse plan;
·Environmental education program;
·Program for the prioritization and professional training of local suppliers;
·Accident prevention and public health program;
·Social communication program;
·Maintenance and conservation program for permanent preservation areas and legal reserves;
·Environmental management and supervision plan;
·Monitoring program for vegetation planted;
·Program for visual monitoring of environmental impacts and mitigating measures; and
·Specific conservation and monitoring programs for endangered species.

 

·Programs and actions to be initiated by the end of the first half of 2021
·Program to rescue and drive away the local fauna from industrial sites;
·Program to rescue threatened and endemic flora; and
·Fauna monitoring program.

 

·Programs and actions to begin in the second half of 2021
·Program for the implementation and maintenance of rain drainage systems and containment of erosion processes;
·Program for the implementation and maintenance of the levels of noise, vibrations and control of atmospheric emissions;
·Fauna rescue technical project;
·Surface water monitoring program;
·Noise monitoring program;
·Vibration levels control program;
·Air emissions control program;
·Monitoring program for domestic and industrial effluents;
·Surface water quality monitoring program;
·Air quality monitoring program; and
·Noise and vibration levels monitoring program.

 

Page | 14

 

 

 

 

Sigma Lithium Resources Corporation

Interim Quarterly Management’s Discussion and Analysis

Three Months Ended March 31, 2021

Discussion dated: June 1, 2021

 

Social Programs

 

The Company, as part of its ESG-centric strategy of shared gains and value creation with the communities around the Project, has determined as a core social objective UN-SDG #8 of “decent work and economic growth”. The Company is committed to strengthening of the regional socioeconomic environment for the two municipalities where it operates in the Vale do Jequitinhonha. The Company has a strong working relationship with the municipalities of Itinga and Araçuaí (where the Company has activities) and their communities and conducts regular and meaningful engagement and consultation with them.

 

Also, following the principles of UN-SDG #17 “partnership for the goals”, the Company initiated a project to lead the creation, structuring and operation of an independent agency for private investment promotion and economic diversification of the region (“Investment Agency”).

 

The Company has successfully obtained institutional support for this initiative from the development bank of the state of Minas Gerais (“BDMG”), from the secretary of special development projects (“INDI”) and from the Mayors of the two municipalities.

 

Methodological challenges to address socio-economic impact matters in a way that converges with the Company’s strategy and core business will be addressed by applying the methodology proposed by the World Bank for similar agencies globally, with the Company acting as broader development catalyst (not as principal), as follows:

 

oThe Investment Agency aims to transform the territory with organized activities to stimulate development, contributing to the diversification of the business environment through the attraction of investments to the two municipalities;
oThe Company engaged TSX Advisors Ltda., a specialist consulting firm, to lead the project to structure and implement the Investment Agency. The consultant has a successful track record of executing similar projects for Brazil´s largest mining company;
oThis workstream is divided in two stages:
Stage 1, which is expected to be completed by the third quarter of 2021 is to provide the framework for the Investment Agency, including: (i) mapping and approaching stakeholders, (ii) evaluation of the region's “maturity” and “economic engagement” indices, (iii) definition of the Agency Model for the region, (iv) consolidation of governance and management models, (v) modulation of the economic sustainability plan, (v) modulation of “priority sectors” to attract investments; and
Stage 2 is expected to be implemented over a twelve month period, and include the following activities: (i) structuring legal constitution, building councils, and identifying independent executive leadership, (iii) elaboration of the territory value proposition to attract investments (competitive differentials), (iv) validation of “priority sectors” to attract investments, (v) execution of the first “territory promotion and facilitation activities”, and (vi) identification of additional regional sponsorship.

 

On April 29, 2021, in line with UN-SDGs #17 partnership for the goals, #1 no poverty, #2 zero hunger. The Company launched an initiative to provide humanitarian relief during the next 10 months of pandemic for the population living in poverty “Sigma contra a fome” (Sigma against hunger). The initiative will distribute 600 basic food baskets per month to 600 families (with an average of four people), feeding approximately 2,400 people per month. Moreover, the company revived and expanded the COVID-19 prevention initiative from March 2020, and it is distributing 12,000 units of hospital disinfectant, totalling 12 tons, as well as 2,400 hand sanitizers “family size”, totalling 840 kg of the product. Sigma was able to effect the procurement of most of these items at cost as a result of the support of certain of its shareholders.

 

 

 

Page | 15

 

 

 

Sigma Lithium Resources Corporation

Interim Quarterly Management’s Discussion and Analysis

Three Months Ended March 31, 2021

Discussion dated: June 1, 2021

 

Environmental Licensing and Permitting

 

On July 29, 2020, an important step was accomplished towards obtaining the operational license (licença operacional, LO) required after commissioning and ramp-up in order for the Project to enter full scale Production Phase 1 (the Company has had the Licença de Instalação for the Production Plant commissioning period since June 2019). SMSA's mining easement request (“Servidão Mineral”) was published in the Official Gazette of the Federal Government. It contemplates the mining and processing activities of the Xuxa deposit (ANM Process No. 824.692/1971). The easement area has a total of 413.3 hectares and aims to cover the areas of waste and tailings piles, Production Plant, all access roads (internal), electrical substation, installation of gas station and support structures.

 

In August 2020, a complementary environmental impact study and environmental mitigation plan (the “Complementary EIA/RIMA”) to the Company´s current environmental license for construction of Production Phase 1 was filed at the Priority Projects Superintendency of Minas Gerais (“SUPPRI”), Superintendência de Projetos Prioritários de Minas Gerais, in order to increase the scope area (Area Diretamente Afetada) of its current construction and installation license to include the south pit of the Xuxa Mine. The Complementary EIA/RIMA contemplates the simultaneous mining of both north and south pits of the Xuxa Mine, supplying the spodumene ore for the first few years of Production Phase 2. The Complementary EIA/RIMA also includes a tailings plan that separates rock waste and tailings piles in order to allow for the potential recycling of 100% of the tailings to ancillary industries, such as ceramics.

 

Corporate Finance

 

·The Company has announced that it is considering a potential listing of the Common Shares in a major U.S. stock exchange market with a view to increasing access to U.S. capital markets and enhancing overall shareholder value. This follows the United States Department of State and Brazil Ministry of Mines and Energy launching the U.S. – Brazil bilateral cooperation in Critical Minerals, including lithium. This adds to the Company´s current potential offtake relationships in Japan, South Korea and specialist chemical tolling partners in China.

 

·The Company expects to have sufficient liquidity to finance all of the ongoing workstreams contemplated by the Company’s strategy to accelerate the development of Production Phase 2 as described above. On February 12, 2021, it successfully completed a private placement of 9,545,455 Common Shares at a price of C$4.40 per Common Share for aggregate gross proceeds of $42 million (approximately US$33 million). The size reflected an upsizing by 40% and a 10% price increase from the original intended size and pricing announced for the private placement, due to strong institutional investor demand.

 

·As at the date of this MD&A, the Company has $41.3 million (US$33.6 million) in cash and cash equivalents, out of which approximately $33.8 million (US$28 million) is held in a construction savings account.

 

·Following the Company’s $42 million non-brokered equity offering completed in February 2021, the Company increased the amount in the construction savings account to a total of US$ 28 million. This amount comprises: (i) the equity component of US$ 15 million for a larger project finance facility of US$ 50 million, (ii) as well as a construction contingency temporary provision of US$ 13 million, which the Company expects to be covered upon the disbursement of a development bank loan from the state’s development bank BDMG in the amount of US$ 14 million (R$ 75 million). The project finance has been arranged with Société Generale, and is subject to completion of due diligence, credit approval, the negotiation of definitive documentation, and other customary drawdown conditions.

 

·As at the date of this MD&A, the Company has an undrawn credit line balance of US$4,037,150 under the US$5,000,000 unsecured revolving credit facility (the “A10 Credit Facility”). This credit line was made available in November 2019 by A10 Group (a group controlled by directors and senior officers of the Company) which has agreed to a second extension to the A10 Credit Facility, without any penalties or additional charges. This amendment is subject to TSX Venture exchange approval.

 

 

 

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Sigma Lithium Resources Corporation

Interim Quarterly Management’s Discussion and Analysis

Three Months Ended March 31, 2021

Discussion dated: June 1, 2021

 

Regulatory Framework Updates in Brazil

 

·On March 21, 2021, the decree nº 10.657/2021 was issued by the federal government of Brazil to streamline the environmental and operational permitting process for mining investments and projects in critical strategic minerals, including lithium (“Pro-Minerais Estrategicos”).

 

·On December 14, 2020 the decree nº 10.577/2020 was issued by the federal government of Brazil, renewing until December 2030, the decree nº2.413/1997, in place since 1997 (and expired on December 31, 2020) requiring lithium exporters to obtain annual authorization from the nuclear commission (CNEN - Comissão Nacional de Energia Nuclear).

 

oThe Company does not foresee any difficulties in obtaining annual export authorizations as a result of the magnitude of its high grade measured mineral reserves filed at the Agencia Nacional de Mineracao. Nevertheless, it met with the appropriate bodies of government at Ministry of Mines and Energy and CNEN requesting the potential elimination of the requirement to obtain these annual authorizations, streamlining the export process.

 

oOn April 12, 2021 The Company received a formal “informative note” (Nota Informativa N.7/2021/DTTM/SGM) from the Ministry of Mines and Energy stating that it has prepared a report to CNEN suggesting possibilities for regimenting the decree nº 10.577/2020 with a resolution (“Resolucao CNEN”) for exports.

 

·On November 10, 2020, the Department of State of the United States and the Ministry of Mines and Energy of Brazil announced the establishment of a U.S.-Brazil Critical Minerals Working Group to advance bilateral cooperation on critical minerals essential to both countries’ mutual security, sustainable development and future prosperity, including lithium. The working group intends to support the advancement of bilateral diplomatic engagement and technical cooperation on critical minerals, including: improving critical minerals security in the United States and Brazil, promoting economically viable mining and production streams, stimulating investments, promoting technological innovation and increasing U.S.-Brazil interconnectivity throughout supply chains for critical minerals.

 

oThis announcement catalyzes the possibility for the Company to become a global participant in the EV supply chain, as it opens the United States market to the Company, adding to its customer base in Japan, South Korea in alliance with the Mitsui´s specialist chemical tolling partners in China.

 

 

 

Page | 17

 

 

 

 

Sigma Lithium Resources Corporation
Interim Quarterly Management’s Discussion and Analysis
Three Months Ended March 31, 2021
Discussion dated: June 1, 2021

 

Surface Rights and Other Permitting

 

The surface rights in the Grota do Cirilo area, the current primary focus of the Company’s activity, are held by two companies owned by certain directors of the Company, Arqueana Empreendimentos e Participações S.A. (“Arqueana”) and Miazga Participações S.A. (“Miazga”). SMSA has entered into two right-of-way agreements with these companies to support its exploration and development activities within the Grota do Cirilo property, as well as with third-party surface owners.

 

On July 29, 2020, the approval of SMSA's mining easement request (“Servidão Mineral”) was published in the Official Gazette of the Federal Government. It contemplates the mining and processing activities of the Xuxa deposit (ANM Process No. 824.692/1971). The easement area has a total of 413.3 hectares and aims to cover the areas of: waste and tailings piles, Production Plant, all access roads (internal), electrical substation, installation of gas station and support structures.

 

SMSA has been granted a water license, which allows for the usage of 150 m3/h of flow from the nearby Jequitinhonha River during all months of the year for a period of 10 years and this is expected to be sufficient for the life-of mine (LOM) requirements for mining and product processing from the Project’s Xuxa deposit, as currently planned by the Company.

 

The Brazilian government levies a royalty on mineral production: Compensação Financeira pela Exploração de Recursos Minerais (“CFEM”). Lithium production is subject to a 2.0% CFEM royalty, payable on the gross income from sales. The Xuxa Project is also subject to two third-party royalties, one on the net income from sales and the other on a net smelter return (NSR), of 1% each.

 

Lithium Industry Trends

 

Global Electric Vehicles Market

 

In 2020, global sales of EVs, including Battery Electric Vehicles (“BEV”) and Plug-in Hybrid Electric Vehicles (“PHEV”) totaled 3.2 million units, representing 4.2% of total market share compared to 2.5% in 2019. EV sales increased by 43% whilst the global light vehicle market decreased by 14%.

 

Europe overtook China as the largest EV market, accounting for 43% and 41% respectively of global sales in 2020 compared to 26% and 52% in 2019. The EV market share in Europe grew from 3.3% in 2019 to 10.2% in 2020 as EV sales increased by 137% while the overall market was down by 20%. The EV boom in Europe started in June 2020 and in December EV sales reached 260% year on year growth and a market share of 20%. Germany became the second largest EV market after China, as EV sales increased by 254% over 2019 levels.

 

On the back of climate change concerns, the EU’s stringent CO2 emission targets, and China’s ambitious 20% EV penetration ratio by 2025, market players expect strong adoption of EVs. Bank of America´s auto team expects the global penetration rate for EVs (BEV + PHEV) to reach 30% by 2025. Macquarie expects penetration rates for BEV of 33% globally and 41% in China by 2030 and Deutsche Bank expects a total EV penetration rate of 40% by 2030.

 

 

 

Page | 18

 

 

 

 

Sigma Lithium Resources Corporation
Interim Quarterly Management’s Discussion and Analysis
Three Months Ended March 31, 2021
Discussion dated: June 1, 2021

 

EVs, PHEV and Hybrid Sales and Forecast (2020-2030E)

 

 

 

Source: Bloomberg Finance LP, CRU, Deutsche Bank

Includes BEV, PHEV and Hybrid.

 

Lithium Price and Demand Trends

 

From late 2015 to mid-2018, lithium prices experienced a substantial upward trend. The price improvement was primarily driven by an undersupply relative to expected demand, which incorporated expectations of substantial growth in the adoption of EVs.

