QRM

Table of Contents

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 6-K

REPORT OF FOREIGN PRIVATE ISSUER PURSUANT TO RULE 13a-16 OR 15d-16 UNDER THE

SECURITIES EXCHANGE ACT OF 1934

For the month of September, 2014

Commission File Number 001-35100

Quest Rare Minerals Ltd.

 

(Translation of registrant’s name into English)

1155 University Street, Suite 906, Montreal, Québec Canada, H3B 3A7

 

(Address of principal executive office)

Indicate by check mark whether the registrant files or will file annual reports under cover of Form 20-F or Form 40-F.

Form 20-F  ¨    Form 40-F  þ

Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(1):         

Note: Regulation S-T Rule 101(b)(1) only permits the submission in paper of a Form 6-K if submitted solely to provide an attached annual report to security holders.

Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(7):         

Note: Regulation S-T Rule 101(b)(7) only permits the submission in paper of a Form 6-K if submitted to furnish a report or other document that the registrant foreign private issuer must furnish and make public under the laws of the jurisdiction in which the registrant is incorporated, domiciled or legally organized (the registrant’s “home country”), or under the rules of the home country exchange on which the registrant’s securities are traded, as long as the report or other document is not a press release, is not required to be and has not been distributed to the registrant’s security holders, and, if discussing a material event, has already been the subject of a Form 6-K submission or other Commission filing on EDGAR.

Indicate by check mark whether the registrant by furnishing the information contained in this Form is also thereby furnishing the information to the Commission pursuant to Rule 12g3-2(b) under the Securities Exchange Act of 1934.  Yes  ¨    No  ¨

If “Yes” is marked, indicate below the file number assigned to the registrant in connection with Rule 12g3-2(b): 82-                    .

 

 

 

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Table of Contents

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

 

						QUEST RARE MINERALS LTD. (Registrant)
Date September 12, 2014				By		(Signed) Mark Schneiderman
						(Signature) * Mark Schneiderman
						Chief Financial Officer

 

 

*	Print the name and title under the signature of the signing officer.

Persons who are to respond to the collection of information contained in this form are not required to respond unless the form displays a currently valid OMB control number.

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Table of Contents

EXHIBIT INDEX

 

Exhibit		Description
		Quarterly Information
99.1		Unaudited condensed interim financial statements for the quarter ended on July 31, 2014
99.2		Management’s discussion and analysis for the quarter ended on July 31, 2014
99.3		Form 52-109F2 Certification of Interim Filings of the Chief Executive Officer dated September 12, 2014
99.4		Form 52-109F2 Certification of Interim Filings of the Chief Financial Officer dated September 12, 2014

Exhibit 99.1

Condensed Interim Consolidated Financial Statements

Quest Rare Minerals Ltd.

(An Exploration & Development Stage Corporation)

For the three and nine-months ended July 31, 2014

(Unaudited)

INDEX

Interim Consolidated Statements of Financial Position			1
Interim Consolidated Statements of Comprehensive Loss			2
Interim Consolidated Statements of Changes in Equity			3
Interim Consolidated Statements of Cash Flows			4
Notes to Condensed Interim Consolidated Financial Statements			5 – 28

NOTICE TO READER

Management has compiled the unaudited condensed interim financial statements of Quest Rare Minerals Ltd. as at July 31, 2014 and for the three and nine-month periods then ended. These condensed interim financial statements have not been audited or reviewed by the Corporation’s independent auditors.

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Quest Rare Minerals Ltd.

INTERIM CONSOLIDATED STATEMENTS

OF FINANCIAL POSITION

(UNAUDITED)

 

		July 31, 2014 $				October  31, 2013 $
ASSETS
Current assets
Cash and cash equivalents [notes 7 and 10]			3,617,412				7,269,170
Investments [note 10]			1,900				1,600
Prepaid expenses and deposits			507,556				413,560
Commodity taxes and other receivables			252,968				594,525
Tax credits receivable [note 4]			5,485,244				6,985,244
			9,865,080				15,264,099
Non-current assets
Tax credits receivable [note 4]			3,792,225				3,237,225
Exploration and evaluation assets [note 4]			65,292,134				58,400,176
Other non-current assets [note 5]			362,309				—
Total assets			79,311,748				76,901,500
EQUITY AND LIABILITIES
Current liabilities
Loan facility [note 7]			4,338,793				—
Accounts payable and accrued liabilities [note 9]			1,625,813				3,357,441
Premium liabilities			72,180				282,519
Total liabilities			6,036,786				3,639,960
Equity
Share capital			80,897,992				79,436,141
Warrants			606,915				59,948
Contributed surplus			21,519,342				21,106,068
Deficit			(29,749,287	)			(27,340,617	)
Total equity			73,274,962				73,261,540
Total equity and liabilities			79,311,748				76,901,500

Going concern uncertainty [note 1]

See accompanying notes

 

 

1

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Quest Rare Minerals Ltd.

INTERIM CONSOLIDATED STATEMENTS OF

COMPREHENSIVE LOSS

(UNAUDITED)

 

		Three months ended July 31								Nine months ended July 31
		2014 $				2013 $				2014 $				2013 $
REVENUES			—				—				—				—
EXPENSES
Professional fees [note 9]			72,124				138,029				388,380				388,337
Investor relations [notes 6 and 9]			199,748				259,908				750,061				1,187,754
Administration expenses [notes 6 and 9]			414,880				320,769				1,207,330				984,516
Impairment of exploration and evaluation assets [note 4]			9,939				537,379				146,499				781,333
			696,691				1,256,085				2,492,270				3,341,940
Operating loss			(696,691	)			(1,256,085	)			(2,492,270	)			(3,341,940	)
Finance income			9,038				78,558				34,702				202,551
Finance expense [note 7]			(92,943	)			—				(161,741	)			—
Unrealized gain (loss) on investments held for trading [note 10]			(250	)			(1,000	)			300				(8,250	)
Premium liabilities related income			55,799				—				210,339				—
			(28,356	)			77,558				83,600				194,301
Net loss and comprehensive loss for the period			(725,047	)			(1,178,527	)			(2,408,670	)			(3,147,639	)
Net loss per share
Basic and fully diluted			(0.01	)			(0.02	)			(0.04	)			(0.05	)
Weighted average number of outstanding shares
Basic and fully diluted			69,231,502				62,490,816				67,999,646				62,196,070

Going concern uncertainty [note 1]

See accompanying notes

 

2

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Quest Rare Minerals Ltd.

INTERIM CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY

(UNAUDITED)

 

		Share capital								Warrants								Contributed surplus $				Deficit $				Total $
		#				$				#				$
Balance – November 1, 2012			61,864,684				77,498,615				—				—				21,092,317				(23,358,728	)			75,232,204
Issuance of shares under flow-through arrangements [note 8]			4,065,360				1,742,297				—				—				—				—				1,742,297
Issuance of shares and warrants [note 8]			1,012,000				433,714				506,000				72,286				—				—				506,000
Issuance of shares for stock options [note 8]			295,000				132,905				—				—				(88,655	)			—				44,250
Stock-based compensation [note 8]			—				—				—				—				16,357				—				16,357
Share issue costs [note 8]			—				(349,360	)			—				(11,606	)			—				—				(360,966	)
Share issue costs – options issued to brokers [note 8]			—				—				—				—				71,083				—				71,083
Net loss for the period			—				—				—				—				—				(3,147,639	)			(3,147,639	)
Balance – July 31, 2013			67,237,044				79,458,171				506,000				60,680				21,091,102				(26,506,367	)			74,103,586
Balance – November 1, 2013			67,237,044				79,436,141				506,000				59,948				21,106,068				(27,340,617	)			73,261,540
Issuance of shares and warrants [note 8]			11,025,485				2,150,926				11,025,485				825,955				—				—				2,976,881
Issuance of shares for stock options [note 8]			316,667				37,453				—				—				(5,786	)			—				31,667
Stock-based compensation [note 8]			—				—				—				—				297,071				—				297,071
Share issue costs [note 8]			—				(726,528	)			—				(278,988	)			—				—				(1,005,516	)
Share issue costs – units issued to brokers [note 8]			—				—				—				—				121,989				—				121,989
Net loss for the period			—				—				—				—				—				(2,408,670	)			(2,408,670	)
Balance – July 31, 2014			78,579,196				80,897,992				11,531,485				606,915				21,519,342				(29,749,287	)			73,274,962

Going concern uncertainty [note 1]

See accompanying notes

 

3

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Quest Rare Minerals Ltd.

INTERIM CONSOLIDATED STATEMENTS OF CASH FLOWS

(UNAUDITED)

 

		Nine months ended July 31
		2014 $				2013 $
OPERATING ACTIVITIES
Net loss			(2,408,670	)			(3,147,639	)
Items not impacting cash:
Impairment of exploration and evaluation assets			146,499				781,333
Unrealized (gain) loss on investments held for trading			(300	)			8,250
Stock-based compensation			—				(91,758	)
			(2,262,471	)			(2,449,814	)
Net change in non-cash working capital items			(802,372	)			611,449
Net cash flows used in operating activities			(3,064,843	)			(1,838,365	)
INVESTING ACTIVITIES
Investment in exploration and evaluation assets [note 4]			(7,140,327	)			(19,382,746	)
Government credits			—				3,589,711
Increase in non-current assets			(258,794	)			—
Disposal of investments			—				4,000,000
Net cash flows used in investing activities			(7,399,121	)			(11,793,035	)
FINANCING ACTIVITIES
Proceeds from the issuance of shares and warrants			2,976,881				506,000
Proceeds from the issuance of shares under flow-through arrangements			—				2,235,948
Proceeds from exercise of share options [note 8]			31,667				12,000
Share issue costs [note 8]			(735,213	)			(315,721	)
Increase in loan facility [note 7]			4,338,793				—
Net cash flows from financing activities			6,612,128				2,438,227
Net decrease in cash and cash equivalents			(3,651,758	)			(11,193,173	)
Cash and cash equivalents, beginning of period			7,269,170				22,423,970
Cash and cash equivalents, end of period			3,617,412				11,230,797

Going concern uncertainty [note 1]

See accompanying notes

 

 

4

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Quest Rare Minerals Ltd.

NOTES TO CONDENSED INTERIM CONSOLIDATED

FINANCIAL STATEMENTS

(UNAUDITED)

July 31, 2014

1. NATURE OF OPERATIONS AND GOING CONCERN UNCERTAINTY

Quest Rare Minerals Ltd. [“Quest” or the “Parent”] was incorporated under the Canada Business Corporations Act on June 6, 2007. The registered office of Quest is located at 1155 University Street, Suite 906, Montreal, Québec, H3B 3A7. Quest is a publicly-listed Corporation and its shares are listed on both the Toronto Stock Exchange and NYSE MKT [formerly NYSE Amex] under the symbol “QRM”.

Quest is a Canadian-based exploration and development company which, together with its wholly-owned subsidiary, QTM Extraction Ltd [“QTM” or the “Subsidiary”], is focused on the development of its Strange Lake rare earth deposit in northeastern Québec and the identification and discovery of new rare earth element (“REE”) deposit opportunities. The Parent and its Subsidiary [collectively the “Corporation”] is currently advancing several projects in Canada as described in note 4. The Corporation’s exploration program to date has led to the discovery of a new rare earth element deposit on the Corporation’s Strange Lake property in northeastern Québec. QTM was incorporated as a vehicle to hold and operate the Corporation’s assets related to the processing of ore as part the Corporation’s Strange Lake project.

Going Concern Uncertainty

These condensed interim consolidated financial statements have been prepared on the basis of accounting principles applicable to a going concern, which assume that the Corporation will continue in operation for the foreseeable future and will be able to realize its assets and discharge its obligations in the normal course of operations. In assessing whether the going concern assumption is appropriate, management takes into account all available information about the future, which is at least, but not limited to twelve months from the end of the reporting period. The use of these principles may not be appropriate.

To date, the Corporation has not earned significant revenue and is considered to be in the exploration and development stage.

The investment in, and expenditures on, exploration and evaluation assets comprise a significant portion of the Corporation’s assets. Mineral exploration and development is highly speculative and involves inherent risks. Realization of the Corporation’s investment in these assets is dependent upon the renewed legal ownership of the licenses, and whether an economically viable operation can be established.

 

5

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Quest Rare Minerals Ltd.

NOTES TO CONDENSED INTERIM CONSOLIDATED

FINANCIAL STATEMENTS

(UNAUDITED)

July 31, 2014

 

1. NATURE OF OPERATIONS AND GOING CONCERN UNCERTAINTY [Cont’d]

 

The Corporation’s current committed cash resources are insufficient to cover expected expenditures in the next twelve months. The Corporation’s ability to continue as a going concern is dependent on being able to obtain the necessary financing to satisfy its liabilities as they become due. There can be no assurance that management will be successful in securing adequate financing. In addition, while the Corporation’s Prefeasibility Study and development activities in relation to its Strange Lake project look promising, there can be no assurance that the results of its planned Feasibility Study will confirm the existence of economically viable quantities of ore or that the project will ultimately go into production.

The Corporation reported a net loss and total comprehensive loss in the nine-months ended July 31, 2014 and the year ended October 31, 2013 of $2,408,670 and $3,981,889, respectively. These recurring losses and the need for continued financing to further successful exploration and development activities indicate the existence of a material uncertainty that raises substantial doubt as to the Corporation’s ability to continue as a going concern.

These condensed interim consolidated financial statements do not give effect to any adjustments to the carrying values and classifications of assets and liabilities that might be necessary, if the Corporation is unable to continue as a going concern. Such adjustments could be material.

2. BASIS OF PREPARATION AND CHANGES IN ACCOUNTING POLICIES

Statement of Compliance

The condensed interim consolidated financial statements of the Corporation for the three and nine-months ended July 31, 2014 have been prepared in accordance with International Accounting Standard 34, Interim Financial Reporting. The same accounting policies and methods of computation were followed in the preparation of these condensed interim consolidated financial statements as were followed in the preparation of the financial statements for the year ended October 31, 2013 except for the new standards and interpretations effective November 1, 2013. These condensed interim financial statements do not include all of the information required for full annual financial statements and should be read in conjunction with the consolidated financial statements for the year ended October 31, 2013 which have been prepared in accordance with IFRS, as issued by the IASB.

The Board of Directors approved these condensed interim consolidated financial statements effective September 8, 2014.

 

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Quest Rare Minerals Ltd.

