See Accompanying Notes to Condensed Consolidated
Interim Financial Statements
See Accompanying Notes to Condensed Consolidated
Interim Financial Statements
See Accompanying Notes to Condensed Consolidated
Interim Financial Statements
See Accompanying Notes to Condensed Consolidated
Interim Financial Statements
Notes to Condensed Consolidated Interim
Financial Statements
For the Three and Six Months Ended June
30, 2018 and 2017
(amounts expressed in thousands of US
dollars - Unaudited)
Golden Queen Mining Co. Ltd. (“Golden
Queen”, “GQM Ltd.” or the “Company”) is engaged in the operation of the Soledad Mountain Mine (“the
Mine”), located in the Mojave Mining District, Kern County, California. The Company owns 50% of Golden Queen Mining Company,
LLC (“GQM LLC”), the operator of the Mine. The remaining 50% is owned by Gauss LLC (“Gauss”).
|
2.
|
Basis of Presentation and Going Concern
|
These unaudited condensed consolidated
interim financial statements have been prepared in accordance with accounting principles generally accepted in the United States
(“US GAAP”). The accounting policies followed in preparing these condensed consolidated interim financial statements
are those used by the Company as set out in the audited consolidated financial statements for the year ended December 31, 2017
other than noted below.
Certain information and note disclosures
normally included for annual consolidated financial statements prepared in accordance with US GAAP have been omitted. These unaudited
condensed consolidated interim financial statements should be read together with the audited consolidated financial statements
of the Company for the year ended December 31, 2017.
In the opinion of Management, all adjustments
considered necessary (including reclassifications and normal recurring adjustments) to present fairly the financial position, results
of operations and cash flows as at June 30, 2018 and for all periods presented, have been included in these unaudited condensed
consolidated interim financial statements. The interim results are not necessarily indicative of results for the full year ending
December 31, 2018, or future operating periods.
The Company’s access to the net
assets of GQM LLC is determined by the Board of Managers of GQM LLC. The Board of Managers is not controlled by the Company
and therefore there is no guarantee that any access to the net assets of GQM LLC would be provided to the Company in order to
continue as a going concern. The Board of Managers of GQM LLC determine when and if distributions from GQM LLC are made to the
holders of its membership units at their sole discretion.
The Company is required to pay the following
amounts to the Clay Group on the following dates: $1.7 million of interest and principal on July 1, 2018 (paid on June 29, 2018);
$1.7 million of interest and principal on and October 1, 2018, $1.7 million of interest and principal on January 1, 2019, $3.9
million of interest and principal on April 1, 2019 and $21.7 million of interest and principal on May 21, 2019. In the six months
ended June 30, 2018, the cash used operating activities was $10.3 million, however, management believes the Company will be able
to meet its financial obligations for the 12 months period following the date of these financial statements except that it is
currently unlikely the Company will be able to reimburse the final two payments of $3.9 million and $21.7 million
on April 1, 2019 and May 21, 2019 respectively. The Company will need to receive cash distributions from GQM LLC to service its
debt and such distributions are contingent on GQM LLC’s ability to generate positive cash flows. The Company reviewed the
mine plan in light of the results for the six months ended June 30, 2018 and has determined it is unlikely it will receive sufficient
distributions from GQM LLC during this fiscal year to service its debt in early 2019. This situation raises substantial doubt
about the Company’s ability to continue as a going concern. Consequently, in the third quarter of 2018, discussions with
the Clay Group to restructure the reimbursement of the last debt payment will be initiated. While the Company has been successful
in re-negotiating the debt repayment terms with the Clay Group in the past, there can be no assurance that will be achieved going
forward.
The unaudited condensed consolidated interim
financial statements do not reflect adjustments to the carrying values of the assets and liabilities, the reported revenues and
expenses, and the balance sheet classifications used, that would be necessary if the company were unable to realize its assets
and settle its liabilities as a going concern in the normal course of operations. Such adjustments could be material.
GOLDEN QUEEN MINING CO. LTD.
Notes to Condensed Consolidated Interim
Financial Statements
For the Three and Six Months Ended June
30, 2018 and 2017
(amounts expressed in thousands of US
dollars - Unaudited)
|
3.
|
Summary of Accounting Policies and Estimates and
Judgements
|
The preparation of financial statements
in conformity with US GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts
of revenues and expenses during the reporting period. Significant estimates and judgements have been made by Management in several
areas including the accounting for the joint venture transaction and determination of the temporary and permanent non-controlling
interest, the recoverability of mineral properties interests, royalty obligations, inventory valuation, asset retirement obligations,
and derivative liability – warrants. Actual results could differ from those estimates.
New Accounting
Pronouncements
Adopted
|
(i)
|
In May 2014, the FASB issued Accounting Standards Update (“ASU”) 2014-09, “Revenue
from Contracts with Customers (Topic 606).” The amendments in ASU 2014-09 affect any entity that either enters into contracts
with customers to transfer goods or services or enters into contracts for the transfer of nonfinancial assets unless those contracts
are within the scope of other standards (e.g., insurance contracts or lease contracts). This ASU superseded the revenue recognition
requirements in Topic 605, Revenue Recognition, and most industry-specific guidance, and creates a Topic 606, Revenue from Contracts
with Customers. The new standard provides a five-step approach to be applied to all contracts with customers and also requires
expanded disclosures about revenue recognition.
