The accompanying notes are an integral part of these condensed consolidated interim financial statements.
The accompanying notes are an integral part of these condensed consolidated interim financial statements.
The accompanying notes are an integral part of these condensed consolidated interim financial statements.
The accompanying notes are an integral part of these condensed consolidated interim financial statements.
Notes to Condensed Consolidated Interim Financial Statements
(Unaudited)
Note 1. Description of Business and Summary of Significant Accounting Policies
Paramount Gold Nevada Corp. (the “Company” or “Paramount”), incorporated under the General Corporation Law of the State of Nevada, and its wholly-owned subsidiaries are engaged in the acquisition, exploration and development of precious metal properties. The Company’s wholly owned subsidiaries include New Sleeper Gold LLC, Sleeper Mining Company, LLC, and Calico Resources USA Corp (“Calico”). The Company is in the process of exploring its mineral properties in Nevada and Oregon, United States. The Company’s activities are subject to significant risks and uncertainties, including the risk of failing to secure additional funding to advance its projects and the risks of determining whether these properties contain reserves that are economically recoverable. The Company’s shares of common stock trade on the NYSE American LLC under the symbol “PZG”.
Basis of Presentation and Preparation
The unaudited condensed consolidated interim financial statements are prepared by management in accordance with accounting principles for interim financial information and Article 10 of Regulation S-X. Accordingly, they do not include all of the disclosures required by U.S. generally accepted accounting principles (“U.S. GAAP”) for complete financial statements. In the opinion of management, all the normal and recurring adjustments necessary to fairly present the interim financial information set forth herein have been included. The results of operations for interim periods are not necessarily indicative of the operating results of a full year or future years.
The condensed consolidated interim financial statements have been prepared on an accrual basis of accounting, in conformity with accounting principles generally accepted in the United States of America (“U.S. GAAP”), are presented in US dollars and follow the same accounting policies and methods of their application as the most recent annual financial statements. The consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries. All significant intercompany accounts and transactions are eliminated in consolidation. The condensed consolidated interim financial statements should be read in conjunction with the consolidated financial statements and related footnotes for the year ended June 30, 2019.
The Company has conducted a subsequent events review through the date the financial statements were issued, and has concluded that there were no subsequent events requiring adjustments or additional disclosures to the Company’s financial statements at September 30, 2019 except as disclosed in Note 12.
Use of Estimates
The preparation of these interim condensed consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the condensed consolidated interim financial statements, and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates.
Significant estimates made by management in the condensed consolidated interim financial statements include the adequacy of the Company’s reclamation and environmental obligation, share based compensation, warrant valuation, valuation of deferred tax assets and liabilities, and assessment of impairment of mineral properties.
Cash and Cash Equivalents
All highly liquid cash equivalent investments with maturities of three months or less at the date of purchase are classified as cash and cash equivalents. The carrying amount of these securities approximates fair value because of the short-term maturity of these instruments.
Concentration of Credit Risk
Financial instruments that potentially subject the Company to a concentration of credit risk consist principally of cash and cash equivalents. The Company maintains cash and cash equivalents in accounts which may, at times, exceed federally insured limits. At September 30, 2019, the Company had $3.89 million of balances in excess of federally insured limits. We deposit our cash with financial institutions which we believe have sufficient credit quality to minimize the risk of loss.
6
Fair Value Measurements
The Company has adopted FASB ASC 820, Fair Value Measurements and Disclosures, which defines fair value, establishes guidelines for measuring fair value and expands disclosures regarding fair value measurements. The Company applies fair value accounting for all financial assets and liabilities and non – financial assets and liabilities that are recognized or disclosed at fair value in the financial statements on a recurring basis. The Company defines fair value as the price that would be received from selling an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date.
The Company has adopted FASB ASC 825, Financial Instruments, which allows companies to choose to measure eligible financial instruments and certain other items at fair value that are not required to be measured at fair value. The Company has not elected the fair value option for any eligible financial instruments.