NOTES TO CONDENSED INTERIM CONSOLIDATED

FINANCIAL STATEMENTS

(UNAUDITED)

July 31, 2014

 

2. BASIS OF PREPARATION AND CHANGES IN ACCOUNTING POLICIES [Cont’d]

 

Adoption of new standards

IAS 1 Presentation of Financial Statements – Components of Other Comprehensive Income

The amendments to IAS 1 change the grouping of items presented in other comprehensive income (“OCI”). Items that could be reclassified (or “recycled”) to profit or loss at a future point in time would be presented separately from items that will never be reclassified such as remeasurement gain (loss) on employee benefits. The Corporation adopted IAS 1 on November 1, 2013 and the amendment affects presentation only and therefore had no impact on the Corporation’s condensed interim consolidated financial statements.

IAS 1 Clarification of the Requirement for Comparative Information (Amendment)

The amendment to IAS 1 clarifies the difference between voluntary additional comparative information and the minimum required comparative information. An entity must include comparative information in the related notes to the consolidated financial statements when it voluntarily provides comparative information beyond the minimum required comparative period. The additional voluntary comparative information does not need to be presented in a complete set of financial statements.

IFRS 10 Consolidated Financial Statements

IFRS 10 establishes a single control model that applies to all entities including structured entities. IFRS 10 replaces the parts of previously existing IAS 27, Consolidated and Separate Financial Statements, that dealt with consolidated financial statements and SIC-12, Consolidation – Special Purpose Entities. IFRS 10 changed the definition of control such that an investor controls an investee when it is exposed, or has rights, to variable returns from its involvement with the investee and has the ability to affect those returns through its power over the investee. To meet the definition of control in IFRS 10, all three criteria must be met, including: a) an investor has power over the investee; b) the investor has exposure, or rights, to variable returns from its involvement with the investee; and c) the investor has the ability to use its power over the investee to affect the amount of the investor’s returns. The Corporation adopted IFRS 10 on November 1, 2013 and it did not have any impact on the Corporation’s condensed interim consolidated financial statements.

.

 

7

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Quest Rare Minerals Ltd.

NOTES TO CONDENSED INTERIM CONSOLIDATED

FINANCIAL STATEMENTS

(UNAUDITED)

July 31, 2014

 

2. BASIS OF PREPARATION AND CHANGES IN ACCOUNTING POLICIES [Cont’d]

 

IFRS 11 Joint Arrangements

IFRS 11 replaces IAS 31, Interests in Joint Ventures, and SIC-13, Jointly Controlled Entities—Non-monetary Contributions by Venturers. IFRS 11 removes the option to account for jointly controlled entities (“JCEs”) using proportionate consolidation. Instead, JCEs that meet the definition of a joint venture must be accounted for using the equity method. The Corporation adopted IFRS 11 on November 1, 2013 and it did not have any impact on the Corporation’s condensed interim consolidated financial statements.

IFRS 12 Disclosure of Interests in Other Entities

IFRS 12 sets out the requirements for disclosures relating to an entity’s interest in subsidiaries, joint arrangements, associates and structured entities. The Corporation adopted IFRS 12 on November 1, 2013. None of these disclosures requirements are applicable for condensed interim consolidated financial statements, unless significant events and transactions in the interim period require that they are provided. Accordingly, in the absence of such events, the Corporation has not made such disclosures.

IFRS 13 Fair Value Measurement

IFRS 13 establishes a single source of guidance under IFRS for all fair value measurements. IFRS 13 does not change when an entity is required to use fair value, but rather provides guidance on how to measure fair value under IFRS when fair value is required or permitted. IFRS 13 also defines fair value as an exit price and also requires additional disclosures. The Corporation adopted IFRS 13 on November 1, 2013 and the application of IFRS 13 has not impacted the fair value measurements of the Corporation. See Note 10 for required disclosures.

New standards issued but not yet effective

IFRS 9 Financial Instruments

In July 2014, the IASB amended IFRS 9, “Financial Instruments”, to bring together the classification and measurement, impairment and hedge accounting phases of the IASB’s project to replace IAS 39, “Financial Instruments: Recognition and Measurement”. The standard supersedes all previous versions of IFRS 9 and will be effective on November 1, 2018 for the Corporation with earlier application permitted. The Corporation is currently evaluating the impact of this standard on its consolidated financial statements.

 

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Quest Rare Minerals Ltd.

NOTES TO CONDENSED INTERIM CONSOLIDATED

FINANCIAL STATEMENTS

(UNAUDITED)

July 31, 2014

 

3. INCOME TAXES

A reconciliation of income tax charge applicable to accounting loss before income tax at the weighted average statutory income tax rate to income tax charge at the Corporation’s effective income tax rate for the three and nine-month periods ended July 31 is as follows:

 

		Three-month period ended July 31								Nine-month period ended July 31
		2014 $				2013 $				2014 $				2013 $
Loss before income tax			(725,047	)			(1,178,527	)			(2,408,670	)			(3,147,639	)
Income tax recovery at the combined Federal and Provincial tax rate 26.68% [2013 – 26.76%]			(193,442	)			(315,374	)			(642,633	)			(842,308	)
Stock based compensation			21,762				1,891				53,381				(24,555	)
Share issue costs booked through equity			(268,272	)			(96,595	)			(268,272	)			(96,595	)
Premium liability related income			(14,887	)			—				(56,118	)			—
Other			(1,645	)			(10,127	)			(7,214	)			11,562
Changes in valuation allowance			456,484				420,205				920,856				951,896
Tax charge at effective income tax rate			—				—				—				—

The deferred tax asset and liability of the Corporation consist of the following:

 

		July 31, 2014 $				October 31, 2013 $
Future income tax assets
Non-capital loss carry-forwards			4,885,703				4,088,892
Share issue costs			350,507				265,501
Investments			5,483				5,523
			5,241,693				4,359,916
Future income tax liabilities
Exploration and evaluation assets			(2,835,143	)			(2,874,223	)
Net future income tax assets			2,406,550				1,485,693
Unrecognized deferred tax assets			(2,406,550	)			(1,485,693	)
Net future income tax assets (liabilities)			—				—

As at July 31, 2014, the Corporation’s remaining exploration expenditures pursuant to flow-through share arrangements amounted to $372,136 [October 31, 2013 – $1,953,855].

 

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Quest Rare Minerals Ltd.

NOTES TO CONDENSED INTERIM CONSOLIDATED

FINANCIAL STATEMENTS

(UNAUDITED)

July 31, 2014

 

4. EXPLORATION AND EVALUATION ASSETS

During the nine-month period ended July 31, 2014, the Corporation maintained the following properties:

 

		November 1, 2013				Expenditures				Tax credits				Write-down				July 31, 2014
		$				$				$				$				$
Québec
Strange Lake
Acquisition			170,375				—				—				—				170,375
Exploration			48,539,549				4,756,193				947,689				—				54,243,431
Misery Lake
Acquisition			1,911,891				—				—				—				1,911,891
Exploration			4,134,707				1,099,942				(2,170	)			—				5,232,479
Other
Acquisition			—				—				—				—				—
Exploration			—				16,235				(519	)			(15,716	)			—
			54,756,522				5,872,370				945,000				(15,716	)			61,558,176
Ontario
Other
Acquisition			—				—				—				—				—
Exploration			—				350				—				(350	)			—
			—				350				—				(350	)			—
New Brunswick
Other
Acquisition			—				—				—				—				—
Exploration			—				9,326				—				(9,326	)			—
			—				9,326				—				(9,326	)			—
Nova Scotia
Other
Acquisition			—				—				—				—				—
Exploration			—				1,056				—				(1,056	)			—
			—				1,056				—				(1,056	)			—

 

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Quest Rare Minerals Ltd.

NOTES TO CONDENSED INTERIM CONSOLIDATED

FINANCIAL STATEMENTS

(UNAUDITED)

July 31, 2014

 

4. EXPLORATION AND EVALUATION ASSETS [Cont’d]

 

		November 1, 2013				Expenditures				Tax credits				Write-down				July 31, 2014
		$				$				$				$				$
Newfoundland and Labrador
Alterra – Strange Lake
Acquisition			157,870				—				—				—				157,870
Exploration			751,520				—				—				—				751,520
Voisey’s Bay
Acquisition			180				—				—				(180	)			—
Exploration			6,509				—				—				(6,509	)			—
Other
Acquisition			—				—				—				—				—
Exploration			—				113,362				—				(113,362	)			—
			916,079				113,362				—				(120,051	)			909,390
Total Properties			55,672,601				5,996,464				945,000				(146,499	)			62,467,566
Stock-based compensation [note 8]			2,727,575				96,993				—				—				2,824,568
			58,400,176				6,093,457				945,000				(146,499	)			65,292,134

 

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Quest Rare Minerals Ltd.

NOTES TO CONDENSED INTERIM CONSOLIDATED

FINANCIAL STATEMENTS

(UNAUDITED)

July 31, 2014

 

4. EXPLORATION AND EVALUATION ASSETS [Cont’d]

 

During the year ended October 31, 2013, the Corporation maintained the following properties:

 

		November 1, 2012				Expenditures				Tax credits				Write-down				October 31, 2013
		$				$				$				$				$
Québec
Strange Lake
Acquisition			171,302				(927	)			—				—				170,375
Exploration			32,504,287				17,397,572				(1,362,310	)			—				48,539,549
Misery Lake
Acquisition			1,890,499				21,392				—				—				1,911,891
Exploration			3,914,029				592,602				(371,924	)			—				4,134,707
Other
Acquisition			—				—				—				—				—
Exploration			—				143,920				(67,273	)			(76,647	)			—
			38,480,117				18,154,559				(1,801,507	)			(76,647	)			54,756,522
Ontario
Other
Acquisition			—				—				—				—				—
Exploration			—				40,469				—				(40,469	)			—
			—				40,469				—				(40,469	)			—
New Brunswick
Other
Acquisition			—				—				—				—				—
Exploration			—				145,633				—				(145,633	)			—
			—				145,633				—				(145,633	)			—
Nova Scotia
Other
Acquisition			—				—				—				—				—
Exploration			—				63,919				—				(63,919	)			—
			—				63,919				—				(63,919	)			—

 

12

---

Quest Rare Minerals Ltd.

NOTES TO CONDENSED INTERIM CONSOLIDATED

FINANCIAL STATEMENTS

(UNAUDITED)

July 31, 2014

 

4. EXPLORATION AND EVALUATION ASSETS [Cont’d]

 

		November 1, 2012				Expenditures				Tax credits				Write-down				October 31, 2013
		$				$				$				$				$
Newfoundland and Labrador
Strange Lake
Acquisition			157,054				—				—				(157,054	)			—
Exploration			177,656				6,055				—				(183,711	)			—
Misery Lake
Acquisition			(2,250	)			—				—				2,250				—
Exploration			190				—				—				(190	)			—
Alterra – Strange Lake
Acquisition			90,728				67,142				—				—				157,870
Exploration			751,572				(52	)			—				—				751,520
Voisey’s Bay
Acquisition			180				—				—				—				180
Exploration			6,509				—				—				—				6,509
Other
Acquisition			—				—				—				—				—
Exploration			—				314,350				—				(314,350	)			—
			1,181,639				387,495				—				(653,055	)			916,079
Total Properties			39,661,756				18,792,075				(1,801,507	)			(979,723	)			55,672,601
Stock-based compensation [note 8]			2,609,453				118,122				—				—				2,727,575
			42,271,209				18,910,197				(1,801,507	)			(979,723	)			58,400,176

 

13

---

Quest Rare Minerals Ltd.

NOTES TO CONDENSED INTERIM CONSOLIDATED

FINANCIAL STATEMENTS

(UNAUDITED)

July 31, 2014

 

4. EXPLORATION AND EVALUATION ASSETS [Cont’d]

 

As at July 31, 2014 a total of $1,197,110 of expenditures on exploration and evaluation assets were unpaid and included in accounts payable and accrued liabilities [October 31, 2013 $2,340,973]. These amounts have been excluded from the statements of cash flows.

The Corporation is entitled to refundable tax credits on qualified expenditures. The refundable tax credits have been applied against the exploration and evaluation assets when such expenditures are incurred provided that the Corporation has reasonable assurance those credits will be realized.

Management judgment is applied in determining whether the mining exploration expenses are eligible for claiming such credits. Those benefits are recognized when the Corporation estimates that it has reasonable assurance that the tax credits will be realized. Adjustments to estimated tax credits receivable, if any, are recorded against exploration and evaluation assets.

During the nine-month period ended July 31, 2014, management revised the estimated tax credits receivable and reduced them by $1,285,000 with a corresponding increase in exploration and evaluation assets based on the eligibility of such credits. The reduction in the estimated tax credits receivable follows preliminary communications between management and representatives of Revenu Québec and relates in large part to whether expenses incurred by the Corporation in fiscal years 2012 and 2013 for bench-scale testing, product testing, metallurgical testwork and pilot plant testing are qualified expenditures.

During the nine-months ended July 31, 2014, significant changes occurred in the following properties:

Strange Lake, Québec

The Corporation’s 100%-owned Strange Lake property is situated within the George River belt located 220 km northeast of Schefferville, Québec and 125 km west of the Voisey’s Bay Nickel-Copper-Cobalt Mine, and covers an area of approximately 13,333 hectares. The property is a rare earth mineralized zone and consists of 294 mining claims, all of which are in Québec. During the three and nine-month periods ended July 31, 2014, 210 claims covering 9,147 hectares were allowed to lapse as the Corporation continues to focus its activities on the main area of interest on the property.

 

14

---

Quest Rare Minerals Ltd.

NOTES TO CONDENSED INTERIM CONSOLIDATED

FINANCIAL STATEMENTS

(UNAUDITED)

July 31, 2014

 

4. EXPLORATION AND EVALUATION ASSETS [Cont’d]

 

Misery Lake, Québec

The Corporation’s 100%-owned Misery Lake property is located approximately 120 km south of Strange Lake and consists of 170 mining claims in Québec and covers an area of 8,334 hectares. During the three and nine-month periods ended July 31, 2014, nil and 754 claims respectively covering nil and 36,522 hectares respectively were allowed to lapse as the Corporation continues to focus its activities on the main area of interest on the property.

Voisey’s Bay, Newfoundland and Labrador

During the nine-month period ended July 31, 2014, all 18 claims of the Corporation’s 100%-owned Voisey’s Bay property were allowed to lapse. As a result, the Corporation wrote off acquisition costs of $180 and deferred exploration expenditures of $6,509.

Other, Québec, Newfoundland and Labrador, Nova Scotia, Ontario and New Brunswick

Acquisition and exploration expenditures allocated to “Other” projects represent the costs incurred on potential projects.

