[ ] REGISTRATION STATEMENT PURSUANT TO SECTION 12(b)
OR (g) OF THE SECURITIES EXCHANGE ACT OF 1934
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR
15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
[ ] SHELL COMPANY REPORT PURSUANT TO SECTION 13 OR
15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
Securities for which there is a reporting obligation pursuant
to Section 15(d) of the Act:
None
Indicate the number of outstanding shares of each of the
Companys classes of capital or common stock as of the close of the period
covered by the annual report:
80,991,155
Indicate by check mark if the registrant is a well-known
seasoned Company, as defined in Rule 405 of the Securities Act.
If this report is an annual or transition report, indicate by
check mark if the registrant is not required to file reports pursuant to Section
13 or 15(d) of the Securities Exchange Act of 1934.
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past ninety days.
Indicate by check mark whether the registrant has submitted
electronically every Interactive Data File required to be submitted pursuant to
Rule 405 of Regulation S-T (232.405 of this chapter) during the preceding 12
months (or for such shorter period that the registrant was required to submit
such files).
Indicate by check mark whether the registrant is a large
accelerated filer, an accelerated filer, a non-accelerated filer, or an emerging
growth company. See definition of large accelerated filer", "accelerated
filer, and "emerging growth company" in Rule 12b-2 of the Exchange Act.
If an emerging growth company that prepares its financial
statements in accordance with U.S. GAAP, indicate by check mark if the
registrant has elected not to use the extended transition period for complying
with any new or revised financial accounting standards provided pursuant to
Section 13(a) of the Exchange Act.
The term new or revised
financial accounting standard refers to any update issued by the Financial
Accounting Standards Board to its Accounting Standards Codification after April
5, 2012.
Indicate by check mark which basis of accounting the registrant
has used to prepare the financial statements included in this filing:
If Other has been checked in response to the previous
question, indicate by check mark which financial statement item the registrant
has elected to follow:
If this is an annual report, indicate by check mark whether the
registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes [ ] No [X]
Indicate by check mark whether the registrant has filed all
documents and reports required to be filed by Sections 12, 13 or 15(d) of the
Securities Exchange Act of 1934 subsequent to the distribution of securities
under a plan confirmed by a court.
Yes [ ] No [X]
EMX Royalty Corporation (the Company or EMX) was
incorporated under the laws of the Yukon Territory of Canada on August 21, 2001
as 33544 Yukon Inc. and, on October 10, 2001, changed its name to Southern
European Exploration Ltd. On November 24, 2003, the Company completed the
reverse take-over of Marchwell Capital Corp., a TSX Venture Exchange (TSX-V)
listed company incorporated in Alberta on May 13, 1996 and which subsequently
changed its name to Eurasian Minerals Inc. On September 21, 2004, EMX continued
into British Columbia from Alberta under the
Business Corporations Act.
On July 19, 2017, EMX changed its name to EMX Royalty Corporation to better
reflect the nature of its business.
EMXs head office is located at Suite 501 543 Granville
Street, Vancouver, British Columbia V6C 1X8, Canada, and its registered and
records office is located at Northwest Law Group, Suite 704 595 Howe Street,
Vancouver, British Columbia V6C 2T5, Canada.
EMX is a reporting company under the securities legislation of
British Columbia and Alberta and is listed on the TSX-V, as a Tier 1 Company,
and the NYSE American LLC (NYSE American). EMXs common shares without par
value (Common Shares) are traded on the TSX-V and the NYSE American under the
symbol EMX.
EMX is principally in the business of exploring for, and
generating royalties from minerals properties, as well as identifying mineral
property royalty opportunities for purchase. Under the royalty generation
business model, the Company acquires and advances early-stage mineral
exploration projects and then sells the projects to, other parties in
consideration of a retained royalty interest, as well as annual advance royalty
and other pre-production cash or share payments and work commitments. Through
its various agreements, EMX may also provide technical and commercial assistance
to such companies as the projects advance. By selling interests in its projects
for a royalty interest, EMX:
This approach helps preserve the Companys treasury, which can
be utilized for further project acquisitions and other business initiatives.
Strategic investments are an important complement to the
Companys royalty acquisition and royalty generation initiatives. These
investments are made in under-valued exploration companies identified by the
Company. EMX helps to develop the value of these assets, with exit strategies
that can include royalty positions or equity sales, or a combination of both.
EMX started receiving royalty income as of August 17, 2012 when
it acquired Bullion Monarch Mining, Inc. (Bullion Monarch or BULM). The
Companys royalty and royalty generation portfolio mainly consists of properties
in North America, Turkey, Europe, Haiti, and Australia.
In this Annual Report, unless otherwise specified, all dollar
amounts are expressed in Canadian Dollars (C$ or $). References to US$ are
to United States dollars. The Government of Canada permits a floating exchange
rate to determine the value of the Canadian dollar against the U.S. dollar.
The Company is a foreign private issuer as defined in Rule
3b-4 under the Exchange Act and Rule 405 under the Securities Act of 1933, as
amended (the Securities Act). Equity securities of the Company are accordingly
exempt from Sections 14(a), 14(b), 14(c), 14(f) and 16 of the Exchange Act
pursuant to Rule 3a12-3 thereunder.
This Annual Report, including the documents incorporated by
reference herein, may contain forward-looking statements. These forward-looking
statements may include statements regarding perceived merit of properties,
exploration results and budgets, mineral reserves and resource estimates, work
programs, capital expenditures, operating costs, cash flow estimates, production
estimates and similar statements relating to the economic viability of a
project, timelines, strategic plans, completion of transactions, market prices
for metals or other statements that are not statements of fact. These statements
relate to analyses and other information that are based on forecasts of future
results, estimates of amounts not yet determinable and assumptions of
management. Statements concerning mineral resource estimates may also be deemed
to constitute forward-looking statements to the extent that they involve
estimates of the mineralization that will be encountered if the property is
developed.
Any statements that express or involve discussions with respect
to predictions, expectations, beliefs, plans, projections, objectives,
assumptions or future events or performance (often, but not always, identified
by words or phrases such as expects, anticipates, believes, plans,
projects, estimates, assumes, intends, strategy, goals,
objectives, potential, possible or variations thereof or stating that
certain actions, events, conditions or results may, could, would,
should, might or will be taken, occur or be achieved, or the negative of
any of these terms and similar expressions) are not statements of historical
fact and may be forward-looking statements.
Forward-looking statements are based on a number of material
assumptions, including those listed below, which could prove to be significantly
incorrect:
Forward-looking statements are subject to a variety of known
and unknown risks, uncertainties and other factors that could cause actual
events or results to differ from those reflected in the forward-looking
statements, including, without limitation:
This list is not exhaustive of the factors that may affect any
of the Companys forward-looking statements. Forward-looking statements are
statements about the future and are inherently uncertain, and actual
achievements of the Company or other future events or conditions may differ
materially from those reflected in the forward-looking statements due to a
variety of risks, uncertainties and other factors, including, without
limitation, those referred to under the heading Key Information (as defined
below), which is incorporated by reference herein.
The Companys forward-looking statements are based on the
beliefs, expectations and opinions of management on the date of this Annual
Report, and the Company does not assume any obligation to update forward-looking
statements if circumstances or managements beliefs, expectations or opinions
should change, except as required by law. For the reasons set forth above,
investors should not place undue reliance on forward-looking statements.
Unless otherwise indicated, all resource estimates, and any
future reserve estimates, included or incorporated by reference in this annual
report or Form 10-K have been, and will be, prepared in accordance with Canadian
National Instrument 43-101
Standards of Disclosure for Mineral Projects
(NI 43-101) and the Canadian Institute of Mining, Metallurgy and Petroleum
Definition Standards for Mineral Resources and Mineral Reserves (CIM Definition
Standards). NI 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.
Canadian standards, including NI 43-101, differ significantly
from the requirements of the SEC, and reserve and resource information contained
or incorporated by reference into this annual report on Form 20-F may not be
comparable to similar information disclosed by U.S. companies. In particular,
and without limiting the generality of the foregoing, the term resource does
not equate to the term reserves. Under SEC Industry Guide 7, 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. SEC Industry Guide 7 does not define
and the SECs 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 U.S.
standards in documents filed with the SEC. U.S. investors should also understand
that inferred mineral resources have a great amount of uncertainty as to their
existence and great uncertainty as to their economic and legal feasibility. An
inferred mineral resource has a lower level of confidence than that applying to
an indicated mineral resourceand must not be converted to a mineral reserve. It
is reasonably expected that the majority of inferred mineral resources could be
upgraded to indicated mineral Resources with continued exploration. Under
Canadian rules, estimated inferred mineral resources may not form the basis of
feasibility or pre-feasibility studies except in rare cases. Investors are
cautioned not to assume that all or any part of an inferred mineral resource
exists or is economically or legally mineable. Disclosure of contained ounces
or "contained pounds" in a resource is permitted disclosure under Canadian
regulations; however, the SEC normally only permits issuers to report
mineralization that does not constitute reserves by SEC standards as in-place
tonnage and grade without reference to unit measures. The requirements of NI
43-101 for identification of reserves are also not the same as those of the
SEC, and any reserves reported by us in the future in compliance with NI 43-101
may not qualify as reserves under SEC standards. Accordingly, information
concerning mineral deposits set forth herein may not be comparable to
information made public by companies that report in accordance with United
States standards.
PART I
ITEM 1. IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND
ADVISERS
Not applicable.
ITEM 2. OFFER STATISTICS AND EXPECTED TIMETABLE
Not applicable.
ITEM 3. KEY INFORMATION
3.A.1. and 3.A.2 Selected Financial Data
The selected financial data of the Company for the fiscal years
ending December 31, 2018, 2017, 2016, 2015, and 2014 was derived from the
financial statements of the Company that have been audited by Davidson and
Company LLP, Independent Registered Public Accountants, as indicated in their
audit report, which are included elsewhere in this Annual Report.
The Company has not declared any dividends since incorporation
and does not anticipate that it will do so in the foreseeable future. The
present policy of the Company is to retain all available funds for use in its
operations and the expansion of its business.
Table No. 3 is derived from the financial statements of the
Company, which have been prepared in accordance with International Financial
Reporting Standards as issued by the International Accounting Standards Board.
Table No. 3
Selected Financial Data
(C$)
3.A.3. Exchange Rates
In this Annual Report, unless otherwise specified, all dollar
amounts are expressed in Canadian Dollars (C$). The Government of Canada
permits a floating exchange rate to determine the value of the Canadian Dollar
against the U.S. Dollar (US$).
Table No. 4 sets forth the exchange rates for the Canadian
Dollar at the end of five most recent fiscal years ended December 31, the
average rates for the period, and the range of high and low rates for the
period. The data for each month during the most recent six months is also
provided.
13
For purposes of this table, the exchange rate means the Bank of
Canada noon rate.
3.B. Capitalization and Indebtedness
Not applicable
3.C. Reasons For The Offer And Use Of Proceeds
Not applicable
3.D. Risk Factors
Investment in the Common Shares involves a significant degree
of risk and should be considered speculative due to the nature of the Companys
business and the present stage of its development. Prospective investors should
carefully review the following factors together with other information contained
in this Annual Report before making an investment decision.
Mineral Property Exploration Risks
The business of mineral exploration and extraction involves a
high degree of risk. Few properties that are explored ultimately become
producing mines. The Company mitigates this risk by cost-sharing with
exploration partners and by continuously evaluating the economic potential of
each mineral property at every stage of its life cycle. At present, none of the
Companys properties has a known commercial ore deposit. The main operating
risks include ensuring ownership of and access to mineral properties, which the
Company mitigates by confirmation that licenses, claims and leases are in good
standing and by obtaining permits for drilling and other exploration
activities.
The market prices for precious and base metals can be volatile
and there is no assurance that a profitable market will exist for a production
decision to be made or for the ultimate sale of the metals even if commercial
quantities of precious and other metals are discovered.
Revenue and Royalty Risks
The Company cannot predict future revenues or operating results
of the area of mining activity. Management expects future revenues from the
Carlin Trend Royalty Claim Block, including the Leeville royalty property in
Nevada, to fluctuate depending on the level and location of future production
and the price of gold. Specifically, there is a risk that the operator of the
property, Newmont Mining Corporation (Newmont), will cease to operate in the
Companys area of interest, therefore there can be no assurance that ongoing
royalty payments will materialize or be received by EMX.
14
Financing and Share Price Fluctuation Risks
EMX has limited financial resources and has no assurance that
additional funding will be available for further exploration and development of
its projects. Further exploration and development of one or more of the
Companys projects may be dependent upon the Companys ability to obtain
financing through equity or debt financing or other means. Failure to obtain
this financing could result in delay or indefinite postponement of further
exploration and development of its projects which could result in the loss of
one or more of its properties.
The securities markets can experience a high degree of price
and volume volatility, and the market price of securities of many companies,
particularly those considered to be development stage companies, such as EMX,
may experience wide fluctuations in share prices which may not necessarily be
related to their operating performance, underlying asset values or prospects.
There can be no assurance that share price fluctuations will not occur in the
future, and if they do occur, the severity of the impact on EMXs ability to
raise additional funds through equity issues.
Foreign Countries and Political Risks
The Company operates and owns royalty interests in countries
with varied political and economic environments. As such, it is subject to
certain risks, including currency fluctuations and possible political or
economic instability which may result in the impairment or loss of mineral
concessions or other mineral rights, opposition from environmental or other
nongovernmental organizations, and mineral exploration and mining activities may
be affected in varying degrees by political stability and government regulations
relating to the mineral exploration and mining industry. Any changes in
regulations or shifts in political attitudes are beyond the control of the
Company and may adversely affect its business. Exploration and development may
be affected in varying degrees by government regulations with respect to
restrictions on future exploitation and production, price controls, export
controls, foreign exchange controls, income taxes, expropriation of property,
environmental legislation and mine and site safety.
Notwithstanding any progress in restructuring political
institutions or economic conditions, the present administration, or successor
governments, of some countries in which EMX operates or owns royalty interests
may not be able to sustain any progress. If any negative changes occur in the
political or economic environment of these countries, it may have an adverse
effect on the Companys operations in those countries. The Company does not
carry political risk insurance.
Competition
The Company competes with many companies that have
substantially greater financial and technical resources than it in the
acquisition of mineral properties and royalty interests and development of
projects as well as for the recruitment and retention of qualified employees.
We do not intend to pay any cash dividends in the
foreseeable future.
The Company has not declared or paid any dividends on our
Common Shares. Our current business plan requires that for the foreseeable
future, any future earnings be reinvested to finance the growth and development
of our business. We do not intend to pay cash dividends on the Common Shares in
the foreseeable future. We will not declare or pay any dividends until such time
as our cash flow exceeds our capital requirements and will depend upon, among
other things, conditions then existing including earnings, financial condition,
restrictions in financing arrangements, business opportunities and conditions
and other factors, or our Board determines that our shareholders could make
better use of the cash.
15
No Assurance of Titles or Borders
The acquisition of the right to exploit mineral properties is a
very detailed and time consuming process. There can be no guarantee that the
Company has acquired title to any such surface or mineral rights or that such
rights will be obtained in the future. To the extent they are obtained, titles
to the Companys surface or mineral properties may be challenged or impugned and
title insurance is generally not available. The Companys surface or mineral
properties may be subject to prior unregistered agreements, transfers or claims
and title may be affected by, among other things, undetected defects. Such third
party claims could have a material adverse impact on the Companys operations
and ownership of royalty interests.
Unknown Defects or Impairments in Our Royalty Interests
Unknown defects in or disputes relating to the royalty
interests we hold or acquire may prevent us from realizing the anticipated
benefits from our royalty interests, and could have a material adverse effect on
our business, results of operations, cash flows and financial condition. It is
also possible that material changes could occur that may adversely affect
managements estimate of the carrying value of our royalty interests and could
result in impairment charges. While we seek to confirm the existence, validity,
enforceability, terms and geographic extent of the royalty interests we acquire,
there can be no assurance that disputes over these and other matters will not
arise. Confirming these matters, as well as the title to mining property on
which we hold or seek to acquire a royalty interest, is a complex matter, and is
subject to the application of the laws of each jurisdiction to the particular
circumstances of each parcel of mining property and to the documents reflecting
the royalty or stream interest. Similarly, royalty interests in many
jurisdictions are contractual in nature, rather than interests in land, and
therefore may be subject to change of control, bankruptcy or the insolvency of
operators. We often do not have the protection of security interests over
property that we could liquidate to recover all or part of our investment in a
royalty interest. Even if we retain our royalty interests in a mining project
after any change of control, bankruptcy or insolvency of the operator, the
project may end up under the control of a new operator, who may or may not
operate the project in a similar manner to the current operator, which may
negatively impact us.
Operators Interpretation of Our Royalty Interests;
Unfulfilled Contractual Obligations
Our royalty interests generally are subject to uncertainties
and complexities arising from the application of contract and property laws in
the jurisdictions where the mining projects are located. Operators and other
parties to the agreements governing our royalty interests may interpret our
interests in a manner adverse to us or otherwise may not abide by their
contractual obligations, and we could be forced to take legal action to enforce
our contractual rights. We may or may not be successful in enforcing our
contractual rights, and our revenues relating to any challenged royalty
interests may be delayed, curtailed or eliminated during the pendency of any
such dispute or in the event our position is not upheld, which could have a
material adverse effect on our business, results of operations, cash flows and
financial condition. Disputes could arise challenging, among other things:
-
the existence or geographic extent of the royalty interest;
-
methods for calculating the royalty interest, including whether certain
operator costs may properly be deducted from gross proceeds when calculating
royalties determined on a net basis;
-
third party claims to the same royalty interest or to the property on
which we have a royalty interest;
-
various rights of the operator or third parties in or to the royalty
interest;
-
production and other thresholds and caps applicable to payments of royalty
interests;
-
the obligation of an operator to make payments on royalty interests; and
-
various defects or ambiguities in the agreement governing a royalty
interest.
Limited Access to Data and Disclosure for Royalty
Interests
The Company has varying access to data on the operations on the
properties covered by its royalty interests, making it difficult in some
instances to accurately assess the value of the royalty interests. In addition,
some royalty interests may be subject to confidentiality agreements that govern
the disclosure of information about the royalties, and as a result the Company
may not be in a position to publicly disclose non-public information with
respect to certain royalties. The limited access to data and disclosure may
result in a material and adverse effect on the Companys profitability, results
of operation and financial condition. The Company mitigates this risk by
building relationships, and where feasible, contractual disclosure obligations,
with operators and counterparties concerning information sharing.
16
Currency Risks
Certain of the Companys royalty interests are denominated in
US dollars, and therefore expose the Company to foreign currency fluctuations.
In addition, the Companys equity financings are sourced in Canadian dollars but
much of its expenditures are in local currencies or U.S. dollars. At this time,
the Company has no currency hedges in place. Therefore, currency fluctuation
could have an adverse impact on the value of royalty payments and a weakening of
the Canadian dollar against the U.S. dollar or local currencies could have an
adverse impact on the amount of exploration funds available and work
conducted.
Exploration Funding Risk
The Companys exploration strategy is to seek exploration
partners through options to fund exploration and project development. The main
risk of this strategy is that the funding parties may not be able to raise
sufficient capital in order to satisfy exploration and other expenditure terms
in a particular agreement. As a result, exploration and development of one or
more of the Companys property interests may be delayed depending on whether EMX
can find another party or has enough capital resources to fund the exploration
and development on its own.
Insured and Uninsured Risks
In the course of exploration, development and production of
mineral properties, the Company is subject to a number of risks and hazards in
general, including adverse environmental conditions, operational accidents,
labor disputes, unusual or unexpected geological conditions, changes in the
regulatory environment and natural phenomena such as inclement weather
conditions, floods, and earthquakes. Such occurrences could result in the damage
to the Companys property or facilities and equipment, personal injury or death,
environmental damage to properties of the Company or others, delays, monetary
losses and possible legal liability.
Although the Company may maintain insurance to protect against
certain risks in such amounts as it considers reasonable, its insurance may not
cover all the potential risks associated with its operations. The Company may
also be unable to maintain insurance to cover these risks at economically
feasible premiums or for other reasons. Should such liabilities arise, they
could reduce or eliminate future profitability and result in increased costs,
have a material adverse effect on the Companys results and a decline in the
value of the securities of the Company.
Some work is carried out through independent consultants and
the Company requires all consultants to carry their own insurance to cover any
potential liabilities as a result of their work on a project.
Environmental Risks and Hazards
The activities of the Company are subject to environmental
regulations issued and enforced by government agencies. Environmental
legislation is evolving in a manner that will require stricter standards and
enforcement and involve increased fines and penalties for non-compliance, more
stringent environmental assessments of proposed projects, and a heightened
degree of responsibility for companies and their officers, directors and
employees. There can be no assurance that future changes in environmental
regulation, if any, will not adversely affect the Companys operations.
Environmental hazards may exist on properties in which the Company holds
interests which are unknown to the Company at present.
We or the mining properties in which we have an interest are
subject to substantial government regulation in the United States and in the
other jurisdictions in which we operate. Changes to regulation or more stringent
implementation could have a material adverse effect on our results of operations
and financial condition.
Mining and exploration activities are subject to various laws
and regulations relating to the protection of the environment, such as the
federal Clean Water Act and the Nevada Water Pollution Control Law. Although we
currently believe that we are in compliance with existing environmental and
mining laws and regulations and that our proposed exploration programs will also
meet those standards, no assurance can be given that we will remain in
compliance with applicable regulations or that new rules and regulations will
not be enacted or that existing rules and regulations will not be applied in a
manner that could limit or curtail production or development of our
properties.
Reform of the General Mining Law could adversely impact our
results of operations.
A majority of our mining properties in the United States
consist of unpatented mining claims on federal lands. Legislation has been
introduced regularly in the U.S. Congress over the last decade to change the
General Mining Law of 1872, as amended (the "Mining Law"), under which we hold these
unpatented mining claims. It is possible that the Mining Law may be amended or
replaced by less favorable legislation in the future. Previously proposed
legislation contained a production royalty obligation, new environmental
standards and conditions, additional reclamation requirements and extensive new
procedural steps which would likely result in delays in permitting. The ultimate
content of future proposed legislation, if enacted, is uncertain. At present,
there is no royalty payable to the United States on production from unpatented
mining claims, although legislative attempts to impose a royalty have occurred
in recent years. Amendments to current laws and regulations governing our
operations and activities of exploration, development mining and milling or more
stringent implementation thereof could have a material adverse effect on our
business, financial condition and results of operations and cause increases in
exploration expenses, capital expenditures or production costs or reduction in
levels of production or require delays or abandonment in the development of new
mining properties. If a royalty on unpatented mining claims were imposed, the
profitability of our U.S. unpatented mining claims could be materially adversely
affected.
17
Any such reform of the Mining Law could increase the costs of
mining activities on unpatented mining claims, or could materially impair our
ability to develop or continue operations which derive ore from federal lands,
and as a result, could have an adverse effect on us and our results of
operations.
Mineral reserves are only estimates which may be
unreliable.
Although mineralization may not be classified as a reserve
unless the mineralization can be economically and legally extracted or produced
at the time the reserve determination is made, mineral reserves are
estimates only, and no assurance can be given that the anticipated tonnages and
grades will be achieved, that the indicated level of recovery will be realized
or that mineral reserves can be mined or processed profitably. Mineral reserve
and mineral resource estimates may be materially affected by environmental,
permitting, legal, title, taxation, socio-political, marketing and other
relevant issues. There are numerous uncertainties inherent in estimating mineral
reserves and mineral resources, including many factors beyond our control. Such
estimation is a subjective process, and the accuracy of any mineral reserve or
mineral resource estimate is a function of the quantity and quality of available
data, the nature of the mineralized body and of the assumptions made and
judgments used in engineering and geological interpretation. These estimates may
require adjustments or downward revisions based upon further exploration or
development work or actual production experience.
Fluctuations in metal prices, results of drilling,
metallurgical testing and production, the evaluation of mine plans after the
date of any estimate, permitting requirements or unforeseen technical or
operational difficulties may require revision of mineral reserve estimates.
Prolonged declines in the market price of precious and base metals may render
mineral reserves containing relatively lower grades of mineralization
uneconomical to recover and could materially reduce our mineral reserves. Should
reductions in mineral reserves occur, we may be required to take a material
write-down of our investment in mining properties, reduce the carrying value of
one or more of our assets or delay or discontinue production or the development
of new projects, resulting in increased net losses and reduced cash flow.
Mineral reserves should not be interpreted as assurances of mine life or of the
profitability of current or future operations. There is a degree of uncertainty
attributable to the calculation and estimation of mineral reserves and
corresponding grades being mined and, as a result, the volume and grade of
mineral reserves mined and processed and recovery rates may not be the same as
currently anticipated. Any material reductions in estimates of mineral reserves,
or of our ability to extract these mineral reserves, could have a material
adverse effect on our results of operations and financial condition.
Fluctuating Metal Prices
Factors beyond the control of the Company have a direct effect
on global metal prices, which have fluctuated widely, particularly in recent
years, and there is no assurance that a profitable market will exist for a
production decision to be made or for the ultimate sale of the metals even if
commercial quantities of precious and other metals are discovered on any of the
Companys properties. Consequently, the economic viability of any of the
Companys exploration projects and its ability to finance the development of its
projects cannot be accurately predicted and may be adversely affected by
fluctuations in metal prices.
Extensive Governmental Regulation and Permitting
Requirements Risks
Exploration, development and mining of minerals are subject to
extensive laws and regulations at various governmental levels governing the
acquisition of the mining interests, prospecting, development, mining,
production, exports, taxes, labor standards, occupational health, waste
disposal, toxic substances, land use, environmental protection, mine safety and
other matters. In addition, the current and future operations of EMX, from
exploration through development activities and production, require permits,
licenses and approvals from some of these governmental authorities. EMX has
obtained all government licenses, permits and approvals necessary for the
operation of its business to date. However, additional licenses, permits and approvals may be required. The failure to obtain
any licenses, permits or approvals that may be required or the revocation of
existing ones would have a material and adverse effect on EMX, its business and
results of operations.
18
Failure to comply with applicable laws, regulations and permits
may result in enforcement actions thereunder, including orders issued by
regulatory or judicial authorities requiring the Companys operations to cease
or be curtailed, and may include corrective measures requiring capital
expenditures, installation of additional equipment or remedial actions. EMX may
be required to compensate those suffering loss or damage by reason of its
mineral exploration activities and may have civil or criminal fines or penalties
imposed for violations of such laws, regulations and permits. Any such events
could have a material and adverse effect on EMX and its business and could
result in EMX not meeting its business objectives.
In addition, we are required to expend significant resources to
comply with numerous corporate governance and disclosure regulations and
requirements adopted by U.S. federal and state and Canadian federal and
provincial governments, as well as the TSX and NYSE American. These additional
compliance costs and related diversion of the attention of management and key
personnel could have a material adverse effect on our business, financial
condition and results of operations.
Key Personnel Risk
The Companys success is dependent upon the performance of key
personnel working in management and administrative capacities or as consultants.
The loss of the services of senior management or key personnel could have a
material and adverse effect on the Company, its business and results of
operations. The Company does not carry key personnel insurance.
Conflicts of Interest
In accordance with the laws of British Columbia and the United
States, the directors and officers of a Company are required to act honestly, in
good faith and in the best interests of the Company. EMXs directors and
officers may serve as directors or officers of other companies or have
significant shareholdings in other resource companies and, to the extent that
such other companies may participate in ventures in which the Company may
participate, such directors and officers may have a conflict of interest in
negotiating and concluding terms respecting the extent of such participation. If
such a conflict of interest arises at a meeting of the Companys directors, a
director with such a conflict will abstain from voting for or against the
approval of such participation or such terms.
Passive Foreign Investment Company
U.S. investors in common shares should be aware that based on
current business plans and financial expectations, EMX currently expects that it
will be classified as a passive foreign investment company (PFIC) for the tax
year ending December 31, 2018 and expects to be a PFIC in future tax years. If
EMX is a PFIC for any tax year during a U.S. shareholders holding period, then
such U.S. shareholder generally will be required to treat any gain realized upon
a disposition of common shares, or any so-called excess distribution received
on its common shares, as ordinary income, and to pay an interest charge on a
portion of such gain or distributions, unless the U.S. shareholder makes a
timely and effective qualified electing fund election (QEF Election) or a
mark-to-market election with respect to the common shares. A U.S. shareholder
who makes a QEF Election generally must report on a current basis its share of
the Companys net capital gain and ordinary earnings for any year in which EMX
is a PFIC, whether or not EMX distributes any amounts to its shareholders. For
each tax year that EMX qualifies as a PFIC, EMX intends to: (a) make available
to U.S. shareholders, upon their written request, a PFIC Annual Information
Statement as described in Treasury Regulation Section 1.1295 -1(g) (or any
successor Treasury Regulation) and (b) upon written request, use commercially
reasonable efforts to provide all additional information that such U.S.
shareholder is required to obtain in connection with maintaining such QEF
Election with regard to EMX. EMX may elect to provide such information on its
website
www.EMXRroyalty.com
. This paragraph is qualified in its entirety
by the discussion below the heading Taxation Certain United States Federal
Income Tax Considerations. Each U.S. investor should consult its own tax
advisor regarding the PFIC rules and the U.S. federal income tax consequences of
the acquisition, ownership and disposition of common shares.
Corporate Governance and Public Disclosure Regulations
The Company is subject to changing rules and regulations
promulgated by a number of United States and Canadian governmental and
self-regulated organizations, including the United States Securities and
Exchange Commission (SEC), the British Columbia and Alberta Securities
Commissions, the NYSE American and the TSX-V. These rules and regulations
continue to evolve in scope and complexity and many new requirements have been
created, making compliance more difficult and uncertain. The Companys efforts
to comply with the new rules and regulations have resulted in, and are likely
to continue to result in, increased general and administrative
expenses and a diversion of management time and attention from
revenue-generating activities to compliance activities.
19
Internal Controls over Financial Reporting
Applicable securities laws require an annual assessment by
management of the effectiveness of the Companys internal control over financial
reporting. The Company may, in the future, fail to achieve and maintain the
adequacy of its internal control over financial reporting, as such standards are
modified, supplemented or amended from time to time, and the Company may not be
able to ensure that it can conclude on an ongoing basis that it has effective
internal control over financial reporting. Future acquisitions may provide the
Company with challenges in implementing the required processes, procedures and
controls in its acquired operations. Acquired Corporations may not have
disclosure controls and procedures or internal control over financial reporting
that are as thorough or effective as those required by securities laws currently
applicable to the Company.
No evaluation can provide complete assurance that the Companys
internal control over financial reporting will detect or uncover all failures of
persons within the Company to disclose material information otherwise required
to be reported. The effectiveness of the Companys controls and procedures could
also be limited by simple errors or faulty judgments. In addition, should the
Company expand in the future, the challenges involved in implementing
appropriate internal control over financial reporting will increase and will
require that the Company continue to improve its internal control over financial
reporting.
ITEM 4. INFORMATION ON THE COMPANY
4.A. History and Development of the Company
General Background
EMX Royalty Corporation was incorporated under the laws of the
Yukon Territory of Canada on August 21, 2001 as 33544 Yukon Inc. and, on October
10, 2001, changed its name to Southern European Exploration Ltd. On November 24,
2003, the Company completed the reverse take-over of Marchwell Capital Corp., a
TSX-V-listed company incorporated in Alberta on May 13, 1996 and which
subsequently changed its name to Eurasian Minerals Inc. On September 21, 2004,
EMX continued into British Columbia from Alberta under the
Business
Corporations Act
. On July 19, 2017, EMX changed its name to EMX Royalty
Corporation to better reflect the nature of its business.
EMX is a reporting issuer under the securities legislation of
British Columbia and Alberta, and is listed on the TSX-V Exchange as a Tier 1
issuer and the NYSE American Exchange, with both listings under the symbol
EMX.
The Companys corporate office is located at Suite 501, 543
Granville Street, Vancouver, British Columbia, Canada V6C 1X8, and its telephone
number is 604-688-6390. The Companys registered and records office is located
at Suite 704, 595 Howe Street, Vancouver, British Columbia, V6C 2T5. The
Companys technical office is located at 10001 W. Titan Road, Littleton,
Colorado, United States of America, 80125, and its telephone number is
303-973-8585. The contact person is Lori Pavle, Corporate Secretary.
20
Fiscal Year ended December 31, 2016
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On February 23, 2016 the Company announced the execution
of a purchase agreement (the Golden Predator Agreement) for net smelter
return royalty interests on the Maggie Creek and Afgan gold properties
from Golden Predator US Holding Corp. (Golden Predator), a wholly-owned
subsidiary of Till Capital Ltd. ("TCL"). Golden Predator had a 2% NSR
royalty on all precious metals and a 1% NSR royalty on all other minerals
for the Maggie Creek property, which is located north-northeast of Newmont
Mining Corporation's ("Newmont") Gold Quarry open pit operations on the
Carlin Trend, and a 1% NSR royalty on all minerals for the Afgan property,
which occurs on the Battle Mountain-Eureka Trend. The addition of these
two royalty assets strengthened the Company's growing Nevada gold
portfolio that includes the Leeville royalty property on the Northern
Carlin Trend, as well as the Maggie Creek South royalty property located
south-southeast of Gold Quarry.
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A summary of the Golden Predator
Agreement's commercial terms includes:
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Purchase by the Company of Golden Predators NSR
royalties covering the Maggie Creek (2% NSR on precious metals and 1% NSR
royalty on all other minerals) and Afgan (1% NSR royalty) properties;
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Issuance by the Company of 250,000 EMX shares to TCL as
consideration for the purchase; and
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Approval by the TSX-V and NYSE American as a condition
precedent to closing the transaction.
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On March 7, 2016 the Company announced that the purchase
of net smelter return royalty interests had been completed for the Maggie
Creek and Afgan gold properties from Golden Predator after receiving
approvals from the TSX Venture and NYSE American Exchanges.
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In Q1 2016, EMX sold its 100% controlled Grand Bois
project in Haiti, which was outside the Joint Venture with Newmont, to a
privately held Nevada corporation. EMX retained a 0.5% NSR royalty
interest in the Grand Bois project and the right to acquire any properties
proposed to be abandoned or surrendered from the Grand Bois project in the
future.
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On July 25, 2016 the Company reported that IGC advised
that approval to advance the Malmyzh copper-gold project had been received
from the Government Commission on Monitoring Foreign Investment (the
"Commission") chaired by Prime Minister Dmitry Medvedev. The Malmyzh
exploration and mining licenses are held by IGC (51%) and Freeport-
McMoRan Exploration Corporation (49%) (the "Joint Venture"), with IGC
operating and managing the project. The Commission's approval marks a
pivotal milestone in the development of the Malmzyh project. EMX is IGCs
largest shareholder.
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IGC advised that the Commission's approval represents the
successful completion of the review process required for strategically
significant deposits according to Russian law (i.e., the Law on Foreign
Investments in Strategic Industries, also termed the Strategic Industries
Law or "SIL"). The SIL approval process commenced after the Joint Venture,
through its Russian subsidiary Amur Minerals LLC, received certified on
balance C1+C2 reserves from the GKZ (State Reserves Committee) that
exceeded thresholds for both copper and gold defining Malmyzh as a
"strategically significant" mineral deposit. EMX emphasizes that the
Malmyzh C1+C2 reserves were estimated according to the rules and
regulations of the Russian Federation, and are not the same as reserves
under NI 43-101 or SEC Industry Guide 7. According to IGC, highlights of
the Commission's approval included:
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The Joint Venture, as a majority foreign owned business
entity, has been approved to retain control of the Malmyzh project
exploration and mining licenses.
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The Joint Venture, therefore, maintains mining and
production rights for the Malmyzh and Malmyzh North exploration and mining
licenses.
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The Joint Venture holds 100% of the rights for the
Malmyzh and Malmyzh North exploration and mining licenses, and is entitled
to recover all minerals of economic value including copper, gold and by-
product minerals.
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The conclusion of the SIL process
initiated a new, multi-year phase in the project's development, including
additional technical work (i.e., drilling, exploration, metallurgy, engineering,
and hydrology), as well as environmental, social, and economic assessments. This
next phase of work will ultimately conclude as a detailed "TEO
1
of
Permanent Conditions" report, which is considered to be a precursor to
commencement of exploitation and mining.
1
Technico-Economicheskiye Obosnovaniye (Technical-Economic
Basis)
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On August 3, 2016, the Company announced the sale of EBX
Madencilik A.S., the wholly-owned EMX subsidiary that controls the Sisorta
gold property (the Sisorta Property) in Turkey, to Bahar Madencilik
Sinayi ve Ticaret Ltd Sti ("Bahar"), a privately owned Turkish company,
pursuant to a Share Purchase Agreement (the Sisorta Agreement) with
Bahar.
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The Sisorta Agreement provides
for Bahar's staged payments to EMX as summarized below (all amounts in
USD):
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$250,000 cash payment to EMX upon closing of the sale.
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Annual cash payments of $125,000 (Advance Cash
Payments) payable on each anniversary of the closing date until
commencement of commercial production from the Sisorta Property.
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3.5% of production returns after certain deductions (NSR
Payment") for ore mined from the Sisorta Property that is processed
on-site (increased to 5% if the ore is processed off-site).
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The Advance Cash Payments will be credited at a rate of
80% against the NSR Payment payable after commercial production commences.
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The NSR Payment is uncapped and cannot be bought out or
reduced.
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Bahar intends to conduct advanced exploration and
development work on the Sisorta project.
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On August 8, 2016 the Company announced the sale of AES
Madencilik A.S., the wholly-owned EMX subsidiary that controls the Akarca
gold-silver project (the Akarca Property) in western Turkey, to Çiftay
Insaat Taahhüt ve Ticaret A.S. ("Çiftay"), a privately owned Turkish
company. The Akarca Property is an EMX grassroots discovery highlighted by
six separate gold-silver mineralized centers occurring within a
district-scale area.
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The terms of the sale provide payments to EMX as
summarized below (all dollar amounts in United States dollars and all gold
payments can be as gold bullion or the cash equivalent):
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$2,000,000 cash payment to EMX upon closing of the sale
(completed).
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500 ounces of gold every six months commencing February
1, 2017 up to a cumulative total of 7,000 ounces of gold.
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7,000 ounces of gold within 30 days after the
commencement of commercial production from the Akarca Property provided
that prior gold payments will be credited against this payment.
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250 ounces of gold upon production of 100,000 ounces of
gold from the Akarca Property.
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250 ounces of gold upon production of an aggregate of
500,000 ounces of gold from the Akarca Property.
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A sliding-scale royalty in the amount of the following
percentages of production returns after certain deductions (Akarca
Royalty) for ore mined from the Akarca Property:
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For gold production: 1.0% on the first 100,000 ounces of
gold; 2.0% on the next 400,000 ounces of gold; 3.0% on all gold production
in excess of 500,000 ounces produced from the Akarca Property.
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For all production other than gold production: 3.0%.
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The Akarca Royalty is uncapped and cannot be bought out
or reduced.
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In addition, Çiftay must conduct a drilling program of at
least 3,000 meters on the Akarca Property during each 12- month period
starting on August 5, 2016 until commencement of commercial production.
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On September 8, 2016 the Company provided an update on
exploration results from the Company's spring and summer programs in
Norway and Sweden. EMX built a portfolio of exploration projects in
Scandinavia, and compiled geologic information and generated drill targets
on those properties. Reconnaissance drilling at the Gumsberg Volcanogenic
Massive Sulfide (VMS) project, located in the prolific Bergslagen
district of Sweden, yielded several shallow high grade intercepts of
polymetallic mineralization along a > 2 kilometer trend of
mineralization.
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On October 17, 2016 the Company announced the sale of
five patented mining claims comprising its Ophir property in Utah (the
Utah Property), through its wholly owned subsidiary Bullion Monarch
Mining Inc., to Kennecott.
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Upon closing of the sale of the
Utah Property:
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Kennecott paid EMX US$75,000,
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EMX retained a 2% NSR royalty,
and
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EMX retains the rights to
exploration data generated from the Property.
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As a result of the sale, the Ophir
property has been added to EMX's royalty portfolio.
22
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On October 19, 2016 the Company announced the execution
of an Exploration and Option to Purchase Agreement (the "Copper King
Agreement"), through its wholly owned subsidiary BCE, for the Copper King
porphyry copper project (the Copper King Project) with Kennecott. The
Copper King Project is located approximately 100 kilometers east of
Phoenix, Arizona within the Superior Mining District, and approximately
four kilometers northwest of the Resolution porphyry copper deposit.
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Pursuant to the Copper King Agreement, Kennecott can earn
a 100% interest in the Copper King Project by (a) reimbursing the 2016
holding costs and making option payments, together totaling US$504,314
(US$29,314 related to holding costs received), and (b) completing
US$4,000,000 in exploration expenditures before the fifth anniversary of
the Copper King Agreement. Upon exercise of the option EMX will retain a
2% NSR royalty on the Copper King Project which is not capped or
purchasable.
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After exercise of the option, AMR payments are due
starting at US$100,000 and commencing on the first anniversary of the
exercise of the option. The AMR payments will increase to US$150,000 upon
completion of an Order of Magnitude Study ("OMS") or PEA. Kennecott may
make a one-time payment of US$3,500,000 to extinguish the obligation to
make AMR payments. In addition, if not previously extinguished, total AMR
payments after the OMS or PEA milestone payment are capped at
US$3,500,000, and all AMR payments cease upon commencement of production
from the Project.
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In addition, Kennecott will make milestone payments
consisting of:
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US$500,000 upon completion of an OMS or PEA;
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US$1,000,000 upon completion of a Prefeasibility Study;
and
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US$2,000,000 upon completion of a Feasibility Study. The
Feasibility Study payment will be credited against future royalty
payments.
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On October 27, 2016 the Company announced that it had
entered into an exploration and option agreement (the Coeur Agreement),
through its wholly-owned subsidiary BCE, with Coeur Explorations, Inc., a
subsidiary of Coeur Mining, Inc. (Coeur) for the Mineral Hill
gold-copper property (Mineral Hill Property) in Wyoming. EMXs Mineral
Hill project is held under a pooling agreement with a private group,
Mineral Hill L.P. (MHL), with all proceeds split 50:50, except for the
sale of surface rights associated with several patented mining claims.
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Pursuant to the Coeur Agreement, Coeur may acquire a 100%
interest in the Mineral Hill Property by a) making yearly option payments,
beginning upon execution of the Coeur Agreement, totaling US$435,000
(US$10,000 received upon execution), b) making exploration expenditures
totaling US$1,550,000 on or before the fifth anniversary of the agreement,
and c) paying US$250,000 upon exercise of the option.
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Upon exercise of the option, EMX and MHL will retain a 4%
NSR royalty, of which Coeur may purchase up to 1.5% of the NSR royalty if,
within sixty days after the completion of a PEA, Coeur purchases the first
0.5% for US$1,000,000. Coeur may purchase an additional 0.5% or 1% of the
NSR royalty at any time thereafter for US$2,000,000 per 0.5% interest
(maximum total buy down of 1.5%), with EMX and MHL retaining a 2.5%
interest.
