See Accompanying Notes to Condensed Consolidated
Interim Financial Statements
See Accompanying Notes to Condensed Consolidated
Interim Financial Statements
See Accompanying Notes to Condensed Consolidated
Interim Financial Statements
Notes to Condensed Consolidated Interim
Financial Statements
For the Three and Six Months Ended June
30, 2017 and 2016
(amounts expressed in thousands of US
dollars - Unaudited)
Golden Queen Mining Co. Ltd. (“Golden
Queen”, “GQM Ltd.” or the “Company”) is engaged in the operation of the Soledad Mountain Mine (“the
Mine”), located in the Mojave Mining District, Kern County, California. The Company originally used its wholly owned subsidiary,
Golden Queen Mining Company, Inc. (“GQM Inc.”), to explore and develop the Mine. On September 10, 2014, GQM Inc. was
converted to a limited liability company, Golden Queen Mining Company, LLC (“GQM LLC”). The Company entered into a
Joint Venture (the “JV”) agreement with Gauss LLC (“Gauss”) through its newly formed, wholly owned subsidiary,
Golden Queen Mining Holdings, Inc. (“GQM Holdings”). The JV was completed on September 15, 2014. Upon completion of
the JV, both the Company, through GQM Holdings, and Gauss each owned, and continue to own, 50% of GQM LLC. In February 2015, the
Company incorporated Golden Queen Mining Canada Ltd. (“GQM Canada”), a wholly-owned British Columbia subsidiary, to
hold the Company’s interest in GQM Holdings.
|
2.
|
Ability to Continue as a Going Concern
|
The unaudited condensed consolidated interim
financial statements of Golden Queen Mining Co Ltd. have been prepared using accounting principles generally accepted in the United
States (“US GAAP”) applicable to a going concern.
The Company generated $2.8 million and
$5.5 million in cash from operating activities during the three and six months ended June 30, 2017, respectively. The Company had
a working capital deficit of $3.9 million at June 30, 2017.
The Company is required to pay $3.2 and
$8.4 million of accrued interest and debt principal to the Clay Group, in total, on the three following dates: January 1, 2018,
April 1, 2018 and July 1, 2018. The Company will need to receive cash distributions from GQM LLC to service its debt and such distributions
are contingent on GQM LLC’s ability to generate positive cash flows. The Company revised the mine plan in light of the six
months ended June 30, 2017 results and has determined it is unlikely it will receive sufficient distributions from GQM LLC during
this fiscal year to service its debt in early 2018. This situation raises substantial doubt about the Company’s ability to
continue as a going concern. Consequently, discussion with the Clay Group to restructure the reimbursement schedule have been initiated.
While the Company has been successful in re-negotiating the debt reimbursement schedule with the Clay Group on previous occasions,
there can be no assurance that will be achieved going forward.
The Company’s access to the net assets
of GQM LLC is determined by the Board of Managers of GQM LLC. The Board of Managers is not controlled by the Company and
therefore there is no guarantee that any access to the net assets of GQM LLC would be provided to the Company in order to continue
as a going concern. The Board of Managers of GQM LLC determine when and if distributions from GQM LLC are made to the holders of
its membership units at their sole discretion.
The unaudited condensed consolidated interim
financial statements do not reflect adjustments to the carrying values of the assets and liabilities, the reported revenues and
expenses, and the balance sheet classifications used, that would be necessary if the company were unable to realize its assets
and settle its liabilities as a going concern in the normal course of operations. Such adjustments could be material.
The unaudited condensed consolidated interim
financial statements have been prepared in accordance with US GAAP. The accounting policies followed in preparing these condensed
consolidated interim financial statements are those used by the Company as set out in the audited consolidated financial statements
for the year ended December 31, 2016.
GOLDEN QUEEN MINING CO. LTD.
Notes to Condensed Consolidated Interim
Financial Statements
For the Three and Six Months Ended June
30, 2017 and 2016
(amounts expressed in thousands of US
dollars - Unaudited)
|
3.
|
Basis of Presentation (continued)
|
Certain information and note disclosures
normally included for annual consolidated financial statements prepared in accordance with US GAAP have been omitted. These unaudited
condensed consolidated interim financial statements should be read together with the audited consolidated financial statements
of the Company for the year ended December 31, 2016.
In the opinion of Management, all adjustments
considered necessary (including reclassifications and normal recurring adjustments) to present fairly the financial position,
results of operations and cash flows at June 30, 2017 and for all periods presented, have been included in these financial statements.
The interim results are not necessarily indicative of results for the full year ending December 31, 2017, or future operating
periods. For further information, see the Company’s annual consolidated financial statements, including the accounting policies
and notes thereto.
The Company consolidates all entities in
which it can vote a majority of the outstanding voting stock. In addition, it consolidates entities which meet the definition of
a variable interest entity for which it is the primary beneficiary. The primary beneficiary is the party who has the power to direct
the activities of a variable interest entity that most significantly impact the entity’s economic performance and who has
an obligation to absorb losses of the entity or a right to receive benefits from the entity that could potentially be significant
to the entity. We consider special allocations of cash flows and preferences, if any, to determine amounts allocable to non-controlling
interests. All intercompany transactions and balances are eliminated on consolidation.
These unaudited condensed consolidated
interim financial statements include the accounts of Golden Queen, a limited liability Canadian corporation (Province of British
Columbia), its wholly-owned subsidiary, GQM Holdings, a US (State of California) corporation, and GQM LLC, a limited liability
company in which Golden Queen has a 50% interest, through GQM Canada’s ownership of GQM Holdings. GQM LLC meets the definition
of a Variable Interest Entity (“VIE”). Golden Queen has determined it is the member of the related party group that
is most closely associated with GQM LLC and, as a result, is the primary beneficiary who consolidates GQM LLC.
|
4.
|
Summary of Accounting Policies and Estimates and Judgements
|
Estimates
The preparation of financial statements
in conformity with US GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts
of revenues and expenses during the reporting period. Significant estimates and judgements have been made by Management in several
areas including the accounting for the joint venture transaction and determination of the temporary and permanent non-controlling
interest, the recoverability of mineral properties interests, royalty obligations, inventory valuation, asset retirement obligations,
and derivative liability – warrants. Actual results could differ from those estimates.
Recently Adopted Accounting Pronouncements
|
(i)
|
In July 2015, ASU No. 2015-11 was issued related to the inventory, simplifying the subsequent measurement
of inventories by replacing the lower of cost or market test with a lower of cost and net realizable value test. The update is
effective in fiscal years, including interim periods beginning after December 15, 2016. The Company records inventory at the lower
of cost or net realizable value and the adoption of this guidance effective January 1, 2017 had no impact on the consolidated financial
statements.
|
|
(ii)
|
In March 2016, ASU No. 2016-09 was issued related to stock-based compensation.
The new guidance simplifies the accounting for stock-based payment transactions, including the income tax consequences, classification
of awards as either equity or liabilities, and classification on the statement of cash flows. This update is effective for the
Company’s fiscal year and interim periods beginning after December 15, 2016. The adoption of this guidance as of January
1, 2017 had no impact on the consolidated financial statements.
|
GOLDEN QUEEN MINING CO. LTD.