 

The industry transitioned from undersupply to oversupply in 2018, resulting from delays in EV adoption combined with large lithium projects coming onstream. The resulting lithium price weakness led to curtailments, closures and decreasing operational rates. Demand disruption from COVID-19, coupled with existing high inventories, placed additional pressure.

 

Market players expect that the lithium market will shift to a supply deficit in 2021, with deficits widening each year. The main drivers are stronger demand outlook largely driven by rising global EV sales and limitations on the supply response given the long time frame for building a project and rising product quality requirements.

 

Bank of America forecasts lithium demand growth of 30% in 2021 and 23% in 2022, targeting 724kt LCE demand in 2024 and an increasing deficit as of 2021.

 

Supply-Demand Forecast (2017-2024E)

(In LCE tonne)

 

    2017    2018    2019    2020    2021E   2022E   2023E   2024E
Supply   235.921    309.660    360.570    399.795    415.998    483.912    576.054    691.982 
YoY   24%   31%   16%   11%   4%   16%   19%   20%
Demand   230.489    254.883    298.770    325.258    424.180    521.041    620.415    723.988 
YoY   11%   11%   17%   9%   30%   23%   19%   17%
Balance   5.432    54.777    61.800    74.537    -8.182    -37.129    -44.361    -32.006 

 

Source: Bank of America.

 

 

 

Page | 19

 

 

 

Sigma Lithium Resources Corporation
Interim Quarterly Management’s Discussion and Analysis
Three Months Ended March 31, 2021
Discussion dated: June 1, 2021

 

Benchmark Mineral Intelligence stresses an ongoing underinvestment in the supply side compared to an increasing need to build more extraction capacity as well as the lead time for projects to mature. It also highlights that while recycling will play an important role, it expects it will not solve supply questions alone until the late 2040s or 2050s at the earliest.

 

 

 

Source: Benchmark Mineral Intelligence

 

As a result, the recovery in pricing is gaining momentum. In 2020, global lithium prices remained at low levels. However, the recovery in demand for lithium iron phosphate batteries has created a lithium shortage scenario in China according to Benchmark Mineral Intelligence. This has caused prices to rise by 70% in China from early 2021 until April 2021, while in other regions (Asia ex-China, North America, Europe and South America) prices have risen by 20 to 30%, according to Macquaire. Still, lithium prices in other regions are expected to catch up to the price movement in China. As the market tightens, market players, including JP Morgan and Macquarie, have recently revised upwards their short and long-term price estimates.

 

Furthermore, JP Morgan raises the possibility of “green premia” in the market given the growing theme of strategic supply and carbon footprint of production and its increasing importance for the EV industry.

 

Selected Quarterly Information

 

Selected quarterly financial information is presented as follows:

 

   2021   2020   2019 
   Q1(8)   Q4(7)   Q3(6)   Q2(5)   Q1(4)   Q4(3)   Q3(2)   Q2(1) 
   $   $   $   $   $   $   $   $ 
Total Sales   -    -    -    -    -    -    -    - 
Net Loss   6,375,154    927,863    329,727    141,595    263,138    219,570    1,991,967    1,408,454 
Net loss per share (9)   0.08    0.01    0.00    0.00    0.00    0.00    0.03    0.02 

 

(1) The net loss for the three months ended June 30, 2019 of $1,408,454 resulted from (i) general and administrative expenses of $1,633,794 (including stock-based compensation of $523,320); (ii) accretion and interest on note payable of $84,972; (iii) a foreign exchange gain of $312,301; and (iv) depreciation of $1,989.

 

 

Page | 20

 

 

 

 

Sigma Lithium Resources Corporation
Interim Quarterly Management’s Discussion and Analysis
Three Months Ended March 31, 2021
Discussion dated: June 1, 2021

 

(2) The adjusted net loss for the three months ended September 30, 2019 of $1,991,967 resulted from (i) general and administrative expenses of $1,005,861 (adjusted and including stock-based compensation of $327,656); (ii) accretion and interest on note payable of $89,149; (iii) a foreign exchange loss of $881,233; and (iv) depreciation of $15,724.

 

(3) The net loss for the three months ended December 31, 2019 of $219,570 resulted from (i) general and administrative expenses of $195,483 (including stock-based compensation of ($20,715); (ii) accretion and interest on note payable of $82,370; (iii) interest on amounts drawn on a credit facility and accounts payable to suppliers of $225,127; (iv) a foreign exchange gain of $302,830; and (v) depreciation of $19,630.

 

(4) The net loss for the three months ended March 31, 2020 of $263,138 resulted from (i) general and administrative expenses of $425,041 (including stock-based compensation of $124,270); (ii) accretion and interest on note payable of $86,541; (iii) interest on amounts drawn on a credit facility and accounts payable to suppliers of $34,775; (iv) a foreign exchange gain of $300,384; and (v) depreciation of $17,165.

 

(5) The net loss for the three months ended June 30, 2020 of $141,595 resulted from (i) general and administrative expenses of $445,626 (including stock-based compensation of $87,079); (ii) accretion and interest on note payable of $79,919; (iii) interest on amounts drawn on a credit facility and accounts payable to suppliers of $22,335; (iv) fair value adjustment loss on note payable of $124,109; (v) a foreign exchange gain of $544,846; and (vi) depreciation of $14,452.

 

(6) The net loss for the three months ended September 30, 2020 of $329,727 resulted from (i) general and administrative expenses of $330,834 (including stock-based compensation of $67,646); (ii) accretion and interest on note payable of $51,547; (iii) interest on amounts drawn on a credit facility and accounts payable to suppliers of $87,787; (iv) fair value adjustment gain on note payable of $39,029; (v) a foreign exchange gain of $115,307; and (vi) depreciation of $13,895.

 

(7) The net loss for the three months ended December 31, 2020 of $927,863 resulted from (i) general and administrative expenses of $365,375 (including stock-based compensation of $65,976); (ii) accretion and interest on note payable of $48,301; (iii) interest on amounts drawn on a credit facility and accounts payable to suppliers of ($335); (iv) a foreign exchange loss of $500,887; and (v) depreciation of $13,635.

 

(8) The net loss for the three months ended March 31, 2021 of $6,375,154 resulted from (i) general and administrative expenses of $6,092,243 (including stock-based compensation of $5,451,016); (ii) accretion and interest on note payable of $37,822; (iii) interest on amounts drawn on a credit facility and accounts payable to suppliers of $67,929; (iv) a foreign exchange loss of $163,814; and (v) depreciation of $13,346.

 

(9) Per share amounts are rounded to the nearest cent. Aggregating quarterly amounts may not reconcile to year-to-date per share amounts.

 

 

 

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Sigma Lithium Resources Corporation
Interim Quarterly Management’s Discussion and Analysis
Three Months Ended March 31, 2021
Discussion dated: June 1, 2021

 

Financial Performance

 

Three Months Ended March 31, 2021 Compared to Three Months Ended March 31, 2020

 

The following table summarizes the items that resulted in the loss increase for the three months ended March 31, 2021 (Q1 2021) compared to the three months ended March 31, 2020 (Q1 2020):

 

   Three months ended March 31 
   2021   2020   Change 
   $   $   $ 
General and administrative expenses  641,227   300,771   340,456 
Stock-based compensation   5,451,016    124,270    5,326,746 
Total G&A   6,092,243    425,041    5,667,202 
Accretion and interest on note payable   37,822    86,541    (48,719)
Interest on amounts drawn on a credit facility   67,929    34,775    33,154 
Foreign exchange loss / (gain)   163,814    (300,384)   464,198 
Depreciation   13,346    17,165    (3,819)
Net loss   6,375,154    263,138    6,112,016 

 

The Company’s net loss totaled $6,375,154 in Q1 2021, with basic and diluted loss per share of $0.08. This compares with a net loss of $263,138 with basic and diluted loss per share of $0.00 for Q1 2020. The increase in net loss of $6,112,016 principally resulted from:

 

·An increase of $5,326,746 in stock-based compensation resulted mainly from the 1,381,333 Restricted Stock Units (“RSUs”) to key employees, directors and designated service providers of the Company, which the Board approved for grant on March 4, 2021.

 

·An increase of $340,456 in general and administrative expenses is mainly related to an increase of $247,902 in audit expenses and $47,952 in legal expenses due to increased corporate activities.

 

·An increase of $464,198 in foreign exchange loss. This foreign exchange variation was mainly the result of an appreciation of the Canadian dollar to the United States dollar in Q1 2021 attributed to the US$15,000,000 of cash held in the construction savings account.

 

Cash Flow

 

Cash flow highlights  Three months ended March 31     
   2021   2020   Change 
   $   $   $ 
Cash (used in) operating activities   (2,199,374)   (483,432)   (1,715,942)
Cash (used in) investing activities   (1,765,338)   (322,986)   (1,442,352)
Cash provided by financing activities   37,496,217    771,370    36,724,847 
Effect of foreign exchange on cash   (226,873)   (7,851)   (219,022)
Change in cash and cash equivalents   33,304,632    (42,889)   33,347,531 
Cash and cash equivalents - beginning of the period   13,543,024    103,640    13,439,384 
Cash and cash equivalents - end of the period   46,847,656    60,741    46,786,915 

 

As at March 31, 2021, the Company had cash and cash equivalents of $46,847,656 and working capital of $43,632,614 compared to cash and cash equivalents of $60,741 and negative working capital of $7,288,274 as at March 31, 2020.

 

 

 

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Sigma Lithium Resources Corporation
Interim Quarterly Management’s Discussion and Analysis
Three Months Ended March 31, 2021
Discussion dated: June 1, 2021

 

On February 12, 2021, the Company completed a non-brokered private placement of 9,545,455 Common Shares at a price of $4.40 per share for aggregate gross proceeds of $42 million. In connection with such offering, the Company paid aggregate placement agent fees of $2.5 million and issued 562,860 Common Share purchase warrants (having an exercise price of $4.40 per share and exercisable until February 12, 2021) to a consortium of financial advisors. In connection with this offering, A10 Group, a related party who was part of such consortium, received $2,344,584 of such placement agent fees and 532,860 of such warrants.

 

A relative value of $873,121 was estimated for the 562,860 Common Share purchase warrants on the date of grant using a relative fair value method. Inputs in the Black-Scholes option pricing model included: market price on valuation date of $4.40; expected dividend yield of 0%; expected volatility of 66.61% using the historical price history of the Company; risk-free interest rate of 0.17%; and an expected average life of one year.

 

During the three months ended March 31, 2021, the Company repaid $1,875,576 under a note payable, $1,289,837 in accounts payable and other liabilities and invested $1,804,717 in mineral properties (Exploration and evaluation assets).

 

Liquidity and Capital Resources

 

The Company continuously monitors its cash outflows and seeks opportunities to minimize all costs, to the extent possible, especially general and administrative expenses.

 

The Company’s use of cash is currently, and is expected to continue to be, focused on funding its general corporate expenditures and the development of the Project.

 

As at the date of this MD&A, the Company has $41.4 million (US$33.6 million) in cash and cash equivalents, which compares to the $46.3 million (US$36.2 million) as at May 3, 2021 disclosed in the MD&A for the year ended December 31, 2020. The cash and cash equivalent reduction of $4.9 million (US$2.6 million) is mainly related to the repayment of 50% of the A10 Credit Facility of $1,330,000 (US$1.1 million), drilling activities of $606,000 (US$467,000), project development of $847,000 (US$656,000), salaries of $279,000 (US$222,000), other expenses of $266,000 (US$215,000) and a $1.54 million foreign exchange loss on the US$28 million savings account.

 

As at the date of this MD&A, the Company has an undrawn credit line balance of US$4,037,150 under the US$5,000,000 A10 Credit Facility. This credit line was made available in November 2019 by A10 Group, which has agreed to a second extension to the A10 Credit Facility, without any penalties or additional charges. This amendment is subject to TSX Venture Exchange approval.

 

The Company’s total current liabilities of $3,856,201 as at March 31, 2021 consist mostly of amounts with related parties, including (i) the current portion and accrued interest of a note payable in the amount of $244,134; (ii) the amount outstanding on the A10 Group Credit Facility of $2,714,755 and (iii) the current portion of lease liabilities of $8,403. The Company’s liabilities as at March 31, 2021 also included accounts payable to suppliers of $699,974 (most of which were paid in the second quarter of 2021).

 

 

 

Page | 23

 

 

 

 

Sigma Lithium Resources Corporation
Interim Quarterly Management’s Discussion and Analysis
Three Months Ended March 31, 2021
Discussion dated: June 1, 2021

 

The Company’s shareholders’ equity as at March 31, 2021, was $60,717,884, as a result of share capital of $92,417,982, contributed surplus of $11,786,859, accumulated other comprehensive loss of $3,885,411 and a deficit of $39,601,546.

 

As a result of completion of its private placement offering in February 2021 (thereby obtaining the required equity component of financing) and assuming the completion of the debt financing contemplated in the Company’s agreement with Société Générale (which is subject to completion of due diligence, credit approval, the negotiation of definitive documentation, and other customary drawdown conditions), the development of the Production Phase 1 of the Project would be fully funded to construction completion. However, further financing will be required to continue to develop the Company’s other deposits at the Project and its additional properties. See “Risk Factors”.

 

Disclosure of Internal Controls

 

Management has established processes to provide them with sufficient knowledge to support representations that they have exercised reasonable diligence to ensure that the unaudited condensed interim consolidated financial statements (i) 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 is made, as of the date of and for the periods presented by the unaudited condensed interim consolidated financial statements; and (ii) fairly present in all material respects the financial condition, financial performance and cash flows of the Company, as of the date of and for the periods presented.

