MANAGEMENT'S DISCUSSION AND ANALYSIS - For the year ended December 31, 2019 - Amarillo Gold Corp.
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MANAGEMENT’S DISCUSSION AND ANALYSIS
For the year ended December 31, 2019
1
TABLE OF CONTENTS
AMAR I LLO G O LD C O R P O RAT I O N
Introduction .............................................................................................................................................1
Business overview ...............................................................................................................................1
Company highlights.............................................................................................................................2
Financial results ................................................................................................................................. 16
Summary quarterly financial results.......................................................................................... 19
Liquidity and capital resources ................................................................................................... 21
Concession fees payable and litigation ................................................................................... 23
Share capital ........................................................................................................................................ 26
Investor relations activities ........................................................................................................... 26
Balances and transactions with related parties and affiliates ........................................ 27
Additional disclosure for Venture issuers without significant revenue ..................... 28
Critical accounting estimates ....................................................................................................... 29
New accounting standards ............................................................................................................ 30
Off-balance sheet arrangements ................................................................................................. 30
Controls and procedures ................................................................................................................ 30
Capital risk management ................................................................................................................ 31
Financial risk factors ........................................................................................................................ 32
Other risks and uncertainties ....................................................................................................... 34
Cautionary Note Regarding Forward-looking Information ............................................... 42
Amarillo Gold Corporation Management’s Discussion and Analysis for the year ended December 31, 2019 i
MANAGEM ENT’S DISCUSSION AND ANALYSIS
F O R T H E YEAR ENDED E N D E D DECEMBER 31, 2019
Introduction
This management’s discussion and analysis (MD&A) should be read in conjunction with Amarillo Gold
Corporation’s (Amarillo or the Company) audited consolidated financial statements for the years ended
December 31, 2019 and 2017, and their related notes which have been prepared in accordance with
International Financial Reporting Standards (IFRS) as issued by the International Accounting Standards
Board.
This MD&A contains forward-looking statements that are subject to risk factors described at the end of
this MD&A. All figures are in Canadian dollars unless otherwise noted. The discussion and analysis within
this MD&A are effective as of March 17, 2020.
Additional financial and corporate information relating to Amarillo can be found on the Company’s
website, www.amarillogold.com, or on SEDAR, www.sedar.com.
Business overview
Amarillo is developing an open pit gold resource at its Mara Rosa Project in the mining friendly jurisdiction
of Goias State in Brazil. An Updated Pre-Feasibility Study NI 43-101 technical report (Updated PFS) for
the Mara Rosa Project was filed on SEDAR on November 21, 2018.
As reported in the Updated PFS, the Mara Rosa Project contains 513,000 ounces of gold in the Proven
category from 9.6 million tonnes (Mt) at 1.65 g/t Au, and 574,000 ounces in the Probable category from
14.2 Mt at 1.46 g/t Au, for total Reserves of 1,087,000 ounces from 23.8 Mt at 1.42 g/t Au. Mara Rosa
was awarded its Preliminary License (LP), which provides the social and environment permission to mine,
in May 2016 with a five-year expiry in May 2021. The Company is now progressing towards completing a
Feasibility Study (FS) and awaiting the Installation License (LI), which authorizes the construction of the
project.
In addition to the Mara Rosa Project, Amarillo has an advanced exploration project with excellent grades
at Lavras do Sul, Rio Grande do Sul, Brazil. A Mineral Resource Estimate Study (NI 43-101 technical
report) for the Butia prospect at Lavras do Sul was filed on SEDAR on October 4, 2010. The Lavras do
Sul Project encompasses a 190 km² land package comprising of more than 22 prospects centered on
historic gold workings. The initial resource estimate at the Butia prospect reported 215,000 ounces of gold
in the Indicated category from 6.4 Mt at 1.05 g/t Au, and 308,000 ounces of gold in the Inferred category
from 12.9 Mt at 0.74 g/t Au using a 0.3 g/t cut-off grade.
Both projects have excellent nearby infrastructure.
Amarillo Gold Corporation Management’s Discussion and Analysis for the year ended December 31, 2019 1
Company highlights
Activities in 2019
Amarillo achieved the following milestones in 2019:
Completed two private placements for total gross proceeds of $15.3 million
Engaged Auramet as financial advisor for construction financing of the Mara Rosa Project
Applied for the License to Install (LI) at the Mara Rosa Project in December 2019
Engaged SRK Consulting Pty Ltd (SRK), Ausenco and GeoHydroTech Engenharia in January 2019 to
prepare a Feasibility Study (FS) for the Mara Rosa Project
– Detailed engineering by Ausenco continues
– GeoHydroTech Engenharia (GHT) continuing their study of tailings engineering that now includes dry
stacking
– SRK as lead study author continues with the preparation of the FS, including a resource update, mine
plan and financial model
Land acquisition at Mara Rosa ongoing
– 406 hectares purchased or under contract to purchase
– Continuing negotiations with other landowners to acquire remaining 695 hectares
Commenced a 3,000 metre drill program at northeastern extension of the Mara Rosa Project
Planned a 3,000 metre drill program for Lavras do Sul that began in early 2020
Hired Arao Portugal to serve as Country Manager in Brazil effective July 1, 2019
Private placement of $5.3 million
On June 14, 2019, the Company closed a non-brokered private placement (the Private Placement)
through the issuance of 26,382,950 units (Units) at a subscription price of $0.20 per Unit for aggregate
gross proceeds to the Company of $5,276,590. Management and directors of the Company subscribed
for Units in an aggregate amount of $1,100,000. Each Unit is comprised of one common share (each, a
Common Share) and one Common Share purchase warrant (each, a Warrant). Each Warrant entitles the
holder to purchase one additional Common Share at an exercise price of $0.30 for a period of 24 months
following the date of issue.
Private placements of $10 million
On August 29, 2019, the Company closed Private Placements through the issuance of 50,025,000 Units
at a subscription price of $0.20 per Unit, including the exercise of the over-allotment option (the Offerings)
for aggregate gross proceeds to the Company of $10,005,000. Through the brokered portion of the
Offerings, which was underwritten on a bought-deal basis by Mackie Research Capital Corporation as
sole underwriter and bookrunner (the Underwriter), the Company issued 47,599,000 Units. Through the
non-brokered portion of the Offerings, the Company issued 2,426,000 Units. Management and directors
of the Company subscribed for 1,101,000 Units in an aggregate amount of $220,200.
Each Unit is comprised of one common share of the Company and one common share purchase warrant.
Each warrant is exercisable to acquire one common share at a price of $0.30 per warrant share until
August 29, 2021.
Eric Sprott acquired 25,000,000 of the Units pursuant to the brokered portion of the Private Placements.