Notes to Condensed Consolidated Interim
Financial Statements
For the Three and Six Months Ended June
30, 2017 and 2016
(amounts expressed in thousands of US
dollars - Unaudited)
|
4.
|
Summary of Accounting Policies and Estimates and Judgements (continued)
|
New Accounting Policies
|
(iii)
|
In May 2014, ASU 2014-09
was issued related to revenue from contracts with customers. The ASU was further amended in August 2015, March 2016, April 2016,
and May 2016 by ASU 2015-14, 2016-08, 2016-10 and 2016-12. The new standard provides a five-step approach to be applied to all
contracts with customers and also requires expanded disclosures about revenue recognition.
|
In August 2015, the effective
date was deferred to reporting periods, including interim periods, beginning after December 31, 2017, and will be applied retrospectively.
Early adoption is not permitted.
We are currently assessing
the impact of implementation of ASU No. 2014-09, however, Management does not believe it will change the point of revenue recognition
or amount of revenue recognized compared to how we recognize revenue under our current policies. Our revenues involve a relatively
limited number of types of contracts and customers. In addition, our revenue contracts do not involve multiple types of performance
obligations. Revenues from doré are recognized, and the transaction price is known, at the time the metals sold are delivered
to the customer. We will finalize our assessment of the impact of ASU No. 201-09 on our revenue recognition during 2017 and assess
the additional disclosure requirements under the guidance.
|
(iv)
|
In February 2016, FASB issued ASC 842 that requires lessees to recognize lease assets and corresponding
lease liabilities on the balance sheet for all leases with terms of more than 12 months. The update, which supersedes existing
lease guidance, will continue to classify leases as either finance or operating, with the classification determining the pattern
of expense recognition in the income statement.
|
The ASU will be effective for
annual and interim periods beginning January 1, 2019, with early adoption permitted, and is applicable on a modified retrospective
basis with various optional practical expedients. The Company is assessing the impact of this standard.
|
(v)
|
In August 2016, ASC guidance was issued to amend the classification of certain cash receipts and
cash payments in the statement of cash flows. The new guidance is effective for the Company’s fiscal year and interim periods
beginning December 1, 2018. Early adoption is permitted, including adoption in an interim period. If an entity early adopts the
amendments in an interim period, any adjustments should be reflected as of the beginning of the fiscal year that includes that
interim period. An entity that elects early adoption must adopt all of the amendments in the same period. The Company is currently
evaluating this guidance and the impact on its consolidated financial statements.
|
Inventories consist primarily of production
from the Company’s operation, in varying stages of the production process and supplies and spare parts, all of which are
presented at the lower of cost or net realizable value. Inventories of the Company are comprised of:
|
|
June 30, 2017
|
|
|
December 31, 2016
|
|
Stockpile inventory
|
|
$
|
346
|
|
|
$
|
318
|
|
In-process inventory
|
|
|
9,861
|
|
|
|
9,491
|
|
Dore inventory
|
|
|
366
|
|
|
|
76
|
|
Supplies and spare parts
|
|
|
1,826
|
|
|
|
1,056
|
|
|
|
$
|
12,399
|
|
|
$
|
10,941
|
|
GOLDEN QUEEN MINING CO. LTD.
Notes to Condensed Consolidated Interim
Financial Statements
For the Three and Six Months Ended June
30, 2017 and 2016
(amounts expressed in thousands of US
dollars - Unaudited)
|
6.
|
Property, Plant, Equipment and Mineral Interests
|
Property, plant and equipment and mineral
interests, are depreciated and depleted using either the units-of-production or straight-line method over the shorter of the estimated
useful life of the asset or the expected life of mine. Assets under construction in progress are recorded at cost and re-allocated
to its corresponding category when they become available for use.
|
|
Land
|
|
|
Mineral
property
interest and
claims
|
|
|
Mine
development
|
|
|
Machinery
and
equipment
|
|
|
Buildings
and
infrastructure
|
|
|
Construction
in progress
|
|
|
Interest
capitalized
|
|
|
Total
|
|
Cost
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At December 31,
2015
|
|
$
|
110
|
|
|
$
|
4,459
|
|
|
$
|
84,798
|
|
|
$
|
28,085
|
|
|
$
|
8,565
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
126,017
|
|
Additions
|
|
|
3,777
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
9,391
|
|
|
|
542
|
|
|
|
5,674
|
|
|
|
19,384
|
|
Transfers
|
|
|
6
|
|
|
|
(6
|
)
|
|
|
(42,765
|
)
|
|
|
32,117
|
|
|
|
10,648
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Disposals
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
At December 31, 2016
|
|
$
|
3,893
|
|
|
$
|
4,453
|
|
|
$
|
42,033
|
|
|
$
|
60,202
|
|
|
$
|
28,604
|
|
|
$
|
542
|
|
|
$
|
5,674
|
|
|
$
|
145,401
|
|
Additions
|
|
|
17
|
|
|
|
96
|
|
|
|
-
|
|
|
|
4,074
|
|
|
|
-
|
|
|
|
8,286
|
|
|
|
-
|
|
|
|
12,473
|
|
Transfers
|
|
|
-
|
|
|
|
-
|
|
|
|
(58
|
)
|
|
|
-
|
|
|
|
(36
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
(94
|
)
|
Disposals
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(1,344
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(1,344
|
)
|
At June 30, 2017
|
|
$
|
3,910
|
|
|
$
|
4,549
|
|
|
$
|
41,975
|
|
|
$
|
62,932
|
|
|
$
|
28,568
|
|
|
$
|
8,828
|
|
|
$
|
5,674
|
|
|
$
|
156,436
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated depreciation and
depletion
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At December 31, 2015
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
654
|
|
|
$
|
1,462
|
|
|
$
|
350
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
2,466
|
|
Additions
|
|
|
-
|
|
|
|
72
|
|
|
|
317
|
|
|
|
5,666
|
|
|
|
2,330
|
|
|
|
-
|
|
|
|
-
|
|
|
|
8,385
|
|
Disposals
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
At December 31, 2016
|
|
$
|
-
|
|
|
$
|
72
|
|
|
$
|
971
|
|
|
$
|
7,128
|
|
|
$
|
2,680
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
10,851
|
|
Additions
|
|
|
-
|
|
|
|
134
|
|
|
|
1,171
|
|
|
|
2,962
|
|
|
|
1,179
|
|
|
|
-
|
|
|
|
221
|
|
|
|
5,667
|
|
Disposals
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(256
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(256
|
)
|
At June 30, 2017
|
|
$
|
-
|
|
|
$
|
206
|
|
|
$
|
2,142
|
|
|
$
|
9,834
|
|
|
$
|
3,859
|
|
|
$
|
-
|
|
|
$
|
221
|
|
|
$
|
16,262
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Carrying values
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At December 31, 2016
|
|
$
|
3,893
|
|
|
$
|
4,381
|
|
|
$
|
41,062
|
|
|
$
|
53,074
|
|
|
$
|
25,924
|
|
|
$
|
542
|
|
|
$
|
5,674
|
|
|
$
|
134,550
|
|
At June 30, 2017
|
|
$
|
3,910
|
|
|
$
|
4,343
|
|
|
$
|
39,833
|
|
|
$
|
53,098
|
|
|
$
|
24,709
|
|
|
$
|
8,828
|
|
|
$
|
5,453
|
|
|
$
|
140,174
|
|
During the three and six months ended June
30, 2017, the Company acquired 3 (2016 – 1 piece of mining equipment) from Komatsu through financing agreements. Also, during
the same periods the Company disposed of 2 pieces of mining equipment (2016 – $Nil). See Note 16 for further details.