|
The Company has completed its
assessment of the impact of the new revenue standard on the Company's consolidated financial statements and disclosures. The Company
has completed the review of all contracts and determined that the adoption of this guidance has no material impact on amounts and
timing of revenue recognition. The Company's revenue arises from contracts with customers in which the delivery of doré
is the single performance obligation under the customer contract. Product pricing is determined at the point when contract is created
by reference to active and freely traded commodity markets, for example, the London Bullion Market for both gold and silver. The
Company enters into the contracts with parties who have an ability and intention to meet its obligations with respect to consideration
payment, thus ensuring the collectability of such consideration. These contracts are not modified and contain no variable consideration.
|
(ii)
|
In August 2016, ASC guidance was issued to amend the classification of certain cash receipts and
cash payments in the statement of cash flows. The new guidance was effective for the Company’s fiscal year and interim periods
beginning after December 15, 2017. The Company adopted the guidance effective January 1, 2018 and has retrospectively applied this
guidance for all periods presented. There was no material impact from adoption of this guidance.
|
Not Yet Adopted
|
(iii)
|
February 2016, FASB issued ASC 842 that requires lessees to recognize lease assets and corresponding
lease liabilities on the balance sheet for all leases with terms of more than 12 months. The update, which supersedes existing
lease guidance, will continue to classify leases as either finance or operating, with the classification determining the pattern
of expense recognition in the income statement.
|
The ASU will be effective for
annual and interim periods beginning January 1, 2019, with early adoption permitted, and is applicable on a modified retrospective
basis with various optional practical expedients. The Company is currently assessing the impact of this standard.
GOLDEN QUEEN MINING CO. LTD.
Notes to Condensed Consolidated Interim
Financial Statements
For the Three and Six Months Ended June
30, 2018 and 2017
(amounts expressed in thousands of US
dollars - Unaudited)
Inventories consist primarily of production
from the Company’s operation, in varying stages of the production process and supplies and spare parts, all of which are
presented at the lower of cost or net realizable value. Inventories of the Company are comprised of:
|
|
June 30,
2018
|
|
|
December 31,
2017
|
|
Stockpile inventory
|
|
$
|
2,431
|
|
|
$
|
201
|
|
In-process inventory
|
|
|
11,808
|
|
|
|
6,495
|
|
Dore inventory
|
|
|
647
|
|
|
|
320
|
|
Supplies and spare parts
|
|
|
2,222
|
|
|
|
2,012
|
|
|
|
$
|
17,108
|
|
|
$
|
9,028
|
|
|
5.
|
Property, Plant, Equipment and Mineral Interests
|
Property, plant and equipment and mineral
interests, are depreciated and depleted using either the units-of-production or straight-line method over the shorter of the estimated
useful life of the asset or the expected life of mine. Assets under construction in progress are recorded at cost and re-allocated
to its corresponding category when they become available for use.
|
|
Land
|
|
|
Mineral
property
interest and
claims
|
|
|
Mine
development
|
|
|
Machinery
and
equipment
|
|
|
Buildings
and
infrastructure
|
|
|
Construction
in progress
|
|
|
Interest
capitalized
|
|
|
Total
|
|
Cost
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At December 31, 2016
|
|
$
|
3,893
|
|
|
$
|
4,241
|
|
|
$
|
42,033
|
|
|
$
|
60,201
|
|
|
$
|
28,604
|
|
|
$
|
543
|
|
|
$
|
5,886
|
|
|
$
|
145,401
|
|
Additions
|
|
|
98
|
|
|
|
817
|
|
|
|
354
|
|
|
|
17
|
|
|
|
-
|
|
|
|
19,597
|
|
|
|
-
|
|
|
|
20,883
|
|
Transfers
|
|
|
-
|
|
|
|
222
|
|
|
|
8,625
|
|
|
|
11,239
|
|
|
|
-
|
|
|
|
(20,086
|
)
|
|
|
-
|
|
|
|
-
|
|
Disposals
|
|
|
(22
|
)
|
|
|
-
|
|
|
|
(239
|
)
|
|
|
(1,391
|
)
|
|
|
(207
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
(1,859
|
)
|
At December 31, 2017
|
|
$
|
3,969
|
|
|
$
|
5,280
|
|
|
$
|
50,773
|
|
|
$
|
70,066
|
|
|
$
|
28,397
|
|
|
$
|
54
|
|
|
$
|
5,886
|
|
|
$
|
164,425
|
|
Additions
|
|
|
39
|
|
|
|
5
|
|
|
|
492
|
|
|
|
-
|
|
|
|
-
|
|
|
|
5,346
|
|
|
|
-
|
|
|
|
5,882
|
|
Transfers
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
4,454
|
|
|
|
-
|
|
|
|
(4,454
|
)
|
|
|
-
|
|
|
|
-
|
|
Disposals
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(6
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(6
|
)
|
At June 30, 2018
|
|
$
|
4,008
|
|
|
$
|
5,285
|
|
|
$
|
51,265
|
|
|
$
|
74,514
|
|
|
$
|
28,397
|
|
|
$
|
946
|
|
|
$
|
5,886
|
|
|
$
|
170,301
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated depreciation and depletion
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At December 31, 2016
|
|
$
|
-
|
|
|
$
|
67
|
|
|
$
|
971
|
|
|
$
|
7,129
|
|
|
$
|
2,679
|
|
|
$
|
-
|
|
|
$
|
5
|
|
|
$
|
10,851
|
|
Additions
|
|
|
-
|
|
|
|
261
|
|
|
|
2,444
|
|
|
|
6,489
|
|
|
|
2,358
|
|
|
|
-
|
|
|
|
466
|
|
|
|
12,018
|
|
Disposals
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(265
|
)
|
|
|
(27
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
(292
|
)
|
At December 31, 2017
|
|
$
|
-
|
|
|
$
|
328
|
|
|
$
|
3,415
|
|
|
$
|
13,353
|
|
|
$
|
5,010
|
|
|
$
|
-
|
|
|
$
|
471
|
|
|
$
|
22,577
|
|
Additions
|
|
|
-
|
|
|
|
106
|
|
|
|
1,039
|
|
|
|
3,792
|
|
|
|
1,177
|
|
|
|
-
|
|
|
|
203
|
|
|
|
6,317
|
|
Disposals
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
At June 30, 2018
|
|
$
|
-
|
|
|
$
|
434
|
|
|
$
|
4,454
|
|
|
$
|
17,145
|
|
|
$
|
6,187
|
|
|
$
|
-
|
|
|
$
|
674
|
|
|
$
|
28,894
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Carrying values
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At December 31, 2017
|
|
$
|
3,969
|
|
|
$
|
4,952
|
|
|
$
|
47,358
|
|
|
$
|
56,713
|
|
|
$
|
23,387
|
|
|
$
|
54
|
|
|
$
|
5,415
|
|
|
$
|
141,848
|
|
At June 30, 2018
|
|
$
|
4,008
|
|
|
$
|
4,851
|
|
|
$
|
46,811
|
|
|
$
|
57,369
|
|
|
$
|
22,210
|
|
|
$
|
946
|
|
|
$
|
5,212
|
|
|
$
|
141,407
|
|
GOLDEN QUEEN MINING CO. LTD.