He acquired the Units through 2176423 Ontario Ltd. (2176423), a corporation that is beneficially owned
by him. Collectively, his Units represent approximately 13.1% of the issued and outstanding Common
Shares of the Company on a non-diluted basis, and 23.2% on a partially diluted basis, assuming that the
Amarillo Gold Corporation Management’s Discussion and Analysis for the year ended December 31, 2019 2
Warrants from the Units purchased by 2176423 are exercised. Accordingly, Mr. Sprott has undertaken that 2176423 will not exercise the Warrants from the Units without the approval of disinterested shareholders of the Company and meeting any other requirements of the TSX Venture Exchange (the TSX-V). The Warrants acquired by 2176423 will only be exercised if the resulting Warrant Shares would not lead to him becoming a control person of the Company, as defined in the policies of the TSX-V. Mr. Sprott acquired these Units for investment purposes. He has a long-term view of the investment and management is pleased to have the support of such a well-known and respected mining investor. The Underwriter received an aggregate cash fee of $471,188 from the brokered portion of the Private Placements (the Commission). In addition, the Company granted the Underwriter 1,355,940 non- transferable options (the Compensation Options). Each Compensation Option entitle the holder to purchase one Unit (a Compensation Option Unit) at a price of $0.20, for a period of 24 months. Project financing advisor appointment Amarillo’s focus is on completing the FS, basic engineering and the application for the LI that was submitted in December 2019, with the goal of starting construction in the second half of next year. Accordingly, the Company announced on October 9, 2019 that it has engaged Auramet International, LLC (Auramet) as Financial Advisor in conjunction with project financing for the Mara Rosa Project. Auramet's will work with management to reviewing various financing strategies and assist in discussions with potential lenders. The Company believes it is prudent to start this engagement early in this important phase of mine development. Auramet is a US$14 billion global precious metals merchant and advisory firm that provides a full range of services to the mining industry, including debt advisory, physical precious metals transactions, revenue enhancement strategies and financings. The Auramet team has the depth of experience in mine finance, and recent success in closing important project finance mandates. Feasibility study SRK Consulting is preparing an FS for the Mara Rosa Project with input from various consultants. Australian Exploration Field Services has completed the resource update for the FS using the results of the 2018 and 2019 in-fill drilling. SRK is now completing a mine plan with the updated resource and will then develop the FS financial model. Aurifex Pty and ALS Global have completed FS level metallurgical test work. Ausenco has completed a flow sheet and Basic Engineering for the CIL Plant and associated infrastructure. This Basic Engineering was included in the application for the LI. It is also finalizing equipment quotations and anticipates completing the FS capital estimate shortly. GHT has completed the design of the water retention dams and a dry stack tailings storage system which were also included in the application for the LI. GHT is in the process of completing final costing for inclusion in the FS capital estimate. GHT is also completing the design of a water reclaim system to take Amarillo Gold Corporation Management’s Discussion and Analysis for the year ended December 31, 2019 3
the required make-up water from the Rio do Oro and is assisting in the application for the final water storage dam license referred to above. We expect the FS to be completed in early Q2 2020. Arao Portugal appointed Country Manager for Brazilian subsidiaries On July 1, 2019 Arão Portugal joined the Company as Country Manager for Amarillo’s Brazilian subsidiaries Amarillo Mineração do Brasil Ltda and Mineração Lavras do Sul Ltda. Mr. Portugal has 40 years of diverse mining and mineral processing experience in South America. Prior to joining Amarillo, he worked for Yamana Gold during their formative years from 2003 until August 2014. He served as Manager, General Manager, Administration Director, Vice President and Co-Country Manager of Brazil and Administration Vice President of Yamana Argentina, Chile, and Honduras. He was heavily involved with starting eight gold projects for Yamana in Brazil, including two in Goias State near Amarillo’s Mara Rosa project. Prior to Yamana, Mr. Portugal spent 25 years working for Brazilian iron ore mining giant Vale. He holds a Business Administration Degree with postgraduate studies in International Business from Vitoria, Espirito Santo, Brazil, and an MBA in Supply Chain Management from São Paulo University. Mr. Portugal had been working part-time with the Company since 2015 as Director of Strategy, responsible for government and community relations. His efforts were a key part of Amarillo’s success in obtaining the LP for the Mara Rosa Project in 2016. This is the first step in the mine permitting process in Brazil and is the social and environmental license required to operate a mine. With his guidance, the Company is now preparing to apply for the LI permit to build and commission the Mara Rosa plant. In addition to his ongoing social and regulatory responsibilities, Mr. Portugal will now manage the day-to-day business in Brazil and will lead the commercial efforts to secure the many contracts required to successfully build and operate the Mara Rosa gold mine. Related party loan On March 29, 2019, the Executive Chairman of the Company agreed to provide a $1,000,000 facility (the “Facility”) to be drawn down from time to time. The Facility was unsecured, due and payable on demand and bore interest at 6% per annum. On August 22, 2019 the total of $1,000,000 drawn under this Facility was repaid and accrued interest of $12,740 was waived. Amarillo Gold Corporation Management’s Discussion and Analysis for the year ended December 31, 2019 4
Annual general meeting The Annual General and Special Meeting (the Meeting) of shareholders of the Company was held on Wednesday, September 25, 2019. The following actions were taken at the Meeting: the audited financial statements of the Company for the financial year ended December 31, 2018, and accompanying report of the auditor were received MNP LLP, Chartered Professional Accountants, was appointed as the auditor of the Company for the fiscal year ending December 31, 2019 and the directors of the Company were authorized to fix the remuneration to be paid to the auditor for the fiscal year ending December 31, 2019 the number of directors of the Company for the ensuing year was set at seven people David Birkett, Lawrence Lepard, Michael Mutchler, Rostislav Raykov, Stephen Stow, Colin Sutherland and Rowland Uloth were elected as directors of the Company the Company’s rolling Stock Option Plan was re-approved and ratified. Mara Rosa Project The Mara Rosa Project is located in the municipality of Mara Rosa in the state of Goias, Brazil, 360 km to the north of the state capital Goiania. There is a railway within 1.5 km of the planned pit, a major national highway 11 km away and Mara Rosa, a small town of 12,000 people, 5 km away. A 4 km gravel road connects the project to a recently asphalted state highway. The Company is planning for an open pit to be mined by