The Company’s common shares outstanding
are no par value, voting shares with no preferences or rights attached to them.
Common shares – 2016
In July 2016, the Company completed a financing for gross proceeds of $12.1 million (C$16.1 million) consisting
of 11,120,000 units at a price of $1.10 (C$1.45) per unit. Each unit consisted of one common share of the Company and one-half
of one common share purchase warrant. Each whole warrant entitles the holder to acquire one additional common share of the Company
at a price of C$2.00 per common share until July 25, 2019.
The
aggregate fair value of the common share purchase warrants at the time of issuance was $2.3 million, which was recorded as a derivative
liability and the Company allocated the remaining proceeds of $9.8 million to the common shares (See Note 10).
GOLDEN QUEEN MINING CO. LTD.
Notes to Condensed Consolidated Interim
Financial Statements
For the Three and Six Months Ended June
30, 2017 and 2016
(amounts expressed in thousands of US
dollars - Unaudited)
|
7.
|
Share Capital (continued)
|
The Company also issued 757,700 common
share purchase warrants to brokers with the same terms as the common share purchase warrants issued with the financing units. The
aggregate fair value of the common share purchase warrants issued to the brokers at the time of issuance was $0.3 million which
was recorded as a derivative liability (See Note 10).
In addition, the Company incurred cash
share issue costs totalling $1.2 million, which consisted of legal fees, commission and other direct financing costs.
Stock options
The Company’s current stock option
plan (the “Plan”) was adopted by the Company in 2013 and approved by shareholders of the Company in 2013. The Plan
provides a fixed number of 7,200,000 common shares of the Company that may be issued pursuant to the grant of stock options. The
exercise price of stock options granted under the Plan shall be determined by the Company’s Board of Directors (the “Board”),
but shall not be less than the volume-weighted, average trading price of the Company’s shares on the Toronto Stock Exchange
(“TSX”) for the five (5) trading days immediately prior to the date of the grant. The expiry date of a stock option
shall be the date so fixed by the Board subject to a maximum term of five (5) years. The Plan provides that the expiry date of
the vested portion of a stock option will be the earlier of the date so fixed by the Board at the time the stock option is awarded
and the early termination date (the “Early Termination Date”).
The Early Termination Date will be the
date the vested portion of a stock option expires following the option holder ceasing to be a director, employee or consultant,
as determined by the Board at the time of grant, or in the absence thereof at any time prior to the time the option holder ceases
to be a director, employee or consultant, in accordance with and subject to the provisions of the Plan. All options granted under
the 2013 Plan will be subject to such vesting requirements as may be prescribed by the TSX, if applicable, or as may be imposed
by the Board. A total of 1,395,002 (December 31, 2016 – 1,555,000) common shares were issuable pursuant to such stock options
as at June 30, 2017.
The Company has elected to use the Black-Scholes
option pricing model to determine the fair value of stock options granted. In accordance with the accounting standard for employees,
the compensation expense is amortized on a straight-line basis over the requisite service period, which approximates the vesting
period.
The following is a summary of stock option
activity during the six months ended June 30, 2017 and 2016:
|
|
Shares
|
|
|
Weighted Average
Exercise Price per
Share
|
|
Options outstanding, December 31, 2015
|
|
|
1,070,000
|
|
|
$
|
0.94
|
|
Options granted
|
|
|
485,000
|
|
|
$
|
0.66
|
|
Options outstanding, December 31, 2016
|
|
|
1,555,000
|
|
|
$
|
0.85
|
|
Options granted
|
|
|
400,002
|
|
|
$
|
0.65
|
|
Options forfeited
|
|
|
(166,667
|
)
|
|
$
|
0.24
|
|
Options expired
|
|
|
(393,333
|
)
|
|
$
|
1.10
|
|
Options outstanding, June 30, 2017
|
|
|
1,395,002
|
|
|
$
|
0.75
|
|
On March 20, 2017, the Company granted
400,002 options to the Company’s Chief Financial Officer (“CFO”). The options are exercisable at a price of $0.65
for a period of five years from the date of grant and 133,334 options vest on March 20, 2018, 133,334 options vest on March 20,
2019 and 133,334 options on March 20, 2020.
On March 14, 2017, the former CFO of the
Company resigned. 146,667 stock options were forfeited on this date as they did not meet the vesting conditions. The expiry date
of 393,333 stock options which vested was modified to June 14, 2017 pursuant to the terms of the employment agreement.
GOLDEN QUEEN MINING CO. LTD.
Notes to Condensed Consolidated Interim
Financial Statements
For the Three and Six Months Ended June
30, 2017 and 2016
(amounts expressed in thousands of US
dollars - Unaudited)
|
7.
|
Share Capital (continued)
|
Stock options
(continued)
These stock options were not exercised,
thus expired during the six months ended June 30, 2017. The share-based compensation associated with the unvested stock options
was reversed accordingly.
Upon resignation of an employee on June
19, 2017, 20,000 stock options were forfeited as they did not meet the vesting conditions. The share-based compensation associated
with the unvested stock options was reversed accordingly.
The fair value of stock options granted
as above is calculated using the following weighted average assumptions:
|
|
2017
|
|
|
2016
|
|
Expected life (years)
|
|
|
5.00
|
|
|
|
5.00
|
|
Interest rate
|
|
|
1.18
|
%
|
|
|
1.00
|
%
|
Volatility
|
|
|
77.29
|
%
|
|
|
81.27
|
%
|
Dividend yield
|
|
|
0.00
|
%
|
|
|
0.00
|
%
|
During the three and six months ended June 30, 2017, the Company
recognized $0.05 million and $0.09 million (the three and six months ended June 30, 2016 - $0.04 million and $0.07 million) in
stock-based compensation relating to employee stock options that were issued and/or had vesting terms.
The following table summarizes information
about stock options outstanding and exercisable at June 30, 2017:
Expiry
Date
|
|
Number
Outstanding
|
|
|
Number
Exercisable
|
|
|
Remaining
Contractual Life
(years)
|
|
|
Exercise
Price
|
|
June 3, 2018
|
|
|
50,000
|
|
|
|
50,000
|
|
|
|
0.93
|
|
|
$
|
1.16
|
|
September 3, 2018
|
|
|
150,000
|
|
|
|
150,000
|
|
|
|
1.18
|
|
|
$
|
1.59
|
|
September 8, 2020
|
|
|
430,000
|
|
|
|
430,000
|
|
|
|
3.19
|
|
|
$
|
0.58
|
|
November 30, 2021
|
|
|
365,000
|
|
|
|
0
|
|
|
|
4.42
|
|
|
$
|
0.66
|
|
March 20, 2022
|
|
|
400,002
|
|
|
|
0
|
|
|
|
4.72
|
|
|
$
|
0.65
|
|
Balance, June 30, 2017
|
|
|
1,395,002
|
|
|
|
630,000
|
|
|
|
3.66
|
|
|
|
|
|
As at June 30, 2017, the aggregate intrinsic
value of the outstanding exercisable options was $Nil (December, 31, 2016 - $0.4 million).
