See Accompanying Notes to the Condensed
Consolidated Interim Financial Statements
See Accompanying Notes to the Condensed
Consolidated Interim Financial Statements
Notes to the Condensed Consolidated Interim
Financial Statements
For the Three Months Ended March 31,
2019 and 2018
(amounts expressed in thousands of US
dollars, except share amounts - 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”) applicable to going concern. 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, 2018 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, 2018.
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 March 31, 2019 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, 2019, 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.
Under the terms of the Note Payable, the Company
was originally required to pay the following amounts to the Clay Group on the following dates: $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. On December 27, 2018, the Company and the Clay Group agreed to postpone the January 1, 2019 payment of $1.7 million
of interest and principal until February 1, 2019 for a restructuring fee of $125. On January 31, 2019, the Company and the Clay
Group agreed to an additional extension to February 8, 2019 for a restructuring fee of $75. On February 9, 2019, the parties agreed
to defer the payments of all principal and interest mentioned above until completion of a proposed transaction involving the sale
of our 50% ownership in Soledad Mountain (see Note 16).
As at March 31, 2019, the Company had a
working capital deficit of $15.3 million and during the three months ended March 31, 2019, the cash used in operating activities
was $1.0 million. The Company is currently unable to repay the interest and principal payments due on the November 2017 Loan. The
Company relies on 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 2019 budget and Life of Mine Plan and the results for the three
months ended March 31, 2019 and has determined it is unlikely it will receive sufficient distributions from GQM LLC to service
its debt in early 2019. This situation raises substantial doubt about the Company’s ability to continue as a going concern.
Consequently, since the third quarter of 2018, the Company had pursued discussions with the Clay Group to restructure the reimbursement
of the debt payments. The discussions terminated with the February 9, 2019 proposed transaction (see Note 16).
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 the Condensed Consolidated Interim
Financial Statements
For the Three Months Ended March 31,
2019 and 2018
(amounts expressed in thousands of US
dollars, except share amounts - 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)
|
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 was effective for annual
and interim periods beginning January 1, 2019 and is applicable on a modified retrospective basis. The Company adopted the guidance
effective January 1, 2019 and has applied the guidance on a modified retrospective basis. There was an immaterial impact on the
financial statements from adoption of this guidance.
Not Yet Adopted
None
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:
|
|
March 31,
2019
|
|
|
December 31,
2018
|
|
Stockpile inventory
|
|
$
|
10,353
|
|
|
$
|
6,913
|
|
In-process inventory
|
|
|
24,149
|
|
|
|
21,607
|
|
Dore inventory
|
|
|
892
|
|
|
|
761
|
|
Supplies and spare parts
|
|
|
2,869
|
|
|
|
2,663
|
|
|
|
$
|
38,263
|
|
|
$
|
31,944
|
|
|
|
|
|
|
|
|
|
|
Current portion
|
|
$
|
32,984
|
|
|
$
|
25,031
|
|
Non-current portion
|
|
$
|
5,279
|
|
|
$
|
6,913
|
|
The rate of recovery of gold and silver
from the leach pad is a significant area of estimation. Whilst inventory is shown as a current asset it is probable that some portion
of the gold and silver on the leach pad will be recovered more than a year from the balance sheet date, depending on the length
of the leaching cycle and on management's strategy for optimizing the recovery from the leach pad.
GOLDEN QUEEN MINING CO. LTD.
Notes to the Condensed Consolidated Interim
Financial Statements
For the Three Months Ended March 31,
2019 and 2018
(amounts expressed in thousands of US
dollars, except share amounts - Unaudited)
The Company’s restricted cash consists of the following
:
|
|
March 31,
2019
|
|
|
December 31,
2018
|
|
Certificate of Deposit
|
|
$
|
1,008
|
|
|
$
|
1,005
|
|
The surety required a certificate of deposit
to bond reclamation requirements of regulatory agencies. (see Note 9)
|
6.
|
Property, Plant, Equipment and Mineral Interests
|
Property, plant and equipment and mineral
interests, are depreciated and depleted using either the units-of-production or straight-line method over the shorter of the estimated
useful life of the asset or the expected life of mine. Assets under construction in progress are recorded at cost and re-allocated
to its corresponding category when they become available for use.