conventional shovel and truck methods at a nominal ore mining rate of 2.5 to 3 million tpa for approximately eight years. A total of 139 Mt of material is expected to be mined to produce 24 Mt of ore (strip ratio of 4.8:1). The project is expected to employ contract mining with conventional open-pit mining using drill and blast, hydraulic excavators, haul trucks, and auxiliary mobile equipment to support the mining operation. The plan is to construct a CIL processing plant consisting of conventional crushing circuits with tailings processed through a dry stacking tailing facility and electrical power provided by installing a 64 km long, 138 kV power line. The Company was granted the LP in May 2016 which was awarded by the Environmental Protection Agency and the Judicial Ministry of Brazil. It is considered the most challenging part of the permitting process and entails environmental base line, social and environmental approval along with public hearings. The Company is in the next phase of the permitting process. An application was submitted in December 2019 with the objective of receiving the LI in mid-2020. This LI provides authorization to initiate construction. It involves fulfilment of the LP conditions; approval of the mine development plan and approval of the basic environmental plan. 2018 updated pre-feasibility study The Company filed the results of the Updated PFS on SEDAR on September 13, 2018 in accordance with NI 43-101 on the Mara Rosa gold deposit. Titled Technical Update on The Posse Gold Project, Brazil, September 2018, it was prepared by SRK dated September 12, 2018. The qualified persons of the report are Anthony Stepcich of SRK and Keith Whitehouse of AEFS. Both are independent of the Company. The Updated PFS was then updated after the results of the site visit by SRK and refiled on SEDAR on November 21, 2018. Highlights of the report include: After tax internal rate of return (IRR) of 59% at US$1,400/oz gold (Au) Amarillo Gold Corporation Management’s Discussion and Analysis for the year ended December 31, 2019 5
After tax net present value (NPV5%) of US$295 million at US$1,400/oz Au and a USD/BRL exchange rate of 3.60 After tax project payback of 0.9 year at US$1,400/oz Au Average annual gold production of 144,000 oz over first four years Average life of mine (LOM) production 123,000 oz per year over eight years, and total production of 985,000 ounces after 91% recovery LOM cash operating cost of US$545/oz Au, and all-in sustaining cost (AISC*) of US$655/oz Au Upfront capital expenditure of US$123M Updated Proven and Probable Reserves of 1,087,000 oz – 23.8 million tonnes (Mt) @ 1.42 g/t Au o Proven 513,000 oz – 9.6 Mt @ 1.65 g/t Au, and o Probable 574,000 oz –14.2 Mt @ 1.26 g/t Au. AISC equals total cash operating cost + royalties + transportation and refining + sustaining capital + closure + corporate G&A. Table 1 – Project sensitivity to gold price Gold price (US$ per ounce) $1,000 $1,100 $1,200 $1,300 $1,400 $1,500 IRR (%) 23% 33% 42% 51% 59% 68% Payback period (years) 1.7 1.4 1.2 1.0 0.9 0.8 NPV 0% – after tax (US$M) 138 202 263 324 386 447 NPV 5% – after tax (US$M) 91 144 194 244 295 345 NPV 7.5% – after tax (US$M) 73 121 167 213 259 305 NPV 10% – after tax (US$M) 57 101 143 185 228 270 Amarillo retained SRK to review and update the 2011 PFS and the 2017 PFS Update for the Project. The 2011 PFS for the Project was originally prepared by Coffey Consultoria e Serviços Ltda (Coffey). The 2017 PFS Update was prepared and led by SRK Consultores do Brasil Ltda in collaboration with ONIX Engineering & Consulting, both based in Belo Horizonte, Brazil. Both reports are filed on SEDAR and are available on our website www.amarillogold.com. The resource statement was supplied by AEFS out of Bendigo, Australia. Both ONIX and AEFS were involved in the 2011 and 2017 studies. The updated 2018 PFS replaces and supersedes the 2016 mineral resource estimate and the reserves and economic model used in the 2011 and 2017 studies. The main alterations that serve as justification for this update are as follows: Scheduling opportunities and alternative grinding size options identified in a Whittle Consulting Enterprise Optimization Study concluded prior to the publication of this PFS Update Increase in the Federal NSR from 1% to 1.5%, which came into effect January 1, 2018 1.75% NSR sold to Royal Gold for US$10.8 million in June 2018 Update to the 2016 mineral resource estimate to correct a topography misalignment between the historical open pit mine floor and in-pit waste dump Updates the gold price to $1,300/oz Updates Plant Capex and Opex to reflect a local exchange rate of R$3.60 to the US dollar Mineral resource estimate Recent pit and mine optimization work on the Mara Rosa Project conducted by Whittle Consulting has indicated that some material will be economic to mine at a cut-off grade of 0.216 g/t Au. Accordingly, the Amarillo Gold Corporation Management’s Discussion and Analysis for the year ended December 31, 2019 6
cut-off grade used for the Mineral Resource Estimate has been lowered to 0.2 g/t Au to ensure that all
blocks which may be brought into mineral reserves are included in the resource.
Table 2 – Mineral resource estimate
Category Tonnes (Mt) Grade Au (g/t) Au (oz)
Measured Mineral Resource 12 1.40 560,000
Indicated Mineral Resource 19 1.20 710,000
Total of Measured and Indicated Mineral Resource 31 1.30 1,270,000
Inferred Mineral Resource 11 0.92 330,000
Mineral resources are not mineral reserves and do not have demonstrated economic viability. There is no certainty that
all or any part of the mineral resources estimated will be converted into Mineral Reserves.
Numbers may not sum due to rounding.
Mineral reserve estimate
The Mineral Resource Model was diluted into a Mining Model using the following parameters:
Ore Loss of 3%
Dilution of ore of 3%, dilutive material grading 0.16 g/t
A variable cut-off grade was utilized based on the grind-throughput-recovery (GTR) of the mill.
The Mineral Reserve Model assumes highly selective mining in the mineralized zones.
Table 3 – Mineral reserve estimate
Diluted tonnes Diluted grade Contained Au Estimated Au Recoverable
Ore reserve (Mt dry) (g/t) (oz) recovery (%) Au (oz)
Proven 9.6 1.65 513,000 90.4 464,000
Probable 14.2 1.26 574,000 90.8 521,000
Total mineral reserve 23.8 1.42 1,087,000 90.6 985,000
Mineral reserves stated above are contained within and are not additional to the mineral resource.
Numbers may not sum, due to rounding.
In May 2018, the Company launched an in-fill drilling program at Mara Rosa in an attempt to convert
Inferred Resources into Measured and Indicated Resources to be included in the FS mine plan. A total of
16,490 m from 64 drill holes were completed between May 2018 and February 2019. The results of this
drilling will now be incorporated into the FS resource.
Three-year extension of mining concession
In December 2018, the Company announced that it had received approval from the Brazilian Agência
Nacional de Mineração (ANM), formerly known as the DNPM or National Department of Mining
Production for another three-year extension of its mining concessions for the Mara Rosa Project until July
1, 2020.
The approval allows for the continued delay of mining activities, preserving the mining status of these
historical mining concessions to complete the FS, Basic and Detailed Engineering, and the LI application.
The Company anticipates that the LI will be granted prior to the expiry of the mining extension, when it will
be superseded by the LI.