Notes to Condensed Consolidated Interim
Financial Statements
For the Three and Six Months Ended June
30, 2018 and 2017
(amounts expressed in thousands of US
dollars - Unaudited)
As at June 30, 2018 and December 31, 2017,
equipment financing balances are as follows:
|
|
June 30,
2018
|
|
|
December 31,
2017
|
|
Balance, beginning of the period
|
|
$
|
17,243
|
|
|
$
|
15,150
|
|
Additions
|
|
|
3,751
|
|
|
|
10,727
|
|
Down payments and taxes
|
|
|
(638
|
)
|
|
|
(1,839
|
)
|
Settlements
|
|
|
-
|
|
|
|
(603
|
)
|
Principal repayments
|
|
|
(3,954
|
)
|
|
|
(6,192
|
)
|
Balance, end of the period
|
|
$
|
16,402
|
|
|
$
|
17,243
|
|
|
|
|
|
|
|
|
|
|
Current portion
|
|
$
|
8,096
|
|
|
$
|
7,629
|
|
Non-current portion
|
|
$
|
8,306
|
|
|
$
|
9,614
|
|
The terms of the equipment financing agreements
are as follows:
|
|
June
30,
2018
|
|
|
December
31,
2017
|
|
Total acquisition costs
|
|
$
|
39,443
|
|
|
$
|
35,692
|
|
Interest rates
|
|
|
0.00% ~
4.50%
|
|
|
|
0.00% ~
4.50%
|
|
Monthly payments
|
|
$
|
5
~ 74
|
|
|
$
|
5
~ 74
|
|
Average remaining life (years)
|
|
|
2.41
|
|
|
|
2.13
|
|
For the six months ended June 30, 2018,
the Company made total down payments of $638 (December 31, 2017
–
$1,839). The down payments consist of the sales
tax on the assets and a 10% payment of the pre-tax purchase price. All of the loan agreements are for a term of four years, except
two which are for three years, and are secured by the underlying asset.
The following table outlines the principal
payments to be made for each of the remaining years:
Years
|
|
Principal Payments
|
|
2019
|
|
$
|
6,203
|
|
2020
|
|
|
3,619
|
|
2021
|
|
|
1,998
|
|
2022
|
|
|
534
|
|
Total
|
|
$
|
12,354
|
|
|
7.
|
Derivative Liabilities
|
Share Purchase Warrants – Clay loans
(Related Party (see Note 12 (ii))
On June 8, 2015, the Company issued 10,000,000
share purchase warrants to the Clay Group (the “June 2015 Warrants”) in connection with the June 2015 Loan. On February
22, 2018, the Company completed a rights offering at a share price lower than the original exercise price of $0.95 of the June
2015 Warrants. As per an anti-dilution provision included in the June 2015 Loan agreement, the exercise price of the June 2015
Warrants was revised to $0.7831 on the rights offering completion date. The expiry date of June 8, 2020 of the June 2015 Warrants
remains unchanged.
On November 18, 2016, the Company issued
8,000,000 share purchase warrants to the Clay Group (the “November 2016 Warrants”) in connection with the November
2016 Loan. On February 22, 2018, the Company completed a rights offering at a share price lower than the original exercise price
of $0.85 of the November 2016 Warrants. As per an anti-dilution provision included in the November 2016 Loan agreement, the exercise
price of the November 2016 Warrants was revised to $0.6650 on the rights offering completion date. The expiry date of November
18, 2021 of the November 2016 Warrants remains unchanged.
GOLDEN QUEEN MINING CO. LTD.
Notes to Condensed Consolidated Interim
Financial Statements
For the Three and Six Months Ended June
30, 2018 and 2017
(amounts expressed in thousands of US
dollars - Unaudited)
|
7.
|
Derivative Liabilities (liabilities)
|
The share purchase warrants meet the definition
of a derivative liability instrument as the exercise price is not a fixed price as described above. Therefore, the settlement feature
does not meet the “fixed-for-fixed” criteria outlined in ASC 815-40-15.