Stock Based Compensation
The Company has adopted the provisions of FASB ASC 718, “Stock Compensation” (“ASC 718”), which establishes accounting for equity instruments exchanged for employee services. Under the provisions of ASC 718, stock-based compensation cost is measured at the grant date, based on the calculated fair value of the award, and is recognized as an expense over the employee’s requisite service period (generally the vesting period of the equity grant). Shares of the Company’s common stock will be issued for any options exercised.
Mineral Properties
Mineral property acquisition costs are capitalized when incurred and will be amortized using the units-of-production method over the estimated life of the ore reserve following the commencement of production. If a mineral property is subsequently abandoned or impaired, any capitalized costs will be expensed in the period of abandonment or impairment.
Acquisition costs include cash consideration and the fair market value of shares issued on the acquisition of mineral properties.
Exploration Costs
Exploration costs, which include maintenance, development and exploration of mineral claims, are expensed as incurred. When it is determined that a mineral deposit can be economically and legally developed as a result of establishing proven and probable reserves, the costs incurred after such determination will be capitalized and amortized over their useful lives. To date, the Company has not established the commercial feasibility of its exploration prospects; therefore, all exploration costs are expensed.
Property and Equipment
Equipment is recorded at cost less accumulated depreciation. All equipment is depreciated over its estimated useful life at the following annual rates:
Computer equipment
|
|
30% declining balance
|
|
Equipment
|
|
20% declining balance
|
|
Reclamation and Environmental Obligation
The Company follows the provisions of ASC 440, “Asset Retirement and Environmental Obligations”, which establishes the standards for the initial measurement and subsequent accounting for obligations associated with the sale, abandonment, or other disposal of long-lived tangible assets arising from the acquisition, construction or development and for normal operations of such assets. The Company’s asset retirement obligations are further described in Note 8.
Net Loss per Common Share
Basic loss/income per share is computed by dividing net loss available to common shareholders by the weighted average number of shares outstanding during each period. Diluted loss or income per share reflect the potential dilution that could occur if securities or other contracts to issue common stock were exercised or converted into common stock.
For the three periods ended September 30, 2019 and 2018, the shares of common stock equivalents related to outstanding stock options and convertible notes have not been included in the diluted per share calculation as they are anti-dilutive as the Company has recorded a net loss from continuing operations for those periods.
7
Note 2. Recent Accounting Guidance
In February 2016, the FASB issued ASU No. 2016-02, Leases. The new standard establishes a right-of-use (“ROU”) model that requires a lessee to record an ROU asset and a lease liability on the balance sheet for all leases with terms longer than 12 months. Leases are classified as either finance or operating, with classification affecting the pattern of expense recognition in the income statement. These changes will be effective for the Company's fiscal year beginning July 1, 2019. The Company adoption of this guidance on July 1, 2019 did not have a material effect on the Company's consolidated financial position, results of operations, cash flows and related disclosures.
In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments – Credit Losses. The changes will be effective for the Company’s fiscal year beginning July 1, 2020. Among other things, these amendments require the measurement of all expected credit losses for financial assets held at the reporting date based on historical experience, current conditions, and reasonable and supportable forecasts. The Company is currently evaluating the potential impact. The Company is currently evaluating the potential impact of implementing these changes on the Company's consolidated financial position, results of operations, and cash flows.
In August 2018, the FASB issued ASU No. 2018-13, Fair Value Measurement. These changes will be effective for the Company’s fiscal year beginning July 1, 2020. The amendments on changes in unrealized gains and losses, the range and weighted average of significant unobservable inputs used to develop Level 3 fair value measurements, and the narrative description of measurement uncertainty should be applied prospectively for only the most recent interim or annual period presented in the initial fiscal year of adoption. All other amendments should be applied retrospectively to all periods presented upon their effective date. Early adoption is permitted. The Company is currently evaluating the potential impact of implementing these changes on the Company's consolidated financial position, results of operations, and cash flows.
