Item 3. Quantitative and Qualitative Disclosures About Market Risk
Item 3. Quantitative
and Qualitative Disclosures about Market Risk
Our financial instruments consist of
cash and cash equivalents, accounts receivable, deposits, and accounts payable and accrued liabilities. The fair value of the
financial instruments approximates their carrying value due to the short-term nature of their maturity. Our financial instruments
initially measured at fair value and then held at amortized cost include cash and cash equivalents, accounts receivable, deposits,
and accounts payable and accrued liabilities.
25
(e) Currency risk
Currency risk is the risk of a fluctuation
in financial asset and liability settlement amounts due to a change in foreign exchange rates. The Company operates in the United
States and Canada. The Company’s exposure to currency risk at May 31, 2020 is limited to the Canadian dollar consisting
of cash of CDN$87,000, accounts receivable of CDN$42,000 and accounts payable of CDN$347,000. Based on a 10% change in the US-Canadian
exchange rate, assuming all other variables remain constant, the Company’s net loss would change by approximately $16,000.
(f) Credit risk
Credit risk is the risk of an unexpected
loss if a customer or third party to a financial instrument fails to meet its contractual obligations. We hold cash and cash equivalents
with Canadian Chartered financial institutions. Our accounts receivable consists of Canadian Goods and Services Tax receivable
from the Federal Government of Canada and other receivables for recoverable expenses. Our exposure to credit risk is equal to
the balance of cash and cash equivalents and accounts receivable as recorded in the financial statements.
(g) Liquidity risk
Liquidity risk is the risk that we will
encounter difficulties raising funds to meet our financial obligations as they fall due. We are in the exploration stage and do
not have cash inflows from operations; therefore, we manage liquidity risk through the management of the capital structure and
financial leverage. Future financings may be obtained through debt financing, equity financing, sales of investments, convertible
debt, exercise of options, or other means. Continued operations are dependent on our ability to obtain additional financing or
to generate future cash flows. Our contractually obligated cash flow is disclosed under the section titled “Contractual
Obligations.”
(h) Interest rate risk
Interest rate risk is the risk that the
fair value or future cash flows of a financial instrument will fluctuate because of changes in market interest rates. We are exposed
to interest rate risk with respect to interest earned on cash and cash equivalents. Based on balances as at May 31,2020,
a 1% change in interest rates would result in a change in net loss of $0.1 million, assuming all other variables remain constant.
As we are currently in the exploration
phase none of our financial instruments are exposed to commodity price risk; however, our ability to obtain long-term financing
and its economic viability could be affected by commodity price volatility
Text extracted from the filing as submitted to EDGAR. Formatting, tables and exhibits are simplified for reading; the original document is authoritative for anything you rely on.