ITRG Integra Resources Corp

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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 6-K

REPORT OF FOREIGN PRIVATE ISSUER PURSUANT TO RULE 13a-16 or 15d-16 UNDER THE
SECURITIES EXCHANGE ACT OF 1934

For the month of November 2024.

Commission File Number 001-39372

INTEGRA RESOURCES CORP.

(Exact Name of Registrant as Specified in Charter)

1050-400 Burrard Street

Vancouver, British Columbia V6C 3A6

Canada

(Address of principal executive office)

Indicate by check mark whether the registrant files or will file annual reports under cover Form 20-F or Form 40-F

Form 20-F ☒ Form 40-F ☐

Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(1):  ☐             

Note:  Regulation S-T Rule 101(b)(1) only permits the submission in paper of a Form 6-K if submitted solely to provide an attached annual report to security holders.

Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(7):    ☐           

Note: Regulation S-T Rule 101(b)(7) only permits the submission in paper of a Form 6-K if submitted to furnish a report or other document that the registrant foreign private issuer must furnish and make public under the laws of the jurisdiction in which the registrant is incorporated, domiciled or legally organized (the registrant's "home country"), or under the rules of the home country exchange on which the registrant's securities are traded, as long as the report or other document is not a press release, is not required to be and has not been distributed to the registrant's security holders, and, if discussing a material event, has already been the subject of a Form 6-K submission or other Commission filing on EDGAR. 

EXPLANATORY NOTE

Exhibits 99.1 and 99.2 submitted with this Form 6-K are hereby incorporated by reference into Integra Resources Corp's Registration Statements on Form S-8 (File Nos. 333-242495 and 333-267507) Form F-10 (File No. 333-276530).

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SIGNATURE

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

	Integra Resources Corp.
	/s/ Andree St-Germain
Date:  November 8, 2024	Andree St-Germain Chief Financial Officer

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INDEX TO EXHIBITS

99.1	Business Acquisition Report dated November 8, 2024
99.2	Material Change Report dated November 8, 2024
99.3	Early Warning Report dated November 8, 2024

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FORM 51-102F4

BUSINESS ACQUISITION REPORT

Item 1 - Identity of Company

1.1 Name and Address of Company

Integra Resources Corp. ("Integra" or the "Company")

400 Burrard Street, Suite 1050
Vancouver, BC V6C 3A6

1.2 Executive Officer

Andrée St-Germain

Chief Financial Officer

Telephone: 604.416.0576

Item 2 - Details of Acquisition

2.1 Nature of Business Acquired

On November 8, 2024, Integra completed the acquisition of all of the issued and outstanding common shares (the "FCGI Shares") of Florida Canyon Gold Inc. ("FCGI") by way of a court-approved plan of arrangement (the "Arrangement") under section 192 of the Canada Business Corporations Act, in accordance with the terms of the arrangement agreement between the Company and FCGI dated July 28, 2024, as amended September 3, 2024. Following the completion of the Arrangement, FCGI became a wholly-owned subsidiary of Integra.

FCGI is a Canadian-based junior gold producer with assets in the United States. The principal operating asset of FCGI is the Florida Canyon mine in Nevada. Detailed information about the Arrangement and the businesses of each of Integra and FCGI can be found in the management information circular of FCGI dated September 19, 2024 and the listing application of FCGI on TSX Venture Exchange Form 2B dated July 12, 2024, each of which are filed and available on the SEDAR+ profile of FCGI at www.sedarplus.ca.

2.2 Acquisition Date

November 8, 2024.

2.3 Consideration

In connection with the Arrangement, former holders of FCGI Shares received 0.467 of a common share of Integra (each, an "Integra Share") for each FCGI Share held (the "Exchange Ratio"). In aggregate, the Company issued 65,213,010 Integra Shares under the Arrangement.

In addition, Integra issued 923,010 stock options of the Company in exchange for options of FCGI outstanding as at November 8, 2024, adjusted as to number and price in accordance with the Exchange Ratio. Each option is exercisable for 0.1 of an Integra Share.