|
|
Land
|
|
|
Mineral
property
interest and
claims
|
|
|
Mine
development
|
|
|
Machinery
and
equipment
|
|
|
Buildings
and
infrastructure
|
|
|
Construction
in progress
|
|
|
Interest
capitalized
|
|
|
Total
|
|
Cost
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At December 31, 2017
|
|
$
|
3,969
|
|
|
$
|
5,280
|
|
|
$
|
50,773
|
|
|
$
|
70,066
|
|
|
$
|
28,397
|
|
|
$
|
54
|
|
|
$
|
5,886
|
|
|
$
|
164,425
|
|
Additions
|
|
|
173
|
|
|
|
5
|
|
|
|
492
|
|
|
|
-
|
|
|
|
-
|
|
|
|
6,902
|
|
|
|
-
|
|
|
|
7,572
|
|
Transfers
|
|
|
(5
|
)
|
|
|
550
|
|
|
|
711
|
|
|
|
5,375
|
|
|
|
48
|
|
|
|
(6,679
|
)
|
|
|
-
|
|
|
|
-
|
|
Disposals
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(213
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(213
|
)
|
At December 31, 2018
|
|
$
|
4,137
|
|
|
$
|
5,835
|
|
|
$
|
51,976
|
|
|
$
|
75,228
|
|
|
$
|
28,445
|
|
|
$
|
277
|
|
|
$
|
5,886
|
|
|
$
|
171,784
|
|
Additions
|
|
|
132
|
|
|
|
-
|
|
|
|
416
|
|
|
|
89
|
|
|
|
-
|
|
|
|
1,862
|
|
|
|
-
|
|
|
|
2,499
|
|
Disposals
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(50
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
(50
|
)
|
At March 31, 2019
|
|
$
|
4,269
|
|
|
$
|
5,835
|
|
|
$
|
52,392
|
|
|
$
|
75,317
|
|
|
$
|
28,395
|
|
|
$
|
2,139
|
|
|
$
|
5,886
|
|
|
$
|
174,233
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated depreciation and depletion
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At December 31, 2017
|
|
$
|
-
|
|
|
$
|
328
|
|
|
$
|
3,415
|
|
|
$
|
13,353
|
|
|
$
|
5,010
|
|
|
$
|
-
|
|
|
$
|
471
|
|
|
$
|
22,577
|
|
Additions
|
|
|
-
|
|
|
|
278
|
|
|
|
2,682
|
|
|
|
7,789
|
|
|
|
2,357
|
|
|
|
-
|
|
|
|
430
|
|
|
|
13,536
|
|
Disposals
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(147
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(147
|
)
|
At December 31, 2018
|
|
$
|
-
|
|
|
$
|
606
|
|
|
$
|
6,097
|
|
|
$
|
20,995
|
|
|
$
|
7,367
|
|
|
$
|
-
|
|
|
$
|
901
|
|
|
$
|
35,966
|
|
Additions
|
|
|
-
|
|
|
|
55
|
|
|
|
772
|
|
|
|
1,981
|
|
|
|
582
|
|
|
|
-
|
|
|
|
108
|
|
|
|
3,498
|
|
At March 31, 2019
|
|
$
|
-
|
|
|
$
|
661
|
|
|
$
|
6,869
|
|
|
$
|
22,976
|
|
|
$
|
7,949
|
|
|
$
|
-
|
|
|
$
|
1,009
|
|
|
$
|
39,464
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Carrying values
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At December 31, 2018
|
|
$
|
4,137
|
|
|
$
|
5,229
|
|
|
$
|
45,879
|
|
|
$
|
54,233
|
|
|
$
|
21,078
|
|
|
$
|
277
|
|
|
$
|
4,985
|
|
|
$
|
135,818
|
|
At March 31, 2019
|
|
$
|
4,269
|
|
|
$
|
5,174
|
|
|
$
|
45,523
|
|
|
$
|
52,341
|
|
|
$
|
20,446
|
|
|
$
|
2,139
|
|
|
$
|
4,877
|
|
|
$
|
134,769
|
|
GOLDEN QUEEN MINING CO. LTD.