Warrants
The following is a summary of common share
purchase warrants activity:
|
|
June 30, 2017
|
|
|
December 31, 2016
|
|
Balance, beginning of the period
|
|
|
24,317,700
|
|
|
|
10,000,000
|
|
Issued - financing units
|
|
|
-
|
|
|
|
5,560,000
|
|
Issued - financing brokers
(1)
|
|
|
-
|
|
|
|
757,700
|
|
Issued - debt restructuring
(1)
|
|
|
-
|
|
|
|
8,000,000
|
|
Balance, end of the period
|
|
|
24,317,700
|
|
|
|
24,317,700
|
|
(1)
Non-tradable share purchase
warrants.
GOLDEN QUEEN MINING CO. LTD.
Notes to Condensed Consolidated Interim
Financial Statements
For the Three and Six Months Ended June
30, 2017 and 2016
(amounts expressed in thousands of US
dollars - Unaudited)
|
7.
|
Share Capital (continued)
|
Warrants
(continued)
The following table summarizes information
about share purchase warrants outstanding and exercisable at June 30, 2017:
Expiry
Date
|
|
Number
Outstanding
|
|
|
Remaining
Contractual Life
(periods)
|
|
|
Exercise
Price
|
|
June 8, 2020
|
|
|
10,000,000
|
|
|
|
2.94
|
|
|
$
|
0.95
|
|
July 25, 2019
|
|
|
5,560,000
|
|
|
|
2.07
|
|
|
C$
|
2.00
|
|
July 25, 2019
|
|
|
757,700
|
|
|
|
2.07
|
|
|
C$
|
2.00
|
|
November 18, 2021
|
|
|
8,000,000
|
|
|
|
4.40
|
|
|
$
|
0.85
|
|
|
8.
|
Asset Retirement Obligation and Financial Reclamation Assurance
|
Asset Retirement Obligation
The total asset retirement obligation as
of June 30, 2017, was $1.6 million (December 31, 2016 - $1.4 million).
The Company estimated its asset retirement
obligation based on its requirements to reclaim and remediate its property based on its activities to date. As at June 30, 2017,
the Company estimates the primary cash outflow related to these reclamation activities will commence in 2028. Reclamation provisions
are measured at the expected value of future cash flows discounted to their present value using a discount rate based on a credit
adjusted risk-free interest rate of 8.7% and an inflation rate of 2.45%.
The following is a summary of asset retirement
obligations:
|
|
June 30, 2017
|
|
|
December 31, 2016
|
|
Balance, beginning of the period
|
|
$
|
1,366
|
|
|
$
|
978
|
|
Accretion
|
|
|
62
|
|
|
|
90
|
|
Changes in cash flow estimates
|
|
|
173
|
|
|
|
298
|
|
Balance, end of the period
|
|
$
|
1,601
|
|
|
$
|
1,366
|
|
Reclamation Financial Assurance
The Company is required to provide the
Bureau of Land Management, the State Office of Mine Reclamation and Kern County, California with a revised reclamation cost estimate
annually. The financial assurance is adjusted once the cost estimate is approved. The Company’s provision for
reclamation of the property is estimated each year by an independent consulting engineer. This estimate, once approved by state
and county authorities, forms the basis for a cash deposit of reclamation financial assurance. The reclamation assurance provided
as at June 30, 2017 is $1.5 million (December 31, 2016 - $1.5 million).
The Company is required to provide the
Bureau of Land Management, the State Office of Mine Reclamation and Kern County, California with a revised reclamation cost estimate
annually. The financial assurance is adjusted once the cost estimate is approved. The Company’s provision for
reclamation of the property is estimated each year by an independent consulting engineer. This estimate, once approved by state
and county authorities, forms the basis for a cash deposit of reclamation financial assurance. The reclamation assurance provided
as at June 30, 2017 is $1.5 million (December 31, 2016 - $1.5 million).
In addition to the above, the Company
is required to obtain and maintain financial assurance for initiating and completing corrective action and remediation of a reasonably
foreseeable release from the Mine’s waste management units as required by the Regional Board. The reclamation financial
assurance estimate for as of June 30, 2017, is $0.3 million (December 31, 2016 - $0.3 million).
GOLDEN QUEEN MINING CO. LTD.
Notes to Condensed Consolidated Interim
Financial Statements
For the Three and Six Months Ended June
30, 2017 and 2016
(amounts expressed in thousands of US
dollars - Unaudited)
|
8.
|
Asset Retirement Obligation and Financial Reclamation Assurance (continued)
|
Asset Retirement Obligation (continued)
During 2016, the Company entered into $3.0
million in surety bond agreements in order to release its reclamation deposits. The Company pays a yearly premium of $0.1 million.
Golden Queen Mining Co. Ltd. has provided a corporate guaranty on the surety bonds (See Note 12).
|
9.
|
Related Party Transactions
|
Except as noted elsewhere in these unaudited
condensed consolidated interim financial statements, related party transactions are disclosed as follows:
During the three and six months
ended June 30, 2017, the Company paid a total of $0.03 million and $0.06 million (the three and six months ended June 30, 2016
- $0.03 million and $0.06 million, respectively), respectively, to the three independent directors of the Company. Additionally,
the Company paid $0.02 million (2016 - $Nil) for consulting services to Behre Dolbear, a company of which a director of Golden
Queen serves in the capacity of an executive officer.
On December 31, 2014, the Company
entered into a loan (the “December 2014 Loan”) with the Clay Group for $12.5 million, due on July 1, 2015 and bore
an annual interest rate of 10%. The loan was guaranteed by GQM Holdings, and secured by a pledge of the Company's interests in
GQM Canada, GQM Canada’s interest in GQM Holdings and GQM Holdings' 50% interest in GQM LLC.
The Company also incurred a financing
fee to secure the loan in the amount of $1.0 million, of which, $0.8 million was paid on December 31, 2014 and the remaining $0.2
million was paid on January 5, 2015.
On June 8, 2015, the Company
amended the December 2014 Loan to extend the maturity to December 8, 2016 and increased the principal amount from $12.5 million
to $37.5 million (the “June 2015 Loan”). The Company also issued to the lenders 10,000,000 common share purchase warrants
exercisable for a period of five years expiring June 8, 2020. The common share purchase warrants have an exercise price of $0.95.
All other terms remained the same as the December 2014 Loan. The Company also incurred financing fees to secure the loan in the
amount of $1.5 million. The Company agreed to pay the legal fees incurred by the lenders relating to this debt instrument which
amounted to $0.04 million. The total legal fees were expensed as the transaction met the definition of a debt extinguishment.
On November 18, 2016, the Company
repaid $12.2 million of the June 2015 Loan and accrued interest with cash on hand and the net proceeds of $10.1 million from an
equity financing. The Company restructured the remaining debt with a new loan with a principal amount of $31.0 million (the “November
2016 Loan”). The new loan has a thirty-month term and an annual interest rate of 8%, payable on a quarterly basis commencing
during the first quarter of 2017. Quarterly principal payments of $2.5 million commence during the first quarter of 2018, with
a payment of the remaining balance at the maturity date. The first four quarterly interest payments under the November 2016 Loan
can be added to the loan principal balance rather than paid in cash, at the Company’s option. The Company exercised this
option on January 1, 2017 and on July 1, 2017 (See Note 17).
In connection with the November
2016 Loan the Company issued 8,000,000 common share purchase warrants exercisable for a period of five years expiring November
21, 2021. The common share purchase warrants have an exercise price of $0.85. The Company also incurred a financing fee to secure
the loan in the amount of $0.9 million, all of which was paid on November 18, 2016.
