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
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 in accordance with U.S. GAAP 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, 2017.
Use of Estimates
The preparation of these 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 asset retirement obligations, valuation of deferred tax asset, and valuation 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 and amounts receivable. The Company maintains cash and cash equivalents in accounts which may, at times, exceed federally insured limits. At September 30, 2017, the Company had nil 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.
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.
6
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 C
ompany 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 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 being 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
|
|
Asset Retirement Obligations
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.
Loss/Income 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 month period ended September 30, 2017 , the shares of common stock equivalents related to outstanding stock options 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 the period.
Revenue Recognition
Revenue is recognized when persuasive evidence that an agreement exists, the risks and rewards of ownership pass to the purchaser, the selling price is fixed and determinable; or collection is reasonably assured. The passing of title to the purchaser is based on the terms of the purchase and sale agreement.
7
Note 2. Recent Accounting Guidance
In November 2016, the FASB issued ASU 2016-18, “
Statement of Cash Flows (Topic 230) - Restricted Cash,
” which will require entities to show the changes in the total of cash, cash equivalents, restricted cash and restricted cash equivalents in the statement of cash flows. These changes become effective for the Company's fiscal year beginning July 1, 2018. 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. Acquisitions
On July 7, 2016, the Company completed the acquisition of Calico, which held mining claims and the Grassy Mountain Gold Project in Oregon, USA. Upon closing of the transaction, Calico became a wholly-owned subsidiary of the Company, and each issued and outstanding share of Calico common stock was converted into 0.07 shares of Paramount common stock.
The transaction was accounted for as an asset acquisition, as Calico is an exploration stage project, which requires that the total purchase price be allocated to the assets acquired and liabilities assumed based on their relative fair values. The purchase price and acquired assets and liabilities were as follows:
Common shares issued (7,171,163 at $2.12)
|
|
$
|
15,202,866
|
|
Transaction advisory fees and other acquisition costs
|
|
|
795,925
|
|
Total purchase price
|
|
$
|
15,998,791
|
|
Assets:
|
|
|
|
|
Cash
|
|
$
|
4,363
|
|
Receivables and other current assets
|
|
|
28,093
|
|
Mineral properties
|
|
|
20,785,728
|
|
|
|
|
20,818,184
|
|
Liabilities:
|
|
|
|
|
Accounts payable and accrued liabilities
|
|
|
1,603,975
|
|
Deferred income taxes
|
|
|
3,215,418
|
|
|
|
|
4,819,393
|
|
Net assets acquired
|
|
$
|
15,998,791
|
|
Pursuant to the acquisition of Calico, the Company recorded a deferred tax liability of $3,215,418. Subsequent to the acquisition, the Company determined that it would be able to utilize the benefit of its tax operating loss carryforwards and adjusted its valuation allowance to recognize the benefit of these previously unrecognized deferred tax assets and offset the deferred tax liability. Accordingly, the Company recognized a deferred tax recovery of $3,215,418 in the comparative quarter of 2016.
Note 4. Fair Value Measurements
Fair value is 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. Fair value is estimated by applying the following hierarchy, which prioritizes the inputs used to measure fair value into three levels and bases the categorization with the hierarchy upon the lowest level of input that is available and significant to the fair value measurement:
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).
8
The three levels of the fair value hierarchy under ASC 820 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
|
Inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly, including quoted prices for similar assets or liabilities in active markets; quoted prices for identical or similar assets or liabilities in markets that are not active; inputs other than quoted prices that are observable for the asset or liability (e.g., interest rates); and inputs that are derived principally from or corroborated by observable market data by correlation or other means.
|
Level 3
|
Inputs that are both significant to the fair value measurement and unobservable.
|
The following table sets forth the Company’s financial assets and liabilities measured at fair value by level within the fair value hierarchy. As required by ASC 820, assets and liabilities are classified in their entirety based on the lowest level of input that is significant to the fair value measurement.
|
|
|
|
|
|
Fair Value at September 30, 2017
|
|
|
June 30, 2017
|
|
Assets
|
|
Total
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
Total
|
|
Cash and cash equivalents
|
|
$
|
91,977
|
|
|
|
91,977
|
|
|
|
—
|
|
|
|
—
|
|
|
$
|
1,911,170
|
|
The Company’s cash and cash equivalents are classified within Level 1 of the fair value hierarchy because they are valued using quoted market prices. The cash and cash equivalents that are valued based on quoted market prices in active markets are primarily comprised of commercial paper, short-term certificates of deposit and U.S. Treasury securities.
.
Note 5. Non-Cash Transactions
During the three month period ended September 30, 2017, the Company did not enter into any non-cash activities. During the three month period ended September 30, 2016, the Company issued 7,171,163 shares of its common stock with a value of $15,202,866 for the acquisition of Calico Resources Corp.