Notes to the Condensed Consolidated Interim
Financial Statements
For the Three Months Ended March 31,
2019 and 2018
(amounts expressed in thousands of US
dollars, except share amounts - Unaudited)
As at March 31, 2019 and December 31, 2018,
equipment financing balances are as follows:
|
|
March 31,
2019
|
|
|
December 31,
2018
|
|
Balance, beginning of the period
|
|
$
|
12,200
|
|
|
$
|
17,243
|
|
Additions
|
|
|
-
|
|
|
|
3,751
|
|
Principal repayments
|
|
|
(2,009
|
)
|
|
|
(8,156
|
|
Down payments and taxes
|
|
|
-
|
|
|
|
(638
|
)
|
Balance, end of the period
|
|
$
|
10,191
|
|
|
$
|
12,200
|
|
|
|
|
|
|
|
|
|
|
Current portion
|
|
$
|
5,381
|
|
|
$
|
6,578
|
|
Non-current portion
|
|
$
|
4,810
|
|
|
$
|
5,622
|
|
The terms of the equipment financing agreements
are as follows:
|
|
March 31,
2019
|
|
|
December 31,
2018
|
|
Total acquisition costs
|
|
$
|
39,443
|
|
|
$
|
39,443
|
|
Interest rates
|
|
|
0.00% ~ 4.50%
|
|
|
|
0.00% ~ 4.50%
|
|
Monthly payments
|
|
$
|
5 ~ 74
|
|
|
$
|
5 ~ 74
|
|
Average remaining life (years)
|
|
|
1.27
|
|
|
|
1.27
|
|
For the three months ended March 31, 2019,
the Company made total down payments of $nil (December 31, 2018
–
$638). The down payments consisted 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
|
|
$
|
4,220
|
|
2020
|
|
|
3,204
|
|
2021
|
|
|
2,184
|
|
2022
|
|
|
583
|
|
Total
|
|
$
|
10,191
|
|
|
8.
|
Derivative Liabilities
|
Share Purchase Warrants
The Company has 10,000,000 share purchase
warrants outstanding exercisable at $0.7831 per share and 8,000,000 share purchase warrants outstanding exercisable at $0.665 per
share (the “Clay Group share purchase warrants”). The Company has an additional 6,317,700 share purchase warrants outstanding
with an exercise price of C$2.00 per share. The share purchase warrants meet the definition of a derivative liability instrument
as the exercise price is not a fixed price as described above. Therefore, the settlement feature does not meet the “fixed-for-fixed”
criteria outlined in ASC 815-40-15.
The fair value of the derivative liabilities
related to the share purchase warrants as at March 31, 2019 was $63 (December 31, 2018
–
$76). The derivative liabilities
were calculated using the Black-Scholes pricing valuation model with the following weighted average assumptions:
GOLDEN QUEEN MINING CO. LTD.
Notes to the Condensed Consolidated Interim
Financial Statements
For the Three Months Ended March 31,
2019 and 2018
(amounts expressed in thousands of US
dollars, except share amounts - Unaudited)
|
8.
|
Derivative Liabilities (continued)
|
Warrants derivative liabilities
|
|
March 31,
2019
|
|
|
December 31,
2018
|
|
Risk-free interest rate
|
|
|
1.37
|
%
|
|
|
1.37
|
%
|
Expected life of derivative liability
|
|
|
1.44 years
|
|
|
|
1.69 years
|
|
Expected volatility
|
|
|
173.18
|
%
|
|
|
93.96
|
%
|
Dividend rate
|
|
|
0.00
|
%
|
|
|
0.00
|
%
|
GQM LLC Warrants (Note 13(v))
In connection with the 2018 Credit Facility
(Note 14(v)), GQM LLC issued 21,486 warrants (the “GQM LLC Warrants”), with each warrant entitling the holder to purchase
a unit of GQM LLC for a period of five (5) years at an exercise price of $475.384 per unit.