Based on its ongoing and analysis of these potential projects and their accumulated expenditures, the Corporation decided to write off all of the incurred mining acquisition costs and deferred exploration expenditures incurred during the quarter ended July 31, 2014.

5. OTHER NON-CURRENT ASSETS

On November 5, 2013, QTM entered into an option agreement with La Société du Parc Industriel et Portuaire de Bécancour (the “Agreement”). Under the Agreement, QTM has the right to purchase land in the Bécancour Port industrial site to build a processing facility for the ore from Strange Lake. The option is for a period of one year and can be extended by QTM for up to an additional three years to November 2017 in five increments of six months each. QTM can cancel the Agreement at any time.

Payments made under the Agreement may be offset and deducted against the eventual purchase price once the option is exercised. QTM therefore has capitalized the option payments as they are made until such time as either its option is exercised, cancelled or allowed to lapse by the Corporation.

 

15

---

Quest Rare Minerals Ltd.

NOTES TO CONDENSED INTERIM CONSOLIDATED

FINANCIAL STATEMENTS

(UNAUDITED)

July 31, 2014

 

6. EXPENSES BY NATURE

The following is a breakdown of the nature of expenses included in investor relations and administration expenses for the three and nine-month periods ended July 31, 2014 and 2013:

 

		Three-month period ended July 31								Nine-month period ended July 31
		2014				2013				2014				2013
Investor relations:
Advertising			3,600				12,470				39,575				134,918
Conferences			1,693				4,025				16,468				36,415
Consulting services			24,359				31,966				85,256				80,021
Dues and subscriptions			623				7,034				13,734				15,868
Investor relations fees			5,903				—				18,096				22,034
Listing and stock transfer fees			25,284				18,233				98,854				79,241
Meetings			1,957				55,478				76,816				182,705
Printing and filing			38,811				2,183				139,661				70,124
Salaries and other employee benefits			83,002				100,210				213,204				399,199
Travel related costs			13,302				26,741				43,252				151,458
Other			1,214				1,568				5,145				15,771,
Total			199,748				259,908				750,061				1,187,754

 

16

---

Quest Rare Minerals Ltd.

NOTES TO CONDENSED INTERIM CONSOLIDATED

FINANCIAL STATEMENTS

(UNAUDITED)

July 31, 2014

 

6. EXPENSES BY NATURE [Cont’d]

 

		Three-month period ended July 31								Nine-month period ended July 31
		2014				2013				2014				2013
Administration expenses:
Office Expenses:
Salaries and other employee benefits			146,065				140,925				435,083				413,674
Directors’ fees			60,000				53,750				167,500				161,250
Directors’ and Officers’ Insurance			34,599				26,090				88,775				77,389
Rent			18,618				45,551				110,318				139,146
Telephone and internet			4,755				2,658				11,465				7,990
Travel Costs			12,720				5,826				28,271				45,263
IT Services			18,351				15,114				60,621				64,228
Education & Training			17				428				2,241				4,864
Recruitment Costs			—				10,492				5,008				50,270
Moving Expenses			21,214				—				30,924				—
Repairs & Maintenance			239				98				434				6,547
Other Office Expenses			13,230				9,492				49,537				88,119
Bank Charges			4,455				2,496				10,405				8,063
Foreign Exchange Loss			(951	)			782				6,670				9,471
Stock-based compensation [note 8]			81,568				7,067				200,078				(91,758	)
Total			414,880				320,769				1,207,330				984,516

 

17

---

Quest Rare Minerals Ltd.

NOTES TO CONDENSED INTERIM CONSOLIDATED

FINANCIAL STATEMENTS

(UNAUDITED)

July 31, 2014

 

7. LOAN FACILITY

The Corporation is entitled to receive Québec Resource Tax Credits (“QRTC”) at the rate of 38.75% of certain eligible exploration expenditures incurred in Québec.

In order to monetize the QRTC for the year ended October 31, 2012, the Corporation entered into a loan facility with Investissement Québec (“the Loan Facility”) on September 11, 2013, as amended on May 5, 2014, under which the Corporation can borrow up to $4,339,000, representing a proportion of the estimated 2012 QRTC. Amounts drawn down under the Loan Facility must be repaid on the earlier of November 30, 2014 or upon collection of the 2012 QRTC, which were assigned to Investissement Québec. Amounts drawn under the Loan Facility bear interest, payable on a monthly basis, at an annual rate of prime plus 5.5% [October 31, 2013 – prime plus 5.5%]. The Corporation has provided security to Investissement Québec by way of an irrevocable letter of credit in the amount of $150,000 secured by a redeemable term deposit recorded as cash and cash equivalents at July 31, 2014, a deed of hypothec in the amount of $4,339,000 and an additional hypothec in the amount of $868,000 over its present and future QRTC claims and its accounts receivable, as well as a first ranking hypothec on the Corporation’s present and future tax credits.

As at both July 31, 2014 and September 8, 2014, $4,338,793 had been drawn down pursuant to this Loan Facility.

The Loan Facility contains certain financial and non-financial covenants which were met as at July 31, 2014.

8. SHARE CAPITAL

Authorized

Common

An unlimited number of no par value shares.

Preferred

An unlimited number of shares issuable in series, non-voting, conditions to be determined by the Board of Directors.

 

18

---

Quest Rare Minerals Ltd.

NOTES TO CONDENSED INTERIM CONSOLIDATED

FINANCIAL STATEMENTS

(UNAUDITED)

July 31, 2014

 

8. SHARE CAPITAL [Cont’d]

 

[a] Common shares

Issuances during the three and nine-month periods ended July 31, 2014

 

[i]

On July 17, 2014, the Corporation completed a short-form prospectus offering by issuing 11,025,485 units at a price of $0.27, for gross proceeds of $2,976,881 of which $2,150,926 was allocated to common shares and $825,955 to warrants based on relative fair value (note 8 (c)). Each unit was comprised of one common share and one common share purchase warrant. Each warrant entitles its holder to purchase one additional common share at a price of $0.40 until July 17, 2017. The units separated into common shares and warrants immediately after the closing and the warrants commenced trading on the Toronto Stock Exchange (TSX) under the stock symbol “QRM.WT”.

Further, on July 17, 2014, the Corporation issued 613,008 broker compensation units,entitling holders to purchase units of the Corporation at a price of $0.27 per unit at any time until July 17, 2016. Each unit comprises one common share of the Corporation and one common share purchase warrant. Each common share purchase warrant would entitle its holder to purchase one additional common share of the Corporation at a price of $0.40 per share until July 17, 2017. The total fair value of broker compensation units was $121,989, allocated to contributed surplus.

The fair value of the warrants and the broker compensation units was determined based on the Black-Scholes option pricing model using the weighted average assumptions as follows:

 

Assumption		Share Portion of Broker units				Warrants and Warrant Portion of Broker units
Risk-free interest rate			1.00	%			1.00	%
Expected volatility			80	%			77	%
Dividend yield			Nil				Nil
Expected life [in years]			2.0				3.0
Share Price		$	0.25			$	0.25
Fair value at grant date		$	0.10			$	0.10

In connection with this financing, the Corporation paid cash commissions to agents of $165,512, issued broker compensation units of $121,989 and incurred other professional fees and expenses of $718,015 for a total of $1,005,516 which has been prorated between the share capital and warrants of $726,528 and $278,988 respectively.

As at July 31, 2014, none of the broker compensation units issued had been exercised.

 

19

---

Quest Rare Minerals Ltd.

NOTES TO CONDENSED INTERIM CONSOLIDATED

FINANCIAL STATEMENTS

(UNAUDITED)

July 31, 2014

 

8. SHARE CAPITAL [Cont’d]

 

[ii]

No options were exercised during the three-month period ended July 31, 2014. During the nine-month period ended July 31, 2014, the Corporation issued 316,667 common shares at an average exercise price of $0.10 per share for a total cash amount of $31,667 for stock options exercised, and an amount of $5,786 related to exercised stock options was transferred from contributed surplus to capital stock.

Issuances during the three and nine-month periods ended July 31, 2013

 

[iii]

On July 25, 2013, the Corporation completed a private placement by issuing 4,065,360 flow-through shares at a price of $0.55 per share, for gross proceeds of $2,235,948. Of the total proceeds received for the flow-through shares, $1,742,297 was allocated to common shares and $493,651 to premium liabilities.

In addition, on July 25, 2013, the Corporation issued 1,012,000 units at a price of $0.50 per unit, for gross proceeds of $506,000. Each unit is comprised of one common share and one-half of a common share purchase warrant; each whole warrant entitles its holder to purchase one additional common share at a price of $0.80 until January 25, 2015. If at any time prior to the expiry date of the warrants, the weighted average price of the Corporation’s common shares on the Toronto Stock Exchange exceeds $1.20 for a period of not less than 20 consecutive trading days, the Corporation may reduce the period during which the warrants may be exercised, such that the warrants will expire on the date which is 30 days after the date on which the Corporation sends a notice to warrant holders. An amount of $72,286 related to common share purchase warrants was allocated to warrants (refer also to note 8[c]).

Further, on July 25, 2013, the Corporation also issued broker compensation options entitling the agents for the private placement to purchase a maximum of 203,094 common shares of the Corporation at a price of $0.50 until January 25, 2015. The total fair value of broker options was $71,083, allocated to contributed surplus. The fair value of broker options was determined based on the Black-Scholes option pricing model using the weighted average assumptions as follows:

 

Risk-free interest rate			1.25	%
Expected volatility			76	%
Dividend yield			Nil
Expected life [in years]			1.5
Share price		$	0.72
Fair value at grant date		$	0.35

 

20

---

Quest Rare Minerals Ltd.

NOTES TO CONDENSED INTERIM CONSOLIDATED

FINANCIAL STATEMENTS

(UNAUDITED)

July 31, 2014

 

8. SHARE CAPITAL [Cont’d]

 

As at July 31, 2014, none of the broker options issued had been exercised.

In connection with the private placement, the Corporation paid cash commissions to agents of $224,996, issued broker compensation options of $71,083 and incurred other professional fees and expenses of $144,145 for a total of $440,224 which has been prorated between the share capital, warrants and premium liabilities of $349,360, $11,606 and $79,258 respectively.

 

[iv]

During the nine-month period ended July 31, 2013, the Corporation issued 295,000 common shares at an average exercise price of $0.15 per share for a total cash amount of $44,250 for stock options exercised, and an amount of $88,655 related to exercised stock options was transferred from contributed surplus to capital stock.

[b] Stock Options

The outstanding options, excluding broker options and units, as at July 31, 2014 and October 31, 2013 and the respective changes during the nine-month period and the year then ended are summarized as follows:

 

		Nine-month period ended July 31, 2014								Year ended October 31, 2013
		Number of options				Weighted average exercise price				Number of options				Weighted average exercise price
		#				$				#				$
Outstanding, beginning of period			4,675,834				3.15				5,353,334				3.08
Granted			655,000				0.51				127,500				0.86
Exercised			(316,667	)			0.10				(295,000	)			0.15
Expired/cancelled			(800,000	)			1.17				(510,000	)			3.81
Outstanding, end of period			4,214,167				3.34				4,675,834				3.15

The weighted average share price of options exercised during the nine-month period ended July 31, 2014 was $0.49 [2013 – $1.05].

 

21

---

Quest Rare Minerals Ltd.

NOTES TO CONDENSED INTERIM CONSOLIDATED

FINANCIAL STATEMENTS

(UNAUDITED)

July 31, 2014

 

8. SHARE CAPITAL [Cont’d]

 

The following options, excluding broker options and units, are outstanding and exercisable as at July 31, 2014:

 

Options outstanding
Range of exercise price $				Number outstanding #				Weighted average remaining contractual life (in years)				Weighted average exercise price $				Number exercisable #				Weighted average exercise price $
	0.01 to 0.749				697,500				4.54				0.52				425,833				0.51
	0.75 to 1.499				50,000				3.54				0.97				33,333				0.97
	1.50 to 2.249				305,000				4.14				2.01				305,000				2.01
	2.25 to 2.999				885,000				5.74				2.71				885,000				2.71
	3.75 to 4.499				1,526,667				6.26				4.44				1,526,667				4.44
	4.50 to 5.249				500,000				6.22				4.69				500,000				4.69
	5.25 to 5.999				250,000				6.44				5.72				250,000				5.72
	0.00 to 5.999				4,214,167				5.69				3.32				3,925,833				3.52

The fair value of stock options granted during the three and nine-month periods ended July 31, 2014 and 2013 were estimated at their respective grant dates using the Black-Scholes option pricing model, using the following weighted average assumptions:

 

		Three-month period  ended July 31								Nine-month period  ended July 31
		2014				2013				2014				2013
Risk-free interest rate			1.47	%			1.13	%			1.48	%			1.56	%
Forfeiture rate			4.73	%			3.88	%			4.90	%			3.07	%
Expected volatility			91	%			99	%			90	%			97	%
Dividend yield			Nil				Nil				Nil				Nil
Expected life [in years]			5.00				5.00				5.00				5.00
Fair value at grant date			0.36			$	0.47				0.36			$	0.63

 

22

---

Quest Rare Minerals Ltd.

NOTES TO CONDENSED INTERIM CONSOLIDATED

FINANCIAL STATEMENTS

(UNAUDITED)

July 31, 2014

 

8. SHARE CAPITAL [Cont’d]

 

In addition, as at July 31, 2014, the Corporation had outstanding, the following broker compensation options and units:

 

•

Options entitling holders to purchase a maximum of 203,094 common shares of the Corporation at an exercise price of $0.50 [October 31, 2013 – 203,094]. These options are exercisable until January 25, 2015.

 

•

Units entitling holders to purchase 613,008 units of the Corporation at an exercise price of $0.27 [October 31, 2013 – Nil]. These units are exercisable until July 17, 2016. Each unit comprises one common share of the Corporation and one common share purchase warrant entitling the holder to purchase one additional common share of the Corporation at $0.40 per share. Share purchase warrants are exercisable until July 17, 2017.

[c] Warrants

The outstanding warrants as at July 31, 2014 and October 31, 2013 and the respective changes during the quarter and year then ended are summarized as follows:

 

		Quarter ended July 31, 2014								Year ended October 31, 2013
		Number  of warrants #				Weighted average exercise price $				Number  of warrants #				Weighted average exercise price $
Outstanding balance, beginning of year			506,000				0.80				—				—
Granted			11,025,485				0.40				506,000				0.80
Exercised			—				—				—				—
Expired			—				—				—				—
Outstanding balance, end of year			11,531,485				0.42				506,000				0.80

As at July 31, 2014, the warrants outstanding had a weighted average life of 2.89 years.