Amarillo Gold Corporation Management’s Discussion and Analysis for the year ended December 31, 2019 7
Feasibility study launch In Q1 2019 the Company engaged SRK, Ausenco and GHT to complete the FS for the Mara Rosa Project. SRK, which completed the last two pre-feasibility studies on the Mara Rosa Project, is the lead company, bringing together the overall report, the resource update, mine plan and financial model. Ausenco is responsible for the basic engineering of the plant and infrastructure. Ausenco has considerable project construction experience in Brazil including Beadell´s Tucano mine and the EPCM execution of Equinox Gold´s Aurizona mine. GHT will complete the design of the tailings facility including the dry-stacking alternative. GHT, a well- known Brazilian company, has worked for Kinross´s Paracatu mine as well as the recent Avanco Antas project. The FS was launched in early 2019 and is expected to be completed in early Q2 2020. The Basic Engineering is complete and was used to make application for the LI in December 2019. Detailed Engineering is ongoing. It is anticipated that the review and granting of the LI will be completed by the end of Q2 2020 with construction commencing thereafter subject to construction financing. Timeline of planned activities Table 4 – Mara Rosa development schedule Amarillo Gold Corporation Management’s Discussion and Analysis for the year ended December 31, 2019 8
Land acquisitions During 2018 the Company acquired 178 hectares of land which will be affected by the planned mining operations. In March 2019, the Company acquired another 191 hectares, and contracted to buy 37 hectares bringing the total hectares acquired to 406 of the total 1,101 hectares required. We have been engaging with the remaining landowners to enter into agreements that will facilitate acquisition at the time of construction. The Company’s strategy is to acquire lands at opportune prices when available as we move towards application to obtain the LI. Exploration at Mara Rosa Amarillo’s land position within the Mara Rosa District primarily covers the Eastern Belt greenstone assemblage, with some coverage of the Western and Central belts as well. The Eastern Belt has a maximum thickness of 6 km, generally strikes to the northeast and dips moderately to steeply to the northwest. The Mara Rosa Project and Posse deposit occurs in a regional thrust that probably acted as one of the primary dewatering conduits during the Neo-Proterozoic Brasiliano orogeny. The geophysical, geological and geochemical data available demonstrate that this deposit occurs within a 50 km long shear zone with potassium alteration and lower order gold-copper-molybdenum mineralization. (see Fig 1 for regional geology). Regional surface geological exploration and airborne geophysics has identified a 10 km long anomalous coincident gold in soil anomaly and potassium radiometric anomaly trending northeast and southwest of the Posse gold deposit (see Figures 2 and 3). The Company commenced a 3,000 m diamond drill program in late 2019 to test near-surface satellite gold exploration targets along the 7 km long northeast trending Posse North Trend. The goal is to identify potentially economic gold deposits that could add to the existing gold resources and reserves at the main Posse deposit. Exploration drilling targets are being tested at Araras, Speti, and Lambari. Figure 1 – Regional geological setting of the Mara Rosa Project Amarillo Gold Corporation Management’s Discussion and Analysis for the year ended December 31, 2019 9
Figure 2 – Gold in soil anomalies Amarillo Gold Corporation Management’s Discussion and Analysis for the year ended December 31, 2019 10
Figure 3: K Channel radiometric Amarillo Gold Corporation Management’s Discussion and Analysis for the year ended December 31, 2019 11
Lavras do Sul (LDS) Project The Lavas Do Sul gold project is in Southern Brazil in the state of Rio Grando do Sul. It benefits from excellent infrastructure; it is located 320 km by paved road southwest of the state capital city of Porto Alegre. The village of Lavras do Sul is a small farming community proximal to the Company’s exploration concessions. The current NI 43-101 compliant gold resource estimate for LDS is 523,000 ounces assuming a 0.3 g/t Au cut-off grade at the Butia prospect. Amarillo acquired options to explore the Lavras do Sul Project from Rio Tinto in October 2006 and IAMGOLD Corporation in May 2008 (the LDS Project). These options cover a 190 km² land package hosting at least 22 prospects centered on historic gold workings dating back to the 1700s. The LDS project encompasses a Neo-Proterozoic granite intrusion. Gold mineralization has been identified within the granite complex and in surrounding volcanic rocks (see Figure 4). The gold mineralization is thought to be of an epithermal style and associated with intersecting fault structures. The Company’s strategy is establish enough gold resources in a series of different prospects to justify building a central processing plant. Amarillo has identified 22 individual prospects (see Figure 5) centred on old gold workings or geochemical anomalies within a 12 km by 7 km area. Figure 4: LDS regional geological setting Amarillo Gold Corporation Management’s Discussion and Analysis for the year ended December 31, 2019 12
Figure 5: LDS Map Area
Amrillo gold has completed 39,640 m of drilling in 171 holes at LDS to the end of 2019. A summary of
drilling by exploration target is shown in Table 5.