Note 3. Fair Value Measurements
Fair value accounting establishes a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value. The fair value hierarchy consists of three broad levels, which gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1) and the lowest priority to unobservable inputs (Level 3).
The three levels of the fair value hierarchy are described below:
Level 1
|
Unadjusted quoted prices in active markets that are accessible at the measurement date for identical, unrestricted assets or liabilities.
|
Level 2
|
Quoted prices in markets that are not active, or inputs that are observable, either directly or indirectly, for substantially the full term of the asset or liability; and
|
Level 3
|
Prices or valuation techniques that require inputs that are both significant to the fair value measurement and unobservable (supported by little or no market activity).
|
The fair value of financial assets and liabilities carried at book value by level within the fair value hierarchy in the Condensed Consolidated Interim Balance Sheets at September 30, 2019 and June 30, 2019 are presented in the following table:
|
|
|
|
|
|
Fair Value at September 30, 2019
|
|
|
June 30, 2019
|
|
|
|
Total
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
Total
|
|
Cash and cash equivalents
|
|
$
|
4,187,587
|
|
|
|
4,187,587
|
|
|
|
—
|
|
|
|
—
|
|
|
$
|
463,690
|
|
Convertible debt
|
|
$
|
5,204,452
|
|
|
|
—
|
|
|
|
5,204,452
|
|
|
|
—
|
|
|
$
|
—
|
|
The Company’s cash and cash equivalents are classified within Level 1 of the fair value hierarchy due to their short-term nature. Convertible debt is classified within Level 2 of the fair value hierarchy, carried at book value and is assumed to approximate fair value due to being recently acquired.
.
8
Note 4. Non-Cash Transactions
During the three month period ended September 30, 2019, the Company issued 1,096,791 shares to Ausenco Engineering USA South Inc. (“Ausenco”) in exchange for services valued at $976,144 to complete a feasibility study at its Grassy Mountain Project. The shares are being held in escrow until Ausenco delivers a feasibility study to the Company.
During the three month period ended September 30, 2018, the Company did not enter into any material non-cash activities.
Note 5. Capital Stock
Authorized Capital
Authorized capital stock consists of 50,000,000 common shares with par value of $0.01 per common share (June 30, 2019 – 50,000,000 common shares with par value $0.01 per common share).
During the three-month period ended September 30, 2019, the Company issued 1,096,791 shares at $0.89 to Ausenco in exchange for services to complete a feasibility study at its Grassy Mountain Project (Note 4).
During the three-month period ended September 30, 2018, the Company issued 2,400,000 units at $1.25 per unit for net proceeds of $2,911,286. Each unit consists of one share of common stock and one warrant to purchase one-half of a share of common stock. Each warrant will have a two-year term and will be exercisable at the following exercise prices: in the first year at $1.30 per share and in the second year at $1.50 per share.
At September 30, 2019 there were 27,616,745 common shares issued and outstanding (June 30, 2019 – 26,519,954 common shares).
Warrants
A summary of warrants exercisable into common stock activity as of September 30, 2019, and changes during the three month period ended is presented below:
|
|
Warrants
|
|
|
Weighted
Average
Exercise Price
|
|
|
Weighted-
Average Remaining
Contractual Term (Years)
|
|
|
Aggregate
Intrinsic Value
($)
|
|
Outstanding at July 1, 2019
|
|
|
1,200,000
|
|
|
$
|
1.40
|
|
|
|
1.03
|
|
|
|
—
|
|
Issued
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Exercised
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Outstanding at September 30, 2019
|
|
|
1,200,000
|
|
|
$
|
1.40
|
|
|
|
0.78
|
|
|
|
—
|
|
Stock Options and Stock Based Compensation
Paramount’s 2015 and 2016 Stock Incentive and Compensation Plans, which are stockholder-approved, permits the grant of stock options and stock to its employees for up to 2.169 million shares of common stock. Option awards are generally granted with an exercise price equal to the market price of Paramount’s stock at the date of grant and have contractual lives of 5 years. To better align the interests of its key executives and employees with those of its stockholders, a significant portion of those stock option awards will vest contingent upon meeting certain stock price appreciation performance goals. Option and stock awards provide for accelerated vesting if there is a change in control (as defined in the employee stock option plan).