GOLDEN QUEEN MINING CO. LTD.
Notes to Condensed Consolidated Interim
Financial Statements
For the Three and Six Months Ended June
30, 2017 and 2016
(amounts expressed in thousands of US
dollars - Unaudited)
|
9.
|
Related Party Transactions (continued)
|
|
(ii)
|
Note Payable (continued)
|
The table below summarizes the
activity on the November 2016 Loan:
|
|
June 30, 2017
|
|
|
December 31, 2016
|
|
Balance, beginning of the period
|
|
$
|
26,347
|
|
|
$
|
36,053
|
|
Interest payable transferred to principal balance
|
|
|
922
|
|
|
|
2,977
|
|
Accretion of discount on loans
|
|
|
740
|
|
|
|
1,996
|
|
Capitalized financing fee and legal fees
|
|
|
-
|
|
|
|
(930
|
)
|
Reduction of debt upon issuance of warrants
|
|
|
-
|
|
|
|
(3,090
|
)
|
Repayment of loans and interest
|
|
|
-
|
|
|
|
(10,659
|
)
|
Balance, end of the period
|
|
$
|
28,009
|
|
|
$
|
26,347
|
|
|
|
|
|
|
|
|
|
|
Current portion
|
|
$
|
5,922
|
|
|
$
|
-
|
|
Non-current portion
|
|
$
|
22,087
|
|
|
$
|
26,347
|
|
|
(iii)
|
Amortization of Discounts and Interest Expense
|
The following table summarizes
the amortization of discounts and interest on loan:
|
|
Three Months
Ended
June 30,
|
|
|
Three Months
Ended
June 30,
|
|
|
Six Months
Ended
June 30,
|
|
|
Six Months
Ended
June 30,
|
|
|
|
2017
|
|
|
2016
|
|
|
2017
|
|
|
2016
|
|
Accretion of the Nov 2016 Loan discount
|
|
$
|
454
|
|
|
$
|
-
|
|
|
$
|
740
|
|
|
$
|
-
|
|
Interest expense related to the Nov 2016 Loan
|
|
|
646
|
|
|
|
-
|
|
|
|
1,272
|
|
|
|
-
|
|
Interest expense related to Komatsu financial loans
(1)
|
|
|
150
|
|
|
|
154
|
|
|
|
285
|
|
|
|
320
|
|
Accretion of the June 2015 Loan discount
|
|
|
-
|
|
|
|
626
|
|
|
|
-
|
|
|
|
1,232
|
|
Interest expense related to the June 2015 Loan
|
|
|
-
|
|
|
|
1,013
|
|
|
|
-
|
|
|
|
2,008
|
|
Accretion of discount and interest on loan
|
|
$
|
1,250
|
|
|
$
|
1,793
|
|
|
$
|
2,297
|
|
|
$
|
3,560
|
|
The Company’s loans were
contracted to fund significant development costs.
|
|
Three Months
Ended
June 30,
|
|
|
Three Months
Ended
June 30,
|
|
|
Six Months
Ended
June 30,
|
|
|
Six Months
Ended
June 30,
|
|
|
|
2017
|
|
|
2016
|
|
|
2017
|
|
|
2016
|
|
Accretion of discounts and interest on loan
(1)
|
|
$
|
1,250
|
|
|
$
|
1,793
|
|
|
$
|
2,297
|
|
|
$
|
3,560
|
|
Less: Interest costs capitalized
(2)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(1,006
|
)
|
Interest expense
|
|
$
|
1,250
|
|
|
$
|
1,793
|
|
|
$
|
2,297
|
|
|
$
|
2,554
|
|
|
(1)
|
Komatsu is not a related party and has only been included in the above table to reconcile the total
interest expense incurred for the period to the amounts capitalized and expensed.
|
|
(2)
|
Interest capitalization ended on March 31, 2016 because the mine went into production on April
1, 2016.
|
|
(iv)
|
Joint Venture Transaction
|
On September 15, 2014, the Company
closed the Joint Venture Transaction with Gauss resulting in both parties owning a 50% interest in the Mine. Pursuant to the Joint
Venture Transaction, Golden Queen converted its wholly-owned subsidiary GQM Inc., the entity developing the Mine, into a California
limited liability company named GQM LLC. On closing of the transaction, Gauss acquired 50% of GQM LLC by investing $110 million
cash in exchange for newly issued membership units of GQM LLC. GQM Holdings, a newly incorporated subsidiary of the Company, holds
the other 50% of GQM LLC.
GOLDEN QUEEN MINING CO. LTD.
Notes to Condensed Consolidated Interim
Financial Statements
For the Three and Six Months Ended June
30, 2017 and 2016
(amounts expressed in thousands of US
dollars - Unaudited)
|
9.
|
Related Party Transactions (continued)
|
|
(iv)
|
Joint Venture Transaction (continued)
|
Gauss is a funding vehicle
owned by entities controlled by Leucadia National Corporation (NYSE: LUK) (“Leucadia”) and certain members of the Clay
Group, a shareholder group which collectively owned approximately 27% of the issued and outstanding shares of Golden Queen (the
“Clay Group”) at the time of the transaction. Gauss is owned 70.51% by Gauss Holdings LLC (“Gauss Holdings”,
Leucadia’s investment entity) and 29.49% by Auvergne LLC (“Auvergne”, the Clay Group’s investment entity).
Pursuant to the transaction, Leucadia was paid a transaction fee of $2.0 million and $0.3 million was paid to Auvergne through
GQM LLC in 2014. The Company expensed these transaction costs.
Variable Interest Entity
In accordance with ASC 810-10-30,
the Company has determined that GQM LLC meets the definition of a VIE and that the Company is part of a related party group that,
in its entirety, would meet the definition of a primary beneficiary. Although no individual variable interest holder
individually meets the definition of a primary beneficiary in the absence of the related party group, Golden Queen has determined
it is considered the member of the related party group most closely associated with GQM LLC. As a result, the Company has
condensed consolidated interim 100% of the accounts of GQM LLC in these condensed consolidated interim financial statements, while
presenting a non-controlling interest portion representing the 50% interest of Gauss in GQM LLC on its balance sheet. A portion
of the non-controlling interest has been presented as temporary equity on the Company’s balance sheet representing the initial
value of the non-controlling interest that could potentially be redeemable by Gauss in the future.
The Company has presented
Gauss’ ownership in GQM LLC as a non-controlling interest amount on the balance sheet within the equity section. However,
there are terms in the agreement that provide for the exit from the investment in GQM LLC for an initial member whose interest
in GQM LLC becomes less than 20%.
If a member becomes less than
a 20% interest holder, its remaining unit interest will (ultimately) be terminated through one of three events at the non-diluted
member’s option:
|
a.
|
Through conversion to a net smelter royalty (“NSR”);
|
|
b.
|
Through a buy-out (at fair value) by the non-diluted member; or
|
|
c.
|
Through a sale process by which the diluted member’s interest is sold
|
The net assets of GQM LLC as
of June 30, 2017, and December 31, 2016 are as follows:
|
|
June 30, 2017
|
|
|
December 31, 2016
|
|
Assets, GQM LLC
|
|
$
|
152,934
|
|
|
$
|
151,802
|
|
Liabilities, GQM LLC
|
|
|
(22,157
|
)
|
|
|
(20,710
|
)
|
Net assets, GQM LLC
|
|
$
|
130,777
|
|
|
$
|
131,092
|
|
Included in the assets above,
is $5.0 million (December 31, 2016 - $11.1 million) in cash held as at June 30, 2017. The cash in GQM LLC is directed specifically
to fund capital expenditures required to continue with production and settle GQM LLC’s obligations. The liabilities of GQM
LLC do not have recourse to the general credit of Golden Queen except for 2 mining drill loans and $3.0 million in surety bond
agreements.