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After the option exercise, EMX and MHL will receive
annual advance minimum royalties of US$150,000 and, upon completion of a
feasibility study, a milestone payment of US$1,000,000.
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On November 22, 2016 the Company announced the execution
of a definitive agreement with Boreal Metals Corp. (BMC), a British
Columbia corporation, pursuant to which BMC acquired two wholly-owned
subsidiaries of the Company that control the Gumsberg and Adak exploration
assets in Sweden and the Tynset and Burfjord assets in Norway (the
Scandinavian Properties). Closing occurred in Q1 2017.
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At closing, EMX transferred to BMC its entire interest in
its wholly-owned subsidiary Iekelvare AB, which owns or will own that
portion of the Scandinavian Properties located in Sweden, and its entire
interest in its wholly-owned subsidiary EMX Exploration Scandinavia AB,
which owns that portion of the Scandinavian Properties located in Norway.
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At closing, BMC issued to EMX that number of common
shares of BMC that represents a 19.9% equity ownership in BMC; BMC had the
continuing obligation to issue additional shares of BMC to EMX to maintain
its 19.9% interest in BMC, at no additional cost to EMX, until BMC has
raised CDN$5,000,000 in equity; thereafter EMX has the right to
participate pro-rata in future financings at its own cost to maintain its
19.9% interest in BMC.
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EMX will receive an uncapped 3% NSR royalty on each of
the Scandinavian Properties. Within five years of the closing date, BMC
has the right to buy down up to 1% of the royalty owed to EMX on any given
project (leaving EMX with a 2% NSR) by paying EMX US$2,500,000 in
cash and shares of BMC. Such buy down is project specific.
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EMX will receive AAR payments of US$20,000 for each of
the Properties commencing on the second anniversary of the closing, with
each AAR payment increasing by US$5,000 per year until reaching US$60,000
per year, except that BMC may forgo AAR payments on two of the four
Scandinavian Properties in years two and three. Once reaching US$60,000,
AAR payments will be adjusted each year according to the Consumer Price
Index (as published by the U.S. Department of Labor, Bureau of Labor
Statistics).
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EMX will receive a 0.5% NSR royalty on any new mineral
exploration projects generated by BMC in Sweden or Norway, excluding
projects acquired from a third party containing a mineral resource or
reserve or an existing mining operation. These royalties are not capped
and not subject to a buy down.
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EMX has the right to one seat on the Board of Directors
of BMC.
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On December 16, 2016 the Company announced that it was
changing the ticker symbol of its common shares listed on the NYSE
American from
EMXX
to
EMX
effective Monday, December 26,
2016. The Company trades on both the TSX Venture and NYSE American
exchanges as EMX.
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Fiscal Year ended December 31, 2017
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On January 24, 2017 the Company announced initial results
from IGC's fall-winter drill program at the Malmyzh copper- gold porphyry
project, including the longest mineralized intercept drilled to date on
the property. Drill hole AMM-213 intersected 747.4 meters (108.7-856.1 m)
averaging 0.49% copper equivalent (0.41% copper and 0.17 g/t gold)
principally hosted in phreatomagmatic breccias and diorite porphyries at
the Freedom Northwest prospect (true width). The hole doubled the drilled
vertical extent of the Freedom Northwest system, while bottoming in
mineralization. In addition, reconnaissance drilling at the Sleeper West
prospect intersected a shallow zone of 109 meters averaging 0.58% copper
equivalent (0.53% copper and 0.09 g/t gold) starting at 13.5 meters in
hole AMM-210 (true width). Freedom Northwest and Sleeper West are not
included in the current Malmyzh resource estimate, which underscores the
project's additional exploration upside. The Malmyzh exploration and
mining licenses are held by IGC (51%) and Freeport- McMoRan Exploration
Corporation (49%) (the "Joint Venture"), with IGC operating and managing
the project. EMX is IGCs largest shareholder.
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On January 25, 2017 the Company provided an update on the
Company's Leeville royalty property that covers portions of Newmont Mining
Corporation's ("Newmont") underground mining operations in the Northern
Carlin Trend. EMX has noted an increase in Leeville royalty revenue and
equity gold ounces starting in mid-2016. In addition to royalty income
from gold production, the Leeville property also provides the Company with
upside exposure to Newmont's ongoing exploration advancements at the Rita
K and Full House gold deposits. Newmont expects initial resources for Rita
K in 2018, and has already outlined resources at Full House.
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On February 8, 2017 the Company announced the receipt of
a payment of US $601,825, the cash equivalent of 500 troy ounces of gold,
from Çiftay Insaat Taahhüt ve Ticaret A.S. ("Çiftay"), as part of the
payment schedule for the Akarca gold-silver project in western Turkey. The
Akarca Property was transferred to Çiftay in August, 2016 for a
combination of cash, future payment streams denominated in gold bullion,
and a royalty interest. Çiftay informed EMX that it had completed an
initial 49 hole diamond drill program comprising 6,032 meters on the
Akarca Property in the 4th quarter of 2016.
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On February 28, 2017 the Company announced the execution
of an option agreement (the "Copper Springs Agreement"), through its
wholly owned subsidiary BCE, for the Copper Springs porphyry copper
project ("Copper Springs Project") with Anglo American Exploration (USA),
Inc. (Anglo American). The Copper Springs Project is located
approximately 120 kilometers east of Phoenix, Arizona within the
Globe-Miami Mining District.
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Pursuant to the Copper Springs Agreement, Anglo American
can earn a 100% interest in the Copper Springs Project by (a) reimbursing
BCEs 2016 holding and permitting costs and making annual option payments,
together totaling US$447,000, and (b) completing US$5,000,000 in
exploration expenditures before the fifth anniversary of the Agreement.
Upon exercise of the option, Anglo American will pay EMX an additional
US$110,000 and EMX will retain a 2% NSR royalty on the Copper Springs
Project. The royalty is not capped or purchasable, except over two parcels
of Arizona State Land where Anglo American can buy a 0.5% NSR royalty from
EMX for US$2,000,000.
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After exercise of the option, AMR Payments of US$100,000
are due, commencing on the first anniversary of the exercise of the
option. The AMR Payments will increase to US$200,000 upon completion of a
Scoping Study or PEA. Anglo American may make a one-time payment of
US$3,500,000 to extinguish the obligation to make any post-Scoping Study
AMR payments. All AMR Payments cease upon commencement of production from
the project.
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24
In addition, Anglo American will make
milestone payments consisting of:
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US$500,000 upon completion of a
Scoping Study or PEA;
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US$1,000,000 upon completion of a
Prefeasibility Study; and
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US$2,000,000 upon completion of a Feasibility Study. The
Feasibility Study payment will be credited against future royalty
payments.
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Anglo American will manage and operate the Copper Springs
Project.
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On April 12, 2017 the Company announced the completion of
a non-brokered private placement (all dollar amounts in CDN). The Company
raised $7,000,000 by the issuance of 5,000,000 units at a price of $1.40
per unit. Each unit was comprised of one common share and one-half of one
non-transferable common share purchase warrant. Each whole warrant
entitles the holder to purchase an additional common share for $2.00 until
April 12, 2019. Fees were paid on a portion of the Private Placement. The
fees consisted of 246,604 units (6% of the units sold to investors
introduced by finders) issued to Sprott Global Resource Investments, Ltd.
(219,424 units), Sprott Private Wealth LP (15,000 units), Haywood
Securities Inc. (10,380 units) and Mackie Research Capital Corporation
(1,800 units). Insiders of the Company purchased 89,230 units and Pro
Group members a further 19,000 units.
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On May 3, 2017 the Company announced the appointment of
Mr. Thomas G. Mair as General Manager of Corporate Development.
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On July 17, 2017 the Company announced a name change from
Eurasian Minerals Inc. to EMX Royalty Corporation effective July 19, 2017
to better reflect the nature of its business.
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On July 25, 2017 the Company announced IGC's 2017 drill
results from the Malmyzh copper-gold porphyry project's Freedom Northwest
prospect, including an intercept of 417.3 meters (219.4-636.7 m) averaging
0.60% copper equivalent (0.50% copper and 0.21 g/t gold), including a
higher grade sub-interval of 142.6 meters (255.4-398.0 m) averaging 0.74%
copper equivalent (0.62% copper and 0.26 g/t gold) from hole AMM-216 (true
widths). The mineralization is principally hosted in magmatic-hydrothermal
breccias. The ongoing exploration program at Freedom Northwest represents
the first deep drill testing at Malmyzh, as previous drilling has been
concentrated on shallow mineralization throughout the district. Freedom
Northwest is not included in the current Malmyzh resource estimate, which
further emphasizes the project's exploration upside. EMX is IGCs largest
shareholder.
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On August 4, 2017, EMX received a payment of US$634,015,
the cash equivalent of 500 troy ounces of gold as the second gold bullion
payment, from Çiftay, as part of the payment schedule for the Akarca
gold-silver project in western Turkey. The Akarca Property was transferred
to Çiftay in August, 2016 for a combination of cash, future payment
streams denominated in gold bullion, and a royalty interest.
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On September 19, 2017 the Company announced that
Koonenberry Gold Pty Ltd. (KNB) had completed the earn-in requirements
under the Exploration and Option Agreement (the Koonenberry Agreement)
dated January 31, 2014 between North Queensland Mining Pty Ltd. (NQM)
and the Company, and had elected to acquire EMXs Koonenberry exploration
licenses (the "Koonenberry Project") in New South Wales, Australia. KNB is
the successor in interest to NQM under the Koonenberry Agreement. In
accordance with the Koonenberry Agreement, EMX has transferred its
wholly-owned subsidiary EMX Exploration Pty Ltd, the holder of the
Koonenberry licenses, to KNB, a private Australian company formed for the
sole purpose of developing the project. EMX has retained a 3% production
royalty on all future production from the Koonenberry licenses. As a
result of this transaction, all of EMXs interests in the Koonenberry
Project have been converted to retained royalty interests.
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On December 4, 2017 the Company announced the execution
of an option agreement (the "Sienna Agreement") for the Slättberg project
(the "Slättberg Project") with Sienna Resources Inc. (Sienna) (TSX
Venture: SIE). The Sienna Agreement provides EMX with immediate share
equity in Sienna, and upon Sienna's earn-in through work commitments,
additional share equity and a 3% NSR royalty on the Slättberg Project. The
Slättberg Project hosts nickel- copper-cobalt enriched massive sulfide
mineralization and is located approximately 25 kilometers northwest of
Falun, Sweden.
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Pursuant to the Sienna Agreement, Sienna can earn 100%
interest in the Slättberg Project by the issuance of shares to EMX and
performance of work during the one-year option period, as described below:
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On signing the agreement, Sienna issued to EMX 3 million
common shares of Sienna stock.
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As a condition to the exercise of the option, Sienna must
undertake work commitments of at least $500,000 on the Project, including
drilling of at least 750 meters.
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Upon exercise of the option, Sienna will issue to EMX an
additional 3 million shares of Sienna stock, and EMX will receive a 3% NSR
royalty on the properties comprising the Project.
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Within six years of the execution of the agreement,
Sienna may purchase 0.5% of the NSR royalty for $1,500,000, leaving EMX
with a 2.5% NSR royalty.
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After exercise of the option, Sienna will use
commercially reasonable efforts to raise $3,000,000 for development of the
project and other activities. Once Sienna has raised that amount, Sienna
will issue an additional 4 million shares to EMX. Thereafter, EMX will
have the right to participate pro-rata in future financings at its own
cost to maintain its interest in Sienna.
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On December 18, 2017 the Company announced the execution
of an option agreement (the "Antofagasta Agreement") through its wholly
owned subsidiary BCE, for the Greenwood Peak copper porphyry project (the
"Greenwood Peak Project") with a wholly owned subsidiary of Antofagasta
plc (Antofagasta). The Greenwood Peak Project, located approximately 175
kilometers northwest of Phoenix, Arizona, contains a copper porphyry
target concealed beneath younger gravels and basin fill sediments.
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Pursuant to the Antofagasta Agreement, Antofagasta can
earn 100% interest in the Greenwood Peak Project by a) Reimbursing BCEs
acquisition costs and making annual option payments, together totaling
US$630,000; and b) Completing US$4,500,000 in work expenditures within the
five year option period. BCE will be the operator of the Project for
Antofagasta. Upon exercise of the option EMX will retain a 2% NSR royalty
on the Project, which is not capped and not subject to buy-down. After
exercise of the option, AAR payments are due starting at US$100,000 on the
first anniversary of the exercise of the option, and will increase to
US$175,000 upon completion of a scoping study for the Project. Antofagasta
may make a one-time payment of US$4,000,000 to extinguish the obligation
to make AAR payments after completion of the scoping study. All AAR
payments are recoupable against royalty payments owed to EMX.
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Antofagasta will also make project milestone payments
consisting of:
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US$500,000 upon completion of a
scoping study;
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US$1,000,000 upon completion of a
pre-feasibility study; and
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US$2,000,000 upon completion of a
feasibility study.
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The feasibility milestone payment is
recoupable against royalty payments owed to EMX.
Fiscal Year ended December 31, 2018
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On January 16, 2018 EMX announced that the execution of a
definitive agreement (the "Boreal Agreement") for the sale of the Modum
cobalt project (the "Modum Project") in Norway to Boreal Metals Corp.
(Boreal) (TSX Venture: BMX). The agreement provides EMX with additional
share equity in Boreal, a 3% NSR royalty on the project, and advance
annual royalty payments. The Modum Project is located in southern Norways
Modum mining district, ~75 kilometers west of Oslo. The project partially
surrounds the historic Skuterud mine property, which was Europes
principal producer of cobalt from the late eighteenth through nineteenth
centuries.
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Pursuant to the Boreal Agreement, Boreal can acquire 100%
interest in the Modum Project according to the following terms:
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At closing, Boreal will issue to EMX 1,324,181 common
shares of Boreal that will bring EMXs share of equity ownership in Boreal
to 19.9%. EMX will have the right to participate pro-rata in future
financings at its own cost to maintain its 19.9% interest in Boreal.
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At closing, EMX will transfer its Modum exploration
licenses to Boreal.
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EMX will retain a 3% NSR royalty on the Project, of which
1% may be purchased by Boreal on or before the fifth anniversary of the
closing date in 0.5% increments for a total of US $2,500,000 in cash and
common shares of Boreal stock.
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EMX will receive AAR payments, with an initial US $20,000
payment, commencing on the second anniversary of the closing, with each
subsequent AAR payment increasing by US $5,000 per year until reaching US
$60,000 per year. Once reaching US $60,000, AAR payments will be adjusted
each year according to the Consumer Price Index (as published by the U.S.
Department of Labor, Bureau of Labor Statistics).
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On February 5, 2018, EMX received a payment of US$665,525
as the cash equivalent to the third 500 ounce gold bullion payment from
Çiftay, as part of the payment schedule for the Akarca gold-silver project
in western Turkey. The Akarca Property was transferred to Çiftay in
August, 2016 for a combination of cash, future payment streams denominated
in gold bullion, and a royalty interest. Receipt of this third payment
leaves a pre-production total of 5,500 ounces of gold (or the cash
equivalent) to be paid to EMX.
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On February 8, 2018 the Company announced the execution
of an option agreement (the "Kennecott Agreement"), through its wholly
owned subsidiary BCE, for the Buckhorn Creek copper porphyry project (the
"Buckhorn Creek Project") with Kennecott. The Kennecott Agreement provides
for work commitments as well as cash payments to EMX during Kennecott's
earn-in period, and upon earn-in, a 2% NSR royalty interest in addition to
pre-production and milestone payments to EMX's benefit. The Buckhorn Creek
Project is located in north-central Arizona, approximately 70 kilometers
north of Phoenix, and lies in the greater Castle Creek Mining District.
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Pursuant to the Kennecott Agreement, Kennecott can earn
100% interest in the Buckhorn Creek Project by: (a) making a US $30,000
payment upon execution of the agreement and making subsequent option
payments, together totaling US $550,000, and (b) completing US $4,500,000
in exploration expenditures before the fifth anniversary of the agreement.
Upon exercise of the option EMX will retain a 2% NSR royalty on the
project which is not capped or purchasable.
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After exercise of the option, annual advance minimum
royalty (AMR) payments are due starting at US $100,000 and increasing to
US $150,000 upon completion of an Order of Magnitude Study ("OMS") or PEA.
Kennecott may make a one-time payment of US $3,500,000 to extinguish the
obligation to make AMR payments. All AMR payments cease upon commencement
of production from the project.
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In addition, Kennecott will make milestone payments
consisting of:
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US $500,000 upon completion of an OMS or PEA,
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US $1,000,000 upon completion of a Prefeasibility Study,
and
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US $2,000,000 upon completion of a Feasibility Study. The
Feasibility Study payment will be credited against future royalty
payments.
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On February 9, 2018 the Company announced the execution
of a purchase agreement (the "BEMC Agreement") for the Guldgruvan cobalt
project (the "Guldgruvan Project") in Sweden with Boreal Energy Metals
Corporation (BEMC), a newly created and wholly owned subsidiary of
Boreal Metals Corporation (Boreal) (TSX Venture: BMX). Pursuant to the
BEMC Ag
r
eement, the Guldgruvan nr 101 license will be transferred
to BEMC in exchange for the issuance of shares of BEMC, a royalty interest
on the Guldgruvan Project, and other considerations according to the terms
described below:
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At closing, BEMC will issue to EMX that number of common
shares of BEMC that represents a 5.9% equity ownership in BEMC. BEMC will
have the continuing obligation to issue additional shares of BEMC to EMX
to maintain its 5.9% interest, at no additional cost to EMX, until BEMC
has raised CDN $3,000,000 in equity. Thereafter, EMX will have the right
to participate pro-rata in future financings at its own cost to maintain
its 5.9% interest in BEMC.
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EMX will receive an uncapped 3% NSR royalty on the
project. Within five years of the closing date, BEMC has the right to buy
down up to 1% of the royalty owed to EMX (leaving EMX with a 2% NSR) by
paying EMX US $2,500,000 in cash and shares of BEMC.
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EMX will receive annual advance royalty (AAR) payments
of US $20,000 commencing on the second anniversary of the closing, with
each AAR payment increasing by US $5,000 per year until reaching US
$60,000 per year. Once reaching US $60,000, AAR payments will be adjusted
each year according to the Consumer Price Index (as published by the U.S.
Department of Labor, Bureau of Labor Statistics).
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EMX will also be reimbursed for its acquisition costs and
previous expenditures on the project.
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The issuance of BEMC shares to EMX, as set forth in the
Agreement, is subject to TSX Venture Exchange approval.
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On February 15, 2018 the Company announced its
acquisition of 1,324,181 common shares of Boreal Metals Corp.,
representing 2.6% of Boreals issued and outstanding shares. EMX acquired
the shares pursuant to the sale to Boreal of the Modum cobalt project in
Norway (see EMX news release dated January 16, 2018). The shares were
issued to EMX at a deemed price of CDN$0.26 per share. Immediately prior
to the acquisition, EMX owned 9,205,883 common shares, representing 17.8%
of Boreals outstanding common shares. After the acquisition the Company
owned 10,530,064 common shares, representing 19.9% of Boreals outstanding
common shares. The Company filed an Early Warning Report with the British
Columbia, Alberta and Ontario Securities Commissions in respect of the
acquisition.
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On March 1, 2018 the Company announced drill results from
Boreal Metals Corp.s first five holes totaling 1,146.7 meters of diamond
drilling to confirm high grade zinc-lead-silver mineralization at EMXs
Gumsberg royalty property. Of particular significance was the intersection
of multiple styles of massive sulfide mineralization, including
silver-rich zinc and lead mineralization in hole BM-17-005, which was
drilled in the vicinity of the historic Östersilvberg Mine, Swedens
largest silver producer in medieval times.
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On March 5, 2018 the Company announced that IG Copper
LLC's winter drill campaign was underway at the Malmyzh copper-gold
porphyry project. The first two holes were drilled to acquire material for
metallurgical test work from the Valley and Freedom Southeast resource
deposits. In addition, the Company announced that Scotiabank Europe plc,
the U.K. subsidiary of The Bank of Nova Scotia, had been retained to
assist with IGCs strategic business initiatives.
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On March 20, 2018 the Company announced its acquisition
of 2,979,798 common shares of Boreal Energy Metals Corp. (BEMC),
representing 5.9% of BEMCs outstanding common shares. Prior to this
transaction, BEMC was a wholly- owned subsidiary of Boreal Metals Corp.
EMX acquired the shares pursuant to the sale of the Guldgruvan cobalt
project in Sweden to BEMC (see EMX news release dated February 9, 2018).
The shares were issued to EMX at a deemed price of CDN$0.05 per share.
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On April 11, 2018 the Company announced the execution of
a purchase agreement for the Njuggträskliden and Mjövattnet
nickel-copper-cobalt projects in Sweden with Boreal Energy Metals
Corporation. Pursuant to the agreement, BEMC will acquire 100% interest in
the projects according to the following commercial terms (all dollar
amounts in USD, unless otherwise noted):
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BEMC issued to EMX common shares of BEMC that represented
a 4% equity ownership in BEMC, bringing EMXs aggregate interest to 9.9%
of BEMCs issued and outstanding shares. BEMC has the continuing
obligation to issue additional shares of BEMC to EMX to maintain its
aggregate 9.9% interest in BEMC, at no additional cost to EMX, until BEMC
has raised CDN $3,000,000 in equity.
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EMX received an uncapped 3% NSR royalty interest on each
of the projects. Within five years of the closing date, BEMC has the right
to buy down up to 1% of the royalty owed to EMX by paying EMX $2,500,000
in cash and shares of BEMC for each project.
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EMX will receive annual advance royalty payments for each
project commencing on the second anniversary of the closing.
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On April 17, 2018 the Company announced the receipt of
drill data for the 2017 exploration programs at the Akarca royalty
property in western Turkey. Çiftay Insaat Taahhüt ve Ticaret A.S., the
owner and operator of the Akarca project, informed EMX that it had
completed 7,844 meters of diamond drilling across five target areas,
resulting in a significant increase in the footprints of drill defined
gold and silver mineralization on the property. EMX also announced that it
had received a cash payment of US $665,525 in February 2018, the cash
equivalent of 500 ounces of gold.
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On April 19, 2018 the Company announced the execution of
an option agreement, through its wholly owned subsidiary Eurasian Minerals
Sweden AB, for the Riddarhyttan Iron-Oxide-Copper Gold (IOCG) and
massive sulfide project in Sweden to South32 Ltd. (South32). Pursuant to
the agreement, South32 can earn 100% interest in the project during a five
year earn-in period by (all dollar amounts in USD):
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Making option and cash payments
that total approximately $210,600,
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Making a one-time option exercise
payment of $500,000, and
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Completing $5,000,000 of
exploration work on the project within five years of the execution date.
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Upon exercise of the option, EMX will retain a 3% NSR
royalty, 0.75% of which may be purchased by South32 for $1,900,000 within
five years of executing the agreement. After exercising the option, annual
advance royalty payments of 50,000 pounds of copper (or the cash
equivalent) will be due to EMX, but will be deductible from future royalty
payments. In addition, South32 will make milestone payments of: 350,000
pounds of copper (or the cash equivalent) upon publication of an initial
resource on the project, and 750,000 pounds of copper (or the cash
equivalent) upon delivery of a feasibility study.
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On May 2, 2018 the Company announced additional high
grade zinc-lead-silver diamond drill results from Boreal Metals Corp.s
winter drill campaign at the Gumsberg royalty property. The new drill
intercepts reported by Boreal were from holes BM-17-006 through BM-17-012,
which successfully tested massive sulfide horizons at the Vallberget and
Östersilvberg prospects.
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On May 4, 2018 the Company announced that it had entered
into a credit facility agreement with Sprott Private Resource Lending
(Collector), LP (Sprott) providing EMX with a US$ 5 million senior
secured credit facility (the Credit Facility). The US$ 5 million loan
made under the Credit Facility carried an annual interest rate of 12%,
payable monthly. In consideration of the Credit Facility, EMX paid to
Sprott a fee of US$ 100,000. EMX used the proceeds of the Credit Facility
for corporate and working capital purposes.
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On May 18, 2018 the Company announced its acquisition of
2,020,202 common shares of Boreal Energy Metals Corp., representing an
additional 4% equity stake in BEMC, which brought EMXs aggregate interest
to 9.9% of BEMCs issued and outstanding shares. EMX acquired the
additional shares pursuant to the sale of the Njuggträskliden and
Mjövattnet nickel-copper-cobalt projects in Sweden (see EMX news release
dated April 11, 2018). The shares were issued to EMX at a deemed price of
CDN $0.05 per share. EMX was also granted a 3% NSR royalty on the two
projects, as well as other consideration to EMXs benefit.
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On June 14, 2018 the Company announced that IG Copper LLC
had executed a definitive Share Purchase Agreement to sell the Malmyzh
copper-gold porphyry to Russian Copper Company (RCC), a privately held,
leading copper producer in the Russian Federation (the Transaction). The
closing of the Transaction was contingent on RCC completing additional due
diligence that included drilling and metallurgical studies, as well as
receiving approval from the Russian Federal Anti-Monopoly Service.
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On August 13, 2018 the Company provided updates on two of
the Companys royalty properties in Turkey, including drill results from
the Balya lead-zinc-silver carbonate replacement deposit in northwestern
Turkey, and continued development permitting of the Sisorta high
sulfidation gold deposit in northeastern Turkey.
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On October 1, 2018 the Company announced the execution of
a purchase agreement for the Kimberley Copper Project in Western Australia
with Enfield Exploration Corporation (Enfield"). The agreement provides
EMX with 500,000 shares of Enfield, and a commitment from Enfield to raise
US $1,000,000 for an initial drill test of the project. EMX will also
receive a graduated NSR royalty on the project, annual advance royalty
payments, and an additional 1,750,000 shares of Enfield upon the
achievement of certain milestones.
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On October 2, 2018 the Company provided an update on the
sale of the Malmyzh copper-gold porphyry project to Russian Copper
Company. IG Copper LLC advised that all conditions precedent to completing
the sale, as defined in the Share Purchase Agreement, had been fulfilled,
and the US $200 million completion consideration had been paid into
escrow.
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On October 11, 2018 the Company announced that IG Copper
LLC had notified EMX that the sale of the Malmyzh project to Russian
Copper Company for US $200 million had closed. Of this amount, US $190
million was released from escrow, with the remaining US $10 million to be
held in escrow and released subject to certain conditions over the
succeeding 12 months. The initial cash distribution to EMX by IGC was
estimated to be US $65 million, with subsequent cash distributions to EMX
(up to US $4 million) to be completed upon the remaining funds being
released from escrow.
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In support of the Malmyzh sale, EMX had borrowed US $18.5
million from Sprott Private Resource Lending (Collector), LP (Sprott
Loan), and then loaned the US $18.5 million to IGC (EMX Loan). Both the
Sprott Loan and the EMX Loan have been re-paid. In connection with the
Sprott Loan, EMX issued 381,321 common shares and paid cash fees of US
$550,000 and US $185,000 in interest to Sprott. In connection with the EMX
Loan, IGC issued EMX 37,000 units in IGC, reimbursed EMX for fees,
interest payments and costs incurred under the Sprott Loan, and paid EMX a
fee of US $550,000 (this amount is included in the initial cash
distribution noted above).
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On October 30, 2018 the Company announced that it had
received its initial cash distribution of US $65.15 million from IG Copper
LLCs sale of the Malmyzh project.
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On November 14, 2018 the Company announced that it had
had repaid the US $5 million senior secured credit facility loan from
Sprott Private Resource Lending (Collector), LP.
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On November 28, 2018 the Company provided an update on
its royalty and mineral property portfolio consisting of over 90 projects
on five continents. The update discussed EMXs royalty property interests,
including Leeville in Nevada, the Timok Projects Cukaru Peki deposit in
Serbia, and properties being advanced by operating companies in Turkey,
the western U.S., Scandinavia, Haiti, and Australia.
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On November 30, 2018 the Company provided a detailed
disclosure regarding the US$3.8 million in bonuses awarded to EMXs
management and staff in respect of their seven years of effort to monetize
the Companys investment in IG Copper LLC. This additional disclosure
included a summary of the rationale, approval process, recipients, and
allocations related to the bonus.
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On December 6, 2018 the Company announced the execution
of a Regional Strategic Alliance agreement between wholly-owned subsidiary
Bronco Creek Exploration, Inc., and South32 USA Exploration Inc.
(South32), a wholly- owned subsidiary of South32 Limited. The agreement
provides annual funding for generative work and acquisitions over a two
year period, as well as a framework to advance projects of interest.
Generative work will focus on copper and other base metal projects within
the Laramide and Tertiary magmatic arcs of Arizona, New Mexico and Utah.
Projects advanced to the drill program stage may be selected as Designated
Projects. Designated Projects will advance under separate option
agreements providing for work commitments and cash payments to EMX during
South32s earn-in period, and upon earn-in, a 2% NSR royalty interest and
pre-production and milestone payments to EMXs benefit. South32 initially
selected five EMX copper projects in Arizona to begin advancing toward the
drill program stage.
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On December 13, 2018 the Company announced the execution
of a purchase agreement for the sale of the Bleikvassli, Sagvoll, and
Meråker polymetallic projects in Norway, and the Bastuträsk polymetallic
project in Sweden to OK2 Minerals Ltd. (name changed to Norra Metals Corp.
in February 2019). Pursuant to the agreement (all dollar amounts in USD,
unless otherwise noted):
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EMX will transfer to OK2 the Bleikvassli, Sagvoll, and
Meråker exploration licenses in Norway, and its Bastuträsk exploration
permits in Sweden at closing.
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Upon the closing of this transaction, OK2 will undergo a
corporate restructuring by share consolidation and change its name to
Norra Metals Corp.
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OK2 will issue to EMX that number of common shares of OK2
that represents a 9.9% equity ownership in OK2 at closing. OK2 will have
the continuing obligation to issue additional shares of OK2 to EMX to
maintain its 9.9% interest in OK2, at no additional cost to EMX (subject
to a maximum of 13,398,958 post-consolidation common shares), until OK2
has raised CDN $5,000,000 in equity to fund exploration and development on
the Properties, or until five years after closing, whichever occurs first.
Thereafter, EMX will have the right to participate pro-rata in future
financings at its own cost to maintain its 9.9% interest in OK2.
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Further, there is an additional provision that requires
OK2 to raise and spend CDN $2,000,000 on the Properties within two years
of the closing date, otherwise EMXs 9.9% equity ownership shall be
increased to a 14.9% continuing equity interest (subject to a maximum of
21,350,956 post-consolidation common shares).
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EMX will retain an uncapped 3% NSR royalty interest on
each of the Properties. Within six years of the closing date, OK2 has the
right to buy down up to 1% of the royalty retained by EMX on any given
project (leaving EMX with a 2% NSR royalty) by paying EMX $2,500,000. Such
a buy down is project specific.
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EMX will receive annual advance royalty (AAR) payments
of $20,000 for each of the Properties
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commencing on the second anniversary of the closing, with
each AAR payment increasing by $5,000 per year
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until reaching $60,000 per year, except that OK2 may skip
AAR payments on two of the four Properties in
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years two and three provided payments are made on the
other two Properties in years two and three. Once
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reaching $60,000, AAR payments will be adjusted each year
according to the Consumer Price Index (as
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published by the U.S. Department of Labor, Bureau of
Labor Statistics).
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EMX will receive a 0.5% NSR royalty on any new mineral
exploration projects generated by OK2 in Sweden or Norway, excluding
projects acquired from a third party containing a mineral resource or
reserve or an existing mining operation. These royalties are not capped
and not subject to a buy down.
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EMX will also receive a 1% NSR royalty on OK2s Pyramid
project in British Columbia at closing.
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EMX will have the right to nominate one seat on the Board
of Directors of OK2.
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The SEC maintains an Internet site that contains reports, proxy
and information statements, and other information regarding issuers that file
electronically with the SEC.
Additional information can be found at EMXs website at
www.EMXroyalty.com.
4.B. BUSINESS OVERVIEW
EMX Royalty Corporation is in the business of organically
generating royalties derived from a portfolio of mineral property interests. The
Company augments royalty generation with carefully selected royalty acquisitions
and strategic investments.
30
EMXs portfolio mainly consists of properties in North America,
Europe, Turkey, Haiti, and Australia. The Companys common shares are listed on
the TSX Venture Exchange and the NYSE American Exchange under the symbol EMX.
The three key components of the Company's business strategy are
summarized as:
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Royalty Generation.
EMX's sixteen year track record of successful
exploration initiatives has developed into an avenue to organically generate
mineral property royalty interests. The strategy is to leverage in-country
geologic expertise to acquire prospective properties on open ground, and to
build value through low cost work programs and targeting. These properties are
sold or optioned to partner companies for retained royalty interests, advance
minimum royalty payments, project milestone payments, and other considerations
that may include equity interests. Pre-production payments provide early-stage
cash flows to EMX, while the operating companies build value through
exploration and development. EMX participates in project upside at no
additional cost, with the potential for future royalty payments upon the
commencement of production.
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Royalty Acquisition.
EMX has been acquiring royalty property
interests since 2012. The purchase of royalty interests allows EMX to acquire
quality assets that range from producing mines to development projects. The
timely identification of acquisition opportunities is often informed by the
Company's in-country royalty generation initiatives.
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Strategic Investment.
An important complement to EMX's royalty
generation and royalty acquisition initiatives comes from strategic investment
in companies with under-valued mineral assets that have upside exploration
potential. Exit strategies can include equity sales, royalty positions, or a
combination of both.
EMX is focused on increasing revenue streams from royalties,
pre-production and other cash payments, and strategic investments. This approach
provides a foundation for supporting EMXs growth and increasing shareholder
value over the long term.
Government Regulation and Environmental Protection
The Companys current exploration activities are conducted in
North America, Turkey, Europe, Australia and New Zealand. Such activities are
affected in varying degrees by political stability and government regulations
relating to foreign investment and the mining industry. Changes in these
regulations or shifts in political attitudes are beyond EMXs control and may
adversely affect EMXs business. Operations may be affected in varying degrees
by government regulations with respect to restrictions on production, income
taxes, expropriation of property, repatriation of funds, environmental
legislation and mine safety.
The mining industry is also subject to extensive and varying
environmental regulations in each of the jurisdictions in which EMX operates.
Environmental regulations establish standards respecting health, safety and
environmental matters and place restrictions on toxins resulting from mining
activities. These regulations can have an impact on the selection of mining
projects and facilities, potentially resulting in increased capital expenditures
by EMX or its joint venture partners. In addition, environmental legislation may
require certain projects to be abandoned and sites reclaimed to the satisfaction
of local authorities. EMX is committed to complying with environmental and
operation legislation wherever it operates.
The Companys current or future operations, including
exploration and development activities on its properties, require permits from
various governmental authorities, and such operations are, and will be, governed
by laws and regulations governing exploration, development, taxes, occupational
health, waste disposal, toxic substances, land use, environmental protection and
other matters. Compliance with these requirements may prove to be difficult and
expensive. While EMX has properties in numerous jurisdictions, its most advanced
projects are located in Turkey and the United States.
Governmental Regulation in Turkey
Mining Regulation
The legal mining regime in Turkey is principally governed by
the Turkish Mining Law No. 3213, as amended most recently on February 4,
2015
1
for the purpose of, among other things, avoiding labour
accidents, and restating the mining license fees, governmental royalties, and sanctions in order to make it more
compliant with the most recent global conditions. The Turkish Mining Activities
Implementation Communiqué was adopted and amended during the amendment of
Turkish Mining Law on June 10, 2010; however, this Implementation Communiqué has
not been amended yet in accordance with the latest amendments of Turkish Mining
Law dated February 4, 2015. Turkey is still awaiting the adoption of the
amendment of Implementation Communiqué to comply with latest amended Turkish
Mining Law. The mining sector is regulated under the umbrella of the General
Directorate of Mining Affairs of the Republic of Turkey, a unit of the Ministry
of Energy and Natural Resources of the Republic of Turkey. Mining rights and
minerals are exclusively owned by the Turkish state, and the ownership of
minerals in Turkey is not subject to the ownership of the relevant land. The
state, under the Turkish Mining Law and secondary mining legislation, delegates
its rights to explore and operate to Turkish individuals or legal entities
established under Turkish law by issuing licenses for a determined period of
time in return for the payment of a royalty. There is no distinction between the
mining rights that may be acquired by local investors and those that may be
acquired by foreign investors so long as foreign investors establish a company
in Turkey under Turkish law.
____________________________________________
1
Turkish Mining Law No.3213 was first adopted on June 4, 1985 with several
amendments on December 24, 1986, July 30, 1999, June 15, 2001, May 26 2004, June
3, 2007, June 10, 2010 and with the latest amendment on February 4, 2015.
31
The General Directorate of Mining Affairs, is the authorized
body to regulate mining activities and to issue mining licenses in Turkey. In
addition, local administrative bodies of Turkey also have a certain level of
authority relating to licenses and the regulation of mining facilities.
Transferring the mining license is subject to the prior approval of the Ministry
of Energy and Natural Resources of the Republic of Turkey.
The Turkish Mining Law classifies underground resources into
six different groups, and the licensing procedure for each group differs
slightly. Briefly, the groups are as follows: (I) sand and gravel, (II) marble
and other similar decorative stones, (III) mineral salts from seas, lakes and
fresh waters, (IV) energy, metal and industrial minerals, including gold,
silver, platinum, copper, lead, zinc, aluminum, uranium, thorium and radioactive
minerals, (V) precious minerals such as gemstones, and (VI) a group of minerals
which is not stated amongst these groups shall be identified by the Ministry of
Energy and Natural Resources of Republic of Turkey under secondary legislation
of Turkey.
There are two types of licenses granted for the exploration and
operation of mines and one type of operation permit under the Turkish Mining
Law, as follows: Group II (b), Group III, Group IV minerals at the first stage
require general exploration licenses. Group V minerals require exploration
certificates. Group I and Group II (a) and (c) are directly granted with
operation licenses.
-
Exploration License. Enables its holder to carry out general exploration
activities (i.e., all mining activities other than those carried out for
production) in a specific area issued for a period of two years for Group IV
minerals including gold mining and one year for the other groups. If the
license holder owning a group of minerals satisfies its obligations, the
license holder owning Group IV minerals will have a right to an additional
four years of detailed exploration; for Group II (b), Group III and Group V
mines, the relevant license holder is obliged to meet the operation licenses
requirements until the end of its general exploration period.
-
Operation License. Enables its holder to carry out operational activities
within the same area as stated in the exploration license for the proved,
potential and feasible mine reserve area. The term of the operation license
for Group I (a) minerals are five years. The other groups of minerals are at
least ten years depending on the specific project. The terms of the operation
licenses may generally be extended upon the application of the license holder
with a new operation project provided that such extension request is accepted
by the General Directorate of Mining Affairs of Turkey. The term of the
operation license for Group I (a) minerals cannot exceed thirty years, for
Group II minerals cannot exceed forty years, and for other groups of minerals
cannot exceed fifty years. Extension requests for more than thirty years for
Group I (a) minerals and forty years for Group II minerals are made directly
to the Ministry of Energy and Natural Resources of the Republic of Turkey and
for more than fifty years for other groups of minerals are made directly to
Ministry of Council of Republic of Turkey.
-
Operation Permit. Enables its holder to operate a specific mine as
specified in the operation license and granted only for the proved mine
reserves area that is determined during the prospecting period. The license
holder, within three years following the issuance of the operation license
shall obtain the required approvals, permits such as environmental impact
assessment decision, ownership decision, land usage decision, workplace
opening and operation permit and other permits stated under clause 7 of the
Mining Law and then, accordingly, the license holder is granted the operation
permit by the General Directorate of Mining Affairs of Turkey. The operation
permit is required to be obtained until the end of the term of the operation
license.
The Turkish Mining Law provides for different royalty
percentages for different groups of mines. The royalty percentages for Group IV
minerals, including gold, silver, platinum, lead copper, zinc, aluminum and
uranium oxide minerals are in the below chart.
32
The Royalty Percentages For Group IV Minerals under Turkish
Mining Law
Environmental Regulation
In Turkey, where EMXs most advanced projects are located, both
the level of environmental regulation and its enforcement have become more
stringent in recent years. Mining operations are subject to environmental laws
and regulations promulgated by the Turkish Ministry of Environment and Urban
Planning, the Ministry of Forestry and Water Works and regional and local
authorities. The Turkish Mining Law amended in 2015 has brought more detailed
provisions to the mining activities for the compliance of environmental rules.
The Regulation on Environmental Impact Assessments, for example, requires any
entity that is involved in activities that could have an environmental impact to
prepare a Report of Environmental Impact Assessment or a Project Information
File. No approvals, permits, incentives, or construction and occupancy licenses
may be granted, nor any investments made, nor any tenders awarded for these
projects unless and until the Turkish Ministry of Environment and Urban Planning
issues a positive assessment of the environmental impact of the subject
activities. The Turkish environmental laws and regulations also require certain
businesses to comply with ongoing requirements to reduce the environmental
impact of certain operations and activities, which also include mining
activities. In addition, in Turkey, the issue of allocation of environmentally
sensitive areas such as forest areas, hunting areas, special protection areas,
national parks and agriculture areas for the granting of licenses for activities
to be carried out in such areas is also regulated and is under the supervision
of the Turkish Ministry of Forestry and Water Works.
Under current Turkish environmental laws and regulations,
regulatory authorities may suspend or terminate non-compliant operations, levy
monetary penalties and require non-compliant entities to bear the cost of
related remediation programs. For example, under Turkish environmental and
criminal laws, non-compliant operations may be subject to private action and
liable for damages arising from their activities, as well as subject to criminal
penalties (such as imprisonment and monetary fines) for deliberately providing
regulatory authorities with false or misleading information regarding regulated
activities or otherwise failing to comply with certain regulations. In addition,
a property owner may be held liable for the cost of the removal or remediation
of hazardous or toxic wastes discovered on its property, the cost of which could
be substantial, where generally such liability attaches regardless of whether
the owner knew of, or was responsible for, the presence of such hazardous or
toxic substances.
Environmental laws, as they may be amended over time, can
impose restrictions on the manner of use of properties, and compliance with
these restrictions may require substantial expenditures. Environmental laws and
regulations impose sanctions for non-compliance and may be enforced by
governmental agencies. Third parties also may seek recovery from companies for
personal injury or property damage associated with exposure to the release of
hazardous substances.
Commercial Regulation
The Turkish Commercial Code numbered 6762, which was in effect
as of 1957, has been amended substantially with the new Turkish Commercial Code
numbered 6102 (the New Turkish Commercial Code). The New Turkish Commercial
Code came into force on July 1, 2012. The New Turkish Commercial Code is
intended to provide for institutionalization, increased competitive power and the establishment of increased public
confidence, corporate governance and transparency, The code permits joint stock
companies and limited liability companies to be established with only one
shareholder and with one board member.