Prior to the completion of the Arrangement, the Company completed a marketed private placement offering of 14,900,000 subscription receipts (the "Subscription Receipts") for aggregate gross proceeds of approximately $20,000,000, which closed in escrow on August 21, 2024. On completion of the Arrangement, each outstanding Subscription Receipt was converted into one Integra Share and the net proceeds from the offering were released from escrow. The net proceeds of the offering are expected to be used to fund mine optimization opportunities at the Florida Canyon mine, continued advancement of DeLamar and Nevada North and for general corporate purposes. Integra also drew a second advance under its convertible loan facility with Beedie Investments Ltd. in the principal amount of US$5 million immediately following completion of the Arrangement. Neither the offering of Subscription Receipts nor the second advance was a condition precedent to the completion of the Arrangement.

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2.4 Effect on Financial Position

Prior to the Arrangement, the Company was focused on the exploration and development of its portfolio of exploration and development stage oxide heap leach gold-silver projects within the Great Basin of the Western United States. As a result of the Arrangement, the Company diversified its portfolio of projects by adding a gold and silver producer within 40 miles of its existing projects. Following completion of the Arrangement, the Florida Canyon mine in Nevada became a material property of the Company.

The Company will continue the current business of FCGI going forward and does not at present have any plans or proposals for material changes in the Company's or FCGI's affairs (corporate structure, personnel or management) that will have an impact on the financial performance and financial position of the Company.

The effect of the Arrangement on the financial position of Integra is outlined in the unaudited pro forma condensed consolidated financial statements referred to in Item 3, which shows the effect of the Arrangement on the results of operations and on the financial position of Integra.

2.5 Prior Valuations

None.

2.6 Parties to Transaction

The Arrangement was not with an informed person, associate or affiliate of the Company.

2.7 Date of Report

November 8, 2024.

Item 3 - Financial Statements and Other Information

The following financial statements, both of which are filed and available on SEDAR+ under FCGI's profile at www.sedarplus.ca, are attached to this Business Acquisition Report: (i) audited combined financial statements for the years ended December 31, 2023 and December 31, 2022 of FCGI and the notes thereto, together with the auditor's report thereon, attached hereto as Schedule "A"; and (ii) unaudited interim condensed combined financial statements for the three and six months ended June 30, 2024 of FCGI and the notes thereto, attached hereto as Schedule "B".

In addition, attached as Schedule "C" is the unaudited pro forma condensed consolidated financial statements of the Company that gives effect to the Arrangement, comprised of the unaudited pro forma consolidated balance sheet, the unaudited pro forma consolidated statement of income and earnings per share calculation for the six months ended June 30, 2024, together with notes thereto.

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FORWARD-LOOKING INFORMATION

Certain statements contained in this Business Acquisition Report constitute forward-looking information under applicable Canadian, United States and other applicable securities laws, rules and regulations, including, without limitation the expected production from Valentine. The use of any of the words "could", "intend", "expect", "believe", "will", "projected", "estimated" and similar expressions and statements relating to matters that are not historical facts are intended to identify forward-looking information and are based on Integra's current beliefs or assumptions as to the outcome and timing of such future events. There can be no assurance that such statements will prove to be accurate, as Integra's actual results and future events could differ materially from those anticipated in these forward-looking statements. Factors that could cause actual results and future events to differ materially from those anticipated in these forward-looking statements include the estimated costs associated with the advancement of Integra's projects and Integra's ability to achieve the synergies expected as a result of the Arrangement. Important factors that could cause actual results to differ materially from Integra's expectations include risks associated with the business of Integra; risks related to exploration, development and production of projects; business and economic conditions in the mining industry generally; fluctuations in commodity prices and currency exchange rates; the need for cooperation of government agencies and indigenous groups in the exploration and development of properties and the issuance of required permits; the potential need to obtain additional financing to develop properties and uncertainty as to the availability and terms of future financing; the possibility of delay in exploration or development programs and uncertainty of meeting anticipated program milestones; and other risk factors as detailed from time to time and additional risks identified in Integra's and FCGI's filings with Canadian securities regulators on SEDAR+ in Canada (available at www.sedarplus.ca).

Various assumptions or factors are typically applied in drawing conclusions or making the forecasts or projections set out in forward-looking information. Those assumptions and factors are based on information currently available to Integra. The forward-looking information contained in this Business Acquisition Report is made as of the date hereof and Integra undertakes no obligation to update or revise any forward-looking information, whether as a result of new information, future events or otherwise, except as required by applicable securities laws. Because of the risks, uncertainties and assumptions contained herein, investors should not place undue reliance on forward-looking information. The foregoing statements expressly qualify any forward-looking information contained herein.

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SCHEDULE "A"

 

 

 

 

Florida Canyon Gold Inc.