GOLDEN QUEEN MINING CO. LTD.
Notes to Condensed Consolidated Interim
Financial Statements
For the Three and Six Months Ended June
30, 2017 and 2016
(amounts expressed in thousands of US
dollars - Unaudited)
|
9.
|
Related Party Transactions (continued)
|
|
(iv)
|
Joint Venture Transaction (continued)
|
Non-Controlling Interest
The carrying value of the non-controlling
interest is adjusted for net income and loss, distributions and contributions pursuant to ASC 810-10 based on the same percentage
allocation used to calculate the initial book value of temporary equity.
|
|
Three Months
Ended
June 30,
|
|
|
Three Months
Ended
June 30,
|
|
|
Six Months
Ended
June 30,
|
|
|
Six Months
Ended
June 30,
|
|
|
|
2017
|
|
|
2016
|
|
|
2017
|
|
|
2016
|
|
Net and comprehensive income (loss) in GQM LLC
|
|
$
|
462
|
|
|
$
|
(2,919
|
)
|
|
$
|
(317
|
)
|
|
$
|
(3,628
|
)
|
Non-controlling interest percentage
|
|
|
50
|
%
|
|
|
50
|
%
|
|
|
50
|
%
|
|
|
50
|
%
|
Net and comprehensive loss attributable to non-controlling interest
|
|
$
|
230
|
|
|
$
|
(1,459
|
)
|
|
$
|
(159
|
)
|
|
$
|
(1,814
|
)
|
Net and comprehensive loss attributable to permanent non-controlling interest
|
|
$
|
138
|
|
|
$
|
(876
|
)
|
|
$
|
(95
|
)
|
|
$
|
(1,088
|
)
|
Net and comprehensive loss
attributable to temporary non-controlling interest
|
|
$
|
92
|
|
|
$
|
(584
|
)
|
|
$
|
(64
|
)
|
|
$
|
(726
|
)
|
|
|
Permanent Non-
Controlling
Interest
|
|
|
Temporary Non-
Controlling
Interest
|
|
Carrying value of non-controlling interest, December 31, 2016
|
|
$
|
39,327
|
|
|
$
|
26,220
|
|
Net and comprehensive loss for the period
|
|
|
(95
|
)
|
|
|
(64
|
)
|
Carrying value of non-controlling interest, June 30, 2017
|
|
$
|
39,232
|
|
|
$
|
26,156
|
|
Dilution of Interest
in Subsidiary
As a result of the Joint
Venture Transaction, the Company’s interest in GQM LLC was diluted from 100% to 50% and ordinarily, the Company would recognize
gain on dilution with the book value of the investment in GQM LLC increasing as well. However, since the transaction was with a
related party and the Company retained control, the excess has not been recognized in net income but rather has been recorded in
equity as an increase to Additional Paid-in Capital (“APIC”) based on guidance provided in ASC 810-10-55-4D and -4E.
The deferred tax liability resulted
from the increase in the book value over tax value of the investment in GQM LLC.
Capital Contribution Agreement
Pursuant to the Joint Venture
Transaction, GQM Holdings made a single capital contribution to GQM LLC of $12.5 million on June 15, 2015. Gauss funded an amount
equal to GQM Holdings’ capital contribution to GQM LLC. Both partners maintain their 50% ownership of the Mine.
On May 23, 2017, GQM LLC
entered into a revolving credit facility of $5 million with Gauss Holdings and Auvergne LLC. The revolving credit is available
until May 23, 2018 and bears a 12% simple annual interest. GQM LLC paid a closing fee of $0.1 million which was classified as prepaid
expenses and other current assets. $0.02 million of the closing fee was amortized during three and six months ended June 30, 2017.
As at June 30, 2017, no amounts had been drawn under this facility.
GOLDEN QUEEN MINING CO. LTD.
Notes to Condensed Consolidated Interim
Financial Statements
For the Three and Six Months Ended June
30, 2017 and 2016
(amounts expressed in thousands of US
dollars - Unaudited)
|
10.
|
Derivative Liabilities
|
Share Purchase Warrants – Clay loans
(Related Party)
On June 8, 2015, the Company issued 10,000,000
share purchase warrants to the Clay Group in connection with the June 2015 Loan. The share purchase warrants are exercisable until
June 8, 2020 at an exercise price of $0.95. Included in the June 2015 Loan agreement was an anti-dilution provision. If the Company
were to complete a financing at a share price lower than the exercise price of the share purchase warrants, the exercise price
of the share purchase warrants would be adjusted to match the price at which the financing was completed.
On November 18, 2016, the Company issued
8,000,000 share purchase warrants to the Clay Group in connection with the November 2016 Loan. The share purchase warrants are
exercisable until November 18, 2021 at an exercise price of $0.85. Included in the November 2016 Loan agreement was an anti-dilution
provision. If the Company were to complete a financing at a share price lower than the exercise price of the share purchase warrants,
the exercise price of the share purchase warrants would be adjusted to match the price at which the financing was completed.
The share purchase warrants meet the definition
of a derivative liability instrument as the exercise price is not a fixed price as described above. Therefore, the settlement feature
does not meet the “fixed-for-fixed” criteria outlined in ASC 815-40-15.
The fair value of the derivative liabilities
related to the share purchase warrants as at June 30, 2017 is $4.0 million (December 31, 2016 - $5.5 million). The derivative liabilities
were calculated using the binomial and the Black-Scholes pricing valuation models with the following assumptions:
Warrants related to June 2015 Loan
|
|
June 30, 2017
|
|
|
December 31, 2016
|
|
Risk-free interest rate
|
|
|
1.17
|
%
|
|
|
0.84%.
|
|
Expected life of derivative liability
|
|
|
2.94 years
|
|
|
|
3.44 years
|
|
Expected volatility
|
|
|
76.60
|
%
|
|
|
78.79
|
%
|
Dividend rate
|
|
|
0.00
|
%
|
|
|
0.00
|
%
|
Warrants related to November 2016 Loan
|
|
June 30, 2017
|
|
|
December 31, 2016
|
|
Risk-free interest rate
|
|
|
1.38
|
%
|
|
|
1.11
|
%
|
Expected life of derivative liability
|
|
|
4.40 years
|
|
|
|
4.89 years
|
|
Expected volatility
|
|
|
79.58
|
%
|
|
|
77.21
|
%
|
Dividend rate
|
|
|
0.00
|
%
|
|
|
0.00
|
%
|
The change in the derivative share purchase
warrants is as follows:
|
|
June 30, 2017
|
|
|
December 31, 2016
|
|
Balance, beginning of the period
|
|
$
|
5,458
|
|
|
$
|
2,498
|
|
Fair value at inception
|
|
|
-
|
|
|
|
3,090
|
|
Change in fair value
|
|
|
(1,452
|
)
|
|
|
(130
|
)
|
Balance, end of the period
|
|
$
|
4,006
|
|
|
$
|
5,458
|
|
GOLDEN QUEEN MINING CO. LTD.