The fair value of the derivative liabilities
related to the Clay Group share purchase warrants as at June 30, 2018 was $372 (December 31, 2017
–
$439). The derivative
liabilities were calculated using the binomial and the Black-Scholes pricing valuation models with the following assumptions:
Warrants related to June 2015 Loan
|
|
June 30,
2018
|
|
|
December 31,
2017
|
|
Risk-free interest rate
|
|
|
1.91
|
%
|
|
|
1.73
|
%
|
Expected life of derivative liability
|
|
|
1.94 years
|
|
|
|
2.44 years
|
|
Expected volatility
|
|
|
69.67
|
%
|
|
|
78.59
|
%
|
Dividend rate
|
|
|
0.00
|
%
|
|
|
0.00
|
%
|
Warrants related to November 2016 Loan
|
|
June 30,
2018
|
|
|
December 31,
2017
|
|
Risk-free interest rate
|
|
|
1.98
|
%
|
|
|
1.73
|
%
|
Expected life of derivative liability
|
|
|
3.40 years
|
|
|
|
3.89 years
|
|
Expected volatility
|
|
|
74.75
|
%
|
|
|
75.69
|
%
|
Dividend rate
|
|
|
0.00
|
%
|
|
|
0.00
|
%
|
The change in the derivative share purchase
warrants is as follows:
|
|
June 30,
2018
|
|
|
December 31,
2017
|
|
Balance, beginning of the period
|
|
$
|
439
|
|
|
$
|
5,458
|
|
Change in fair value
|
|
|
(67
|
)
|
|
|
(5,019
|
)
|
Balance, end of the period
|
|
$
|
372
|
|
|
$
|
439
|
|
Share Purchase Warrants
On July 25, 2016, the Company issued 6,317,700
share purchase warrants with an exercise price of C$2.00 and an expiry date of July 25, 2019. As at June 30, 2018, the Company
re-measured the share purchase warrants and determined the fair value of the derivative liability to be $1 (December 31, 2017 -
$2).
|
8.
|
Asset Retirement Obligations
|
Reclamation Financial Assurance
The Company is required to provide the
Bureau of Land Management, the State Office of Mine Reclamation and Kern County with a revised reclamation cost estimate annually.
The financial assurance is adjusted once the cost estimate is approved.
This estimate, once approved by state and
county authorities, forms the basis of reclamation financial assurance. The reclamation assurance provided as at June 30, 2018
was $1,749 (December 31, 2017
–
$1,465).
The Company is also required to provide
financial assurance with the Lahontan Regional Water Quality Control Board (the “Regional Board”) for closure and reclamation
costs related to the lined impoundments, which are defined as the Stage 1 and Stage 2 heap leach pads, the overflow pond, and the
solution collection channel. The reclamation financial assurance estimate as at June 30, 2018 is $2,450 (December 31, 2017
–
$1,869).
GOLDEN QUEEN MINING CO. LTD.
Notes to Condensed Consolidated Interim
Financial Statements
For the Three and Six Months Ended June
30, 2018 and 2017
(amounts expressed in thousands of US
dollars - Unaudited)
|
8.
|
Asset Retirement Obligations (continued)
|
In addition to the above, the Company is
required to obtain and maintain financial assurance for initiating and completing corrective action and remediation of a reasonably
foreseeable release from the Project’s waste management units as required by the Regional Board. The reclamation financial
assurance estimate as at June 30, 2018 is $278 (December 31, 2017
–
$278).
The Company entered into $4,921 (2017
–
$3,612) in surety bond agreements in order to release its reclamation deposits. The Company pays a yearly premium of $101 (2017
–
$90). Golden Queen Ltd. has provided a corporate guarantee on the surety bonds.
Asset Retirement Obligation
The total asset retirement obligation as
at June 30, 2018, was $2,413 (December 31, 2017
–
$1,838).
The Company estimated its asset retirement
obligations based on its understanding of the requirements to reclaim and remediate its property based on its activities to date.
As at June 30, 2018, the Company estimates the cash outflow related to these reclamation activities will be incurred in 2028. Reclamation
provisions are measured at the expected value of future cash flows discounted to their present value using a discount rate based
on a credit adjusted risk-free interest rate of 8.34% and an inflation rate of 2.41%.
The following is a summary of asset retirement
obligations:
|
|
June 30,
2018
|
|
|
December 31,
2017
|
|
Balance, beginning of the period
|
|
$
|
1,838
|
|
|
$
|
1,366
|
|
Accretion
|
|
|
83
|
|
|
|
126
|
|
Changes in cash flow estimates
|
|
|
492
|
|
|
|
346
|
|
Balance, end of the period
|
|
$
|
2,413
|
|
|
$
|
1,838
|
|
The Company’s common shares outstanding
are no par value, voting shares with no preferences or rights attached to them.
Common shares
On January 17, 2017, the Company issued
100,000 shares for a total of $59 as finder fees which were recognized in general and administrative expenses in connection with
the declaration of commercial production in December 2016.
On February 22, 2018, the Company closed
a rights offering and issued 188,952,761 shares for total gross proceeds of $25,036. The Company paid associated fees of $668 which
were classified as share issue costs.
Stock options
The Company’s current stock option
plan (the “Plan”) was adopted by the Company in 2013 and approved by shareholders of the Company in 2013. The Plan
provides a fixed number of 7,200,000 common shares of the Company that may be issued pursuant to the grant of stock options. The
exercise price of stock options granted under the Plan shall be determined by the Company’s Board of Directors (the “Board”)
but shall not be less than the volume-weighted, average trading price of the Company’s shares on the Toronto Stock Exchange
(“TSX”) for the five (5) trading days immediately prior to the date of the grant. The expiry date of a stock option
shall be the date so fixed by the Board subject to a maximum term of five (5) years.