Combined Financial Statements

For the years ended December 31, 2023 and December 31, 2022

 

 

 

 

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Independent auditor's report

To the Board of Directors of Florida Canyon Gold Inc.

Our opinion

In our opinion, the accompanying combined financial statements present fairly, in all material respects, the financial position of the entities set out in note 1 to the combined financial statements (together, the Company) as at December 31, 2023 and 2022 and its financial performance and its cash flows for the years then ended in accordance with International Financial Reporting Standards as issued by the International Accounting Standards Board (IFRS Accounting Standards).

What we have audited

The Company's combined financial statements comprise:

• the combined statements of loss and comprehensive loss for the years ended December 31, 2023 and 2022;

• the combined statements of financial position as at December 31, 2023 and 2022;

• the combined statements of changes in shareholders' equity for the years ended December 31, 2023 and 2022;

• the combined statements of cash flows for the years ended December 31, 2023 and 2022; and

• the notes to the combined financial statements, comprising material accounting policy information and other explanatory information.

Basis for opinion

We conducted our audit in accordance with Canadian generally accepted auditing standards. Our responsibilities under those standards are further described in the Auditor's responsibilities for the audit of the combined financial statements section of our report.

We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.

Independence

We are independent of the Company in accordance with the ethical requirements that are relevant to our audit of the combined financial statements in Canada. We have fulfilled our other ethical responsibilities in accordance with these requirements.

 

PricewaterhouseCoopers LLP

PwC Tower, 18 York Street, Suite 2500, Toronto, Ontario, Canada M5J 0B2

T.: +1 416 863 1133, F.: +1 416 365 8215, Fax to mail: ca_toronto_18_york_fax@pwc.com

"PwC" refers to PricewaterhouseCoopers LLP, an Ontario limited liability partnership.

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Emphasis of matter - combined financial statements

We draw attention to the fact that, as described in note 2 to the combined financial statements, the entities included in the combined financial statements have not operated as a single entity. These combined financial statements are, therefore, not necessarily indicative of results that would have occurred if the entities had operated as a single entity during the years presented or of future results of the Company. Our opinion is not modified in respect of this matter.

Other information

Management of the Company (management) is responsible for the other information. The other information comprises the Management's Discussion and Analysis.

Our opinion on the combined financial statements does not cover the other information and we do not express any form of assurance conclusion thereon.

In connection with our audit of the combined financial statements, our responsibility is to read the other information identified above and, in doing so, consider whether the other information is materially inconsistent with the combined financial statements or our knowledge obtained in the audit, or otherwise appears to be materially misstated.

If, based on the work we have performed, we conclude that there is a material misstatement of this other information, we are required to report that fact. We have nothing to report in this regard.

Responsibilities of management and those charged with governance for the combined financial statements

Management is responsible for the preparation and fair presentation of the combined financial statements in accordance with IFRS Accounting Standards, and for such internal control as management determines is necessary to enable the preparation of combined financial statements that are free from material misstatement, whether due to fraud or error.

In preparing the combined financial statements, management is responsible for assessing the Company's ability to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless management either intends to liquidate the Company or to cease operations, or has no realistic alternative but to do so.

Those charged with governance are responsible for overseeing the Company's financial reporting process.

Auditor's responsibilities for the audit of the combined financial statements

Our objectives are to obtain reasonable assurance about whether the combined financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor's report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with Canadian generally accepted auditing standards will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these combined financial statements.

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As part of an audit in accordance with Canadian generally accepted auditing standards, we exercise professional judgment and maintain professional skepticism throughout the audit. We also:

• Identify and assess the risks of material misstatement of the combined financial statements, whether due to fraud or error, design and perform audit procedures responsive to those risks, and obtain audit evidence that is sufficient and appropriate to provide a basis for our opinion. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control.

• Obtain an understanding of internal control relevant to the audit in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company's internal control.

• Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by management.

• Conclude on the appropriateness of management's use of the going concern basis of accounting and, based on the audit evidence obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt on the Company's ability to continue as a going concern. If we conclude that a material uncertainty exists, we are required to draw attention in our auditor's report to the related disclosures in the combined financial statements or, if such disclosures are inadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained up to the date of our auditor's report. However, future events or conditions may cause the Company to cease to continue as a going concern.

• Evaluate the overall presentation, structure and content of the combined financial statements, including the disclosures, and whether the combined financial statements represent the underlying transactions and events in a manner that achieves fair presentation.