 

In contrast to the certificate required for non-venture issuers under National Instrument 52-109 Certification of Disclosure in Issuers’ Annual and Interim Filings (“NI 52-109”), the Venture Issuer Basic Certificate filed by the Company does not include representations relating to the establishment and maintenance of disclosure controls and procedures (“DC&P”) and internal control over financial reporting (“ICFR”), as defined in NI 52-109. In particular, the certifying officers filing such certificate are not making any representations relating to the establishment and maintenance of:

 

(i)controls and other procedures designed to provide reasonable assurance that information required to be disclosed by the issuer in its annual filings, interim filings or other reports filed or submitted under securities legislation is recorded, processed, summarized and reported within the time periods specified in securities legislation; and

 

(ii)a process to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with the issuer’s generally accepted accounting principles (IFRS).

 

The Company’s certifying officers are responsible for ensuring that processes are in place to provide them with sufficient knowledge to support the representations they are making in such certificate. Investors should be aware that inherent limitations on the ability of certifying officers of a venture issuer to design and implement on a cost effective basis DC&P and ICFR as defined in NI 52-109 may result in additional risks to the quality, reliability, transparency and timeliness of interim and annual filings and other reports provided under securities legislation.

 

 

 

Page | 24

 

 

 

Sigma Lithium Resources Corporation
Interim Quarterly Management’s Discussion and Analysis
Three Months Ended March 31, 2021
Discussion dated: June 1, 2021

 

Related Party Transactions

 

The company’s related parties include:

 

Related Party Nature of relationship
A10 Group A10 Group is composed of A10 Serviços Especializados em Avaliação de Empresas Ltda. and A10 Investimentos Ltda., both companies are owned by two directors of the Company.  
Miazga Miazga Participações S.A (“Miazga”) is a land administration company indirectly controlled by two directors of the Company, one of which also controls part of A10 Group.  
Arqueana Arqueana Empreendimentos e Participações S.A. (“Arqueana”) is a land administration company, in which two directors of the Company have an indirect economic interest.  
Key management
personnel
Includes the directors of the Company, executive management team and senior management at SMSA.  

 

a)Transactions with related parties

 

Cost sharing agreement (“CSA”): The Company entered in a CSA with A10 Group where A10 Group is reimbursed for secondment staff 100% allocated to the Company, including legal, financial and business development personnel and 50% of shared secretarial administrative personnel.

 

Revolving credit facility: The Company entered in a revolving credit facility agreement with A10 Group which allows the Company to raise short-term financing debt increasing its liquidity.

 

Leasing Agreements: The Company has land lease agreements with Miazga and Arqueana. Part of these leases get offset by the prepaid land lease.

 

Share purchase agreement (“SPA”): The Company owes a note payable related to the SPA with Arqueana.

 

Commission fees: The Company entered into an agreement with A10 Group for acting as one of the Company’s financial advisors to locate equity investors in non-brokered private placements. The Company paid finders’ fee of up to 6% of the gross proceeds received from these investors.

 

 

Page | 25

 

 

 

 

Sigma Lithium Resources Corporation
Interim Quarterly Management’s Discussion and Analysis
Three Months Ended March 31, 2021
Discussion dated: June 1, 2021

 

The related party transactions are recorded at the exchange amount transacted as agreed between the Company and the related party. All of the related party transactions have been reviewed and approved by the independent directors of the Company.

 

b)Outstanding balances and expenses with related parties

 

   2021   2020 
   March 31,   Three
Months
Ended
March 31,
   December 31,   Three Months Ended March 31, 
   Prepayments   Accounts Payable/ Debt   Expenses/ Payments   Prepayments   Accounts Payable/ Debt   Expenses/ Payments 
   $   $   $   $   $   $ 
A10 Group                              
CSA   -    -    31,823    -    -    24,286 
Revolving credit facility   -    2,714,755    30,875    -    2,683,880    7,381 
Commission fees   -    -    2,344,584    -    -    - 
                               
Miazga                              
Lease agreements   -    73,610    11,864    -    82,514    15,498 
Prepaid land lease offset   108,069    -    2,845    123,153         2,809 
                               
Arqueana                              
Lease agreements   -    151,296    5,932    -    169,685    7,274 
Prepaid land lease offset   -    -    -    -    -    - 
SPA   -    244,134    (396,039)   -    2,204,045    (335,345)
Management and Directors                              
Travel expenses Reimbursement   -    -    -    -    72,127    - 

 

Risk Factors

 

The Company is subject to numerous risk factors at any given time (many of which are beyond its control) which could materially adversely impact upon its business, financial condition, results of operations, cash flows, ability to obtain financing and prospects and, as a result, the trading price of the Common Shares. The following are risk factors that the Company’s management believes are most important. The below described risks is not an exhaustive description of all risks.

 

Risks Related to Resource Development

 

Development of the Project

 

The Company’s business strategy depends in large part on developing the Project into a commercially viable mining operation. Whether a mineral deposit will be commercially viable depends on numerous factors, including: (i) the particular attributes of the deposit, such as size, grade and proximity to infrastructure; (ii) commodity prices, which are highly volatile; and (iii) government regulations, including regulations relating to prices, taxes, royalties, land tenure, land use, importing and exporting of minerals, environmental protection and capital and operating cost requirements. The development of the Project is subject to the Company securing the necessary funding and other resources and is also subject to numerous development and operational risks. Accordingly, there can be no assurance that the Company will ever develop the Project into a commercial mining operation.

 

 

 

Page | 26

 

 

 

Sigma Lithium Resources Corporation

Interim Quarterly Management’s Discussion and Analysis

Three Months Ended March 31, 2021

Discussion dated: June 1, 2021

 

Market Prices

 

Lithium is not a traded commodity like base and precious metals. Sales agreements are negotiated on an individual and private basis with end-users or intermediaries. In addition, there are a limited number of producers of lithium compounds, and it is possible that these existing producers will try to prevent newcomers from entering the chain of supply by increasing their production capacity and lowering sales prices. Other factors, such as supply and demand of lithium-based end-products (such as lithium hydroxide), pricing characteristics of alternative sources of energy, industrial disruption and actual lithium market sale prices, could have an adverse impact on the market price of lithium and as such render the Project uneconomic. There can be no assurance that such prices will remain at current levels or that such prices will improve.

 

Growth of Market for Lithium-Ion Batteries

 

The success of the Company and our ability to develop lithium operations is largely dependent on the adoption of lithium-ion batteries for EV and other large format batteries. The market for EV and other large format batteries currently has limited market share and no assurance can be given that it will develop further (or at what rate this market will develop, if at all). To the extent that such markets do not develop in the manner or according to the timeline contemplated by the Company, the long- term growth in the market for lithium products will be adversely affected, which would inhibit the potential for development of the Project and its potential commercial viability.

 

Achieving and Managing Growth

 

The Project is at development stage and will require a substantial increase in skilled personnel and operational support as the Project transitions to a more advanced development and then operating stage. The Company’s ability to succeed in progressing through development to commercial operations will depend on a number of factors, including management’s ability to manage this transition, the availability of working capital, and the ability to recruit and train additional qualified personnel (and, where appropriate, to engage third party contractors with qualified personnel).

 

Risks Relating to Operating in Brazil

 

Investments in emerging markets like Brazil generally pose a greater degree of risk than investments in more mature market economies because the economies in the developing world are more susceptible to destabilization resulting from domestic and international developments and exposes the Company to heightened risks related to prevailing and changing political and socioeconomic conditions. Changes in mining, investment or other applicable policies or shifts in political attitude in Brazil may adversely affect the Company’s operations or profitability and may affect the Company’s ability to fund its ongoing expenditures. Regardless of the economic viability of the Company’s properties, such political changes, which are beyond the Company’s control, could have a substantive impact and prevent or restrict (or adversely impact the financial results of) mining of some or all of any deposits on the Project.

 

 

 

Page | 27

 

 

 

Sigma Lithium Resources Corporation
Interim Quarterly Management’s Discussion and Analysis
Three Months Ended March 31, 2021
Discussion dated: June 1, 2021

 

The Brazilian economy has been characterized by frequent, and occasionally material, intervention by the Brazilian federal government, which has often modified monetary, credit and other policies intending to influence Brazil’s economy. The Brazilian government’s actions to control inflation and effect other policy changes have involved wage and price controls, changes in existing, or the implementation of new, taxes and fluctuations of base interest rates. Actions taken by the Brazilian federal government concerning the economy may have important effects on Brazilian companies or companies with Brazilian assets and on market conditions and the competitiveness of Brazilian products abroad. In addition, actions taken by the Brazilian state and local governments with respect to labor and other laws affecting operations may have an effect on the Company.

 

The Company’s financial condition and results of any future operations may also be materially adversely affected by any of the following, and the Brazilian federal government’s actions, or failure to act, in response to them:

 

·currency depreciations and other exchange rate movements;
·monetary policies;
·inflation rate fluctuations;
·economic and social instability;
·environmental regulation;
·energy shortages or changes in energy prices;
·interest rates;
·disasters at third party mineral projects;
·corruption or political scandal;
·exchange rate controls and restrictions on remittances abroad;
·liquidity of the domestic capital and lending markets;
·tax policy, including international tax treaties; and
·other political, diplomatic, social and economic policies or developments in or affecting Brazil.

 

Uncertainty over whether the Brazilian federal government will implement changes in policy or regulation affecting these or other factors in the future may contribute to economic uncertainty in Brazil and to heightened volatility in the market value of securities issued by Brazilian companies or companies with Brazilian assets.

 

The Brazilian government has frequently implemented changes to tax laws, tax treaties and other regulations, including modifications to tax rates. Any such changes, as well as changes in the interpretation of such tax laws and regulations, may result in increases to the Company’s overall tax burden, which would negatively affect its profitability.

 

Political instability or changes in government policy (which may be arbitrary) may result in changes to laws affecting the ownership of assets, mining activities, taxation, rates of exchange, environmental regulations and labour relations. This may affect both the Company’s ability to undertake exploration and development activities in respect of present and future properties in the manner currently contemplated, as well as its ability to continue to explore, develop and operate those properties in which it has an interest or in respect of which it has obtained exploration and development rights to date. The possibility that a future government may adopt substantially different policies cannot be ruled out.

 

Brazil’s long-term foreign and local currency debt is rated sub-investment grade. Brazil’s ratings or outlooks may be downgraded further or placed on watch by the various rating agencies in the future. Downgrades of Brazil’s sovereign credit ratings could limit access to funding and/or raise the cost of funding for the Company. Downgrades of Brazil’s sovereign credit ratings could also heighten investors’ perception of the risk of having operations in Brazil. 

 

Page | 28

 

 

 

Sigma Lithium Resources Corporation
Interim Quarterly Management’s Discussion and Analysis
Three Months Ended March 31, 2021
Discussion dated: June 1, 2021

 

These and other future developments in the Brazilian economy and governmental policies may materially adversely affect the Company.

 

Corruption in Brazil and Anti-Corruption, Anti-Bribery and Anti-Money Laundering Laws

 

Brazilian markets have historically experienced heightened volatility due to the uncertainties generated by corruption and bribery allegations and investigations of certain senior politicians, including congressmen and officers and directors of some of the major state-owned and private companies in Brazil. In addition, certain media posts and reports of corruption, or allegations of corruption, in Brazil may have an adverse effect on the public perception and reputation of Brazilian companies and may adversely affect the trading price of the Common Shares. The Company’s value and share price could also be adversely affected by illegal activities by others, corruption or by claims, even if groundless, implicating the Company in illegal activities.

 

The Company is subject to anti-corruption, anti-bribery and anti-money laundering laws and regulations in various jurisdictions, including Canada and Brazil. In addition, it is subject to economic sanctions regulations that restrict dealings with certain sanctioned countries, individuals and entities. There can be no assurances that the internal policies of the Company will be sufficient to prevent or detect all inappropriate practices, fraud or violations of such laws, regulations and requirements by its employees, directors, officers, partners, agents and service providers or that any such persons will not take actions in violation of its policies and procedures. Any violations of anti-bribery and anti-corruption laws or sanctions regulations could have a material adverse effect on the Company’s business, reputation, results of any future operations and financial condition.

 

The Company has not purchased any “political risk” insurance coverage and currently has no plans to do so.

 

Governmental and Regulatory Requirements

 

Government approvals and permits are required in connection with the Company’s activities. Any instances where such approvals are required and have not been obtained, the Company may be restricted or prohibited from proceeding with planned exploration, development or operational activities. Failure to comply with applicable laws, regulations and permitting requirements may result in enforcement actions thereunder, including orders issued by regulatory or judicial authorities causing development or operations to cease or be curtailed, and may include corrective measures requiring capital expenditures, installation of additional equipment, or other remedial actions. Parties engaged in mining operations may be required to compensate those suffering loss or damage by reason of the mining activities and may be liable for civil or criminal fines or penalties imposed for violations of applicable laws or regulations. Amendments to current laws, regulations and permitting requirements, or a more stringent application of existing laws, could have a material adverse impact on the Company and cause increases in capital expenditures or production costs, reductions in the levels of production at producing properties or require abandonment or delays in the development of the Project.

 

In Brazil, the ANM regulates the conduct of exploration, development and mining operations. The ANM requires: (i) certain fee payments for exploration authorizations (known as the Annual Fee per Hectare), (ii) certain royalty payments to be made to the federal government for the mining concessions (known as Financial Compensation for the Exploitation of Mineral Resources - “CFEM”) and (ii) royalty payments to be made to the landowner if the surface rights are not held by the holder of the mineral rights. There is also a monthly inspection fee related to the transfer and commercialization of certain minerals in some Brazilian states. Royalties, taxes and fees related to the exploration authorizations and mining concessions may change or increase substantially in the future. 

 

Page | 29

 

 

 

 

Sigma Lithium Resources Corporation

Interim Quarterly Management’s Discussion and Analysis

Three Months Ended March 31, 2021

Discussion dated: June 1, 2021

   

In Brazil, failure to demonstrate the existence of technical and economically viable mineral deposits covered by an exploration authorization for a period of at least one year may lead to the authorization being required to be returned to the federal government. The federal government may then grant the exploration authorization to other parties that may conduct other mineral prospecting activities at said area. In addition, mining concessions and exploration authorizations may not be granted due to changes in laws and regulations governing mineral rights. Accordingly, retrocession requirements, loss of mineral rights, or the inability to renew concessions, authorizations, permits and licenses may materially adversely affect the Company.