The
warrants are classified as a derivative liability due to a clause in the warrant agreement that offers the warrant holders price
protection. The fair value of the derivative liabilities related to the warrants as at March 31, 2019 was $3,477 (December 31,
2018 - $3,314). The derivative liability was calculated using the Black-Scholes pricing valuation model.
GQM LLC Warrants derivative liability
|
|
March 31,
2019
|
|
|
December 31,
2018
|
|
Risk-free interest rate
|
|
|
2.23
|
%
|
|
|
2.65
|
%
|
Expected life of derivative liability
|
|
|
4.75 years
|
|
|
|
4.89 years
|
|
Expected volatility
|
|
|
20.00
|
%
|
|
|
20.00
|
%
|
Dividend rate
|
|
|
0.00
|
%
|
|
|
0.00
|
%
|
The change in the derivative liabilities
is as follows:
|
|
March 31,
2019
|
|
|
December 31,
2018
|
|
Balance, beginning of the period
|
|
$
|
3,390
|
|
|
$
|
441
|
|
GQM LLC Warrants (Note 13(v))
|
|
|
-
|
|
|
|
3,314
|
|
Change in fair value
|
|
|
150
|
|
|
|
(365
|
)
|
Balance, end of the period
|
|
$
|
3,540
|
|
|
$
|
3,390
|
|
|
9.
|
Asset Retirement Obligations
|
Reclamation Financial Assurance
GQM LLC 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 March 31, 2019
was $1,749 (December 31, 2018
–
$1,749).
GQM LLC 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 March 31, 2019 was $2,450 (December 31, 2018
–
$2,450).
In addition to the above, GQM LLC 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 March 31, 2019 is $320 (December 31, 2018
–
$278).
As at March 31, 2019 GQM LLC had entered
into $5,507 (December 31, 2018
–
$4,921) in surety bond agreements in order to release its reclamation deposits and
a bond for power of $443 (December 31, 2018 - $443). GQM LLC pays a yearly premium of $100 (2018
–
$100). Golden Queen
Ltd. has provided a corporate guarantee on the surety bonds. In addition, a certificate of deposit for $1,000 was posted as collateral
to reclamation bonding in 2018.
GOLDEN QUEEN MINING CO. LTD.
Notes to the Condensed Consolidated Interim
Financial Statements
For the Three Months Ended March 31,
2019 and 2018
(amounts expressed in thousands of US
dollars, except share amounts - Unaudited)
|
9.
|
Asset Retirement Obligations (continued)
|
Asset Retirement Obligation
The total asset retirement obligation as
at March 31, 2019 was $2,966 (December 31, 2018
–
$2,497).
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 March 31, 2019, the Company estimates the cash outflow related to these reclamation activities will be incurred in 2029.
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 7.9% and an inflation rate of 2.4%.
The following is a summary of asset retirement
obligations:
|
|
March 31,
2019
|
|
|
December 31,
2018
|
|
Balance, beginning of the period
|
|
$
|
2,497
|
|
|
$
|
1,838
|
|
Accretion
|
|
|
52
|
|
|
|
167
|
|
Changes in cash flow estimates
|
|
|
417
|
|
|
|
492
|
|
Balance, end of the period
|
|
$
|
2,966
|
|
|
$
|
2,497
|
|
The Company’s common shares outstanding
are no par value, voting shares with no preferences or rights attached to them.
Common shares
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 $587 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.
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 three months ended March 31, 2019 and the year ended December 31, 2018:
|
|
Shares
|
|
|
Weighted Average
Exercise Price
per
Share
|
|
Options outstanding, December 31, 2017
|
|
|
2,600,001
|
|
|
$
|
0.54
|
|
Options forfeited
|
|
|
(75,000
|
)
|
|
$
|
0.29
|
|
Options expired
|
|
|
(200,000
|
)
|
|
$
|
1.48
|
|
Options outstanding, March 31, 2019 and December 31, 2018
|
|
|
2,325,001
|
|
|
$
|
0.46
|
|
During the three months ended March 31,
2019, the Company recognized $27 (2018 - $45) in stock-based compensation relating to the vesting of employee stock options.
GOLDEN QUEEN MINING CO. LTD.