GOLDEN QUEEN MINING CO. LTD.
Notes to Condensed Consolidated Interim
Financial Statements
For the Three and Six Months Ended June
30, 2018 and 2017
(amounts expressed in thousands of US
dollars - Unaudited)
|
9.
|
Share Capital (continued)
|
Stock options (continued)
The Company has elected to use the Black-Scholes
option pricing model to determine the fair value of stock options granted. The compensation expense is amortized on a straight-line
basis over the requisite service period, which approximates the vesting period.
The following is a summary of stock option
activity during the six months ended June 30, 2018:
|
|
Shares
|
|
|
Weighted Average
Exercise Price per
Share
|
|
Options outstanding, December 31, 2016
|
|
|
1,555,000
|
|
|
$
|
0.85
|
|
Options granted
|
|
|
1,605,001
|
|
|
$
|
0.38
|
|
Options forfeited
|
|
|
(166,667
|
)
|
|
$
|
0.64
|
|
Options expired
|
|
|
(393,333
|
)
|
|
$
|
1.13
|
|
Options outstanding, December 31, 2017
|
|
|
2,600,001
|
|
|
$
|
0.54
|
|
Options forfeited
|
|
|
(75,000
|
)
|
|
$
|
0.29
|
|
Options expired
|
|
|
(50,000
|
)
|
|
$
|
1.16
|
|
Options outstanding, June 30, 2018
|
|
|
2,475,001
|
|
|
$
|
0.53
|
|
On March 14, 2017, the former CFO of the
Company resigned. 146,667 stock options were forfeited on this date as they did not meet the vesting conditions. Accordingly, the
share-based compensation associated with the unvested stock options was reversed. The expiry date of 393,333 stock options that
had vested was modified to June 14, 2017 pursuant to the terms of the employment agreement. These stock options were not exercised,
thus expired during the year ended December 31, 2017.
On March 20, 2017, the Company granted
400,002 options to the Company’s new Chief Financial Officer (“CFO”) which are exercisable at a price of $0.65
for a period of five years from the date of grant. 133,334 options vested on March 20, 2018, 133,334 options vest on March 20,
2019 and 133,334 options vest on March 20, 2020.
The fair value of stock options granted
as above was calculated using the following weighted average assumptions:
|
|
2017
|
|
Expected life (years)
|
|
|
5.00
|
|
Interest rate
|
|
|
1.18% ~ 1.70
|
%
|
Volatility
|
|
|
77.29% ~ 79.17
|
%
|
Dividend yield
|
|
|
0.00
|
%
|
During the three and six months ended June
30, 2018, the Company recognized $35 and $80 (the three and six months ended June 30, 2017 - $52 and $85) in stock-based compensation
relating to employee stock options that were issued and/or had vesting terms.
GOLDEN QUEEN MINING CO. LTD.
Notes to Condensed Consolidated Interim
Financial Statements
For the Three and Six Months Ended June
30, 2018 and 2017
(amounts expressed in thousands of US
dollars - Unaudited)
|
9.
|
Share Capital (continued)
|
Stock options (continued)
The following table summarizes information
about stock options outstanding and exercisable as at June 30, 2018:
Expiry
Date
|
|
Number
Outstanding
|
|
|
Number
Exercisable
|
|
|
Remaining
Contractual Life
(years)
|
|
|
Exercise
Price
|
|
September 3, 2018
|
|
|
150,000
|
|
|
|
150,000
|
|
|
|
0.18
|
|
|
$
|
1.59
|
|
September 8, 2020
|
|
|
430,000
|
|
|
|
430,000
|
|
|
|
2.19
|
|
|
$
|
0.58
|
|
November 30, 2021
|
|
|
365,000
|
|
|
|
121,666
|
|
|
|
3.42
|
|
|
$
|
0.66
|
|
March 20, 2022
|
|
|
400,002
|
|
|
|
133,334
|
|
|
|
3.72
|
|
|
$
|
0.65
|
|
October 20, 2022
|
|
|
1,129,999
|
|
|
|
-
|
|
|
|
4.31
|
|
|
$
|
0.29
|
|
Balance, June 30, 2018
|
|
|
2,475,001
|
|
|
|
835,000
|
|
|
|
3.47
|
|
|
|
|
|
As at June 30, 2018, the aggregate intrinsic
value of the outstanding exercisable options was $nil (December 31, 2017
–
$nil).
Warrants
As at June 30, 2018, 24,317,700 warrants
were outstanding (December 31, 2017 – 24,317,700).
The following table summarizes information
about share purchase warrants outstanding:
Expiry
Date
|
|
Number
Outstanding
|
|
|
Remaining
Contractual Life
(years)
|
|
|
Exercise
Price
|
|
June 8, 2020
|
|
|
10,000,000
|
|
|
|
2.19
|
|
|
$
|
0.7831
|
|
July 25, 2019
(1)
|
|
|
6,317,700
|
|
|
|
1.32
|
|
|
C$
|
2.0000
|
|
November 18, 2021
|
|
|
8,000,000
|
|
|
|
3.64
|
|
|
$
|
0.6650
|
|
Balance, June 30, 2018
|
|
|
24,317,700
|
|
|
|
2.44
|
|
|
|
|
|
|
(1)
|
Non-tradable share purchase warrants.
|
|
10.