[d] Restricted and Deferred Share Unit Plans

On March 9, 2012, the Board of Directors adopted the Restricted Share Unit [“RSU”] Plan and the Deferred Share Unit [“DSU”] Plan to complement the 2012 Stock Option Plan. Under these plans, RSUs may be granted to executives and key employees, and DSUs may be granted to directors and key executives, as part of their long-term compensation packages.

 

23

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Quest Rare Minerals Ltd.

NOTES TO CONDENSED INTERIM CONSOLIDATED

FINANCIAL STATEMENTS

(UNAUDITED)

July 31, 2014

 

8. SHARE CAPITAL [Cont’d]

 

RSUs vest over the period of a “Performance Cycle”, defined as the period from the date of grant of the unit to the end of the Corporation’s second fiscal year after the fiscal year in which the unit was granted [a period of up to three years]. DSUs vest immediately, and DSU awards can be settled only when the holder ceases to be an employee of the Corporation.

RSUs and DSUs entitle the holder to receive a payout, at the Corporation’s discretion in either: [i] common shares, on the basis of one common share per RSU or DSU vested in the holder’s account or [ii] cash, based on the Corporation’s share price at the relevant time. The value of the cash payout, if elected by the Corporation, is determined by multiplying the RSUs and DSUs vested at the payout date by the average closing price of the Corporation’s shares over the last ten days prior to the payout date. DSU awards can be settled only when the holder ceases to be an employee of the Corporation.

Each of the RSU and DSU Plans provides that a maximum of 750,000 common shares can be issued thereunder. All RSUs and DSUs granted are classified as equity instruments in accordance with IFRS as their terms provide for settlement in either equity or cash at the sole discretion of the Corporation.

The outstanding RSUs and DSUs as at July 31, 2014 and October 31, 2013 and the respective changes during the quarter and the year then ended are summarized as follows:

 

		Restricted Share Units
		Number of units				Fair value at grant date				Number of units				Fair value at grant date
		#				$				#				$
		Nine-month period ended July 31, 2014								Year ended October 31, 2013
Outstanding, beginning of period			—				—				125,000				1.73
Granted			110,000				0.48				—				—
Exercised			—				—				—				—
Expired/cancelled			—				—				(125,000	)			1.73
Outstanding, end of period			110,000				0.48				—				—
Units exercisable			—				—				—				—

 

24

---

Quest Rare Minerals Ltd.

NOTES TO CONDENSED INTERIM CONSOLIDATED

FINANCIAL STATEMENTS

(UNAUDITED)

July 31, 2014

 

8. SHARE CAPITAL [Cont’d]

 

		Deferred Share Units
		Number of units				Fair value at grant date				Number of units				Fair value at grant date
		#				$				#				$
		Nine-month period ended July 31, 2014								Year ended October 31, 2013
Outstanding, beginning of period			150,000				1.73				150,000				1.73
Granted			175,000				0.48				—				—
Exercised			—				—				—				—
Expired/cancelled			—				—				—				—
Outstanding, end of period			325,000				1.06				150,000				1.73
Units exercisable			—				—				—				—

[e] Stock-based compensation

For the three and nine-month periods ended July 31, 2014 included in administration expenses in the statements of comprehensive loss is stock-based compensation expense of $81,568 and $200,078 respectively [2013 – $7,067 and $(91,758) respectively]. For the three and nine-month periods ended July 31, 2014, included in exploration and evaluation assets was a stock-based compensation expense of $20,404 and $96,993 [2013 – $17,721 and $472,735 respectively].

9. RELATED PARTY TRANSACTIONS

All of the following related party transactions occurred in the normal course of operations.

 

[a]

The Corporation retains the services of certain directors of the Corporation to carry out professional activities. During the three and nine-month periods ended July 31, 2014, the total amount charged for professional services by directors of the Corporation and recorded in exploration and evaluation assets was $18,750 and $56,250 respectively [2013 – $18,750 and $56,250 respectively].

 

25

---

Quest Rare Minerals Ltd.

NOTES TO CONDENSED INTERIM CONSOLIDATED

FINANCIAL STATEMENTS

(UNAUDITED)

July 31, 2014

 

9. RELATED PARTY TRANSACTIONS [Cont’d]

 

[b]

During the three and nine-month periods ended July 31, 2014, the Corporation incurred fees to law firms of which an officer and director of the Corporation is a partner. For the three-month period ended July 31, 2014, the total amount for such services provided was $187,293, of which $10,391 was recorded in professional fees, $176,887 was recorded in issue costs and $15 was recorded in exploration and evaluation assets [2013 – $59,745, $62,767 and $21,195 respectively]. For the nine-month period ended July 31, 2014, the total amount for such services provided was $386,798, of which $117,852 was recorded in professional fees, $19,892 was recorded in investor relations, $237,532 was recorded in issue costs and $11,522 was recorded in exploration and evaluation assets [2013 – $177,489, $19,585, $62,767 and $185,861 respectively]. As at July 31, 2014, an amount of $248,535 [October 31, 2013 – $52,731] owing to this law firm was included in accounts payable and accrued liabilities in respect of these fees.

[c] Compensation of key management personnel and Board of Directors

Excluding the amounts reported above, during the three and nine-month periods ended July 31, 2014 and 2013, the Corporation recorded the following compensation for key management personnel and the Board of Directors:

 

		Three-month period ended July 31								Nine-month period ended July 31
			2014				2013				2014				2013
		$				$				$				$
Salaries and employee benefits			199,460				160,749				602,036				521,977
Directors’ fees			60,000				53,750				167,500				161,250
Stock compensation			70,205				12,164				215,206				22,832
			329,665				226,663				984,742				706,059

 

26

---

Quest Rare Minerals Ltd.

NOTES TO CONDENSED INTERIM CONSOLIDATED

FINANCIAL STATEMENTS

(UNAUDITED)

July 31, 2014

 

10. FINANCIAL INSTRUMENTS

Principles of risk management

The Corporation’s objectives when managing capital are to safeguard its ability to continue its operations as well as its acquisition and exploration programs. As such, the Corporation has relied primarily on the Loan Facility and the equity markets to fund its activities. In order to carry out planned exploration and to pay for administrative costs, the Corporation will spend its existing working capital and raise additional funds as needed. The Corporation has not used term debt financing and has not paid any dividends. As well, the Corporation does not have any externally-imposed capital requirements, either regulatory or contractual, to which it is subject.

The prices of minerals fluctuate widely and are affected by many factors outside of the Corporation’s control. The prices of minerals and future expectation of such prices may have a significant impact on the market sentiment for investment in mining and mineral exploration companies. This in turn may impact on the Corporation’s ability to raise equity financing for its capital requirements.

The Corporation’s financial instruments consist of cash and cash equivalents, tax credits and other receivables, investments and accounts payable and accrued liabilities. Due to the short-term nature of cash and cash equivalents, tax credits and other receivables and accounts payable and accrued liabilities, the fair value of these financial instruments approximates their carrying value.

The Corporation’s investments are classified as follows:

 

July 31, 2014

October 31, 2013

Classification

Fair value level

Carrying value $

Fair Value $

Carrying value $

Fair value $

Financial assets

Canadian stocks

Held-for-trading

I

1,900

1,900

1,600

1,600

The Corporation does not enter into financial instrument agreements, including derivative financial instruments, for speculative purposes.

Credit risk

Credit risk is the risk of financial loss to the Corporation if a counter-party to a financial instrument fails to meet its contractual obligations; the Corporation’s maximum exposure to credit loss is the book value of its financial instruments.

 

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Quest Rare Minerals Ltd.

NOTES TO CONDENSED INTERIM CONSOLIDATED

FINANCIAL STATEMENTS

(UNAUDITED)

July 31, 2014

 

10. FINANCIAL INSTRUMENTS [Cont’d]

 

The Corporation is not exposed to any significant credit risk as at July 31, 2014. The Corporation’s cash and cash equivalents is deposited with a major Canadian chartered bank and is held in highly-liquid investments.

Liquidity risk

Liquidity risk is the risk that the Corporation will not be able to meet its financial obligations as they come due. All of the Corporation’s financial liabilities are due within one year. The Corporation manages liquidity risk through the management of its capital structure.

As at July 31, 2014, the Corporation had a total of $3,617,412 in cash and cash equivalents. The Corporation manages liquidity risk through the management of its capital structure.

Market risk analysis

Market risk is the risk that the fair value of the future cash flows of a financial instrument will fluctuate because of changes in market prices. The Corporation’s primary market exposures are to interest rate risk.

Interest rate risk

Interest rate risk is the risk that the fair value of future cash flows of a financial instrument will fluctuate due to changes in market interest rates.

The Corporation has a Loan Facility with Investissement Québec. Amounts drawn under the Loan Facility bear interest, payable on a monthly basis, at an annual rate of prime plus 5.5%. In addition, the Corporation’s cash and cash equivalents carry interest and therefore, the Corporation is exposed to a variation of interest rates on amounts earned and payable. Based on the amounts drawn down on its Loan Facility and its exposures to cash and cash equivalents as at July 31, 2014 and assuming that all other variables remain constant, an increase or decrease of 100 basis points of the interest rate during the quarter would result in a increase or decrease of $180 respectively in comprehensive loss before income taxes.

The rates as at July 31, 2014 for Canadian and U.S. funds ranged from 1.20%-1.50% [October 31, 2013 – range of 1.20%-1.50%] and 0.10% [October 31, 2013 – 0.10%], respectively. The rate as at July 31, 2014 for the Corporation’s Loan Facility was 8.5% [October 31, 2013 – 8.5%].

 

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Exhibit 99.2

MANAGEMENT’S DISCUSSION AND ANALYSIS

As at September 8, 2014

The following management’s discussion and analysis (“MD&A”) of the results of operations and financial condition of Quest Rare Minerals Ltd. and its wholly-owned subsidiary QTM Extraction Ltd. (collectively “Quest” or the “Corporation”) covers the three and nine-month periods ended July 31, 2014, unless otherwise noted. It should be read in conjunction with the audited consolidated financial statements and related notes as at and for the year ended October 31, 2013 and the condensed interim consolidated financial statements for the three and nine-month periods ended July 31, 2014.

The condensed interim consolidated financial statements for the three and nine-month periods ended July 31, 2014 have been prepared in accordance with International Accounting Standard 34, Interim Financial Reporting. These condensed interim consolidated financial statements do not include all of the information required for full annual financial statements and should be read in conjunction with the consolidated financial statements for the year ended October 31, 2013 which have been prepared in accordance with IFRS, as issued by the International Accounting Standards Board (“IASB”). All amounts are expressed in Canadian dollars unless otherwise noted.

Forward-Looking Statements

Certain of the information contained in this document may contain “forward-looking statements”. Forward-looking statements may include, among others, statements regarding the Corporation’s future plans, costs, objectives or economic performance, or the assumptions underlying any of the foregoing, including those concerning the Corporation’s Strange Lake B-Zone Rare Earth Element (“REE”) property. In this document, words such as “may”, “would”, “could”, “will”, “likely”, “believe”, “expect”, “anticipate”, “intend”, “plan”, “estimate” and similar words and the negative form thereof are used to identify forward-looking statements. Forward-looking statements should not be read as guarantees of future performance or results, and will not necessarily be accurate indications of whether such future performance will be achieved. Forward-looking statements are based on information available at the time and/or management’s good faith belief with respect to future events and are subject to known or unknown risks, uncertainties and other unpredictable factors, many of which are beyond the Corporation’s control. These risks and uncertainties include, but are not limited to, those described under the heading “Risk Factors” in the Corporation’s Annual Information Form and the Amended and Restated Annual Information Form for the fiscal year ended October 31, 2013, which is available on SEDAR at www.sedar.com and on EDGAR at www.sec.gov/edgar, and could cause actual events or results to differ materially from those projected in any forward-looking statements. The Corporation does not intend, nor does it undertake any obligation, to update or revise any forward-looking statements contained in this MD&A to reflect subsequent information, events or circumstances or otherwise, except if required by applicable law.

CORPORATE OVERVIEW

Quest is a Canadian exploration and development company focused on the development of its important Strange Lake REE deposit in northeastern Québec, the identification and discovery of new REE deposit opportunities, and the engineering and construction of a processing facility in southern Québec.

Quest’s objective is to become a major stable global supplier of rare earth products. It has a preliminary agreement for the supply of zirconium product, and is continuing discussions with major industrial users of REE in Europe and North America. Quest is poised to establish a major new North American industrial sector of global importance, able to address the chronic HREE+Yttrium (HREE+Y) supply deficit over a long period of time.

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RECENT DEVELOPMENTS

On July 17, 2014, Quest closed a prospectus offering where Quest issued 11,025,485 units at a price of $0.27 per unit, for gross proceeds to Quest of approximately $3 million. Each unit is comprised of one common share and one common share purchase warrant of Quest. Each warrant entitles its holder to purchase one additional Quest common share at a price of $0.40 for 36 months from the closing date of the offering. The net proceeds from the offering will be used by Quest primarily toward a feasibility study on its Strange Lake rare earth project in northeastern Québec, and for working capital.

The warrants issued by Quest will trade on the Toronto Stock Exchange under the stock symbol “QRM.WT”. Quest’s common shares are listed on the Toronto Stock Exchange and NYSE MKT.

The offering was completed through a syndicate of agents co-led by GMP Securities L.P. and Desjardins Securities Inc. and including Maison Placements Canada Inc. and Jones, Gable & Company Limited.

Exploration Strategy

The Corporation’s 2009 exploration program led to the discovery of a major new REE deposit, the B-Zone, on the Corporation’s Strange Lake property. In September 2010, the Corporation completed a mineral resource estimate as well as a Preliminary Economic Assessment of the Strange Lake B-Zone deposit. Drilling on 60 m by 80 m centres over the defined limits of the deposit in the summer of 2010 allowed Quest to develop a revised Indicated and Inferred Resource Estimate in April 2011. The report was used as the basis to develop a program of definition drilling and to commence a pre-feasibility study program at Strange Lake in 2011. Quest believes Strange Lake has the potential to be one of the world’s largest and highest-grade heavy rare earth (HREE) mining projects.