 

Tailings dam failures involving other mining companies in Brazil, and the resultant loss of life and damage, have resulted in (and could in the future result in further) increased requirements, delays in licensing and other material consequences to all mining companies, even if the circumstances of the Project or the Company’s development and operational methodologies are significantly different then such other companies and projects.

 

The regulatory framework applicable to the Brazilian mining industry could be subject to further change, which may result in limitations on the Company’s business and activities, including in connection with some existing mineral rights, and an increase in expenses, particularly mining royalties, taxes and fees.

 

The Company’s operations are also subject to Brazilian regulations pertaining to the use and development of mineral properties and the acquisition or use of rural properties by foreign investors or Brazilian companies under foreign control, and various other Brazilian regulatory frameworks.

 

Environmental Regulation

 

All phases of operations are subject to numerous environmental laws and regulations in Brazil on the federal, state and municipal levels, including laws and regulations relating to specially protected areas, air emissions, wastewater discharge and the use, manufacture, handling, transportation, storage, disposal, remediation of waste and hazardous substances. Environmental hazards may exist which are unknown to the Company at present which may have been caused by previous owners or operators of the Project. In the event of an accident or exposure to hazardous materials, environmental damages may occur and trigger the obligation to remediate the environmental conditions, which may result in significant costs. The victim of such damages or whoever the law so authorizes (such as public attorneys’ office, foundations, state agencies, state-owned companies and associations engaged in environmental protection) is not compelled to sue all polluting agents in the same proceeding, but rather the aggrieved party may choose to sue only one of the polluting agents to redress damages.

 

Environmental liability may be litigated in civil, administrative and criminal courts, with the application of administrative, civil and criminal sanctions, in addition to the obligation to redress the damages caused. The lack of a conviction or a finding of liability in one proceeding does not necessarily preclude the finding of liability in other proceedings. Accordingly, in respect of environmental compliance matters, there could be unexpected interruptions to operations, fines, or penalties as well as third-party claims for property damage or personal injury or remedial or other costs, which may have a material adverse effect on the Company’s operations. Municipal, state and federal governments may revise and impose stricter environmental regulations in the future. There can be no assurance that environmental regulation will not adversely affect development or operations, with increased fines and penalties for non-compliance, more stringent environmental assessments of proposed projects and a heightened degree of responsibility for companies and their officers, directors and employees. The cost of compliance with changes in governmental regulations has the potential to reduce the profitability of operations.

 

 

Page | 30

 

 

  

Sigma Lithium Resources Corporation

Interim Quarterly Management’s Discussion and Analysis

Three Months Ended March 31, 2021

Discussion dated: June 1, 2021

   

Climate Change Considerations

 

Climate change is increasingly perceived as a broad societal and community concern. Stakeholders may increase demands for emissions reductions and call upon mining companies to better manage their consumption of climate-relevant resources. Physical climate change events, and the trend toward more stringent regulations aimed at reducing the effects of climate change, could impact the Company’s decisions to pursue future opportunities, or maintain existing operations, which could have an adverse effect on its business and future operations. The Company can provide no assurance that efforts to mitigate the risks of climate changes will be effective and that the physical risks of climate change will not have an adverse effect on its operations and profitability.

 

No Production Experience

 

The Company does not have any experience in the construction and operation of a mine, processing plants and related infrastructure, as it has not previously been involved in the development of a mining project. Although certain of its officers, directors and consultants have such experience, the Company itself does not have any experience in taking a mining project to production. As a result, it is more difficult to evaluate the Company’s prospects, and the Company’s future success is more uncertain than if it had a more proven history of developing a mine.

 

Uncertainty Relating to Future Production Estimates

 

The Company has prepared estimates and projections of future production for the Project. Any such information is forward-looking and no assurance can be given that such estimates will be achieved. These estimates are based on existing mine plans and other assumptions which change from time to time. The Company’s actual production may vary from estimates for a variety of reasons, including: actual ore mined varying from estimates of grade, tonnage, dilution and metallurgical and other characteristics; revisions to mine plans; unusual or unexpected orebody formations; risks and hazards associated with mining; natural phenomena, such as inclement weather conditions, water availability, floods, and seismic activity; and unexpected labour shortages, strikes, local community opposition or blockades. The economic analysis for the Project is based in part on achieving at least the contemplated minimum operating and production levels.

 

Delays and Construction Cost Overruns

 

It is common in new mining operations to experience unexpected costs and cost overruns, problems and delays during construction, development and mine start-up. A number of factors could cause such delays or cost overruns, including (among others) permitting delays, construction pricing escalation, changing engineering and design requirements, the performance of contractors, labour disruptions, adverse weather conditions and challenges in obtaining financing. Even if commercial production is achieved, equipment and facilities may not operate as planned due to design or manufacturing flaws, which may not all be covered by warranty. Mechanical breakdown could occur in equipment after the period of warranty has expired, resulting in loss of production as well as the cost of repair. Any delay, or cost overrun, may adversely impact the Company’s ability to fully fund required expenditures, or alternatively, may require the Company to consider less attractive financing solutions. Accordingly, the Company’s activities may not result in profitable mining operations at its mineral properties, including the Project.

 

 

Page | 31

 

 

 

Sigma Lithium Resources Corporation

Interim Quarterly Management’s Discussion and Analysis

Three Months Ended March 31, 2021

Discussion dated: June 1, 2021

   

Capital and Operating Cost Estimates

 

Capital costs, operating costs, production and economic returns and other estimates may differ significantly from those anticipated by current estimates, and there can be no assurance that the actual capital, operating and other costs will not be higher than currently anticipated. Actual costs and revenues may vary from estimates for a variety of reasons, including (among others): lack of availability of resources or necessary equipment; unexpected construction or operating problems; lower realized lithium prices; revisions to construction plans; risks and hazards associated with mineral production; natural phenomena; floods; unexpected labour shortages or strikes; general inflationary pressures; and interest and currency exchange rates.

 

Operational Risks

 

The Company’s operations are subject to all of the risks normally incidental to the exploration for, and the development and operation of, mineral properties. Mineral exploration and exploitation involves a high degree of risk. Operations can be affected by such factors as permitting regulations and requirements, weather, environmental factors, unforeseen technical difficulties, unusual or unexpected geological formations, work interruptions, fires, power outages, shutdowns due to equipment breakdown or failure, unexpected maintenance and replacement expenditures, human error, labour disputes, flooding, explosions, releases of hazardous materials, tailings impoundment failures, cave-ins, landslides, earthquakes and the inability to obtain or properly maintain adequate machinery, equipment or labour. The Company expects to rely on third-party owned infrastructure in order to develop and operate its projects, such as power, utility and transportation infrastructure. Any failure of this infrastructure without adequate replacement or alternatives may have a material impact on the Company.

 

Insurance Risks

 

In the course of exploration, development and production of mineral properties, certain risks (in particular, risks related to operational and environmental incidents) may occur. Although the Company maintains insurance to protect against certain risks associated with its business, insurance may not be available to insure against all such risks, or the costs of such insurance may be uneconomic. The Company may also elect not to obtain insurance for other reasons. Should such liabilities arise, they could reduce or eliminate any future profitability and result in increasing costs and a decline in the value of the Company. The Company maintains liability insurance in accordance with industry standards, however, the nature of these types of risks is such that liabilities could exceed policy limits and the Company could incur significant costs that could have a material adverse effect on its business, results of operations and financial condition. Losses from uninsured and underinsured liabilities have the potential to materially affect the Company’s financial position and prospects.

 

Mineral Tenure

 

There can be no assurance the Company’s property mineral tenure interests, or that such title interests will ultimately be secured. No assurance can be given that applicable governments will not revoke or significantly alter the conditions of the applicable exploration and mining authorizations nor that such exploration and mining authorizations will not be challenged or impugned by third parties. The Company’s property interests may also be subject to prior unregistered agreements or transfers or other land claims, and title may be affected by undetected defects and adverse laws and regulations.

 

 

Page | 32

 

 

  

Sigma Lithium Resources Corporation

Interim Quarterly Management’s Discussion and Analysis

Three Months Ended March 31, 2021

Discussion dated: June 1, 2021

    

The Company cannot guarantee that title to its properties will not be challenged. A successful challenge to the precise area and location of the Company’s mineral claims could result in the Company being unable to develop its mineral properties or being unable to enforce its rights with respect to its mineral properties.

 

While the Company has the surface rights (“Servidão Mineral”) for Production Phase 1, as described above, there can be no assurance that the Company will obtain such rights for Production Phase 2 or thereafter.

 

Highly Competitive Industry

 

The mining industry is competitive in all of its phases and requires significant capital, as well as technical and operational resources. Competition is also intense for mining equipment, supplies and qualified service providers, particularly in Brazil where mining personnel are in high demand and short supply. If qualified expertise cannot be sourced and at cost effective rates within Brazil, the Company may need to procure those services outside of Brazil, which could result in additional delays and higher costs to obtain work permits, particularly during the COVID-19 pandemic. Because of the high costs associated with exploration, the expertise required to analyze a project’s potential and the capital required to develop a mine, larger companies with significant resources may have a competitive advantage over the Company. The Company faces strong competition from other mining companies, some with greater financial resources, operational experience and technical capabilities. As a result of this competition, the Company may be unable to maintain or acquire financing, personnel, technical resources or attractive mining properties on terms it considers acceptable.

 

Health and Safety Risks

 

The mineral exploration, development and production business carries inherent risk of liability related to worker and surrounding population health and safety, including the risk of government-imposed orders to remedy unsafe conditions, potential penalties for contravention of health and safety laws, licenses, permits and other approvals, and potential civil liability. Compliance with health and safety laws (and any future changes) and the requirements of licenses, permits and other approvals remain material to the Company’s business, and will continue to remain material at all stages of the development and operation of the Project. The Company may become subject to government orders, investigations, inquiries or other proceedings (including civil claims) relating to health and safety matters. Mining, like many other extractive natural resource industries, is subject to potential risks and liabilities due to accidents that could result in serious injury or death. The impact of such accidents could affect the profitability of the operations, potentially result in fines, penalties or other prosecutions, cause an interruption to operations, lead to a loss of licenses, affect the reputation of the Company and its ability to obtain further licenses, damage community relations and reduce the perceived appeal of the Company as an employer. The occurrence of any of these events or any changes, additions to or more rigorous enforcement of health and safety laws, licenses, permits or other approvals could have a significant impact on development or operations and result in additional material expenditures. As a consequence, no assurances can be given that additional workers’ health and safety issues relating to presently known or unknown matters will not require unanticipated expenditures, or result in fines, penalties or other consequences (including changes to operations) material to its business and operations.

 

Mineral Resource and Mineral Reserve Estimates

 

The Company’s mineral resource and mineral reserve estimates are estimates only. No assurance can be given that any particular level of recovery of minerals will in fact be realized or that identified mineral resources or mineral reserves will ever qualify as a commercially mineable (or viable) deposit which can be legally and economically exploited. In addition, the grade of mineralization which may ultimately be mined may differ from that indicated by drilling results and such differences could be material. By their nature, mineral resource and mineral reserve estimates are imprecise and depend, to a certain extent, on analyses of drilling results and statistical inferences that may ultimately prove to be inaccurate. These estimated mineral resources and mineral reserves should not be interpreted as assurances of certain commercial viability or of the profitability of any future operations. Investors are cautioned not to place undue reliance on these estimates.

 

 

Page | 33

 

 

 

Sigma Lithium Resources Corporation

Interim Quarterly Management’s Discussion and Analysis

Three Months Ended March 31, 2021

Discussion dated: June 1, 2021

   

Further, inferred mineral resource estimates have an even greater amount of uncertainty as to their existence and economic and legal feasibility. Accordingly, there is no assurance that inferred mineral resources will ever be upgraded to a higher category. Investors are cautioned not to assume that inferred mineral resources exist or are economically or legally mineable.

 

Community Relations

 

The Company’s relationships with host communities are critical to ensure the success of its existing operations and the construction and development of new operations. There is an increasing level of public concern relating to the perceived effects of mining activities on the environment and on host communities due to events that happened with other companies in the recent past. The evolving expectations related to human rights, indigenous rights, and environmental protection may result in opposition to the Company’s current and future operations or further development of the Project. Such opposition may be directed through legal or administrative proceedings or expressed in public opposition such as protests, roadblocks or other forms of expression against the Company’s activities, and may have a negative impact on the Company’s reputation and operations.

 

Opposition by any of the aforementioned groups to the Company’s operations may require modification of, or preclude the operation or development of, the Company’s projects or may require the Company to enter into agreements with such groups or local governments with respect to the Company’s projects, in some cases causing increased cost and considerable delays to the advancement of the Company’s projects. Further, publicity adverse to the Company, its operations or extractive industries generally could have an adverse effect on the Company and may impact relationships with the communities in which the Company operates and other stakeholders. While the Company is committed to operating in a socially responsible manner, there can be no assurance that its efforts in this respect will mitigate this potential risk.

 

The Project may also be impacted by relations with various community stakeholders, and the Company’s ability to develop related mining assets may still be affected by unforeseen outcomes from such community relations.

 

Counterparty Risks

 

The Company is exposed to various counterparty risks including, but not limited to: (i) financial institutions that hold the Company’s cash and short-term investments; (ii) companies that are expected to have payables to the Company; (iii) third party contractors engaged for the development of the Project; (iv) the Company’s insurance providers; and (v) the Company’s lenders. The Company seeks to limit counterparty risk by entering into business arrangements with high credit-quality counterparties, limiting the amount of exposure to each counterparty and generally monitoring the financial condition of counterparties. The risks associated with doing business with several counterparties, including any defaults or other breaches of any agreements entered into by the Company with such counterparties, may impact the Company’s operations and financial condition.

