Mr. Scott Nelson reports
TITANIUM CORPORATION REPORTS DECEMBER 31, 2019 YEAR END RESULTS, CONFIRMS ANNUAL AND SPECIAL MEETING DATE AND PROVIDES PROJECT UPDATE
Titanium Corp. Inc. has released its results for the year ended Dec. 31, 2019. The company will hold its annual and special meeting as a virtual-only meeting via live audio webcast on Thursday, June 25, 2020, at 10 a.m. Toronto time.
In early 2020, two major world events, the COVID-19 pandemic and the collapse of oil prices, have introduced unprecedented uncertainties for many industries and the global economy, which are affecting commodity prices and market demand. This includes sectors directly related to the company, including Canada's oil sands industry, the global mineral sands industry, and the Alberta and Canadian economies. The duration and extent of the impact of these events are not known but could affect the progress and timing of the company's CVW Horizon project.
The company and Canadian Natural Resources Ltd. were working toward a joint decision on the commercial project following the completion of the front-end engineering design (FEED) phase of the project. However, the company and Canadian Natural have determined that further engineering work is required related to post-FEED optimization in areas that have the potential to reduce costs and increase efficiency. During the first half of 2020, the company and Canadian Natural have been working to plan and execute the post-FEED engineering review for optimization of the project. In parallel, the company has been working with Alberta and federal funding agencies to contract financing for the detailed engineering phase of the project.
"During 2019, our company completed significant milestones toward commercialization of our project, including the FEED, the award of $50-million of additional government grant funding toward the engineering, procurement and construction phases of our project, and further measures to strengthen our balance sheet and add expertise to our board. The COVID-19 pandemic and dramatic decline of world crude oil demand and prices, which occurred in the first quarter of 2020 and remain ongoing, have introduced [unprecedented] uncertainties for many industries, and in particular have had a very negative impact on the Alberta and Canadian economies, and in particular the oil sands industry. The duration and severity of these impacts have caused the oil sands industry to reduce capital spending and will impact the timing of new projects, including the project," commented Scott Nelson, Titanium's president and chief executive officer. "We believe our CVW technology will provide important environmental and economic benefits that will assist with the recovery of a resilient and sustainable energy industry in Alberta and Canada. Our team continues to work with our industry partner, Canadian Natural, and the various government funding agencies toward advancing our project as conditions improve."
Certain highlights for the three- and 12-month periods ended Dec. 31, 2019, are set out in more detail as follows:
- During 2019, the company conducted technical marketing programs, including meeting with potential mineral processors and customers, visiting their facilities, and providing mineral samples for customer testing. These activities are largely suspended due to the COVID-19 pandemic and will be resumed when the relevant countries and businesses reopen and resume normal operations.
- On Aug. 1, 2019, the company announced the receipt of the final payment of $991,000 related to the $5.0-million grant from Emissions Reduction Alberta (ERA) for partial financing of the FEED phase of the CVW Horizon project. The payment represents a 20-per-cent holdback by ERA, which was subject to final project reporting and completion of a third party audit of project costs. Optimization of the project is continuing, including refining capital and operating costs to achieve the most efficient and cost-effective implementation of the CVW technology.
- On Aug. 7, 2019, the company announced the appointment of Bruce Griffin to the board of directors of the company as an independent director of the company. Mr. Griffin has also been appointed to the company's commercialization committee. Most recently, Mr. Griffin was the senior vice-president, strategic development, of Lomon Billions Group, the world's third-largest producer of high performance titanium dioxide products. Mr. Griffin brings a deep understanding of the global minerals industry from its key markets and customers to its leading players, and has broad experience in operations, strategy, finance and capital markets.
- In May, 2019, the company announced the first and second closings of its non-brokered private placement of units for gross proceeds of $4,262,640, resulting in the issuance of 6,089,485 common shares and 3,044,743 warrants, each entitling the holder to purchase one common share of the company at an exercise price of $1.40, expiring on May 9, 2022, or May 30, 2022. As a result, immediately following the final closing of the private placement, the company had 88,166,359 common shares issued and outstanding. The net proceeds of $4,056,475 are being used to finance continuing efforts to commercialize the company's CVW technology during the project activities post-FEED and for general operating purposes.
- On March 14, 2019, the company announced $50-million in government funding toward the next phase of the CVW Horizon project. The federal government awarded $45-million from two clean technology programs; Environment and Climate Change Canada, through its Low Carbon Economy Fund (LCEF), has committed to investing $40-million and NRCan's clean growth program (CGP) has committed to investing $5-million in Titanium's first-of-a-kind sustainable technology designed to remediate oil sands froth treatment tailings. ERA awarded $5-million from its partner intake program aimed at improving environmental performance in Alberta's oil and gas sector. Funding from the LCEF and CGP programs is subject to finalizing funding agreements, which will outline the conditions under which federal funding would be provided, including securing the remaining funding necessary to complete the project, fulfilling all applicable requirements associated with the project environmental assessments and indigenous consultation requirements, and finalizing the scope of the project costs eligible for program funding.
- The company has been meeting with other government agencies and Canadian investment banks regarding their potential participation in the structuring and financing of the project and their support of the company in financial markets.