Table 5 – Summary of drilling at Lavras Do Sul Project as of December 2019
Number of Total Number of
Exploration target drill holes completed metres drilled assay samples
Butia 78 20,244 14,944
Cerrito 48 10,431 7,611
Caneleira 12 2,490 2,217
Paredao 9 1,156 668
Aurora 5 542 332
São Jose 1 24 28
Cerro Rico 7 1,687 1,304
Valdo Teixeira 6 1,785 1,432
Matilde 5 1,281 842
Amarillo Gold Corporation Management’s Discussion and Analysis for the year ended December 31, 2019 13Prior exploration by Rio Tinto in 2005 and Companhia Brasileira do Cobre (CBC) in the 1980s included drilling at the Butia and Cerrito prospects, both of which lie within 5 kilometres of the town of Lavras do Sul and are covered by old surface workings. These drilling programs returned downhole intercepts of gold mineralization at slightly less than 1 g/t over lengths of slightly more than 100 metres. Amarillo completed follow-up drilling at these two prospects with more focused activity on Butia – see ensuing subsection titled Butia Prospect. As highlighted previously, enough drilling has been completed at Butia to establish an NI 43-101 ocompliant inferred gold resource of 523,000 ounces at a gold cut-off grade of 0.3 g/t Au as of September 2010. Subsequent drilling programs at Butia in 2012 generated significant results that are not included in the NI 43-101 compliant gold resource estimate. These include drilling in the higher-grade gold zone of the Butia deposit that included drill holes LDH-209 that intercepted 133 m grading 2.65 g/t Au, and LDH- 212 that intersected 123 m grading 1.49 g/t Au (see press release dated June 20, 2012). The Company completed a 1,000 line kilometer UAV magnetic survey over the south west corner of the LDS Project. Survey results indicate strong magnetic correlate with fault structures north and east of Butia. Exploration targets for a 3,000 m diamond drilling program that started in January 2020 have been selected based on coincidient structural trends and gold-in soil anomalies (see Figure 8). Drill targets being tested include Matilde, Zeca Souza, and Caneleira North. Figure 6 – Gold in soil anomalies (left) and regional magnetics (right) Butia Prospect Of the 22 known areas of historic gold workings on the LDS Project, Butia has received the most work. There have been three separate drill campaigns by Amarillo on this prospect. The first campaign, completed in early 2007, consisted of three holes. The encouraging results from drill hole LDH-01, 169.4m @ 1.0g/t Au, brought the drill rigs back for a second and third drilling campaign in 2008 and 2011/12. 2011 intercepts of 120 m @ 3.23 g/t Au and 232 m @1.96 g/t Au confirm significant vertical continuity of the system Butia initial resource estimate Amarillo Gold Corporation Management’s Discussion and Analysis for the year ended December 31, 2019 14
The Company released an initial estimate of the gold resource at the Butia prospect in September 2010. Table 6 shows a resource estimate using a gold grade cut-off of 0.3 g/t, and table 7 shows a resource estimate at a gold grade cut-off of 0.5 g/t. Table 6 – Butia Prospect resource estimate using 0.3 g/t gold cut-off Category Tonnes Grade (g/t) Contained gold (oz) Indicated 6,390,000 1.05 215,000 Inferred 12,880,000 0.074 308,000 Table 7 – Butia Prospect resource estimate using 0.5 g/t gold cut-off Category Tonnes Grade (g/t) Contained gold (oz) Indicated 5,300,000 1.18 201,000 Inferred 6,840,000 1.07 235,000 Mineral resources are not mineral reserves and do not have demonstrated economic viability. There is no certainty that all or any part of the mineral resources estimated will be converted into Mineral Reserves. Numbers may not sum due to rounding. Mineral resources are reported in-situ with no dilution provision. A cut-off-grade of .3 g/t Au was used for resource estimation. A density or tonnage factor of 2.61 to 2.68 tonnes per cubic metre is applied depending on rock types. The estimate was prepared by Atticus and Associates (Atticus) of Lima, Peru. Dated July 30, 2010, it is titled NI 43-101 Technical Report, Butia Prospect, Rio Grande do Sul, Brazil. The qualified persons for the report are Antony John Amberg and Simon Mortimer. Antony John Amberg is a consulting geologist with 25 years of experience, a Chartered Geologist, and a Fellow of the Geological Society of London. He is registered as a competent person for the calculation of mineral resources and reserves by the Chilean Mining Commission, Registration Number 0025. Simon Mortimer is a Professional Geologist and member of the Australian institute mining and metallurgy, Registration Number 300947. In 2017, an application to convert the exploration permits over the Butia deposit to mining permits was made to the DNPM. An environmental baseline study is being conducted on the Butia property this year as requested by the DNPM. Amarillo Gold Corporation Management’s Discussion and Analysis for the year ended December 31, 2019 15
Financial results
The following table summarizes the Company’s major operating expense categories for the three and 12
months ended December 31, 2019.
Table 8 – Amarillo’s expenses and loss
Three months ended Years ended
December 31 December 31
2019 2018 2019 2018
($) ($) ($) ($)
General and administrative
Consulting 40,153 131,241 323,434 350,981
Professional 224,921 1,012 856,267 601,160
Salaries/benefits and management fees 172,478 164,838 698,986 560,845
Directors’ fees 52,500 25,000 172,500 244,167
Marketing and promotion 60,852 80,910 314,507 271,444
Filing and transfer agent 16,953 40,901 78,509 112,127
Travel 12,964 6,058 41,304 52,144
Other G&A 71,013 71,799 260,285 263,645
Total G&A 651,834 521,759 2,745,792 2,456,513
Stock-based compensation 18,168 206,860 1,004,270 1,480,249
Financial advisory services 36,000 - 36,000 -
Foreign exchange loss 107,701 37,903 153,489 65,999
Interest and finance charges 111,590 1,604 121,041 136,708
Write-off of accounts payable - 20,645 - (118,171)
Gain on debt settlements (5,417) (140,830) (5,417) (140,830)
Subtotal before other items 919,876 647,941 4,055,175 3,880,468
Items related to gold loans - (178,198) - 709,148
Loss before tax 919,876 469,943 4,055,175 4,589,616
Deferred tax recovery - (1,064,495) - (719,495)
Net (loss) income (919,876) 594,752 (4,055,175) (3,870,121)
Year ended 2019 compared to year ended 2018
For the year ended December 31, 2019, the Company recorded a loss of $4,055,175 (2018: $3,870,121)
mostly as a result of the following.
Consulting fees of $323,434 in 2019 (2018: $350,981) decreased by $27,547 and consisted of:
marketing consultants of $182,400 (2018: $118,700)
fees to former CEO of $Nil (2018: $30,000)
chief exploration geologist $81,970 (2018: $61,000) who was hired in mid-2018
advisory services $55,916 (2018: $87,000) paid to various consultants
fees in Brazil of $3,148 (2018: $54,281).
Professional fees of $856,267 in 2019 (2018: $601,160) consisted of $392,925 (2018: $364,318) in
Canada and the remaining $463,342 (2018: $235,830) were in Brazil. The Brazil fees 2019 increased due
to legal and consulting related to land acquisitions and corporate structure. The Canadian fees include
significant amounts related to the WPC litigation.
Salaries/benefits of $698,986 in 2019 (2018: $560,845) consisted of $521,656 (2018: $245,000) in
Canada and $177,330 (2018: $151,008) in Brazil. Salaries in Canada relate to the CEO of $300,000
(2018: $210,000) and the CFO of $200,000 (2018: $160,000) plus benefits.