Notes to the Condensed Consolidated Interim
Financial Statements
For the Three Months Ended March 31,
2019 and 2018
(amounts expressed in thousands of US
dollars, except share amounts - Unaudited)
|
10.
|
Share Capital (continued)
|
Stock options (continued)
The following table summarizes information
about stock options outstanding and exercisable as at March 31, 2019:
Expiry
Date
|
|
Number
Outstanding
|
|
|
Number
Exercisable
|
|
|
Remaining
Contractual Life
(years)
|
|
|
Exercise
Price
|
|
September 8, 2020
|
|
|
430,000
|
|
|
|
430,000
|
|
|
|
1.44
|
|
|
$
|
0.58
|
|
November 30, 2021
|
|
|
365,000
|
|
|
|
243,332
|
|
|
|
2.67
|
|
|
$
|
0.66
|
|
March 20, 2022
|
|
|
400,002
|
|
|
|
266,668
|
|
|
|
2.97
|
|
|
$
|
0.65
|
|
October 20, 2022
|
|
|
1,129,999
|
|
|
|
376,666
|
|
|
|
3.56
|
|
|
$
|
0.29
|
|
|
|
|
2,325,001
|
|
|
|
1,316,666
|
|
|
|
2.91
|
|
|
|
|
|
As at March 31, 2019, the aggregate intrinsic
value of the outstanding exercisable options was $nil (December 31, 2018
–
$nil).
Warrants
As at March 31, 2019, 24,317,700 warrants
were outstanding (December 31, 2018 – 24,317,700).
The following table summarizes information
about share purchase warrants outstanding as at March 31, 2019:
Expiry
Date
|
|
Number
Outstanding
|
|
|
Remaining
Contractual Life
(years)
|
|
|
Exercise
Price
|
|
June 8, 2020
|
|
|
10,000,000
|
|
|
|
1.19
|
|
|
$
|
0.7831
|
|
July 25, 2019
(1)
|
|
|
6,317,700
|
|
|
|
0.32
|
|
|
C$
|
2.0000
|
|
November 18, 2021
|
|
|
8,000,000
|
|
|
|
2.64
|
|
|
$
|
0.6650
|
|
|
|
|
24,317,700
|
|
|
|
1.44
|
|
|
|
|
|
|
(1)
|
Non-tradable share purchase warrants.
|
In addition, as at March 31, 2019, the
Company had 21,486 GQM LLC Warrants (Note 13(v)) outstanding, with each warrant entitling the holder to purchase a unit of GQM
LLC for a period of five (5) years at an exercise price of $475.384 per unit.
|
11.
|
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
March 31,
|
|
|
Three Months
Ended
March 31,
|
|
|
|
2019
|
|
|
2018
|
|
Audit, legal and professional fees
|
|
$
|
103
|
|
|
$
|
240
|
|
Salaries and benefits and director fees
|
|
|
799
|
|
|
|
503
|
|
Regulatory fees and licenses
|
|
|
25
|
|
|
|
79
|
|
Insurance
|
|
|
171
|
|
|
|
139
|
|
Corporate administration
|
|
|
268
|
|
|
|
293
|
|
Transaction costs (Note 16)
|
|
|
466
|
|
|
|
-
|
|
|
|
$
|
1,832
|
|
|
$
|
1,254
|
|
GOLDEN QUEEN MINING CO. LTD.
Notes to the Condensed Consolidated Interim
Financial Statements
For the Three Months Ended March 31,
2019 and 2018
(amounts expressed in thousands of US
dollars, except share amounts - Unaudited)
|
|
Three Months
Ended
March 31,
|
|
|
Three Months
Ended
March 31,
|
|
|
|
2019
|
|
|
2018
|
|
Numerator:
|
|
|
|
|
|
|
|
|
Net loss attributable to the shareholders of the Company - numerator for basic and diluted loss per share
|
|
$
|
(2,300
|
)
|
|
$
|
(5,417
|
)
|
Denominator:
|
|
|
|
|
|
|
|
|
Weighted average number of common shares outstanding -basic and diluted
|
|
|
300,101,444
|
|
|
|
188,829,263
|
|
|
|
|
|
|
|
|
|
|
Loss per share – basic and diluted
|
|
$
|
(0.01
|
)
|
|
$
|
(0.03
|
)
|
Weighted average number of shares for the
three months ended March 31, 2019 excludes 2,325,001 options (December 31, 2018
–
2,325,001) and 24,317,700 warrants
(December 31, 2018 – 24,317,700) that were antidilutive.
|
13.
|
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 months ended March
31, 2019, the Company recognized $361 (2018
–
$195) salaries and fees for Officers and Directors.