33
Some of the key features of the New Turkish Code include the
following:
-
Companies are generally obliged to have a website online and to allocate a
part of this website to publish certain issues, documents, financial
statements and resolutions whether publicly traded or not.
-
For joint stock companies, it is sufficient for the board of directors to
consist of solely one member. A legal entity can also be a board member;
however in this case, a natural person must be designated to represent the
legal entity. There is no restriction and mandatory requirement for the board
members to reside in Turkey and to be a Turkish citizen.
-
Board members of a joint stock company are no longer required to
shareholders in the company.
-
The financial tables of a joint stock company are to be prepared in
accordance with the financial reporting standards determined by the Turkish
Accounting Standards Board. These standards are expected to be amended to
comply with the International Financial Reporting Standards (IFRS).
-
The New Turkish Commercial Code enables the board members to attend and to
vote in meetings via transfer of image and voice according to the provisions
of the articles of association of the company. The provisions regarding the
meeting and decision quorum of the board of directors shall also be applicable
if the meetings of the board of directors are held in an electronic
environment.
-
The New Turkish Commercial Code stipulates the rights of shareholders to
attend, give proposals, declare opinions and vote at the general assembly of
joint stock company via electronic means.
-
The management and representation of a limited company may be performed by
one or more managers. For a limited liability company, it is sufficient to
have at least one manager. If there is more than one manager then there is a
board of managers. In this situation, one of the managers is appointed by
general assembly as a chairman of the board of managers. The President of
board of managers has an authority to make all statements and declarations on
behalf of the company. In any case, at least one shareholder must be appointed
as a manager who has a right to manage and represent the limited liability
company.
-
The limited liability company must keep a share ledger. The share ledger
shall reflect the following; names/titles and addresses of the shareholders,
number of shares held by each shareholder, share transfer details, nominal
value of shares, class of shares, encumbrances over the shares and the
names/titles and addresses of beneficiaries of such encumbrances created over
the shares.
-
The limited liability company is obliged to keep the commercial books
indicating the commercial transactions and asset structure of the company. The
LLC shall observe and apply Turkish Accounting Standards as announced by the
Turkish Accounting Standards Board, including the conceptual framework of
accounting principles and interpretations while keeping its commercial books.
An important change however, is that the compulsory accounting standards will
adopt IFRS. The opening and closing of the books must be certified by a notary
public.
-
The manager(s) of a limited liability company must prepare and submit to
the attention of the general assembly the financial charts, appendices and the
activity report of the company for the preceding accounting period. This must
be done in accordance with the Turkish Accounting Standards and within the
first three months of the relevant accounting period (fiscal year) following
the balance sheet date. The relevant Turkish Accounting Standards have been
applicable from January 1, 2013.
EMX cannot predict the outcome of each effect of the Turkish
Code, and compliance with these requirements may prove to be difficult and
expensive.
Repatriation of Earnings
Currently, there are no restrictions on the repatriation of
earnings or capital to foreign entities from Turkey, where the Companys most
advanced projects are located. However, there can be no assurance that any such
restrictions on repatriation of earnings or capital from Turkey or any other
country where we may invest will not be imposed in the future.
Governmental Regulation in the United States
Mining Regulation
Mining activities in the United States are subject to numerous
federal, state and local laws and regulations. At the federal level, mines are
subject to inspection and regulation by the United States Mine Safety and Health
Administration (MSHA) under provisions of the Federal Mine Safety and Health Act of
1977. The Occupation Safety and Health Administration also has jurisdiction over
certain safety and health standards not covered by MSHA. Mining operations and
all proposed exploration and development require a variety of permits. In
addition, any mining operations occurring on federal property are subject to
regulation and inspection by the United States Bureau of Land Management
(BLM). The Companys current projects are also subject to state and local laws
and regulations in Arizona, Nevada, Utah and Wyoming.
34
Environmental Regulation
The Companys exploration, mining and processing operations are
subject to various federal, state and local laws and regulations governing
prospecting, exploration, development, production, labor standards, occupational
health, mine safety, control of toxic substances, and other matters involving
environmental protection and employment. United States environmental protection
laws address the maintenance of air and water quality standards, the
preservation of threatened and endangered species of wildlife and vegetation,
the preservation of certain archaeological sites, reclamation, and limitations
on the generation, transportation, storage and disposal of solid and hazardous
wastes, among other things.
Legislation and implementation of regulations adopted or
proposed by the United States Environmental Protection Agency, the BLM and by
comparable agencies in various states directly and indirectly affect the mining
industry in the United States. These laws and regulations address the
environmental impact of mining and mineral processing, including potential
contamination of soil and water from tailings, discharges and other wastes
generated by mining process. In particular, legislation such as the Clean Water
Act, the Clean Air Act, the Federal Resource Conservation and Recovery Act and
the National Environmental Policy Act require analysis and/or impose effluent
standards, new source performance standards, air quality standards and other
design or operational requirements for various components of mining and mineral
processing. Mining projects also are subject to regulations under the
Comprehensive Environmental Response, Compensation and Liability Act of 1980,
which regulates and establishes liability for the release of hazardous
substances. In addition, statutes may impose liability on mine developers for
remediation of waste they have created.
Our operations are also subject to laws and regulations
governing protection of endangered and other specified species. In May 2015, the
U.S. Department of the Interior released a plan to protect the greater sage
grouse, a species whose natural habitat is found across much of the western
United States, including Nevada. The U.S. Department of the Interiors plan is
intended to guide conservation efforts on approximately 70 million acres of
national public lands. No assurances can be made that restrictions relating to
conservation will not have an adverse impact on our operations in impacted
areas.
Mining Disclosure
EMX is subject to the requirements of National Instrument
43-101, and the SECs mining disclosure rules. See Item 4D. Property, Plant and
Equipment.
Specialized Skill and Knowledge
All aspects of EMXs business require specialized skills and
knowledge. Such skills and knowledge include the areas of geology, finance,
accounting and law.
Competitive Conditions
Competition in the mineral exploration industry is intense. EMX
competes with other companies, many of which have greater financial resources
and technical facilities, for the acquisition and exploration of mineral
interests, as well as for the recruitment and retention of qualified employees
and consultants.
Raw Materials (Components)
Other than water and electrical or mechanical power all of
which are readily available on or near its properties EMX does not require any
raw materials with which to carry out its business.
Intangible Property
EMX does not have any need for nor does it use any brand names,
circulation lists, patents, copyrights, trademarks, franchises, licenses,
software (other than commercially available software), subscription lists or
other intellectual property in its business.
35
Business Cycle & Seasonality
The Companys royalty and prospect generator business model is
cyclical and is impacted by commodity prices and cycles; however, its business
is not seasonal.
Economic Dependence
Other than the contracts disclosed in this Form 20-F, the
Companys business is not substantially dependent on any contract such as a
contract to sell the major part of its products or services or to purchase the
major part of its requirements for goods, services or raw materials, or on any
franchise or license or other agreement to use a patent, formula, trade secret,
process or trade name upon which its business depends.
Renegotiation or Termination of Contracts
It is not expected that the Companys business will be affected
in the current financial year by the renegotiation or termination of contracts
or sub-contracts.
Environmental Protection
All phases of the Companys exploration are subject to
environmental regulation in the various jurisdictions in which it operates.
Environmental legislation is evolving in a manner which
requires stricter standards and enforcement, increased fines and penalties for
non-compliance, more stringent environmental assessments of proposed projects
and a heightened degree of responsibility for companies and their officers,
directors and employees. While manageable, EMX expects this evolution (which
affects most mineral exploration companies) might result in increased costs.
Employees
At December 31, 2018, EMX had 39 employees and consultants
working at various locations throughout the world.
Foreign Operations
Many of the Companys properties are located outside of North
America and many are located in areas traditionally considered to be risky from
a political or economic perspective.
Bankruptcy Reorganizations
There have not been any voluntary or involuntary bankruptcy,
receivership or similar proceedings against EMX within the three most recently
completed financial years or the current financial year.
Material Reorganizations
There has not been any material reorganization of EMX or its
subsidiaries within the three most recently completed financial years or the
current financial year.
Social or Environmental Policies
EMX has implemented various social policies that are
fundamental to its operations, such as policies regarding its relationship with
the communities where the Company operates.
1. Environmental Policy
The Company believes that good environmental management at
every project it manages, whether in the exploration phase, feasibility stage,
project construction or mine site operation, requires proactive health and
safety procedures, transparent interaction with local communities and
implementation of prudent expenditures and business performance standards that
constitutes the foundation for successful exploration and subsequent development
if the results warrant it.
36
EMX will develop and implement appropriate standard operating
procedures for different stages of its ground technical surveys, prospecting and
evaluation and development work which procedures will be designed to meet all
applicable environmental requirements and best environmental practices in the
mineral exploration industry.
2. Community Relations, Communication and
Notification Policy
Proactive interaction with the stakeholders on whom the
Companys exploration and development programs may impact is considered an
important part of the long-term investment that the Company is planning in its
exploration programs in North America, Turkey, Europe, Australia, and the
Asia-Pacific region.
EMX recognizes that from the inception of exploration
activities or a new field work program, and as the exploration project
progresses towards development, it will be important to:
♦
|
communicate and proactively engage with all local
communities and other stakeholders that may be affected by its exploration
programs;
|
♦
|
inform and obtain a consensus with the full range of
stakeholders that may be impacted upon by exploration, evaluation and
development; and
|
♦
|
identify any vulnerable or marginalized groups within the
affected communities (e.g. women, elders or handicapped) and ensure they
are also reached by above information disclosure and consultation
activities.
|
In these respects, EMX will work actively and transparently
with governmental authorities, other elected parties, nongovernmental
organizations, and the communities themselves to ensure that the communities are
aware of the activities of the Company, and that the impact and benefits of such
activities are a benefit to the communities.
When detailed or advanced exploration activities, including
drilling, evaluation and other such programs, are implemented, the Company will
endeavor to identify how the impacts of such work on communities can best be
managed, and how benefits can best be provided to communities through its
activities. This will be undertaken in consultation with the affected
communities.
3. Labour, Health and Safety Policy
The health and safety of its employees, contractors, affected
communities and any other role players that may participate and be affected by
the activities of EMX are crucial to the long term success of the Company.
The Company will establish and maintain a constructive
work-management relationship, promote the fair treatment, non-discrimination,
and equal opportunity of workers.
Every effort will be made through training, regular reviews and
briefings, and other procedures to ensure that best practice labor, health and
safety and good international industry practices are implemented and maintained
by EMX, including prompt and in-depth accident and incident investigation and
the implementation of the conclusions thereof. The Company will take measures to
prevent any child labor or forced labor.
The Companys aim is at all times to achieve zero lost-time
injuries and fatalities.
4. Development Stage Environmental and
Social Management Policy
EMX will communicate and consult with local communities and
stakeholders with a view to fostering mutual understanding and shared benefits
through the promotion and maintenance of open and constructive dialogue and
working relationships.
United States vs. Foreign Sales/Assets
At December 31, 2018, 2017, and 2016, the Companys assets were
located in North America, Turkey, Europe, Haiti, Australia and New Zealand.
4.C. Organization Structure
The following table sets out the name, jurisdiction of
incorporation and percentage ownership in each of the Companys significant
subsidiaries:
37
4.D. Property, Plant and Equipment
The Companys executive offices are located in rented premises
of approximately 4,200 sq. ft., shared by seven other companies at 543 Granville
Street, Suite 501, Vancouver, British Columbia Canada V6C 1X8. The Company began
occupying these facilities on May 1, 2011.
The Company owns a house in Littleton, Colorado which serves as
the Companys office in the United States.
The Companys royalty, royalty generation, and strategic
investment portfolio mainly consists of properties in North America, Europe,
Turkey, Australia, Haiti, the Russian Federation, and Chile.
The terms measured resource, indicated resource and
inferred resource used in this report are Canadian geological and mining terms
as defined in accordance with National Instrument 43-101, Standards of
Disclosure for Mineral Projects of the Canadian Securities Administrators using
the guidelines set out in the Canadian Institute of Mining, Metallurgy and
Petroleum (the CIM) Standards on Mineral Resources and Mineral Reserves,
adopted by the CIM Council as may be amended from time to time by the CIM. We
advise U.S. investors that while such terms are recognized and permitted under
Canadian regulations, the SEC does not recognize them. U.S. investors are
cautioned not to assume that any part or all of the mineral deposits in the
measured and indicated categories will ever be converted into reserves.
An inferred resource is that part of a mineral resource for
which quantity and grade are estimated on the basis of limited geological
evidence and sampling. Geological evidence is sufficient to imply, but not
verify, geological and grade continuity. It is reasonably expected that the
majority of inferred resources could be upgraded to indicated resources with
continued exploration. Inferred resources must not be included in the economic
analysis, production schedule, or estimated mine life in publicly disclosed
Pre-Feasibility or Feasibility Studies, or in the Life of Mine plans and cash
flow models of developed mines. Inferred mineral resources can only be used in
economic studies as provided under NI 43-101. U.S. investors are cautioned not
to assume that any part or all of an inferred resource exists, or is
economically or legally mineable.
38
Disclosure of gold and silver resources expressed in ounces, or
copper, lead, and zinc resources expressed in pounds or tonnes in the mineral
resource categories in this document is in compliance with Canadian NI 43-101,
but does not meet the requirements of Industry Guide 7, Description of Property
by Corporations Engaged or to be Engaged in Significant Mining Operations, of
the SEC, which will accept only the disclosure of tonnage and grade estimates
for non-reserve mineralization. See Cautionary Note To United States Investors
Regarding Reserve And Resource Information.
The Company notes that on October 31, 2018, the SEC adopted
amendments to modernize the property disclosure requirements for mining
registrants, and related guidance, which are currently set forth in Item 102 of
Regulation S-K under the Securities Act of 1933 and the Securities Exchange Act
of 1934, and in Industry Guide 7. The amendments consolidate mining property
disclosure requirements by relocating them to a new subpart of Regulation S-K
(Subpart 1300). The amendments will more closely align disclosure requirements
and policies for mining properties with current industry and global regulatory
practices and standard. Registrants must comply with the new rules for the first
fiscal year beginning on or after January 1, 2021.
EMX has been generating exploration projects for over sixteen
years. Even if the Company completes its programs on its exploration properties
and is successful in identifying mineral deposits, a substantial amount of
capital will still have to be spent on each deposit for further drilling and
engineering studies before management will know that the Company has a
commercially viable mineral deposit (a reserve) on the property. In order to
balance this risk, EMX focuses on entering into agreements with other parties to
convert its royalty generation exploration assets into royalty interests with
early-stage preproduction payments. EMX also looks to purchase royalty
properties in the open market to help accelerate revenue streams.
EMX has a portfolio of precious metal, base metal, and
polymetallic mineral property and royalty interests that includes over 90
projects and spans five continents. These assets provide revenue streams from
royalty, advance royalty and success-based bonus payments, while maintaining
exposure to exploration upside as projects are advanced by the operators and
partners. The Company supplements mineral property revenue streams by making
strategic investments in companies with undervalued mineral property assets that
provide upside potential from exit strategies can include royalty positions,
equity sales, or a combination of both.
EMX has material interests in the Leeville royalty property
located in Nevada's Northern Carlin Trend, and the Timok Project properties
located in eastern Serbia. Other property descriptions are included in this
report, but the Company does not consider that individually these properties are
material at this time. All of the Company's properties that have been optioned
or sold include EMX royalty options. Many of these properties provide milestone
and advance minimum royalty ("AMR") or advance annual royalty ("AAR") payments
that generate early revenue streams to EMXs benefit prior to production.
Additional details on EMXs royalty and royalty generation property portfolio
are included in the following sections.
North America
EMXs portfolio in North America totals thirty-eight royalty
and royalty generation properties covering more than 47,000 hectares. There are
fifteen royalty properties and properties optioned for an EMX royalty interest,
five projects that are being advanced under a regional strategic alliance, and
eighteen royalty generation properties available for partnership in Arizona,
Nevada, Utah, and Wyoming. The royalty generation properties are advanced
through wholly-owned subsidiary Bronco Creek Exploration Inc. ("BCE"), and
include porphyry copper, Carlin-type gold, alkalic hosted gold, high-grade
gold-silver vein, and polymetallic carbonate replacement projects.
The Companys 2018 work focused on 1) executing new agreements
for available projects, including a key regional strategic alliance, 2)
generative exploration, 3) advancing partner funded projects, 4) identifying
royalty assets for purchase, and 5) consolidating land positions by staking
claims on open ground. EMX is in discussions with multiple parties for the
available North American properties.
39
Leeville Property
The Leeville royalty property is a material EMX asset acquired
in the 2012 merger with Bullion Monarch. The Leeville 1% gross smelter return
("GSR") royalty covers portions of Newmont Mining Corporations West Leeville,
Turf, and other underground gold mining operations and deposits in the Northern
Carlin Trend of Nevada. The Leeville royalty paid approximately US$1.42 million
during the 12 months ending December 31, 2018. Royalty production reported by
Newmont for 2018 totaled 1,116 troy ounces of gold that were principally sourced
from the West Leeville (61%) and Turf operations (39%), with negligible
contributions from other Newmont operations. The 2018 royalty ounces represent a
15% decrease from the 1,308 royalty ounces produced in 2017. The 2017 royalty
production percentages for West Leeville (58%) and Turf (42%) are nearly
equivalent to those reported in 2018. The average realized gold price in 2018
was US$1,270 per troy ounce, increased marginally as compared to US$1255 per
ounce in 2017.
Newmont has stated that its Turf Vent Shaft Project, which was
commissioned in November 2015, will provide the ventilation required to
increase production and unlock additional resources at greater Leeville.
As understood by the Company, "greater Leeville" includes portions of EMXs
royalty property. Newmont also continued to report exploration successes along
the Rita K and Full House gold mineralized corridor, as well as at Four Corners
(see Newmont November 2018 Investor Presentation), which are partially covered
by the Leeville royalty. The Turf Vent Shaft Project as described by Newmont may
potentially have a positive impact on the Leeville royalty, as may Newmont's
exploration advancements. However, the Company does not have access to the
information from Newmont in order to confidently assess what, if any, these
impacts have been, or will be. The Company has adjusted its expectations to the
lower royalty production levels that have prevailed over the last four years.
Maggie Creek and Maggie Creek South Properties
Additional Carlin Trend exploration upside is provided by EMXs
Maggie Creek South and Maggie Creek royalty properties.
EMX's Maggie Creek South 3% NSR royalty was acquired in the
2012 merger with Bullion Monarch. Maggie Creek South occurs approximately 1.5
kilometers south-southeast of Gold Quarry, and covers about 5.2 square
kilometers of ground controlled by Newmont. Maggie Creek South occurs on the
southeast projection of the Good Hope fault trend, which has an alignment of
deposits along its length including Mike, Tusc, Mac, and Gold Quarry, as well as
the down-dip projection of favorable host rocks. EMX is not aware of any work
conducted by Newmont on EMX's royalty property during 2018.
The Maggie Creek gold property is located approximately two
kilometers north-northeast of Newmont's Gold Quarry mining operation. EMX
purchased the Maggie Creek 2% NSR royalty on precious metals and a 1% NSR
royalty on all other minerals from Golden Predator Corp. in 2016 (see EMX news
release dated February 23, 2016). The Maggie Creek royalty property covers
approximately 7.2 square kilometers and is controlled by Renaissance Gold Inc.
Maggie Creek occurs along the northeast projection of the Gold Quarry fault
zone, which is an important mineralizing control at the Gold Quarry mine.
Renaissance did not report any work completed on the project in 2018.
40
Afgan (Gold Bar South) Property
The Afgan gold property is located about 40 kilometers
northwest of Eureka, Nevada on the Battle Mountain-Eureka Trend.
EMX purchased the Afgan 1% NSR royalty as part of the 2016
Golden Predator transaction that also included the Maggie Creek royalty (see
above section). The Afgan unpatented lode mining claim block is controlled by
McEwen Mining Inc. ("MMI"). Afgan, which is approximately 2.5 kilometers
southeast of McEwen's Gold Bar North operation, has been renamed "Gold Bar
South". The property hosts a north-northwest oriented zone of sediment-hosted
oxide gold mineralization.
In 2018, MMI filed a Gold Bar Project Feasibility Study
Technical Report on SEDAR (March 30, 2018 issue date), which included updated
resource estimates for the deposits of Gold Bar North, as well as for Gold Bar
South ("GBS"). The GBS open pit constrained resources at a 0.008 oz/ton cutoff
include indicated resources of 3,488 thousand tons averaging 0.029 oz/ton and
containing 101 thousand ounces of gold, and inferred resources of 123 thousand
tons averaging 0.042 oz/ton and containing 5 thousand ounces of gold. The open
pit optimization was based on a gold price of US$1,350/oz, assigned recovery of
82% for gold, mining cost of US$2.80/ton, waste mining cost of US$1.80/ton,
processing cost of US$6.74/ton, and pit slopes of 50 degrees. According to the
technical report, additional drilling and metallurgical test work is required to
convert the GBS resources to reserves.
Cathedral Well Property
The Cathedral Well royalty property is located at the southern
end of the Battle Mountain-Eureka Trend, and is adjacent to the historic Green
Springs mine.
EMX optioned Cathedral Well to Ely Gold and Minerals Inc. (now
Ely Gold Royalties Inc.) ("Ely") in 2014 for staged option payments and a 2.5%
NSR royalty interest, inclusive of an underlying 0.5% NSR royalty. Ely completed
their earn in for the property in November 2016 through a trade with EMX,
whereby a subsidiary of Ely executed a quit claim deed for 36 mining claims
adjacent to EMXs Spring Canyon property in Nevada in lieu of its last US$25,000
option payment. The Cathedral Well royalty claim block is included as part of
Ely's Green Springs project.
In 2016, Ely Gold announced it had optioned the Green Springs
property to Colorado Resources Ltd. (see Ely news release dated December 7,
2016). The option agreement was terminated by Colorado Resources in 2018 (see
Colorado Resources news release dated May 10, 2018).
Hardshell Skarn Property
The Hardshell Skarn lead-zinc-silver royalty property,
consisting of 16 unpatented federal lode mining claims, is located approximately
75 kilometers southeast of Tucson, Arizona. EMX's early stage exploration
programs targeted base and precious metals mineralization hosted in skarn and
replacement bodies within a series of Paleozoic limestones.
An Exploration and Option Agreement was executed in 2015 for
the Hardshell Skarn property (the Royalty Claim Block) with Arizona Mining
Inc. ("AMI). In 2017, AMI earned 100% interest in the Royalty Claim Block by
accelerating and completing the required US$85,000 in cash payments. EMX retains
a 2% NSR royalty on the property that is not capped nor subject to buy down, and
is receiving nominal annual advanced royalty payments.
The Hardshell Skarn Royalty Claim Block is included as part of
the Hermosa project, and is now owned by South32 Limited ("South32") after the
completion of the plan of arrangement whereby South32 acquired all of the issued
and outstanding common shares of AMI in Q3 2018 (see AMI news release dated
August 10, 2018).
During 2018, the Hermosa property's Taylor lead-zinc-silver
carbonate replacement project, which is directly north of EMXs Royalty Claim
Block, was advanced with an updated PEA study, ongoing drilling, and the
commencement of twin exploration declines (see AMI news releases dated January
16, February 20, March 15, March 22, March 26, May 15, and May 22, 2018).
Earlier Taylor drilling by AMI consisted of two angle core holes that
intersected zinc-lead-silver mineralization within the Hardshell Royalty Claim
Block (see EMX news release dated August 30, 2017). South32 expects to invest
approximately US$100 million in fiscal year 2019 at the Taylor project (see
South32 Financial Results & Outlook Year Ended 30 June 2018 dated August 23,
2018).
41
South32 Regional Strategic Alliance
EMX executed a Regional Strategic Alliance Agreement in late
2018 between its wholly-owned subsidiary Bronco Creek Exploration, Inc., and
South32 USA Exploration Inc. (South32), a wholly-owned subsidiary of South32
Limited (see EMX news release dated December 6, 2018). Under the terms of the
agreement, which has an initial term of two years, South32 will provide annual
funding for generative work performed by EMX personnel to identify properties
for further exploration (Alliance Exploration Properties or AEPs) within the
Regional Strategic Alliance Area of Interest ("AOI") consisting of the states of
Arizona, New Mexico, and Utah, but excluding South32s Hermosa project in
southern Arizona. EMX personnel will conduct exploration activities on AEPs with
additional funding from South32 to identify projects suitable for designation as
Designated Projects. Each Designated Project will be covered by a separate
option agreement (see below). South32 will provide US$800,000 per year to cover
the generative work and salaries of EMX personnel involved in AEP work. South32
will also provide a separate annual fund of US$200,000 to pay for the
acquisition of new properties.
Each option agreement covering a Designated Project will
provide that South32 can earn 100% interest in the project by reimbursing EMXs
holding costs upon execution of the option agreement, and making option payments
totaling US$525,000 and completing US$5,000,000 in exploration expenditures
during the five-year term of the option agreement. Upon exercise of the option
by South32, EMX will retain an uncapped 2% NSR royalty on the project (not
subject to purchase or buy down) and receive annual advance royalty (AAR)
payments equivalent to 50,000 pounds ("lbs") of copper commencing on the first
anniversary. All AAR payments are set off against 80% of future royalty
payments. In addition, South32 will make milestone payments as follows (project
milestones are to NI 43-101 reporting requirements):
-
166,000 lbs of copper (or the cash equivalent) upon the completion of an
initial resource estimate,
-
333,000 lbs of copper (or the cash equivalent) upon completion of a
prefeasibility study, and
-
666,000 lbs of copper (or the cash equivalent) upon completion of a
feasibility study.
Five Arizona porphyry-copper projects were selected as AEPs by
South32, including Midnight Juniper, Jasper Canyon, Sleeping Beauty, Dragons
Tail, and Lomitas Negras. EMX and South32 have commenced work programs on these
initial AEPs, and initiated a generative program to identify new projects for
acquisition.
Buckhorn Creek Property
The Buckhorn Creek project is located in north-central
Arizona's greater Castle Creek mining district. The project lies within a
structurally extended belt of rocks with multiple outcrops of porphyry-related
alteration and mineralization. EMXs work on the property led to the recognition
of an un-tested porphyry target situated to the east of altered outcrops, and
concealed beneath volcanic and sedimentary cover rocks.
In February 2018, EMX executed an Option Agreement with
Kennecott Exploration Company ("Kennecott"), part of the Rio Tinto Group (see
EMX news release dated February 8, 2018). Kennecott can earn 100% interest in
the project by a) making annual option payments totaling US$550,000, and b)
completing US$4,500,000 in exploration expenditures before the fifth anniversary
of the agreement. Upon exercise of the option, EMX will retain a 2% NSR royalty
on the project which is not capped or purchasable.
After exercise of the option, annual advance minimum royalty
payments are due starting at US$100,000 and increasing to US$150,000 upon
completion of an Order of Magnitude Study (OMS) or Preliminary Economic
Assessment (PEA). Kennecott may make a one-time payment of US$3,500,000 to
extinguish the obligation to make AMR payments. All AMR payments cease upon
commencement of production from the project. In addition, Kennecott will make
milestone payments consisting of:
-
US$500,000 upon completion of an OMS or PEA,
-
US$1,000,000 upon completion of a Prefeasibility Study, and
-
US$2,000,000 upon completion of a Feasibility Study. The Feasibility Study
payment will be credited against future royalty payments.
Kennecott, as the operator of the Buckhorn Creek project,
conducted geologic mapping, geochemical sampling, and an initial drill test of a
concealed porphyry target in 2018. Kennecott's drilling consisted of two shallow
reverse circulations holes totaling 673 meters. Both holes reached bedrock and
intersected geochemically anomalous levels of copper and molybdenum
mineralization. As well, Kennecott conducted an IP geophysical survey that
highlighted an additional target area west of the two reconnaissance holes.
Kennecott is currently working to permit follow-up holes, with drilling
scheduled to commence in early 2019.
42
Copper King Property
The Copper King porphyry copper-molybdenum project is located
approximately four kilometers northwest of the Resolution porphyry copper
deposit in the Superior (Pioneer) mining district of Arizona.
EMX executed an Exploration and Option to Purchase Agreement
with Kennecott for Copper King in 2016 (see EMX news release dated October 19,
2016). Pursuant to the agreement, Kennecott can earn 100% interest in the
project by a) reimbursing the 2016 holding costs and making option payments,
together totaling US$504,314, and b) completing US$,000,000 in exploration
expenditures before the fifth anniversary of the agreement. Upon exercise of the
option, EMX will retain a 2% NSR royalty on the project which is not capped and
not subject to buy down. After exercise of the option, annual AMR and milestone
payments will be due to EMX.
During 2018, Kennecott-funded work at Copper King included
drill permitting activities.
Superior West Property
The Superior West project is located west of the historic
mining town of Superior, Arizona and the Resolution porphyry copper project. The
project covers several porphyry copper targets, as well as the interpreted
western extension of the historic Magma Vein.
EMX executed an Exploration and Option to Purchase Agreement
with Kennecott for the Superior West project in 2015. Kennecott may earn 100%
interest in the project by completing US$5.5 million in exploration expenditures
and making cash payments totaling US$149,187, after which EMX will retain a 2%
NSR in addition to annual AMR and certain project milestone payments (see EMX
news release dated May 4, 2015).
During 2018, Kennecott conducted geochemical sampling, further
structural geologic work, and drill permitting activities at Superior West.
Copper Springs Property
The Copper Springs project is located in the southern part of
Arizona's Globe-Miami mining district. EMX's work and geologic interpretations
led to the recognition that the property covers a previously unrecognized
porphyry trend that crosses largely untested, structurally down-dropped blocks
concealed beneath younger basin fill.
EMX executed an Option Agreement for Copper Springs with Anglo
American Exploration (USA), Inc. (Anglo American) in 2017 (see EMX news
release dated February 28, 2017). Anglo American can earn 100% interest in the
project by a) reimbursing 2016 holding and permitting costs and making annual
option payments, together totaling US$447,000, and b) completing US$5,000,000 in
exploration expenditures before the fifth anniversary of the agreement. Upon
exercise of the option, Anglo American will pay EMX an additional US$110,000 and
EMX will retain a 2% NSR royalty on the project. The royalty is not capped or
purchasable, except over two parcels of Arizona State Land where Anglo American
can buy a 0.5% NSR royalty from EMX for US$2,000,000. After exercise of the
option, annual AMR payments and milestone payments will be due to EMX.
Anglo American-funded work in 2018 included the completion of a
phase I reconnaissance drill program consisting of four holes totaling over
5,700 meters that tested concealed porphyry targets. The alteration and
mineralization assemblages observed in bedrock intercepts were encouraging, and
Anglo American advised that it is planning a phase II follow-up program
consisting of additional geophysics and drilling.
Ophir Property
The Ophir property is located in the northern portion of Utah's
Ophir mining district, approximately 15 kilometers southwest of Rio Tintos
Bingham Canyon mine. The Ophir district is characterized by
silver-lead-zinc-copper replacement deposits and fissure veins hosted within
carbonate sedimentary rocks and associated with monzonitic stocks and dikes. The
district's silver and base metals mineralization may be a distal expression of
associated porphyry copper mineralization at depth.
EMX sold the five patented mining claims comprising the Ophir
property to Kennecott in 2016 (see EMX news release dated October 17, 2016). EMX
received US$75,000 in cash upon closing and retained a 2% NSR royalty interest
from the sale. Kennecott advised that in 2018 the claims were maintained and
that the property is in good standing.
Yerington West Property
43
The Yerington West property, located in the Yerington mining
district of west-central Nevada, contains porphyry copper-molybdenum and
copper-iron skarn targets beneath post-mineral cover rocks.
Yerington West is under a 2009 Option Agreement that was
originally with Entrée Gold Inc. ("Entrée"), and subsequently with Mason
Resources Corp. ("Mason"). Hudbay Minerals Inc. ("Hudbay") acquired all of the
issued and outstanding common shares of Mason in late 2018 (see Mason news
release dated December 19, 2018). Under the Yerington West agreement, Hudbay can
earn up to an 80% interest in the project by making advance royalty payments and
delivering a feasibility study before the tenth anniversary of the agreement.
Under the agreement, once earn-in has been completed, EMX can convert its
interest to a 2.5% NSR royalty. Hudbay has the option to buy down 1.5% of the
NSR royalty for US$4.5 million. EMX is in discussions with Hudbay regarding the
terms of the Yerington West agreement, as it is due to expire in 2019.
Greenwood Peak Property
The Greenwood Peak copper porphyry project is located
approximately 175 kilometers northwest of Phoenix, Arizona.
EMX executed an option agreement with a wholly owned subsidiary
of Antofagasta plc (Antofagasta) in late 2017 for Greenwood Peak (see EMX news
release dated December 18, 2017). Antofagasta concluded a three hole, 1,035
meter reconnaissance drill program in Q1 2018 to test a concealed porphyry
target. The drilling intersected weak hypogene porphyry-related alteration in
bedrock. The option agreement was terminated by Antofagasta in Q3. EMX
subsequently dropped the property due to a lack of encouraging results.
Mineral Hill Property
The Mineral Hill gold-copper project is located in the Black
Hills of Wyoming, approximately 20 kilometers west of the Wharf mine in South
Dakota. The project is centered on an Eocene age alkaline intrusive complex
consisting of an outer ring complex, interior intrusive complex, and interior
breccia zone. Historic small scale production in the project vicinity occurred
between the 1870s and 1930s, and was principally sourced from alluvial gold in
drainages, gold and silver mineralization at the Treadwell Mine, and gold and
copper mineralization near the Interocean Mine.
EMX entered into an Exploration and Option Agreement with Coeur
Explorations, Inc. (Coeur), a subsidiary of Coeur Inc. for Mineral Hill in
2016 (see EMX news release dated October 27, 2016). After staking new claims,
conducting geologic mapping, geochemical sampling, and permitting work for a
drill test of a newly identified copper-gold target in 2017, Coeur terminated
the agreement in Q4 2018. Mineral Hill is now 100% controlled by EMX and
available for partnership.
Other Work Conducted by EMX in the U.S.
EMX continued evaluating property and royalty acquisition
opportunities in North America, with generative work focused on gold
opportunities in the Great Basin and porphyry copper targets in Arizona, New
Mexico, and Utah.
Qualified Person
Dean D. Turner, CPG, a Qualified Person as defined by NI 43-101
and consultant to the Company, has reviewed, verified and approved the above
technical disclosure on North America.
Europe
EMX has a portfolio of gold, copper, polymetallic, nickel and
cobalt royalty and royalty generation properties in Scandinavia, as well as a
portfolio of copper and gold royalty properties in Serbia. In Scandinavia, the
Company successfully pursued strategic agreements to advance and convert
available projects into royalties and added value through low cost generative
exploration. EMX's royalty interests in Serbia include the Timok Project's
Cukaru Peki copper-gold deposit located in the prolific Timok Magmatic
Complex.
44
Scandinavia
EMX focused on organically generating and growing the royalty
portfolio in Sweden and Norway during 2018. These efforts resulted in the
conversion of nine exploration properties to royalty and equity interests in
2018, as well as the addition of new royalty generation properties. The
Company's Scandinavia portfolio totals 33 royalty and royalty generation
projects.
Boreal Properties.
EMX has eight royalty properties sold
to, and operated by Boreal Metals Corp. ("Boreal") and Boreal Energy Metals
Corporation ("BEMC"), a subsidiary of Boreal. Four of the properties were sold
to Boreal in 2017, and include the Gumsberg and Adak properties in Sweden, and
the Tynset and Burfjord properties in Norway. Gumsberg, Adak, and Tynset host
Volcanogenic Massive Sulfide (VMS) polymetallic mineralization, and Burfjord
is characterized by Iron-Oxide-Copper-Gold (IOCG) mineralization. The sale
included an initial 19.9% equity interest in Boreal, annual advance royalty
payments, an uncapped 3% NSR royalty on each of the properties (1% may be
purchased by Boreal under certain conditions), and other consideration to EMX's
benefit (see EMX news release dated November 22, 2016).
In Q1 2018, EMX executed a definitive agreement to sell the
Modum cobalt project to Boreal (see EMX news release dated January 16, 2018).
Modum is located in southern Norways Modum mining district, ~75 kilometers west
of Oslo. The project partially surrounds the historic Skuterud mine property,
which was Europes principal producer of cobalt from the late 18th through 19th
centuries. Pursuant to the agreement, Boreal acquired 100% interest in the
project according to the following commercial terms:
-
Boreal issued to EMX common shares of Boreal that brought EMXs share of
equity ownership back up to 19.9%.
-
EMX retained a 3% NSR royalty interest on the project, 1% of which may be
purchased by Boreal under certain conditions.
-
EMX will receive annual advance royalty payments commencing on the second
anniversary of the closing.
45
Also during Q1, EMX sold the Guldgruvan cobalt project to
Boreal Energy Metals Corporation (see EMX news release dated February 9, 2018).
The Guldgruvan project is located in Swedens Los mining district, a significant
historic producer of cobalt and nickel, and the discovery locality of nickel.
Pursuant to the agreement, BEMC acquired 100% interest in the project according
to the following commercial terms (all dollar amounts in USD, unless otherwise
noted):
-
BEMC issued to EMX common shares of BEMC representing a 5.9% equity
ownership in BEMC. BEMC has the continuing obligation to issue additional
shares to EMX to maintain its 5.9% interest, at no additional cost to EMX,
until BEMC has raised CDN $3,000,000 in equity.
-
EMX received an uncapped 3% NSR royalty interest on the project. Within
five years of the closing date, BEMC has the right to buy down up to 1% of the
royalty owed to EMX (leaving EMX with a 2% NSR) by paying EMX $2,500,000 in
cash and shares of BEMC.
-
EMX will receive annual advance royalty payments commencing on the second
anniversary of the closing.
In Q2 2018, EMX executed a second agreement with BEMC to sell
the Njuggträskliden and Mjövattnet nickel-copper-cobalt projects to BEMC (see
EMX news release dated April 11, 2018). The properties are located along
Swedens Nickel Line in the Skellefteå mining district of central Sweden. Both
projects contain multiple zones of drill-defined nickel-copper-cobalt
mineralization. Pursuant to the agreement, BEMC will acquire 100% interest in
the projects according to the following commercial terms (all dollar amounts in
USD, unless otherwise noted):
-
BEMC issued to EMX common shares of BEMC that represented a 4% equity
ownership in BEMC, bringing EMXs aggregate interest to 9.9% of BEMCs issued
and outstanding shares. BEMC has the continuing obligation to issue additional
shares of BEMC to EMX to maintain its aggregate 9.9% interest in BEMC, at no
additional cost to EMX, until BEMC has raised CDN $3,000,000 in equity.
-
EMX received an uncapped 3% NSR royalty interest on each of the projects.
Within five years of the closing date, BEMC has the right to buy down up to 1%
of the royalty owed to EMX by paying EMX $2,500,000 in cash and shares of BEMC
for each project.
-
EMX will receive annual advance royalty payments for each project
commencing on the second anniversary of the closing.
EMX's Boreal royalty properties in Sweden and Norway were
advanced to varying degrees with geologic mapping, geochemical sampling,
geophysical surveys, and drilling in 2018. EMX provided technical assistance for
this work on a 100% reimbursed consulting basis.
Of particular note were results from the Gumsberg royalty
property drill programs. Boreal reported assays from the first five holes of a
winter diamond drill program in Q1 2018. The results included intersections of
massive sulfide mineralization in hole BM-17-005, which was drilled in the
vicinity of the historic Östersilvberg Mine, Swedens largest silver producer in
medieval times. The intercepts from BM-17-005 included 10.94 meters averaging
16.97% zinc, 8.52% lead, and 656.70 g/t silver (true width estimated at 20-50%
of reported interval length) (see EMX news release dated March 1, 2018). In Q2,
Boreal reported the remaining results from the winter program that included an
intercept of 3.7 meters averaging 19.27% zinc, with 17.66 g/t silver and 0.25%
lead in drill hole BM-17-006 (true width estimated to be 80-100% of the reported
interval), which was drilled in the vicinity of the historic Mellangruvan mine
(see EMX news release dated May 2, 2018).
Riddarhyttan Property.
EMX executed an option agreement
with South32 Ltd ("South32") for the Riddarhyttan IOCG and massive sulfide
project in Q2 2018 (see EMX news release dated April 19, 2018). The Riddarhyttan
project is a past producer of iron and copper located in the Bergslagen mining
region of southern Sweden. Riddarhyttan is the locality where the element cobalt
was first recognized, and is also the type locality of certain rare earth
elements and related minerals. Pursuant to the agreement, South32 can earn 100%
interest in the project during a five year earn-in period by (all dollar amounts
in USD):
-
Making option and cash payments that total approximately $210,600,
-
Making a one-time option exercise payment of $500,000, and
-
Completing $5,000,000 of exploration work on the project within five years
of the execution date.
Upon exercise of the option, EMX will retain a 3% NSR royalty,
0.75% of which may be purchased by South32 for $1,900,000 within five years of
executing the agreement. After exercising the option, annual advance royalty
payments of 50,000 pounds of copper (or the cash equivalent) will be due to EMX,
but will be deductible from future royalty payments. In addition, South32 will
make milestone payments of: 350,000 pounds of copper (or the cash equivalent)
upon publication of an initial resource estimate on the project, and 750,000
pounds of copper (or the cash equivalent) upon delivery of a feasibility study.
46
EMX conducted geologic mapping, geochemical sampling, and
geophysical surveys during 2018 on a 100% reimbursed basis. These new data are
being used to generate follow-up drill targets.
Norra Properties.
As a subsequent event in Q1 2019, EMX
closed the sale of the Bleikvassli, Sagvoll, and Meråker polymetallic projects
in Norway, and the Bastuträsk polymetallic project in Sweden to Norra Metals
Corp. ("Norra") (previously OK2 Minerals Ltd) (see EMX news releases dated
December 13, 2018 and February 19, 2019). The properties contain historic mining
areas and/or historic, drill-defined zones of polymetallic base metal
mineralization (zinc-lead-copper) with variable levels of precious metal
enrichments (silver ± gold). Pursuant to the agreement, Norra acquired 100%
interest in the projects according to the following commercial terms (all dollar
amounts in USD, unless otherwise noted):
-
Norra issued to EMX that number of common shares that represented a 9.9%
equity ownership in Norra. Norra has the continuing obligation to issue
additional shares to EMX to maintain its 9.9% interest in Norra, at no
additional cost to EMX (subject to a maximum of 13,398,958 common shares),
until Norra has raised CDN $5,000,000 in equity to fund exploration and
development on the properties, or until five years after closing, whichever
occurs first. Thereafter, EMX will have the right to participate pro-rata in
future financings at its own cost to maintain its 9.9% interest in Norra.