• Obtain sufficient appropriate audit evidence regarding the financial information of the entities or business activities within the Company to express an opinion on the combined financial statements. We are responsible for the direction, supervision and performance of the group audit. We remain solely responsible for our audit opinion.

We communicate with those charged with governance regarding, among other matters, the planned scope and timing of the audit and significant audit findings, including any significant deficiencies in internal control that we identify during our audit.

/s/PricewaterhouseCoopers LLP

Chartered Professional Accountants, Licensed Public Accountants

Toronto, Ontario
July 12, 2024

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FLORIDA CANYON GOLD INC. COMBINED STATEMENTS OF LOSS AND COMPREHENSIVE LOSS For the years ended December 31, 2023 and 2022 (In thousands of United States dollars)

		Note			2023			2022
Revenues					312,479			388,341
Cost of sales
Production costs		5			240,107			301,172
Depreciation, depletion and amortization					39,989			63,341
Total cost of sales					280,096			364,513
Gross profit					32,383			23,828
General and administrative expenses		19			10,141			12,725
Exploration expenses					6,460			3,904
Impairment expense		23			28,994			135,547
Loss from operations					(13,212	)		(128,348	)
Net finance expense		6			(1,330	)		(2,431	)
Other expenses		7			(159	)		(903	)
Loss before income taxes					(14,701	)		(131,682	)
Income tax expense		8			(1,906	)		(17,116	)
Net loss					(16,607	)		(148,798	)
Total comprehensive loss					(16,607	)		(148,798	)
Loss per share
Basic and diluted		24			(0.26	)		(2.29	)

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FLORIDA CANYON GOLD INC. COMBINED STATEMENTS OF FINANCIAL POSITION (In thousands of United States dollars)

		Note			December 31, 2023			December 31, 2022
ASSETS
Current assets
Cash and cash equivalents					41,064			42,843
Trade and other receivables		10			15,077			15,251
Inventories		11			91,945			94,120
Prepaid income tax					14,179			8,618
Prepaid expenses and other current assets					3,447			5,231
Related party receivable		19			57,073			12,840
Assets held for sale		9			-			17,402
Total current assets					222,785			196,305
Non-current assets
Related party loan receivable		19			-			24,840
Mineral properties, plant and equipment		12			66,945			113,903
Deferred income taxes		8			1,108			2,665
Other non-current assets		13			7,874			4,768
Total assets					298,712			342,481
LIABILITIES
Current liabilities
Trade and other payables		14			30,209			46,285
Current income tax liabilities					5,526			3,114
Current portion of debt					218			-
Current portion of lease liabilities		15			12,038			13,246
Current portion of provisions		16			9,509			8,493
Related party payable		19			56,539			69,530
Liabilities held for sale		9			-			1,466
Total current liabilities					114,039			142,134
Non-current liabilities
Debt					91			-
Lease liabilities		15			9,157			18,265
Provisions		16			54,331			48,916
Deferred income taxes		8			8,192			3,654
Other non-current liabilities					996			999
Total liabilities					186,806			213,968
SHAREHOLDERS' EQUITY
Share capital		24			378,003			378,003
Deficit					(266,097	)		(249,490	)
Total shareholders’ equity					111,906			128,513
Total liabilities and shareholders’ equity					298,712			342,481
Nature of Operations (note 1)
Commitments and Contingencies (note 21)
Events After the Reporting Period (note 24)

Approved by the Board of Directors
/s/ Audra B. Walsh, Director	/s/ Paula Rogers, Director

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FLORIDA CANYON GOLD INC. COMBINED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY For the years ended December 31, 2023 and 2022 (In thousands of United States dollars)

		Share capital			Deficit			Shareholders' equity
Balance, December 31 2021		378,003			(100,692	)		311,755
Net loss		-			(148,798	)		(148,798	)
Balance, December 31, 2022		378,003			(249,490	)		128,513
Net loss		-			(16,607	)		(16,607	)
Balance, December 31, 2023		378,003			(266,097	)		111,906

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FLORIDA CANYON GOLD INC. COMBINED STATEMENTS OF CASH FLOWS For the years ended December 31, 2023 and 2022 (In thousands of United States dollars)