|
General and Administrative Expenses
|
General and administrative expenses are
incurred to support the administration of the business that are not directly related to production. Significant components of general
and administrative expenses are comprised of the following:
|
|
Three Months
Ended
June 30,
|
|
|
Three Months
Ended
June 30,
|
|
|
Six Months
Ended
June 30,
|
|
|
Six Months
Ended
June 30,
|
|
|
|
2018
|
|
|
2017
|
|
|
2018
|
|
|
2017
|
|
Audit, legal and professional fees
|
|
$
|
169
|
|
|
$
|
108
|
|
|
$
|
409
|
|
|
$
|
396
|
|
Salaries and benefits and director fees
|
|
|
180
|
|
|
|
140
|
|
|
|
683
|
|
|
|
700
|
|
Regulatory fees and licenses
|
|
|
46
|
|
|
|
17
|
|
|
|
125
|
|
|
|
70
|
|
Insurance
|
|
|
144
|
|
|
|
114
|
|
|
|
283
|
|
|
|
247
|
|
Corporate administration
|
|
|
340
|
|
|
|
333
|
|
|
|
633
|
|
|
|
715
|
|
|
|
$
|
879
|
|
|
$
|
712
|
|
|
$
|
2,133
|
|
|
$
|
2,128
|
|
GOLDEN QUEEN MINING CO. LTD.
Notes to Condensed Consolidated Interim
Financial Statements
For the Three and Six Months Ended June
30, 2018 and 2017
(amounts expressed in thousands of US
dollars - Unaudited)
|
|
Three Months
Ended
June 30,
|
|
|
Three Months
Ended
June 30,
|
|
|
Six Months
Ended
June 30,
|
|
|
Six Months
Ended
June 30,
|
|
|
|
2018
|
|
|
2017
|
|
|
2018
|
|
|
2017
|
|
Numerator:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) attributable to the shareholders of the Company - numerator for basic and diluted
|
|
$
|
(632
|
)
|
|
$
|
962
|
|
|
$
|
(6,049
|
)
|
|
$
|
(1,465
|
)
|
Denominator:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average number of common
shares outstanding -basic and diluted
|
|
|
300,101,444
|
|
|
|
111,148,683
|
|
|
|
244,772,735
|
|
|
|
112,360,179
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) per share – basic and diluted
|
|
$
|
(0.00
|
)
|
|
$
|
0.01
|
|
|
$
|
(0.02
|
)
|
|
$
|
(0.01
|
)
|
Weighted average number of shares for the
three and six months ended June 30, 2018 excludes 2,475,001 options (December 31, 2017
–
2,600,001) and 24,317,700
warrants (December 31, 2017 – 24,317,700) that were antidilutive.
|
12.
|
Related Party Transactions
|
Except as noted elsewhere in these consolidated
financial statements, related party transactions are disclosed as follows:
|
(i)
|
Compensation of Key Management Personnel, Transactions with Related Parties and Related Party Balances
|
For the three and six months
ended June 30, 2018, the Company recognized $104 and $299 (for the three and six months ended June 30, 2017
– $
78
and $278) salaries and fees for Officers and Directors.
As at June 30, 2018, $nil (December
31, 2017
–
$38) was included in prepaid expenses and other current assets for closing fees paid to related parties.
As at June 30, 2018, $28 (December
31, 2017
–
$463 for amended fees and accrued interest payable to related parties) was included in accounts payable
and accrued liabilities for accrued interest payable to related parties and salaries and fees payable to Officers and Directors.
On November 18, 2016, the Company
entered into a loan with the Clay Group for $31,000 (the “November 2016 Loan”), due on May 21, 2019 with an annual
interest rate of 8%, payable quarterly. In connection with the November 2016 Loan the Company issued 8,000,000 common share purchase
warrants exercisable for a period of five years expiring November 21, 2021. See Note 7.
On November 10, 2017, the Company
and the Clay Group agreed to amend the November 2016 Loan by reducing the 2018 quarterly and 2019 Q1 principal payments from $2,500
to $1,000, adding the reduction of such payments pro-rata to the remaining 2019 payments, and increasing the annual interest rate
from 8% to 10% effective January 1, 2018 (the “November 2017 Loan”). This amendment was accounted for as a debt modification.
The following table summarizes
activity on the notes payable:
GOLDEN QUEEN MINING CO. LTD.
Notes to Condensed Consolidated Interim
Financial Statements
For the Three and Six Months Ended June
30, 2018 and 2017
(amounts expressed in thousands of US
dollars - Unaudited)
|
12.
|
Related Party Transactions (continued)
|
|
(ii)
|
Note Payable (continued)
|
|
|
June 30,
2018
|
|
|
December 31,
2017
|
|
Balance, beginning of the period
|
|
$
|
30,099
|
|
|
$
|
26,347
|
|
Interest payable transferred to principal balance
|
|
|
-
|
|
|
|
2,212
|
|
Accretion of discount on loans
|
|
|
994
|
|
|
|
1,940
|
|
Capitalized financing and legal fees
|
|
|
-
|
|
|
|
(400
|
)
|
Accretion of capitalized financing and legal fees
|
|
|
130
|
|
|
|
-
|
|
Repayment of loans and interest
|
|
|
(6,711
|
)
|
|
|
-
|
|
Balance, end of the period
|
|
$
|
24,512
|
|
|
$
|
30,099
|
|
|
|
|
|
|
|
|
|
|
Current portion
|
|
$
|
24,512
|
|
|
$
|
7,712
|
|
Non-current portion
|
|
$
|
-
|
|
|
$
|
22,387
|
|
|
(iii)
|
Amortization of Discounts and Interest Expense
|
The following table summarizes
the amortization of discounts and interest on loan:
|
|
Three Months
Ended
June 30,
|
|
|
Three Months
Ended
June 30,
|
|
|
Six Months
Ended
June 30,
|
|
|
Six Months
Ended
June 30,
|
|
|
|
2018
|
|
|
2017
|
|
|
2018
|
|
|
2017
|
|
Accretion of the Nov 2017 Loan discount
|
|
$
|
504
|
|
|
$
|
454
|
|
|
$
|
994
|
|
|
$
|
740
|
|
Accretion of capitalized financing and legal fees
|
|
|
66
|
|
|
|
-
|
|
|
|
130
|
|
|
|
-
|
|
Interest expense related to the Nov 2017 Loan
|
|
|
695
|
|
|
|
646
|
|
|
|
1,409
|
|
|
|
1,272
|
|
Closing and commitment fees related to the Credit Facility
|
|
|
10
|
|
|
|
-
|
|
|
|
40
|
|
|
|
-
|
|
Interest expense related to Komatsu financial loans
(1)
|
|
|
166
|
|
|
|
150
|
|
|
|
401
|
|
|
|
285
|
|
Accretion of discount and interest on loan
|
|
$
|
1,441
|
|
|
$
|
1,250
|
|
|
$
|
2,974
|
|
|
$
|
2,297
|
|
|
(1)
|
Komatsu is not a related party and has only been included
in the above table to reconcile the total interest expense incurred for the period … to the amounts capitalized and expensed.