As at December 31, 2018, The Company
had a loan with the Clay Group with a principal balance of $25,625 (the “Clay Group Loan”). The Clay Group Loan had
principal and accrued interest due as follows: $1.7 million of principal and accrued interest on January 1, 2019; $3.9 million
of principal and accrued interest on April 1, 2019; and the balance due on May 21, 2019. On December 27, 2018, the Company and
the Clay Group agreed to amend the Clay Group Loan, extending the due date of $1.7 million of principal as well as interest from
the original due date of January 1, 2019 to February 1, 2019. An extension fee of $125 was added to the principal amount owing.
On February 1, 2019, the due date was extended to February 8, 2019 for an extension fee of $75 that was added to the principal
amount owing. On February 8, 2019, the due dates of principal and interest on the Clay Group Loan were extended until completion
of the proposed transaction (Note 16). The amendments were accounted for as debt modifications.
The following table summarizes
activity on the notes payable:
|
|
March 31,
2019
|
|
|
December 31,
2018
|
|
Balance, beginning of the year
|
|
$
|
24,690
|
|
|
$
|
30,099
|
|
Accretion of discount on loans
|
|
|
526
|
|
|
|
2,040
|
|
Capitalized financing, extension and legal fees
|
|
|
(75
|
)
|
|
|
(125
|
)
|
Extension fee added to principal
|
|
|
75
|
|
|
|
125
|
|
Accretion of capitalized financing, extension and legal fees
|
|
|
265
|
|
|
|
262
|
|
Repayment of loans and interest
|
|
|
-
|
|
|
|
(7,711
|
|
Balance, end of the year
|
|
$
|
25,481
|
|
|
$
|
24,690
|
|
|
|
|
|
|
|
|
|
|
Current portion
|
|
$
|
25,481
|
|
|
$
|
24,690
|
|
Non-current portion
|
|
$
|
-
|
|
|
$
|
-
|
|
GOLDEN QUEEN MINING CO. LTD.
Notes to the Condensed Consolidated Interim
Financial Statements
For the Three Months Ended March 31,
2019 and 2018
(amounts expressed in thousands of US
dollars, except share amounts - Unaudited)
|
13.
|
Related Party Transactions (continued)
|
|
(iii)
|
Amortization of Discounts and Interest Expense
|
The following table summarizes
the amortization of discount and interest on loans:
|
|
Three Months
Ended
March 31,
|
|
|
Three Months
Ended
March 31,
|
|
|
|
2019
|
|
|
2018
|
|
Accretion of the Clay Group Loan discount
|
|
$
|
526
|
|
|
$
|
490
|
|
Accretion of capitalized financing and legal fees
|
|
|
265
|
|
|
|
65
|
|
Amortization of deferred financing fees
|
|
|
655
|
|
|
|
-
|
|
Interest expense related to the Clay Group Loan
|
|
|
658
|
|
|
|
713
|
|
Interest expense related to the 2018 Credit Facility
|
|
|
180
|
|
|
|
-
|
|
Closing and commitment fees related to credit facilities
|
|
|
27
|
|
|
|
30
|
|
Interest expense related to Komatsu financial loans
(1)
|
|
|
109
|
|
|
|
235
|
|
Accretion of discount and interest on loan
|
|
$
|
2,420
|
|
|
$
|
1,533
|
|
|
(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 December 31, 2018 and 2017 are as follows:
|
|
March 31,
2019
|
|
|
December 31,
2018
|
|
Assets, GQM LLC
|
|
$
|
176,635
|
|
|
$
|
171,334
|
|
Liabilities, GQM LLC
|
|
|
(24,782
|
)
|
|
|
(29,904
|
)
|
Net assets, GQM LLC
|
|
$
|
151,853
|
|
|
$
|
141,430
|
|
Included in the assets above,
is $4,713 (December 31, 2018
–
$4,149) 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 $349 for a mining drill loan and $5,507 in surety bond agreements.