Amarillo Gold Corporation Management’s Discussion and Analysis for the year ended December 31, 2019 16Directors’ fees in 2019 were $172,500 (2018: $244,167). Directors other than the CEO are compensated an annual fee of $20,000 which was increased to $35,000 per annum effective October 1, 2019. Five directors earned fees of $5,000 each per quarter in 2018 and in 2019 until September 30, 2019. Starting on October 1, 2019, there were six directors who each earned $8,750 per quarter. All of the 2019 and 2018 fees have been accrued. In addition, $45,000 (2018: $150,000) was recorded as bonus payable to Rostislav Raykov, a director. The 2018 bonus was settled with common shares of the Company on August 9, 2018. Marketing and promotion of $314,507 in 2019 (2018: $271,444) increased by $43,063 as the Company continued to increase its marketing activities. This included exhibiting at trade shows, meeting with existing and potential investors in North America, and hiring a professional market maker in October 2018. Other general and administrative expenses of $260,285 in 2019 (2018: $263,645) included $215,569 (2018: $137,070) related to operations in Brazil, and $44,716 (2018: $34,082) related to operations in Canada. Stock-based compensation of $1,004,270 (2018: $1,480,249) related to: An expense of $871,880 (2018: $1,068,789) from 4,600,000 (2018: 4,440,000) stock option grants that vested immediately out of a granted total of 5,000,000 (2018: 6,540,000). The remaining 400,000 options vest upon the receipt of the LI, so no expense was recognized. An expense of $132,390 (2018: $411,460) from the amortization of 2,000,000 stock options granted in Q1 2018 that vest over a two-year period. Interest and finance charges were $$121,041 (2018: $136,708): The 2019 charges include approximately $117,000 interest related to the DNPM liability. The 2018 charges include the purchase of a call option in Q2 2018 for $85,000 to protect the price of gold in anticipation of settling the gold linked loans. This option was not used as the gold price gradually decreased from the date of the option to the date of settlement of the gold linked loans. In addition, in 2018 a further $44,000 interest was paid on the loans from the Executive Chairman that commenced in Q3 2017 and repaid in July 2018. Items related to the gold loans which include accretion and gains/losses do not exist in 2019 (2018: loss of $709,148) as these loans were repaid in Q3 2018. Amarillo Gold Corporation Management’s Discussion and Analysis for the year ended December 31, 2019 17
Q4 2019 compared to Q4 2018 For the three months ended December 31, 2019, the Company recorded a loss of $3,135,299 (2018: $4,464,873) mostly as a result of the following. Consulting fees of $40,153 in Q4 2019 (Q4 2018: $131,241) decreased by $91,061 and consisted of: marketing consultant of $12,000 (Q4 2018: $12,000) chief exploration geologist $11,970 (Q4 2018: $30,000) who was hired in mid-2018 fees to former CEO of $nil (Q4 2018: $3,600) for transition services financial advisory services $15,766 (Q4 2018: $51,200) paid to various consultants fees in Brazil of $417 (Q4 2018: $34,441). Professional fees (which include legal, audit, accounting and advisory) of $224,921 in Q4 2019 (Q4 2018: $1,012) consisted of $97,056 (Q4 2018: $163,412) in Canada and the remaining $127,865 (Q4 2018: $79,600 before $242,000 reallocation to capital projects at year end) were in Brazil. Professional fees in Canada were higher in Q4 2018 as the Company was preparing its legal case against WPC. Salaries/benefits of $172,478 in Q4 2019 (Q4 2018: $164,838) consisted of $136,477 (Q4 2018: $125,515) in Canada and $36,001 (Q4 2018: $39,323) in Brazil. Salaries in Canada relate to the CEO of $75,000 (Q4 2018: $75,000) and the CFO of $50,000 (Q4 2018: $50,000) plus benefits. Directors’ fees in Q4 2019 were $52,500 (Q4 2018: $25,000). Directors other than the CEO are compensated an annual fee of $20,000, which was increased to $35,000 per annum effective October 1, 2019. Five directors earned fees of $5,000 each per quarter in 2018 and in 2019 until September 30, 2019. Starting on October 1, 2019, there were six directors who each earned $8,750 per quarter. All of the 2019 and 2018 fees have been accrued. Marketing and promotion of $60,852 in Q4 2019 (Q4 2018: $80,910) remained fairly constant in both quarters as the Company maintained its program of marketing activities. This included exhibiting at trade shows, meeting with existing and potential investors in North America, and hiring a professional market maker in October 2018. Other general and administrative expenses of $71,013 in Q4 2019 (Q4 2018: $71,799) include $57,358 (Q4 2018: $58,799) related to operations in Brazil, and $13,655 (Q4 2018: $13,000) related to operations in Canada. Stock-based compensation of $18,168 in Q4 2019 (Q4 2018: $206,860) related to the amortization of 2,000,000 stock options granted in Q1 2018 that vest over a two-year period. In Q4 2018 a total of 100,000 stock options were granted that vested immediately. The expense related to this grant and the amortization of previously issued unvested grants account for the total stock-based compensation for Q4 2018. Interest and finance charges of $111,590 (Q4 2018: $1,604) relate mostly to the accrual of interest on the DNPM liability which originated in July 2018. Amarillo Gold Corporation Management’s Discussion and Analysis for the year ended December 31, 2019 18
Summary quarterly financial results
Table 9 presents extracted information from the Company’s unaudited quarterly results of operations for
each of the last eight quarters. All periods reflect accounting policies consistent with IFRS.
Table 9 – Summary quarterly financial results
Q1 2019 Q2 2019 Q3 2019 Q4 2019
$ $ $ $
Net loss (619,868) (975,638) (1,539,793) (919,876)
Total assets 29,110,189 33,519,474 40,881,326 40,273,562
Total non-current liabilities 1,222,294 1,120,874 955,179 1,001,597
Loss per share (0.01) (0.01) (0.01) (0.00)
Q1 2018 Q2 2018 Q3 2018 Q4 2018
$ $ $ $
Net (loss) income (2,068,273) (975,987) (1,420,613) 594,752
Total assets 38,619,178 39,767,647 27,972,806 29,379,635
Total non-current liabilities 12,007,201 949,495 1,064,495 1,407,357
(Loss) income per share (0.02) (0.01) (0.01) 0.01
Variations in net loss/income
The significant variations in net (loss) income for each quarter up to Q3 2018 was mostly due to the
effects of gold price and foreign exchange on the gold linked loans that reverted from a gain to a loss from
one reporting period to the next.
The effects of the gold linked loans do not appear in reporting periods after Q3 2018 as they were fully
retired on July 27, 2018 at the amounts recorded as at June 30, 2018.
The Q4 2018 income is related to the reduction of the deferred tax liability of $1,064,495 as at Q3 2018 to
$Nil as at December 31, 2018. Stock-based compensation expense fluctuates based on the timing of
stock option grants. There were significant stock option grants in Q1 2018, Q3 2018 and Q3 2019, with
the latter two quarters reflecting the Company’s policy of annual grants. All of the other items included in
the losses per quarter may vary from period to period.
Quarterly variations in the balance sheet
Q1 2018
Total assets progressively increase from one quarter to the next due to the capitalization of expenditures
on the Mara Rosa and Lavras do Sul properties in Brazil. The $4.4M increase in total assets at the end of
Q1 2018 compared to Q4 2017 was due mostly to the $3.3M of net proceeds from Tranche I of the
Private Placement which closed on March 29, 2018.
The total non-current liabilities increased every quarter until Q2 2018 due to the accretion of the gold-
linked loans plus or minus the effects of gold price and foreign exchange on these loans.
Q2 2018
The $1.1M increase in total assets at the end of Q2 2018 compared to Q1 2018 was due mostly to
capitalization of exploration expenditures. There was an increase in cash of $13.9M in Q2 2018 however
this increase was offset by the reduction of exploration properties by $14.2M from the sale of royalty on
the Mara Rosa property at the end of Q2 2018.