|
|
(iv)
|
Joint Venture Transaction
|
The Company has presented Gauss’
ownership in GQM LLC as a non-controlling interest amount on the balance sheet within the equity section. However, there are terms
in the agreement that provide for the exit from the investment in GQM LLC for an initial member whose interest in GQM LLC becomes
less than 20%.
If a member becomes less than
a 20% interest holder, its remaining interest will (ultimately) be terminated through one of 3 events at the non-diluted member’s
option:
|
a.
|
Through conversion to a net smelter royalty (“NSR”);
|
|
b.
|
Through a buy-out (at fair value) by the non-diluted
member; or
|
|
c.
|
Through a sale process by which the diluted member’s
interest is sold.
|
The net assets of GQM LLC as
at June 30, 2018 and December 31, 2017 are as follows:
GOLDEN QUEEN MINING CO. LTD.
Notes to Condensed Consolidated Interim
Financial Statements
For the Three and Six Months Ended June
30, 2018 and 2017
(amounts expressed in thousands of US
dollars - Unaudited)
|
12.
|
Related Party Transactions (continued)
|
|
(iv)
|
Joint Venture Transaction (continued)
|
|
|
June 30,
2018
|
|
|
December 31,
2017
|
|
Assets, GQM LLC
|
|
$
|
160,379
|
|
|
$
|
149,095
|
|
Liabilities, GQM LLC
|
|
|
(24,130
|
)
|
|
|
(28,024
|
)
|
Net assets, GQM LLC
|
|
$
|
136,249
|
|
|
$
|
121,071
|
|
Included in the assets above,
is $5,930 (December 31, 2017
–
$2,606) in cash held by GQM LLC which is directed specifically to fund capital expenditures
required to continue with production and to settle GQM LLC’s obligations. The liabilities of GQM LLC do not have recourse
to the general credit of Golden Queen except for $2,203 for two mining drill loans and $4,228 in surety bond agreements.
Non-Controlling Interest
The carrying value of the non-controlling
interest is adjusted for net income and loss, distributions and contributions pursuant to ASC 810-10 based on the same percentage
allocation used to calculate the initial book value of temporary equity.
|
|
Three Months
Ended
June 30,
|
|
|
Three Months
Ended
June 30,
|
|
|
Six Months
Ended
June 30,
|
|
|
Six Months
Ended
June 30,
|
|
|
|
2018
|
|
|
2017
|
|
|
2018
|
|
|
2017
|
|
Net and comprehensive income (loss) in GQM LLC
|
|
$
|
2,475
|
|
|
$
|
462
|
|
|
$
|
(4,819
|
)
|
|
$
|
(317
|
)
|
Non-controlling interest percentage
|
|
|
50
|
%
|
|
|
50
|
%
|
|
|
50
|
%
|
|
|
50
|
%
|
Net and comprehensive income (loss) attributable to non-controlling interest
|
|
$
|
1,238
|
|
|
$
|
230
|
|
|
$
|
(2,410
|
)
|
|
$
|
(159
|
)
|
Net and comprehensive income (loss) attributable to permanent non-controlling interest
|
|
$
|
743
|
|
|
$
|
138
|
|
|
$
|
(1,446
|
)
|
|
$
|
(95
|
)
|
Net and comprehensive income (loss) attributable to temporary non-controlling interest
|
|
$
|
495
|
|
|
$
|
92
|
|
|
$
|
(964
|
)
|
|
$
|
(64
|
)
|
|
|
Permanent Non-
Controlling
Interest
|
|
|
Temporary Non-
Controlling
Interest
|
|
Carrying value of non-controlling interest, December 31, 2017
|
|
$
|
36,321
|
|
|
$
|
24,214
|
|
Capital contribution
|
|
|
10,000
|
|
|
|
-
|
|
Net and comprehensive loss for the period
|
|
|
(1,446
|
)
|
|
|
(964
|
)
|
Carrying value of non-controlling interest, June 30, 2018
|
|
$
|
44,875
|
|
|
$
|
23,250
|
|
On May 23, 2017, GQM LLC entered
into a $5,000 one-year revolving credit agreement (the “Credit Facility”) in which Gauss Holdings LLC and Auvergne,
LLC agreed to extend credit in the form of loans to GQM LLC. The Credit Facility commenced on July 1, 2017, bears interest at a
rate of 12% per annum and is subject to a commitment fee of 1% per annum. For the three and six months ended June 30, 2018, GQM
LLC paid commitment fees of $30 (2017 – $nil). The balance of the Credit Facility was $3,000 as at December 31, 2017. The
Credit Facility expired on May 22, 2018.