GOLDEN QUEEN MINING CO. LTD.
Notes to the Condensed Consolidated Interim
Financial Statements
For the Three Months Ended March 31,
2019 and 2018
(amounts expressed in thousands of US
dollars, except share amounts - Unaudited)
|
13.
|
Related Party Transactions (continued)
|
|
(iv)
|
Joint Venture Transaction (continued)
|
Non-Controlling Interest
The carrying value of the non-controlling
interest is adjusted for net income and loss, distributions and contributions pursuant to ASC 810-10 based on the same percentage
allocation used to calculate the initial book value of temporary equity.
|
|
Three Months
Ended
March 31,
|
|
|
Three Months
Ended
March 31,
|
|
|
|
2019
|
|
|
2018
|
|
Net and comprehensive income (loss) in GQM LLC
|
|
$
|
95
|
|
|
$
|
(7,294
|
)
|
Non-controlling interest percentage
|
|
|
50
|
%
|
|
|
50
|
%
|
Net and comprehensive income (loss) attributable to non-controlling interest
|
|
$
|
48
|
|
|
$
|
(3,646
|
)
|
Net and comprehensive income (loss) attributable to permanent non-controlling interest
|
|
$
|
29
|
|
|
$
|
(2,188
|
)
|
Net and comprehensive income (loss) attributable to temporary non-controlling interest
|
|
$
|
19
|
|
|
$
|
(1,458
|
)
|
|
|
|
|
|
|
|
|
|
|
|
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 income for the year
|
|
|
108
|
|
|
|
72
|
|
Carrying value of non-controlling interest, December 31, 2018
|
|
$
|
46,429
|
|
|
$
|
24,286
|
|
Net and comprehensive income for the period
|
|
|
29
|
|
|
|
19
|
|
Carrying value of non-controlling interest, March 31, 2019
|
|
$
|
46,458
|
|
|
$
|
24,305
|
|
On October 12, 2018, GQM LLC
entered into an agreement with Gauss Holdings LLC and Auvergne LLC (the “Lenders”) whereby the Lenders are providing
GQM LLC a revolving credit loan facility (the “2018 Credit Facility”) in the amount of $20 million. The 2018 Credit
Facility bears interest at a rate of 8% per annum and in addition, is subject to a commitment fee of 1% per annum on available
loan balance. As per terms of the agreement, GQM LLC accrued commitment fees of $45 for the year ended December 31, 2018. The loan
matures March 31, 2020. As at March 31, 2019, GQM LLC had drawn $10,000 (December 31, 2018 - $5,000) from the 2018 Credit Facility
and accrued interest of $327 (December 31, 2018 - $121). Subsequent to the period end GQM LLC drew an additional $5,000 from the
2018 Credit Facility (Note 17).
In connection with the 2018 Credit
Facility, the Lenders were issued 21,486 warrants (the “GQM LLC Warrants”), with each warrant entitling the holder
to purchase a unit of GQM LLC for a period of five (5) years at an exercise price of $475.384 per unit.
The
warrants are classified as a derivative liability due to a clause in the warrant agreement that offers the warrant holders price
protection (Note 8). The fair value of GQM LLC Warrants at the issuance date of $3,314 is accounted for as a finance cost and
amortized to the statement of loss over the term of the 2018 Credit Facility. During the three months ended March 31, 2019, the
Company recorded amortization expense of $655.
The GQM LLC Warrants represent
a fully-diluted 7.5% interest in the equity of GQM LLC. If the GQM LLC warrants are exercised, the Company’s interest in
GQM LLC will be diluted to 46.25%. The Company’s current interest in GQM LLC is 50%.
The 2018 Credit Facility is
secured by a pledge of the Company’s equity interest in GQM LLC.