-
There is an additional provision that requires Norra to raise and spend CDN
$2,000,000 on the properties within two years of the closing date, otherwise
EMX's 9.9% equity ownership shall be increased to a 14.9% continuing equity
interest (subject to a maximum of 21,350,956 common shares).
-
EMX retains an uncapped 3% NSR royalty interest on each of the properties.
Within six years of the closing date, Norra has the right to buy down up to 1%
of the royalty retained by EMX on any given project (leaving EMX with a 2% NSR
royalty) by paying EMX $2,500,000. Such a buy down is project specific.
-
EMX will receive annual advance royalty payments for each of the properties
commencing on the second anniversary of the closing.
-
EMX will receive a 0.5% NSR royalty on any new mineral exploration projects
generated by Norra in Sweden or Norway, excluding projects acquired from a
third party containing a mineral resource or reserve or an existing mining
operation. These royalties are not capped and not subject to a buy down.
-
EMX also received a 1% NSR royalty on Norras Pyramid project in British
Columbia.
Slättberg Property.
The Slättberg nickel-copper-cobalt
project in Sweden was optioned in 2017 to Sienna Resources Inc. (Sienna) for
equity interest, payments and work commitments to earn 100% interest in the
project, and upon earn-in a 3% NSR royalty and annual advance royalty and
milestone payments (see EMX news release dated December 4, 2017). In Q2 2018,
Sienna announced drill results from a seven hole, 942 meter drill program at
Slättberg, along strike and down dip from historic mine workings in the area.
These results included 2.8 meters averaging 1.05% nickel and 1125 ppm cobalt and
0.79% copper in hole SIE-18-3 (true width 60-70% of reported interval length)
(see Sienna news release dated May 17, 2018). EMX provided technical assistance
in 2018 for Sienna's drilling, geochemical sampling and geophysical survey work
on a 100% reimbursed consulting basis.
Viscaria Property.
EMX holds an effective 0.5% NSR
royalty interest on Sunstones Viscaria copper project located in the Kiruna
mining district of northern Sweden. The Viscaria royalty was acquired by EMX
from the purchase of the Phelps Dodge Exploration Sweden AB assets in 2010. Upon
receipt of US$12 million in royalty revenues, the royalty rate increases to a
1.0% NSR. Sunstone has a JORC (2012) mineral resource estimate and "scoping
study" based upon a combination open pit and underground scenario (see Sunstone
news releases dated December 16, 2015 and April 5, 2016). In 2018, Sunstone
announced that the Viscaria project was being sold to Stockholm listed
Copperstone Resources AB (see Sunstone ASX announcement dated December 21,
2018).
Royalty Generation Properties.
EMX continued to pursue
new acquisition opportunities in Scandinavia during 2018, with a focus on
orogenic lode/intrusion-related gold, IOCG, VMS, carbonate replacement, and
nickel-copper-cobalt projects. The Company also conducted early-stage geologic
mapping, geochemical sampling, and geophysical surveys on existing projects in
the royalty generation portfolio. These projects are available for partnership,
and have attracted interest from a number of parties.
Serbia
EMX's royalty portfolio in Serbia initially resulted from
prospect generation and organic royalty growth via the 2006 sale of its
properties, including Brestovac West, to Reservoir Capital Corp, for uncapped
NSR royalties of 2% for gold and silver and 1% for all other metals. Reservoir
Capital Corp. later transferred those interests to Reservoir Minerals Inc.
(Reservoir).
47
Subsequently, EMX acquired 0.5% NSR royalty interests (note:
the royalty percentage is subject to reduction only as provided in the royalty
agreement) covering the Brestovac and Jasikovo-Durlan Potok properties held by
Reservoir (see EMX news release dated February 4, 2014). Reservoir was acquired
by Nevsun Resources Ltd. ("Nevsun") in 2016 (see Reservoir news release dated
June 23, 2016). In Q4 2018 Nevsun announced that a friendly, all cash offer by
Zijin Mining Group Co. Ltd. ("Zijin") to purchase all of the issued and
outstanding Nevsun common shares for CDN $6.00 per share (~US $1.41 billion in
total) had been successful (see Nevsun news release dated December 28, 2018). As
a subsequent event, Nevsun was delisted from the Toronto Stock Exchange and the
NYSE American Exchange in Q1 2019.
EMX's Brestovac and Brestovac West royalty properties are
included in the Timok Project, with Brestovac covering the Cukaru Peki deposit's
Upper Zone high sulfidation epithermal copper-gold project and the Lower Zone
porphyry copper-gold project. Nevsun (now Zijin) 100% controls the Upper Zone,
and is in a joint venture with Freeport on the Lower Zone. EMX notes that a) the
original Brestovac and Brestovac West permits are now covered by the Brestovac
Metonivca and Brestovac Zapad permits, and b) portions of a reconfigured
Jasikovo-Durlan Potok permit (i.e., expanded in some areas and reduced in other
areas) are not covered by the EMX royalty.
An Upper Zone Pre-Feasibility Study ("PFS") was announced in
2018 with a probable mineral reserve of 27 million tonnes at 3.3% copper and 2.1
grams per tonne gold based upon metal prices of $3.00 per pound copper and $1300
per ounce gold (see Nevsun news releases dated March 28, 2018 and SEDAR filed
Technical Report). The PFS outlined a 10 year mine life that yields
approximately 1.7billion pounds of payable copper and 516 thousand ounces of
payable gold, with an after tax NPV
8
of US$1.82 billion valued at the
start of construction. Initial Upper Zone production is estimated to be in 2022.
As a step towards development, construction commenced on the Upper Zone
exploration decline in Q2 (see Nevsun news release dated June 5, 2018).
Subsequently, an initial inferred resource estimate was announced for the Lower
Zone porphyry project at a $25/tonne "dollar equivalent" cutoff of 1.659 billion
tonnes averaging 0.86% copper and 0.18 g/t gold, and containing 31.5 billion
pounds of copper and 9.6 million ounces of gold (see Nevsun news release dated
June 26, 2018 and SEDAR filed Technical Report). The mining method is assumed to
be by block cave. In addition to the Upper Zone PFS reserves and Lower Zone
inferred resources, high grade copper-gold drill results from a discovery 500
meters east of the Timok Upper Zone was announced in Q1 2018 (see Nevsun news
release dated January 16, 2018).
EMX's Timok royalty properties add significant upside
optionality from one of the world's top copper development projects.
Qualified Person
Eric P. Jensen, CPG, a Qualified Person as defined by NI 43-101
and employee of the Company, has reviewed, verified and approved the above
technical disclosure on Europe.
Turkey
EMX has royalty and royalty generation property interests in
Turkeys Western Anatolia and Eastern Pontides mineral belts. These properties
include high sulfidation gold, gold-silver vein, polymetallic carbonate
replacement, and porphyry gold-copper targets. Five of the seven EMX projects in
Turkey are operated by partner companies. EMX has retained Dama Muhendislik
Proje ve Maden San.Tic. A.S (Dama), a Turkish engineering company based in
Ankara, to manage EMX's interests in Turkey.
48
Akarca Property
The Akarca royalty property covers a low sulfidation epithermal
gold-silver district in the Western Anatolia mineral belt that was discovered by
EMX in 2006. The project has six zones of gold-silver mineralization defined by
drilling, geologic mapping, geochemical sampling, and geophysical survey
programs.
EMX sold AES Madencilik A.S., the wholly-owned EMX subsidiary
that controls the Akarca project, to Çiftay Insaat Taahhüt ve Ticaret A.S.
("Çiftay"), a privately owned Turkish company (see EMX news release dated August
8, 2016). Commercial terms of the sale are summarized as (gold payments to EMX
can be as gold bullion or the cash equivalent):
|
|
US$2,000,000 cash payment to EMX upon closing of the sale
(completed).
|
|
|
Pre-production payments to EMX of 500 ounces of gold
every six months commencing February 2, 2017 up to a cumulative total of
7,000 ounces of gold. In 2018, the third and fourth 500 ounce cash
equivalent payments were made totaling ~US $1,274,000. The first two
pre-production payments were made in 2017 totaling US$1,235,840. Receipt
of these four payments leaves a pre-production total of 5,000 ounces of
gold (or the cash equivalent) to be paid to EMX.
|
|
|
Milestone gold payments of 7,000 ounces upon commencement
of production (prior gold payments will be credited against this payment),
250 ounces upon production of 100,000 ounces of gold, and 250 ounces upon
production of an aggregate of 500,000 ounces of gold.
|
|
|
A sliding-scale royalty in percentages of production
returns after certain deductions (Royalty): a) for gold production 1.0%
on the first 100,000 ounces, 2.0% on the next 400,000 ounces, and 3.0% on
all production in excess of 500,000 ounces, and b) for all production
other than gold production 3.0%.
|
|
|
The Royalty is uncapped and cannot be bought
out or reduced.
|
EMX received Akarca drill data from Çiftay in Q2 2018 totaling
7,844 meters of diamond drilling across five target areas on the property (see
EMX news release dated April 17, 2018). This drilling resulted in a significant
increase in the "footprints" of drill defined gold and silver mineralization.
Çiftay's drilling returned multiple high grade intercepts, including 9.5 meters
averaging 50.30 g/t gold and 29.2 g/t silver, with a sub-interval of 1.8 meters
averaging 256.25 g/t gold and 133.0 g/t silver in hole AKC-317 (true width
~85-95%) drilled at the Arap Tepe Zone C area, as well as 69.3 meters
averaging 3.68 g/t gold and 4.8 g/t silver in hole AKC-264 (true width ~75-85%),
drilled at the Hugla Tepe area. The program also included 24 new holes in the
Percem Tepe target area, 23 of which contained significant intercepts of gold
mineralization.
Çiftay has informed EMX that its planned 2018 exploration
program was delayed while awaiting the required permits for drilling. Çiftay
also advised it conducted various metallurgical, engineering and environmental
base line studies on the property while awaiting the drill permits.
49
Sisorta Property
The Sisorta royalty property, located in the Eastern Pontides
mineral belt, is a near-surface, volcanic-hosted, high sulfidation epithermal
gold deposit. Exploration programs at Sisorta have included diamond drilling,
geologic and alteration mapping, geochemical sampling, and geophysical surveys.
This work has outlined a 1000 by 600 meter zone of shallow oxide gold
mineralization with underlying copper and gold porphyry potential at depth.
EMX sold the wholly-owned EMX subsidiary that controlled the
Sisorta property to Bahar Madencilik Sinayi ve Ticaret Ltd Sti ("Bahar"), a
privately owned Turkish company, in 2016 (see EMX news release dated August 3,
2016). The terms of the sale provide for Bahar's staged payments to EMX as
summarized below:
-
US$250,000 cash payment to EMX upon closing of the sale (completed).
-
Annual payments of US$125,000 on the anniversary of closing until
commencement of commercial production.
-
3.5% of production returns after certain deductions (NSR Payment") for ore
mined from the property that is processed on-site (increased to 5% if the ore
is processed off-site). The NSR Payment is uncapped and cannot be bought out
or reduced.
-
The annual payments will be credited at a rate of 80% against the NSR
Payment after commercial production commences.
Bahar advised EMX in Q2 2018 that it had commenced with
Environmental Impact Assessment (EIA) work as required under the mine
permitting process in Turkey. Bahar also informed EMX that the EIA report was
filed with the Turkish government agencies in Q4 2018. Once approved, Bahar
intends to continue applying for other necessary permits for project
development. Bahar advised that the permitting process is expected to take
approximately 1-2 years.
Balya Property
The Balya royalty property is located in the historic Balya
lead-zinc-silver mining district in northwestern Turkey. EMX holds an uncapped
4% NSR royalty that it retained from the sale of the property to Dedeman
Madencilik San ve Tic. A.S. ("Dedeman"), a privately owned Turkish company, in
2006.
Dedeman advised EMX that it continued with limited, small scale
underground development at the Hastanetepe deposit in 2018. Hastanetepe is a
moderately dipping, 750 by 450 meter zone that extends from depths of 10-20
meters to 200-300 meters as multiple stacked horizons of lead-zinc-silver
mineralization primarily developed along contacts between limestones and dacitic
intrusions. Dedeman also advised that it commenced a 24,000 meter step-out drill
campaign to fill in a ~500 meter long corridor between mineralization at
Hastanetepe and the Southern Zone target area. Dedeman provided EMX with initial
results from the program in Q3 2018, which included 12.75 meters averaging
11.39% lead, 5.92% zinc and 225.18 g/t silver in hole DB108-B (true width ~95%
of intercept length), as well as other intercepts in nearby holes at Hastanetepe
(see EMX news release dated August 13, 2018).
The Balya royalty due to EMX from 2017 production, which was
paid in 2018, totaled ~US$121,075. Dedeman advised EMX that it was considering
processing and business development alternatives for the project going into
2019.
Aktutan Property
EMX has a royalty interest in the Aktutan polymetallic project
sold to Dedeman in 2007 for consideration that included a 4% uncapped NSR
royalty and annual advance royalty payments of US$100,000 per year. Dedeman has
asked to re-negotiate the annual advance royalty payments in light of
discouraging exploration results. These negotiations are in process.
Golcuk Property
The Golcuk royalty property is located in the Eastern Pontides
metallogenic belt of northeast Turkey. The mineralization at Golcuk primarily
occurs as stacked, stratabound horizons with disseminated copper and silver
hosted in volcanic units, as well as in localized cross-cutting fault-controlled
veins and stockworks of bornite, chalcopyrite and chalcocite.
Pasinex Resources Ltd. (Pasinex) signed an agreement in 2012
granting Pasinex an option to acquire 100% interest in the Golcuk property, with
EMX retaining a 2.9% NSR royalty. In Q2 2018, Pasinex announced that it does not
intend to further advance the Golcuk project (see Pasinex news release dated May
25, 2018). Pasinex is evaluating its options with respect to the property, which
may include a sale to a Turkish company or returning the project to EMX.
50
Trab-23 Property
The Trab-23 property is located in northeast Turkey. The
project hosts both porphyry gold (+-copper-molybdenum) mineralization and
epithermal quartz-barite-gold veins.
Tumad Madencilik Sanayi ve Ticaret A.S. (Tumad), a privately
owned Turkish company, executed an option agreement in 2013 granting it an
option to acquire Trab-23 from EMX. Tumad terminated the agreement in 2017, and
in 2018 returned the property to 100% EMX control. Trab-23 is available for sale
or partnership.
Alankoy Property
The Alankoy gold-copper property, located in the Biga Peninsula
of northwestern Turkey, occurs in an area noted for discoveries characterized by
high sulfidation style epithermal alteration and the development of vuggy silica
lithocaps. EMX's work has outlined a six square kilometer area of lithocaps and
quartzalunite and argillic alteration with gold-copper mineralization, as well
as skarn and replacement style mineralization, based upon geologic mapping, rock
and soil sampling, spectral analyses, ground magnetics, and historic
reconnaissance drill results. Alankoy is currently available for sale or
partnership.
Qualified Person
Eric P. Jensen, CPG, a Qualified Person as defined by NI 43-101
and employee of the Company, has reviewed, verified and approved the above
technical disclosure on Turkey.
Australia and New Zealand
EMX's assets in Australia include the Koonenberry royalty
property in New South Wales, the Kimberley property in Western Australia, and
the QLD Gold property in Queensland. The agreement with E2 Metals Ltd. for the
Neavesville royalty property in New Zealand was terminated in 2018. The
Company's programs in the region continued to evaluate royalty generation and
royalty acquisition opportunities.
Koonenberry Property
The Koonenberry royalty property hosts gold occurrences and
gold geochemical anomalies coincident with prominent structural features related
to the regional scale Koonenberry fault. Koonenberry Gold Pty Ltd. (KNB), a
private Australian company, is the operator of EMX's Koonenberry royalty
property (see EMX news release dated September 19, 2017). EMX retains a 3%
royalty on all production from the Koonenberry licenses.
51
KNB gained significant momentum with its Koonenberry
exploration initiatives in 2018. Geologic mapping and reconnaissance sampling
confirmed the existence of palaeoplacer and reef gold showings across a number
of prospect areas. In addition, KNB acquired drilling & support equipment,
and was granted the required permits to drill test four priority target areas.
Over 700 meters of diamond drilling were completed that identified a number of
quartz vein sets prospective for gold mineralization. Future work will include
delivery of a small scale gravity plant to allow mini-bulk sampling and
assessment of the alluvial and palaeochannel targets. KNB engaged Mining Plus to
provide geological, metallurgical and environmental consulting services to
support advancement of the project.
Kimberley Property
The Kimberley copper project consists of the Menuairs Dome and
Campbellmerry groups of exploration licenses in the Kimberley region of Western
Australia. The licenses were acquired by EMX on open ground in 2018, and contain
sediment-hosted copper targets developed in geologic dome structures.
EMX executed a purchase agreement with Enfield Exploration
Corporation (Enfield) in Q4 2018 for the Kimberley project (see EMX news
release dated October 1, 2018). In order to give time to gain access for the
commencement of work, the agreement has been deferred until the first half of
2019 to allow the monsoon season to abate and river levels to fall.
QLD Gold Property
EMX's QLD Gold project in southeastern Queensland, Australia
contains multiple zones of intrusion related gold mineralization hosted by a
suite of granodioritic and porphyritic felsic intrusions. These zones were the
focus of exploration and drilling campaigns in the 1990s. The project hosts
numerous historic mines, including the Monal Goldfields, which produced gold
from bedrock sources in the late 1800s. The property also contains gold and
copper-rich skarns and epigenetic, sediment hosted copper mineralization.
Activities for 2018 consisted of fulfilling statutory
requirements to keep the project in good standing. The QLD Gold project is
available for partnership.
Neavesville Property
The Neavesville gold-silver property consisted of a single
exploration permit in the Hauraki Goldfield of New Zealand's North Island. The
project had been under a definitive agreement with ASX listed E2 Metals Ltd.,
which acquired the EMX subsidiary that controls the Neavesville property. E2
Metals terminated the agreement in October 2018. EMX elected not to exercise its
right to have the property transferred back to the Company due to concerns of
gaining social license to advance the project.
Qualified Person
Eric P. Jensen, CPG, a Qualified Person as defined by NI 43-101
and employee of the Company, has reviewed, verified and approved the above
technical disclosure on Australia and New Zealand.
Haiti
EMX's interests in Haiti have all been converted into NSR
royalties. These royalty properties principally resulted from EMX and Newmont
Ventures Limited (collectively, the "Joint Venture") exploring a land position
along a 130 kilometer trend of Haitis Massif du Nord mineral belt starting in
2008, with Newmont funding and managing the Joint Venture. In 2015, EMX sold its
Haiti Joint Venture interests, which covered six designated exploration areas to
Newmont. Pursuant to the transaction, Newmont acquired all of EMX's interest in
the designated exploration areas on the following terms: a) Newmont paid US$4
million in cash to EMX at closing, b) the Joint Ventures were terminated, c) EMX
retains a 0.5% NSR royalty on the 49 Research Permit applications covering the
designated exploration areas, and d) EMX retains the right to acquire any
properties proposed to be abandoned or surrendered by Newmont.
52
In 2016, EMX sold the Grand Bois project, which was outside the
Joint Venture with Newmont, to Sono Global Holdings Inc. ("Sono"), a privately
held Nevada corporation. EMX retained a 0.5% NSR royalty interest in the Grand
Bois project and the right to acquire any properties proposed to be abandoned or
surrendered from the Grand Bois project in the future.
In mid-2018, 3D Resources Inc. ("3D"), an ASX listed company,
called force majeure and terminated the agreement to acquire a 70% interest in
Ayiti Gold Company SA, Sono's Haitian entity holding the Grand Bois license (see
3D news release dated June 25, 2018). According to 3D, "This decision has been
taken because of the lack of progress achieved to date due to the Companys
inability to obtain necessary permits to import equipment into Haiti to
facilitate drilling necessary to complete feasibility studies." Subsequently, a
new acquisition agreement was executed, whereby 3D Resources will acquire 100%
ownership of Grand Bois, and Sono will receive a 25% net profit interest and
other consideration (see 3D news release dated October 16, 2018). In late 2018,
the acquisition remained subject to satisfaction of a number of conditions
precedent, and a revised deadline of March 31, 2019 was announced by 3D in a
December 6, 2018 news release.
To the Company's knowledge, there were no significant
advancements in 2018 by the Haitian government on implementing a new mining law,
a process which has been underway since 2013 when the Mining Convention process
was suspended. As EMX understands, Newmont and Sono have kept the properties
covered by EMX's royalty interests on care and maintenance status.
Qualified Person
Dean D. Turner, CPG, a Qualified Person as defined by NI 43-101
and consultant to the Company, has reviewed, verified and approved the above
technical disclosure on Haiti.
Strategic Investments
IG Copper LLC
EMX is a strategic investor in IG Copper LLC ("IGC"), a
privately held company with exploration properties in Khabarovsk Krai
(administrative region) of Far East Russia. The Malmyzh copper-gold project,
which was in a joint venture between IGC and Freeport (IGC 51%, Freeport 49%),
was sold in 2018. IGCs other exploration properties were retained, and are 100%
controlled by IGC. EMX was an early investor in IGC, and was its largest
shareholder at the time of the Malmyzh sale, with approximately 42% of the
issued and outstanding shares (39% equity position on a fully-diluted basis)
from investments totaling approximately US$13 million. The 2018 Malmyzh sale was
a material event for EMX.
53
Malmyzh Project
Malmyzh is a district-scale discovery with over 14 porphyry
copper-gold centers identified within a 16 by 5 kilometer intrusive corridor.
The project, which occurs 220 kilometers northeast of the Russia-China border at
Khabarovsk, has excellent logistical characteristics and available
infrastructure. There were a number of significant project advancements from
2015 to 2017, including 1) a statement of initial inferred resources reported to
NI 43-101 and CIM definition standards (see EMX's May 26, 2015 news release and
SEDAR filed Technical Report), 2) Strategic Industries Law ("SIL") approval from
Russia's Government Commission on Monitoring Foreign Investment for the joint
venture to advance the Malmyzh project as a majority foreign owned business
entity (see EMX news release dated July 25, 2016), and 3) exploration drilling
that led to the discovery of significant breccia pipe hosted copper-gold
mineralization that is not included in the current resource estimate (see EMX
news release dated January 24, and July 25, 2017). These positive results led to
the engagement of Scotiabank Europe plc, the U.K. subsidiary of The Bank of Nova
Scotia, to assist with IGCs strategic business initiatives.
In Q2 2018, IGC advised that a definitive Share Purchase
Agreement (the Agreement) had been executed to sell the Malmyzh project for US
$200 million to Russian Copper Company (RCC), a privately held copper producer
in the Russian Federation (the Transaction) (see EMX news release dated June
14, 2018). The closing of the Transaction was contingent on RCC completing
additional due diligence, including drilling and metallurgical studies, as well
as receiving approval from the Russian Federal Anti-Monopoly Service. In early
Q4, EMX announced all conditions precedent to complete the sale, as defined in
the Agreement, had been fulfilled, and the US$200 million completion
consideration had been paid into escrow (see EMX news releases dated October 2,
and October 11, 2018). Of this amount, US$190 million was released from escrow,
with the remaining US$10 million to be held in escrow and released subject to
certain conditions over the subsequent 12 months. The Company received its
initial cash distribution of US$65.15 million from the Malmyzh sale as announced
in a October 30, 2018 news release. Cash distributions of up to US$4 million
will be made to EMX as funds are released from escrow in 2019.
In support of the Malmyzh sale, EMX borrowed US$18.5 million
from Sprott Private Resource Lending (Collector), LP (the Sprott Loan), and
then loaned the US$18.5 million to IGC (the EMX Loan). In connection with the
Sprott Loan, EMX issued 381,321 common shares and paid cash fees of US$550,000
and interest of US$185,000 to Sprott. In connection with the EMX Loan, IGC
issued EMX 37,000 units in IGC, reimbursed EMX for fees, interest payments and
costs incurred under the Sprott Loan, and paid EMX a fee of US$550,000 (this
amount is included in the initial cash distribution of US$65.15 million). Both
the Sprott Loan and the EMX Loan were re-paid (see EMX news release dated
October 11, 2018).
After the sale of Malmyzh, and the initial distribution of
funds to its share holding members, EMX's ownership was reduced to 19.9% of IGC.
EMX's investment in IGC is no longer considered to be material to the Company.
As EMX is an investor in IGC, there are no direct holding costs to the Company.
Revelo Resources Corp.
54
EMX has a strategic investment in Revelo Resources Corp.
(TSX-V: RVL "Revelo"), a company focused on the acquisition and exploration of
mineral properties in the prolific metallogenic belts of northern Chile. Revelo
has a combination of wholly-owned projects (available for option, JV or sale),
option agreements, royalty interests (non-producing to date), and equity
interests in mining and exploration companies.
Qualified Person
Dean D. Turner, CPG, a Qualified Person as defined by NI 43-101
and consultant to the Company, has reviewed, verified and approved the above
technical disclosure on Strategic Investments.
ITEM 5. OPERATING AND FINANCIAL REVIEW AND
PROSPECTS
Years Ended December 31, 2018, 2017 and 2016
GENERAL
This discussion and analysis of financial position and results
of operations is prepared as at March 26, 2019 and should be read in conjunction
with the audited annual consolidated financial statements of the Company for the
years ended December 31, 2018, 2017 and 2016 and the related notes thereto.
The consolidated financial statements have been prepared in
accordance with International Financial Reporting Standards (IFRS) as issued
by the International Accounting Standards Board (IASB) and interpretations of
the International Financial Reporting Interpretations Committee (IFRIC).
The Company
and its subsidiaries operate as a royalty
and prospect generator engaged in exploring for, and generating royalties from,
metals and minerals properties. The Companys royalty and exploration portfolio
mainly consists of properties in North America, Turkey, Europe, Australia, and
New Zealand. See Item 4.D. Property, Plant and Equipment
.
The Companys working capital position at December 31, 2018 was
$88,902,976. With its current plans for the year and the budgets associated with
those plans, in order to continue funding its administrative and royalty
generation programs from the date of this Form 20-F, management believes it will
require additional working capital to undertake its current business plan. The
Company has incurred recurring losses and has an accumulated deficit of
$41,524,458. In order to maintain or adjust the capital structure, the Company
may issue new shares through public and/or private placements, sell assets, or
return capital to shareholders. These uncertainties may cast doubt upon the
Companys ability to continue as a going concern.
Some of the Companys activities for exploration and evaluation
assets are located in emerging nations and, consequently, may be subject to a
higher level of risk compared to other developed countries. Operations, the
status of mineral property rights and the recoverability of investments in
emerging nations can be affected by changing economic, legal, regulatory and
political situations.
At the date of these consolidated financial statements, the
Company has not identified a known body of commercial grade mineral on any of
its exploration and evaluation assets. The ability of the Company to realize the
costs it has incurred to date on these exploration and evaluation assets is
dependent upon the Company identifying a commercial mineral body, to finance its
development costs and to resolve any environmental, regulatory or other
constraints which may hinder the successful development of the exploration and
evaluation assets.
These consolidated financial statements of the Company are
presented in Canadian dollars unless otherwise noted, which is the functional
currency of the parent company and its subsidiaries except as to Bullion
Monarch, the holder of a royalty income stream whose functional currency is the
United States dollar.
DESCRIPTION OF BUSINESS
EMX Royalty Corporation is in the business of organically
generating royalties derived from a portfolio of mineral property interests. The
Company augments royalty generation with carefully selected royalty acquisitions
and strategic investments. EMXs portfolio mainly consists of properties in
North America, Europe, Turkey, Haiti, and Australia. The Companys common shares
are listed on the TSX Venture Exchange and the NYSE American Exchange under the
symbol EMX. The three key components of the Company's business strategy are
summarized as:
55
-
Royalty Generation.
EMX's sixteen year track record of successful
exploration initiatives has developed into an avenue to organically generate
mineral property royalty interests. The strategy is to leverage in-country
geologic expertise to acquire prospective properties on open ground, and to
build value through low cost work programs and targeting. These properties are
sold or optioned to partner companies for retained royalty interests, advance
minimum royalty payments, project milestone payments, and other considerations
that may include equity interests. Pre-production payments provide early-stage
cash flows to EMX, while the operating companies build value through
exploration and development. EMX participates in project upside at no
additional cost, with the potential for future royalty payments upon the
commencement of production.
-
Royalty Acquisition.
EMX has been acquiring royalty property
interests since 2012. The purchase of royalty interests allows EMX to acquire
quality assets that range from producing mines to development projects. These
purchases are designed to "jump start" the organic royalty portfolio growth
process by providing EMX with immediate to near term royalty revenue. The
timely identification of acquisition opportunities is often informed by the
Company's in-country royalty generation initiatives.
-
Strategic Investment.
An important complement to EMX's royalty
generation and royalty acquisition initiatives comes from strategic investment
in companies with under-valued mineral assets that have upside exploration
potential. Exit strategies can include equity sales, royalty positions, or a
combination of both.
EMX is focused on increasing revenue streams from royalties,
pre-production and other cash payments, and strategic investments. This approach
provides a foundation for supporting EMXs growth and increasing shareholder
value over the long term.
56
5.A. Operating Results
Year ended December 31, 2018, 2017, and 2016
The net income for the year ended December 31, 2018 (FY18)
was $62,117,601 compared to a net loss of $7,393,384 for the prior year
(FY17), and a net loss of $2,683,482 for the year ended December 31, 2016
(FY16). The net income for FY18 was made up of a net royalty income of
$307,665 (FY17 $455,033; FY16 loss $47,265) after depletion and related tax,
net exploration expenditures of $5,949,094 (FY17 - $4,471,074; FY16 -
$4,999,959), general and administrative expenditures of $4,139,498 (FY17 -
$3,765,029; FY16 - $3,220,339) and other gains totaling $68,215,261 (FY17 - loss
$2,102,216; FY16 - gain $4,144,749) offset by a deferred income tax recovery of
$3,683,267 (FY17 - $2,489,902 ; FY16 - $1,439,332). Key items in other income
and losses include: gains in an associated company (IGC) of $80,310,549
(FY18) (FY17 - loss $491,005; FY16 - loss $312,934), impairment of royalty
interest in FY18 of $7,256,340 (FY17 - $Nil; FY16 - $Nil), discretionary success
bonus of $5,224,284 (FY17 -$Nil; FY16 -$Nil) and a write-down of goodwill of
$1,879,356 (FY17 - $2,709,239; FY16 - $1,518,328).
Revenues
In FY18, the Company earned $2,131,947 (FY17 - $2,857,927 ;
FY16 - $2,227,322) of royalty income. This included royalty income earned for
1,116 (FY17 - 1,308; FY16 - 1,361) ounces of gold totaling $2,131,947 (FY17 -
$2,857,927; FY16 - $2,227,322). In FY18, the average realized gold price for the
Leeville royalty was US$1,270 per ounce, which is comparable to the US$1,255
received for FY17, and US$1,250 for FY16. Royalty income offset by gold tax and
depletion of $1,824,282 (FY17 - $2,402,894 ; FY16 - $2,274,587) for a net
royalty gain of $307,665 (FY17 - $455,033; FY16 loss $47,265).
Exploration Expenditures
Exploration expenditures (gross) increased by $1,807,549 in
FY18 compared to FY17, and decreased by $81,414 in FY17 compared to FY16.
Recoveries increased by $329,5291 in FY18 compared to FY17, and increased by
$447,471 in FY17 compared to FY16 for a net increase in exploration expenditures
of $1,478,020 in FY18 compared to FY17, and a net decrease in exploration
expenditures of $528,885 in FY17 compared to FY16. Exploration expenditures and
recoveries vary from period to period depending on the level of activity
incurred and comparison between periods does not accurately reflect the activity
with the Company. See Item 4B for royalty and project review of current
activities.
General and Administrative
General and administrative expenses
(G&A) of $4,139,498 were incurred compared to $3,765,029 in FY17, and
$3,220,339 in FY16. Some changes between FY18 and FY17 to note are:
-
Investor relations increased by $140,129 in FY18 compared to FY17, and
increased by $114,256 in FY17 compared to FY16. With the increase in market
activity and interest in the mining sector, the Company attended more industry
trade shows in FY18.
-
Salaries and consultants increased in FY18 by $133,760 compared to FY17,
and increased by $129,665 in FY17 compared to FY16. It should be noted that
many of our personnel expenditures companywide are denominated in United
States dollars (USD) and an increase or decrease in the value of the USD
compared to the Canadian dollar, which is our reporting currency, will
increase or decrease expenditures.
-
Share-based payments included in general and administrative expenses
increased by $355,697 in FY18 compared to FY17 and increased by $208,115 in
FY17 compared to FY16, mainly due to the to the increase in the fair value of
stock options granted during the year.
Other
-
During FY18, the Company realized a significant gain of $80,310,549 (2017
loss $491,005; 2016 - $312,934) related to its investment in IGC. The
significant gain is the result of the Companys share of IGCs income of
$98,919,337 (2017 - loss $994,548; 2016 - loss $1,295,568), offset by a
dilution loss of $577,963 (2017 - gain $503,543; 2016 - gain $982,634), and
loss on the derecognition of IGC as an investment in an associated entity of
$18,030,825 (2017 - $Nil; 2016 - $Nil).
57
-
The Company recognized a net gain on the sale of certain exploration and
evaluation assets during the year of $346,529 compared to $1,305,237 in the
prior year, and $6,834,999 in FY16. In FY17, the gain on sale was the result
of the Boreal transaction, offset by a small loss on the sale of EMX Australia
Pty. In FY16 the gain resulted from the sale of two significant assets in
Turkey including $6,683,560 related to the sale of AES to Çiftay.
-
Discretionary bonuses were awarded to management and staff totaling
$5,224,284 (2017 - $Nil, 2016 - $Nil) in respect of their seven years of
effort to monetize the Companys investment in IGC. Prior to the Malmyzh sales
transaction, EMXs management had developed a bonus plan for strategic
investments whereby 7.5% of the after- tax profits of an individual investment
could be paid as a bonus. As part of the bonus calculation, the Companys cost
basis was increased annually by 10% to reflect the time value of the
investment.
-
The Company continuously reviews the production of gold from the Carlin
Trend Royalty Claim Block, expected long term gold prices to be realized,
foreign exchange, and interest rates. As a result, periodically the Company
revises its estimated annual gold production over the expected mine life and
adjusts its long term gold price. As a result of these adjustments, the
Company recorded $7,256,340 (2017 - $Nil, 2016 - $Nil) in impairment charges
for the year ended December 31, 2018 related to the Carlin Trend Royalty Claim
Block. Also related to the valuation of the Leeville royalty is a writedown of
goodwill in the amount of $1,879,356 (FY17 - $2,709,239; FY16 - $1,518,328).
-
The Company recorded a deferred income tax recovery of $3,683,267 compared
to $2,489,902 in FY17, and $1,439,332 in FY16, and a net increase in deferred
tax assets of $3,424,345 (FY17 decrease in tax liability of $2,933,017 ;
decrease in tax liability FY16 - $1,748,562). A significant component of the
deferred tax recovery and decrease in the related liability is the result of
any impairment of the royalty interest partially offset by a cumulative
translation loss as a result of the strengthening $USD compared to $CAD.
During FY18 the Company recognized an impairment of the Leeville royalty of
$7,256,340 (FY17 - $Nil; FY16 - $Nil). The increase in the deferred income tax
recovery for FY17 compared to FY16 was mainly the result of a decrease in the
long term expected federal tax rates for the US operations, which decreased
from 35% to 21%.
SIGNIFICANT INVESTMENTS ACCOUNTED FOR BY THE EQUITY
METHOD
During the year ended December 31, 2018, the Company
derecognized a 39.99% (2017 41%; 2016 39%) equity investment in IGC and
reallocated the fair value of the remaining investment to FVTPL.
On December 12, 2018, IGC underwent a recapitalization in which
the Company did not participate and its investment was diluted to 19.9% and
derecognized its investment in IGC as an associated entity. Prior to the
derecognition of IGC as an investment in an associated entity, including the
conversion of convertible notes and related interest due from IGC, cash
purchases of shares including the exercise of warrants, and loan fees received
in shares, the Company had invested an aggregate of US$13,137,000 towards its
investment (2017 - US$11,355,000; 2016 US$8,967,000). At December 31, 2018,
the Companys equity investment including dilution gains or losses, less its
share of accumulated equity gains and losses, and any distributions received was
$Nil (2017 - $7,578,989; 2016 - $4,992,823). The Companys share of the net
income for the year ended December 31, 2018 was $98,919,337 (2017 Loss of
$$994,548; 2016 loss of $1,295,568).
58
The changes in the investment in IGC for the years ended
December 31, 2018, 2017, and 2016 are as follows:
The aggregate assets, aggregate liabilities and net loss for IGC has not been
disclosed for the year ended December 31, 2018 as the investment was
derecognized as an investment in associated entity during the year ended
December 31, 2018.
As at December 31, 2017, associated companies aggregate
assets, aggregate liabilities and net loss for the year ended are as follows:
As at December 31, 2016, associated companies aggregate
assets, aggregate liabilities and net loss for the year are as follows:
The Company holds a 19.9% interest in IGC, has a minority
position on the Board of IGC, and does not control operational decisions. The
Companys judgment is that it does not have control or significant influence of
IGC, and accordingly accounting for the remaining investment in IGC as FVTPL is
appropriate.
IGC Sale of Malmyzh
On October 10, 2018, the Company was notified by IGC that the
sale of the Malmyzh project to RCC for US$200 million had closed. Of this
amount, US$190 million was released from escrow, with the remaining US$10
million to be held in escrow and released subject to certain conditions over the
next 12 months. IGC distributed the net sale proceeds to membership unit holders
by way of a combination of share buy back and dividends. For its 39.99% interest
in IGC at the time of sale transaction, the Company received its initial cash
distribution of $84,246,645 (US$65.15 million). A second cash distribution to
the Company of $5,243,291 (US$4 million) has been accrued as a receivable
pending release from escrow.
59
Credit Facilities
In support of the sale of Malmyzh, on September 27, 2018, EMX
borrowed US$18.5 million from Sprott Private Resource Lending (Collector), LP
(Sprott) and then loaned the US$18.5 million to IGC.
Sprott Private Resource Lending (Collector), LP
US$18,500,000
The loan made under the Sprott credit facility had a maturity
date of January 31, 2019 and carried an annual interest rate of 12%, payable
monthly. In connection with the Sprott loan, EMX issued 381,321 common shares
valued at $602,487 (US$465,212) or $1.58 per share, paid cash fees of
US$550,000, and legal fees of US$194,224.
During the year ended December 31, 2018, using an annual
effective interest rate of 30.83%, the Company recorded interest expense of
$271,921 (US$208,296). The loan was fully repaid on October 12, 2018 upon
receipt of the distribution from IGC and the Company recorded a loss of
$1,481,950 from the early settlement. Included in restricted cash and due to EMX
is $86,330 in funds held in trust as part of the Sprott agreement.
IG Copper LLC US$18,500,000
Concurrent with the Sprott credit facility for US$18,500,000,
on September 27, 2018 EMX loaned US$18,500,000 to IGC to facilitate the Malmyzh
property sale. The terms of the arrangement were identical to the Sprott loan to
EMX. As such, in connection with the EMX Loan, IGC issued to EMX 37,000
membership units in IGC at US$10/membership unit, reimbursed EMX for fees,
interest payments, and reimbursement of all legal costs. IGC further agreed to
pay EMX an additional fee of US$550,000 to EMX.
During the year ended December 31, 2018, using an annual
effective interest rate of 38.64%, the Company recorded interest income of
$332,078 (US$254,377). The loan was fully repaid on October 12, 2018 by IGC from
the proceeds received from the sale of Malmyzh and the Company recorded a gain
of $2,014,950 from the early settlement.
During the year ended December 31, 2018, the Company loaned IGC
US$300,000 with no specific terms of repayment, to be settled from proceeds from
the sale of Malmyzh. The loan was fully repaid on October 15, 2018 including
$63,926 (US$49,000) in interest.
During the year ended December 31, 2018, the Company recognized
a dilution loss of $577,963 (2017 gain of $503,543; 2016 gain of $982,634)
related to the Companys change in ownership percentage as a result of IGCs
share issuance for cash proceeds and loan conversions.
SELECTED ANNUAL INFORMATION
Significant items to note for the year ended December 31, 2018
include the significant equity income of $98,919,337 (2017 loss of $994,548;
2016 loss of $1,295,568) related to the Companys investment in IGC. The
equity income was offset by a dilution loss of $577,963 (2017 gain of
$503,543; 2016 gain of $982,634), and a loss on derecognition of the
investment as an associated entity of $18,030,825 (2017 - $Nil; 2016 - $Nil).
Other significant items to note in the year ended December 31, 2018 include an
impairment charge of $7,256,340 (2017 - $Nil; 2016 - $Nil) on the royalty
interests, a related write-down of goodwill of $1,879,356 (2017 - $2,709,239; 2016 -
$1,518,328), and a recovery of $3,683,267 (2017 -$2,489,902; 2016 - $1,439,332)
of deferred income taxes, offset by a foreign exchange gain of $3,482,540 (2017
loss of $659,473; 2016 loss of $159,862) as a result of holding US cash.
Another item having a significant impact on the net income for the respective
fiscal years include the payment of discretionary success bonuses of $5,224,284
(2017 - $Nil; 2016 - $Nil).
60
OUTSTANDING SHARE DATA
At March 26, 2019, the Company had 80,991,155 common shares
issued and outstanding. There were also 6,322,400 stock options outstanding with
expiry dates ranging from April 25, 2019 to December 14, 2023, and 2,623,306
warrants outstanding expiring on April 12, 2019.
Critical Accounting Policies and
Estimates
STATEMENT OF COMPLIANCE AND SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES
Statement of Compliance
These consolidated financial statements have been prepared in
accordance with IFRS as issued by the International Accounting Standards Board
(IASB) and interpretations of the International Financial Reporting
Interpretations Committee (IFRIC).
These consolidated financial statements have been prepared on a
historical cost basis, except for financial instruments classified as fair value
through profit or loss and fair value through other comprehensive income, which
are stated at their fair value. In addition, these consolidated financial
statements have been prepared using the accrual basis of accounting except for
cash flow information.
Summary of Significant Accounting Policies
Basis of Consolidation
The consolidated financial statements comprise the accounts of
EMX Royalty Corp., the parent company, and its controlled subsidiaries, after
the elimination of all significant intercompany balances and transactions.
Subsidiaries
Subsidiaries are all entities over which the Company has
exposure to variable returns from its involvement and has the ability to use
power over the investee to affect its returns. The existence and effect of
potential voting rights that are currently exercisable or convertible are
considered when assessing whether the Company controls another entity.
Subsidiaries are fully consolidated from the date on which control is
transferred to the Company until the date on which control ceases.
The accounts of subsidiaries are prepared for the same
reporting period as the parent company, using consistent accounting policies.