Strange Lake Rare Earth Project, Québec

The Strange Lake property comprises a total of 294 claims all located in Québec. The property, located 220 km northeast of Schefferville and 125 km west of the Voisey’s Bay Nickel-Copper-Cobalt Mine (Figure 1), covers an area of 13,333 hectares. During the three and nine-month periods ended July 31, 2014, 210 claims covering 9,147 hectares were allowed to lapse as the Corporation continues to focus its activities on the main area of interest on the property. The project area is accessible by fixed-wing aircraft or helicopter from Schefferville, Québec, or from Nain or Happy Valley-Goose Bay, Newfoundland and Labrador. Vale’s nickel-copper mine at Voisey’s Bay is the closest mine, located approximately 125 km east of Strange Lake, on the Labrador coast. Exploration work on the Strange Lake Project has been focused around the Strange Lake B-Zone REE deposit discovered by Quest in 2009 and around additional REE showings identified by Quest crews on the property.

Quest’s exploration strategy combines prospecting and strong geological expertise with the use of leading-edge geophysical and geochemical techniques to search for mineral deposits. The Corporation also believes in conducting exploration through joint ventures with other mining firms, in order to share exploration risk and to benefit from its partners’ capabilities in mine development and production. In support of the Strange Lake development project work, Quest is currently in the process of building a rare earth and rare metal mine development team.

Further Operational Improvements and Industry Partnerships

Quest has identified and continues to work toward the implementation of a number of additional operational improvements to the base case assumptions presented by the PEA filed in April 2014, which are intended to further reduce project capital and operating costs and increase product yields.

 

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Strategic Business Plans

The PEA assumes that Quest will execute and operate all aspects of the Strange Lake project within a single corporation. However, Quest recognizes that there may be certain financial advantages to structuring the project in separate corporate entities. These entities would include a mining company, a transport and logistics company, a materials-processing company and a separation and refining company, either as wholly-owned subsidiaries of Quest or as joint ventures with industrial partners. There are a number of potential advantages to such an arrangement, including the opportunity to partner with specialized processing or transportation and logistics providers.

Figure 1 – Property Location Map, George River Area Projects, Québec and Newfoundland and Labrador

 

Process Improvements

On September 4, 2014, Quest announced the results for the production of a high purity rare earth and yttrium oxide concentrate from its new and substantially improved process flowsheet outlined in the April PEA press release for the Strange Lake Project.

The mixed rare earth oxide was produced as part of Quest’s ongoing metallurgical testing program at SGS Mineral Services – Lakefield site (SGS), and represents the successful completion of the majority of the bench scale testing for the improved process.

Presented in Table 1 below is the analysis of the mixed oxide from SGS. The analysis was confirmed by a highly reputed third party laboratory, Activation Laboratories Ltd. The mixed oxide contained 98.4% total rare earth oxide (TREO), of which approximately 37% is heavy rare earth oxide (HREO). HREO content is a function of the HREO distribution in the mineral sample that was fed through the process. According to Quest’s production plan, higher HREO content mineralized material will be processed in the first 23 years of production, with about 45% HREO expected in the final product mix.

 

3

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Table 1 – Composition of the mixed rare earth oxide produced in recent process testing (SGS Analysis)

 

Oxide		La2O3		CeO2		Pr6O11		Nd2O3		Sm2O3		Eu2O3		Gd2O3		Tb4O7		Dy2O3
Analysis		13.20%		30.62%		3.33%		12.00%		1.95%		0.14%		2.70%		0.55%		3.64%

 

Oxide		Ho2O3		Er2O3		Tm2O3		Yb2O3		Lu2O3		Y2O3		TREO*		LREO**		HREO***
Analysis		0.78%		2.34%		0.33%		1.82%		0.24%		24.80%		98.40%		61.10%		37.30%

(*) – Total Rare Earth Oxides (TREO+Y) include: La₂O₃, CeO₂, Pr₆O₁₁, Nd₂O₃, Sm₂O₃, Eu₂O₃, Gd₂O₃, Tb₄O₇, Dy₂O₃, Ho₂O₃, Er₂O₃, Tm₂O₃, Yb₂O₃, Lu₂O₃ and Y₂O₃.

(**) – Light Rare Earth Oxides (LREO) include: La₂O₃, CeO₂, Pr₆O₁₁, Nd₂O₃ and Sm₂O₃.

(***) – Heavy Rare Earth Oxides (HREO+Y) include: Eu₂O₃, Gd₂O₃, Tb₄O₇, Dy₂O₃, Ho₂O₃, Er₂O₃, Tm₂O₃, Yb₂O₃, Lu₂O₃ and Y₂O₃.

Industry Partnerships

Quest has begun discussions aimed toward establishing an industry partnership with rare earth separation/refining companies. Quest would acquire separation technology and the related intellectual property and the partner in return would assist in the process of building the separation facility at Bécancour. The PEA assumes that a separation plant is built at the same time as the metallurgical plant.

In the event that all of these potential plans are successfully executed, the initial Quest capital requirement could be reduced to just under $1 billion.

In addition, the development plan is sufficiently flexible to allow for expansion of production capacity to meet future rare earth supply demand.

Process Summary

The substantially improved process flowsheet developed and tested at SGS to produce the mixed rare earth oxide concentrate, which will form the feed to the rare earth separation plant, included the following process steps:

 

•

Beneficiation (flotation), which reduced the mass of material treated by approximately 50%, and results in smaller process plant footprint at Bécancour and reduced energy requirements when compared to the 2013 PFS flowsheet

 

•

Selective sulphation roasting and leaching, which targets recovery of REE+Y to solution, with minimum recovery of impurity elements, including Al, Fe, and Zr (they mostly remain in residue). The selective sulphation process greatly reduces acid consumption and drastically improves the quality of the leach solution, leading to reduced operating costs and allows for a simplified process flowsheet

 

•

Impurity removal, which precipitates residual impurities from the leach solution

 

•

Crude concentrate precipitation, which precipitates REE+Y from the leach solution

 

•

Final mixed concentrate production, which includes re-leach of the crude concentrate and final purification steps before producing a high purity mixed rare earth concentrate

 

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Beneficiation

The beneficiation process is a simple flotation circuit that operates at close to ambient temperature, and uses commercially available chemicals. Approximately 50% of mass can be rejected with rare earth recoveries of about 90%. The opportunity to raise waste rock mass rejection and potentially further decrease the size of the Bécancour Process Plant, as well as lower the logistics costs associated with transportation of flotation concentrate is currently under evaluation.

Hydrometallurgy

Quest’s improved hydrometallurgical process can produce a high purity mixed rare earth oxide without technically complex, risky and costly solvent extraction circuits. The key step in the new process is the selective thermal sulphation. By careful control of key process parameters, the recovery of REE to solution can be maximized while Al, Fe, Zr and other impurities are rendered insoluble, and the acid level of the leach solution is minimized. High levels of acid and impurities in solution represent a major technical and economic challenge for many projects. By leaving the impurities behind in the leached residue and minimizing free acid in the leach solution, the flowsheet is dramatically simplified – with reductions in acid consumption, neutralizing agent consumption, process plant footprint, energy consumption and the quantity and quality of residue for disposal. Also of note is the fact that silica in Quest’s minerals is not attacked by sulphuric acid, resulting in straightforward liquid solid separation steps.

REE recovery from flotation concentrate to leach solution is approximately 87% in the new process.

Following sulphation and water leaching, the remaining process steps include precipitation and filtration stages using customary equipment and relatively low cost reagents. Impurities are selectively precipitated from solution with minimal REE losses. A crude rare earth concentrate is produced by precipitation. The crude concentrate is then purified to produce the final mixed rare earth concentrate feed to the separation plant.

The final precipitation of the high purity mixed rare earth concentrate uses oxalic acid, which precipitates the rare earths as oxalates. The mixed rare earth oxalate is calcined to produce the high purity oxide. Options to further improve the purity of the mixed rare earth concentrate are being evaluated.

Ongoing and Future Metallurgical Programs

Quest is continuing to optimize the process flow sheet and evaluate opportunities for improvement in the beneficiation and hydrometallurgical processing stages. Ongoing and further metallurgical work includes the following:

 

•

Continued evaluation of sensor-based ore sorting (radiometric, photometric) at Helmholtz Institute in Freiberg, Germany (evaluating potential of sensor based ore sorting as the first step in mass reduction)

 

•

Optimization of the flotation circuit and evaluation of reduced mass pull (which may further decrease the size of the Bécancour, Québec processing plant, and offer potential reductions in CAPEX and OPEX)

 

•

Mini-pilot plant operation of the hydrometallurgical circuit at SGS to confirm results of bench scale program and optimize operating parameters

 

•

Beneficiation piloting (for sensor based sorting and or flotation circuits)

 

•

Full scale integrated piloting

 

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Expenditures by Material Component

For the nine-month period ended July 31, 2014, Quest had incurred a total of $4,756,193 in exploration expenditures on the Québec Strange Lake Project compared to $12,505,109 for the nine-month period ended July 31, 2013. The following table breaks down the capitalized expenditures by its material components.

 

		2014				2013
Geophysical Surveys		$	540			$	72,742
Geological Surveys		$	161,308			$	295,388
Drilling		$	153,400			$	117,873
Prefeasibility Studies		$	2,641,042			$	9,617,715
Feasibility Studies		$	98,776			$	599,810
Metallurgical Work		$	939,980			$	1,295,216
Environmental & Permitting		$	536,879			$	316,910
Other		$	224,268			$	189,455
Total		$	4,756,193			$	12,505,109

Exploration Activities

Current Exploration Work

Quest has filed an assessment report on its B-Zone Rare Earth Deposit at Strange Lake with the Québec government authorities.

Future Exploration Work

Planning for a small exploratory diamond drill program and the mechanical stripping, washing, geological mapping and channel or blast sampling of high grade surface mineralization of the B-Zone is being undertaken. Requests for permitting have been sent to various Quebec Ministries. This program will be conducted between late August and late September 2014. The diamond drilling program will test new mineralization intersected approximately 1.5 km southwest of the B Zone Deposit.

Misery Lake Rare Earth Project, Québec

The Misery Lake Property consists of a single claim block comprising 170 claims located in Québec. The property is located 120 km south of the Strange Lake Project and covers a total of 8,334 hectares. During the three and nine-month periods ended July 31, 2014, nil and 754 claims respectively covering nil and 36,522 hectares respectively were allowed to lapse as the Corporation continues to focus its activities on the main area of interest on the property. The rare earth potential of the Misery Lake area was first recognized by Quest in August 2007 when reconnaissance bedrock sampling over a concentric magnetic feature returned grab sample results of up to 27% Fe2O3, 1.2% P2O5, 1.5% TiO2 and 2.25% TREO. The Misery Lake property geology is analogous to the Lovozero Peralkaline Complex in Russia, the country’s primary producing area for rare earths, niobium, tantalum, phosphate and zirconium.

Current Work Activities

In July 2014, Quest announced the drill results from the 2014 winter drill program at its Misery Lake Project. The property is located 120 km south of Quest’s Strange Lake rare earth development project. The drill holes intersected strong REE mineralization containing significant concentrations of the element scandium from a new area of mineralization, called the “Boulder Zone” at the northeastern corner of the property.

 

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The Misery Lake drill program commenced on March 30, 2014 and was completed on April 20, 2014. A total of 7 holes were drilled for 1,437 meters (Table 2, Figure 2). A new mineralized zone, the “Boulder Zone”, was traced back to its bedrock source from a previously-identified 7-km long, 065⁰-trending rare earth element (REE) mineralized boulder field (Figure 3). The zone was intersected in three drillholes (ML14026, ML14028 and ML14029) over an east-west strike length of 200 m and vertically to 200 m (Figure 4). Quest has yet to confirm the dip of the new zone but early indications are that it is sub-vertical to steeply south-dipping and open along strike in both directions and at depth. Mineralized core intersections of between 27.6 m and 199.69 m were returned from the drilling. Best assays returned 1.48% total rare earth oxides plus yttrium (TREO+Y⁽¹⁾) over 62.8 m (drillhole ML14026) including 1.72% TREO+Y⁽¹⁾ over 27.6 m. The drilling results also returned important levels of scandium oxide (Sc₂O₃ ) between 0.0235% to 0.0351% (235 to 351 grams/tonne Sc₂O₃) over the drilled intervals. Highlights of the results, which are interpreted to be apparent thickness, are shown in Table 1 and the location of the drillholes is presented in Table 2 in NAD 83, Zone 20N projection.

Table 1: Winter Diamond Drill Results, Misery Lake Project, Québec

 

Hole ID		From m				To m				Thickness m				TREO+Y(1) %				LREO(2) %				HREO+Y(3) %				HREO+Y/ TREO+Y				Sc2O3 %
ML14026			14.77				182.60				167.83				1.1760				1.0013				0.1747				14.86				0.0262
ML14026			14.77				42.40				27.63				1.7206				1.4686				0.2521				14.65				0.0351
ML14026			14.77				77.55				62.78				1.4779				1.2607				0.2172				14.70				0.0304
ML14028			13.22				212.91				199.69				1.0800				0.9178				0.1621				15.01				0.0235
ML14028			13.22				91.14				77.92				1.4065				1.1977				0.2088				14.85				0.0280
ML14029			13.35				93.40				80.05				1.3353				1.1362				0.1991				14.91				0.0286
ML14030			177.00				183.04				6.04				1.1442				0.9632				0.1810				15.82				0.0319

 

(1)—Total

Rare Earth Oxides (TREO+Y) include: La2O3, CeO2, Pr6O11, Nd2O3, Sm2O3, Eu2O3, Gd2O3, Tb4O7, Dy2O3, Ho2O3, Er2O3, Tm2O3, Yb2O3, Lu2O3 and Y2O3.

(2)—Light

Rare Earth Oxides (LREO) include: La2O3, CeO2, Pr6O11, Nd2O3 and Sm2O3.

(3)—Heavy

Rare Earth Oxides (HREO+Y) include: Eu2O3, Gd2O3, Tb4O7, Dy2O3, Ho2O3, Er2O3, Tm2O3, Yb2O3, Lu2O3 and Y2O3.