Amarillo Gold Corporation Management’s Discussion and Analysis for the year ended December 31, 2019 19The total non-current liabilities decreased by $11.1M in Q2 2018 compared to Q1 2018 as the gold linked loans, which were previously reported as long term liabilities, with a balance of $11.2M were recorded as current liabilities since they were fully settled on July 27, 2018. Q3 2018 Total assets declined by $11.8M from Q2 2018 to Q3 2018. There was decrease in cash of $13.0M in Q3 2018 due to the repayment of gold linked loans that were settled mostly with cash of $9.7M and the $1.6M repayment of loan from the Executive Chairman. In addition, $1.2M cash was used in operations and cash $0.7M were spent on Mara Rosa and Lavras do Sul. The reduction in cash was offset by the capitalization of $1.3M incurred on Mara Rosa and Lavras do Sul which include cash of $0.7M and non-cash $0.6M through the issuance of shares to settle payables related to Mara Rosa. The total non-current liabilities increased by $0.1M in Q3 2018 compared to Q2 2018 due to the increase in deferred tax liability. Q4 2018 Total assets increased slightly by $1.4M from Q3 2018 to Q4 2018. There was a decrease in cash of $2.6M in Q4 2018 of which $0.4M cash was used in operations and $2.2M was spent mostly on Mara Rosa. The reduction in cash was offset by the capitalization of $2.2M spent on Mara Rosa and Lavras do Sul; and $2.0M capitalization of concession fees payable to the DNPM relating to the Western Potash litigation. The total non-current liabilities increased by $0.3M in Q4 2018 compared to Q3 2018 due to the decrease in deferred tax liability by $1.1M and the increase in concession fees payable of $1.4M. The deferred tax balance is unpredictable and depends on the difference between tax and accounting carrying values of assets and liabilities. The concession fees payable is expected to decrease slightly as the monthly instalment fees are made to the ANM. Q1 2019 Total assets decreased slightly by $0.3M from Q4 2018 to Q1 2019. There was a decrease in cash of $1.4M in Q1 2019 of which $0.7M cash was used in operations and $1.2M was spent mostly on Mara Rosa; supplemented by $0.5M loan from the Executive Chairman. The reduction in cash was offset by the capitalization of $1.2M spent on Mara Rosa and Lavras do Sul. The total non-current liabilities increased by $0.5M in Q1 2019 compared to Q4 2018 due to the $0.5M received from the Executive Chairman. Q2 2019 Total assets increased by $4.4M from Q1 2019 to Q2 2019. Amarillo Gold Corporation Management’s Discussion and Analysis for the year ended December 31, 2019 20
There was a net increase in cash of $2.1M in Q2 2019; $1.3M cash was used in operations; $2.2M was spent mostly on Mara Rosa; supplemented by $5.3M cash from private placement and $0.5M loan from the Executive Chairman. The increase in cash of $2.1M plus the capitalization of $2.2M spent on Mara Rosa and Lavras do Sul accounted mostly for the increase in total assets. The total non-current liabilities decreased by $0.1M in Q2 2019 from Q1 2019 due to the reduction in concession fess payable to ANM (see Note 7). Q3 2019 Total assets increased by $7.4M from Q2 2019 to Q3 2019. There was a net increase in cash of $6.5M in Q3 2019; $1M cash was used in operations; $0.8M was spent mostly on Mara Rosa and Lavras do Sul; repayment of $1M related party loan, supplemented by $9.3M net cash proceeds from private placements. The increase in cash of $6.5M plus the capitalization of $0.8M spent on Mara Rosa and Lavras do Sul accounted mostly for the increase in total assets. The total non-current liabilities decreased by $0.2M in Q3 2019 from Q2 2019 due to the reduction in concession fess payable to ANM (see Note 7). Q4 2019 Total assets decreased by $0.6M from Q3 2019 to Q4 2019. There was a net decrease in cash of 1.9M in Q4 2019; $0.6M cash was used in operations and $1.3M was spent on Mara Rosa and Lavras do Sul. The decrease in cash plus the capitalization of amounts spent on Mara Rosa and Lavras do Sul accounted mostly for the increase in total assets. The total non-current liabilities which all relate to the concession fess payable to ANM (see Note 7) increased negligibly from Q3 2019 to Q4 2019 due to the effect of foreign exchange variation between the CAD$ and R$ and interest accrual adjustments as at year end. The non-current portion of the fees payable to ANM as at December 31, 2019 was R$3.2M versus R$$3.5M as at September 30, 2019. Liquidity and capital resources The Company recorded a net cash increase of $5.4M from $2.3M as at December 31, 2018 to $5.4M as at December 31, 2019. Cash of $9.1M was used to fund $3.6M in operations and $5.5M in expenditures on resource properties in Brazil, plus the repayment of the $1M related party loan. Consulting fees at Mara increased by $0.3M mostly related to ongoing basic engineering, tailings dam study, archeological discharge study as the Company proceeds towards applying for the LI. Amarillo Gold Corporation Management’s Discussion and Analysis for the year ended December 31, 2019 21
As discussed earlier, net cash of $14.5M was received through the closing of private placements twice during 2019: The first was on June 14, 2019, when the Company closed a non-brokered private placement through the issuance of 26,382,950 units at a subscription price of $0.20 per unit for aggregate gross proceeds to the Company of $5.3M. Closing costs were $0.05M for aggregate net proceeds of $5.2M. The second was on August 29, 2019, when the Company closed Private Placements through the issuance of 50,025,000 units at a subscription price of $0.20 per unit for aggregate gross proceeds to the Company of $10M. Closing costs were $0.7M for aggregate net proceeds of $9.3M. The Company issued a total of 76,407,950 common shares and 76,407,950 common share purchase warrants with an exercise price of $0.30 expiring two years from the date of the closing of the respective private placement. On March 29, 2019, the Executive Chairman of the Company agreed to provide a $1M facility (the Facility) to be drawn down from time to time. The Facility was unsecured, due and payable on demand and bore interest at 6% per annum. On August 22, 2019 the total of $1M drawn under this Facility was repaid and accrued interest of $13K was waived. The Company is continuing on its path to bring the Mara Rosa Project into commercial production and to explore its prospective properties both at Mara Rosa and Lavras do Sul. Having made application for the LI at Mara Rosa, the Company is progressing towards completing the FS. In addition, the Company plans to acquire lands that become available at favorable prices and enter into agreements with other landowners to acquire their lands when construction commences. The Company believes that it has sufficient funds to complete the FS and acquire most of the lands. However, funds will be required to initiate construction upon receipt of the LI. Accordingly, the Company is actively seeking sources of financing and has engaged Auramet to assist in this effort. The completion of the feasibility and financing of the Mara Rosa Project as well as ongoing operations could be adversely impacted by the coronavirus outbreak. It is possible that the feasibility study could be delayed due to availability of consultants, suppliers and others. The Company’s plan is to seek financing of the Mara Rosa Project based on the completed feasibility study. The impacts of coronavirus on the capital markets are uncertain and thus financing of the Mara Rosa Project could be delayed. The Company is closely monitoring all of