 

 

Page | 34

 

 

  

Sigma Lithium Resources Corporation

Interim Quarterly Management’s Discussion and Analysis

Three Months Ended March 31, 2021

Discussion dated: June 1, 2021

   

Foreign Subsidiary

 

The Company conducts operations through subsidiaries, including a foreign subsidiary located in Brazil. Accordingly, any limitation on the transfer of cash or other assets between the parent corporation and such entities, or among such entities, could restrict the Company’s ability to fund its operations efficiently. Any such limitations, or the perception that such limitations may exist now or in the future, could have an adverse impact on the Company’s valuation and stock price.

 

Dependence on the Expertise of Consultants

 

The Company has relied on, and is expected to continue to rely on, consultants and others for mineral exploration and exploitation expertise. The Company believes that those consultants are competent and that they have carried out their work in accordance with internationally recognized industry standards. However, if the work conducted by those consultants is ultimately found to be incorrect or inadequate in any material respect, the Company may experience delays or increased costs in developing its properties.

 

Risks Related to the Company’s Business and Securities

 

Public Health Crises

 

The Company faces risks related to pandemics and epidemics, such as the outbreak of COVID-19 that surfaced in December 2019 in Wuhan, Hubei Province, China and has spread to other countries around the world, including Canada, the United States and Brazil, which could significantly disrupt the Company’s operations and may materially and adversely affect its business and financial condition.  The full extent to which COVID-19 impacts the Company’s business, including its operations and the market for its securities, will depend on future developments that are highly uncertain and will depend on numerous evolving factors that the Company may not be able to accurately predict or assess, including, but not limited to the duration, severity, the availability of approved vaccines and the timing for completion of vaccine distribution programs around the globe, and the continued governmental, business and individual actions taken in response to the pandemic. Moreover, the actual and threatened continue or spread of COVID-19, especially in Brazil, could materially and adversely impact the Company’s business, including without limitation on the regional economies in which the Company operates, employee health, workforce productivity, increased insurance premiums and medical costs, restrictions on travel by the Company’s personnel and by the personnel of the Company’s various service providers, quarantine, the availability of industry experts and personnel, and other factors that will depend on future developments beyond the Company’s control, all or some of which may have a material adverse effect on the Company’s business, financial condition and stock price.

 

Government efforts to curtail the spread of COVID-19 may also result in temporary or long-term suspensions or shut-downs of the Company’s operations. Given the unforeseen conditions resulting from the ongoing evolution of the COVID-19 pandemic and its global impact, there can be no assurance that the Company’s future response and business continuity plans will continue to be effective in managing the pandemic and changing conditions could result in a material adverse effect on the Company's business, financial condition and/or results of operations. Travel restrictions to and from Brazil, currently implemented by governments, as well as quarantine, isolation and physical distancing requirements during this period, may have a negative impact on workforce mobility. Further, the protective measures implemented by the Company may cause higher operating costs, combined with a decrease in workforce productivity, lower production outputs and in some cases, temporary cessation of mining development, could have a material adverse effect on the Company’s business and financial conditions.

 

 

Page | 35

 

 

  

Sigma Lithium Resources Corporation

Interim Quarterly Management’s Discussion and Analysis

Three Months Ended March 31, 2021

Discussion dated: June 1, 2021

    

In addition, the outbreak has caused a worldwide health crisis that has adversely affected economies and financial markets resulting in a global economic downturn that has impacted lithium markets and, therefore, been negative for lithium mining companies.

 

Risk of Future Losses and Going Concern

 

The Company’s ability to continue as a going concern is dependent upon the ability to ultimately generate future profitable operations and to obtain the necessary financing to meet its obligations and repay its liabilities arising from normal business operations when they come due. The Company has reported net losses and comprehensive losses for the three months ended March 31, 2021 and for the year ended December 31, 2020. The Company’s business does not currently operate on a self-sustaining basis and until it is successfully able to fund its expenditures from its revenues, its ability to continue as a going concern is dependent on raising additional funds. The Company expects to continue to sustain operating losses in the future until it generates revenue from the commercial production of its mineral properties. There is no guarantee that the Company will ever be profitable.

 

Dilution of Existing Shareholders from Equity Financings or Increased Financial Risk Through Debt Issuance

 

There is no assurance that the Company will be able to obtain sufficient financing in the future on terms acceptable to meet the Company’s capital requirements. The ability of the Company to arrange additional financing in the future will depend, in part, on prevailing capital market conditions as well as the business performance of the Company. Failure to obtain additional financing on a timely basis may cause the Company to postpone, abandon, reduce or terminate its operations and could have a material adverse effect on the Company’s business, results of operations and financial condition. A likely source of future financing is the sale of additional Common Shares, which would mean that each existing shareholder would own a smaller percentage of the Common Shares then outstanding. In addition, the Company may issue or grant convertible securities (such as warrants or stock options) in the future pursuant to which additional Common Shares may be issued. The exercise of such securities would result in dilution of equity ownership to the Company’s existing shareholders.

 

Alternatively, the Company may rely on debt financing and assume debt obligations that require it to make substantial interest and principal payments and which may be secured against the Company’s assets, including the Project. Failure to meet debt obligations as they become due may result in loss of the Project. The Company may also sell additional royalties on the Project, which would mean that the Company’s share of returns from the Project would decrease.

 

Indebtedness

 

The Company’s ability to make scheduled payments on or refinance its debt obligations (if necessary) depends on its financial condition and operating performance, which are subject to prevailing economic and competitive conditions and to certain financial, business, legislative, regulatory and other factors beyond the Company’s control, including the market prices of lithium. The Company may be unable to achieve cash flow from operating activities sufficient to permit it to pay the principal, premium, if any, and interest on the Company’s indebtedness, or maintain its debt covenants. If the Company’s cash flows and capital resources are insufficient to fund its debt service obligations, or there is a contravention of its debt covenants, the Company could face substantial liquidity problems and could be forced to reduce or delay investments and capital expenditures or to dispose of material assets or operations, seek additional debt or equity capital or restructure or refinance its indebtedness. The Company may not be able to affect any such alternative measures, if necessary, on commercially reasonable terms or at all and, even if successful, those alternative actions may not allow it to meet its scheduled debt service obligations. The Company’s inability to generate sufficient cash flows to satisfy its debt obligations, or to refinance its indebtedness on commercially reasonable terms or at all, would materially and adversely affect its financial position and results of operations and its ability to satisfy its obligations.

 

  

Page | 36

 

 

 

Sigma Lithium Resources Corporation

Interim Quarterly Management’s Discussion and Analysis

Three Months Ended March 31, 2021

Discussion dated: June 1, 2021

  

No History of Dividends

 

The Company has not paid dividends since incorporation and presently has no ability to generate earnings as its mineral properties are in the exploration and development stage. If the Project is successfully developed, the Company anticipates that it will retain future earnings and other cash resources for the future operation and development of its business. The Company does not intend to declare or pay any cash dividends in the foreseeable future. Payment of any future dividends is solely at the discretion of the Board, which will take into account many factors, including the Company’s operating results, financial condition and anticipated cash needs. The Company may never pay dividends.

 

Dependence on Key Individuals

 

The success of the Company will be largely dependent upon the performance of its key officers, consultants and employees. Failure to retain key individuals or to attract, and, if attracted, retain additional key individuals with necessary skills could have a materially adverse impact upon the Company’s success. The Company has not purchased any “key-man” insurance with respect to any of its directors, officers or key employees and has no current plans to do so.

 

Fluctuations in Exchange Rates; Potential Government Intervention

 

Business is transacted by the Company primarily in Brazilian, U.S. and Canadian currencies. The majority of the Project’s operating costs are denominated in the Brazilian currency. Certain costs associated with imported equipment and international supplies and consultants and sales prices for product are denominated in U.S. dollars. Fluctuations in exchange rates may have a significant effect on the cash flows of the Company. Future changes in exchange rates could materially affect the Company’s results in either a positive or negative direction. The Company has not hedged its exposure to any exchange rate fluctuations applicable to its business and is therefore exposed to currency fluctuation risks.

 

Currently, the Brazilian Real is permitted to float against the US Dollar and allows the purchase and sale of foreign currency and the international transfer of Reais There can be no assurance that the Brazilian Central Bank or the Brazilian government will continue to permit the Real to float freely and not intervene in the exchange rate market through the return of a currency band system or otherwise.

 

Legal Proceedings

 

Due to the nature of the Company’s business and status as a publicly traded entity, it may be subject to a variety of regulatory investigations, claims, lawsuits and other proceedings in the ordinary course of its business. The results of these legal proceedings cannot be predicted with certainty due to the uncertainty inherent in litigation, including the effects of discovery of new evidence or advancement of new legal theories, the difficulty of predicting decisions of judges and juries and the possibility that decisions may be reversed on appeal. Defense and settlement costs of legal claims can be substantial, even with respect to claims that have no merit.

 

Litigation may be costly and time-consuming and can divert the attention of management and key personnel from business operations. If the Company is unsuccessful in its defense of claims or unable to settle claims in a manner satisfactory to it, it may be faced with significant monetary damages or injunctive relief against it that could have a material adverse effect on its business and financial condition. To the extent the Company is involved in any active litigation, the outcome of such matters may not be currently determinable nor is it possible to accurately predict the outcome or quantum of any such proceedings at this time.

 

 

Page | 37

 

 

  

Sigma Lithium Resources Corporation

Interim Quarterly Management’s Discussion and Analysis

Three Months Ended March 31, 2021

Discussion dated: June 1, 2021

   

Conflicts of Interest for Directors and Officers

 

Certain directors and officers of the Company are, or may become, associated with other natural resource companies which may give rise to conflicts of interest. In accordance with the Canada Business Corporations Act, directors who have a material interest in any person who is a party to a material contract, or a proposed material contract, with the Company are required, subject to certain exceptions, to disclose that interest and generally abstain from voting on any resolution to approve the contract. In addition, directors and the officers are required to act honestly and in good faith with a view to the best interests of the Company.

 

Share Price Volatility

 

The market price of publicly traded shares, especially of a resource issuer such as the Company, is affected by many variables outside of the Company’s control and are not necessarily related to exploration or operational successes or failures of the Company. Factors such as general market conditions for resource issuers, the strength of the economy generally, the availability and attractiveness of alternative investments, and analysts’ recommendations may all contribute to volatility in the price of the Company’s shares, which are not necessarily related to the operating performance, underlying asset values or prospects of the Company. Investors could suffer significant losses if the Common Shares are depressed or illiquid when an investor seeks liquidity.

 

Significant Shareholder Influence

 

To the Company’s knowledge, as of the date hereof, A10 Investimentos FIA - IE (“A10 FIA”) holds approximately 55.5% of the outstanding Common Shares. For as long as it directly or indirectly maintains a significant interest in the Company, A10 FIA may be in a position to affect the Company’s governance and operations. As a result of its shareholdings, A10 FIA has the ability, among other things, to approve significant corporate transactions and delay or prevent a change of control of the Company that could otherwise be beneficial to minority shareholders. A10 FIA generally will have the ability to control the outcome of any matter submitted for the vote or consent of the Company’s shareholders. In some cases, the interests of A10 FIA may not be the same as those of the other minority shareholders, and conflicts of interest may arise from time to time that may be resolved in a manner detrimental to the Company or minority shareholders. The effect of this influence may be to limit the price that investors are willing to pay for Common Shares.

 

In addition, the potential that A10 FIA may sell Common Shares in the public market, as well as any actual sales of Common Shares in the public market, could adversely affect the market price of the Common Shares.

 

Enforcement of Judgments

 

The Company is incorporated under the laws of Canada and headquartered in British Columbia, Canada, but a majority of its directors and officers are not citizens or residents of Canada. In addition, a substantial part of the Company’s assets is located outside Canada. As a result, it may be difficult or impossible for an investor to (i) enforce judgments against the Company and its directors and officers outside of Canada which may have been obtained in Canadian courts or (ii) initiate court action outside Canada against the Company and its directors and officers in respect of an alleged breach of securities laws or otherwise.

 

 

Page | 38

 

 

  

Sigma Lithium Resources Corporation

Interim Quarterly Management’s Discussion and Analysis

Three Months Ended March 31, 2021

Discussion dated: June 1, 2021

    

In addition, in the event of a dispute involving the foreign operations of the Company, the Company may be subject to the exclusive jurisdiction of foreign courts. The Company's ability to enforce its rights in Canada or locally of judgments from foreign courts could have an adverse effect on its future cash flows, earnings, results of operations and financial condition.

 

Cyber-Security Risks

 

Threats to information technology systems associated with cyber-security risks and cyber incidents or attacks continue to grow. It is possible that the business, financial and other systems of the Company or other companies with which it does business could be compromised, which might not be noticed for some period of time. Risks associated with these threats include, among other things, loss of intellectual property, disruption of business operations and safety procedures, loss or damage to worksite data delivery systems, and increased costs to prevent, respond to or mitigate cyber-security events.

 

Critical Accounting Estimates

 

The preparation of these consolidated financial statements requires management to make certain estimates, judgments and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and reported amounts of expenses during the reporting period. Actual outcomes could differ from these estimates. These consolidated financial statements include estimates which, by their nature, are uncertain. The impacts of such estimates are pervasive throughout the consolidated financial statements and may require accounting adjustments based on future occurrences. Revisions to accounting estimates are recognized in the period in which the estimate is revised and future periods if the revision affects both current and future periods. These estimates are based on historical experience, current and future economic conditions and other factors, including expectations of future events that are believed to be reasonable under the circumstances.