Notes to Condensed Consolidated Interim
Financial Statements
For the Three and Six Months Ended June
30, 2017 and 2016
(amounts expressed in thousands of US
dollars - Unaudited)
|
10.
|
Derivative Liabilities (continued)
|
Share Purchase Warrants – July 2016
financing
On July 25, 2016, the Company issued
a total of 6,317,700 share purchase warrants in connection with the July 2016 financing with an exercise price of C$2.00. In
accordance with the guidance in ASC 815-40-15, the share purchase warrants met the criteria of a derivative instrument
liability because they were exercisable in a currency other than the functional currency of the Company and thus did not meet
the “fixed-for-fixed” criteria of that guidance. As a result, the Company was required to separately account for
the share purchase warrants as derivative liabilities recorded at fair value and marked-to-market each period with the
changes in the fair value each period charged or credited to income.
As at June 30, 2017, the Company had re-measured
the share purchase warrants and determined the fair value of the derivative liability to be $0.5 million (December 31, 2016 - $1.0
million) using the Black-Scholes option pricing model with the following assumptions:
|
|
June 30, 2017
|
|
|
December 31, 2016
|
|
Risk-free interest rate
|
|
|
1.09
|
%
|
|
|
0.84
|
%
|
Expected life of derivative liability in years
|
|
|
2.07 years
|
|
|
|
2.56 years
|
|
Expected volatility
|
|
|
76.01
|
%
|
|
|
79.40
|
%
|
Dividend rate
|
|
|
0.00
|
%
|
|
|
0.00
|
%
|
The change in the derivative share purchase
warrants is as follows:
|
|
June 30, 2017
|
|
|
December 31, 2016
|
|
Fair value of warrants issued
|
|
$
|
972
|
|
|
$
|
2,701
|
|
Change in fair value of warrants
|
|
|
(442
|
)
|
|
|
(1,729
|
)
|
Balance, end of the period
|
|
$
|
530
|
|
|
$
|
972
|
|
|
11.
|
Supplementary Disclosures of Cash Flow Information
|
|
|
Six Months Ended
June 30,
|
|
|
Six Months Ended
June 30,
|
|
|
|
2017
|
|
|
2016
|
|
Cash paid during the period for:
|
|
|
|
|
|
|
|
|
Interest on loan payable
|
|
$
|
285
|
|
|
$
|
323
|
|
Non-cash financing and investing activities:
|
|
|
|
|
|
|
|
|
Common shares issued as part of a management agreement
|
|
$
|
-
|
|
|
$
|
-
|
|
Asset retirement costs charged to mineral property interests
|
|
$
|
173
|
|
|
$
|
171
|
|
Mining equipment acquired through issuance of debt
|
|
$
|
2,551
|
|
|
$
|
295
|
|
Mineral property expenditures included in accounts payable
|
|
$
|
1,081
|
|
|
$
|
708
|
|
Interest cost capitalized to mineral property interests
|
|
$
|
-
|
|
|
$
|
839
|
|
Inventory expenditures included in accounts payable
|
|
$
|
-
|
|
|
$
|
-
|
|
Non-cash finder fees
|
|
$
|
59
|
|
|
$
|
-
|
|
Non-cash amortization of discount and interest expense
|
|
$
|
740
|
|
|
$
|
1,232
|
|
Interest payable converted to principal balance
|
|
$
|
922
|
|
|
$
|
1,964
|
|
GOLDEN QUEEN MINING CO. LTD.
Notes to Condensed Consolidated Interim
Financial Statements
For the Three and Six Months Ended June
30, 2017 and 2016
(amounts expressed in thousands of US
dollars - Unaudited)
|
12.
|
Commitments and Contingencies
|
Royalties
The Company has acquired a number of mineral
properties outright. It has acquired exclusive rights to explore, develop and mine other portions of the Mine under various mining
lease agreements with landowners. Royalty amount due to each landholder over the life of the Mine varies with each property.
Compliance with Environmental Regulations
The Company’s exploration and development
activities are subject to laws and regulations controlling not only the exploration and mining of mineral properties, but also
the effect of such activities on the environment. Compliance with such laws and regulations may necessitate additional capital
outlays or affect the economics of a mine, and cause changes or delays in the Company’s activities.
Corporate Guaranties
The Company has provided corporate guaranties
for two of GQM LLC’s mining drill loans. The Company has also provided corporate a guaranty for GQM LLC’s surety bonds.
|
13.
|
Financial Instruments
|
Fair Value Measurements
All financial assets and financial liabilities
are recorded at fair value on initial recognition. Transaction costs are expensed when they are incurred, unless they are directly
attributable to the acquisition of qualifying assets, in which case they are added to the costs of those assets until such time
as the assets are substantially ready for their intended use or sale.
The three levels of the fair value hierarchy
are as follows:
Level 1
|
Unadjusted quoted prices in active markets that are accessible at the measurement date for identical, unrestricted assets or liabilities;
|
Level 2
|
Quoted prices in markets that are not active, or inputs that are observable, either directly or indirectly, for substantially the full term of the asset or liability;
|
Level
3
|
Prices or valuation techniques that require inputs that are both significant to the fair value measurement and unobservable (supported by little or no market activity).
|
GOLDEN QUEEN MINING CO. LTD.
Notes to Condensed Consolidated Interim
Financial Statements
For the Three and Six Months Ended June
30, 2017 and 2016
(amounts expressed in thousands of US
dollars - Unaudited)
|
13.
|
Financial Instruments (continued)
|
Fair Value Measurements (continued)
|
|
June 30, 2017
|
|
|
|
Total
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Share purchase warrants – Related Party (Note 10)
|
|
$
|
4,006
|
|
|
$
|
-
|
|
|
$
|
4,006
|
|
|
$
|
-
|
|
Share purchase warrants – (Note 10)
|
|
|
530
|
|
|
|
-
|
|
|
|
530
|
|
|
|
-
|
|
|
|
$
|
4,536
|
|
|
$
|
-
|
|
|
$
|
4,536
|
|
|
$
|
-
|
|
|
|
December 31, 2016
|
|
|
|
Total
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Share purchase warrants – Related Party (Note 10)
|
|
$
|
5,458
|
|
|
$
|
-
|
|
|
$
|
5,458
|
|
|
$
|
-
|
|
Share purchase warrants – (Note 10)
|
|
|
972
|
|
|
|
-
|
|
|
|
972
|
|
|
|
-
|
|
|
|
$
|
6,430
|
|
|
$
|
-
|
|
|
$
|
6,430
|
|
|
$
|
-
|
|
Under fair value accounting, assets and
liabilities are classified in their entirety based on the lowest level of input that is significant to the fair value measurement.
The fair value measurement of the financial instruments above use observable inputs in option price models such as the binomial
and the Black-Scholes valuation models.
Credit Risk
Credit risk is the risk that the
counterparty to a financial instrument will cause a financial loss for the Company by failing to discharge its obligations.
To mitigate exposure to credit risk on financial assets the Company has established policies to ensure liquidity of funds and
ensure counterparties demonstrate minimum acceptable credit worthiness.
The Company maintains its US Dollar
and Canadian Dollar cash in bank accounts with major financial institutions with high credit standings. Cash deposits held in
the United States are insured by the Federal Deposit Insurance Corporation (“FDIC”) for up to $0.3 million and
Canadian Dollar cash deposits held in Canada are insured by the Canada Deposit Insurance Corporation (“CDIC”) for
up to C$0.1 million.