GOLDEN QUEEN MINING CO. LTD.
Notes to Condensed Consolidated Interim
Financial Statements
For the Three and Six Months Ended June
30, 2018 and 2017
(amounts expressed in thousands of US
dollars - Unaudited)
|
13.
|
Commitments and Contingencies
|
Royalties
The Company has acquired a number of mineral
property interests outright. It has acquired exclusive rights to explore, develop and mine other portions of the Mine under various
mining lease agreements with landowners. Royalty amounts due to each landholder over the life of the Mine vary with each property.
Compliance with Environmental Regulations
The Company’s exploration and development
activities are subject to laws and regulations controlling not only the exploration and mining of mineral properties, but also
the effect of such activities on the environment. Compliance with such laws and regulations may necessitate additional capital
outlays or affect the economics of a mine, and cause changes or delays in the Company’s activities.
Corporate Guaranties
The Company has provided corporate guaranties
for two of GQM LLC’s mining drill loans. The Company has also provided a corporate guaranty for GQM LLC’s surety bonds.
|
14.
|
Financial Instruments
|
Fair Value Measurements
All financial assets and financial liabilities
are recorded at fair value on initial recognition. Transaction costs are expensed when they are incurred, unless they are directly
attributable to the acquisition of qualifying assets, in which case they are added to the costs of those assets until such time
as the assets are substantially ready for their intended use or sale.
The three levels of the fair value hierarchy
are as follows:
Level 1
|
Unadjusted quoted prices in active markets that are accessible at the measurement date for identical, unrestricted assets or liabilities;
|
Level 2
|
Quoted prices in markets that are not active, or inputs that are observable, either directly or indirectly, for substantially the full term of the asset or liability;
|
Level 3
|
Prices or valuation techniques that require inputs that are both significant to the fair value measurement and unobservable (supported by little or no market activity).
|
|
|
June 30, 2018
|
|
|
|
Total
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Share purchase warrants – Related Party (see Note 7)
|
|
$
|
372
|
|
|
$
|
-
|
|
|
$
|
372
|
|
|
$
|
-
|
|
Share purchase warrants – (see Note 7)
|
|
|
1
|
|
|
|
-
|
|
|
|
1
|
|
|
|
-
|
|
|
|
$
|
373
|
|
|
$
|
-
|
|
|
$
|
373
|
|
|
$
|
-
|
|
|
|
December 31, 2017
|
|
|
|
Total
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Share purchase warrants – Related Party (see Note 7)
|
|
$
|
439
|
|
|
$
|
-
|
|
|
$
|
439
|
|
|
$
|
-
|
|
Share purchase warrants – (see Note 7)
|
|
|
2
|
|
|
|
-
|
|
|
|
2
|
|
|
|
-
|
|
|
|
$
|
441
|
|
|
$
|
-
|
|
|
$
|
441
|
|
|
$
|
-
|
|
GOLDEN QUEEN MINING CO. LTD.
Notes to Condensed Consolidated Interim
Financial Statements
For the Three and Six Months Ended June
30, 2018 and 2017
(amounts expressed in thousands of US
dollars - Unaudited)
|
14.
|
Financial Instruments (continued)
|
Fair Value Measurements (continued)
Under fair value accounting, assets and
liabilities are classified in their entirety based on the lowest level of input that is significant to the fair value measurement.
The fair value measurement of the financial instruments above use observable inputs in option price models such as the binomial
and the Black-Scholes valuation models.
Credit Risk
Credit risk is the risk that the counterparty
to a financial instrument will cause a financial loss for the Company by failing to discharge its obligations. To mitigate exposure
to credit risk on financial assets the Company has established policies to ensure liquidity of funds and ensure counterparties
demonstrate minimum acceptable credit worthiness.
The Company maintains its US Dollar and
Canadian Dollar cash in bank accounts with major financial institutions with high credit standings. Cash deposits held in the United
States are insured by the Federal Deposit Insurance Corporation (“FDIC”) for up to $250 and Canadian Dollar cash deposits
held in Canada are insured by the Canada Deposit Insurance Corporation (“CDIC”) for up to C$100.
Certain United States and Canadian bank
accounts held by the Company exceed these federally insured limits or are uninsured as they relate to US Dollar deposits held in
Canadian financial institutions. As at June 30, 2018, the Company’s cash balances held in United States and Canadian financial
institutions include $10,537, which are not fully insured by the FDIC or CDIC. The Company has not experienced any losses on such
accounts and management believes that using major financial institutions with high credit ratings mitigates the credit risk in
cash.
Interest Rate Risk
The Company holds approximately 55% of
its cash in bank deposit accounts with a single major financial institution. The interest rates received on these balances may
fluctuate with changes in economic conditions. Based on the average cash balances during the three and six months ended June 30,
2018, a 1% decrease in interest rates would have reduced the interest income for the three and six months ended June 30, 2018,
by an immaterial amount.
Foreign Currency Exchange Risk
Certain purchases of corporate overhead
items are denominated in Canadian Dollar. As a result, currency exchange fluctuations may impact the costs of operations. Specifically,
the appreciation of the Canadian Dollar against the US Dollar may result in an increase in the Canadian operating expenses in US
dollar terms. As at June 30, 2018, the Company maintained the majority of its cash balance in US Dollars. The Company currently
does not engage in any currency hedging activities.