Table 2: Winter Diamond Drillhole Location Table, Misery Lake Project, Québec

 

HOLE-ID		Easting				Northing				Elevation m				Depth m				Dip				Az
ML14024			442988				6134135				475				223.83				-90				0
ML14025			442988				6234135				475				215.74				-90				0
ML14026			443385				6134423				518				204.00				-90				0
ML14027			443572				6134485				475				178.11				-90				0
ML14028			443484				6134401				518				227.60				-90				0
ML14029			443302				6134490				518				213.00				-70				180
ML14030			441582				6134253				525				197.33				-90				0

About Scandium

Scandium, with atomic number 21 and an atomic weight of 44.95 on the Periodic Table of Elements, is used in solid oxide fuel cells, high-strength aluminum alloys, electronics, high-intensity discharge (HID) lighting and lasers in research. When alloyed with aluminum (as little as 0.5%), scandium improves durability, weldability, corrosion resistance, and malleability. Highly-durable “superalloys” are usually made of aluminum and up to 2% scandium; they exhibit the highest strength-to-weight ratio compared to other similar alloys and have been relied on for use in Russian MiG aircraft and in the Mir space station. Airbus uses aluminum-scandium alloys for its aircraft for significant weight and operational cost savings; the U.S. Navy is also planning to use these superalloys in its new generation of vessels. Scandium stabilizes zirconia cathodes in solid oxide fuel cells to provide the highest level of ionic conductivity, making it possible to generate power and heat at lower cost in the long term. The current price of the metal oxide from estimates published by USGS indicates that scandium oxide trades at approximately US $3,700/kg for 99.99% purity.

 

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Figure 2 – 2014 Drillhole Location Map on Ground Magnetics Base, Misery Lake Project, Québec

 

Figure 3 – Property Geology Map, Misery Lake Project, Québec

 

 

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Figure 4 – Drilling Cross-section with Intersection Assays on a Magnetics Base, Misery Lake Project, Québec

 

Misery Lake Geology & Geophysics

The Misery Lake property is dominated by a six-km diameter, circular intrusion comprising of multiple concentric rings of varying types of syenite and other minor units such as syenitic pegmatite. This intrusive complex exhibits gradational contacts with the host Mistastin Batholith, which comprises predominantly rapakivi granite in the Misery Lake area.

Quest completed a high-resolution ground magnetic survey at Misery Lake in the winter of 2013, which allowed continuous data collection over the entire property. This ground magnetics survey revealed that the circular magnetic features in both the outer and inner rings are in fact each multiple rings rather than a singular rings, suggesting repetitive stages of differentiation and magmatic intrusion. This survey provided increased resolution to earlier airborne data collected from the property that allowed the identification of multiple east-west oriented, cross-cutting magnetic features that were previously unknown. Most importantly, as described below, a possible source for the REE-mineralized boulders was identified.

Expenditures by Material Component

For the nine-month period ended July 31, 2014, Quest had incurred a total of $1,099,942 in exploration expenditures on the Québec Misery Lake Project compared to $548,030 for the nine-month period ended July 31, 2013. The following table breaks down the capitalized expenditures by its material components.

 

		2014				2013
Geophysical Surveys			—			$	257,974
Geological Surveys		$	12,221			$	113,982
Drilling		$	1,002,125			$	57,509
Other		$	85,596			$	118,565
Total		$	1,099,942			$	548,030

 

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2014 Exploration Drilling Program

In late March 2014, Quest mobilized a crew to its Misery Lake camp to prepare for a winter drilling program. The purpose of this drilling campaign was to define possible sources of an REE-mineralized boulder train. One of the key findings from prospecting and mapping over the course of Quest’s surface exploration programs has been the identification of a prominent REE-mineralized ferrosyenite boulder train. This boulder train, which has been extensively sampled over a distance of 7 km (Figure 3) comprises predominantly angular to sub-rounded, small (<10 cm) to large (>2 m) moderate-to-strongly magnetic ferrosyenite. Quest used the known ice direction and the very discrete nature of this boulder trend parallel to the glacial direction to postulate that an unusual east-west trending and cross-cutting magnetic feature may be the source of the ferrosyenite boulders and planned several holes in the 2014 drilling program to test this hypothesis. The magnetic feature is directly down ice of the boulder field.

Drilling successfully intersected well-mineralized ferrosyenite and fayalite syenite while drill testing the cross-cutting magnetic feature described above. By comparing the TREO+Y, iron oxide (Fe₂O₃), Sc₂O₃ (Table 3) and other metal grades from the boulders*, against the upper 10 meters** of core from ML14026, ML14028 and ML14029, it is clear that they are very similar. The textures of the boulders and core are very similar, with drillcore commonly presenting higher values than the boulders.

The implications of these results are significant because they allow Quest to employ a new exploration model for the discovery of additional REE+Y+Sc mineralized zones in future exploration programs on the property. ML14030, which was drilled to the west on a possible continuation of the previously-described magnetic feature, intersected strongly REE mineralized ferrosyenite at depth over a narrower thickness. This suggests to Quest that east-west magnetic features may represent a significant and untested target type at Misery Lake (Figure 5).

Figure 5 – Future East-West Exploration Target Location Map, Misery Lake Project, Québec

 

 

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Table 3 – Comparison Chart Showing Boulder and Drill Sampling Results, Boulder Zone, Misery Lake Project, Québec

 

Type		Boulders				ML14026				% Diff				ML14028				% Diff				ML14029				% Diff
TREO+Y (%)			1.395				1.667				19.50				1.465				5.02				1.527				9.46
Fe2O3 Total (%)			33.85				37.99				12.23				35.39				4.55				39.57				16.89
Sc2O3 (%)			0.0339				0.0344				1.69				0.0289				14.75				0.0316				6.73

 

*	based on 44 boulders

**	based on upper 10 m of core

Alterra – Strange Lake Option Property Agreement, Newfoundland and Labrador

The property comprises 30 claims covering 750 hectares contiguous to the east of Quest’s Strange Lake Project. Quest initiated negotiations in 2010 to acquire a participation in this rare earth property adjacent to Strange Lake. The claims cover geological and airborne geophysical targets that form the northeastern extension of surface mineralization defined by Quest crews in 2009, known as the SLG occurrence.

On June 15, 2010, Quest announced that it had entered into an exploration and option agreement with Search Minerals Inc. (“Search”) and Alterra Resources Inc. (“Alterra”), a wholly-owned subsidiary of Search, pursuant to which Quest has an option to acquire up to a 65% undivided working interest in 30 mining claims located on the southeastern contact of the REE-bearing Strange Lake Alkali Complex in western Labrador.

Under the terms of the exploration and option agreement, Quest can earn a 50% undivided working interest in the 30 claims by issuing an aggregate of 80,000 common shares of Quest to Alterra and by incurring mining exploration expenditures of $500,000 in the aggregate, both over a period of three years. Further, upon completing all of the payments mentioned above, Quest has an option to acquire an additional 15% undivided working interest in the mining claims by making a payment of $75,000 before the fourth anniversary date of the exploration and option agreement, by issuing an additional 150,000 common shares of Quest to Alterra on or before the fifth anniversary date of the exploration and option agreement, and by incurring mining exploration expenditures of $1,250,000 in the aggregate on or before the fifth anniversary date of the exploration and option agreement.

On November 7, 2012, the Corporation entered into an agreement with Search and Alterra under which the Corporation agreed to exchange the Operator fees receivable from Search of $67,141 against its obligation to issue 40,000 common shares of the Corporation to Alterra in order to earn its 50% undivided working interest. As a result, the Corporation has acquired a 50% undivided working interest in the claims.

During the year ended October 31, 2013, the Corporation did not exercise its option under the exploration and option agreement to earn an additional 15% undivided interest in the working claims and as a result, this option has now lapsed.

Current Work and Future Exploration Activities

As at July 31, 2014 a 50:50 joint venture with Search and Alterra had not been formed. Discussions with Search Minerals Inc. are ongoing.

Project Evaluation and Project Development (PE&PD), Rare Metals – Ontario, Québec, New Brunswick, Nova Scotia, and Newfoundland and Labrador

In December 2012, Quest made a strategic decision to add new rare metals to its existing commodity project portfolio. Quest’s goal is to identify and generate new, world-class projects for molybdenum (Mo), tungsten (W), antimony (Sb), lithium (Li), tin (Sn), indium (In), tantalum (Ta), germanium (Ge) and gallium (Ga). Quest has acquired several government and private geological databases for all eastern Canada. Assessment of exploration data for Ontario, Québec, New Brunswick, Nova Scotia, and Newfoundland and Labrador were used to identify exploration targets for field evaluation.

 

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New Brunswick, Nova Scotia and Newfoundland PE & PD

Some data compilation work continued during this quarter. A property evaluation is scheduled during early October in New-Brunswick.

Qualified Person

Mr. Pierre Guay, P. Geo., is the qualified person on the exploration projects presented in this MD&A under National Instrument 43-101 Standards of Disclosure for Mineral Projects and is responsible for the technical contents of this report and has approved the disclosure of the technical information contained herein.

Summary of Quarterly Results

The following table presents unaudited selected financial information for the eight most recently completed financial quarters:

 

		Year ended October 31, 2014												Year ended October 31, 2013																October 31, 2012
		Q3 $				Q2 $				Q1 $				Q4 $				Q3 $				Q2 $				Q1 $				Q4 $
Revenues			—				—				—				—				—				—				—				43
Net loss and total comprehensive loss			(725,047	)			(713,915	)			(969,708	)			(834,250	)			(1,178,527	)			(1,042,041	)			(927,071	)			(1,153,597	)
Basic and fully diluted net income (loss) per share			(0.01	)			(0.01	)			(0.01	)			(0.02	)			(0.02	)			(0.01	)			(0.02	)			(0.02	)

The Corporation has no intention of paying dividends in the foreseeable future. Any future decision to pay cash dividends will be left to the discretion of the Board of Directors of the Corporation and will depend on the Corporation’s financial position, operating results and capital requirements at the time as well as such other factors that the Board of Directors may consider relevant. The Corporation has paid no dividends and has no retained earnings from which it might pay dividends.

Quarter ended July 31, 2014 compared with the quarter ended July 31, 2013

The Corporation’s cash is deposited with major Canadian chartered banks and financial institutions and is held in highly-liquid investments. As at July 31, 2014, the Corporation had a total of $3,617,412 in cash and cash equivalents compared to $11,230,797 in cash and cash equivalents and investments held-to-maturity as at July 31, 2013.

Expenses for the quarter ended July 31, 2014, as detailed in the Interim Consolidated Statements of Comprehensive Loss, totaled $696,691 as compared to $1,256,085 for the quarter ended July 31, 2013.

For the quarter ended July 31, 2014, the Corporation reported a net loss of $725,047 as compared to a net loss of $1,178,527 for the quarter ended July 31, 2013. The Corporation expects to record losses until such time as an economic ore body is defined and developed and there are revenues from mineral production.

Professional fees, investor relations and administration expenses totaled $686,752 (2013—$718,706). The decrease of $31,954 related to the following variations:

 

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•

Professional fees decreased by $65,905 to $72,124 for the quarter ended July 31, 2014 (2013 – $138,029) and related lower legal and consulting fees incurred during the quarter.

 

•

Investor relations expenses totaled $199,748 compared to $259,908 for the quarter ended July 31, 2013. The main components of this net decrease of $60,160, as detailed in note 6 to the condensed interim consolidated financial statements related mainly to higher printing and filing costs, investor relations, listing and stock transfer fees offset by reductions in annual meeting and conference expenses, salaries and other employee benefits, meetings, and advertising expenses.

 

•

Administration expenses increased by $94,111 to $414,880 for the quarter ended July 31, 2014 (2013 – $320,769). The main components of this variation, as detailed in note 6 to the condensed interim consolidated financial statements, consisted of mainly higher stock-based compensation costs, directors’ fees and associated costs and office expenses.

The costs of exploration and evaluation assets are capitalized until the ore body is defined or the project is abandoned. If the ore body is defined, these capitalized costs will be amortized over a period of years following commencement of production. If a project is abandoned or if the carrying value is not recoverable and exceeds the estimated fair value, an impairment loss is recognized. During the quarter ended July 31, 2014, the Corporation performed impairment reviews of its exploration and evaluation assets and recorded $9,939 (2013 – $537,379) in impairment charges on its exploration and evaluation assets.

The sale of an interest in claims or a grant received is credited directly to expenditures until such time as all related expenditures are recovered. Direct costs incurred to maintain claims are capitalized. Expenditures on exploration and evaluation assets totaled $956,335 for the quarter ended July 31, 2014 (2013 – $3,332,598) and consisted of $935,931 (2013 – $3,284,846) in exploration expenses; nil (2013 – $30,143) in acquisition costs; and $20,404 (2013 – $17,609) in stock-based compensation expense.

For the quarter ended July 31, 2014, finance income totaled $9,038 compared to $78,558 for the quarter ended July 31, 2013. The net decrease of $69,520 was as a result of the decrease in funds on deposit during the quarter ended July 31, 2014 as compared to the quarter ended July 31, 2013.

Finance expense related to the Loan Facility, as detailed in note 7 to the condensed interim consolidated financial statements, totaled $92,943 for the quarter ended July 31, 2014 (2013 – nil).

The Corporation has recognized its investments held for trading on the balance sheet at their fair value and changes in fair value are recognized as income or loss in the period in which the change arises. As at July 31, 2014 and October 31, 2013, the fair value of the investments held for trading was $1,900 resulting in an unrealized loss on investments held for trading of $250 compared to an unrealized loss on investments held for trading of $1,000 for the quarter ended July 31, 2013.

Nine-month period ended July 31, 2014 compared with the nine-month period ended July 31, 2013

Expenses for the nine-month period ended July 31, 2014, as detailed in the Interim Consolidated Statements of Comprehensive Loss, totaled $2,492,270 as compared to $3,341,940 for the nine-month period ended July 31, 2013.

For the nine-month period ended July 31, 2014, the Corporation reported a net loss of $2,408,670 as compared to a net loss of $3,147,639 for the nine-month period ended July 31, 2013. The Corporation expects to record losses until such time as an economic ore body is defined and developed and there are revenues from mineral production.

Professional fees, investor relations and administration expenses totaled $2,345,771 (2013 – $2,560,607). The decrease of $214,836 related to the following variations:

 

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Investor relations expenses totaled $750,061 compared to $1,187,754 for the nine-month period ended July 31, 2013. The main components of this net decrease of $437,693, as detailed in note 6 to the condensed interim consolidated financial statements related mainly to higher printing and filing costs and listing and stock transfer fees offset by significant reductions in expenses related to the costs associated with the annual meeting, advertising and promotion, and salaries and other employee benefits.

 

•

Administration expenses increased by $222,814 to $1,207,330 for the nine-month period ended July 31, 2014 (2013 – $984,516). The main components of this variation, as detailed in note 6 to the condensed interim consolidated financial statements, consisted of higher stock-based compensation costs and directors’ fees and associated costs offset by reductions in office expenses, recruitment and travel costs, IT services and repairs and maintenance expenses.