During the three month period ending September 30, 2019, the Company did not grant any stock options.
9
A summary of option activity under the Stock Incentive and Compensation Plan as of September 30, 2019, and changes during the three month period ended are presented below:
Options
|
|
Options
|
|
|
Weighted
Average
Exercise Price
|
|
|
Weighted-
Average Remaining
Contractual Term (Years)
|
|
|
Aggregate
Intrinsic Value
|
|
Outstanding at July 1, 2019
|
|
|
1,568,995
|
|
|
$
|
1.50
|
|
|
|
1.94
|
|
|
$
|
—
|
|
Granted
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Exercised
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Forfeited or expired
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Outstanding at September 30, 2019
|
|
|
1,568,995
|
|
|
$
|
1.50
|
|
|
|
1.69
|
|
|
$
|
—
|
|
Exercisable at September 30, 2019
|
|
|
1,228,335
|
|
|
$
|
1.50
|
|
|
|
1.27
|
|
|
$
|
—
|
|
A summary of the status of Paramount’s non-vested options as of July 1, 2019 and changes during the three month period ended September 30, 2019 is presented below.
Non-vested Options
|
|
Options
|
|
|
Weighted-
Average Grant-
Date Fair Value
|
|
Non-vested at July 1, 2019
|
|
|
340,660
|
|
|
$
|
1.47
|
|
Granted
|
|
|
—
|
|
|
|
—
|
|
Vested
|
|
|
—
|
|
|
|
—
|
|
Forfeited
|
|
|
—
|
|
|
|
—
|
|
Non-vested at September 30, 2019
|
|
|
340,660
|
|
|
$
|
1.47
|
|
As of September 30, 2019, there was $79,694 of total unrecognized compensation cost related to non-vested share-based compensation arrangements granted under the employee share option plan. That cost is expected to be recognized over a weighted-average period of 1.13 years. The total fair value of share based compensation arrangements vested during the three month period ended September 30, 2019 and 2018, was $28,310 and $nil, respectively.
Note 6. Convertible Debt
|
|
Debt
|
|
|
|
September 30, 2019
|
|
|
|
June 30, 2019
|
|
|
|
Current
|
|
|
|
Non-Current
|
|
|
|
Current
|
|
|
|
Non-Current
|
|
2023 Secured Convertible Notes
|
|
$
|
|
—
|
|
|
$
|
|
5,477,690
|
|
|
|
$
|
|
—
|
|
|
|
$
|
|
—
|
|
Less: unamortized discount and issuance costs
|
|
|
|
—
|
|
|
|
|
(273,238
|
)
|
|
|
|
|
—
|
|
|
|
|
|
—
|
|
|
|
$
|
|
—
|
|
|
$
|
|
5,204,452
|
|
|
|
$
|
|
—
|
|
|
|
$
|
|
—
|
|
In September 2019, the Company completed a private offering of 5,478 Senior Secured Convertible Notes (“2019 Convertible Notes”) at $975 per $1,000 face amount due in 2023. Each 2019 Convertible Note will bear an interest rate of 7.5% per annum, payable semi-annually. The principal amount of the 2019 Convertible Notes will be convertible at a price of $1.00 per share of Paramount common stock. Unamortized discount and issuance costs of $275,883 will be amortized as an additional interest expense over the four year term of the 2019 Convertible Notes. During the period ended September 30, 2019, the Company amortized $2,645 of discount and issuance costs. At any point after the second anniversary of the issuance of the convertible notes, Paramount may force conversion if the share price of its common stock remains above $1.75 for 20 consecutive trading days. The convertible notes are secured by a lien on all assets of the Company and the Company is required to maintain a working capital balance of $250,000.