Note 6. 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, 2017 – 50,000,000 common shares with par value $0.01 per common share).
At September 30, 2017 there were 17,779,954 common shares issued and outstanding (June 30, 2017 - 17,779,954 common shares).
Warrants
A summary of warrant activity as of September 30, 2017, and changes during the three month period ended is presented below:
|
|
Warrants
|
|
|
Weighted
Average
Exercise
Price
|
|
|
Weighted-
Average Remaining
Contractual Term (Years)
|
|
|
Aggregate
Intrinsic
Value
($)
|
|
Outstanding at July 1, 2017
|
|
|
1,045,000
|
|
|
$
|
2.13
|
|
|
|
1.41
|
|
|
|
—
|
|
Issued
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Outstanding at September 30, 2017
|
|
|
1,045,000
|
|
|
$
|
2.13
|
|
|
|
1.41
|
|
|
|
—
|
|
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 1.569 million shares of common stock. Option awards are generally granted with an
9
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 i
ts 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).
The fair value of option awards that have market conditions are estimated on the date of grant using a Monte-Carlo Simulation valuation model. The award’s grant date fair value is determined by taking the average of the grant date fair values under each of many Monte Carlo trials. The key assumptions used in the simulations were as follows:
|
|
2017
|
|
|
2016
|
|
Weighted average risk-free interest rate
|
|
|
—
|
|
|
|
1.26
|
%
|
Weighted average volatility
|
|
|
—
|
|
|
|
70.26
|
%
|
Weighted average fair value
|
|
$
|
—
|
|
|
$
|
1.22
|
|
The fair value of option awards that do not have market conditions are estimated on the date of grant using a Black-Scholes option valuation model that uses the assumptions noted in the following table. Because Black-Scholes option valuation models incorporate ranges of assumptions for inputs, those ranges are disclosed. Given Paramount’s short history as a public company, expected volatilities are based on, historical volatilities from five proxy companies’ stock. Paramount uses historical data to estimate option exercise and employee termination within the valuation model; separate groups of employees that have similar historical exercise behavior are considered separately for valuation purposes. The expected term of options granted is derived from the output of the option valuation model and represents the period of time that options granted are expected to be outstanding; the range given below results from certain groups of employees exhibiting different behavior. The risk-free rate for periods within the contractual life of the option is based on the U.S. Treasury yield curve in effect at the time of grant.
|
|
2017
|
|
|
2016
|
|
Weighted average risk-free interest rate
|
|
|
—
|
|
|
|
1.26
|
%
|
Weighted-average volatility
|
|
|
—
|
|
|
|
70.26
|
%
|
Expected dividends
|
|
|
—
|
|
|
$
|
0.00
|
|
Weighted average expected term (years)
|
|
|
—
|
|
|
|
5.00
|
|
Weighted average fair value
|
|
|
—
|
|
|
$
|
1.23
|
|
A summary of option activity under the Stock Incentive and Compensation Plan as of September 30, 2017, and changes during the three month period ended is presented below.
Options
|
|
Options
|
|
|
Weighted
Average
Exercise
Price
|
|
|
Weighted-
Average Remaining
Contractual Term (Years)
|
|
|
Aggregate
Intrinsic
Value
|
|
Outstanding at July 1, 2017
|
|
|
1,045,000
|
|
|
$
|
1.54
|
|
|
|
—
|
|
|
$
|
—
|
|
Granted
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Exercised
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Forfeited or expired
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Outstanding at September 30, 2017
|
|
|
1,045,000
|
|
|
$
|
1.54
|
|
|
|
3.31
|
|
|
$
|
39,800
|
|
Exercisable at September 30, 2017
|
|
|
1,011,666
|
|
|
$
|
1.56
|
|
|
|
3.36
|
|
|
$
|
39,800
|
|
A summary of the status of Paramount’s non-vested options as of July 1, 2017 and changes during the three month period ended September 30, 2017 is presented below.
Non-vested Options
|
|
Options
|
|
|
Weighted-
Average
Grant-
Date Fair Value
|
|
Non-vested at July 1, 2017
|
|
|
33,334
|
|
|
$
|
1.23
|
|
Granted
|
|
|
—
|
|
|
|
—
|
|
Vested
|
|
|
—
|
|
|
|
—
|
|
Forfeited
|
|
|
—
|
|
|
|
—
|
|
Non-vested at September 30, 2017
|
|
|
33,334
|
|
|
$
|
1.23
|
|
10
As of September
30, 2017, there was $9,266 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 0.95 years
. The total fair value of share based compensation arrangements vested during the three month period ended September 30, 2017 and 2016, was $nil and $351,236, respectively.