The costs of exploration and evaluation assets are capitalized until the ore body is defined or the project is abandoned. If the ore body is defined, these capitalized costs will be amortized over a period of years following commencement of production. If a project is abandoned or if the carrying value is not recoverable and exceeds the estimated fair value, an impairment loss is recognized. During the nine-month period ended July 31, 2014, the Corporation performed impairment reviews of its exploration and evaluation assets and recorded $146,499 (2013 – $781,333) in impairment charges on its exploration and evaluation assets.

The sale of an interest in claims or a grant received is credited directly to expenditures until such time as all related expenditures are recovered. Direct costs incurred to maintain claims are capitalized. Expenditures on exploration and evaluation assets totaled $6,093,457 for the nine-month period ended July 31, 2014 (2013 – $13,749,392) and consisted of $5,996,464 (2013 – $13,556,022) in exploration expenses; nil (2013 – $85,255) in acquisition costs; and $96,993 (2013 – $108,115) in stock-based compensation expense.

The Corporation is entitled to refundable tax credits on qualified expenditures. The refundable tax credits have been applied against the exploration and evaluation assets when such expenditures are incurred provided that the Corporation has reasonable assurance those credits will be realized.

Management judgment is applied in determining whether the mining exploration expenses are eligible for claiming such credits. Those benefits are recognized when the Corporation estimates that it has reasonable assurance that the tax credits will be realized. Adjustments to estimated tax credits receivable, if any, are recorded against exploration and evaluation assets.

During the nine-month period ended July 31, 2014, management revised the estimated tax credits receivable and reduced them by $1,285,000 with a corresponding increase in exploration and evaluation assets based on the eligibility of such credits. The reduction in the estimated tax credits receivable follows preliminary communications between management and representatives of Revenu Québec and relates in large part to whether expenses incurred by the Corporation in fiscal years 2012 and 2013 for bench-scale testing, product testing, metallurgical testwork and pilot plant testing are qualified expenditures.

For the nine-month period ended July 31, 2014, finance income totaled $34,702 compared to $202,551 for the nine-month period ended July 31, 2013. The net decrease of $167,849 was as a result of the decrease in funds on deposit during the nine-month period ended July 31, 2014 as compared to the nine-month period ended July 31, 2013.

Finance expense related to the Loan Facility, as detailed in note 7 to the condensed interim consolidated financial statements, totaled $161,741 for the nine-month period ended July 31, 2014 (2013 – nil).

The Corporation has recognized its investments held for trading on the balance sheet at their fair value and changes in fair value are recognized as income or loss in the period in which the change arises. As at July 31, 2014 and October 31, 2013, the fair value of the investments held for trading was $1,900 and $1,600 respectively. The corresponding unrealized gain on investments held for trading was $300 compared to an unrealized loss of $8,250 for the nine-month period month period ended July 31, 2013.

 

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Liquidity and Capital Resources

Given that the Corporation’s operations are focused on the exploration and development of mining properties, the most relevant financial information, in its view, relates to current liquidity, solvency, and planned property expenditures. The Corporation’s financial success will be dependent on the economic viability of its resource properties and the extent to which it can develop its Strange Lake ore deposit and discover and develop new ore deposits. A number of factors determine the economic viability of a property including: the size of the deposit; the quantity and quality of the reserves; the proximity of the deposit to current or planned infrastructure; the forecasted development and operating costs and the costs to finance the planned expenditures and the projected cash flows. Such development may take several years to complete and the amount of resulting income, if any, is difficult to determine. The economic value of any mineralization discovered by the Corporation is largely dependent on factors beyond the Corporation’s control, including the market value of the metals and minerals to be produced.

The Corporation’s main sources of short-term and long-term funding are debt and equity markets, private placements and outstanding warrants and options.

The Corporation’s current cash resources are insufficient to cover budgeted expenditures in fiscal 2014 and additional financing will be required to fund the Feasibility Study and forecast development and operating costs as detailed in note 1 to the condensed interim consolidated financial statements. Management has conducted a comprehensive rationalization of current and planned expenditures and has implemented a series of cost saving measures to reduce and control the professional fees, investor relations and administration expenses. Quest has also identified numerous efficiency and operational improvements to the base case assumptions presented in the Prefeasibility Study which will reduce project capital and operating costs, lessen product supply risks and simplify the process plant design. These improvements will be evaluated in the Feasibility Study work to be initiated in 2014.

On July 17, 2014, the Corporation completed a short-form prospectus offering by issuing 11,025,485 units at a price of $0.27, for gross proceeds of $2,976,881 of which $2,150,926 was allocated to common shares and $825,955 to warrants based on relative fair value (note 8 (c)). Each unit was comprised of one common share and one common share purchase warrant. Each warrant entitles its holder to purchase one additional common share at a price of $0.40 until July 17, 2017. The units separated into common shares and warrants immediately after the closing and the warrants commenced trading on the Toronto Stock Exchange (TSX) under the stock symbol “QRM.WT”.

Further, on July 17, 2014, the Corporation issued 613,008 broker compensation units. entitling holders to purchase units of the Corporation at a price of $0.27 per unit at any time until July 17, 2016. Each unit comprises one common share of the Corporation and one common share purchase warrant. Each common share purchase warrant would entitle its holder to purchase one additional common share of the Corporation at a price of $0.40 per share until July 17, 2017. The total fair value of broker compensation units was $121,989, allocated to contributed surplus.

In connection with this financing, the Corporation paid cash commissions to agents of $165,512, issued broker compensation units of $121,989 and incurred other professional fees and expenses of $718,015 for a total of $1,005,516 which has been prorated between the share capital and warrants of $726,528 and $278,988 respectively.

As at September 8, 2014, none of the broker compensation units issued had been exercised.

 

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Going Concern Uncertainty

Our condensed interim consolidated financial statements have been prepared on the basis of accounting principles applicable to a going concern, which assume that the Corporation will continue in operation for the foreseeable future and will be able to realize its assets and discharge its obligations in the normal course of operation. In assessing whether the going concern assumption is appropriate, management takes into account all available information about the future, which is at least, but not limited to twelve months from the end of the reporting period. The use of these principles may not be appropriate.

To date, the Corporation has not earned significant revenue and is considered to be in the exploration and development stage.

The investment in, and expenditures on, exploration and evaluation assets comprise a significant portion of the Corporation’s assets. Mineral exploration and development is highly speculative and involves inherent risks. Realization of the Corporation’s investment in these assets is dependent upon the renewed legal ownership of the licenses, and whether an economically viable operation can be established.

The Corporation’s ability to continue as a going concern is dependent on being able to obtain the necessary financing to satisfy its liabilities as they become due. There can be no assurance that management will be successful in securing adequate financing. In addition, while the Corporation’s development activities in relation to its Strange Lake project look promising, there can be no assurance that the results of its planned Feasibility Study will confirm the existence of economically viable quantities of ore or that the project will ultimately go into production.

The Corporation reported a net loss and total comprehensive loss in the nine-month period ended July 31, 2014 and the year ended October 31, 2013 of $2,408,670 and $3,981,889 respectively. These recurring losses and the need for continued financing to further successful exploration and development activities indicate the existence of a material uncertainty that raises substantial doubt as to the Corporation’s ability to continue as a going concern.

Our condensed interim consolidated financial statements do not give effect to any adjustments to the carrying values and classifications of assets and liabilities that might be necessary, if the Corporation is unable to continue as a going concern. Such adjustments could be material.

Loan Facility

The Corporation is entitled to receive Québec Resource Tax Credits (“QRTC”) at the rate of 38.75% of certain eligible exploration expenditures incurred in Québec.

In order to monetize the QRTC for the year ended October 31, 2012, the Corporation entered into a loan facility with Investissement Québec (“the Loan Facility”) on September 11, 2013 under which the Corporation can borrow up to $4,339,000, representing a proportion of the estimated 2012 QRTC. The loan facility was extended on May 5, 2014. Amounts drawn down under the Loan Facility must be repaid on the earlier of November 30, 2014 or upon collection of the 2012 QRTC, which were assigned to Investissement Québec. Amounts drawn under the Loan Facility bear interest, payable on a monthly basis, at an annual rate of prime plus 5.5% (October 31, 2013 – prime plus 5.5%). The Corporation has provided security to Investissement Québec by way of an irrevocable letter of credit in the amount of $150,000 secured by a redeemable term deposit recorded as cash and cash equivalents at July 31, 2014, a deed of hypothec in the amount of $4,339,000 and an additional hypothec in the amount of $868,000 over its present and future QRTC claims and its accounts receivable, as well as a first ranking hypothec on the Corporation’s present and future tax credits.

As at both July 31, 2014 and September 8, 2014, $4,338,793 had been drawn down pursuant to this Loan Facility.

 

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The Loan Facility contains certain financial and non-financial covenants which were met as at July 31, 2014.

Nine-month period ended July 31, 2014 compared with the nine-month period ended July 31, 2013

As at July 31, 2014, the Corporation had cash and cash equivalents of $3,617,412 (2013 – $11,230,797) and $1,900 (2013 – $1,500) invested in Canadian equity securities pursuant to mining property agreements. The investment in cash which comprises most of Quest’s invested capital, presents no significant risk.

As at July 31, 2014, the Corporation’s remaining exploration expenditures pursuant to flow-through share arrangements amounted to $372,136 (October 31, 2013 – $1,953,855).

The Corporation has no long-term borrowings.

During the nine-month period ended July 31, 2014, the Corporation raised cash of $31,667 from the exercise of stock options (2013 – $12,000).

Outstanding Share Data

As at September 8, 2014, there were 78,579,196 common shares, stock options in respect of 4,214,167 common shares, 325,000 deferred share units, 110,000 restricted share units and 11,531,485 warrants, 203,094 broker compensation options and 613,008 broker compensation units outstanding.

Commitments

On November 5, 2013, QTM entered into an option agreement with La Société du Parc Industriel et Portuaire de Bécancour (the “Agreement”). Under the Agreement, QTM has the right to purchase land in the Bécancour Port industrial site to build a processing facility for the ore from Strange Lake. The option is for a period of one year and can be extended by QTM for up to an additional three years to November 2017 in five increments of six months each. QTM can cancel the Agreement at any time.

Payments made under the Agreement may be offset and deducted against the eventual purchase price once the option is exercised. QTM therefore has capitalized the option payments as they are made until such time as either its option is exercised, cancelled or allowed to lapse by the Corporation.

Off-Balance Sheet Arrangements

The Corporation does not have any off-balance sheet arrangements.

Related Party Transactions

All of the following related party transactions were in the normal course of operations and were measured at the exchange amounts.

The Corporation retains the services of certain directors of the Corporation to carry out professional activities. During the three and nine-month periods ended July 31, 2014, the total amount charged for professional services by directors of the Corporation and recorded in exploration and evaluation assets was $18,750 and $56,250 respectively (2013 – $18,750 and $56,250 respectively).

During the three and nine-month periods ended July 31, 2014, the Corporation incurred fees to law firms of which an officer and director of the Corporation is a partner. For the three-month period ended July 31, 2014, the total amount for such services provided was $187,293, of which $10,391 was recorded in professional fees, $176,887 was recorded in issue costs and $15 was recorded in exploration and evaluation assets (2013 – $59,745, $62,767 and $21,195 respectively). For the nine-month period ended July 31, 2014, the total amount for such services provided was $386,798, of which $117,852 was recorded in professional fees, $19,892 was recorded in investor relations, $237,532 was recorded in issue costs and $11,522 was recorded in exploration and evaluation assets (2013 – $177,489, $19,585, $62,767 and $185,861 respectively). As at July 31, 2014, an amount of $248,535 (October 31, 2013 – $52,731) owing to this law firm was included in accounts payable and accrued liabilities in respect of these fees.

 

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Excluding the amounts reported above, during the three and nine-month periods ended July 31, 2014 and 2013, the Corporation recorded the following compensation for key management personnel and the Board of Directors:

 

		Three-month period ended July 31								Nine-month period ended July 31
		2014				2013				2014				2013
		$				$				$				$
Salaries and employee benefits			199,460				160,749				602,036				521,977
Directors’ fees			60,000				53,750				167,500				161,250
Stock compensation			70,205				12,164				215,206				22,832
			329,665				226,663				984,742				706,059

Financial Instruments

The Corporation’s objectives when managing capital are to safeguard its ability to continue its operations as well as its acquisition and exploration programs. The Corporation has relied primarily on the equity markets to fund its activities. In order to carry out planned exploration and to pay for administrative costs, the Corporation will spend its existing working capital, use its Loan Facility and raise additional funds as needed. The Corporation has not paid any dividends. As well, other than those reported in note 7 to the condensed interim consolidated financial statements, the Corporation does not have any externally-imposed capital requirements, either regulatory or contractual to which it is subject.

The Corporation’s financial instruments consist of cash and cash equivalents, investments, accounts payable and accrued liabilities and loans payable.

The Corporation does not enter into financial instrument agreements, including derivative financial instruments, for speculative purposes.

The Corporation is not exposed to any significant credit risk as at July 31, 2014. The Corporation’s cash is deposited with a major Canadian chartered bank and is held in highly-liquid investments.

As at July 31, 2014, the Corporation had a total of $3,617,412 in cash and cash equivalents. The Corporation manages liquidity risk through the management of its capital structure.

The Corporation has a loan facility with Investissement Québec. Amounts drawn under the Loan Facility bear interest, payable on a monthly basis, at an annual rate of prime plus 5.5%. In addition, the Corporation’s cash and cash equivalents carry interest and therefore, the Corporation is exposed to a variation of interest rates on amounts earned and payable. Based on the amounts drawn down on its loan facility and its exposures to cash and cash equivalents as at July 31, 2014 and assuming that all other variables remain constant, an increase or decrease of 100 basis points of the interest rate during the quarter would result in a decrease or increase of $180 respectively in comprehensive loss before income taxes.

The rates as at July 31, 2014 for Canadian and U.S. funds ranged from 1.20%-1.50% (October 31, 2013 – range of 1.20%-1.50%) and 0.10% (October 31, 2013 – 0.10%), respectively. The rate as at July 31, 2014 for the Corporation’s loan from Investissement Québec was 8.5% (October 31, 2013 – 8.5%).

 

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Critical Accounting Estimates

The Corporation’s condensed interim consolidated financial statements include estimates and assumptions made by management. Actual results may vary from these estimates. Critical accounting estimates are discussed under Note 2 of the consolidated financial statements for the year ended October 31, 2013.

Changes in Significant Accounting Policies

The Corporation’s significant accounting policies are disclosed under the note 3 of the consolidated financial statements for the year ended October 31, 2013. As a result of adoption of new IFRS standards noted below, there have been no changes in the Corporation’s significant accounting policies during the quarter ended July 31, 2014.