GOLDEN QUEEN MINING CO. LTD.
Notes to Condensed Consolidated Interim
Financial Statements
For the Three and Six Months Ended June
30, 2017 and 2016
(amounts expressed in thousands of US
dollars - Unaudited)
Certain United States and Canadian bank
accounts held by the Company exceed these federally insured limits or are uninsured as they relate to US Dollar deposits held in
Canadian financial institutions. As of June 30, 2017, the Company’s cash balances held in United States and Canadian financial
institutions include $6.3 million, which are not fully insured by the FDIC or CDIC. The Company has not experienced any losses
on such accounts and management believes that using major financial institutions with high credit ratings mitigates the credit
risk in cash.
Interest Rate Risk
The Company holds 98% of its cash in bank
deposit accounts with a single major financial institution. The interest rates received on these balances may fluctuate with changes
in economic conditions. Based on the average cash balances during the three months ended June 30, 2017 a 1% decrease in interest
rates would have reduced the interest income for 2017 to an immaterial amount.
Foreign Currency Exchange Risk
Certain purchases of corporate overhead
items are denominated in Canadian Dollar. As a result, currency exchange fluctuations may impact the costs of our operations. Specifically,
the appreciation of the Canadian Dollar against the US Dollar may result in an increase in the Canadian operating expenses in US
dollar terms. As of June 30, 2017, the Company maintained the majority of its cash balance in US Dollar. The Company currently
does not engage in any currency hedging activities.
|
13.
|
Financial Instruments (continued)
|
Commodity Price Risk
The Company’s primary business activity
is the operation of the open pit, gold and silver, heap leach project on the Mine. Decreases in the price of either of these metals
from current levels has the potential to negatively impact the future viability of the Mine.
|
14.
|
General and Administrative Expenses
|
General and administrative expenses are
incurred to support the administration of the business that are not directly related to production. Significant components of general
and administrative expenses are comprised of the following:
|
|
Three Months
Ended
June 30,
|
|
|
Three Months
Ended
June 30,
|
|
|
Six Months
Ended
June 30,
|
|
|
Six Months
Ended
June 30,
|
|
|
|
2017
|
|
|
2016
|
|
|
2017
|
|
|
2016
|
|
Audit, legal and professional fees
|
|
$
|
108
|
|
|
$
|
197
|
|
|
$
|
396
|
|
|
$
|
972
|
|
Salaries and benefits and director fees
|
|
|
140
|
|
|
|
395
|
|
|
|
700
|
|
|
|
737
|
|
Regulatory fees and licenses
|
|
|
17
|
|
|
|
60
|
|
|
|
70
|
|
|
|
83
|
|
Insurance
|
|
|
114
|
|
|
|
116
|
|
|
|
247
|
|
|
|
240
|
|
Corporate administration
|
|
|
333
|
|
|
|
221
|
|
|
|
715
|
|
|
|
485
|
|
|
|
$
|
712
|
|
|
$
|
989
|
|
|
$
|
2,128
|
|
|
$
|
2,517
|
|
GOLDEN QUEEN MINING CO. LTD.
Notes to Condensed Consolidated Interim
Financial Statements
For the Three and Six Months Ended June
30, 2017 and 2016
(amounts expressed in thousands of US
dollars - Unaudited)
|
15.
|
Income (Loss) Per Share
|
|
|
Three Months
Ended
June 30,
|
|
|
Three Months
Ended
June 30,
|
|
|
Six Months Ended
June 30,
|
|
|
Six Months
Ended
June 30,
|
|
|
|
2017
|
|
|
2016
|
|
|
2017
|
|
|
2016
|
|
Numerator:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net gain (loss) attributable to the shareholders of the
Company - numerator for basic and diluted LPS
|
|
$
|
962
|
|
|
$
|
(2,109
|
)
|
|
$
|
(1,465
|
)
|
|
$
|
(11,034
|
)
|
Denominator:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average number of common
shares outstanding -basic and diluted
|
|
|
111,113,341
|
|
|
|
99,893,341
|
|
|
|
111,096,766
|
|
|
|
99,893,341
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) per share – basic and diluted
|
|
$
|
0.01
|
|
|
$
|
(0.02
|
)
|
|
$
|
(0.01
|
)
|
|
$
|
(0.11
|
)
|
Weighted average number of shares for the
six months ended June 30, 2017 excludes 1,395,002 options (June 30, 2016 - 1,070,000) and 24,317,700 warrants (June 30, 2016 –
10,000,000) that were antidilutive.
During the six months ended June 30, 2017,
the Company sold two (December 31, 2016 –Nil) pieces of equipment with a net book value of $1.0 million in consideration for
settlement of two loans by $0.6 million plus $0.1 million in cash. The Company also booked $0.3 million as a loss in disposition
of fixed assets.
During the six months ended June 30, 2017,
the Company entered into three new loan agreements for a total of $3.8 million for the acquisition of three (December 31, 2016 –
two) pieces of mining equipment from Komatsu.
GOLDEN QUEEN MINING CO. LTD.
Notes to Condensed Consolidated Interim
Financial Statements
For the Three and Six Months Ended June
30, 2017 and 2016
(amounts expressed in thousands of US
dollars - Unaudited)
|
16.
|
Loan Payable (continued)
|
As
at June 30, 2017 and December 31, 2016, the finance agreement balances are as follows:
|
|
June 30, 2017
|
|
|
December 31, 2016
|
|
Balance, beginning of the period
|
|
$
|
15,150
|
|
|
$
|
18,373
|
|
Additions
|
|
|
3,737
|
|
|
|
2,047
|
|
Down payments and taxes
|
|
|
(700
|
)
|
|
|
(264
|
)
|
Settlements
|
|
|
(485
|
)
|
|
|
-
|
|
Principal repayments
|
|
|
(2,989
|
)
|
|
|
(5,006
|
)
|
Balance, end of the period
|
|
$
|
14,713
|
|
|
$
|
15,150
|
|
|
|
|
|
|
|
|
|
|
Current portion
|
|
$
|
6,194
|
|
|
$
|
5,656
|
|
Non-current portion
|
|
$
|
8,519
|
|
|
$
|
9,494
|
|
For the six months ended June 30, 2017,
the Company made total down payments of $0.7 million (2016 - $0.3 million). The down payments consist of the sales tax on the
assets and a 10% payment of the pre-tax purchase price. All of the loan agreements are for a term of four years, except two which are
for three years, and are secured by the underlying asset except for two mining drill loans for which GQM Ltd. has provided a corporate
guarantee. Interest rates range from 0.00% to 4.50% with monthly payments in the range of $0.005 to $0.03 million.
The following table outlines the principal
payments to be made for each of the remaining years:
Years
|
|
Principal Payments
|
|
2017
|
|
$
|
6,194
|
|
2018
|
|
|
5,899
|
|
2019
|
|
|
2,024
|
|
2020
|
|
|
596
|
|
Total
|
|
$
|
14,713
|
|
On July 1, 2017, the Company was to make
a quarterly interest payment on the November 2016 loan. In accordance with the terms of the November 2016 loan agreement, the Company
chose to exercise its right to add the interest owed on July 1, 2017 to the principal balance. The principal balance of the loan
was increased by $0.6 million.