these factors and accordingly, its current plans and operations could be severely altered, delayed or halted. The Company has not earned any revenue to date from its operations. It is in the process of exploring and developing its resource properties. The Company is reliant on external sources of cash for its current short-term and long-term working capital requirements and to fund its exploration programs and business development activities. Without additional financing or other satisfactory arrangements, the Company’s financial resources may not be sufficient to adequately maintain and/or further develop its projects. The Company’s current liquidity and capital resources raise doubt about the Company’s ability to continue as a going concern beyond Q2 2020 without an inflow of additional funds. See the notes to the Company’s audited financial statements for the year ended December 31, 2019. The Company’s ability to continue as a going concern is dependent upon the ability of the Company to obtain necessary financing or other satisfactory arrangements to fund its operating and capital expenses until business circumstances improve so as to allow the Company to be self-sufficient and internally funded. Amarillo Gold Corporation Management’s Discussion and Analysis for the year ended December 31, 2019 22
The Company’s ability to continue its exploration, development and eventually its future production activities is dependent on management’s ability to secure significant additional financing in the future. This may be completed by way of traditional equity or debt financings or in a number of alternative ways including, but not limited to, a combination of: new strategic partnerships joint venture arrangements project-level or subsidiary-level third-party financings royalty or streaming financing the sale of non-core assets a convertible debt financing a rights offering other capital market alternatives. Management is pursuing additional financial sources, and while the Company’s management has been successful in obtaining financing for the Company in the past, there can be no assurance it will be able to do so in the future or that these sources of funding or initiatives will be available for the Company or that they will be available on terms which are acceptable to the Company. Concession fees payable and litigation (a) The Company entered into a services agreement (the “Services Agreement”) dated April 28, 2008 with Western Potash Corporation (“WPC”), a British Columbia company, which replaced a letter agreement pursuant to which the Company staked exploration permits (the “Exploration Permits”) in Brazil’s Amazon Basin for WPC. Once the Company’s Brazilian subsidiary received the exploration permits from the Brazilian Departamento Nacional de Producao Mineral (“DNPM”), it was to transfer them to a Brazilian subsidiary of WPC. Under the Services Agreement, WPC was responsible for all direct and indirect costs incurred by the Company in connection with the staking of the Exploration Permits. The Services Agreement provided that the Company would not be liable for any losses, claims, expenses or other liabilities relating to the Services Agreement. The Company, through its Brazilian subsidiary Amarillo Mineraçâo do Brasil Ltda (AMB), performed the following services for WPC: staked mineral claims in the Amazon Basin formed a subsidiary of WPC called Potassio Occidental Mineracao Ltda (POML) in Brazil, set up bank accounts provided an office other things necessary for POML to commence business in Brazil. On September 12, 2011, AMB received the Exploration Permits which it had staked for WPC. The Company submitted applications to assign the Exploration Permits to POML. The Exploration Permits, which had a three-year life, obligated the owner of the Permits to pay the Taxa Annual pro Hectare (“TAH”) on January 31, 2012, 2013 and 2014. The Exploration Permits should, according to Brazilian law, have been transferred to POML within 60 days. However, the applications were not processed in a timely way as Brazil instituted a moratorium on all transfers of Exploration Permits pending the approval of a new Mining Code. Amarillo Gold Corporation Management’s Discussion and Analysis for the year ended December 31, 2019 23
As a consequence, the transfer of the Exploration Permits was not processed. AMB remained the registered owner of the Exploration Permits and liable for the TAH thereon. In recognition of its obligation under the Services Agreement to pay the TAH, on January 31, 2012, WPC paid the TAH due on the Exploration Permits. On April 19, 2013, WPC sold its shares of POML to Pacific Potash Corporation (“PPC”). On October 7, 2013, PPC reached a settlement with DNPM for a total gross amount of TAH payments, penalties and interest of R$ 4,660,707. DNPM agreed to allow PPC to make the outstanding TAH payments, related penalties and interest owed over a five-year payment period. However, PPC made only one monthly payment and then went into default and has not made any further payments. As the Exploration Permits had not been transferred to POML due to the moratorium, AMB continued to have liability to the DNPM for the TAH due on January 31, 2013 and 2014 as well as penalties for non- payment and interest on the amount due. Neither WPC nor POML paid the TAH due on January 31, 2013 or 2014. Although WPC did not pay the TAH, penalties for non-payment and interest on the amount due, WPC continued to acknowledge to the Company its liability for these obligations. In 2015, AMB appealed its liability for the TAH. The Company believed that, if its appeal was not successful, WPC would make good on its obligation to the Company to pay the accumulated TAH, penalties and interest. It also expected its appeal would be successful as the Exploration Permits should have been transferred to POML according to Brazilian law. In January, 2017, DNPM advised AMB that its appeal had not been allowed. DNPM brought proceedings against AMB for the unpaid TAH on the Exploration Permits for 2013 and 2014 in the amount of R$ 4,790,407. The DNPM has also levied penalties in the amount of R$ 600,769. The combined total of the unpaid TAH and penalties was R$ 5,391,176 as at August 4, 2017. In order to avoid enforcement proceedings by the DNPM and to satisfy one of the conditions underlying the sale of a royalty to Royal Gold as described in Note 8, AMB entered into an agreement with the DNPM to pay an estimated monthly amount of R$ 93,778 over a five year period commencing on June 29, 2018. This total amount of TAH and penalties of R$5,626,642 includes principal of R$4,688,868 and interest of R$937,774. Prior to entering into the plan, the Company advised WPC of the plan, that it was done under protest and without any waiver of its claims against WPC. The Company recorded the initial liability of R$5,626,642 (CAD$1,982,266) and along with a foreign exchange adjustment of R$171,687 (CAD$60,415) a total of R$5,798,785 (CAD$2,042,681) was capitalized at the Mara Rosa property. In 2019 the Company paid an aggregate of R$1,204,347 (CAD$405,801) (2018: R$669,533 (CAD$241,301)) including principal of R$1,125,328 (CAD$379,175) (2018: R$656,442 (CAD$235,541)) and interest of R$79,019 (CAD$26,625) (2018: R$13,092 (CAD$5,760)) under this plan. Interest is accrued on the unpaid balance at approximately 6.7% per annum with accrued interest as at December 31, 2019 of R$380,416 (CAD$122,913) (2018: R$158,532 (CAD$55,724)). Amarillo Gold Corporation Management’s Discussion and Analysis for the year ended December 31, 2019 24
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