Note 7. Mineral Properties
The Company has capitalized acquisition costs on mineral properties as follows:
|
|
September 30, 2017
|
|
|
June 30, 2017
|
|
Sleeper
|
|
$
|
25,674,658
|
|
|
$
|
25,674,658
|
|
Grassy Mountain
|
|
|
20,785,728
|
|
|
|
20,785,728
|
|
|
|
$
|
46,460,386
|
|
|
$
|
46,460,386
|
|
Sleeper:
Sleeper is located in Humbolt 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 418 unpatented lode claims, 3 patented lode claims, 9 mill site claims, 6 association placer 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 which is used to reimburse reclamation costs and indemnity claims. The balance of the commutation account at September 30, 2017 is $2,090,378 (June 30, 2017 - $2,086,562).
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 $
3,835,050
as required by 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, 2017 and June 30, 2017 for the Sleeper Gold Project included a credit adjusted risk free rate and inflation rate of 9.76% (June 30, 2017– 9.76%) and 2.0% (June 30, 2017 – 2.0%), respectively. Expenses are expected to be incurred between the years 2017 and 2056.
11
Changes to the Company’s asset retirement obligations for the three month period ended September 30, 2
017 and the year ended June 30, 2017 are as follows:
|
|
Three Month Period 2017
|
|
|
Year Ended June 30, 2017
|
|
Balance at beginning of period
|
|
$
|
1,261,034
|
|
|
$
|
1,402,039
|
|
Accretion expense
|
|
|
37,684
|
|
|
|
137,288
|
|
Payments
|
|
|
—
|
|
|
|
(278,293
|
)
|
Change in estimate of existing obligation
|
|
|
—
|
|
|
|
—
|
|
Balance at end of period
|
|
$
|
1,298,718
|
|
|
$
|
1,261,034
|
|
The balance of the asset retirement obligation of $1,298,718 (June 30, 2017 -$1,261,034 ) is comprised of a current portion of $216,101 (June 30, 2017 -$216,101 ) and a non-current portion of $1,082,617 (June 30, 2017 -$1,044,933).
Note 9. Other Income
The Company’s other income details for the three month period ended September 30, 2017 were as follows:
|
|
Three Month Period
|
|
|
Three Month Period
|
|
|
|
2017
|
|
|
2016
|
|
Re-imbursement of reclamation costs
|
|
$
|
80,145
|
|
|
$
|
-
|
|
Leasing of water rights to third party
|
|
|
5,403
|
|
|
|
5,306
|
|
Total
|
|
$
|
85,548
|
|
|
$
|
5,306
|
|
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, 2017:
|
|
Exploration
Expenses
|
|
|
Land Holding
Costs
|
|
|
Mineral Properties
As at September 30, 2017
|
|
Sleeper Gold Project
|
|
$
|
95,474
|
|
|
$
|
107,620
|
|
|
$
|
25,674,658
|
|
Grassy Mountain Project
|
|
|
551,438
|
|
|
|
53,492
|
|
|
|
20,785,728
|
|
|
|
$
|
646,912
|
|
|
$
|
161,112
|
|
|
$
|
46,460,386
|
|
Expenses for the three month period ended September 30, 2016 and mineral property carrying values as at June 30, 2017 by material project:
|
|
Exploration
Expenses
|
|
|
Land Holding
Costs
|
|
|
Mineral Properties
As at June 30,
2017
|
|
Sleeper Gold Project
|
|
$
|
96,630
|
|
|
$
|
115,482
|
|
|
$
|
25,674,658
|
|
Grassy Mountain Project
|
|
|
440,741
|
|
|
|
39,129
|
|
|
|
20,785,728
|
|
|
|
$
|
537,371
|
|
|
$
|
154,611
|
|
|
$
|
46,460,386
|
|
Note 11. Commitments and Contingencies:
Lease Commitments
During the three month period ended September 30, 2017, the Company has office premises leases that expire at various dates until June 30, 2018. The aggregate minimum rentals payable for these operating leases are as follows:
Year
|
|
Total Amount
|
|
2018
|
|
$
|
13,800
|
|
12
During the three month period ended September 30, 2017, $7,043 was recognized as rent expense in the statement of operations and comprehensive loss/income.
Note 12. Subsequent Events:
Subsequent to the quarter ended September 30, 2017, the Company closed a public offering of 3,520,000 shares of common stock at a price of $1.40 raising gross proceeds of $4.9 million. Also subsequent to the quarter ended September 30, 2017, the Company closed a private placement of 1,775,000 shares of common stock for gross proceeds of $2.5 million. Costs related to these offerings incurred prior to September 30, 2017 are included in Other Assets on the Condensed Consolidated Interim Balance Sheets as at September 30, 2017 and June 30, 2017.
13