 

Critical accounting judgments and estimates:

 

Significant judgment and assumptions about the future and other sources of estimation uncertainty that management has made at the financial position reporting date, that could result in a material adjustment to the carrying amounts of assets and liabilities, relate to, but are not limited to, the following:

 

·Management’s assessment of going concern and uncertainties of the Company’s ability to raise additional capital and/or obtain financing to advance the Project;

 

·Management’s applied judgment in determining the functional currency of the Company as the Canadian Dollar and its subsidiary to be the Brazilian Reais, based on the facts and circumstances that existed during the period;

 

·Management’s determination of no material restoration, rehabilitation and environmental exposure, based on the facts and circumstances that existed during the period;

 

·The estimated useful lives of property and equipment which are included in the consolidated statement of financial position and the related depreciation included in the statement of loss; and

  

·Management’s review of its long-lived assets for impairment based on results to date and when events and changes in circumstances indicate that the carrying value of the assets may not be recoverable. IFRS 6 Exploration for and evaluation of mineral resources and IAS 36 Impairment of assets requires management to make certain judgments in respect of such events and changes in circumstances, and in assessing their impact on the valuations of the affected assets. Management’s assessment is that as at March 31, 2021 and December 31, 2020, there were no indicators of impairment in the carrying value of its long-lived assets.

 

 

Page | 39

 

 

 

Sigma Lithium Resources Corporation

Interim Quarterly Management’s Discussion and Analysis

Three Months Ended March 31, 2021

Discussion dated: June 1, 2021

      

Off-Balance-Sheet Arrangements

 

As of the date of this MD&A, the Company does not have any off-balance-sheet arrangements that have, or are reasonably likely to have, a current or future effect on the financial performance or financial condition of the Company, including, and without limitation, such considerations as liquidity and capital resources.

 

Outstanding Share Data

 

As at the date of this MD&A, the Company has 87,328,212 issued and outstanding Common Shares. In addition, the Company has outstanding warrants exercisable for 562,860 Common Shares, RSUs for 2,068,667 and stock options exercisable for 50,000 Common Shares.

 

Capital Management

 

The Company manages its capital with the following objectives:

 

·To ensure sufficient financial flexibility to achieve its ongoing business objectives, including funding future growth opportunities, and pursuing accretive acquisitions; and
   
·To maximize shareholder returns through enhancing its share value.

 

The Company monitors its capital structure and makes adjustments according to market conditions in an effort to meet its objectives, given the current outlook of the business and industry in general. The Company may manage its capital structure by issuing new shares, repurchasing outstanding shares, adjusting capital spending or disposing of assets. The capital structure is reviewed by management and the Board on an ongoing basis.

 

The Company considers its capital to be equity, comprising share capital, contributed surplus, accumulated other comprehensive loss and deficit, which at March 31, 2021 totaled $60,717,884 (December 31, 2020 - $21,757,348). The Company’s capital management objectives, policies and processes remained unchanged during the three months ended March 31, 2021.

 

The Company manages capital through its financial and operational forecasting processes. The Company reviews its operating expenditures, and other investing and financing initiatives based on activities related to the Project.

 

Financial Risk Factors

 

The Company's activities expose it to a variety of financial risks: credit risk, liquidity risk and market risk (including interest rate risk, foreign currency risk and price risk).

 

The fair values of cash, accounts receivable, accounts payable, note payable and accrued liabilities approximate their carrying values due to the short term to maturity of these financial instruments.

 

 

Page | 40

 

 

 

Sigma Lithium Resources Corporation

Interim Quarterly Management’s Discussion and Analysis

Three Months Ended March 31, 2021

Discussion dated: June 1, 2021

      

Credit risk

 

Credit risk is the risk of loss associated with a counterparty’s inability to fulfill its payment obligations. The Company's credit risk is primarily attributable to receivables.

 

Receivables consist of amounts due from management, related parties and ITC tax credits. Receivables are in good standing as of March 31, 2021. Management believes that the credit risk with respect to these amounts receivable is minimal.

 

Liquidity risk

 

Liquidity risk is the risk that the Company will not be able to meet its financial obligations as they fall due. The Company’s approach to managing liquidity is to ensure it will have sufficient liquidity to meet liabilities when due. To the extent the Company does not believe it has sufficient liquidity to meet obligations, it will consider securing additional equity or debt funding.

 

The Company’s financial obligations consist of accounts payable, contractual lease payments, revolving credit facility and note payable. The maturity analysis of financial liabilities as at March 31, 2021 is as follows:

 

 Contractual Obligations    Up to 1 year     1 - 3 years     4 - 5 years     More than 5
years
     Total  
      ($)       ($)       ($)       ($)       ($)  
Accounts payable     689,974       -       -       -       689,974  
Discounted lease payments     8,403       19,247       24,804       172,451       224,905  
Revolving credit facility     2,714,755       -       -       -       2,714,755  
Note payable     244,134       -       -       -       244,134  

  

Market risk

 

Market risk is the risk of loss that may arise from changes in market factors such as interest rates and foreign exchange rates.

 

(a) Interest rate risk

 

The Company has cash balances. The Company's current policy is to invest surplus cash in savings accounts with a Canadian chartered bank with which it keeps its bank accounts. As at March 31, 2021, the Company has $46,847,656 as cash and cash equivalent.

 

The Company also had debt instruments. The debt instruments as at March 31, 2021 are exposed to interest as per the CDI (Brazilian Interbank rate).

 

(b) Foreign currency risk

 

The Company's functional and presentation currency is the Canadian dollar and certain purchases, and salaries are transacted in Canadian dollars. The Company also has significant balances in Brazilian Reais and United States dollars that are subject to foreign currency risk.

 

 

Page | 41

 

 

 

Sigma Lithium Resources Corporation

Interim Quarterly Management’s Discussion and Analysis

Three Months Ended March 31, 2021

Discussion dated: June 1, 2021

      

The Company had the following balances in the prescribed currencies:

 

     Currency     March 31,
2021
    December 31, 2020  
(SMSA’s financial statements denominated in Brazilian Reais):                        
Brazilian Reais                        
Current assets     Reais       1,888,623       1,169,783  
Current liabilities     Reais       (2,070,174 )     (3,589,600 )
(Company's financial statements denominated in US Dollars):                        
United States Dollar                        
Cash in banks     USD     $ 15,155,035     $ 10,613,332  

 

·The Company is exposed to foreign currency risk on fluctuations related to cash, receivables and accounts payable and other liabilities denominated in Brazilian Reais and US dollars.

 

oSensitivity to a plus or minus 10% change in the foreign exchange rate of the Brazilian Reais compared to the Canadian dollar would affect the Company’s P&L (“Comprehensive Loss Statement”) by approximately $4,000 with all other variables held constant.

 

oSensitivity to a plus or minus 10% change in the foreign exchange rate of the US dollar compared to the Canadian dollar would affect The Company’s P&L (“Comprehensive Loss Statement”) by approximately $1,905,000 with all other variables held constant.

 

Proposed Transactions

 

The Company routinely evaluates various business development opportunities which could entail acquisitions and/or divestitures. In this regard, the Company is currently in discussions with various parties, but no definitive agreements respecting any proposed transactions have been entered into as of the date of this MD&A. There can be no assurances that any such transactions will be concluded in the future.

 

 

Page | 42

 

 

 

Sigma Lithium Resources Corporation

Interim Quarterly Management’s Discussion and Analysis

Three Months Ended March 31, 2021

Discussion dated: June 1, 2021

      

Additional Disclosure for Venture Issuers Without Significant Revenue

 

General and administrative expenditures

  

Three Months Ends March 31,  2021   2020 
Stock-based compensation  $5,451,016   $124,270 
Salaries and benefits   92,943    115,937 
Legal   67,952    20,000 
Travel   11,035    37,777 
A10 - CSA   31,823    24,286 
Business development and investor relations   121,210    72,836 
Accounting   23,837    19,796 
Auditing   196,569    (51,333)
Tax penalities   23,513    - 
Other general and administration   61,887    61,472 
Total general and administrative expenditures  $6,092,243   $425,041 

 

Subsequent events

 

·On May 29, 2021, A10 Group has agreed to extend maturity date of the A10 Credit Facility by three months, without any penalties or additional charges. This amendment is subject to TSX Venture Exchange approval.
  
·On May 31, 2021, the Company repaid US$1,097,774 ($1,330,579) to A10 Group (being 50% of the outstanding balance of the A10 Credit Facility).

 

Outlook

 

Although there can be no assurance that all required funding will be available to the Company, management is of the opinion that the lithium price will be favourable and that the Company will be a low-cost producer and hence it may be possible to obtain additional funding for the Project.

 

Notwithstanding, the Company is mindful that the lithium price could fall with little or no warning. Accordingly, its plans for the near term are to develop Production Phase 1 (Xuxa deposit), advance the exploration and evaluation of Production Phase 2 (Barreiro deposits), to monitor market fundamentals, and to ensure that the Company is well positioned to weather any possible resurgence of a market downturn. See “Risk Factors”.

 

Qualified Person

 

The scientific and technical information in this MD&A has been reviewed and approved by Marc-Antoine Laporte, of SGS Geological Services, an independent qualified person for purposes of NI 43-101.

 

 

Page | 43

 

 

 

Sigma Lithium Resources Corporation

Interim Quarterly Management’s Discussion and Analysis

Three Months Ended March 31, 2021

Discussion dated: June 1, 2021

      

Cautionary Note Regarding Forward-Looking Information

 

This MD&A contains certain forward-looking information and forward-looking statements, as defined in applicable securities laws (collectively referred to herein as “forward-looking statements”). These statements relate to future events or the Company’s future performance. All statements other than statements of historical fact are forward-looking statements. Often, but not always, forward-looking statements can be identified by the use of words such as “plans”, “expects”, “is expected”, “budget”, “scheduled”, “estimates”, “continues”, “forecasts”, “projects”, “predicts”, “intends”, “anticipates” or “believes”, or variations of, or the negatives of, such words and phrases, or state that certain actions, events or results “may”, “could”, “would”, “should”, “might” or “will” be taken, occur or be achieved. Forward-looking statements involve known and unknown risks, uncertainties and other factors that may cause actual results to differ materially from those anticipated in such forward-looking statements. The forward-looking statements in this MD&A speak only as of the date of this MD&A or as of the date specified in such statement. The following table outlines certain significant forward-looking statements contained in this MD&A and provides the material assumptions used to develop such forward-looking statements and material risk factors that could cause actual results to differ materially from the forward-looking statements.

 


Forward-looking statements
Assumptions Risk factors
The Company will be able to continue its business activities. The operating, exploration and development activities of the Company and the costs associated therewith, will be consistent with the Company’s current expectations; and equity markets, exchange and interest rates and other applicable economic conditions will be favourable to the Company. Unforeseen costs to the Company will arise; ongoing uncertainties relating to the COVID-19 virus will remain; any particular operating cost will increase or decrease from the date of the estimation; and capital markets will not be favourable for funding, resulting in the Company not being able to obtain financing when required or on acceptable terms.
The Company’s properties may contain economic deposits of minerals. The actual results of the Company’s exploration and development  activities will be favourable; operating, exploration and development costs will not exceed the Company’s expectations; all requisite regulatory and governmental approvals for exploration projects and other operations will be received on a timely basis upon terms acceptable to the Company, and applicable political and economic conditions are favourable to the Company; the price of applicable commodities and applicable interest and exchange rates will be favourable to the Company; no title disputes will exist or arise with respect to the Company’s properties; and the Company has or will obtain adequate property rights to support its exploration and development activities. Commodity prices will be volatile; there will be uncertainties involved in interpreting geological data; there will be inability to secure necessary property rights; future exploration results will not be consistent with the Company’s expectations; increases in costs will occur; environmental compliance will be breached; changes in environmental and other applicable legislation and regulation will have a negative impact; interest rate and exchange rate fluctuations and changes in economic and political conditions will have a negative impact.

 

 

Page | 44

 

 

 

Sigma Lithium Resources Corporation

Interim Quarterly Management’s Discussion and Analysis

Three Months Ended March 31, 2021

Discussion dated: June 1, 2021

      

The Company’s anticipated business plans, including costs and timing for future exploration and development of its property in Brazil. The exploration activities of the Company, and the costs associated therewith, will be consistent with the Company’s current expectations; equity markets, exchange and interest rates and other applicable economic conditions will be favourable to the Company; financing will be available for the Company’s exploration and development activities on favourable terms; the Company’s operating, development and production costs will not exceed the Company’s expectations; the Company will be able to retain and attract skilled staff; all applicable regulatory and governmental approvals for exploration projects and other operations will be received on a timely basis upon terms acceptable to the Company; the Company will not be adversely affected by market competition; the price of applicable commodities will be favourable to the Company; no title disputes exist or will arise with respect to the Company’s properties; and the Company has or will obtain adequate property rights to support its exploration and development activities. Commodity prices will be volatile; changes in the condition of debt and equity markets will be negative; timing and availability of external financing on acceptable terms will not be as anticipated; there will be uncertainties involved in interpreting geological data; the Company will be unable to secure necessary property rights; the possibility that future exploration, development and production results will not be consistent with the Company’s expectations; increases in costs will occur; there will be a failure in environmental compliance or changes in environmental and other applicable legislation and regulation; interest rate and exchange rate fluctuations will occur; changes in economic and political conditions will have a negative impact; the Company will be unable to retain and attract skilled staff; receipt of applicable permits subject to governmental and/or regulatory approvals will not occur; the Company will not be able to prevent negative actions of its joint venture partners and/or other counterparties over which it has no control.
Asset values for the period then ended are recorded at the proper values Management beliefs that no write-down is required for its plant and equipment and mineral properties. If the results of the Company’s exploration and development programs do not prove positive, a decline in asset values could be deemed to be other than temporary, resulting in impairment losses.
Management’s outlook regarding future trends and exploration programs Financing will be available for the Company’s exploration, development and operating activities; the price of applicable commodities will be favourable to the Company; foreign exchange rates against the Canadian dollar and prices of equity investments will not be subject to changes in excess of plus or minus 15%; the actual results of the Company’s exploration and development activities will be favourable; management is aware of all applicable environmental obligations. There will be commodity price volatility; changes in the condition of debt and equity markets will be negative; interest rate and exchange rate fluctuations will be negative; changes in economic and political conditions will be negative; future exploration results will not be consistent with the Company’s expectations; changes in environmental and other applicable legislation and regulation will have a negative impact.