- The company is continuing its cash conservation programs, including those under which management and directors receive all or a portion of their compensation and fees in restricted share units and deferred share units (RSUs and DSUs, respectively), respectively. This program is aimed to conserve cash and further align management and the board with shareholder interests. Since the inception of the program in 2015, the program has conserved $2.1-million of management cash compensation and $1.6-million of directors' cash compensation for a total of $3.7-million. Since 2015, the company's directors have been receiving 100 per cent of their compensation in DSUs in lieu of cash compensation. After the fourth quarter 2019 award of DSUs, the number of DSUs available for issuance under the DSU plan has been depleted. Over the same period, management has been receiving a significant portion of incentive and retention compensation, and, in certain cases, a portion of their base salary, in the form of RSUs. At the end of the third quarter of 2019, the number of RSUs available for issuance under the RSU plan was almost depleted. For both the board and management, earned compensation intended to be settled with DSUs or RSUs is being recorded as deferred compensation until such time as additional DSUs and RSUs may be issuable pursuant to the respective plans given the limits on issuances provided therein.
- Effective April 1, 2020, the company has taken additional measures to protect its balance sheet, reduce costs and conserve cash over the months ahead, including reducing all salaries. Titanium's president and chief executive officer voluntarily reduced his salary by 20 per cent and the other members of the management team voluntarily reduced their salaries by 15 per cent.
Titanium is focused on achieving long-term financial success by implementing its innovative CVW technologies in commercial operations at oil sands sites. With the FEED portion of the project completed, the company is working with Canadian Natural on project activities post-FEED, including engineering optimization and planning for the potential implementation of its technology at Canadian Natural's Horizon site. However, until project activities post-FEED are completed to the satisfaction of the parties, commercial arrangements and investment decisions are made, and facilities constructed and operating, the company expects to continue to incur losses. Currently, quarterly (income)/losses comprise research and development (R&D) project costs, recovery of project costs, and general and administrative (G&A) expenditures.
Net income (loss)
For the year ended Dec. 31, 2019, the company had a net income of $3,250, compared with a loss of $7.6-million for the year ended Dec. 31, 2018. The recovery of project contributions in respect of the FEED ($3.5-million), and a scientific research and experimental development (SR&ED) tax credit ($71,000) during the year ended Dec. 31, 2019, exceeded total R&D costs of $1.6-million, which resulted in a net recovery of $2.0-million for R&D. This R&D recovery offset G&A expense of $2.0-million during the year, resulting in a reported $3,250 net income. For a development-stage company and given the timing of project contributions, in respect of the FEED, the net income reported was in line with expectations.
Research and development
R&D spending during the year ended Dec. 31, 2019, consisted primarily of compensation for technical staff and continuing mineral testing and analysis. With the completion of the FEED portion of the project in the first quarter of 2019, R&D was in a net recovery of $2.0-million for the year ended Dec. 31, 2019, due primarily to the $3.5-million receipt of project contributions with respect to the FEED and, to a lesser extent, receipt of a refundable SR&ED tax credit. Project costs were lower by $8.2-million for the year ended Dec. 31, 2019, compared with the same period in 2018, due to the completion of the FEED portion of the project on Feb. 28, 2019. The company continues to work on project activities post-FEED, including market development and a mineral evaluation program for the new Horizon south mining area expected to be mined in the time frame a potential CVW project would be commissioned.
General and administrative
For the year ended Dec. 31, 2019, cash expenses were lower by $200,000, offset by increases in non-cash deferred compensation of $100,000. Cash expenses were lower for the year ended Dec. 31, 2019, in all categories except for a small increase in travel costs, where activity was focused on mineral market development work with potential customers for future mineral off-take agreements in international markets. Stock-based compensation was lower during the three- and 12-month periods ended Dec. 31, 2019, as the company granted 1,125,000 stock options on April 30, 2018, and the number and fair value of stock options being amortized were lower in the three- and 12-month periods ended Dec. 31, 2019, than the comparative three- and 12-month periods ended Dec. 31, 2018.
The company had an aggregate of $5.1-million in cash at Dec. 31, 2019, consisting of $3.1-million in interest-bearing cash accounts and a $2.0-million 30-day cashable guaranteed investment certificate (GIC), as compared with $800,000 at Dec. 31, 2018. The increase in cash related primarily to the closing of the private placement in May, 2019, and the collection of $3.5-million in project contributions with respect to the FEED during the year. The company closed a private placement in two tranches with the issuance of 6,089,485 units (70 cents per share) for net aggregate proceeds of $4.1-million net of share issue costs.
To view the company's management's discussion and analysis and audited financial statements for the year ended Dec. 31, 2019, please visit the company's website or SEDAR.
Further to the notice of the annual and special meeting above, the record date for shareholders to receive notice and be entitled to vote at the meeting is May 11, 2020. Further information will be included in the company's management information circular in respect of the meeting, which is expected to be mailed to shareholders and filed under the company's profile on SEDAR in mid-May and will also be made available on the company's website.
About Titanium Corp. Inc.
Titanium's CVW technology provides sustainable solutions to reduce the environmental footprint of the oil sands industry. The company's technology reduces the environmental impact of oil sands froth treatment tailings while economically recovering valuable products that would otherwise be lost. CVW recovers bitumen, solvents, heavy minerals and water from tailings, preventing these commodities from entering tailings ponds and the atmosphere.
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