10
Note 7. Mineral Properties
The Company has capitalized acquisition costs on mineral properties as follows:
|
|
September 30, 2019
|
|
|
June 30, 2019
|
|
Sleeper
|
|
$
|
23,869,404
|
|
|
$
|
23,869,404
|
|
Grassy Mountain
|
|
|
23,185,728
|
|
|
|
23,185,728
|
|
|
|
$
|
47,055,132
|
|
|
$
|
47,055,132
|
|
Sleeper:
Sleeper is located in Humboldt County, Nevada approximately 26 miles northwest of the town of Winnemucca. The Sleeper Gold Mine consists of 2,322 unpatented mining claims totaling approximately 38,300 acres.
Grassy Mountain:
The Grassy Mountain Project is located in Malheur County, Oregon, approximately 22 miles south of Vale, Oregon, and roughly 70 miles west of Boise, Idaho. It consists of 442 unpatented lode claims, 3 patented lode claims, and various leased fee land surface and surface/mineral rights, all totaling approximately 9,300 acres.
Note 8. Reclamation and Environmental:
The Company holds an insurance policy which is in effect until 2033 related to its Sleeper Gold Project. The policy covers reclamation costs up to an aggregate of $25 million in the event the Company’s bond is insufficient to cover any mandated reclamation obligations.
As a part of its insurance policy, the Company has funds in a commutation account and reclamation bonds which are used to reimburse reclamation costs and indemnity claims. The balance of the commutation account and reclamation bonds at September 30, 2019 is $1,382,895 (June 30, 2019- $1,401,833).
Reclamation and environmental costs are based principally on legal requirements. Management estimates costs associated with reclamation of mineral properties and properties under mine closure. On an ongoing basis the Company evaluates its estimates and assumptions, however, actual amounts could differ from those based on estimates and assumptions.
The asset retirement obligation at the Sleeper Gold Project has been measured using the following variables: 1) Expected costs for earthwork, re-vegetation, in-pit water treatment, on-going monitoring, labor and management, 2) Inflation adjustment, and 3) Market risk premium. The sum of the expected costs by year is discounted using the Company’s credit adjusted risk free interest rate from the time it expects to pay the retirement obligation to the time it incurs the obligation. The reclamation and environmental obligation recorded on the balance sheet is equal to the present value of the estimated costs.
The current undiscounted estimate of the reclamation costs for existing disturbances at the Sleeper Gold Project is $3,977,751 as required by the U.S Bureau of Land Management and the Nevada Department of Environmental Protection. Assumptions used to compute the asset retirement obligations as at September 30, 2019 and June 30, 2019 for the Sleeper Gold Project included a credit adjusted risk free rate and inflation rate of 9.76% (June 30, 2019– 9.76%) and 1.1% (June 30, 2019 – 1.1%), respectively. Expenses are expected to be incurred between the years 2019 and 2056.
Changes to the Company’s asset retirement obligations for the three-month period ended September 30, 2019 and the year ended June 30, 2019 are as follows:
|
|
Three Month Period 2019
|
|
|
Year Ended June 30, 2019
|
|
Balance at beginning of period
|
|
$
|
965,677
|
|
|
$
|
1,072,551
|
|
Accretion expense
|
|
|
23,647
|
|
|
|
165,505
|
|
Payments
|
|
|
(25,728
|
)
|
|
|
(394,785
|
)
|
Change in estimate of existing obligation
|
|
|
—
|
|
|
|
122,406
|
|
Balance at end of period
|
|
$
|
963,596
|
|
|
$
|
965,677
|
|
11
The balance of the asset retirement obligation of $963,596 at September 30, 2019 (June 30, 2019 -$965,677 ) is comprised of a current portion of $97,287 (June 30, 2019 -$97,287 ) and a non-current portion of $866,308 (June 30, 2019 -$868,390).