 

 

Page | 45

 

 

 

Sigma Lithium Resources Corporation

Interim Quarterly Management’s Discussion and Analysis

Three Months Ended March 31, 2021

Discussion dated: June 1, 2021

      

Inherent in forward-looking statements are risks, uncertainties and other factors beyond the Company’s ability to predict or control. Please also make reference to those risk factors referenced in the “Risk Factors” section above. Readers are cautioned that the above chart does not contain an exhaustive list of the factors or assumptions that may affect the forward-looking statements, and that the assumptions underlying such statements may prove to be incorrect. Actual results and developments are likely to differ, and may differ materially, from those expressed or implied by the forward-looking statements contained in this MD&A.

 

Forward-looking statements involve known and unknown risks, uncertainties and other factors that may cause the Company’s actual results, performance or achievements to be materially different from any of its future results, performance or achievements expressed or implied by forward-looking statements. All forward-looking statements herein are qualified by this cautionary statement. Accordingly, readers should not place undue reliance on forward-looking statements. The Company undertakes no obligation to update publicly or otherwise revise any forward-looking statements whether as a result of new information or future events or otherwise, except as may be required by law. If the Company does update one or more forward-looking statements, no inference should be drawn that it will make additional updates with respect to those or other forward-looking statements, unless required by law.

 

Cautionary Note Regarding Mineral Reserve and Mineral Resource Estimates

 

This MD&A includes mineral reserve and mineral resource classification terms that comply with reporting standards in Canada, and mineral reserve and mineral resource estimates were made in accordance with the CIM Definition Standards adopted by the CIM Council on May 10, 2014 and NI 43-101 (a National Instrument of the Canadian Securities Administrators that provides standards for disclosure of scientific and technical information concerning mineral interests).

 

NI 43-101 standards differ significantly from the requirements of the U.S. Securities and Exchange Commission (“SEC”) applicable to domestic U.S. reporting companies, and mineral reserves and mineral resources estimated in accordance with NI 43-101 may not qualify as such under SEC standards. Accordingly, mineral reserve and mineral resource estimates in this MD&A may not be comparable to estimates disclosed by U.S. companies subject to SEC reporting and disclosure standards.

 

 

Page | 46

  

 

Exhibit 99.2

 

 

 

 

 

SIGMA LITHIUM RESOURCES CORPORATION

CONDENSED INTERIM CONSOLIDATED

FINANCIAL STATEMENTS
THREE MONTHS ENDED MARCH 31, 2021 AND 2020

(EXPRESSED IN CANADIAN DOLLARS)

(UNAUDITED)

 

 

 

 

 

 

MANAGEMENT'S RESPONSIBILITY FOR FINANCIAL REPORTING

 

The accompanying unaudited condensed interim consolidated financial statements of Sigma Lithium Resources Corporation (the "Company") are the responsibility of management and have been approved by the Board of Directors ("Board").

 

The unaudited condensed interim consolidated financial statements have been prepared by management in accordance with International Accounting Standards 34 Interim Financial Reporting of International Financial Reporting Standards as issued by the International Accounting Standards Board. When alternative accounting methods exist, management has chosen those it deems most appropriate in the circumstances. Financial statements are not exact since they include certain amounts based on estimates and judgments. Management has determined such amounts on a reasonable basis in order to ensure that the financial statements are presented fairly, in all material respects.

 

The Board is responsible for ensuring that management fulfills its responsibilities for financial reporting and is ultimately responsible for reviewing and approving the financial statements. The Board carries out this responsibility principally through its Audit Committee.

 

The Audit Committee is appointed by the Board, and the majority of its members are independent directors. The Audit Committee meets at least four times a year with management, as well as the external auditors, to discuss internal controls over the financial reporting process, auditing matters and financial reporting issues, to satisfy itself that each party is properly discharging its responsibilities, and to review the quarterly and the annual reports, the consolidated financial statements and the external auditors’ reports. The Audit Committee reports its findings to the Board for consideration when approving the consolidated financial statements for issuance to the shareholders. The Audit Committee also considers, for review by the Board and approval by the shareholders, the engagement or reappointment of the external auditors.

 

"Calvyn Gardner" "Guilherme Guimarães"
Chairman and Chief Executive Officer Chief Financial Officer

 

- 2

 

 

Sigma Lithium Resources Corporation

Condensed Interim Consolidated Statements of Financial Position
(Expressed in Canadian Dollars)

(Unaudited)

    
     
  

March 31,

2021

  

December 31,

2020

 
ASSETS        
         
Current assets        

Cash and cash equivalents (note 4)

  $46,847,656   $13,543,024 
Receivables and other assets (notes 5 and 12)   641,159    503,420 
Total current assets   47,488,815    14,046,444 
Non-current assets          

Receivables and other assets (notes 5 and 12)

   97,225    111,098 
Exploration and evaluation assets (note 7)   20,601,018    18,354,148 
Property and equipment (note 6)   610,631    686,308 
Total assets  $68,797,689   $33,197,998 
           

LIABILITIES AND SHAREHOLDERS' EQUITY

          
           

Current liabilities

  $689,974   $1,953,633 
Accounts payable          
Revolving credit facility (note 8)   2,714,755    2,683,880 
Payroll and other taxes   198,935    267,666 
Note payable (note 10)   244,134    1,941,349 
Lease liability (notes 11 and 12)   8,403    9,082 
Other liabilities   -    72,127 
Total current liabilities   3,856,201    6,927,737 
           

Long-term liabilities

          
Deferred revenue (note 9)   4,007,100    4,007,100 
Note payable (note 10)   -    262,696 
Lease liability (notes 11 and 12)   216,504    243,117 
Total liabilities   8,079,805    11,440,650 
           
Shareholders' equity          
Share capital (note 13)

   92,417,982    53,910,946 
Contributed surplus   11,786,859    3,930,885 
Accumulated other comprehensive loss   (3,885,411)   (2,858,091)
Accumulated deficit   (39,601,546)   (33,226,392)
Total shareholders' equity   60,717,884    21,757,348 
Total liabilities and shareholders' equity  $68,797,689   $33,197,998 

 

The accompanying notes to the unaudited condensed interim consolidated financial statements are an integral part of these statements.

 

Basis of presentation (note 2)

Related parties (notes 5, 11 and 12)

Subsequent events (note 8)

 

Approved on behalf of the Board:

 

(Signed) "Calvyn Gardner"   , Director
     
 
(Signed) "Marcelo Paiva"   , Director

 

- 3

 

 

Sigma Lithium Resources Corporation 

Condensed Interim Consolidated Statements of Comprehensive Loss
(Expressed in Canadian Dollars)

(Unaudited)

        
         
Three months ended March 31,  2021   2020 

Operating expenses

          
General and administrative expenses (note 17)  $6,092,243   $425,041 
Accretion and interest on notes payable (note 10)   37,822    86,541 
Interest expense on credit revolver and suppliers (note 8)   67,929    34,775 
Foreign exchange loss (gain)   163,814    (300,384)
Depreciation   13,346    17,165 
Net loss for the period   (6,375,154)   (263,138)
           
Other comprehensive loss          
           
Amounts that may be reclassified subsequently
to profit and loss
      
Cumulative translation adjustment   (1,027,320)   (1,719,896)
Net loss and comprehensive loss for the period  $(7,402,474)  $(1,983,034)
           
 Loss per common share          
           
Equity holders of the Company           

Basic and diluted net loss per common share (note 14)

  $(0.08)  $(0.00)
Weighted average number of common shares
outstanding - basic and diluted
   82,767,606    68,878,891 

 

The accompanying notes to the unaudited condensed interim consolidated financial statements are an integral part of these statements.

 

- 4

 

 

Sigma Lithium Resources Corporation

Condensed Interim Consolidated Statements of Cash Flows
(Expressed in Canadian Dollars)

(Unaudited)

        
         
Three months ended March 31,  2021   2020 
Operating activities          
Net loss for the period  $(6,375,154)  $(263,138)
Adjustments for:          
Depreciation   13,346    17,165 
Stock-based compensation   5,451,016    124,270 
Accretion and interest on notes payable (note 10)   37,822    86,541 
Interest expense on credit revolver and suppliers (note 8)   67,929    34,775 
Unrealized foreign exchange gain on notes payable (note 10)   (122,157)   (307,754)
Unrealized foreign exchange loss   218,287    - 
Provision   -    (9,465)
Changes in non-cash working capital items:          
Receivables and other assets   (158,984)   63,348 
Accounts payable and other liabilities   (1,288,052)   (246,390)
Other taxes   (43,771)   17,216 
Net cash provided by (used in) operating activities   (2,199,374)   (483,432)
           
Investing activities          
Addition to exploration and evaluation assets   (1,756,767)   (322,986)
Purchase of property and equipment   (8,571)   - 
Net cash used in investing activities   (1,765,338)   (322,986)
           
Financing activities          
Lease payments (notes 11 and 12)   (8,364)   (9,484)
Repayment of note payable (note 10)   (1,875,576)   - 
Revolving credit facility (note 8)   -    780,854 
Issue of common shares (note 13)   39,380,157    - 
Net cash provided by financing activities   37,496,217    771,370 
Effect of exchange rate changes on cash held in foreign currency   (226,873)   (7,851)
Net increase / (decrease) in cash   33,304,632    (42,899)
Cash, beginning of period   13,543,024    103,640 
Cash, end of period  $46,847,656   $60,741 

 

The accompanying notes to the unaudited condensed interim consolidated financial statements are an integral part of these statements.

 

- 5

 

 

  

Sigma Lithium Resources Corporation

Condensed Interim Consolidated Statements of Changes in Shareholders' Equity
(Expressed in Canadian Dollars)

(Unaudited)

  

   Number of
common
shares
   Share
capital
   Contributed
Surplus
   Accumulated other
comprehensive
loss
   Deficit   Total 
Balance, January 1, 2020   68,878,891   $36,190,313   $4,440,281   $(213,118)  $(31,678,201)  $8,739,275 
Stock-based compensation (notes 18 and 19)   -    -    414,690    -    -    414,690 
Fair value adjustment on modification of note payable (note 10)   -    -    114,132    -    -    114,132 
Net loss for the period   -    -    -    -    (263,138)   (263,138)
Other comprehensive loss for the period   -    -    -    (1,719,896)   -    (1,719,896)
Balance, March 31, 2020   68,878,891   $36,190,313   $4,969,103   $(1,933,014)  $(31,941,339)  $7,285,063 
Balance, January 1, 2021   77,782,757   $53,910,946   $3,930,885   $(2,858,091)  $(33,226,392)  $21,757,348 
Private placement (note 13)   9,545,455    42,000,000    -    -    -    42,000,000 
Share issue costs (note 13)   -    (2,619,843)   -    -    -    (2,619,843)
Agent warrants issued (note 15)   -    (873,121)   873,121    -    -    - 
Stock-based compensation (notes 18 and 19)   -    -    6,982,853    -    -    6,982,853 
Net loss for the period   -    -    -    -    (6,375,154)   (6,375,154)
Other comprehensive income for the period   -    -    -    (1,027,320)   -    (1,027,320)
Balance, March 31, 2021   87,328,212   $92,417,982   $11,786,859   $(3,885,411)  $(39,601,546)  $60,717,884 

 

The accompanying notes to the unaudited condensed interim consolidated financial statements are an integral part of these statements.

 

- 6 -

 

 

Sigma Lithium Resources Corporation

Notes to the Condensed Interim Consolidated Financial Statements

Three Months Ended March 31, 2021 and 2020

(Expressed in Canadian Dollars, unless otherwise indicated)

(Unaudited)

 

1.Nature of operations

 

Sigma Lithium Resources Corporation (the “Company”) is a Canadian based lithium exploration and development company incorporated under the Canada Business Corporations Act. Its shares are listed on the TSX Venture Exchange (the “TSXV”) under the symbol SGMA and on the American Stock Exchange Over-the-Counter QB under the symbol SGMLF. The head office of the Company is located at Suite 2200, 885 West Georgia Street, Vancouver, British Columbia, V6E 3E8.

 

These unaudited condensed interim consolidated financial statements are presented in Canadian dollars and include the Company’s wholly-owned subsidiary: Sigma Lithium Holdings Inc. (“Sigma Holdings”), which is domiciled in Canada and incorporated under the Business Corporations Act (British Columbia), and its indirect wholly-owned Brazil-incorporated subsidiary Sigma Mineração S.A. ("SMSA"). Sigma Holdings was incorporated for the purpose of developing SMSA's lithium properties located in the State of Minas Gerais, Brazil.

 

SMSA holds a 100% interest in four mineral properties: Grota do Cirilo, São Jose, Santa Clara and Genipapo, located in the municipalities of Araçuaí and Itinga, in the Vale do Jequitinhonha region in the State of Minas Gerais, Brazil (together, the "Lithium Properties").

 

2.Basis of preparation

 

These unaudited condensed interim consolidated financial statements have been prepared on a historical cost basis and are presented in Canadian Dollars except when otherwise indicated. They have been prepared on a going concern basis on the assumption that the Company will continue to operate for the next 12 (twelve) months and foreseeable future and be able to realize its assets and discharge its liabilities in the normal course of business.

 

Although the Company has approximately $46.8 million cash available as at March 31, 2021, the Company has not yet made a decision to proceed with regards to the construction of the commercial production plant at the Lithium Properties (the “Production Plant”). When such decision is made by the Company, it will require additional debt financing for the remaining capital expenditures.

 

3. Significant Accounting Policies

 

Statement of compliance

 

The accounting policies and estimates applied in these condensed consolidated interim financial statements are consistent with those used in the Company’s audited annual consolidated financial statements for the year ended December 31, 2020. The Company applies International Financial Reporting Standards ("IFRS") as issued by the International Accounting Standards Board (“IASB”). These unaudited condensed consolidated interim financial statements have been prepared in accordance with International Accounting Standard 34 - Interim Financial Reporting. Accordingly, they do not contain all of the required disclosures and should be read in conjunction with the Company’s December 31, 2020 audited annual consolidated financial statements.