Adoption of new standards

IAS 1 Presentation of Financial Statements – Components of Other Comprehensive Income

The amendments to IAS 1 change the grouping of items presented in other comprehensive income (“OCI”). Items that could be reclassified (or “recycled”) to profit or loss at a future point in time would be presented separately from items that will never be reclassified such as remeasurement gain (loss) on employee benefits. The Corporation adopted IAS 1 on November 1, 2013 and the amendment affects presentation only and therefore had no impact on the Corporation’s condensed interim consolidated financial statements.

IAS 1 Clarification of the Requirement for Comparative Information (Amendment)

The amendment to IAS 1 clarifies the difference between voluntary additional comparative information and the minimum required comparative information. An entity must include comparative information in the related notes to the consolidated financial statements when it voluntarily provides comparative information beyond the minimum required comparative period. The additional voluntary comparative information does not need to be presented in a complete set of financial statements.

IFRS 10 Consolidated Financial Statements

IFRS 10 establishes a single control model that applies to all entities including structured entities. IFRS 10 replaces the parts of previously existing IAS 27, Consolidated and Separate Financial Statements, that dealt with consolidated financial statements and SIC-12, Consolidation – Special Purpose Entities. IFRS 10 changed the definition of control such that an investor controls an investee when it is exposed, or has rights, to variable returns from its involvement with the investee and has the ability to affect those returns through its power over the investee. To meet the definition of control in IFRS 10, all three criteria must be met, including: a) an investor has power over the investee; b) the investor has exposure, or rights, to variable returns from its involvement with the investee; and c) the investor has the ability to use its power over the investee to affect the amount of the investor’s returns. The Corporation adopted IFRS 10 on November 1, 2013 and it did not have any impact on the Corporation’s condensed interim consolidated financial statements.

IFRS 11 Joint Arrangements

IFRS 11 replaces IAS 31, Interests in Joint Ventures, and SIC-13, Jointly Controlled Entities – Non-monetary Contributions by Venturers. IFRS 11 removes the option to account for jointly controlled entities (“JCEs”) using proportionate consolidation. Instead, JCEs that meet the definition of a joint venture must be accounted for using the equity method. The Corporation adopted IFRS 11 on November 1, 2013 and it did not have any impact on the Corporation’s condensed interim consolidated financial statements.

IFRS 12 Disclosure of Interests in Other Entities

IFRS 12 sets out the requirements for disclosures relating to an entity’s interest in subsidiaries, joint arrangements, associates and structured entities. The Corporation adopted IFRS 12 on November 1, 2013. None of these disclosures requirements are applicable for condensed interim consolidated financial statements, unless significant events and transactions in the interim period require that they are provided. Accordingly, in the absence of such events, the Corporation has not made such disclosures.

 

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IFRS 13 Fair Value Measurement

IFRS 13 establishes a single source of guidance under IFRS for all fair value measurements. IFRS 13 does not change when an entity is required to use fair value, but rather provides guidance on how to measure fair value under IFRS when fair value is required or permitted. IFRS 13 also defines fair value as an exit price and also requires additional disclosures. The Corporation adopted IFRS 13 on November 1, 2013 and the application of IFRS 13 has not impacted the fair value measurements of the Corporation. See Note 10 for required disclosures.

New standards issued but not yet effective

IFRS 9 Financial Instruments

In July 2014, the IASB amended IFRS 9, “Financial Instruments”, to bring together the classification and measurement, impairment and hedge accounting phases of the IASB’s project to replace IAS 39, “Financial Instruments: Recognition and Measurement”. The standard supersedes all previous versions of IFRS 9 and will be effective on November 1, 2018 for the Corporation with earlier application permitted. The Corporation is currently evaluating the impact of this standard on its consolidated financial statements.

Risk Factors

Resource exploration and development is a highly speculative business, involves a high degree of risk and is frequently unsuccessful. There is no certainty that the expenditures to be made by the Corporation in the exploration of its properties or otherwise will result in discoveries of commercial quantities of minerals. The exploration for and development of mineral deposits involves significant risk, which even a combination of careful evaluation, experience and knowledge may not eliminate. Although the discovery of an ore body may result in substantial rewards, few properties explored are ultimately developed into producing mines. Significant expenditures may be required to locate and establish ore reserves, to develop metallurgical processes and to construct mining and processing facilities at a particular site. It is impossible to ensure that the Corporation’s current exploration programs will result in a profitable commercial mining operation.

Significant capital investment is required to achieve commercial production from successful exploration efforts. The commercial viability of a mineral deposit is dependent upon a number of factors. These include: (i) deposit attributes such as size, grade and proximity to infrastructure; (ii) current and future metal prices (which can be cyclical); (iii) government regulations, including those relating to prices, taxes, royalties, land tenure, land use, importing and exporting of minerals and necessary supplies and environmental protection; (iv) First Nations negotiations and agreements; and (v) technological risks and changes. The complete effect of these factors, either alone or in combination, cannot be entirely predicted, and their impact may result in the Corporation not receiving an adequate return on invested capital.

The Corporation has not generated any revenues since its incorporation. The Corporation’s plan of operations involves the implementation and execution of exploration and development programs on its properties. There is no assurance that these exploration and development activities will result in the establishment of commercially-exploitable mineral deposits on these properties. Even if commercially-exploitable mineral deposits are discovered, the Corporation may require substantial additional financing in order to carry out the full exploration and development of its properties before it is able to achieve revenues from sales of mineral resources that the Corporation is able to extract. Failure to obtain such additional financing could result in delay or indefinite postponement of further exploration and development plans.

The prices of minerals fluctuate widely and are affected by many factors outside of the Corporation’s control. The prices of minerals and future expectation of such prices may have a significant impact on the market sentiment for investment in mining and mineral exploration companies. This in turn may affect the Corporation’s ability to raise equity financing for its capital requirements.

 

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Reference is made to the section of the Corporation’s 2013 Annual Information Form entitled “Risk Factors” for a discussion of the risk factors applicable to the Corporation and its business.

Disclosure Controls and Internal Controls over Financial Reporting

Management, including the Chief Executive Officer (“CEO”) and the Chief Financial Officer (“CFO”), have designed disclosure controls and procedures, or have caused them to be designed under their supervision, to provide reasonable assurance that all material information relating to the Corporation has been made known to them and has been properly disclosed in the Corporation’s annual and interim filings and other reports filed or submitted under applicable Canadian and United States securities laws.

Management of the Corporation, with the participation of the CEO and the CFO, has evaluated the effectiveness of the design and operation of the Corporation’s disclosure controls and procedures as at October 31, 2013. Based on this evaluation, the CEO and the CFO have concluded that the Corporation’s disclosure controls and procedures were effective as of October 31, 2013 to provide reasonable assurance that information required to be disclosed in the Corporation’s annual filings and other reports filed or submitted were recorded, processed, summarized and reported within the time period specified in those rules.

An evaluation, under management supervision, was carried out on the effectiveness of the Corporation’s internal control over financial reporting as at October 31, 2013 using the criteria established in Internal Control – Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (1992 framework) (the COSO criteria). Based on this evaluation, management has concluded that internal control over financial reporting was effective as at October 31, 2013.

There have been no changes in the Corporation’s design of internal controls over financial reporting during the quarter ended July 31, 2014 that materially affected, or are reasonably likely to affect, the Corporation’s internal control over financial reporting.

Presentation of Mineral Reserve and Resource Information

This MD&A has been prepared in accordance with the requirements of Canadian securities laws, which differ from the requirements of United States securities laws. Unless otherwise indicated, all reserve and resource estimates included in this MD&A have been prepared in accordance with National Instrument 43-101 Standards of Disclosure for Mineral Projects (“Nl 43-101”). Nl 43-101 is a rule developed by the Canadian Securities Administrators which establishes standards for all public disclosure an issuer makes of scientific and technical information concerning mineral projects.

 

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Canadian standards, including Nl 43-101, differ significantly from the requirements of the SEC and reserve and resource information contained in this MD&A may not be comparable to similar information disclosed by United States companies. In particular, and without limiting the generality of the foregoing, the term “resource” does not equate to the term “reserve”. Under United States standards, mineralization may not be classified as a “reserve” unless the determination has been made that the mineralization could be economically and legally produced or extracted at the time the reserve determination is made. The SEC’s disclosure standards normally do not permit the inclusion of information concerning “measured mineral resources”, “indicated mineral resources” or “inferred mineral resources” or other descriptions of the amount of mineralization in mineral deposits that do not constitute “reserves” by United States standards in documents filed with the SEC. United States investors should also understand that “inferred mineral resources” have a great amount of uncertainty as to their existence and as to their economic and legal feasibility. It cannot be assumed that all or any part of an “inferred mineral resource” exists, is economically or legally mineable, or will ever be upgraded to a higher category. Under Canadian rules, estimated “inferred mineral resources” may not form the basis of feasibility or pre-feasibility studies except in rare cases. Disclosure of “contained ounces” in a resource estimate is permitted disclosure under Canadian regulations; however, the SEC normally permits issuers to report mineralization that does not constitute “reserves” by SEC standards only as in-place tonnage and grade without reference to unit measures. The requirements of Nl 43-101 for identification of “reserves” are also not the same as those of the SEC, and reserves reported by Quest in compliance with Nl 43-101 may not qualify as “reserves” under SEC standards. Accordingly, information concerning mineral deposits set forth herein may not be comparable with information made public by companies that report in accordance with United States standards.

Other Information

Additional information on the Corporation is available under the Corporation’s profile on SEDAR at www.sedar.com and on EDGAR at www.sec.gov/edgar and on the Corporation’s website at www.questrareminerals.com.

 

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Exhibit 99.3

FORM 52-109F2

CERTIFICATION OF INTERIM FILINGS

FULL CERTIFICATE

I, Peter J. Cashin, President and Chief Executive Officer of Quest Rare Minerals Ltd., certify the following:

 

1.	Review: I have reviewed the interim financial statements and interim MD&A (together, the “interim filings”) of Quest Rare Minerals Ltd. (the “issuer”) for the interim period ended July 31, 2014.

 

2.

No misrepresentations: Based on my knowledge, having exercised reasonable diligence, the interim filings 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 was made, for the period covered by the interim filings.

 

3.

Fair presentation: Based on my knowledge, having exercised reasonable diligence, the interim financial statements together with the other financial information included in the interim filings fairly present in all material respects the financial condition, financial performance and cash flows of the issuer, as of the date of and for the periods presented in the interim filings.

 

4.

Responsibility: The issuer’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (DC&P) and internal control over financial reporting (ICFR), as those terms are defined in National Instrument 52-109 Certification of Disclosure in Issuers’ Annual and Interim Filings, for the issuer.

 

5.	Design: Subject to the limitations, if any, described in paragraphs 5.2 and 5.3, the issuer’s other certifying officer and I have, as at end of the period covered by the interim filings:

 

(a)

designed DC&P, or caused it to be designed under our supervision, to provide reasonable assurance that:

 

(i)

material information relating to the issuer is made known to us by others, particularly during the period in which the interim filings are being prepared; and

 

(ii)

information required to be disclosed by the issuer in its annual filings, interim filings or other reports filed or submitted by it under securities legislation is recorded, processed, summarized and reported within the time periods specified in securities legislation; and

 

(b)

designed ICFR, or caused it to be designed under our supervision, 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 GAAP.

 

5.1	Control framework: The control framework the issuer’s other certifying officer and I used to design the issuer’s ICFR is the control framework entitled “Internal Control Integrated Framework”, published by the Committee of Sponsoring Organizations of the Treadway Commission.

 

5.2	ICFR – material weakness relating to design: N/A.

 

5.3	Limitation on scope of design: N/A.

 

6.	Reporting changes in ICFR: The issuer has disclosed in its interim MD&A any change in the issuer’s ICFR that occurred during the period beginning on May 1, 2014 and ended on July 31, 2014 that has materially affected, or is reasonably likely to materially affect, the issuer’s ICFR.

Date: September 12, 2014

(Signed) Peter J. Cashin    

Peter J. Cashin

President and Chief Executive Officer

Exhibit 99.4

FORM 52-109F2

CERTIFICATION OF INTERIM FILINGS

FULL CERTIFICATE

I, Mark Schneiderman, Chief Financial Officer of Quest Rare Minerals Ltd., certify the following:

 

1.	Review: I have reviewed the interim financial statements and interim MD&A (together, the “interim filings”) of Quest Rare Minerals Ltd. (the “issuer”) for the interim period ended July 31, 2014.

 

2.

No misrepresentations: Based on my knowledge, having exercised reasonable diligence, the interim filings 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 was made, for the period covered by the interim filings.

 

3.

Fair presentation: Based on my knowledge, having exercised reasonable diligence, the interim financial statements together with the other financial information included in the interim filings fairly present in all material respects the financial condition, financial performance and cash flows of the issuer, as of the date of and for the periods presented in the interim filings.

 

4.

Responsibility: The issuer’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (DC&P) and internal control over financial reporting (ICFR), as those terms are defined in National Instrument 52-109 Certification of Disclosure in Issuers’ Annual and Interim Filings, for the issuer.

 

5.	Design: Subject to the limitations, if any, described in paragraphs 5.2 and 5.3, the issuer’s other certifying officer and I have, as at end of the period covered by the interim filings:

 

(a)

designed DC&P, or caused it to be designed under our supervision, to provide reasonable assurance that:

 

(i)

material information relating to the issuer is made known to us by others, particularly during the period in which the interim filings are being prepared; and

 

(ii)

information required to be disclosed by the issuer in its annual filings, interim filings or other reports filed or submitted by it under securities legislation is recorded, processed, summarized and reported within the time periods specified in securities legislation; and

 

(b)

designed ICFR, or caused it to be designed under our supervision, 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 GAAP.

 

5.1	Control framework: The control framework the issuer’s other certifying officer and I used to design the issuer’s ICFR is the control framework entitled “Internal Control Integrated Framework”, published by the Committee of Sponsoring Organizations of the Treadway Commission.

 

5.2	ICFR – material weakness relating to design: N/A.

 

5.3	Limitation on scope of design: N/A.

 

6.	Reporting changes in ICFR: The issuer has disclosed in its interim MD&A any change in the issuer’s ICFR that occurred during the period beginning on May 1, 2014 and ended on July 31, 2014 that has materially affected, or is reasonably likely to materially affect, the issuer’s ICFR.

Date: September 12, 2014

(Signed) Mark Schneiderman    

Mark Schneiderman

Chief Financial Officer