Inter-company transactions, balances and unrealized gains or losses on
transactions are eliminated. The Companys principal operating subsidiaries are
as follows:
Functional and Reporting Currency
The functional currency is the currency of the primary economic
environment in which the entity operates. The functional currency for the
Company and its subsidiaries is the Canadian dollar except the functional
currency of the operations of Bullion Monarch which is the US dollar. The functional currency
determinations were conducted through an analysis of the consideration factors
identified in IAS 21, The Effects of Changes in Foreign Exchange Rates.
61
Translation of transactions and balances
Foreign currency transactions are translated into the
functional currency using the exchange rates prevailing at the dates of the
transactions or valuation where items are re-measured. Monetary assets and
liabilities denominated in foreign currencies are re-measured at the rate of
exchange at each financial position date. Foreign exchange gains and losses
resulting from the settlement of such transactions and from the translation at
period end exchange rates of monetary assets and liabilities denominated in
foreign currencies are recognized in profit or loss.
On translation of the entities whose functional currency is
other than the Canadian dollar, revenues and expenses are translated at the
exchange rates approximating those in effect on the date of the transactions.
Assets and liabilities are translated at the rate of exchange at the reporting
date. Exchange gains and losses, including results of re-translation, are
recorded in the foreign currency translation reserve.
Accounting Standards Adopted During the Year
Revenue recognition
Effective January 1, 2018, the Company has adopted IFRS 15
Revenue from Contracts with Customers (IFRS 15). IFRS 15 replaces all previous
revenue recognition standards, including IAS 18,
Revenue
, and related
interpretations. The standard sets out the requirements for recognizing revenue.
Specifically, the new standard introduces a comprehensive framework with the
general principle being that an entity recognizes revenue to depict the transfer
of promised goods and services in an amount that reflects the consideration to
which the entity expects to be entitled in exchange for those goods or services.
The standard introduces more prescriptive guidance than was included in previous
standards and may result in changes to the timing of revenue for certain types
of revenues. The new standard will also result in enhanced disclosures about
revenue that would result in an entity providing comprehensive information about
the nature, amount, timing and uncertainty of revenue and cash flows arising
from the entitys contracts with customers. As of January 1, 2018, the Company
has adopted IFRS 15 on a full retrospective basis and as such, has revised its
revenue recognition policy based on the requirements of IFRS 15. Management has
concluded that, based on its current operations, the adoption of IFRS 15 had no
significant impact on the Companys consolidated financial statements.
The Company earns revenue from royalty agreements and are based
upon amounts contractually due pursuant to the underlying royalty agreements.
For royalty agreements paid in cash or in kind, revenue recognition will depend
on the related agreement. Revenue is measured at the fair value of the
consideration received or receivable when management can reliably estimate the
amount pursuant to the terms of the royalty or other interest agreements. In
some instances, the Company will not have access to sufficient information to
make a reasonable estimate of revenue and, accordingly, revenue recognition is
deferred until management can make a reasonable estimate. Royalty revenue may be
subject to adjustment upon final settlement of estimated metal prices, weights,
and assays. Adjustments to revenue from metal prices are recorded monthly and
other adjustments are recorded on final settlement and are offset against
revenue when incurred.
Financial instruments
Effective January 1, 2018, the Company adopted IFRS 9
Financial Instruments (IFRS 9) which replaced IAS 39 Financial Instruments:
Recognition and Measurement (IAS 39). IFRS 9 provides a revised model for
recognition and measurement of financial instruments and a single,
forward-looking expected loss impairment model. IFRS 9 also includes
significant changes to hedge accounting. The standard is effective for annual
periods beginning on or after January 1, 2018. The Company adopted the standard
retrospectively without restatement. As a result of the adoption of IFRS 9, the
Company reclassified $740,685 from accumulated other comprehensive income (loss)
to deficit on January 1, 2018 related to the reclassification of certain
previously recognized available-for-sale marketable securities to fair value
through profit or loss. The Company has also made an irrevocable election to
present in other comprehensive income (loss) subsequent changes in the fair
value of certain available-for-sale marketable securities classified as
strategic investments.
IFRS 9 largely retains the existing requirements in IAS 39 for
the classification and measurement of financial liabilities. However, it
eliminates the previous IAS 39 categories for financial assets of held to
maturity, loans and receivables, and available-for-sale.
Under IFRS 9, on initial recognition, financial assets are
recognized at fair value and are subsequently classified and measured at
amortized cost, fair value through other comprehensive income (FVOCI), or fair
value through profit or loss (FVTPL). The classification of financial assets
is generally based on the business model in which a financial asset is managed and its contractual cash flow characteristics. A
financial asset is measured at fair value net of transaction costs that are
directly attributable to its acquisition except for financial assets at FVTPL
where transaction costs are expensed. All financial assets not classified and
measured at amortized cost or FVOCI are measured at FVTPL.
62
Derivatives embedded in contracts where the host is a financial
asset in the scope of the standard are never separated, and instead the hybrid
financial instrument as a whole is assessed for classification. On initial
recognition of an equity instrument that is not held for trading, the Company
may irrevocably elect to present subsequent changes in the investments fair
value in other comprehensive income (loss). This election is made on an
investment-by-investment basis.
The classification determines the method by which the financial
assets are carried on the consolidated statement of financial position
subsequent to initial recognition and how changes in value are recorded. The
following accounting policies apply to the subsequent measurement of financial
assets.
|
a)
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Financial assets at FVTPL - These assets are subsequently
measured at fair value. Net gains and losses, including any interest or
dividend income, are recognized in profit or loss.
|
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b)
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Financial assets at amortized cost - These assets are
subsequently measured at amortized cost using the effective interest
method. The amortized cost is reduced by impairment losses. Interest
income, foreign exchange gains and losses and impairment are recognized in
profit or loss. Any gain or loss on derecognition is recognized in profit
or loss.
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c)
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Financial assets at FVOCI - These assets are subsequently
measured at fair value. Dividends are recognized as income in profit or
loss unless the dividend clearly represents a recovery of part of the cost
of the investment. Gains or losses recognized on the sale of the equity
investment are recognized in other comprehensive income (loss) and are
never reclassified to profit or loss.
|
Financial liabilities are designated as either fair value
through profit or loss, or other financial liabilities. All financial
liabilities are classified and subsequently measured at amortized cost except
for financial liabilities at FVTPL. The classification determines the method by
which the financial liabilities are carried on the consolidated statement of
financial position subsequent to inception and how changes in value are
recorded. Other financial liabilities are carried on the consolidated statement
of financial position at amortized cost.
The Company completed an assessment of its financial
instruments as at January 1, 2018. The following table shows the new
classification under IFRS 9 and the original classification under IAS 39:
IFRS 9 introduces a new three-stage expected credit loss model
for calculating impairment for financial assets. IFRS 9 no longer requires a
triggering event to have occurred before credit losses are recognized. An entity
is required to recognize expected credit losses when financial instruments are
initially recognized and to update the amount of expected credit losses
recognized at each reporting date to reflect changes in the credit risk of the
financial instruments. In addition, IFRS 9 requires additional disclosure
requirements about expected credit losses and credit risk. There was no
adjustment relating to the implementation of the expected credit loss model for
the Companys trade or settlement receivables.
Impairment losses on financial assets carried at amortized cost
are reversed in subsequent periods if the amount of the loss decreases and the
decrease can be objectively related to an event occurring after the impairment
was recognized.
63
Derivative contracts are recognized at fair value on initial
recognition. Subsequently, derivatives are remeasured at their fair value. The
method of recognizing any resulting gain or loss depends on whether the
derivative is designated as a hedging instrument and, if so, the nature of the
item being hedged:
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a.
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Changes in the fair values of derivatives that are
designated and qualify as fair value hedges are recorded in profit or
loss, together with any changes in the fair values of the hedged assets or
liabilities that are attributable to the hedged risk.
|
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b.
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The effective portions of changes in the fair values of
derivatives that are designated and qualify as cash-flow hedges are
recognized in equity. The gain or loss relating to any ineffective portion
is recognized immediately in profit or loss.
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c.
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Changes in the fair value of any derivative instruments
that do not qualify for hedge accounting are recognized immediately in
profit or loss.
|
Amounts accumulated in the hedge reserve are recycled in the
consolidated statement of loss in the periods when the hedged items will affect
profit or loss (for instance when the forecast sale that is hedged takes place).
If a forecast transaction that is hedged results in the recognition of a
non-financial asset (for example, inventory) or a liability, the gains and
losses previously deferred in the hedge reserve are included in the initial
measurement of the cost of the asset or liability.
When a hedging instrument expires or is sold, or when a hedge
no longer meets the criteria for hedge accounting, any cumulative gain or loss
existing in the hedge reserve at that time remains in the reserve and is
recognized when the forecast transaction is ultimately recognized in the
consolidated statement of income. When a forecast transaction is no longer
expected to occur, the cumulative gain or loss that was reported in other
comprehensive income is immediately transferred to the consolidated statement of
income (loss).
The Company has not designated any derivative contracts as
hedges and therefore has not applied hedge accounting in these consolidated
financial statements.
Convertible Notes Receivable
Convertible notes receivable are hybrid financial assets that
consist of a note receivable component and a separate equity conversion
component. Derivatives embedded in contracts are never separated, and instead
the notes receivable is disclosed as single financial instrument.
Interest income on the notes receivable is based on the
annualized effective rate of interest taking into account all income expected to
be earned on maturity are recognized through profit and loss as interest
income.
Investments in Associated Companies
The Company accounts for its long-term investments in
affiliated companies over which it has significant influence using the equity
basis of accounting, whereby the investment is initially recorded at cost,
adjusted to recognize the Companys share of earnings or losses and reduced by
dividends received.
The Company assesses its equity investments for impairment if
there is objective evidence of impairment as a result of one or more events that
occurred after the initial recognition of the equity investment and that the
event or events has an impact on the estimated future cash flow of the
investment that can be reliably estimated. Objective evidence of impairment of
equity investments includes:
-
Significant financial difficulty of the associated companies;
-
Becoming probable that the associated companies will enter bankruptcy or
other financial reorganization; or,
-
National or local economic conditions that correlate with defaults of the
associated companies.
Exploration and evaluation assets and exploration
expenditures
Acquisition costs for exploration and evaluation assets, net of
recoveries, are capitalized on a property-by-property basis. Acquisition costs
include cash consideration and the value of common shares, issued for
exploration and evaluation assets pursuant to the terms of the agreement.
Exploration expenditures, net of recoveries, are charged to operations as
incurred.
64
After a property is determined by management to be commercially
feasible, an impairment test is conducted and subsequent development
expenditures on the property will be capitalized.
When there is little prospect of further work on a property
being carried out by the Company or its partners, when a property is abandoned,
or when the capitalized costs are no longer considered recoverable, the related
property costs are written down to managements estimate of their net
recoverable amount. The costs related to a property from which there is
production, together with the costs of production equipment, will be depleted
and amortized using the unit-of-production method.
An exploration and evaluation asset acquired under an option
agreement, where payments are made at the sole discretion of the Company, is
capitalized at the time of payment. Option payments received are treated as a
reduction of the carrying value of the related acquisition cost for the mineral
property until the payments are in excess of acquisition costs, at which time
they are then credited to profit or loss. Option payments are at the discretion
of the optionee and, accordingly, are accounted for when receipt is reasonably
assured.
Royalty interests
Royalty interests in mineral properties include acquired
royalty interests in production stage and exploration stage properties. In
accordance with
IAS 38 Intangible Assets
, the cost of acquired royalty
interests in mineral properties is capitalized as intangible assets.
Acquisition costs of production stage royalty interests are
depleted using the units of production method over the life of the related
mineral property, which is calculated using estimated reserves. Acquisition
costs of royalty interests on exploration stage mineral properties, where there
are no estimated reserves, are not amortized. At such time as the associated
exploration stage mineral interests are converted to estimated reserves, the
cost basis is amortized over the remaining life of the mineral property, using
the estimated reserves. The carrying values of exploration stage mineral
interests are evaluated for impairment at such time as information becomes
available indicating that production will not occur in the future.
Goodwill
Goodwill represents the excess of the price paid for the
acquisition of a consolidated entity over the fair value of the net identifiable
tangible and intangible assets and liabilities acquired in a business
combination. Goodwill is allocated to the cash generating unit to which it
relates.
Goodwill is evaluated for impairment annually or more often if
events or circumstances indicate there may be impairment. Impairment is
determined by assessing if the carrying value of a cash generating unit,
including the allocated goodwill, exceeds its recoverable amount.
Property and equipment
Property and equipment is recorded at cost. Buildings are
depreciated using a 5 year straightline method. Equipment is depreciated over
its estimated useful life using the declining balance method at a rate of 20%
per annum. Depreciation on equipment used directly on exploration projects is
included in exploration expenditures for that mineral property.
Decommissioning liabilities
Decommissioning liabilities are recognized for the expected
obligations related to the retirement of long-lived tangible assets that arise
from the acquisition, construction, development or normal operation of such
assets. A decommissioning liability is recognized in the period in which it is
incurred and when a reasonable estimate of the fair value of the liability can
be made with a corresponding decommissioning cost recognized by increasing the
carrying amount of the related long-lived asset. The decommissioning cost is
subsequently allocated in a rational and systematic method over the underlying
assets useful life. The initial fair value of the liability is accreted, by
charges to profit or loss, to its estimated future value.
Environmental disturbance restoration
During the operating life of an asset, events such as
infractions of environmental laws or regulations may occur. These events are not
related to the normal operation of the asset and are referred to as
environmental disturbance restoration provisions. The costs associated with
these provisions are accrued and charged to profit or loss in the period in
which the event giving rise to the liability occurs. Any subsequent adjustments
to these provisions due to changes in estimates are also charged to profit or
loss in the period of adjustment. These costs are not capitalized as part of the
long-lived assets carrying value.
65
Impairment of assets
Events or changes in circumstances can give rise to significant
impairment charges or reversals of impairment in a particular year. The Company
assesses its cash generating units annually to determine whether any indication
of impairment exists. Where an indicator of impairment exists, an estimate of
the recoverable amount is made, which is the higher of the fair value less costs
to sell and value in use. The determination of the recoverable amount for value
in use requires the use of estimates and assumptions such as long-term commodity
prices, discount rates, future capital requirements, exploration potential and
future operating performance. Fair value is determined as the amount that would
be obtained from the sale of the asset in an arms length transaction between
knowledgeable and willing parties.
Cash and cash equivalents
Cash and cash equivalents include cash on hand, bank deposits
and short-term, highly liquid investments that are readily convertible to known
amounts of cash.
Share-based payments
Share-based payments include option and stock grants granted to
directors, employees and non-employees. The Company accounts for share-based
compensation using a fair value based method with respect to all share-based
payments measured and recognized, to directors, employees and non-employees. For
directors and employees, the fair value of the options and stock grants is
measured at the date of grant. For non-employees, the fair value of the options
and stock are measured at the fair value of the goods or services received or
the fair value of the equity instruments issued, if it is determined the fair
value of the goods or services cannot be reliably measured, and are recorded at
the date the goods or services are received. For directors, employees and
non-employees, the fair value of the options and stock grants is accrued and
charged to operations, with the offsetting credit to share based payment reserve
for options, and commitment to issue shares for stock grants over the vesting
period. If and when the stock options are exercised, the applicable amounts are
transferred from share-based payment reserve to share capital. When the stock
grants are issued, the applicable fair value is transferred from commitment to
issue shares to share capital. Option based compensation awards are calculated
using the Black-Scholes option pricing model while stock grants are valued at
the fair value on the date of grant.
The Company has granted certain employees and non-employees
restricted share units (RSUs) to be settled in shares of the Company. The fair
value of the estimated number of RSUs that will eventually vest, determined at
the date of grant, is recognized as share-based compensation expense over the
vesting period, with a corresponding amount recorded as equity. The fair value
of the RSUs is estimated using the market value of the underlying shares as well
as assumptions related to the market and non-market conditions at the grant
date.
Income taxes
Income tax expense consists of current and deferred tax. Income
tax expense is recognized in profit or loss except to the extent that it relates
to items recognized directly in equity. Current tax is the expected tax payable
on the taxable income for the year, using tax rates enacted or substantively
enacted at the reporting date, and any adjustment to tax payable in respect of
previous years. Deferred tax is calculated providing for temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for taxation purposes.
Deferred tax is not recognized on the initial recognition of
assets or liabilities in a transaction that is not a business combination and
that affects neither accounting nor taxable income nor loss. In addition,
deferred tax is not recognized for taxable temporary differences arising on the
initial recognition of goodwill. Deferred tax is measured at the tax rates that
are expected to be applied to temporary differences when they reverse, based on
the laws that have been enacted or substantively enacted at the reporting date.
Deferred tax assets and liabilities are offset if there is a
legally enforceable right to offset, and they relate to income taxes levied by
the same tax authority on the same taxable entity, or on different tax entities,
but they intend to settle current tax liabilities and assets on a net basis or
their tax assets and liabilities will be realized simultaneously.
A deferred tax asset is recognized to the extent that it is
probable that future taxable income will be available against which the
temporary difference can be utilized. Deferred tax assets are reviewed at each
reporting date and are reduced to the extent that it is no longer probable that
the related tax benefit will be realized.
66
Income (loss) per share
The Company presents basic earnings (loss) per share data for
its common shares, calculated by dividing the income (loss) attributable to
equity holders of the Company by the weighted average number of common shares
issued and outstanding during the period. Diluted earnings per share is
calculated by adjusting the earnings attributable to equity holders and the
weighted average number of common shares outstanding for the effects of all
potentially dilutive common shares. The calculation of diluted earnings per
share assumes that the proceeds to be received on the exercise of dilutive share
options and warrants are used to repurchase common shares at the average market
price during the period. In periods where a loss is reported, diluted loss per
share is the same as basic loss per share as the effects of potentially dilutive
common shares would be anti-dilutive.
Existing stock options and share purchase warrants are not
included in the income (loss) per share computation of diluted income (loss) per
share if inclusion would be anti-dilutive. For the years presented in which the
inclusion of stock options and warrants would be anti-dilutive, the basic and
diluted losses per share are the same.
Valuation of equity units issued in private
placements
The Company has adopted a residual value method with respect to
the measurement of shares and warrants issued as private placement units. The
residual value method first allocates value to the more easily measurable
component based on fair value and then the residual value, if any, to the less
easily measurable component.
The fair value of the common shares issued in the private
placements was determined to be the more easily measurable component and were
valued at their fair value, as determined by the closing quoted bid price on the
day prior to the issuance date. The balance, if any, was allocated to the
attached warrants. Any fair value attributed to the warrants is recorded in
reserves.
Segment reporting
Operating segments are reported in a manner consistent with the
internal reporting provided to the chief operating decision-maker. The chief
operating decision-maker, who is responsible for allocating resources and
assessing performance of the operating segment, has been identified as the Chief
Executive Officer.
Accounting Pronouncements not yet Effective
IFRS 16 Leases was issued by the IASB in January 2016
(effective January 1, 2019) and has not yet been adopted by the Company. IFRS 16
provides a single lessee accounting model, requiring lessees to recognize assets
and liabilities for all leases unless the lease term is 12 months or less or the
underlying asset has a low value.
The Company is currently evaluating the impact the new and
amended standard is expected to have on its financial statements and does not
expect any material changes. The Company predominately uses third party services
which provide for any possible leases but does lease office space, and if the
limited exception criteria are not met, rent expense is to be removed and
replaced by amortization and finance expense related to the leased office space
and respective lease liability.
Critical Accounting Judgments and Significant Estimates and
Uncertainties
The preparation of the consolidated financial statements
requires management to make judgments and estimates and form assumptions that
affect the reported amounts of assets and liabilities at the date of the
financial statements, and the reported revenue and expenses during the periods
presented therein. On an ongoing basis, management evaluates its judgments and
estimates in relation to assets, liabilities, royalty revenues and expenses.
Management bases its judgments and estimates on historical experience and on
other various factors it believes to be reasonable under the circumstances.
Actual results may differ from these estimates under different assumptions and
conditions.
The Company has identified the following critical accounting
policies in which significant judgments, estimates and assumptions are made and
where actual results may differ from these estimates under different assumptions
and conditions and may materially affect financial results or the financial
position reported in future periods. Further details of the nature of these
assumptions and conditions may be found in the relevant notes to the
consolidated financial statements.
a) Royalty interest and related
depletion
67
In accordance with the Companys accounting policy, royalty
interests are evaluated on a periodic basis to determine whether there are any
indications of impairment. If any such indication exists, a formal estimate of
recoverable amount is performed and an impairment loss recognized to the extent
that carrying amount exceeds recoverable amount. The recoverable amount of a
royalty asset is measured at the higher of fair value less costs to sell and
value in use. The determination of fair value and value in use requires
management to make estimates and assumptions about expected production and sales
volumes, the proportion of areas subject to royalty rights, commodity prices
(considering current and historical prices, price trends and related factors),
and reserves. These estimates and assumptions are subject to risk and
uncertainty; hence there is a possibility that changes in circumstances will
alter these projections, which may impact the recoverable amount of the assets.
In such circumstances, some or all of the carrying value of the assets may be
further impaired or the impairment charge reduced with the impact recorded in
profit or loss.
b) Goodwill
Goodwill is evaluated for impairment annually or more often if
events or circumstances indicate there may be impairment. Impairment is
determined by assessing if the carrying value of a cash generating unit,
including the allocated goodwill, exceeds its recoverable amount. The assessment
of the recoverable amount used in the goodwill impairment analysis is subject to
similar judgments and estimates as described above for property and equipment
and royalty interests.
c) Exploration and Evaluation Assets
Recorded costs of exploration and evaluation assets are not
intended to reflect present or future values of exploration and evaluation
assets. The recorded costs are subject to measurement uncertainty and it is
reasonably possible, based on existing knowledge, that a change in future
conditions could require a material change in the recognized amount.
d) Taxation
The Companys accounting policy for taxation requires
managements judgment as to the types of arrangements considered to be a tax on
income in contrast to an operating cost. Judgment is also required in assessing
whether deferred tax assets and certain deferred tax liabilities are recognized
on the statement of financial position.
Deferred tax assets, including those arising from unused tax
losses, capital losses and temporary differences, are recognized only where it
is considered probable that they will be recovered, which is dependent on the
generation of sufficient future taxable profits. Deferred tax liabilities
arising from temporary differences caused principally by the expected royalty
revenues generated by the royalty property are recognized unless expected
offsetting tax losses are sufficient to offset the taxable income and therefore,
taxable income is not expected to occur in the foreseeable future. Assumptions
about the generation of future taxable profits depend on managements estimates
of future cash flows. These depend on estimates of future production and sales
volumes, commodity prices, and reserves. Judgments are also required about the
application of income tax legislation in foreign jurisdictions. These judgments
and assumptions are subject to risk and uncertainty, hence there is a
possibility that changes in circumstances will alter expectations, which may
impact the amount of deferred tax assets and deferred tax liabilities recognized
on the statement of financial position and the amount of other tax losses and
temporary differences not yet recognized. In such circumstances, some or the
entire carrying amount of recognized deferred tax assets and liabilities may
require adjustment, resulting in a corresponding credit or charge to profit or
loss.
Information about critical judgments in applying accounting
policies that have the most significant effect on the amounts recognized in the
consolidated financial statements include, but are not limited to, the
following:
a) Functional Currencies
The functional currency of each of the Companys subsidiaries
is the currency of the primary economic environment in which the entity
operates. Determination of the functional currency may involve certain judgments
to determine the primary economic environment and the Company reconsiders the
functional currency of its entities if there is a change in events and
conditions, which determined the primary economic environment.
b)
Classification of investments as
subsidiaries, joint ventures, associated company and portfolio investments
Classification of investments requires judgement as to whether
the Company controls, has joint control of or significant influence over the
strategic financial and operating decisions relating to the activity of the
investee. In assessing the level of control or influence that the Company has
over an investment, management considers ownership percentages, board
representation as well as other relevant provisions in shareholder agreements.
If an investor holds 20% or more of the voting power of the investee, it is
presumed that the investor has significant influence, unless it can be clearly
demonstrated that this is not the case. Conversely, if the investor holds less than
20% of the voting power of the investee, it is presumed that the investor does
not have significant influence, unless such influence can be clearly
demonstrated.
68
5.B. Liquidity and Capital Resources
The Company considers items included in shareholders equity as
capital. The Companys objective when managing capital is to safeguard the
Companys ability to continue as a going concern, so that it can continue to
provide returns for shareholders and benefits for other stakeholders.
As at December 31, 2018, the Company had working capital of
$88,902,976 (2017 - $6,535,893; 2016 - $6,002,318). The Company has sufficient
working capital for the next 12 months. The Company has continuing royalty
income that will vary depending on royalty ounces received, the price of gold,
and foreign exchange rates on US royalty payments. The Company manages the
capital structure and makes adjustments in light of changes in economic
conditions and the risk characteristics of the underlying assets. In order to
maintain or adjust the capital structure, the Company may issue new shares
through public and/or private placements, sell assets, or return capital to
shareholders.
Sprott Private Resource Lending (Collector), LP
US$5,000,000
In May of 2018, the Company entered into a credit facility
agreement with Sprott providing the Company with a US$ 5,000,000 senior secured
credit facility (Credit Facility). The loan made under the Credit Facility
would have matured on May 2, 2019 and carried an annual interest rate of 12%,
payable monthly. In consideration of the Credit Facility, EMX paid to Sprott a
fee of US$100,000, and legal fees of $69,402. The Credit Facility was covered by
a general security agreement against the Companys assets. The loan was fully
repaid in November 2018 from distributions received from IGC.
In October 2018 EMXs former investment in associated entity,
IGC notified EMX that the sale of the Malmyzh project for US$200 million has
closed. For its 39% interest in IGC at the time of sale transaction, on a fully
diluted basis, the Company has received its initial cash distribution of
$84,246,645. A second cash distribution to the Company of
$5,243,291 (US$4 million) is expected within 12 months from the initial sale
date upon the remaining funds being released from escrow pending any warranty
claims.
Operating Activities
Cash used in operations was $5,955,848 for the year ended
December 31, 2018
(2017 - $3,441,424; 2016 - $5,315,543) and represents
expenditures primarily on mineral property exploration and general and
administrative expense for both periods, offset by royalty income received in
the year.
Financing Activities
The total cash used by financings during the year ended
December 31, 2018 was $69,008 (2017 cash provided of 6,992,928; cash provided
by 2016 - $127,800). The proceeds in the current period were comprised of loan
proceeds of $6,298,166 and loan repayments of $6,553,274 including fees and
interest from a US$5,000,000 credit facility with Sprott, and $186,000 from the
exercise of stock options. During the comparative year ended December 31, 2017,
the Company received a net of $6,907,228 from the proceeds of a private
placement net of costs, and $85,700 (2016 - $127,800) from the exercise of stock
options.
Investing Activities
During the year ended December 31, 2018, the Company generated
$84,970,039 (2017 used $3,391,319) from investing activities. Some of the
significant cash investment activities during the year ended December 31, 2018
include:
|
-
|
The receipt of cash distributions totalling $84,246,645
from its investment in IGC (2017 - $Nil) related to the IGC sale of
Malmyzh.
|
|
-
|
The Company receiving net repayments of $25,084,851
including loan fees of $717,537 (US$550,000) related to a credit facility
with IGC for $23,268,241 (US$18,500,000) loaned to IGC in support of the
Malmyzh sale.
|
|
-
|
The Company receiving loan proceeds of $23,268,241 and
made loan repayments of $24,367,314 including fees and interest from a
US$18,500,000 credit facility.
|
|
-
|
The Company receiving $456,301 as repayment of a
US$300,000 loan and related interest to IGC.
|
|
-
|
The Company purchasing equity in IGC in the amount
$1,781,642 (2017 - $2,059,631).
|
69
|
-
|
The Company receiving annual option payments of
US$100,000 (2017 US$100,000) from Kennecott related to the Superior West
property, and US$75,000 (2017 US$75,000) from Mason Resources related to
the Yerington property.
|
|
-
|
The Company advancing $Nil (2017 - $1,005,277) to an
associated company pursuant to a convertible loan agreement.
|
|
-
|
The company also receiving $1,084,980 (2017 - $139,365)
from the sale of marketable securities.
|
5.C. Research and Development, Patents and Licenses,
etc.
See subtopic Exploration Expenditures under Item 5.A.,
Operating Results.
5.D. Trend Information
See Property Overview under Item 5, Operating and Financial
Review and Prospects, and Other under Item 5.A., Operating Results.
5.E. Off-Balance Sheet Arrangements
The Company has no off-balance sheet arrangements.
5.F Tabular Disclosure of Contractual
Obligations
The Company has no Contractual Obligations.
ITEM 6. DIRECTORS, SENIOR MANAGEMENT, AND
EMPLOYEES
6.A. Directors and Senior Management
Directors and Senior Management
(1)
|
Member of Audit Committee
|
(2)
|
Member of the Compensation Committee
|
(3)
|
Member of Corporate Governance
Committee
|
David M. Cole (President, CEO and
Director)
Mr. Cole has over 30 years of industry experience, coming to
EMX Royalty Corp. in 2003 from Newmont Mining Company. At Newmont, he held a
number of management and senior geologic positions, gaining extensive global
experience as a project, mine, and generative exploration geologist in Nevada,
Southeast Asia, South America, Europe, and Central Asia. Mr. Cole's success as
part of Newmont's exploration team includes contributions at the world class
Carlin Trend, Yanacocha, and Minahasa mines. Subsequently, he established and
managed Newmont's exploration programs in Turkey while also identifying
early-stage acquisition targets in Eastern Europe. Mr. Cole specializes in
developing new exploration ideas and opportunities, based upon solid technical
expertise coupled with a keen business sense. He studied under Dr. Tommy
Thompson at Colorado State University, earning an M.S. in Geology.
70
Michael D. Winn (Director and
Chairman)
Mr. Winn is President of Seabord Capital Corp., which provides
investment analysis and financial services to companies operating in the energy
and mining sectors. He is also President of Seabord Services Corp., a Canadian
company that provides management, administrative, and regulatory services to
private and public mining companies. Prior to starting Seabord Capital in
January 2013, Mr. Winn was President of Terrasearch Inc. (1997 to 2012) a
predecessor company to Seabord Capital. He also worked as an analyst for Global
Resource Investments Ltd. (1993 to 1997) where he specialized in the evaluation
of emerging oil and gas and mining companies. Mr. Winn has worked in the oil and
gas industry since 1983 and the mining industry since 1992, and is currently a
director and officer of several companies operating in Canada, Latin America,
Europe and Africa. Mr. Winn received a B.Sc. in Geology from the University of
Southern California.
Brian Bayley (Director)
Mr. Bayley is currently the President of Earlston Management
Corp., formerly Ionic Management Corp. (private management company) since
December 1996. From June 2003 to July 2013, Mr. Bayley was director of Quest
Capital Corp. (a predecessor company to Sprott Resource Lending Corp.), a
publicly traded resource lending company listed on the TSX and NYSE American.
Mr. Bayley was also the Resource Lending Advisor from September 2010 to June
2013, President and Chief Executive Officer from May 2009 to September 2010,
Co-chairman from January 2008 to May 2009, Chief Executive Officer from June
2003 to March 2008, and President from June 2003 to January 2008. Mr. Bayley is
also a director and officer of several other public companies and holds an MBA
from Queens University.
Brian Levet (Director)
Mr. Levet draws on over 35 years of diversified executive and
management experience in mineral exploration, project startup, and mine
development and operations. He began his career with Rio Tinto Rhodesia and
Zimbabwe Iron and Steel Company. The majority of Mr. Levet's career was with
Newmont Mining Company, most recently as the Group Executive for Worldwide
Exploration, and after 27 years of service he announced his retirement in early
2011. His distinguished career has been built upon a track record of
team-oriented discovery success, with a number of these discoveries currently in
production. He is recognized within the mining industry for exploration
expertise and team leadership that resulted in a number of major discoveries,
including the Batu Hijau and Elang copper-gold deposits in Indonesia, the North
Lanut gold deposit in North Sulawesi, Indonesia, the McPhillamys gold deposit in
New South Wales, Australia, as well as playing a significant role in the
identification of Yanacocha as a world-class gold mining camp. Mr. Levet has a
B.Sc. in Geology from the University of London.
Larry Okada (Director)
Larry Okada is a semi-retired CPA, CA professional accountant
in British Columbia and Alberta, as well as a Certified Public Accountant in
Washington State. He has been in public practice with Deloitte's, his own firm,
and PwC for over 35 years. For more than 30 years, the majority of Mr. Okada's
clients have been public mining companies listed on the TSX-V. Larry currently
sits on a committee with the Institute of Chartered Accountants of British
Columbia. As an independent director, Mr. Okada's extensive experience in
accounting, finance, and corporate governance will further strengthen the
Company's Board of Directors in these key areas.
Christina Cepeliauskas (Chief Financial
Officer)
Ms. Cepeliauskas is a CPA, CGA professional accountant with
more than 20 years of financial accounting and treasury experience in the
mineral exploration and mining industry. She also has her ICD.D designation from
the Institute of Corporate Directors. She is currently the Chief Financial
Officer of EMX Royalty Corp. and Reservoir Capital Corp. and was formerly a
Director and Chairperson of the Audit Committee of Revelo Resources Corp. Ms.
Cepeliauskas also holds the volunteer position of Chair of the Governance
Committee of Fraserside Community Services Society, an organization committed to
helping people overcome challenges.
Lori Pavle (Corporate Secretary)
Ms. Pavle has over 25 years of public company administration
predominantly in the resource sector. She has served as Corporate Secretary for
several publicly traded companies including Bayfield Ventures Corp., Cypress
Development Corp., Aben Resources Ltd., Skyharbour Resources Ltd., Gold Reach
Resources Ltd., Cuba Ventures Corp. and International Samuel Exploration Corp.
Prior to this, she worked for several years at Hunter Dickinson Inc. as Treasury
Manager. Ms.
71
Pavle gained her early knowledge working as a paralegal for
legal firms specializing in the practice area of corporate and securities law.
The Directors have served in their respective capacities since
their election and/or appointment and will serve until the next Annual General
Meeting or until a successor is duly elected, unless the office is vacated in
accordance with the Articles/ByLaws of the Company.
No Director and/or Senior Management had been the subject of
any order, judgment, or decree of any governmental agency or administrator or of
any court or competent jurisdiction, revoking or suspending for cause any
license, permit or other authority of such person or of any Company of which he
is a Director and/or Senior Management, to engage in the securities business or
in the sale of a particular security or temporarily or permanently restraining
or enjoining any such person or any Company of which he is an officer or
director from engaging in or continuing any conduct/practice/employment in
connection with the purchase or sale of securities, or convicting such person of
any felony or misdemeanor involving a security or any aspect of the securities
business or of theft or of any felony.
There are no family relationships between any two or more
Directors or Senior Management.
There are no arrangements or understandings with major
shareholders, customers, suppliers or others, pursuant to which any person
referred to above was selected as a director or member of senior management.
6.B. Compensation
The following table contains a summary of the compensation paid
to the Directors and NEOs during the last three financial years.
Summary Compensation Table
72
(1)
|
For officers and employees in the United States, the
Company pays 4% of the annual salary each year to the officer or
employees 401(k) retirement plan effective January 1, 2012.
|
(2)
|
RSUs granted under the Companys RSU Plan. The vesting
date and payout date for RSUs is January 1, 2020, for the 2017 RSUs and
January 1, 2021, for the 2018 RSUs subject to performance
criteria.
|
(3)
|
This amount was a strategic investment success bonus
awarded for the successful completion of the IG Copper LLC transaction.
(Refer to the section below entitled Strategic Investment Success
Bonus) for further details.
|
(4)
|
Pursuant to a Management Services Agreement between the
Company and Seabord Services Corp. (Seabord), Ms. Cepeliauskas
remuneration is paid by Seabord.
|
(5)
|
Ms. Segovia resigned as Corporate Secretary on October
12, 2018; Ms Pavle was appointed Corporate Secretary on November 26,
2018.
|
Strategic Investment Success Bonus
The Board awarded discretionary bonuses to EMXs management and
staff in respect of their seven years of effort to monetize the Companys
investment in IG Copper LLC (IGC). Their efforts included:
|
(1)
|
identification of the investment opportunity;
|
|
|
|
|
(2)
|
providing significant technical oversight towards the
discovery of a world class copper deposit at Malmyzh;
|
|
|
|
|
(3)
|
raising the capital necessary to advance Malmyzh despite
challenging markets and jurisdictional risks;
|
|
|
|
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(4)
|
coordinating the sales effort for Malmyzh over a period
of several years;
|
|
|
|
|
(5)
|
managing an exit with Freeport, including arranging an
US$18.5 million bridge loan, which led to a greater return for all of
IGCs shareholders, not the least of which was EMX 40% shareholding;
and
|
|
|
|
|
(6)
|
assisting IGC with the successful sale of Malmyzh to a
wholly owned subsidiary of Russian Copper Company (RCC) in October for
US$200 million.
|
Prior to the Malmyzh sales transaction, the Companys
management had developed a bonus plan for strategic investments whereby 7.5% of
the after-tax profits of an individual investment could be paid as a bonus to
management and staff. As part of the bonus calculation, the Companys cost basis
was increased annually by 10% to reflect the time value of the investment.
The strategic investment bonus calculation, along with
managements recommended allocation of bonuses, was then submitted to the
Compensation Committee for its review. The Compensation Committee is comprised
of three independent directors. The Committee met several times over the past
four months, both with management and independently of management, as part of
the approval process. The Committee recommended the US$3.8 million bonus pool
and allocation to the Companys Board. The independent members of the Board
unanimously approved the bonus pool and allocation with Dave Cole and Michael
Winn abstaining from voting.
The Board awarded the bonuses to the Companys Chairman,
management and staff.
The following Stock Options were granted to directors and NEOs
during the fiscal year ended December 31, 2018:
73
The following RSUs were granted to NEOs during the fiscal year ended December 31, 2018;
Outstanding Share-Based and Option-Based Awards
The following table sets out all option-based and share-based awards outstanding for each Director and NEO as at December 31, 2018.
74
|
(1)
|
The closing price of the Companys common shares on the
TSX-V on December 31, 2018 was $1.51.
|
|
(2)
|
RSUs granted under the Companys RSU Plan on August 28,
2017. The vesting date and payout date for RSUs granted on August 28,
2017, is January 1, 2020,, subject to performance criteria.
|
|
(3)
|
RSUs granted under the Companys RSU Plan on August 27,
2018. The vesting date and payout date for RSUs granted on August 27, 2018
is January 1, 2021,, subject to performance
criteria.
|
Director Compensation
.
The fees payable to the independent directors of the Company
are for their services as directors and as members of committees of the Board as
follows:
Board or
|
Annual Retainer
|
Meeting Stipend
|
Per diem fees
|
Committee
Name
|
($)
|
($)
|
($)
|
Board of Directors
|
24,000
|
Nil
|
Nil
|
Directors are entitled to reimbursement for reasonable travel
and other out-of-pocket expenses incurred in connection with attendance at
meetings of the Board of Directors.
Change of Control Remuneration
.
Chief Executive Officer
The Company is a party to an employment agreement with David M.
Cole, President and CEO of the Company, effective June 1, 2017. Under the
agreement, Mr. Cole receives US$ 325,000 per year. The agreement may be
terminated by the Company without reason by written notice and a lump sum
payment equal to 24 months of salary and benefits and all unvested stock options
and grants. Mr. Cole may terminate the agreement for any reason upon two months
notice to the Company during which time he will continue to receive his usual
remuneration and benefits.
75
If Mr. Coles agreement is terminated or his duties and
responsibilities are materially changed within 6 months following a change in
control of the Company, he is entitled to receive a lump sum payment equal to 24
months of his salary and benefits and all unvested stock options and grants.
Other Executive Officers
The Company has not entered into another employment or
consulting contracts with its other Executive Officers.
For the purposes of this
section, the following terms have the following meanings:
Change of
control
means an event occurring after the effective date of this agreement
pursuant to which:
|
a)
|
a merger, amalgamation, arrangement, consolidation,
reorganization or transfer takes place in which securities of EMX
possessing more than 50% of the total combined voting power of the EMXs
outstanding voting securities, respectively, are acquired by a person or
persons (other than one or more members of the EMX Group) different from
the person holding those voting securities immediately prior to such
event, and the composition of the Board of Directors of EMX or following
such event is such that their directors prior to the transaction
constitute less than 50% of the Board membership following the
event;
|
|
|
|
|
b)
|
any person (other than a member of the EMX Group), or any
combination of persons (none of which is a member of the EMX Group) acting
jointly or in concert by virtue of an agreement, arrangement, commitment
or understanding acquires, directly or indirectly, 50% or more of the
voting rights attached to all outstanding voting securities or the right
to appoint a majority of the directors of EMX ; or
|
|
|
|
|
c)
|
EMX sells, transfers or otherwise disposes of all or
substantially all of its assets, except that no Change of Control will be
deemed to occur if such sale or disposition is made to a member of the EMX
Group.
|
Termination of Employment
means any voluntary,
involuntary or coerced resignation, retirement or other termination of
employment of any Covered Employee directly or indirectly resulting from a
Change of Control and includes the occurrence of any of the following events
after a Change of Control, if the Covered Employee does not consent thereto:
|
(a)
|
a material change in office held or employment;
|
|
|
|
|
(b)
|
a material change in the nature or scope of
duties;
|
|
|
|
|
(c)
|
a reduction in remuneration;
|
|
|
|
|
(d)
|
a withdrawal of benefits or privileges of employment;
or
|
|
|
|
|
(e)
|
exclusion from any incentive compensation plans in which
the Covered Employee was a participant.
|
Pension/Retirement Benefits
. For the
officers and employees in the United States, the Company pays 4% of the annual
salary each year to the officer or employees 401(k) retirement plan effective
January 1, 2012.
6.C. Board Practices
6.C.1. Terms of Office
.
Refer to Item
6.A.1.
6.C.2. Directors Service Contracts
.
Not applicable.
6.C.3. Board of Director Committees.
The Company has an Audit Committee, which recommends to the
Board of Directors the engagement of the independent auditors of the Company and
reviews with the independent auditors the scope and results of the Companys
audits, the Companys internal accounting controls, and the professional
services furnished by the independent auditors to the Company.
76
The current members of the Audit Committee are: Brian Bayley,
Brian Levet and Larry Okada (Chairman). The Audit Committee met four times
during Fiscal year 2018.
Compensation Committee:
The Compensation Committee is
responsible for the review of all compensation paid (including stock options
granted under the Option Plan and RSUs issued under the RSU Plan. by the
Company to the Board, officers and employees of the Company and any
subsidiaries, to report to the Board on the results of those reviews and to make
recommendations to the Board for adjustments to such compensation. The current
members of the Compensation Committee are: Brian Levet (Chairman), Brian Bayley
and Larry Okada.