 

- 7 -

 

 

Sigma Lithium Resources Corporation
Notes to the Condensed Interim Consolidated Financial Statements

Three Months Ended March 31, 2021 and 2020

(Expressed in Canadian Dollars, unless otherwise indicated)

(Unaudited)

 

4.Cash and cash equivalents

 

Cash and cash equivalents include cash, immediately redeemable deposits and short-term investments with an insignificant risk of change in value. They are readily convertible to cash being comprised by different currency as follows:

 

   March 31, 2021   December 31, 2020
Denominated Currencies  Amount in
denominated
currency
   Equivalent
Amount in
Canadian
Dollars
   Amount in
denominated
currency
   Equivalent
Amount in
Canadian
Dollars
Deposits in Brazilian Reais   111,736   $24,658    16,811   $4,124
Deposits in United States Dollars   15,155,035    19,054,426    10,613,332    13,529,876
Deposits in Canadian Dollars   27,768,572    27,768,572    9,024    9,024
        $46,847,656        $13,543,024

 

5.Receivables and other assets

 

   March 31,2021   December 31,2020
Current         
Prepaid land lease (note 12(b))  $10,844   $12,055
Prepaid expenses   290,270    175,840
Sales tax receivable   337,877    313,803
Travel advances   2,168    1,722
Total Current   641,159    503,420
Non-current - Prepaid land lease (note 12(b))   97,225    111,098
   $738,384   $614,518

 

- 8 -

 

 

Sigma Lithium Resources Corporation

Notes to the Condensed Interim Consolidated Financial Statements
Three Months Ended March 31, 2021 and 2020

(Expressed in Canadian Dollars, unless otherwise indicated)
(Unaudited)

  

6.Property and equipment

 

Cost  Vehicle   Furniture   Building   Machinery   Fixtures   Pilot
plant
   Right-of-use
assets
   Total 
Balance, December 31, 2020  $5,888   $41,423   $12,220   $106,566   $204,756   $215,379   $293,166$   879,398 
Additions   -    4,180    -    4,391    -    -    -    8,571 
Cumulative translation adjustment   (592)   (4,346)   (1,228)   (10,900)   (20,571)   (19,736)   (23,565)   (80,938)
Balance, March 31, 2021  $5,296   $41,257   $10,992   $100,057   $184,185   $195,643   $269,601   $807,031 

 

Accumulated amortization  Vehicle   Furniture   Building   Machinery   Fixtures   Pilot
plant
   Right-of-use
assets
   Total 
Balance, December 31, 2020   1,864    8,940    6,767    38,416    45,290    33,220    58,593    193,090 
Depreciation   277    975    115    2,568    4,790    4,622    4,065    17,412 
Cumulative translation adjustment   (200)   (941)   (685)   (3,973)   (4,761)   (3,542)   -    (14,102)
Balance, March 31, 2021  $1,941   $8,974   $6,197   $37,011   $45,319   $34,300   $62,658   $196,400 

 

Net book value   Vehicle    Furniture    Building    Machinery    Fixtures    Pilot
plant
    Right-of-use
assets
    Total 
Balance, December 31, 2020  $4,024   $32,483   $5,453   $68,150   $159,466   $182,159   $234,573   $686,308 
Balance, March 31, 2021  $3,355   $32,283   $4,795   $63,046   $138,866   $161,343   $206,943   $610,631 

 

- 9 -

 

 

Sigma Lithium Resources Corporation

Notes to the Condensed Interim Consolidated Financial Statements

Three Months Ended March 31, 2021 and 2020

(Expressed in Canadian Dollars, unless otherwise indicated)

(Unaudited) 

 

7.Exploration and evaluation assets

 

The Company is in the exploration and evaluation stage with respect to its mineral properties and follows the practice of capitalizing all costs relating to the acquisition and exploration of mineral rights. Such costs include, among others, geological, geophysical studies, exploratory drilling and sampling, feasibility studies and technical reports.

 

A summary of explorations costs is set out below:

 

   Three
months
ended
March 31,
2021
   Year ended
December 31,
2020
 
Opening balance  $18,354,148   $19,388,092 
Personnel costs (a)   1,788,800    933,045 
Geological costs   491,104    292,701 
Drilling   766,042    47,578 
Environmental consulting (b)   43,987    321,710 
Environmental compensation (c)   161,311    204,828 
Development / Engineering services   30,947    3,501 
Other   16,526    62,081 
Cumulative translation adjustment (d)   (1,051,847)   (2,899,388)
Closing balance  $20,601,018   $18,354,148 

 

(a) The personnel costs include $1,531,837 related to RSUs approved for grant to employees and a designated service provider during the three months ended March 31, 2021 (year ended December 31, 2020 - $470,032).

 

(b) Environmental consulting relates to maintenance, monitoring and licensing services.

 

(c) Environmental compensations relate to costs incurred as required by environmental authorities.

 

(d) Cumulative translation adjustment is the result of the exchange loss arising on the translation of exploration and evaluation assets held at SMSA, whose functional currency is the Brazilian Real, as a result of the depreciation of the Brazilian Real relative to the Canadian dollar.

 

- 10 -

 

 

Sigma Lithium Resources Corporation
Notes to the Condensed Interim Consolidated Financial Statements

Three Months Ended March 31, 2021 and 2020

(Expressed in Canadian Dollars, unless otherwise indicated)

(Unaudited)

 

8.Revolving credit facility

 

On November 29, 2019, in order to fund its working capital, the Company entered into a US$5,000,000 ($6,300,000) unsecured revolving credit facility (the “A10 Credit Facility”) with A10 Group (a related party – note 12). The A10 Credit Facility bears interest at 11% per annum, calculated in US Dollars from the day funds are drawn. The A10 Credit Facility was subject to a commitment and disbursement fee of 0.65% and a due diligence fee of 0.65% of the committed amount, which were offset against any interest payable on funds drawn. This credit facility had a one-year term, which was to be the repayment date for all funds drawn. Each draw on the A10 Credit Facility was subject to A10 Group approval.

 

On May 29, 2021, A10 Group has agreed to extend the maturity date by three months, without any penalties or additional charges. This amendment is subject to TSX Venture Exchange approval.

 

On May 31, 2021, the Company repaid US$1,097,774 ($1,330,579) to A10 Group (being 50% of the outstanding balance of the A10 Credit Facility).

 

During the three months ended March 31, 2021, the Company drew $nil (year ended December 31, 2020 - US$1,685,700 ($2,281,983)) under the A10 Credit Facility and the following balances were outstanding as at March 31, 2021 and December 31, 2020:

 

   March 31,
2021
   December 31,
2020
Principal (a)  $2,420,990   $2,454,882
Accrued Interests and fees (b)   293,765    228,998
Total credit facility liability  $2,714,755   $2,683,880

 

(a) The amount in contractual currency was US$1,925,700 (December 31, 2020 - US$1,925,700)

(b) The amount in contractual currency was US$233,666 (December 31, 2020 – US$179,634)

 

9.Deferred revenue

 

On March 26, 2019, the Company entered into a binding head of agreement with Mitsui & Co. Ltd. ("Mitsui") under which Mitsui will prepay the Company US$30,000,000 for battery grade lithium concentrate supply of up to 80,000 tonnes annually (the “Mitsui Pre-Payment”) over six years, extendable for another five years at the option of Mitsui.

 

An initial amount payment of US$3,000,000 ($4,007,100) was received by the Company on April 4, 2019, while the disbursements of the remaining amounts are subject to certain conditions, including the execution of related definitive offtake agreements with Mitsui and securing loan funding for the remaining amount of the capital expenditures for the construction of the Production Plant.

 

As part of the total Mitsui Pre-Payment amount, for the Company to meet its construction timetable, an amount of up to US$7,000,000 for the deposits required to purchase long lead items for construction of the commercial production plant or other preproduction critical activities, can be made available as per the Company’s request to Mitsui. Such payments are subject to Mitsui’s approval and will be credited towards the overall Mitsui Pre-Payment amount.

 

Other than the initial tranche payment described above, the Company did not request or receive any funds in 2020 and in the three months period ended March 31, 2021.

 

- 11 -

 

 

 

Sigma Lithium Resources Corporation

Notes to the Condensed Interim Consolidated Financial Statements

Three Months Ended March 31, 2021 and 2020

(Expressed in Canadian Dollars, unless otherwise indicated)

(Unaudited)

 

 

10.Note payable

 

The outstanding balance of the note payable is herein presented at its carrying value of $244,134, including principal of $206,917 plus interest of $37,216 as at March 31, 2021, calculated as follows:

 

  

March 31,

2021

  

December 31,

2020

 
Opening balance  $2,204,045   $3,883,733 
Accretion   25,372    167,477 
Interest   12,450    98,831 
Fair value adjustment   -    (29,052)
Unrealized foreign exchange gain   (122,157)   (890,992)
Repayment of interest   (273,882)   (125,176)
Repayment   (1,601,694)   (900,776)
Closing balance  $244,134   $2,204,045 

 

The following payment schedules due at March 31, 2021 and December 31,2020 are outlined below.

 

Due date  Reais (undiscounted)  

Canadian equivalent to Reais

(undiscounted)

  

Carrying value March 31,
2021

 
March 28, 2022   1,000,000    220,629   $244,134 
Total            $244,134 

 

Carrying value 

March 31,

2021

 
Current  $244,134 
   $244,134 

 

Due date  Reais (undiscounted)   Canadian equivalent to Reais (undiscounted)  

Carrying value December 31,

2020

 
January 31, 2021   3,859,309   $946,582   $1,101,470 
March 15, 2021   3,000,000    735,817    839,879 
March 28, 2022   1,000,000    245,272    262,696 
             $2,204,045 

 

Carrying value  December 31,
2020
 
Current  $1,941,349 
Long-term   262,696 
   $2,204,045 

 

- 12 -

 

 

 

Sigma Lithium Resources Corporation

Notes to the Condensed Interim Consolidated Financial Statements

Three Months Ended March 31, 2021 and 2020

(Expressed in Canadian Dollars, unless otherwise indicated)

(Unaudited)

 

 

11.Lease liability

 

The lease liability is related to land leases of surface properties owned by Miazga Participações S.A., a related party, (note 12) and Arqueana, a related party, (note 12) and housing leases owned by third parties. The lease liability was measured at the present value of the lease payments. The lease payments were discounted using a weighted average interest rate of 11.33% (December 31, 2020 – 11.33%), which was determined to be the Company's incremental borrowing rate. The continuity of the lease liability is presented in the table below:

 

Lease liability at January 1, 2020  $313,690 
Additions   20,585 
Interest expense   27,465 
Lease payments   (35,231)
Cumulative translation adjustment   (74,310)
Lease liability at December 31, 2020   252,199 
Interest expense   6,408 
Lease payments   (8,364)
Cumulative translation adjustment   (25,336)
Lease liability at March 31, 2021  $224,907 

 

As at March 31, 2021    
Lease obligations  $224,907 
Less current portion   8,403 
Non-current portion  $216,504 

 

 Maturity analysis – contractual undiscounted cash flows        

 

As at March 31, 2021    
Less than one year  $8,403 
Year 2   33,457 
Year 3   33,457 
Year 4   33,457 
More than 5 years   362,415 
Total contractual undiscounted cash flows  $471,189 

 

- 13 -

 

 

 

Sigma Lithium Resources Corporation

Notes to the Condensed Interim Consolidated Financial Statements

Three Months Ended March 31, 2021 and 2020

(Expressed in Canadian Dollars, unless otherwise indicated)

(Unaudited)

 

 

12.Related party transactions

 

The Company’s related parties include:

 

Related Party  Nature of relationship

 

A10 Group   A10 Group is composed of A10 Serviços Especializados em Avaliação de Empresas Ltda. and A10 Investimentos Ltda., both companies are owned by two directors of the Company.

Miazga  Miazga Participações S.A (“Miazga”) is a land administration company indirectly controlled by two directors of the Company, one of which also controls part of A10 Group.

Arqueana  Arqueana Empreendimentos e Participações S.A. (“Arqueana”) is a land administration company in which two directors of the Company have an indirect economic interest.

Key management personnel Includes the directors of the Company, executive management team and senior management at SMSA. 

 

(a) Transactions with related parties

 

Cost sharing agreement (“CSA”): The Company entered in a CSA with A10 Group where A10 Group is reimbursed for secondment staff 100% allocated to the Company, including legal, financial and business development personnel and 50% of shared secretarial administrative personnel.

 

Revolving credit facility: The Company entered in a revolving credit facility agreement with A10 Group which allows the Company to raise short-term financing debt increasing its liquidity (note 8).

 

Leasing Agreements: The Company has land lease agreements with Miazga and Arqueana (note 11). Part of these leases get offset by the prepaid land lease (note 5).

 

Share purchase agreement (“SPA”): The Company owes a note payable related to the SPA with Arqueana (note 10).

 

Commission fees: The Company entered into an agreement with A10 Group for acting as one of the Company’s financial advisors to locate equity investors in non-brokered private placements. The Company paid finders’ fee of up to 6% of the gross proceeds received from these investors (note 13).

 

- 14 -

 

 

 

Sigma Lithium Resources Corporation

Notes to the Condensed Interim Consolidated Financial Statements

Three Months Ended March 31, 2021 and 2020

(Expressed in Canadian Dollars, unless otherwise indicated)

(Unaudited)

 

 

12.Related party transactions (continued)

 

(a)Transactions with related parties (continued)

 

The related party transactions are recorded at the exchange amount transacted as agreed between the Company and the related party. All of the related party transactions have been reviewed and approved by the independent directors of the Company.

 

(b)Outstanding balances and expenses with related parties