GOLDEN QUEEN MINING CO. LTD.
Notes to the Condensed Consolidated Interim
Financial Statements
For the Three Months Ended March 31,
2019 and 2018
(amounts expressed in thousands of US
dollars, except share amounts - Unaudited)
|
14.
|
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.
|
15.
|
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).
|
|
|
March 31, 2019
|
|
|
|
Total
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Share purchase warrants – Related Party (see Note 8)
|
|
$
|
63
|
|
|
$
|
-
|
|
|
$
|
63
|
|
|
$
|
-
|
|
GQM LLC Warrants – Related Party (see Note 8)
|
|
|
3,477
|
|
|
|
-
|
|
|
|
3,477
|
|
|
|
-
|
|
|
|
$
|
3,540
|
|
|
$
|
-
|
|
|
$
|
3,540
|
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2018
|
|
|
|
Total
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Share purchase warrants – Related Party (see Note 8)
|
|
$
|
76
|
|
|
$
|
-
|
|
|
$
|
76
|
|
|
$
|
-
|
|
GQM LLC Warrants – Related Party (see Note 8)
|
|
|
3,314
|
|
|
|
-
|
|
|
|
3,314
|
|
|
|
-
|
|
|
|
$
|
3,390
|
|
|
$
|
-
|
|
|
$
|
3,390
|
|
|
$
|
-
|
|
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.
GOLDEN QUEEN MINING CO. LTD.
Notes to the Condensed Consolidated Interim
Financial Statements
For the Three Months Ended March 31,
2019 and 2018
(amounts expressed in thousands of US
dollars, except share amounts - Unaudited)
|
15.
|
Financial Instruments (continued)
|
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 March 31, 2019, the Company’s cash balances held in United States and Canadian financial
institutions include $4,713, 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 its cash
in bank deposit accounts with major financial institutions. The interest rates received on these balances may fluctuate with changes
in economic conditions. Based on the average cash balances during the three months ended March 31, 2019, a 1% decrease in interest
rates would have reduced the interest income for the three months ended March 31, 2019, 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 March 31, 2019, the Company maintained the majority of its cash balance in US Dollars. The Company currently
does not engage in any currency hedging activities.
16.
Proposed Transaction
On February 9, 2019, the Company announced
that it had entered into a binding share purchase agreement with a group of purchasers including Thomas M. Clay and certain members
of the Clay family and associated entities (the “Purchaser”), whereby the Purchaser will acquire 100% of the Company’s
50% ownership interest in the Soledad Mountain Project (the “Transaction”).
The consideration from the Purchasers is comprised
of (1) $4.25 million in cash; (2) the extinguishment of all amounts owing to the Purchasers by the Company under Clay Group Loan
(Note 13(ii)); and (3) the cancellation of all of the Purchasers’ ownership interest in the Company (consisting of 177,701,229
Shares, 457,500 options and 18,000,000 share purchase warrants). In addition, the Purchasers may pay a contingent payment to the
Company if the Soledad Mountain Project is subsequently sold or transferred to a third party in certain circumstances. The Company
incurred $466 of costs relating to the Transaction during the three months ended March 31, 2019.
The transaction is subject to the approval
of the shareholders of the Company. The shareholders will vote on the transaction at the Annual General and Special meeting to
be held on May 13, 2019.
All payments of interest and principal on the Clay Group Loan (Note 13(ii)) are not due until completion
of the proposed Transaction. If the shareholders vote against the Transaction, then the Clay Group Loan principal and accrued interest
will be due immediately. Under this scenario, should the Company be unable to negotiate an extension to the Clay Group Loan, the
independent directors and management will have no alternative but to pursue a reorganization or, at worst, bankruptcy, where the
likely outcome for shareholders is the total loss of equity value.
GOLDEN QUEEN MINING CO. LTD.
Notes to the Condensed Consolidated Interim
Financial Statements
For the Three Months Ended March 31,
2019 and 2018
(amounts expressed in thousands of US
dollars, except share amounts - Unaudited)
Subsequent to March 31, 2019, GQM LLC drew
an additional $5,000 from the 2018 Credit Facility (Note 13(v)).