Corporate Governance Committee:
The Corporate Governance
Committee is responsible for advising the Board of the appropriate corporate
governance procedures that should be followed by the Company and the Board and
monitoring whether they comply with such procedures. The current members of the
Corporate Governance Committee are: Michael Winn (Chairman), Brian Bayley and
Larry Okada.
The Corporate Governance Committee evaluates the effectiveness
of the Board and its committees. To facilitate this evaluation, each committee
will conduct an annual assessment of its performance, consisting of a review of
its Charter, the performance of the committee as a whole and will submit a
Committee Annual Report to the Corporate Governance Committee, including
recommendations. In addition, the Board will conduct an annual review of its
performance.
6.D. Employees/ Consultants
As of December 31, 2018, EMX had 39 employees and consultants
working at various locations throughout the world.
As of March 26, 2019, the Chief Financial Officer, Corporate
Secretary, Controller, Payroll & Benefits Administrator and Accounts Payable
are all based in Vancouver, Canada. The President & CEO, Chief Legal
Officer, Chief Geologist, General Manager of Exploration, Investor Relations
Director, General Manager of Corporate Development, Manager of Project
Marketing, two geologists and a senior administrative assistant are all based in
the Companys office in Littleton, Colorado through the Companys wholly-owned
subsidiary, EMX USA. There are eight employees located in Arizona including
seven geologists and one office manager. The Company has one consultant in
Haiti, one consultant in Australia, 2 consultants in Turkey and 3 consultants in
Scandinavia.
See Item 6 Directors, Senior Management & Employees for a
description of their job responsibilities.
6.E. Share Ownership
The table below lists, as of March 26, 2019, Directors and
Senior Management who beneficially own the Company's voting securities,
consisting solely of Common Shares, and the amount of the Company's voting
securities owned by the Directors and Senior Management as a group.
77
Shareholdings of Directors and Senior Management
Shareholdings of 5% Shareholders
(1)
|
Based on 80,911,155 shares outstanding as of March 26,
2019.
|
(2)
|
Of these shares, 1,365,015 are represented by currently
exercisable share purchase options, warrants and RSUs.
|
(3)
|
Of these shares, 557,100 are represented by currently
exercisable share purchase options and warrants.
|
(4)
|
Of these shares, 480,000 are represented by currently
exercisable share purchase options and RSUs.
|
(5)
|
Of these shares, 350,000 are represented by currently
exercisable share purchase options.
|
(6)
|
Share purchase options.
|
(7)
|
Of these shares, 305,000 are represented by currently
exercisable share purchase options and warrants.
|
(8)
|
Of these shares, nil are represented by currently
exercisable share purchase options.
|
Stock Option Plan
.
The Board established the Option Plan to attract and motivate
the directors, officers and employees of the Company (and any of its
subsidiaries), employees of any management company and consultants to the
Company (collectively the Optionees) and thereby advance the Companys
interests by providing them an opportunity to acquire an equity interest in the
Company through the exercise of stock options granted to them under the Option
Plan.
Pursuant to the Option Plan, the Board, based on the
recommendation of the Compensation Committee, may grant options to Optionees in
consideration of them providing their services to the Company or a subsidiary.
The number of Common Shares subject to each option is determined by the Board
within the guidelines established by the Option Plan. The options enable the
Optionees to purchase Common Shares at a price fixed pursuant to such
guidelines. The options are exercisable by the Optionee giving the Company
notice and payment of the exercise price for the number of Common Shares to be
acquired.
The Option Plan authorizes the Board to grant stock options to
the Optionees on the following terms:
1.
|
The number of Common Shares subject to issuance pursuant
to outstanding options, in the aggregate, cannot exceed 10% of the
outstanding Common Shares.
|
|
|
|
|
2.
|
The number of Common Shares subject to issuance upon the
exercise of options granted under the Option Plan by one Optionee or all
Optionees providing investor relations services is subject to the
following limitations
|
|
|
|
|
|
(a)
|
no Optionee can be granted options during a 12 month
period to purchase more than
|
|
|
|
|
|
|
(i)
|
5% of the issued Common Shares unless disinterested
Shareholder approval has been obtained (such approval has not been
sought), or
|
|
|
|
|
|
|
(ii)
|
2% of the issued Common Shares, if the Optionee is a
consultant, and
|
|
|
|
|
|
(b)
|
the aggregate number of Common Shares subject to options
held by all Optionees providing investor relations services cannot exceed
2% in the aggregate.
|
3.
|
Unless the Option Plan has been approved by disinterested
Shareholders (such approval has not been obtained), options granted under
the Option Plan, together with all of the Companys previously established
and outstanding stock options, stock option plans, employee stock purchase
plans or any other compensation or incentive mechanisms involving the
issuance or potential issuance of Common Shares, shall not result, at any
time, in
|
78
|
(a)
|
the number of Common Shares reserved for issuance
pursuant to stock options granted to insiders exceeding 10% of the
outstanding Common Shares at the time of granting,
|
|
|
|
|
(b)
|
the grant to insiders, within a one year period, of
options to purchase that number of Common Shares exceeding 10% of the
outstanding Common Shares, or
|
|
|
|
|
(c)
|
the issuance to any one insider and such insiders
associates, within a one year period, of Common Shares totaling in excess
of 5% of the outstanding Common Shares.
|
4.
|
The exercise price of the options cannot be set at less
than the greater of $0.10 per Common Share and the closing trading price
of the Common Shares on the day before the granting of the stock options.
If the Optionee is subject to the tax laws of the United States of America
and owns (determined in accordance with such laws) greater than 10% of the
Common Shares, the exercise price shall be at least 110% of the price
established as aforesaid.
|
|
|
|
5.
|
The options may be exercisable for up to 10
years.
|
|
|
|
6.
|
There are not any vesting requirements unless the
Optionee is a consultant providing investor relations services to the
Company, in which case the options must vest over at least 12 months with
no more than one-quarter vesting in any three month period. However, the
Board may impose additional vesting requirements and, subject to obtaining
any required approval from the Exchange, may authorize all unvested
options to vest immediately. If there is a potential change of control
of the Company due to a take-over bid being made for the Company or a
similar event, all unvested options, subject to obtaining any required
approval from the Exchange, shall vest immediately.
|
|
|
|
7.
|
The options can only be exercised by the Optionee (to the
extent they have already vested) for so long as the Optionee is a
director, officer or employee of, or consultant to, the Company or any
subsidiary or is an employee of the Companys management Company and
within a period thereafter not exceeding the earlier of:
|
|
|
|
|
(a)
|
the original expiry date;
|
|
|
|
|
(b)
|
90 days after ceasing to be a director, officer or
employee of, or consultant at the request of the Board or for the benefit
of another director or officer to, the Company unless the Optionee is
subject to the tax laws of the United States of America, in which case the
option will terminate on the earlier of the 90
th
day and the
third month after the Optionee ceased to be an officer or employee;
and
|
|
|
|
|
(c)
|
if the Optionee dies, within one year from the Optionees
death.
|
|
If the Optionee is terminated for cause, involuntarily
removed or resigns (other than at the request of the Board or for the
benefit of another director or officer) from any such positions, the
option will terminate concurrently.
|
|
|
8.
|
The options are not assignable except to a wholly-owned
holding company. If the option qualifies as an incentive stock option
under the United States Internal Revenue Code, the option is not
assignable to a holding company.
|
|
|
9.
|
No financial assistance is available to Optionees under
the Option Plan.
|
|
|
10.
|
Any amendments to outstanding stock options are subject
to the approval of the TSX-V and NYSE American and, if required by either
exchange or the Option Plan, of the Shareholders of the Company, possibly
with only disinterested Shareholders being entitled to vote.
Disinterested Shareholder approval must be obtained for the reduction of
the exercise price of options (including the cancellation and re-issuance
of options within a one year period so as to effectively reduce the
exercise price) of options held by insiders of the Company. The amendment
to an outstanding stock option will also require the consent of the
Optionee.
|
|
|
11.
|
Any amendments to the Option Plan are subject to the
approval of the TSX-V and NYSE American and, if required by either
exchange or the Option Plan, of the Shareholders of the Company, possibly
with only disinterested Shareholders being entitled to
vote.
|
No options have been granted under the Option Plan which are
subject to Shareholder approval. The Option Plan does not permit stock options
to be transformed into stock appreciation rights.
79
Outstanding Stock Options
Total for all Officers and Directors
|
2,345,000
|
Total for all Employees and Consultants
|
3,912,400
|
Total for all Officers, Directors,
Employees and Consultants
|
6,257,400
|
RSU Plan
The RSU Plan was adopted by the Board for the same reasons as
it adopted the Option Plan set out above.
The RSU Plan provides that RSUs may be granted by the Board,
based on the advice of the Compensation Committee, to officers, directors and
employees of, and consultants to, the Corporation (Eligible Persons) as a
discretionary payment in consideration for significant contributions to the
short-term (one year or less) and long-term (one to three years) successes of
the Corporation. The Board may, in its sole discretion, set vesting conditions
on RSUs granted to Eligible Persons, which conditions will be primarily based on
the performance criteria set by the Compensation Committee.
80
The aggregate maximum number of Common Shares reserved for
issuance under the RSU Plan in combination with the aggregate number of Common
Shares issuable under all of the Corporations other equity incentive plans in
existence from time to time, including the Option Plan, shall not exceed 10% of
the issued and outstanding Common Shares.
In addition, the RSU Plan provides that the number of Common
Shares which may be issuable under the RSU Plan and all of the Corporation's
other previously established or proposed share compensation arrangements,
including the Option Plan, within a 12 month period, to:
(a)
|
any one Eligible Person shall not exceed 5% of the total
number of issued and outstanding Common Shares on the date of the grant on
a non-diluted basis;
|
|
|
(b)
|
Insiders as a group within a 12 month period shall not
exceed 10% of the total number of issued and outstanding Common Shares on
a non-diluted basis; and
|
|
|
(c)
|
any one consultant, or Eligible Person engaged in
providing investor relations services to the Corporation, shall not exceed
2% in the aggregate of the total number of issued and outstanding Common
Shares on the date of the grant on a non-diluted
basis.
|
Unless redeemed earlier in accordance with the RSU Plan, the
RSUs of each Eligible Person will be redeemed on or within 30 days after the RSU
Payment Date (as defined below) for cash or Common Shares, as determined by the
Board, for an amount equal to the Fair Market Value (the closing market price of
the Common Shares on the TSX-V on the day prior to redemption) of an RSU, less
applicable withholding taxes, and as increased or decreased by a performance
factor determined by the Board in its sole discretion. The RSU Payment Date
in respect of any RSU means a date not later than December 15th of the third
year following the year in which such RSU was granted to the Eligible Person,
unless (i) an earlier date has been approved by the Board as the RSU Payment
Date in respect of such RSU, or (ii) there is a Change of Control of the
Corporation (as defined in the RSU Plan), the RSU Plan is terminated or upon an
Eligible Persons death or termination of employment.
Under the RSU Plan, the Board may from time to time amend or
revise the terms of the RSU Plan or may discontinue the RSU Plan at any time.
Subject to receipt of requisite disinterested Shareholder, TSX-V and NYSE
American approvals, the Board may make amendments to the RSU Plan to
-
change the maximum number of Common Shares issuable under the RSU Plan,
-
change the method of calculation of the redemption of RSUs held by Eligible
Persons, and
-
provide an extension to the term for the redemption of RSUs held by
Eligible Persons.
All other amendments to the RSU Plan may be made by the Board
without obtaining shareholder approval.
If an Eligible Person ceases to be an Eligible Person for any
reason (excluding death), all of the Eligible Persons RSUs which have vested at
the time of such cessation shall be redeemed for cash or Common Shares and the
remainder shall be cancelled. No amount shall be paid by the Corporation to the
Eligible Person in respect of the RSUs so cancelled. If an Eligible Person
ceases to be an Eligible Person due to death, any of the Eligible Persons RSUs
which would otherwise vest within the next year following the date of death
shall be redeemed for cash or Common Shares as determined by the Board.
In the event of a Change of Control, then the Corporation may
redeem, subject to prior approval of the TSX-V and NYSE American, all of the
RSUs granted to the Eligible Persons and outstanding under the RSU Plan for that
number of Common Shares equal to the number of RSUs then held by the Eligible
Persons. If the employment of an Eligible Person is terminated within six months
following a Change of Control, all RSUs held by such Eligible Person shall
become vested and be redeemed for cash or Common Shares.
Stock Grant Program
.
The Board created the Incentive Stock Grant Program for the
benefit of key officers and directors of the Company in 2010. The grants have a
two-year vesting period.
The purpose of the Stock Grant Program is as follows. Firstly,
to reward and provide an incentive to such persons for the ongoing efforts
towards the continuing successes and goals of the Company as many of its
successes directly result from their very significant efforts. Secondly, to provide such persons
with a long-term incentive to remain with the Company. Finally, from time to
time, the Company may provide additional compensation in the form of stock
grants as part of annual salaries.
81
The Stock Grant Program provides that, following the approval
of the independent members of the Compensation Committee, up to 300,000 Common
Shares may be awarded in each year. The Common Shares awarded will vest and be
issued in three separate tranches over a two year period on the date of grant,
and on the first and second anniversaries of the initial grant. None of the
300,000 Common Shares not awarded in one year can be rolled over or awarded in
subsequent years. If the recipient ceases to be a director or officer of the
Company before the relevant anniversary, he or she will not be entitled to
receive any further Common Shares under the Stock Grant Program, including
Common Shares previously awarded for issuance on such anniversary.
ITEM 7. MAJOR SHAREHOLDERS AND RELATED PARTY
TRANSACTIONS
7.A. Major Shareholders.
7.A.1.a. Holdings By Major Shareholders
.
The Company is aware of one person who beneficially own 5% or
more of the Registrant's voting securities. The table below lists as of March 8,
2019, persons and/or companies holding 5% or more beneficial interest in the
Common Shares.
(1)
|
Based on 80,911,155 shares outstanding as of March 26,
2019.
|
7.A.1.b. Significant Changes in Major Shareholders
Holdings
.
Not applicable.
7.A.1.c. Different Voting Rights
.
The Companys major shareholders do not have different voting
rights.
7.A.2. Canadian Share Ownership
.
On March 26, 2019, the Companys shareholders list showed
80,911,155 common shares outstanding and 268 registered shareholders. The
Company has researched the indirect holdings by depository institutions and
other financial institutions estimates that there are 17 holders of record"
resident in Canada representing 39,382,954 Common Shares, 251 holders of
record" resident in the USA representing 41,109,932 Common Shares, and 34
holders of record resident internationally representing 388,269 Common Shares.
The Company is a foreign private issuer for its current fiscal
year. As of the last business day of the Companys second fiscal quarter, the
majority of the Companys executive officers and directors were not US citizens
or residents, the majority of the Companys assets are not in the United States,
and the Company is administered principally in Canada. The Companys major
shareholders in common shares have the same voting rights as other holders of
common shares. The Company is not directly or indirectly owned or controlled by
another corporation, a foreign government or any other natural or legal persons
severally or jointly. There are no arrangements known to the Company which may
result in a change of control of the Company.
7.A.3. Control of the Company
The Company is a publicly owned Canadian Company, the shares of
which are owned by U.S. residents, Canadian residents and other foreign
residents. The Company is not controlled by any foreign government or other
person(s) except as described in Item 4.A., History and Growth of the Company,
and Item 6.E., Share Ownership.
82
7.A.4. Change of Control of Company
Arrangements
.
Not applicable.
7.B. Related Party Transactions
The aggregate value of transactions and outstanding balances
relating to key management personnel and directors were as follows:
(1)
Directors fees include US$5,000 per month and a
US$1,000,000 discretionary bonus paid to the Companys non-Executive Chairman,
who does not receive the fees paid to the other independent directors.
Seabord Services Corp. (Seabord) is a management services
company controlled by the Chairman of the Board of Directors of the Company.
Seabord provides a Chief Financial Officer, a Corporate Secretary, accounting
and administration staff, and office space to the Company. The Chief Financial
Officer and Corporate Secretary are employees of Seabord and are not paid
directly by the Company.
Shareholder Loans
Not applicable.
Amounts Owing to Senior Management/Directors
Included in accounts payable and accrued liabilities at
December 31, 2018 is $3,365,005 (2017 - $30,744; 2016 - $23,472) owed to key
management personnel and other related parties. Included in amounts due to
related parties for the year ended December 31, 2018 was $3,339,365 for
discretionary success bonuses paid in fiscal 2019.
Other than as disclosed above, there have been no transactions
since December 31, 2018, or proposed transactions, which have materially
affected or will materially affect the Company in which any director, executive
officer, or beneficial holder of more than 5% of the outstanding common shares,
or any of their respective relatives, spouses, associates or affiliates has had
or will have any direct or material indirect interest. Management believes the
transactions referenced above were on terms at least as favorable to the Company
as the Company could have obtained from unaffiliated parties.
83
Other Related Party Transactions
In October 2017, the Company issued a note receivable to Revelo
Resources Corp. (TSX-V: RVL), a related party by way of a common director for
the principal amount of $400,000. The note was due on December 31, 2017,
together with accrued interest at a rate of 1% per month and a bonus of $20,000.
As at December 31, 2018, the balance owed to the Company pursuant to the note
was $477,973 (2017 - $429,973) including accrued interest and bonus fee. The
Company is re - negotiating the terms of repayment.
Other than as disclosed above, there have been no transactions
or loans between the Company and (a) enterprises that directly or indirectly
through one or more intermediaries, control or are controlled by, or are under
common control with, the company; (b) associates; (c) individuals owning,
directly or indirectly, an interest in the voting power of the Company giving
them significant influence over the Company, and close members of any such
individuals family; (d) key management personnel and close members of such
individuals families; and (e) enterprises substantially owned or controlled,
directly or indirectly, by any person described in (c) or (d) or over which such
a person is able to exercise significant influence.
7.C. Interests of Experts and Counsel
Not applicable.
ITEM 8. FINANCIAL INFORMATION
8.A. Consolidated Statements and Other Financial
Information
The Company's financial statements are stated in Canadian
Dollars and are prepared in accordance with International Financial Reporting
Standards as issued by the International Accounting Standards Board.
See Item 18. Financial Statements for our Annual Audited
Consolidated Financial Statements, related notes and other financial information
filed with this annual report on Form 20-F.
8.A.7. Legal/Arbitration Proceedings
The Directors and the management of the Company do not know of
any material active or pending, legal proceedings; nor is the Company involved
as a plaintiff in any material proceeding or pending litigation.
8.A.8. Dividends.
The Company has not declared or paid any dividends on our
Common Shares. Our current business plan requires that for the foreseeable
future, any future earnings be reinvested to finance the growth and development
of our business. We do not intend to pay cash dividends on the Common Shares in
the foreseeable future. We will not declare or pay any dividends until such time
as our cash flow exceeds our capital requirements and will depend upon, among
other things, conditions then existing including earnings, financial condition,
restrictions in financing arrangements, business opportunities and conditions
and other factors, or our Board determines that our shareholders could make
better use of the cash.
8.B. Significant Changes
There have been no significant changes to the Companys
financial condition since the end of the fiscal year.
ITEM 9. THE OFFER AND LISTING
9.A. Common Share Trading Information
The Common Shares began trading on the TSX-V on November 23,
2003 and the Common Shares began trading on the NYSE American on January 30,
2012. The trading symbol is EMX for both exchanges.
84
ITEM 10. ADDITIONAL INFORMATION
10.A. Share Capital
Not applicable.
10.B. Memorandum and Articles of Association
New British Columbia Corporations Act
Background
Effective March 29, 2004, the Business Corporations Act
(British Columbia) (the New Act) replaced the previous Company Act (British
Columbia) (the Old Act). As a consequence, all British Columbia companies are
now governed by the New Act. The New Act is intended to modernize and streamline
company law in British Columbia.
Objects and Purposes
The Articles of EMX place no restrictions upon the type of
business that the Company may engage in.
Disclosure of Interest of Directors,
Part 17 of the Articles
17.1 A director or senior officer who
holds a disclosable interest (as that term is used in the
Business
Corporations Act
) in a contract or transaction into which the Company has
entered or proposes to enter is liable to account to the Company for any profit
that accrues to the director or senior officer under or as a result of the
contract or transaction only if and the extent provided in the
Business
Corporations Act.
17.2 A director who holds a disclosable
interest in a contract into which the Company has entered or proposes to enter
is not entitled to vote on any directors resolution to approve that contract or
transaction, unless all the directors have a disclosable interest in that
contract or transaction, in which case any or all of those directors may vote on
such resolution.
17.3 A director who holds a disclosable
interest in a contract or transaction into which the Company has entered or
proposes to enter and who is present at the meeting of directors at which the
contract or transaction is considered for approval may be counted in the quorum
at the meeting whether or not the director votes on any or all of the
resolutions considered at the meeting.
17.4 A director of senior officer who
holds any office or possesses any property, right or interest that could result,
directly or indirectly, in the creation of a duty or interest that materially
conflicts with that individuals duty or interest as a director or senior
officer, must disclose the nature and extent of the conflict as required by the
Business Corporations Act
.
17.5 A director may hold any office or
place of profit with the Company, other than the office of auditor of the
Company, in addition to their office of director for a period and on the terms
(as to remuneration or otherwise)that the directors may determine.
17.6 No director or intended director
is disqualified by their office from contracting with the Company either with
regard to the holding or any office or place of profit the director holds with
the Company or as vendor, purchaser or otherwise, and no contract or transaction
entered into by or on behalf of the Company in which a director is in any way
interested is liable to be voided for that reason.
17.7 A director or officer, or any
person in which a director or officer has an interest, may act in a professional
capacity for the Company, except as auditor of the Company, and the director or
officer or such person is entitled to remuneration for professional services as
if that director or officer were not a director or officer.
17.8 A director or officer may be or
become a director, officer or employee of, or otherwise interested in, any
person in which the Company may be interested as a shareholder or otherwise, and
the director or officer is not accountable to the Company for any remuneration
or other benefits received by them as director, officer or employee of, or from
their interest in, such other person.
85
Powers and Duties of Directors
Part 16
of the Articles
16.1 The directors must, subject to the
Articles, manage or supervise the management of the business and affairs of the
Company and have the authority to exercise all such powers of the Company as are
not, by the
Business Corporations Act
or by the Articles, required to be
exercised by the shareholders of the Company.
16.2 The directors may from time to
time, by power of attorney or other instrument, under seal if so required by
law, appoint any person to be the attorney of the Company for such purposes, and
with such powers, authorities and discretions (not exceeding those vested in or
exercisable by the directors under these Articles and excepting the power to
fill vacancies in the board of directors, to remove a director, to change the
membership of, or fill vacancies in, any committee of the directors, to appoint
or remove officers appointed by the directors and to declare dividends)and for
such period, and with such remuneration and subject to such conditions as the
directors may think fit. Any such power of attorney may contain such provisions
for the protection or convenience of persons dealing with such attorney as the
directors think fit. Any such attorney may be authorized by the director to
sub-delegate all or any of the powers, authorities and discretions for the time
being vested in them.
Borrowing Powers of Directors,
Part 8
of the Articles
8.1. The directors,
if authorized by the directors, may:
(1) borrow money in such
manner and amount, on the security, from the sources and upon the terms and
conditions as they consider appropriate;
(2)
issue bonds, debentures, and other debt obligations either outright or as
security for any liability or obligation of the Company or any other person and
at such discounts or premiums and on such other terms as they consider
appropriate;
(3) guarantee the
repayment of money by any other persons or the performance of any obligation of
any other person; and
(4)
mortgage, charge, whether by way of specific or floating charge, grant a
security interest in, or give other security on, the whole or any part of the
present and future assets and undertaking of the Company.
Remuneration of Directors
Part 13 of
the Articles
13.5 The directors are entitled to the
remuneration for acting as directors, if any, as the directors may from time to
time determine. If they so decide, the remuneration, if any, of the directors
will be determined by the shareholders. That remuneration may be in addition to
any salary or other remuneration paid to any officer of employee of the Company
as such, who is also a director.
13.6 The Company must reimburse each
director for the reasonable expenses they may incur in and about the business of
the Company.
13.7 If any director performs any
professional or other services for the Company that in the opinion of the
directors are outside the ordinary duties of a director, or if any director is
otherwise specially occupied in or about the Companys business, they may be
paid remuneration fixed by the directors, or, at the option of that director,
fixed by ordinary resolution, and such remuneration may be either in addition
to, or in substitution for, any other remuneration that they may be entitled to
receive.
13.8 Unless otherwise determined by
ordinary resolution, the directors on behalf of the Company may pay a gratuity
or pension or allowance on retirement to any director who has held any salaried
office or place of profit with the Company or to their spouse or dependants and
may make contributions to any fund and pay premiums for the purchase or
provision of any such gratuity, pension or allowance.
Required Ownership of Capital by Directors
Part 13 of the Articles
86
13.4. A director is not required to
hold a share in the capital of the Company as qualification for their office but
must be qualified as required by the
Business Corporations Act
to become,
act or continue to act as a director.
Dividend Rights
Part 22 of the Articles
22.2 The directors may from time to
time declare and authorize payment of such dividends as they may deem advisable.
Special Rights and Restrictions
Part 9
and 10 of the Articles
9.2 The Company may by
ordinary resolution:
(1)
create special rights or restrictions for, and attach those special rights
or restrictions to, the shares of any class or series of shares, unless any of
those shares have been issued in which case the Company may do so only be
special resolution; or
(2)
vary or delete any special rights or restrictions attached to the shares
of any class or series of shares, unless any of those shares have been issued in
which case the Company may do so only be ordinary resolution.
Rules pertaining to annual general and special general meetings
of shareholders are described in Sections Ten of the Companys Articles. These
rules are summarized as follows:
10.1 The Company must, unless an annual
general meeting is deferred or waived in accordance with the
Business
Corporations Act
, hold its first annual general meeting following
incorporation, amalgamation or continuation within 18 months after the date on
which it was incorporated or otherwise created and recognized, and after that
must hold an annual general meeting at least once in each calendar year and not
more than 15 months after the last annual reference date at such time and place
as may be determined by the directors; and
10.2 If all the shareholders entitled
to vote at an annual general meeting consent by unanimous resolution under the
Business Corporations Act
to all of the business required to be
transacted at that annual general meeting, the meeting is deemed to have been
held on the date of the unanimous resolution. The shareholders must, in any
unanimous resolution passed under this Article 10.2, select the Companys annual
reference date a date that would be appropriate for the holding of the
applicable annual general meeting.
10.3 The directors may, whenever they
think fit, call a meeting of shareholders to be held in British Columbia,
Calgary, Alberta or Toronto, Ontario or at such other location as may be
approved by the Registrar of Companies at such time and place as may be
determined by the directors.
10.4 The Company must send notice of
the date, time and location of any meeting of shareholders, in the manner
provided by these Articles, or in such other manner, if any, as may be
prescribed by ordinary resolution (whether previous notice of the resolution has
been give or not), to each shareholder entitled to attend the meeting, to each
director and to the auditor of the Company, unless these Articles otherwise
provide, at least the following number of days before the meeting:
(1)
if and for so long the Company is a public company, 21 days;
(2) otherwise, 10 days.
10.5 The directors may set a date as
the record date for the purpose of determining shareholders entitled to notice
of any meeting of shareholders. The record date must not precede the date on
which the meeting is to be held by more than two months or, in the case of a
general meeting requisitioned by shareholders under the
Business Corporations
Act
, by more than four months. The record date must not precede the date on
which the meeting is held by fewer than:
(1)
if and for so long as the Company is a public company, 21 days;
(2)
otherwise, 10 days.
If no record date is set, it is 5:00 p.m. on the business day
immediately preceding the first date on which the notice is sent or, if no
notice is sent, the beginning of the meeting.
87
10.6 The directors may set a date
as the record date for the purpose of determining shareholders entitled to vote
at any meeting of shareholders. The record date must not precede the date on
which the meeting is to be held by more than two months or, in the case of a
general meeting requisitioned by shareholders under the
Business Corporations
Act
, by more than four months. If no record date is set, the record date is
5:00 p.m. on the day immediately preceding the first date on which the notice is
sent or, if no notice is sent, the beginning of the meeting.
10.7 The accidental omission to send
notice of any meetings to, or the non-receipt of any notice by, any of the
persons entitled to notice does not invalidate any proceedings at that meeting.
Any person entitled to notice of such meeting of shareholders may, in writing or
otherwise, waive or reduce the period of notice of such meeting.
10.8 If a meeting of shareholders is to
consider special business within the meaning of Article 11.1, the notice of
meeting must:
(1)
state the general nature of the special business; and
(2)
if the special business includes considering, approving, ratifying,
adopting or authorizing any document or the signing of or giving of effect to
any document, have attached to it a copy of the document or state that a copy of
the document will be available for inspection by shareholders:
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(a)
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at the Company records office, or at such other
reasonably accessible location in British Columbia as is specified in such
notice; and
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(b)
|
during statutory business hours o any one or more
specified days before the day set for the holding of the
meeting.
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Proceedings at Meetings of Shareholders
Part 11 of the Articles
11.1 At a meeting of shareholders, the
following business is special business:
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(1)
|
at a meeting of shareholders that is not an annual
general meeting, all business is special business except business relating
to the conduct of or voting at the meeting;
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(2)
|
at an annual general meeting, all business is special
business except for the following:
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(a)
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business relating to the conduct or voting at the
meeting;
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(b)
|
consideration of any financial statements of the Company
presented to the meeting;
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(c)
|
consideration of any reports of the directors or
auditor;
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(d)
|
the setting or changing of the number of
directors;
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(e)
|
the election or appointment of directors;
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(f)
|
the appointment of an auditor;
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(g)
|
the setting of the remuneration of the auditor;
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(h)
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business arising out of a report of the directors not
requiring the passing of a special resolution or an exceptional
resolution; and
|
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(i)
|
any other business under which, under these Articles or
the
Business Corporations Act
, may be transacted at a meeting of
shareholders without prior notice of the business being given to the
shareholders.
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11.2 The majority of votes required for
the Company to pass a special resolution at a meeting of shareholders are
two-thirds of the votes cast on the resolution.
11.3 Subject to the special rights and
restrictions attached to the shares of any class or series of shares, the quorum
for the transaction of business at a meeting of shareholders is two shareholders
present in person or represented by proxy.
11.4 If there is only one shareholder
entitled to vote at a meeting of shareholders:
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(1)
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the quorum of one person who is, or who represents by
proxy, that shareholder; and
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(2)
|
that shareholder, present in person or by proxy, may
constitute the meeting.
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11.5 The directors, the president (if
any), the secretary (if any), the assistant secretary (if any), any lawyer for
the Company, auditor of the Company and any other persons invited by the
directors are entitled to attend any meeting of shareholders, but if any of those persons does attend a meeting
of shareholders, that person is not to be counted in the quorum and is not
entitled to vote at the meeting unless that person is a shareholder or proxy
holder entitled to vote at the meeting.
88
11.6 No business, other than the
election of a chair of the meeting and the adjournment of the meeting, may be
transacted at any meeting of shareholders unless a quorum of shareholders
entitled to vote is present at the commencement of the meeting, but such quorum
need not be present throughout the meeting.
11.7 If, within one-half hour from the
time set for the holding of a meeting of shareholders, a quorum is not present:
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(1)
|
in the case of a general meeting requisitioned by
shareholders, the meeting is dissolved, and
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(2)
|
in the case of any other meeting of shareholders, the
meeting stands adjourned to the same day in the next week at the same time
and place.
|
11.8 If, at the meeting to which the
meeting referred to in Article 11.7(2) was adjourned, a quorum is not present
within one-half hour from the time set for the holding of the meeting, the
person or persons present and being, or representing by proxy, one or more
shareholders entitled to attend and vote at the meeting constitute a quorum.
11.9 The following individuals are
entitled to preside as chair at a meeting of shareholders:
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(1)
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the chair of the board, if any; or
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(2)
|
if the chair of the board is absent or unwilling to act
as chair of the meeting, the first of the following individuals to agree
to act as chair: the president, if any.
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11.10 If, at any meeting of shareholders, the
chair of the board or president are not present within 15 minutes after the time
set for holding the meeting, or if the chair of the board and the president are
unwilling to act as chair of the meeting, or if the chair of the board and the
president have advised the secretary, if any, or any director present at the
meeting, that they will not be present at the meeting, one of the chief
executive officer, the chief financial officer, a vice-president, the secretary
or the Companys legal counsel may act as chair of the meeting and, failing
them, the directors present must choose one of their number to be chair of the
meeting or if all of the directors present decline to take the chair or fail to
so choose of if no director is present, the shareholders entitled to vote at the
meeting who are present in person or by proxy may choose any person at the
meeting to chair the meeting.
11.11 The chair of a meeting of shareholders
may, and if so directed by the meeting must, adjourn the meeting from time to
time and from place to place, but no business may be transacted at any adjourned
meeting other than the business left unfinished at the meeting from which the
adjournment took place.
11.12 It is not necessary to give any notice
of an adjourned meeting or of the business to be transacted at any adjourned
meeting of shareholders except that, when a meeting is adjourned for 30 days or
more, notice of the adjourned meeting must be given as in the case of the
original meeting.
11.13 Every motion put to a vote at a meeting
of shareholders will be decided on a show of hands unless a poll, before or on
the declaration of the result of the vote by show of hands, is directed by the
chair or demanded by at least one shareholder entitled to vote who is present in
person or by proxy.
11.14 The chair of a meeting of shareholders
must declare to the meeting the decision on every question in accordance with
the result of the show of hands or the poll, as the case may be, and that
decision must be entered into the minutes of the meeting. A declaration of the
chair that a resolution is carried by the necessary majority or is defeated is,
unless a poll is directed by the chair or demanded under Article 11.13,
conclusive evidence without proof of the number or proportion of the votes
recorded in favor of or against the resolution.
11.15 No motion proposed at a meeting of
shareholders need be seconded unless the chair of the meeting rules otherwise,
and the chair of any meeting of shareholders is entitled to propose or second a
motion.
11.16 In case of an equality of votes, the
chair of a meeting of shareholders does not, either on a show of hands or on a
poll, have a second or casting vote in addition to the vote or votes to which
the chair may be entitled as a shareholder.
11.17 Subject to Article 11.18, if a poll is
duly demanded at a meeting of shareholders:
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(1)
|
the poll must be taken:
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89
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(a)
|
at the meeting, or within seven days after the date of
the meeting, as the chair of the meeting directs; and
|
|
|
|
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(b)
|
in the manner, at the time and at the place that the
chair of the meeting directs;
|
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(2)
|
the result of the poll is deemed to be the decision of
the meeting at which the poll is demanded; and
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(3)
|
the demand for the poll may be withdrawn by the person
who demanded it.
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11.18 A poll demanded at a meeting of shareholders
on a question of adjournment must be taken immediately at the meeting.
11.19 In the case of any dispute as to the
admission or rejection of a vote given on a poll, the chair of the meeting must
determine the dispute, and their determination made in good faith is final and
conclusive.
11.20 On a poll, a shareholder entitled to more
than one vote need not cast all the votes in the same way.
11.21 No poll may be demanded in respect of the
vote by which a chair of a meeting of shareholders is elected.
11.22 The demand for a poll at a meeting of
shareholders does not, unless the chair of the meeting so rules, prevent the
continuation of a meeting for the transaction of any business other than the
question on which a poll had been demanded.
11.23 The Company must, for at least three months
after a meeting of shareholders, keep each ballot cast on a poll and each proxy
voted at the meeting at its records office, and, during that period, makes them
available for inspection during normal business hours by any shareholder or
proxy holder entitled to vote at the meeting. At the end of such three month
period, the Company may destroy such ballots and proxies.
Votes of Shareholders
Part 12 of the
Articles
12.1 Subject to any special rights or
restrictions attached to any shares and to the restrictions imposed on joint
shareholders under Article 12.3:
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(1)
|
on a vote by a show of hands, every person present who is
a shareholder or proxy holder and entitled to vote on the matter has one
vote; and
|
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(2)
|
on a poll, every shareholder entitled to vote on the
matter has one vote in respect of each share entitled to be voted on the
matter and held by that shareholder and may exercise that vote either in
person or by proxy.
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Other Issues
Neither the Companys articles nor British Columbia law permit:
staggered terms for Directors; cumulative voting; shareholder approval of
corporate matter by written consent; the adoption of various poison pill
measures precluding shareholders from realizing a potential premium over the
market value of their shares. Neither the Companys articles nor British
Columbia law require retirement or non-retirement of directors under an age
limit requirement.
There are no limitations on the rights to own securities.
There is no provision of the Companys articles that would have
an effect of delaying, deferring or preventing a change in control of the
Company and that would operate only with respect to a merger, acquisition or
corporate restructuring involving the Company (or any of its subsidiaries).
Shareholder ownership must be disclosed to the British Columbia
Securities Commission and the TSX-V by any shareholder who owns more than 10% of
the Companys common stock.
10.C. Material Contracts
Pursuant to a management service agreement dated February 13,
2014 as amended December 1, 2015 and February 12, 2018 between the Company and Seabord Services Corp.
of Suite 501, 543 Granville Street, Vancouver, British Columbia, the Corporation
pays $37,000 per month to Seabord in consideration of Seabord providing the
services of the CFO and Corporate Secretary and office, reception, secretarial,
accounting and corporate records services to the Company. The Chief Financial
Officer and Corporate Secretary are employees of Seabord and are not paid directly by
the Company.
90
Seabord is a private company wholly-owned by Michael D. Winn,
the Chairman and director of the Company.
10.D. Exchange Controls
Canada has no system of exchange controls. There are no
Canadian restrictions on the repatriation of capital or earnings of a Canadian
public company to non-resident investors. There are no laws in Canada or
exchange restrictions affecting the remittance of dividends, profits, interest,
royalties and other payments to non-resident holders of the Companys
securities, except as discussed in Item 10, Taxation" below.
Restrictions on Share Ownership by Non-Canadians -
There
are no limitations under the laws of Canada or in the organizing documents of
the Company on the right of foreigners to hold or vote securities of the
Company, except that the Investment Canada Act may require review and approval
by the Minister of Industry (Canada) of certain acquisitions of "control" of the
Company by a "non-Canadian". The threshold for acquisitions of control is
generally defined as being one-third or more of the voting shares of the
Company. "Non-Canadian" generally means an individual who is not a Canadian
citizen, or a Company, partnership, trust or joint venture that is ultimately
controlled by non-Canadians.
10.E. Taxation
Canadian Federal Income Tax Considerations
The following is a brief summary of some of the principal
Canadian federal income tax consequences to a holder of common shares of the
Company (a "U.S. Holder") who deals at arm's length with the Company, holds the
shares as capital property and who, for the purposes of the Income Tax Act
(Canada) (the "Act") and the Canada United States Income Tax Convention (the
"Treaty"), is at all relevant times resident in the United States, is not and is
not deemed to be resident in Canada and does not use or hold and is not deemed
to use or hold the shares in carrying on a business in Canada. Special rules,
which are not discussed below, may apply to a U.S. Holder that is an insurer
that carries on business in Canada and elsewhere.
Under the Act and the Treaty, a U.S. Holder of common shares
will generally be subject to a 15% withholding tax on dividends paid or credited
or deemed by the Act to have been paid or credited on such shares. The
withholding tax rate is 5% where the U.S. Holder is a Company that beneficially
owns at least 10% of the voting shares of the Company and the dividends may be
exempt from such withholding in the case of some U.S. Holders such as qualifying
pension funds and charities.
In general, a U.S. Holder will not be subject to Canadian
income tax on capital gains arising on the disposition of shares of the Company
unless (i) at any time in the five-year period immediately preceding the
disposition, 25% or more of the shares of any class or series of the capital
stock of the Company was owned by (or was under option of or subject to an
interest of) the U.S. holder or persons with whom the U.S. holder did not deal
at arm's length, and (ii) the value of the common shares of the Company at the
time of the disposition derives principally from real property (as defined in
the Treaty) situated in Canada. For this purpose, the Treaty defines real
property situated in Canada to include rights to explore for or exploit mineral
deposits and other natural resources situated in Canada, rights to amounts
computed by reference to the amount or value of production from such resources,
certain other rights in respect of natural resources situated in Canada and
shares of a Company the value of whose shares is derived principally from real
property situated in Canada.
The US Internal Revenue Code provides special anti-deferral
rules regarding certain distributions received by US persons with respect to,
and sales and other dispositions (including pledges) of stock of, a passive
foreign investment company. A foreign Company, such as the Company, will be
treated as a passive foreign investment company if 75% or more of its gross
income is passive income for a taxable year or if the average percentage of its
assets (by value) that produce, or are held for the production of, passive
income is at least 50% for a taxable year. The Company believes that it was a
passive foreign investment company as at December 31, 2018.
Dividends
A Holder will be subject to Canadian withholding tax ("Part
XIII Tax") equal to 25%, or such lower rate as may be available under an
applicable tax treaty, of the gross amount of any dividend paid or deemed to be
paid on common shares. Under the Canada-U.S. Income Tax Convention (1980) as
amended by the Protocols signed on 6/14/1983, 3/28/1984, 3/17/1995, and
7/29/1997 (the "Treaty"), the rate of Part XIII Tax applicable to a dividend on
common shares paid to a Holder who is a resident of the United States and who is
the beneficial owner of the dividend, is 5%. If the Holder is a company that
owns at least 10% of the voting stock of the Company paying the dividend, and,
in all other cases, the tax rate is 15% of the gross amount of the dividend. The Company will be required to
withhold the applicable amount of Part XIII Tax from each dividend so paid and
remit the withheld amount directly to the Receiver General for Canada for the
account of the Holder.
91
Disposition of Common Shares
A Holder who disposes of a common share, including by deemed
disposition on death, will not normally be subject to Canadian tax on any
capital gain (or capital loss) thereby realized unless the common share
constituted "taxable Canadian property" as defined by the
Tax Ac
t.
Generally, a common share of a public Company will not constitute taxable
Canadian property of a Holder if the share is listed on a prescribed stock
exchange unless the Holder or persons with whom the Holder did not deal at arm's
length alone or together held or held options to acquire, at any time within the
five years preceding the disposition, 25% or more of the shares of any class of
the capital stock of the Company. The Canadian Venture Exchange is a prescribed
stock exchange under the
Tax Ac
t. A Holder who is a resident of the
United States and realizes a capital gain on a disposition of a common share
that was taxable Canadian property will nevertheless, by virtue of the Treaty,
generally be exempt from Canadian tax thereon unless (a) more than 50% of the
value of the common shares is derived from, or from an interest in, Canadian
real estate, including Canadian mineral resource properties, (b) the common
share formed part of the business property of a permanent establishment that the
Holder has or had in Canada within the 12 month period preceding the
disposition, or (c) the Holder is an individual who (i) was a resident of Canada
at any time during the 10 years immediately preceding the disposition, and for a
total of 120 months during any period of 20 consecutive years, preceding the
disposition, and (ii) owned the common share when he ceased to be resident in
Canada.