Note 9. Other Income
The Company’s other income details for the three-month period ended September 30, 2019 and 2018 were as follows:
|
|
Three Month Period
|
|
|
Three Month Period
|
|
|
|
2019
|
|
|
2018
|
|
Re-imbursement of reclamation costs
|
|
$
|
25,728
|
|
|
$
|
99,001
|
|
Leasing of water rights to third party
|
|
|
5,631
|
|
|
|
5,520
|
|
Total
|
|
$
|
31,359
|
|
|
$
|
104,521
|
|
Note 10. Segmented Information:
Segmented information has been compiled based on the material mineral properties in which the Company performs exploration activities.
Expenses and mineral property carrying values by material project for the three-month period ended September 30, 2019:
|
|
Exploration
Expenses
|
|
|
Land Holding
Costs
|
|
|
Mineral Properties
As at September 30, 2019
|
|
Sleeper Gold Project
|
|
$
|
108,197
|
|
|
$
|
102,799
|
|
|
$
|
23,869,404
|
|
Grassy Mountain Project
|
|
|
350,375
|
|
|
|
34,778
|
|
|
|
23,185,728
|
|
|
|
$
|
458,572
|
|
|
$
|
137,577
|
|
|
$
|
47,055,132
|
|
Expenses for the three-month period ended September 30, 2018 and mineral property carrying values as at June 30, 2019 by material project:
|
|
Exploration
Expenses
|
|
|
Land Holding
Costs
|
|
|
Mineral Properties
As at June 30,
2019
|
|
Sleeper Gold Project
|
|
$
|
157,440
|
|
|
$
|
107,688
|
|
|
$
|
23,869,404
|
|
Grassy Mountain Project
|
|
|
314,376
|
|
|
|
54,088
|
|
|
|
23,185,728
|
|
|
|
$
|
471,816
|
|
|
$
|
161,776
|
|
|
$
|
47,055,132
|
|
Note 11. Commitments and Contingencies:
Lease Commitments
The Company has office premises leases that expire on June 30, 2021. The aggregate minimum rentals payable for these operating leases are as follows:
Year
|
|
Total Amount
|
|
2020
|
|
$
|
7,773
|
|
2021
|
|
$
|
10,575
|
|
During the three month period ended September 30, 2019, $16,116 was recognized as rent expense in the statement of operations and comprehensive loss/income.
Other Commitments
Paramount has an agreement to acquire 44 mining claims (“Cryla Claims”) covering 589 acres located immediately to the west of the proposed Grassy Mountain site from Cryla LLC. Paramount will make annual lease payments of $40,000 per year the first two years of the lease term and $60,000 per year thereafter with an option to purchase the Cryla Claims for $560,000 at any time. The term of the agreement is 25 years. In the event Paramount exercises its option to acquire the Cryla Claims, all annual payments shall be
12
credited against a production royalty that will be based a prevailing price of the metals produced from the Cryla Claims. The royalty rate ranges between 2% and 4% based on the daily price of gold. The agreement with Cryla can be terminated by Paramount at any time. All lease payments under the agreement are up-to-date and no other payments were made during the three month period ending September 30, 2019. The Cryla Claims are without known mineral reserves and there is no current exploratory work being performed.
Paramount has an agreement with Nevada Select Royalty (“Nevada Select”) to purchase 100% in the Frost Project, which consists of 40 mining claims located approximately 12 miles west of its Grassy Mountain Project. A total consideration of $250,000 payable to Nevada Select will be based on certain events over time. Nevada Select will retain a 2% NSR on the Frost Claims and Paramount has the right to reduce the NSR to 1% for a payment of $1 million. All required payments under the agreement are up-to-date as of September 30, 2019. The Frost Claims are without known mineral reserves.
13