A Holder who is subject to Canadian tax in respect of a capital
gain realized on a disposition of a common share must include three quarters of
the capital gain (taxable capital gain) in computing the Holder's taxable income
earned in Canada. The Holder may, subject to certain limitations, deduct
three-quarters of any capital loss (allowable capital loss) arising on a
disposition of taxable Canadian property from taxable capital gains realized in
the year of disposition in respect to taxable Canadian property and, to the
extent not so deductible, from such taxable capital gains realized in any of the
three preceding years or any subsequent year.
Certain United States Federal Income Tax Considerations
The following is a general summary of certain material U.S.
federal income tax considerations applicable to a U.S. Holder (as defined below)
arising from and relating to the acquisition, ownership, and disposition of
common shares.
This summary is for general information purposes only and does
not purport to be a complete analysis or listing of all potential U.S. federal
income tax considerations that may apply to a U.S. Holder arising from and
relating to the acquisition, ownership, and disposition of common shares. In
addition, this summary does not take into account the individual facts and
circumstances of any particular U.S. Holder that may affect the U.S. federal
income tax consequences to such U.S. Holder, including specific tax consequences
to a U.S. Holder under an applicable tax treaty. Accordingly, this summary is
not intended to be, and should not be construed as, legal or U.S. federal income
tax advice with respect to any U.S. Holder. This summary does not address the
U.S. federal alternative minimum, U.S. federal estate and gift, U.S. state and
local, and non-U.S. tax consequences to U.S. Holders of the acquisition,
ownership, and disposition of common shares. Except as specifically set forth
below, this summary does not discuss applicable tax reporting requirements. Each
U.S. Holder should consult its own tax advisor regarding the U.S. federal, U.S.
federal alternative minimum, U.S. federal estate and gift, U.S. state and local,
and non-U.S. tax consequences relating to the acquisition, ownership and
disposition of common shares.
No legal opinion from U.S. legal counsel or ruling from the
Internal Revenue Service (the "IRS") has been requested, or will be obtained,
regarding the U.S. federal income tax consequences of the acquisition,
ownership, and disposition of common shares. This summary is not binding on the
IRS, and the IRS is not precluded from taking a position that is different from,
and contrary to, the positions taken in this summary. In addition, because the
authorities on which this summary is based are subject to various
interpretations, the IRS and the U.S. courts could disagree with one or more of
the positions taken in this summary.
Scope of this Summary
Authorities
This summary is based on the Internal Revenue Code of 1986, as
amended (the "Code"), Treasury Regulations (whether final, temporary, or
proposed), published rulings of the IRS, published administrative positions of
the IRS, the Treaty, and U.S. court decisions that are applicable and, in each
case, as in effect and available, as of the date of this document. Any of the
authorities on which this summary is based could be changed in a material and
adverse manner at any time, and any such change could be applied on a
retroactive or prospective basis which could affect the U.S. federal income tax
considerations described in this summary. This summary does not discuss the
potential effects, whether adverse or beneficial, of any proposed legislation
that, if enacted, could be applied on a retroactive or prospective basis.
92
U.S. Holders
For purposes of this summary, the term "U.S. Holder" means a
beneficial owner of common shares that is for U.S. federal income tax purposes:
-
an individual who is a citizen or resident of the U.S.;
-
a corporation (or other entity taxable as a corporation for U.S. federal
income tax purposes) organized under the laws of the U.S., any state thereof
or the District of Columbia;
-
an estate whose income is subject to U.S. federal income taxation
regardless of its source; or
-
a trust that (1) is subject to the primary supervision of a court within
the U.S. and the control of one or more U.S. persons for all substantial
decisions or (2) has a valid election in effect under applicable Treasury
Regulations to be treated as a U.S. person.
Non-U.S. Holders
For purposes of this summary, a "non-U.S. Holder" is a
beneficial owner of common shares that is not a U.S. Holder or is a partnership.
This summary does not address the U.S. federal income tax consequences to
non-U.S. Holders arising from and relating to the acquisition, ownership, and
disposition of common shares. Accordingly, a non-U.S. Holder should consult its
own tax advisor regarding the U.S. federal, U.S. federal alternative minimum,
U.S. federal estate and gift, U.S. state and local, and non-U.S. tax
consequences (including the potential application of and operation of any income
tax treaties) relating to the acquisition, ownership, and disposition of common
shares.
U.S. Holders Subject to Special U.S. Federal Income Tax
Rules Not Addressed
This summary does not address the U.S. federal income tax
considerations applicable to U.S. Holders that are subject to special provisions
under the Code, including, but not limited to, U.S. Holders that: (a) are
tax-exempt organizations, qualified retirement plans, individual retirement
accounts, or other tax-deferred accounts; (b) are financial institutions,
underwriters, insurance companies, real estate investment trusts, or regulated
investment companies; (c) are broker-dealers, dealers, or traders in securities
or currencies that elect to apply a mark-to-market accounting method; (d) have a
"functional currency" other than the U.S. dollar; (e) own common shares as part
of a straddle, hedging transaction, conversion transaction, constructive sale,
or other arrangement involving more than one position; (f) acquired common
shares in connection with the exercise of employee stock options or otherwise as
compensation for services; (g) hold common shares other than as a capital asset
within the meaning of Section 1221 of the Code (generally, property held for
investment purposes); (h) are required to accelerate the recognition of any item
of gross income with respect to Securities as a result of such income being
recognized on an applicable financial statement; or (i) own or have owned
(directly, indirectly, or by attribution) 10% or more of the total combined
voting power or value of the outstanding shares of EMX . This summary also does
not address the U.S. federal income tax considerations applicable to U.S.
Holders who are: (a) U.S. expatriates or former long-term residents of the U.S.;
(b) persons that have been, are, or will be a resident or deemed to be a
resident in Canada for purposes of the Act; (c) persons that use or hold, will
use or hold, or that are or will be deemed to use or hold common shares in
connection with carrying on a business in Canada; (d) persons whose common
shares constitute "taxable Canadian property" under the Act; or (e) persons that
have a permanent establishment in Canada for the purposes of the Treaty. U.S.
Holders that are subject to special provisions under the Code, including, but
not limited to, U.S. Holders described immediately above, should consult their
own tax advisor regarding the U.S. federal, U.S. federal alternative minimum,
U.S. federal estate and gift, U.S. state and local, and non-U.S. tax
consequences relating to the acquisition, ownership and disposition of common
shares.
If an entity or arrangement that is classified as a partnership
(or "pass-through" entity) for U.S. federal income tax purposes holds common
shares, the U.S. federal income tax consequences to such partnership and the
partners (or owners) of such partnership generally will depend on the activities
of the partnership and the status of such partners (or owners). This summary
does not address the tax consequences to any such partnership or partner (or
owner). Partners (or owners) of entities or arrangements that are classified as
partnerships for U.S. federal income tax purposes should consult their own tax
advisors regarding the U.S. federal income tax consequences arising from and
relating to the acquisition, ownership, and disposition of common shares.
93
Passive Foreign Investment Company Rules
If EMX were to constitute a "passive foreign investment
company" (a PFIC), as defined below, within the meaning of Section 1297 of the
Code, for any year during a U.S. Holders holding period, then certain different
and potentially adverse rules will affect the U.S. federal income tax
consequences to a U.S. Holder resulting from the acquisition, ownership and
disposition of common shares. In addition, in any year in which EMX is
classified as a PFIC, such holder will be required to file an annual report with
the IRS containing such information as Treasury Regulations or other IRS
guidance may require. A failure to satisfy such reporting requirements may
result in an extension of the time period during which the IRS can assess a tax.
U.S. Holders should consult their own tax advisors regarding the requirements of
filing such information returns under these rules, including the requirement to
file an IRS Form 8621.
PFIC Status of EMX
EMX generally will be a PFIC if, for a tax year, (a) 75% or
more of the gross income of EMX is passive income (the "income test"), or (b)
50% or more of the value of EMX s assets either produce passive income or are
held for the production of passive income, based on the quarterly average of the
fair market value of such assets (the "asset test"). "Gross income" generally
includes all sales revenues less the cost of goods sold, plus income from
investments and from incidental or outside operations or sources, and "passive
income" generally includes, for example, dividends, interest, certain rents and
royalties, certain gains from the sale of stock and securities, and certain
gains from commodities transactions.
Active business gains arising from the sale of commodities
generally are excluded from passive income if substantially all (85% or more) of
a foreign corporations commodities are stock in trade of such foreign
corporation or other property of a kind which would properly be included in
inventory of such foreign corporation, or property held by such foreign
corporation primarily for sale to customers in the ordinary course of business
and certain other requirements are satisfied.
For purposes of the PFIC income test and asset test described
above, if EMX owns, directly or indirectly, 25% or more of the total value of
the outstanding shares of another corporation, EMX will be treated as if it (a)
held a proportionate share of the assets of such other corporation and (b)
received directly a proportionate share of the income of such other corporation.
In addition, for purposes of the PFIC income test and asset test described
above, and assuming certain other requirements are met, "passive income" does
not include certain interest, dividends, rents, or royalties that are received
or accrued by EMX from certain "related persons" (as defined in Section
954(d)(3) of the Code), to the extent such items are properly allocable to the
income of such related person that is not passive income.
EMX currently expects that it will be classified as a passive
foreign investment company (PFIC) for the tax year ending December 31, 2018
and expects to be a PFIC in future tax years. No opinion of legal counsel or
ruling from the IRS concerning the status of EMX as a PFIC has been obtained or
is currently planned to be requested. The determination of whether any
corporation was, or will be, a PFIC for a tax year depends, in part, on the
application of complex U.S. federal income tax rules, which are subject to
differing interpretations. In addition, whether any corporation will be a PFIC
for any tax year depends on the assets and income of such corporation over the
course of each such tax year and, as a result, cannot be predicted with
certainty as of the date of this document. Accordingly, there can be no
assurance that the IRS will not challenge any determination made by EMX
concerning its PFIC status. Each U.S. Holder should consult its own tax advisor
regarding the PFIC status of EMX .
Default PFIC Rules Under Section 1291 of the Code
If EMX is a PFIC, the U.S. federal income tax consequences to a
U.S. Holder of the acquisition, ownership, and disposition of common shares will
depend on whether such U.S. Holder makes an election to treat EMX as a
"qualified electing fund", or "QEF", under Section 1295 of the Code, or a "QEF
Election", or a mark-to-market election under Section 1296 of the Code, or a
"Mark-to-Market Election". A U.S. Holder that does not make either a QEF
Election or a Mark-to-Market Election will be referred to in this summary as a
"Non-Electing U.S. Holder".
A Non-Electing U.S. Holder will be subject to the rules of
Section 1291 of the Code with respect to, (a) any gain recognized on the sale or
other taxable disposition of common shares, and (b) any excess distribution
received on common shares. A distribution generally will be an "excess
distribution" to the extent that such distribution (together with all other
distributions received in the current tax year) exceeds 125% of the average
distributions received during the three preceding tax years (or during a U.S.
Holders holding period for common shares, if shorter).
Under Section 1291 of the Code, any gain recognized on the sale
or other taxable disposition of common shares and any "excess distribution"
received on common shares must be ratably allocated to each day in a
Non-Electing U.S. Holders holding period for the respective common shares. The
amount of any such gain or excess distribution allocated to the tax year of disposition or distribution of the excess distribution
and to years before the entity became a PFIC, if any, would be taxed as ordinary
income. The amounts allocated to any other tax year would be subject to U.S.
federal income tax at the highest tax rate applicable to ordinary income in each
such year, and an interest charge would be imposed on the tax liability for each
such year, calculated as if such tax liability had been due in each such year. A
Non-Electing U.S. Holder that is not a corporation must treat any such interest
paid as "personal interest", which is not deductible.
94
If EMX is a PFIC for any tax year during which a Non-Electing
U.S. Holder holds common shares, EMX will continue to be treated as a PFIC with
respect to such Non-Electing U.S. Holder, regardless of whether EMX ceases to be
a PFIC in one or more subsequent tax years. A Non-Electing U.S. Holder may
terminate this deemed PFIC status by electing to recognize gain (which will be
taxed under the rules of Section 1291 of the Code discussed above), but not
loss, as if such common shares were sold on the last day of the last tax year
for which EMX was a PFIC.
QEF Election
A U.S. Holder that makes a timely and effective QEF Election
for the first tax year in which its holding period of its common shares begins
generally will not be subject to the rules of Section 1291 of the Code discussed
above with respect to its common shares. A U.S. Holder that makes a timely and
effective QEF Election will be subject to U.S. federal income tax on such U.S.
Holders pro rata share of, (a) the net capital gain of EMX, which will be taxed
as long-term capital gain to such U.S. Holder, and (b) the ordinary earnings of
EMX, which will be taxed as ordinary income to such U.S. Holder. Generally, "net
capital gain" is the excess of (i) net long-term capital gain over (ii) net
short-term capital loss, and "ordinary earnings" are the excess of (i) "earnings
and profits" over (ii) net capital gain. A U.S. Holder that makes a QEF Election
will be subject to U.S. federal income tax on such amounts for each tax year in
which EMX is a PFIC, regardless of whether such amounts are actually distributed
to such U.S. Holder by EMX. However, for any tax year in which EMX is a PFIC and
has no net income or gain, U.S. Holders that have made a QEF Election would not
have any income inclusions as a result of the QEF Election. If a U.S. Holder
that made a QEF Election has an income inclusion, such U.S. Holder may, subject
to certain limitations, elect to defer payment of current U.S. federal income
tax on such amounts, subject to an interest charge. If such U.S. Holder is not a
corporation, any such interest paid will be treated as "personal interest",
which is not deductible.
A U.S. Holder that makes a timely and effective QEF Election
with respect to EMX generally, (a) may receive a tax-free distribution from EMX
to the extent that such distribution represents "earnings and profits" of EMX
that were previously included in income by the U.S. Holder because of such QEF
Election, and (b) will adjust such U.S. Holders tax basis in common shares to
reflect the amount included in income or allowed as a tax-free distribution
because of such QEF Election. In addition, a U.S. Holder that makes a QEF
Election generally will recognize capital gain or loss on the sale or other
taxable disposition of common shares.
The procedure for making a QEF Election, and the U.S. federal
income tax consequences of making a QEF Election, will depend on whether such
QEF Election is timely. A QEF Election will be treated as "timely" if such QEF
Election is made for the first year in the U.S. Holders holding period for
common shares in which EMX was a PFIC. A U.S. Holder may make a timely QEF
Election by filing the appropriate QEF Election documents at the time such U.S.
Holder files a U.S. federal income tax return for such year. If a U.S. Holder
does not make a timely and effective QEF Election for the first year in the U.S.
Holders holding period for common shares, the U.S. Holder may still be able to
make a timely and effective QEF Election in a subsequent year if such U.S.
Holder also makes a "purging" election to recognize gain (which will be taxed
under the rules of Section 1291 of the Code discussed above) as if such common
shares were sold for their fair market value on the day the QEF Election is
effective.
A QEF Election will apply to the tax year for which such QEF
Election is timely made and to all subsequent tax years, unless such QEF
Election is invalidated or terminated or the IRS consents to revocation of such
QEF Election. If a U.S. Holder makes a QEF Election and, in a subsequent tax
year, EMX ceases to be a PFIC, the QEF Election will remain in effect (although
it will not be applicable) during those tax years in which EMX is not a PFIC.
Accordingly, if EMX becomes a PFIC in another subsequent tax year, the QEF
Election will be effective and the U.S. Holder will be subject to the QEF rules
described above during any subsequent tax year in which EMX qualifies as a PFIC.
For each tax year that EMX qualifies as a PFIC, EMX intends to:
(a) make available to U.S. Holders, upon their written request, a PFIC Annual
Information Statement as described in Treasury Regulation Section 1.1295 -1(g)
(or any successor Treasury Regulation) and (b) upon written request, use
commercially reasonable efforts to provide all additional information that such
U.S. Holder is required to obtain in connection with maintaining such QEF
Election with regard to EMX. EMX may elect to provide such information on its
website,
www.EMXRoyalty.com
. Each U.S. Holder
should consult its own tax advisor regarding the availability of, and procedure
for making, a QEF Election.
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A U.S. Holder makes a QEF Election by attaching a completed IRS
Form 8621, including a PFIC Annual Information Statement, to a timely filed U.S.
federal income tax return. However, if EMX does not provide the required
information with regard to EMX, U.S. Holders will not be able to make a QEF
Election for such entity and will continue to be subject to the rules of Section
1291 of the Code discussed above that apply to Non-Electing U.S. Holders with
respect to the taxation of gains and excess distributions.
Mark-to-Market Election
A U.S. Holder may make a Mark-to-Market Election only if the
common shares are marketable stock. Common shares generally will be "marketable
stock" if the common shares are regularly traded on, (a) a national securities
exchange that is registered with the SEC, (b) the national market system
established pursuant to section 11A of the U.S. Exchange Act, or (c) a foreign
securities exchange that is regulated or supervised by a governmental authority
of the country in which the market is located, provided that, (i) such foreign
exchange has trading volume, listing, financial disclosure, and meets other
requirements and the laws of the country in which such foreign exchange is
located, together with the rules of such foreign exchange, ensure that such
requirements are actually enforced, and (ii) the rules of such foreign exchange
ensure active trading of listed stocks. If EMXs common shares are traded on
such a qualified exchange or other market, the common shares generally will be
"regularly traded" for any calendar year during which common shares are traded,
other than in de minimis quantities, on at least 15 days during each calendar
quarter.
A U.S. Holder that makes a Mark-to-Market Election with respect
to its common shares generally will not be subject to the rules of Section 1291
of the Code discussed above with respect to such common shares. However, if a
U.S. Holder does not make a Mark-to-Market Election beginning in the first tax
year of such U.S. Holders holding period for common shares or such U.S. Holder
has not made a timely QEF Election, the rules of Section 1291 of the Code
discussed above will apply to certain dispositions of, and distributions on,
common shares.
A U.S. Holder that makes a Mark-to-Market Election will include
in ordinary income, for each tax year in which EMX is a PFIC, an amount equal to
the excess, if any, of (i) the fair market value of common shares, as of the
close of such tax year over (ii) such U.S. Holders tax basis in such common
shares. A U.S. Holder that makes a Mark-to-Market Election will be allowed a
deduction in an amount equal to the excess, if any, of (i) such U.S. Holders
adjusted tax basis in common shares, over (ii) the fair market value of such
common shares (but only to the extent of the net amount of previously included
income as a result of the Mark-to-Market Election for prior tax years).
A U.S. Holder that makes a Mark-to-Market Election generally
also will adjust such U.S. Holders tax basis in common shares to reflect the
amount included in gross income or allowed as a deduction because of such
Mark-to-Market Election. In addition, upon a sale or other taxable disposition
of common shares, a U.S. Holder that makes a Mark-to-Market Election will
recognize ordinary income or ordinary loss (not to exceed the excess, if any, of
(i) the amount included in ordinary income because of such Mark-to-Market
Election for prior tax years over (ii) the amount allowed as a deduction because
of such Mark-to-Market Election for prior tax years).
A U.S. Holder makes a Mark-to-Market Election by attaching a
completed IRS Form 8621 to a timely filed U.S. federal income tax return. A
Mark-to-Market Election applies to the tax year in which such Mark-to-Market
Election is made and to each subsequent tax year, unless common shares cease to
be "marketable stock" or the IRS consents to revocation of such election. Each
U.S. Holder should consult its own tax advisor regarding the availability of,
and procedure for making, a Mark-to-Market Election.
Other PFIC Rules
Under Section 1291(f) of the Code, the IRS has issued proposed
Treasury Regulations that, subject to certain exceptions, would cause a U.S.
Holder that had not made a timely QEF Election to recognize gain (but not loss)
upon certain transfers of common shares that would otherwise be tax-deferred
(e.g., gifts and exchanges pursuant to corporate reorganizations). However, the
specific U.S. federal income tax consequences to a U.S. Holder may vary based on
the manner in which common shares are transferred.
Certain additional adverse rules will apply with respect to a
U.S. Holder if EMX is a PFIC, regardless of whether such U.S. Holder makes a QEF
Election. For example under Section 1298(b)(6) of the Code, a U.S. Holder that
uses common shares as security for a loan will, except as may be provided in
Treasury Regulations, be treated as having made a taxable disposition of such
common shares.
Special rules also apply to the amount of foreign tax credit
that a U.S. Holder may claim on a distribution from a PFIC. Subject to such
special rules, foreign taxes paid with respect to any distribution in respect of
stock in a PFIC are generally eligible for the foreign tax credit. The rules relating to
distributions by a PFIC and their eligibility for the foreign tax credit are
complicated, and a U.S. Holder should consult with their own tax advisor
regarding the availability of the foreign tax credit with respect to
distributions by a PFIC.
96
The PFIC rules are complex, and each U.S. Holder should consult
its own tax advisor regarding the PFIC rules and how the PFIC rules may affect
the U.S. federal income tax consequences of the acquisition, ownership, and
disposition of common shares.
Ownership and Disposition of Common Shares
The following discussion is subject to the rules described
above under the heading "Passive Foreign Investment Company Rules".
Distributions on Common Shares
Subject to the PFIC rules discussed above, a U.S. Holder that
receives a distribution, including a constructive distribution, with respect to
common shares will be required to include the amount of such distribution in
gross income as a dividend (without reduction for any Canadian income tax
withheld from such distribution) to the extent of the current or accumulated
"earnings and profits" of EMX, as computed for U.S. federal income tax purposes.
A dividend generally will be taxed to a U.S. Holder at ordinary income tax rates
if EMX is a PFIC. To the extent that a distribution exceeds the current and
accumulated "earnings and profits" of EMX, such distribution will be treated
first as a tax-free return of capital to the extent of a U.S. Holder's tax basis
in common shares and thereafter as gain from the sale or exchange of such common
shares. See "Sale or Other Taxable Disposition of Common Shares" below. However,
EMX may not maintain the calculations of earnings and profits in accordance with
U.S. federal income tax principles, and each U.S. Holder should therefore assume
that any distribution by EMX with respect to common shares will constitute
ordinary dividend income. Dividends received on common shares generally will not
be eligible for the "dividends received deduction". Subject to applicable
limitations and provided EMX is eligible for the benefits of the Treaty,
dividends paid by EMX to non-corporate U.S. Holders, including individuals,
generally will be eligible for the preferential tax rates applicable to
long-term capital gains for dividends, provided certain holding period and other
conditions are satisfied, including that EMX not be classified as a PFIC in the
tax year of distribution or in the preceding tax year. The dividend rules are
complex, and each U.S. Holder should consult its own tax advisor regarding the
application of such rules.
Sale or Other Taxable Disposition of Common Shares
Subject to the PFIC rules discussed above, upon the sale or
other taxable disposition of common shares, a U.S. Holder generally will
recognize capital gain or loss in an amount equal to the difference between the
amount of cash plus the fair market value of any property received and such U.S.
Holder's tax basis in such common shares sold or otherwise disposed of. Subject
to the PFIC rules discussed above, gain or loss recognized on such sale or other
disposition generally will be long-term capital gain or loss if, at the time of
the sale or other disposition, common shares have been held for more than one
year.
Preferential tax rates apply to long-term capital gain of a
U.S. Holder that is an individual, estate, or trust. There are currently no
preferential tax rates for long-term capital gain of a U.S. Holder that is a
corporation. Deductions for capital losses are subject to significant
limitations under the Code.
Additional Considerations
Additional Tax on Passive Income
Certain U.S. Holders that are individuals, estates or trusts
(other than trusts that are exempt from tax) will be subject to a 3.8% tax on
all or a portion of their "net investment income", which includes dividends on
the common shares and net gains from the disposition of the common shares.
Further, excess distributions treated as dividends, gains treated as excess
distributions under the PFIC rules discussed above, and mark-to-market
inclusions and deductions are all included in the calculation of net investment
income.
Treasury Regulations provide, subject to the election described
in the following paragraph, that solely for purposes of this additional tax,
that distributions of previously taxed income will be treated as dividends and
included in net investment income subject to the additional 3.8% tax.
Additionally, to determine the amount of any capital gain from the sale or other
taxable disposition of common shares that will be subject to the additional tax
on net investment income, a U.S. Holder who has made a QEF Election will be
required to recalculate its basis in the common shares excluding QEF basis
adjustments.
97
Alternatively, a U.S. Holder may make an election which will be
effective with respect to all interests in a PFIC for which a QEF Election has
been made and which is held in that year or acquired in future years. Under this
election, a U.S. Holder pays the additional 3.8% tax on QEF income inclusions
and on gains calculated after giving effect to related tax basis adjustments.
U.S. Holders that are individuals, estates or trusts should consult their own
tax advisors regarding the applicability of this tax to any of their income or
gains in respect of the common shares.
Receipt of Foreign Currency
The amount of any distribution paid to a U.S. Holder in foreign
currency, or on the sale, exchange or other taxable disposition of common
shares, generally will be equal to the U.S. dollar value of such foreign
currency based on the exchange rate applicable on the date of receipt
(regardless of whether such foreign currency is converted into U.S. dollars at
that time). A U.S. Holder will have a basis in the foreign currency equal to its
U.S. dollar value on the date of receipt. Any U.S. Holder who converts or
otherwise disposes of the foreign currency after the date of receipt may have a
foreign currency exchange gain or loss that would be treated as ordinary income
or loss, and generally will be U.S. source income or loss for foreign tax credit
purposes. Different rules apply to U.S. Holders who use the accrual method. Each
U.S. Holder should consult its own U.S. tax advisors regarding the U.S. federal
income tax consequences of receiving, owning, and disposing of foreign currency.
Foreign Tax Credit
Subject to the PFIC rules discussed above, a U.S. Holder that
pays (whether directly or through withholding) Canadian income tax with respect
to dividends paid on common shares generally will be entitled, at the election
of such U.S. Holder, to receive either a deduction or a credit for such Canadian
income tax paid. Generally, a credit will reduce a U.S. Holders U.S. federal
income tax liability on a dollar-for-dollar basis, whereas a deduction will
reduce a U.S. Holders income subject to U.S. federal income tax. This election
is made on a year-by-year basis and applies to all foreign taxes paid (whether
directly or through withholding) by a U.S. Holder during a year.
Complex limitations apply to the foreign tax credit, including
the general limitation that the credit cannot exceed the proportionate share of
a U.S. Holders U.S. federal income tax liability that such U.S. Holders
"foreign source" taxable income bears to such U.S. Holders worldwide taxable
income. In applying this limitation, a U.S. Holders various items of income and
deduction must be classified, under complex rules, as either "foreign source" or
"U.S. source". Generally, dividends paid by a foreign corporation should be
treated as foreign source for this purpose, and gains recognized on the sale of
stock of a foreign corporation by a U.S. Holder should be treated as U.S. source
for this purpose, except as otherwise provided in an applicable income tax
treaty, and if an election is properly made under the Code. However, the amount
of a distribution with respect to common shares that is treated as a "dividend"
may be lower for U.S. federal income tax purposes than it is for Canadian
federal income tax purposes, resulting in a reduced foreign tax credit allowance
to a U.S. Holder. In addition, this limitation is calculated separately with
respect to specific categories of income. The foreign tax credit rules are
complex, and each U.S. Holder should consult its own U.S. tax advisor regarding
the foreign tax credit rules.
Backup Withholding and Information Reporting
Under U.S. federal income tax law and Treasury Regulations,
certain categories of U.S. Holders must file information returns with respect to
their investment in, or involvement in, a foreign corporation. For example, U.S.
return disclosure obligations (and related penalties) are imposed on individuals
who are U.S. Holders that hold certain specified foreign financial assets in
excess of certain threshold amounts. The definition of specified foreign
financial assets includes not only financial accounts maintained in foreign
financial institutions, but also, unless held in accounts maintained by a
financial institution, any stock or security issued by a non-U.S. person, any
financial instrument or contract held for investment that has an issuer or
counterparty other than a U.S. person and any interest in a foreign entity. U.S.
Holders may be subject to these reporting requirements unless their common
shares are held in an account at certain financial institutions. Penalties for
failure to file certain of these information returns are substantial. U.S.
Holders should consult with their own tax advisors regarding the requirements of
filing information returns, including the requirement to file an IRS Form 8938.
Payments made within the U.S. or by a U.S. payor or U.S.
middleman, of dividends on, and proceeds arising from the sale or other taxable
disposition of, common shares will generally be subject to information reporting
and backup withholding tax, at the rate of 24%, if a U.S. Holder, (a) fails to
furnish such U.S. Holders correct U.S. taxpayer identification number
(generally on IRS Form W-9), (b) furnishes an incorrect U.S. taxpayer
identification number, (c) is notified by the IRS that such U.S. Holder has
previously failed to properly report items subject to backup withholding tax, or
(d) fails to certify, under penalty of perjury, that such U.S. Holder has
furnished its correct U.S. taxpayer identification number and that the IRS has
not notified such U.S. Holder that it is subject to backup withholding tax.
However, certain exempt persons generally are excluded from these information
reporting and backup withholding rules. Any amounts withheld under the U.S.
backup withholding tax rules will be allowed as a credit against a
U.S. Holders U.S. federal income tax liability, if any, or will be refunded, if
such U.S. Holder furnishes required information to the IRS in a timely
manner.
98
The discussion of reporting requirements set forth above is not
intended to constitute a complete description of all reporting requirements that
may apply to a U.S. Holder. A failure to satisfy certain reporting requirements
may result in an extension of the time period during which the IRS can assess a
tax, and under certain circumstances, such an extension may apply to assessments
of amounts unrelated to any unsatisfied reporting requirement. Each U.S. Holder
should consult its own tax advisors regarding the information reporting and
backup withholding rules.
10.F. Dividends and Paying Agents
Not applicable.
10.G. Statement by Experts
Not applicable.
10.H. Documents on Display
Copies of the documents referenced in this annual report are
available at the Companys office located at Suite 501, 543 Granville Street,
Vancouver, British Columbia, Canada.
ITEM 11. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT
MARKET RISK
Credit Risk
The Company is exposed to credit risk by holding cash and cash
equivalents and receivables. This risk is minimized by holding a significant
portion of the funds in Canadian banks. The Companys exposure with respect to
its receivables is primarily related to royalty streams, recovery of exploration
evaluation costs, and convertible promissory notes.
Interest Rate Risk
The Company is exposed to interest rate risk because of
fluctuating interest rates. Management believes the interest rate risk is low
given interest rates on promissory notes is fixed and the current low global
interest rate environment. Fluctuations in market rates is not expected to have
a significant impact on the Companys operations due to the short term to
maturity and no penalty cashable feature of its cash equivalents.
Market Risk
The Company is exposed to market risk because of the
fluctuating values of its publicly traded marketable securities and other
company investments. The Company has no control over these fluctuations and does
not hedge its investments. Based on the December 31, 2018
portfolio
values, a 10% increase or decrease in effective market values would increase or
decrease net shareholders equity by approximately $150,000.
Liquidity Risk
Liquidity risk is the risk that the Company is unable to meet
its financial obligations as they come due. The Company manages this risk by
careful management of its working capital to ensure the Companys expenditures
will not exceed available resources.
Commodity Risk
The Companys royalty revenues are derived from a royalty
interest and are based on the extraction and sale of precious and base minerals
and metals. Factors beyond the control of the Company may affect the
marketability of metals discovered. Metal prices have historically fluctuated
widely. Consequently, the economic viability of the Companys royalty interests
cannot be accurately predicted and may be adversely affected by fluctuations in
mineral prices.
Currency Risk
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Foreign exchange risk arises when future commercial
transactions and recognized assets and liabilities are denominated in a currency
that is not the entitys functional currency. The Company operates in Canada,
Turkey, Sweden, Australia and the U.S.A. The Company funds cash calls to its
subsidiary companies outside of Canada in US dollars and a portion of its
expenditures are also incurred in local currencies.
ITEM 12. DESCRIPTION OF SECURITIES OTHER THAN EQUITY
SECURITIES
Not applicable.
The accompanying notes are an integral part of these
consolidated financial statements.
The accompanying notes are an integral part of these
consolidated financial statements.
The accompanying notes are an integral part of these
consolidated financial statements.
The accompanying notes are an integral part of these
consolidated financial statements.
The accompanying notes are an integral part of these
consolidated financial statements.
The accompanying notes are an integral part of these
consolidated financial statements.
EMX Royalty Corporation (the Company or EMX), together with
its subsidiaries operates as a royalty and prospect generator engaged in the
exploring for, and generating royalties from, metals and minerals properties.
The Companys royalty and exploration portfolio mainly consists of properties in
North America, Turkey, Europe, Haiti, Australia, and New Zealand. The Companys
common shares are listed on the TSX Venture Exchange (TSX-V) and the NYSE
American under the symbol of EMX. The Companys head office is located at 501
- 543 Granville Street, Vancouver, British Columbia, Canada V6C 1X8.
These consolidated financial statements have been prepared
using International Financial Reporting Standards (IFRS) applicable to a going
concern, which assumes that the Company will be able to realize its assets,
discharge its liabilities and continue in operation for the following twelve
months.
In October 2018 EMXs associated Company, IG Copper LLC (IGC)
completed the sale of the Malmyzh project (Malmyzh) to Russian Copper Company
(RCC) for US$200 million. Of this amount, US$190 million was released from
escrow, with the remaining US$10 million to be held in escrow and released
subject to certain conditions over 12 months following the date of sale. The
initial cash distribution to EMX by IGC of US$65 million was received by the
Company in October 2018. A second cash distribution to EMX of up to US$4 million
will be completed upon the remaining funds being released from escrow.
Management believes with the distribution received as part of
the sale of Malmyzh, it will have sufficient working capital to undertake its
current business and the budgets associated with those plans for the next twelve
months and the foreseeable future.
Some of the Companys activities for exploration and evaluation
assets are located in emerging nations and, consequently, may be subject to a
higher level of risk compared to other developed countries. Operations, the
status of mineral property rights and the recoverability of investments in
emerging nations can be affected by changing economic, legal, regulatory and
political situations.
At the date of these consolidated financial statements, the
Company has not identified a known body of commercial grade mineral on any of
its exploration and evaluation assets. The ability of the Company to realize the
costs it has incurred to date on these exploration and evaluation assets is
dependent upon the Company identifying a commercial mineral body, to finance its
development costs and to resolve any environmental, regulatory or other
constraints which may hinder the successful development of the exploration and
evaluation assets.
These consolidated financial statements of the Company are
presented in Canadian dollars unless otherwise noted, which is the functional
currency of the parent company and its subsidiaries except as to Bullion Monarch
Mining, Inc. (BULM), the holder of a royalty income stream whose functional
currency is the United States (US) dollar.
These consolidated financial statements have been prepared in
accordance with IFRS as issued by the International Accounting Standards Board
(IASB) and interpretations of the International Financial Reporting
Interpretations Committee (IFRIC).
These consolidated financial statements have been prepared on a
historical cost basis, except for financial instruments classified as fair value
through profit or loss and fair value through other comprehensive income, which
are stated at their fair value. In addition, these consolidated financial
statements have been prepared using the accrual basis of accounting except for
cash flow information.
The consolidated financial statements comprise the accounts of
EMX Royalty Corp., the parent company, and its controlled subsidiaries, after
the elimination of all significant intercompany balances and transactions.
Subsidiaries are all entities over which the Company has
exposure to variable returns from its involvement and has the ability to use
power over the investee to affect its returns. The existence and effect of
potential voting rights that are currently exercisable or convertible are
considered when assessing whether the Company controls another entity.
Subsidiaries are fully consolidated from the date on which control is
transferred to the Company until the date on which control ceases.
The accounts of subsidiaries are prepared for the same
reporting period as the parent company, using consistent accounting policies.
Inter-company transactions, balances and unrealized gains or losses on
transactions are eliminated. The Companys principal operating subsidiaries are
as follows:
The functional currency is the currency of the primary economic
environment in which the entity operates. The functional currency for the
Company and its subsidiaries is the Canadian dollar except the functional
currency of the operations of Bullion Monarch which is the US dollar. The
functional currency determinations were conducted through an analysis of the
consideration factors identified in IAS 21, The Effects of Changes in Foreign
Exchange Rates.
Foreign currency transactions are translated into the
functional currency using the exchange rates prevailing at the dates of the
transactions or valuation where items are re-measured. Monetary assets and
liabilities denominated in foreign currencies are re-measured at the rate of
exchange at each financial position date. Foreign exchange gains and losses
resulting from the settlement of such transactions and from the translation at
period end exchange rates of monetary assets and liabilities denominated in
foreign currencies are recognized in profit or loss.
On translation of the entities whose functional currency is
other than the Canadian dollar, revenues and expenses are translated at the
exchange rates approximating those in effect on the date of the transactions.
Assets and liabilities are translated at the rate of exchange at the reporting
date. Exchange gains and losses, including results of re-translation, are
recorded in the foreign currency translation reserve.
Effective January 1, 2018, the Company has adopted IFRS 15
Revenue from Contracts with Customers (IFRS 15). IFRS 15 replaces all previous
revenue recognition standards, including IAS 18, Revenue, and related
interpretations. The standard sets out the requirements for recognizing revenue.
Specifically, the new standard introduces a comprehensive framework with the
general principle being that an entity recognizes revenue to depict the transfer
of promised goods and services in an amount that reflects the consideration to
which the entity expects to be entitled in exchange for those goods or services.
The standard introduces more prescriptive guidance than was included in previous
standards and may result in changes to the timing of revenue for certain types
of revenues. The new standard will also result in enhanced disclosures about
revenue that would result in an entity providing comprehensive information about
the nature, amount, timing and uncertainty of revenue and cash flows arising
from the entitys contracts with customers. As of January 1, 2018, the Company
has adopted IFRS 15 on a full retrospective basis and as such, has revised its
revenue recognition policy based on the requirements of IFRS 15. Management has
concluded that, based on its current operations, the adoption of IFRS 15 had no
significant impact on the Companys consolidated financial statements.
The Company earns revenue from royalty agreements and are based
upon amounts contractually due pursuant to the underlying royalty agreements.
For royalty agreements paid in cash or in kind, revenue recognition will depend
on the related agreement. Revenue is measured at the fair value of the
consideration received or receivable when management can reliably estimate the
amount pursuant to the terms of the royalty or other interest agreements. In
some instances, the Company will not have access to sufficient information to
make a reasonable estimate of revenue and, accordingly, revenue recognition is
deferred until management can make a reasonable estimate. Royalty revenue may be
subject to adjustment upon final settlement of estimated metal prices, weights,
and assays. Adjustments to revenue from metal prices are recorded monthly and
other adjustments are recorded on final settlement and are offset against
revenue when incurred.
Effective January 1, 2018, the Company adopted IFRS 9
Financial Instruments (IFRS 9) which replaced IAS 39 Financial Instruments:
Recognition and Measurement (IAS 39). IFRS 9 provides a revised model for
recognition and measurement of financial instruments and a single,
forward-looking expected loss impairment model. IFRS 9 also includes
significant changes to hedge accounting. The standard is effective for annual
periods beginning on or after January 1, 2018. The Company adopted the standard
retrospectively without restatement. As a result of the adoption of IFRS 9, the
Company reclassified $740,685 from accumulated other comprehensive income (loss)
to deficit on January 1, 2018 related to the reclassification of certain
previously recognized available-for-sale marketable securities to fair value
through profit or loss. The Company has also made an irrevocable election to
present in other comprehensive income (loss) subsequent changes in the fair
value of certain available-for-sale marketable securities classified as
strategic investments.
IFRS 9 largely retains the existing requirements in IAS 39 for
the classification and measurement of financial liabilities. However, it
eliminates the previous IAS 39 categories for financial assets of held to
maturity, loans and receivables, and available-for-sale.
Under IFRS 9, on initial recognition, financial assets are
recognized at fair value and are subsequently classified and measured at
amortized cost, fair value through other comprehensive income (FVOCI), or fair
value through profit or loss (FVTPL). The classification of financial assets
is generally based on the business model in which a financial asset is managed
and its contractual cash flow characteristics. A financial asset is measured at
fair value net of transaction costs that are directly attributable to its
acquisition except for financial assets at FVTPL where transaction costs are
expensed. All financial assets not classified and measured at amortized cost or
FVOCI are measured at FVTPL.
Derivatives embedded in contracts where the host is a financial
asset in the scope of the standard are never separated, and instead the hybrid
financial instrument as a whole is assessed for classification. On initial
recognition of an equity instrument that is not held for trading, the Company
may irrevocably elect to present subsequent changes in the investments fair
value in other comprehensive income (loss). This election is made on an
investment-by-investment basis.
The classification determines the method by which the financial
assets are carried on the consolidated statement of financial position
subsequent to initial recognition and how changes in value are recorded. The
following accounting policies apply to the subsequent measurement of financial
assets.
Financial liabilities are designated as either fair value
through profit or loss, or other financial liabilities. All financial
liabilities are classified and subsequently measured at amortized cost except
for financial liabilities at FVTPL. The classification determines the method by
which the financial liabilities are carried on the consolidated statement of
financial position subsequent to inception and how changes in value are
recorded. Other financial liabilities are carried on the consolidated statement
of financial position at amortized cost.
The Company completed an assessment of its financial
instruments as at January 1, 2018. The following table shows the new
classification under IFRS 9 and the original classification under IAS 39:
IFRS 9 introduces a new three-stage expected credit loss model
for calculating impairment for financial assets. IFRS 9 no longer requires a
triggering event to have occurred before credit losses are recognized. An entity
is required to recognize expected credit losses when financial instruments are
initially recognized and to update the amount of expected credit losses
recognized at each reporting date to reflect changes in the credit risk of the
financial instruments. In addition, IFRS 9 requires additional disclosure
requirements about expected credit losses and credit risk. There was no
adjustment relating to the implementation of the expected credit loss model for
the Companys trade or settlement receivables.
Impairment losses on financial assets carried at amortized cost
are reversed in subsequent periods if the amount of the loss decreases and the
decrease can be objectively related to an event occurring after the impairment
was recognized.
Derivative contracts are recognized at fair value on initial
recognition. Subsequently, derivatives are remeasured at their fair value. The
method of recognizing any resulting gain or loss depends on whether the
derivative is designated as a hedging instrument and, if so, the nature of the
item being hedged:
Amounts accumulated in the hedge reserve are recycled in the
consolidated statement of loss in the periods when the hedged items will affect
profit or loss (for instance when the forecast sale that is hedged takes place).
If a forecast transaction that is hedged results in the recognition of a
non-financial asset (for example, inventory) or a liability, the gains and
losses previously deferred in the hedge reserve are included in the initial
measurement of the cost of the asset or liability.
When a hedging instrument expires or is sold, or when a hedge
no longer meets the criteria for hedge accounting, any cumulative gain or loss
existing in the hedge reserve at that time remains in the reserve and is
recognized when the forecast transaction is ultimately recognized in the
consolidated statement of income. When a forecast transaction is no longer
expected to occur, the cumulative gain or loss that was reported in other
comprehensive income is immediately transferred to the consolidated statement of
income (loss).
The Company has not designated any derivative contracts as
hedges and therefore has not applied hedge accounting in these consolidated
financial statements.
Convertible notes receivable are hybrid financial assets that
consist of a note receivable component and a separate equity conversion
component. Derivatives embedded in contracts are never separated, and instead
the notes receivable is disclosed as single financial instrument.
Interest income on the notes receivable is based on the
annualized effective rate of interest taking into account all income expected to
be earned on maturity are recognized through profit and loss as interest
income.
The Company accounts for its long-term investments in
affiliated companies over which it has significant influence using the equity
basis of accounting, whereby the investment is initially recorded at cost,
adjusted to recognize the Companys share of earnings or losses and reduced by
dividends received.
The Company assesses its equity investments for impairment if
there is objective evidence of impairment as a result of one or more events that
occurred after the initial recognition of the equity investment and that the
event or events has an impact on the estimated future cash flow of the
investment that can be reliably estimated. Objective evidence of impairment of
equity investments includes:
Acquisition costs for exploration and evaluation assets, net of
recoveries, are capitalized on a property-by-property basis. Acquisition costs
include cash consideration and the value of common shares, issued for
exploration and evaluation assets pursuant to the terms of the agreement.
Exploration expenditures, net of recoveries, are charged to operations as
incurred. After a property is determined by management to be commercially
feasible, an impairment test is conducted and subsequent development
expenditures on the property will be capitalized.
When there is little prospect of further work on a property
being carried out by the Company or its partners, when a property is abandoned,
or when the capitalized costs are no longer considered recoverable, the related
property costs are written down to managements estimate of their net
recoverable amount. The costs related to a property from which there is
production, together with the costs of production equipment, will be depleted
and amortized using the unit-of-production method.
An exploration and evaluation asset acquired under an option
agreement, where payments are made at the sole discretion of the Company, is
capitalized at the time of payment. Option payments received are treated as a
reduction of the carrying value of the related acquisition cost for the mineral
property until the payments are in excess of acquisition costs, at which time
they are then credited to profit or loss. Option payments are at the discretion
of the optionee and, accordingly, are accounted for when receipt is reasonably
assured.
Royalty interests in mineral properties include acquired
royalty interests in production stage and exploration stage properties. In
accordance with IAS 38
Intangible Assets
, the cost of acquired royalty interests
in mineral properties is capitalized as intangible assets.
Acquisition costs of production stage royalty interests are
depleted using the units of production method over the life of the related
mineral property, which is calculated using estimated reserves. Acquisition
costs of royalty interests on exploration stage mineral properties, where there
are no estimated reserves, are not amortized. At such time as the associated
exploration stage mineral interests are converted to estimated reserves, the
cost basis is amortized over the remaining life of the mineral property, using
the estimated reserves. The carrying values of exploration stage mineral
interests are evaluated for impairment at such time as information becomes
available indicating that production will not occur in the future.
Goodwill represents the excess of the price paid for the
acquisition of a consolidated entity over the fair value of the net identifiable
tangible and intangible assets and liabilities acquired in a business
combination. Goodwill is allocated to the cash generating unit to which it
relates.
Goodwill is evaluated for impairment annually or more often if
events or circumstances indicate there may be impairment. Impairment is
determined by assessing if the carrying value of a cash generating unit,
including the allocated goodwill, exceeds its recoverable amount.
Property and equipment is recorded at cost. Buildings are
depreciated using a 5 year straightline method. Equipment is depreciated over
its estimated useful life using the declining balance method at a rate of 20%
per annum. Depreciation on equipment used directly on exploration projects is
included in exploration expenditures for that mineral property.
Decommissioning liabilities are recognized for the expected
obligations related to the retirement of long-lived tangible assets that arise
from the acquisition, construction, development or normal operation of such
assets. A decommissioning liability is recognized in the period in which it is
incurred and when a reasonable estimate of the fair value of the liability can
be made with a corresponding decommissioning cost recognized by increasing the
carrying amount of the related long-lived asset. The decommissioning cost is
subsequently allocated in a rational and systematic method over the underlying
assets useful life. The initial fair value of the liability is accreted, by
charges to profit or loss, to its estimated future value.
During the operating life of an asset, events such as
infractions of environmental laws or regulations may occur. These events are not
related to the normal operation of the asset and are referred to as
environmental disturbance restoration provisions. The costs associated with
these provisions are accrued and charged to profit or loss in the period in
which the event giving rise to the liability occurs. Any subsequent adjustments
to these provisions due to changes in estimates are also charged to profit or
loss in the period of adjustment. These costs are not capitalized as part of the
long-lived assets carrying value.
Events or changes in circumstances can give rise to significant
impairment charges or reversals of impairment in a particular year. The Company
assesses its cash generating units annually to determine whether any indication
of impairment exists. Where an indicator of impairment exists, an estimate of
the recoverable amount is made, which is the higher of the fair value less costs
to sell and value in use. The determination of the recoverable amount for value
in use requires the use of estimates and assumptions such as long-term commodity
prices, discount rates, future capital requirements, exploration potential and
future operating performance. Fair value is determined as the amount that would
be obtained from the sale of the asset in an arms length transaction between
knowledgeable and willing parties.
Cash and cash equivalents include cash on hand, bank deposits
and short-term, highly liquid investments that are readily convertible to known
amounts of cash.
Share-based payments include option and stock grants granted to
directors, employees and non-employees. The Company accounts for share-based
compensation using a fair value based method with respect to all share-based
payments measured and recognized, to directors, employees and non-employees. For
directors and employees, the fair value of the options and stock grants is
measured at the date of grant. For non-employees, the fair value of the options
and stock are measured at the fair value of the goods or services received or
the fair value of the equity instruments issued, if it is determined the fair
value of the goods or services cannot be reliably measured, and are recorded at
the date the goods or services are received. For directors, employees and
non-employees, the fair value of the options and stock grants is accrued and
charged to operations, with the offsetting credit to share based payment reserve
for options, and commitment to issue shares for stock grants over the vesting
period. If and when the stock options are exercised, the applicable amounts are
transferred from share-based payment reserve to share capital. When the stock
grants are issued, the applicable fair value is transferred from commitment to
issue shares to share capital. Option based compensation awards are calculated
using the Black-Scholes option pricing model while stock grants are valued at
the fair value on the date of grant.
The Company has granted certain employees and non-employess
restricted share units (RSUs) to be settled in shares of the Company. The fair
value of the estimated number of RSUs that will eventually vest, determined at
the date of grant, is recognized as share-based compensation expense over the
vesting period, with a corresponding amount recorded as equity. The fair value
of the RSUs is estimated using the market value of the underlying shares as well
as assumptions related to the market and non-market conditions at the grant
date.
Income tax expense consists of current and deferred tax. Income
tax expense is recognized in profit or loss except to the extent that it relates
to items recognized directly in equity. Current tax is the expected tax payable
on the taxable income for the year, using tax rates enacted or substantively
enacted at the reporting date, and any adjustment to tax payable in respect of
previous years. Deferred tax is calculated providing for temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for taxation purposes.
Deferred tax is not recognized on the initial recognition of
assets or liabilities in a transaction that is not a business combination and
that affects neither accounting nor taxable income nor loss. In addition,
deferred tax is not recognized for taxable temporary differences arising on the
initial recognition of goodwill. Deferred tax is measured at the tax rates that
are expected to be applied to temporary differences when they reverse, based on
the laws that have been enacted or substantively enacted at the reporting date.
Deferred tax assets and liabilities are offset if there is a
legally enforceable right to offset, and they relate to income taxes levied by
the same tax authority on the same taxable entity, or on different tax entities,
but they intend to settle current tax liabilities and assets on a net basis or
their tax assets and liabilities will be realized simultaneously. A deferred tax
asset is recognized to the extent that it is probable that future taxable income
will be available against which the temporary difference can be utilized.
Deferred tax assets are reviewed at each reporting date and are reduced to the
extent that it is no longer probable that the related tax benefit will be
realized.
The Company presents basic earnings (loss) per share data for
its common shares, calculated by dividing the income (loss) attributable to
equity holders of the Company by the weighted average number of common shares
issued and outstanding during the period. Diluted earnings per share is
calculated by adjusting the earnings attributable to equity holders and the
weighted average number of common shares outstanding for the effects of all
potentially dilutive common shares. The calculation of diluted earnings per
share assumes that the proceeds to be received on the exercise of dilutive share
options and warrants are used to repurchase common shares at the average market
price during the period. In periods where a loss is reported, diluted loss per share is the same as basic loss
per share as the effects of potentially dilutive common shares would be
anti-dilutive.
Existing stock options and share purchase warrants are not
included in the income (loss) per share computation of diluted income (loss) per
share if inclusion would be anti-dilutive. For the years presented in which the
inclusion of stock options and warrants would be anti-dilutive, the basic and
diluted losses per share are the same.
The Company has adopted a residual value method with respect to
the measurement of shares and warrants issued as private placement units. The
residual value method first allocates value to the more easily measurable
component based on fair value and then the residual value, if any, to the less
easily measurable component.
The fair value of the common shares issued in the private
placements was determined to be the more easily measurable component and were
valued at their fair value, as determined by the closing quoted bid price on the
day prior to the issuance date. The balance, if any, was allocated to the
attached warrants. Any fair value attributed to the warrants is recorded in
reserves.
Operating segments are reported in a manner consistent with the
internal reporting provided to the chief operating decision-maker. The chief
operating decision-maker, who is responsible for allocating resources and
assessing performance of the operating segment, has been identified as the Chief
Executive Officer.
IFRS 16 Leases was issued by the IASB in January 2016
(effective January 1, 2019) and has not yet been adopted by the Company. IFRS 16
provides a single lessee accounting model, requiring lessees to recognize assets
and liabilities for all leases unless the lease term is 12 months or less or the
underlying asset has a low value.
The Company is currently evaluating the impact the new and
amended standard is expected to have on its financial statements and does not
expect any material changes. The Company predominately uses third party services
which provide for any possible leases but does lease office space, and if the
limited exception criteria are not met, rent expense is to be removed and
replaced by amortization and finance expense related to the leased office space
and respective lease liability.
The preparation of the consolidated financial statements
requires management to make judgments and estimates and form assumptions that
affect the reported amounts of assets and liabilities at the date of the
financial statements, and the reported revenue and expenses during the periods
presented therein. On an ongoing basis, management evaluates its judgments and
estimates in relation to assets, liabilities, royalty revenues and expenses.
Management bases its judgments and estimates on historical experience and on
other various factors it believes to be reasonable under the circumstances.
Actual results may differ from these estimates under different assumptions and
conditions.
The Company has identified the following critical accounting
policies in which significant judgments, estimates and assumptions are made and
where actual results may differ from these estimates under different assumptions
and conditions and may materially affect financial results or the financial
position reported in future periods. Further details of the nature of these
assumptions and conditions may be found in the relevant notes to the
consolidated financial statements.
In accordance with the Companys accounting policy, royalty
interests are evaluated on a periodic basis to determine whether there are any
indications of impairment. If any such indication exists, a formal estimate of
recoverable amount is performed and an impairment loss recognized to the extent
that carrying amount exceeds recoverable amount. The recoverable amount of a
royalty asset is measured at the higher of fair value less costs to sell and
value in use. The determination of fair value and value in use requires
management to make estimates and assumptions about expected production and sales
volumes, the proportion of areas subject to royalty rights, commodity prices
(considering current and historical prices, price trends and related factors),
and reserves. These estimates and assumptions are subject to risk and
uncertainty; hence there is a possibility that changes in circumstances will
alter these projections, which may impact the recoverable amount of the assets.
In such circumstances, some or all of the carrying value of the assets may be
further impaired or the impairment charge reduced with the impact recorded in
profit or loss.
Goodwill is evaluated for impairment annually or more often if
events or circumstances indicate there may be impairment. Impairment is
determined by assessing if the carrying value of a cash generating unit,
including the allocated goodwill, exceeds its recoverable amount. The assessment
of the recoverable amount used in the goodwill impairment analysis is subject to
similar judgments and estimates as described above for property and equipment
and royalty interests.
Recorded costs of exploration and evaluation assets are not
intended to reflect present or future values of exploration and evaluation
assets. The recorded costs are subject to measurement uncertainty and it is
reasonably possible, based on existing knowledge, that a change in future
conditions could require a material change in the recognized amount.
The Companys accounting policy for taxation requires
managements judgment as to the types of arrangements considered to be a tax on
income in contrast to an operating cost. Judgment is also required in assessing
whether deferred tax assets and certain deferred tax liabilities are recognized
on the statement of financial position.
Deferred tax assets, including those arising from unused tax
losses, capital losses and temporary differences, are recognized only where it
is considered probable that they will be recovered, which is dependent on the
generation of sufficient future taxable profits. Deferred tax liabilities
arising from temporary differences caused principally by the expected royalty
revenues generated by the royalty property are recognized unless expected
offsetting tax losses are sufficient to offset the taxable income and therefore,
taxable income is not expected to occur in the foreseeable future. Assumptions
about the generation of future taxable profits depend on managements estimates
of future cash flows. These depend on estimates of future production and sales
volumes, commodity prices, and reserves. Judgments are also required about the
application of income tax legislation in foreign jurisdictions. These judgments
and assumptions are subject to risk and uncertainty, hence there is a
possibility that changes in circumstances will alter expectations, which may
impact the amount of deferred tax assets and deferred tax liabilities recognized
on the statement of financial position and the amount of other tax losses and
temporary differences not yet recognized. In such circumstances, some or the
entire carrying amount of recognized deferred tax assets and liabilities may
require adjustment, resulting in a corresponding credit or charge to profit or
loss.
Information about critical judgments in applying accounting
policies that have the most significant effect on the amounts recognized in the
consolidated financial statements include, but are not limited to, the
following:
The functional currency of each of the Companys subsidiaries
is the currency of the primary economic environment in which the entity
operates. Determination of the functional currency may involve certain judgments
to determine the primary economic environment and the Company reconsiders the
functional currency of its entities if there is a change in events and
conditions, which determined the primary economic environment.
Classification of investments requires judgement as to whether
the Company controls, has joint control of or significant influence over the
strategic financial and operating decisions relating to the activity of the
investee. In assessing the level of control or influence that the Company has
over an investment, management considers ownership percentages, board
representation as well as other relevant provisions in shareholder agreements.
If an investor holds 20% or more of the voting power of the investee, it is
presumed that the investor has significant influence, unless it can be clearly
demonstrated that this is not the case. Conversely, if the investor holds less
than 20% of the voting power of the investee, it is presumed that the investor
does not have significant influence, unless such influence can be clearly
demonstrated.
As a result of the adoption of IFRS 9 (Note 2), $1,376,667 and
$740,685 previously recorded in cost and accumulated unrealized loss
respectively and was previously classified as available-for-sale as at December
31, 2017 was reclassified to FVTPL as at January 1, 2018. This resulted in the
reclassification of $740,685 in other comprehensive income to opening deficit.
Included in investments for the year ended December 31, 2018 is
$911,477 being the fair value of an investment in IG Copper LLC (IGC)
previously recorded as an investment in an associated entity (Note 8).
During the year ended December 31, 2018, the Company recorded a
loss of $Nil (2017 - $Nil, 2016 - $697,675) related to the permanent impairment
of certain available-for-sale marketable securities. The Company had sustained
significant unrealized losses for which there was no expectation of reversal in
the forseable future.
Included in the change in value through profit or loss assets
is $104,788 (2017 - $37,299, 2016 - $120,900) related to the Akarca receivable
balance as a result of the derivative components of the receivable balance being
the expected gold price to be realized.
The carrying amounts of the Companys current receivables are
denominated in the following currencies:
At December 31, 2018, the Company classified $618,525 (2017 -
$771,434) as restricted cash. This amount is comprised of $196,273 (2017 -
$179,502) held as collateral for its corporate credit cards, $86,330 (2017 -
$Nil) held in trust to be used to offset loan fees, and $335,922 (2017 -
$$591,932) cash held by wholly-owned subsidiaries of the Company whose full
amount is for use and credit to the Companys exploration venture partners in
the USA, Sweden, Norway, and Finland pursuant to expenditure requirements for
ongoing option agreements.
On October 16, 2017, the Company issued a note receivable to
Revelo Resources Corp. (TSX-V: RVL), a related party by way of a common director
for the principal amount of $400,000. The note was due on December 31, 2017,
together with accrued interest at a rate of 1% per month and a bonus of $20,000.
As at December 31, 2018, the balance owed to the Company pursuant to the note
was $477,973 (2017 - $429,973) including accrued interest and bonus fee. The
Company continues discussions with RVL on options for repayment of the
outstanding balance.
During the year ended December 31, 2018, the Company
derecognized a 39.99% equity investment in IGC and reallocated the fair value of
the remaining investment to FVTPL (Note 3).
On December 12, 2018, IGC underwent a recapitalization in which
the Company did not participate and its investment was diluted to 19.9% and
derecognized its investment in IGC as an associated entity. Prior to the
derecognition of IGC as an investment in an associated entity, including the
conversion of convertible notes and related interest due from IGC, cash
purchases of shares including the exercise of warrants, and loan fees received
in shares, the Company had invested an aggregate of US$13,136,977 towards its
investment (December 31, 2017 - US$11,354,977). At December 31, 2018, the
Companys equity investment including dilution gains or losses, less its share
of accumulated equity gains and losses, and any distributions received was $Nil
(December 31, 2017 - $7,578,989).
The changes in the investment in IGC for the years ended
December 31, 2018 and 2017 are as follows:
As at December 31, 2018 and 2017, IGCs aggregate assets,
aggregate liabilities and net income (loss) for the year ended are as
follows:
The Company holds a 19.9% interest in IGC, has a minority
position on the Board of IGC, and does not control operational decisions. The
Companys judgment is that it does not have control or significant influence of
IGC, and accordingly accounting for the remaining investment in IGC as FVTPL is
appropriate.
On October 10, 2018, the Company was notified by IGC that the
sale of the Malmyzh project to RCC for US$200 million had closed. Of this
amount, US$190 million was released from escrow, with the remaining US$10
million to be held in escrow and released subject to certain conditions over the
next 12 months. IGC distributed the net sale proceeds to membership unit holders
by way of a combination of share-buy back and dividends. For its 39.99% interest
in IGC the Company received its initial cash distribution of $84,246,645. A second cash distribution to the Company of $5,450,764 (US$4
million) has been accrued as a receivable (Note 4) pending release from
escrow.
In support of the sale of Malmyzh, on September 27, 2018, EMX
borrowed US$18.5 million from Sprott Private Resource Lending (Collector), LP
(Sprott) and then loaned the US$18.5 million to IGC.
The loan made under the Sprott credit facility had a maturity
date of January 31, 2019 and carried an annual interest rate of 12%, payable
monthly. In connection with the Sprott loan, EMX issued 381,321 common shares
valued at $602,487 (US$465,212) or $1.58 per share, paid cash fees of
US$550,000, and legal fees of US$194,224.
During the year ended December 31, 2018, using an annual
effective interest rate of 30.83%, the Company recorded interest expense of
$271,921 (US$208,296). The loan was fully repaid on October 12, 2018 upon
receipt of the distribution from IGC and the Company recorded a loss of
$1,481,950 from the early settlement. Included in restricted cash and due to EMX
is $86,330 in funds held in trust as part of the Sprott agreement.
Concurrent with the Sprott credit facility for US$18,500,000,
on September 27, 2018 EMX loaned US$18,500,000 to IGC to facilitate the Malmyzh
property sale. The terms of the arrangement were identical to the Sprott loan to
EMX. As such, in connection with the EMX Loan, IGC issued to EMX 37,000
membership units in IGC at US$10/membership unit, reimbursed EMX for fees,
interest payments, and reimbursement of all legal costs. IGC further agreed to
pay EMX an additional fee of US$550,000.
During the year ended December 31, 2018, using an annual
effective interest rate of 38.64%, the Company recorded interest income of
$332,078 (US$254,377). The loan was fully repaid on October 12, 2018 by IGC from
the proceeds received from the sale of Malmyzh and the Company recorded a gain
of $2,014,950 from the early settlement.
During the year ended December 31, 2018, the Company loaned IGC
US$300,000 with no specific terms of repayment, to be settled from proceeds from
the sale of Malmyzh. The loan was fully repaid on October 15, 2018 including
$63,926 (US$49,000) in interest.
During the year ended December 31, 2018, the Company received a
$130,756 (US$100,000) annual option payment related to an exploration and option
to purchase agreement for the Superior West project with Kennecott Exploration
Company (Kennecott). The Company also received the annual option payment
related to an option agreement with Mason Resources Corp (Mason) for $98,310
(US$75,000) and applied against the Yerington project.
During the year ended December 31, 2017, the Company received a
$133,383 (US$100,000) annual option payment related to an exploration and option
to purchase agreement for the Superior West project with Kennecott. The Company
also received the annual option payment related to an option agreement with
Mason for $88,527 (US$75,000) and applied against the Yerington project. Also
during the year ended December 31, 2017, the Company sold the wholly owned
Australian subsidiary that held the Koonenberry licences in Australia. As part
of the sale, the Company transferred the ownership of the Koonenberry property
which had a capitalized cost of $81,124.
During the year ended Dececmber 31, 2016, the Company received
a $129,820 (US$100,000) annual option payment related to an exploration and
option to purchase agreement for the Superior West project with Kennecott
applied against the Superior West capitalized costs. Also during the year ended
December 31, 2016, the Company sold its Sisorta project in Turkey and all
capitalized costs were recovered.
The Company holds certain exploration permits in Sweden and
Norway. There are no specific spending commitments on the Swedish licenses and
permits.
On February 14, 2017, the Company completed an agreement to
sell certain wholly owned subsidiaries in Sweden to Boreal Metals Corp.
(BMC)(TSX-V: BMX), a British Columbia corporation. Pursuant to the agreement
BMC acquired two wholly-owned subsidiaries of the Company that control the
Gumsberg and Adak exploration assets in Sweden and the Tynset and Burfjord
assets in Norway. In exchange for the transfer of its wholly-owned subsidiary
Iekelvare AB, which owns the Gumsberg and Adak properties, and its entire
interest in its wholly-owned subsidiary EMX Exploration Scandinavia AB, which
owns the Tynset and Burfjord properties BMC completed the following:
Pursuant to the sale agreement, the Company received 1,713,390
shares of BMC on signing, valued at $0.05 per share or $85,670, and paid a
US$12,000 ($15,862) finders fee. Subsequent to signing, pursuant to equity and
private placements completed by BMC, BMC issued EMX a further 7,492,492 shares
to EMX valued at $1,290,998. EMX recorded a total gain on sale of $1,393,224 in
fiscal 2017.
In January 2018, the Company amended the sale agreement with
BMC noted above to include the Modum project in Norway in exchange for an
additional 1,324,181 common shares of BMC (received in March 2018) valued at
$397,254 or $0.30 per share and is included in gain on acquisition and sale of
exploration and evaluation assets.
The Company sold 5,000,000 shares of BMC during the year and as
at December 31, 2018 holds 5,530,063 shares of BMC representing approximately a
9.4% interest. Subsequent to the year ended December 31, 2018, the Company
participated in a private placement of BMC acquiring an additional 1,995,672
shares of BMC bringing EMXs interest to 9.9%.
In December 2017, the Company executed an option agreement
subsequently amended for the sale of the Slättberg licenses in Sweden to Sienna
Resources Inc. (Sienna) (TSX-V: SIE). As part of the agreement, Sienna can
earn a 100% interest in the project by completing the following: Ik,
In February 2018, the Company closed a definitive agreement for
the sale of the Guldgruvan cobalt project to Boreal Energy Metals Corporation
(BEMC), a subsidiary of BMC in southern Norway.
In exchange for the transfer of its Guldgruvan exploration
licence to BEMC, BEMC issued to EMX 2,979,798 common shares of BEMC representing
a 5.9% equity ownership in BEMC.
EMX will retain a 3% NSR royalty on the project, of which 1%
may be purchased by BEMC on or before the fifth anniversary of the closing date
in 0.5% increments for a total of US$2,500,000 in cash and common shares of BEMC
stock. EMX will also receive AAR payments, with an initial US$20,000 payment,
commencing on the second anniversary of the closing, with each subsequent AAR
payment increasing by US$5,000 per year until reaching US$60,000 per year.
In April 2018, EMX executed another agreement with BEMC to sell
the Njuggträskliden and Mjövattnet projects in Sweden.
At closing, BEMC issued to EMX 2,020,202 common shares
representing a 4% equity ownership in BEMC, bringing EMXs aggregate interest to
9.9% of BEMCs issued and outstanding shares. BEMC has the continuing obligation
to issue additional shares of BEMC to EMX to maintain its aggregate 9.9%
interest in BEMC, at no additional cost to EMX, until BEMC has raised $3,000,000
in equity. Thereafter, EMX will have the right to participate pro-rata in future
financings at its own cost to maintain its 9.9% interest in BEMC.
EMX will receive an uncapped 3% NSR royalty on each of the
projects. Within five years of the closing date, BEMC has the right to buy down
up to 1% of the royalty owed to EMX by paying EMX US$2,500,000 in cash and
shares of BEMC for each project. For each project, EMX will also receive AAR
payments, with an initial US$20,000 payment, commencing on the second
anniversary of the closing, with each subsequent AAR payment increasing by
US$5,000 per year until reaching US$60,000 per year. EMX will be also be
reimbursed approximately US$37,000 for its acquisition costs and previous
expenditures on the projects.
In April 2018, the Company executed an option agreement with
South32 Limited ("South32") for the Riddarhyttan project in Sweden. Pursuant to
the agreement, South32 can earn a 100% interest in the project by: (a) making
option and cash payments that total US$200,000, (b) making a one-time option
exercise payment of US$500,000, and (c) completing US$5,000,000 of exploration
work on the project within five years of the execution date. Upon exercise of
the option, EMX will retain a 3% NSR royalty, 0.75% of which may be purchased by
South32 for US$1,900,000 within five years of executing the agreement.
After exercising the option, AAR payments of 50,000 pounds of
copper or the cash equivalent will be due to EMX, but will be deductible from
future royalty payments. The AAR may be repurchased by South 32 for
US$2,500,000. In addition, South32 will make milestone payments of: (a) 350,000
pounds of copper (or the cash equivalent) upon publication of a maiden resource
on the project, and (b) 750,000 pounds of copper (or the cash equivalent) upon
delivery of a feasibility study.
In June 2014, the Company signed an exploration and option
agreement through its wholly-owned subsidiary BCE, with Ely Gold and Minerals
Inc. (Ely Gold) (TSX Venture: ELY) to earn a 100% interest in the Cathedral
Well project by paying EMX a total of US$100,000 over three years after which
the Company will retain a 2.5% NSR royalty, inclusive of an underlying 0.5% NSR
royalty. Ely Gold completed their earn-in for the property in November of 2016
through a trade with EMX, whereby a subsidiary of Ely Gold executed a quit claim
deed for certain mining claims adjacent to EMXs Spring Canyon property in
Nevada in lieu of its last US$25,000 option payment. In December 2016, Ely Gold
announced it had optioned the property to Colorado Resources Ltd. (TSX-V:
CXO).
Subsequent to December 31, 2018, the Company received the 2018
AMR payment of 20 ounces of gold from Ely Gold to keep the agreement in good
standing.
The Company holds a 100% interest in the Hardshell Skarn
property comprised of certain unpatented federal lode mining claims.
In October 2015, the Company signed an exploration and option
agreement through its wholly-owned subsidiary FOBC LLC, with Arizona Mining Inc,
to earn a 100% interest in the project by paying the Company a total of
US$85,000 as follows: US$25,000 (received) upon execution of the agreement and
US$60,000 (received) over the following three years. In 2017, Arizona Mining
earned a 100% interest in the project under the agreement by accelerating and
completing the required US$85,000 in cash payments. The Company retains a 2%
NSR. AAR payments of US$5,000 commence on the first anniversary of the exercise
of the option. After commencement of commercial production, the Company is due
payments of US$5,000 or the royalty coming due that year, whichever is greater.
In November 2017, EMX executed an option agreement with a
wholly owned subsidiary of Antofagasta plc (Antofagasta) (LSE: Anto) whereby
Antofagasta can earn a 100% interest in the Greenwood Peak project by: a)
reimbursing EMXs acquisition costs and making annual option payments, together
totaling US$630,000 ($30,000 received), and b) completing US$4,500,000 in work
expenditures within the five year option period.
Antofagasta terminated its option to acquire the interest in
the property in August, 2018 and the Company subsequently dropped the property.
On February 25, 2017, through BCE, the Company executed an
option agreement for Copper Springs with Anglo American Exploration (USA), Inc.
(Anglo American). Anglo American can earn a 100% interest in the project by:
a) reimbursing holding and permitting costs and making annual option payments,
together totaling US$447,000 ($132,000 received), and b) completing US$5,000,000
in exploration expenditures before the fifth anniversary of the agreement. Upon
exercise of the option, Anglo American will pay EMX an additional US$110,000 and
EMX will retain a 2% NSR royalty on the project. The royalty is not capped or
purchasable, except over two parcels of Arizona State Land where Anglo American
can buy a 0.5% NSR royalty from EMX for US$2,000,000. After exercise of the
option, annual advanced minimum royalty (AMR) payments and milestone payments
will be due to EMX.
In October 2016, the Company, through BCE, entered into an
option agreement to sell the Copper King property for a combination of cash
payments and work commitments. The agreement grants Kennecott the option to
acquire a 100% interest in the property. Pursuant to the agreement, Kennecott
can earn a 100% interest in the project by (a) reimbursing holding costs and
making option payments, together totaling US$504,314 (US$79,314 received), and
(b) completing US$4,000,000 in exploration expenditures before the fifth
anniversary of the agreement. Upon exercise of the option EMX will retain a 2%
NSR royalty on the project which is not capped or purchasable.
After exercise of the option, AMR payments and milestone
payments will be due to EMX.
Subsequent to the year ended December 31, 2018, the Company
received a US$50,000 option payment.
In February 2018, the Company executed an option agreement with
Kennecott whereby Kennecott can earn a 100% interest in the project by: a)
making annual option payments totaling US$550,000, and b) completing
US$4,500,000 in exploration expenditures before the fifth anniversary of the
agreement. Upon exercise of the option, EMX will retain a 2% NSR royalty on the
project which is not capped or purchasable. After exercise of the option, annual
advance minimum payments and milestone payments will be due to EMX. The Company
also received US$30,000 ($38,615) as an execution payment to the agreement.
The Company holds a 100% interest in the mineral rights
comprised of certain federal unpatented mining claims, located on Tonto National
Forest lands and unpatented federal mining claims under option.
On May 4, 2015, the Company entered into an exploration and
option to purchase agreement, through its wholly owned subsidiary BCE, for the
Superior West project with Kennecott. Pursuant to the agreement, Kennecott can
earn a 100% interest in the project by making a cash payment upon execution of
the agreement of US$149,187 (received), and thereafter completing US$5,500,000
in exploration expenditures and paying annual option payments totaling
US$1,000,000 (US$100,000 received in March 2016, US$100,000 received in January
2017, and US$100,000 received in March 2018 ) before the fifth anniversary of the agreement. For the execution payment, US$50,000
($52,500) was applied against the Superior West capitalized costs, and the
balance of US$99,187 was a direct reimbursement to the Company for holding costs
to maintain the property in good standing. Upon exercise of the option EMX will
retain a 2% NSR royalty on the properties. Kennecott has the right to buy down
1% of the NSR royalty from underlying claim holders by payment of US$4,000,000
to EMX.
Kennecott has maintained or exceeded any minimum requirements
for expenditures on the project and the agreement remains in good standing.
In October 2016, the Company, through its wholly-owned
subsidiary BCE, entered into an option agreement with Coeur Explorations, Inc.,
a subsidiary of Coeur Mining, Inc. (NYSE: CDE) (Coeur) to acquire a 100%
interest in the property. The Companys Mineral Hill project is held under a
pooling agreement with a private group, Mineral Hill L.P. (MHL), with all
proceeds split 50:50, except for the sale of surface rights associated with
several patented mining claims.
Pursuant to the agreement, Coeur may acquire a 100% interest in
the property by a) making yearly option payments, beginning upon execution of
the agreement, totaling US$435,000 (US$10,000 received upon execution, US$15,000
received in October 2017), b) making exploration expenditures totaling
US$1,550,000 on or before the fifth anniversary of the agreement, and c) paying
US$250,000 upon exercise of the option.
On October 19, 2018, EMX received notice that Coeur was
terminating its option to acquire the property.
In October 2016, the Company completed the sale of five
patented mining claims comprising its Ophir property in Utah, through its wholly
owned subsidiary Bullion Monarch Mining Inc., to Kennecott. The terms of the
sale include a cash payment of US$75,000 (received) to EMX at closing, with the
Company retaining a 2% NSR royalty on the property.
The Yerington West property is comprised of certain unpatented
federal mining claims located on lands administered by the Bureau of Land
Management (BLM). Yerington West is under an option agreement, dated September
24, 2009 originally with Entrée Gold Inc. ("Entrée"), and then with Mason (TSX:
MNR) as a result of a 2017 "spin out" whereby Entrée transferred the Ann Mason
project, which includes EMX's Yerington West property, into Mason. On December
19, 2018 Hudbay Minerals Inc. (Hudbay) announced the acquisition of Mason
which includes EMXs Yerington West property.
Under the agreement, Hudbay can earn up to an 80% interest in
the project by a) incurring expenditures of $1,000,000, making cash payments of
$140,000, and issuing 85,000 shares within three years (completed by Entrée), b)
making aggregate advance royalty payments totaling $375,000, being US$50,000 per
year between the fifth and seventh anniversaries (received), and $75,000 per
year between the eighth and tenth anniversaries ($75,000 received during the
year ended Dececmber 31, 2018); and (c) delivering a feasibility study before
the tenth anniversary of the agreement. Under the agreement, once the earn-in
has been completed, EMX can convert its interest to a 2.5% NSR. Hudbay has the
option to buy down 1.5% of the NSR for US$4,500,000.
In November 2018, the Company, through its wholly-owned
subsidiary BCE, entered into an agreement with South32 USA Exploration Inc,
(South32), a wholly-owned subsidiary of South32 Limited. Pursuant to the
agreement, which has an initial term of two years, South32 will fund EMX
$800,000 per year to generate new prospects to be considered for acquisition as
well as to fund the labor portion of work programs on early-stage projects,
Alliance Exploration Projects (AEP). In addition, South32 will provide a
minimum of $200,000 per year for new acquisition funding. South32 selected the
Jasper Canyon, Sleeping Beauty, Dragons Tail, Lomitas Negras, and Midnight
Juniper properties as the initial AEPs for advancement under the alliance.
As projects advance, the Company will propose certain projects
be selected as Designated Projects (DP). DPs will advance under separate
option agreements whereby South32 can earn a 100% interest in the project by
making option payments totaling $525,000 and completing $5,000,000 in
exploration expenditures over a five year period.
Upon exercise of the option, EMX will retain a 2% NSR royalty
on the project which is not capped or purchasable. After exercise of the option,
annual advance minimum payments and milestone payments will be due to EMX.
The Company holds interests acquired by staking in several
jurisdictions including Utah, Nevada, Arizona, Colorado and Wyoming.
The Companys Australian properties are comprised of contiguous
exploration licenses along the Koonenberry gold belt in New South Wales,
Australia. The Australian properties are acquired either directly through
staking or through agreements with license holders.
In February 2014, the Company signed an exploration and option
agreement with North Queensland Mining Pty Ltd. (NQM), a privately-held
Australian company, giving NQM the right to acquire the Companys Koonenberry
exploration licenses in New South Wales, Australia. NQM will bear responsibility
of satisfying all existing work commitments and honoring all underlying property
agreements during the term of the agreement. NQM has the option to earn a 100%
interest in the EMX subsidiary that holds the licenses, with EMX retaining a 3%
production royalty.
In 2017, Koonenberry Gold Pty Ltd. (KNB) completed the
earn-in requirements under the exploration and option Agreement between NQM and
the Company, and elected to acquire EMXs Koonenberry exploration licenses. KNB,
a private Australian company, is the successor in interest to NQM under the
agreement. The Company transferred its wholly-owned subsidiary, EMX Exploration
Pty Ltd, the holder of the Koonenberry licenses, to KNB. EMX retains a 3%
royalty on all future production from the Koonenberry licenses. As a result of
the transaction, all of EMXs interests in the Koonenberry gold project were
converted to royalties. As a result of the sale, in the year ended December 31,
2017 the Company recorded a loss of $87,987 being the capitalized costs of the
Koonenberry property and field equipment with a book value of $6,866 transferred
to KNB at the time of sale.
The Kimberley Copper Project consists of two exploration
licences, in Western Australia. On September 24, 2018 and amended in November
2018, the Company executed a share purchase agreement to sell the Kimberley
Copper Project to Enfield Exploration Corporation (Enfield). Pursuant to the
agreement, Enfield will issue to EMX 500,000 shares and committed to raising
US$1,000,000 for an initial drill test no later than March 31, 2019. Enfield
also agreed to grant EMX with a graduated NSR royalty on the property, make AAR
payments and issue an additional 1,750,000 shares upon achievement of certain
milestones.
In September 2014, and amended in December 2015 the Company
signed an option agreement with Land & Mineral Limited (L&M), a
privately-held Australian company, giving L&M the right to acquire Hauraki
Gold Ltd. (Hauraki), the wholly-owned EMX subsidiary that controls the
Neavesville gold-silver property located in the Hauraki goldfield of New
Zealands North Island. The purchase and sale agreement included an execution
payment of $100,000 ($50,000 received on signing in 2015, and $50,000 received
in May 2016, being the balance of the execution payment) and a series of
anniversary and milestone payments equal to a certain amount of troy ounces of
gold. Pursuant to the agreement, In September 2016, the Company received a
$129,562 payment equivalent to a required payment of 75 troy ounces of gold.
In September 2018, the Company received notice from L&M and
its parent company E2 Metals of their intention to terminate the agreement.
Subsequently, EMX elected not to exercise its right to take back the project or
the shares of Hauraki. The agreement was effectively terminated in October
2018.
The Company has acquired numerous exploration licenses in
Turkey for which there are no specific spending commitments.
Effective July 29, 2016, the Company entered into a share
purchase agreement for the sale of AES Madencilik A.S. (AES), the wholly-owned
EMX subsidiary that controls the Akarca gold-silver project in western Turkey,
to Çiftay snaat Taahhüt ve Ticaret A.S. ("Çiftay"), a privately owned Turkish
company.
The terms of the sale provide payments to EMX as summarized
below (gold payments can be made as gold bullion or the cash equivalent):
In addition, Çiftay must conduct a drilling program of at least
3,000 meters on the Property during each 12-month period commencing on August 5,
2016 until commencement of commercial production.
Pursuant to the agreement, Çiftay has guaranteed the future
payments of 2,500 ounces of gold, or cash equivalent. As at December 31, 2018,
the Company has recorded a receivable of $902,991 (including $167,427 of
accreted interest income) related to the remaining guaranteed payment. The
Company used a long term gold price of US$1,325 per ounce and due to the short
term nature of the remaining guaranteed payments, a discount rate of 0%.
The sale of AES resulted in a gain of $6,683,560, resulting
from proceeds of $6,737,452, less the net assets of AES of $53,892 which is
included in the gain on acquisition and sale of exploration and evaluation
assets for the year ended December 31, 2016.
Effective July 1, 2016, the Company entered into a share
purchase agreement for the sale of EBX Madencilik A.S. (EBX), a wholly-owned
subsidiary that controlled the Sisorta gold property in Turkey, to Bahar
Madencilik Sinayi ve Ticaret Ltd Sti ("Bahar"), a privately owned Turkish
company.
The agreement provides for Bahar's staged payments to EMX as
summarized below:
Pursuant to the sale of Sisorta, during the year ended December
31, 2016, the Company paid a finders fee of US$48,740 ($63,549) and recorded a
gain on the sale of EBX of $86,041 which is included in the gain (loss) on
acquisition and sale of exploration and evaluation assets. The future annual
cash payments are not accrued as there is no guarantee of payment, and the
shares of EBX could be returned if the payments are not made.
EMX holds an uncapped 4% NSR royalty that it retained from the
sale of the property to Dedeman Madencilik San ve Tic. A.S. ("Dedeman"), a
privately owned Turkish company, in 2006. During the year ended December 31,
2018, the Company received the 2017 annual royalty payment totalling US$121,075 less
applicable taxes of US$18,469. The AMRs and net royalty payments have been
included in Royalty income.
On November 23, 2015, the Company signed an Exploration and
Option Agreement with Black Sea Copper & Gold Corp. (Black Sea), a
privately-held British Columbia corporation, for the Alankoy copper-gold
property in northwestern Turkey, whereby Black Sea has the option to acquire the
Companys subsidiaries that hold the Alankoy project, with the Company retaining
a 3% production royalty. To do so, Black Sea paid US$25,000 (received $35,408 in
January 2016) upon signing and must incur certain exploration expenditure
milestones.
In February 2017, the Company received notification that
0955767 B.C Ltd (formerly Black Sea) was terminating the Alankoy agreement and
paid US$16,439 to EMX for reimbursement of costs. EMX has regained 100% control
of the project.
On July 17, 2012, amended on January 29, 2013, and November 8,
2016, the Company entered into an agreement with Pasinex Resources Limited
(PRL) to transfer a 100% interest in the Golcuk property in exchange for PRL
issuing shares to the Company as follows,
In addition to the transfer of shares, PRL will then pay the
Company a 2.9% NSR royalty from production. PRL may pay the first minimum
royalty payment by delivering 664,483 common shares in the capital of PRL to EMX
on or before November 30, 2016 (received valued at $79,738). PRL has the option
of purchasing 0.9% of the royalty for US$1,000,000 prior to the 6
th
anniversary of the effective date of the agreement. In 2017 EMX received 224,150
shares of PRL and US$49,204 in cash for the advance royalty payment due in
September 2017.
The Trab-23 property is located in northeast Turkey. In
February 2013 Tumad Madencilik San.Ve TIC, A.S. (Tumad), executed an option
agreement (the Trab-23 Agreement) to acquire Trab-23 from the Company. The
Trab-23 Agreement provides an upfront transfer of the two licenses to Tumad,
in-ground spending requirements, a revenue stream of annual earn-in and
pre-production payments, and a revenue stream based upon production.
Tumad's payment and drill requirements have not been met and
Tumad terminated the agreement in 2017, and has returned the property to 100%
EMX control.
EMX has a royalty interest in the Aktutan polymetallic project sold to
Dedeman in 2007 for considerations that include a 4% uncapped NSR and AAR
payments. During the year ended December 31, 2017, EMX received two advanced
royalty payments on its Aktutan property for $261,473 (US$200,000) from Dedeman.
The 2018 AAR payment has been amended and is due by March 31, 2019.