				Year ended December 31,
		Note			2023			2022
Operating activities
Net loss					(16,607	)		(148,798	)
Items not affecting cash and other adjustments:
Depreciation, depletion and amortization					40,273			63,594
Net finance expense					1,330			2,431
Unrealized foreign exchange gain					(2,581	)		(1,224	)
Unrealized gains on derivatives					-			(1,258	)
Inventory impairment		11			5,519			22,879
Impairment expense		23			28,994			135,547
Deferred income tax expense					6,095			8,429
Other					1,220			866
					64,243			82,466
Changes in working capital		17			(22,052	)		(27,380	)
Income taxes paid					(3,326	)		(39,492	)
Interest received (paid)					828			(183	)
Net cash provided by operating activities					39,693			15,411
Investing activities
Expenditures on mineral properties, plant and equipment					(9,300	)		(37,849	)
Proceeds from sale of exploration and evaluation property and joint venture option agreement		9			10,250			-
Proceeds from disposal of equipment and other					435			2,163
Related party loan receivables					(24,907	)		(2,640	)
Proceeds from sale of marketable securities, net					-			5,307
Net cash used in investing activities					(23,522	)		(33,019	)
Financing activities
Debt repayments					(138	)		-
Principal lease payments					(13,271	)		(9,238	)
Related party loan payables					(7,649	)		24,386
Payments for settlement of derivatives		22			-			(2,233	)
Interest paid					(1,198	)		(1,314	)
Net cash (used in) provided by financing activities					(22,256	)		11,601
Effects of exchange rate changes on cash and cash equivalents					2,839			(1,265	)
Net decrease in cash and cash equivalents					(3,246	)		(7,272	)
Cash and cash equivalents, beginning of year					42,843			51,582
Cash derecognized from assets held for sale		9			1,467			(1,467	)
Cash and cash equivalents, end of year					41,064			42,843
Supplemental cash flow information (note 17)

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1 NATURE OF OPERATIONS

Florida Canyon Gold Inc. (the "Company" or "FCGI") is a Canadian gold company that was formed under the Canada Business Corporation Act by way of a statutory amalgamation on July 8, 2024 between Alio Gold Inc., Castle Gold Corporation, Pediment Gold Corp. and San Anton Resource Corporation (the "Merger Subsidiaries"). Prior to the amalgamation, all of the companies were wholly owned subsidiaries of Argonaut Gold Inc. ("Argonaut" or "Parent"), a publicly listed company on the Toronto Stock Exchange under the Symbol "AR". On March 27, 2024, Argonaut entered into a definitive arrangement agreement (as amended, the "Agreement") to sell all of the issued and outstanding shares of Argonaut (the "Transaction"). Concurrently, FCGI, which comprises Argonaut's assets in the United States and Mexico were spun out to Argonaut's existing shareholders.

The registered office of the Company is located at 100 King Street West, Suite 3400, Toronto, Ontario, M5X 1A4, Canada and its head office is located at 200 Bay Street, Suite 1302, Royal Bank Plaza, South Tower, Toronto, ON M5J 2J3.

The Company has two operating mines: the Florida Canyon mine and the San Agustin mine. Residual production is expected from two additional mines located in Mexico. The La Colorada mine was placed on care and maintenance at the end of 2023 pending a decision on strategic options for the mine, while mining activities ceased at the El Castillo mine in December 2022, and the mine is now in reclamation. The Company also has a development project Cerro del Gallo. The San Agustin mine and the El Castillo mine make up the El Castillo mining complex.

2 MATERIAL ACCOUNTING POLICIES

The material accounting policies applied in the preparation of these combined financial statements are set out below. These policies have been consistently applied in all material respects to all the years presented, unless otherwise noted.

a) Basis of presentation

The combined financial statements of the Company have been prepared in accordance with International Financial Reporting Standards as issued by the International Accounting Standards Board ("IFRS Accounting Standards" or "IFRS").

The combined financial statements have been prepared under the historical cost convention, except for certain financial assets and financial liabilities measured at fair value.

The preparation of these combined financial statements in conformity with IFRS requires the use of certain critical accounting estimates. It also requires management to exercise its judgment in the process of applying the Company's accounting policies. The areas involving a higher degree of judgment or complexity, or areas where assumptions and estimates are significant to the combined financial statements are disclosed in note 3.

These combined financial statements have been prepared to restate all periods to reflect the amalgamation and reorganization described above. The Merger Subsidiaries have been combined for all periods presented as if they were always combined into a single reporting entity including their wholly owned subsidiaries. Share capital for periods prior to the amalgamation represents the share capital of the four amalgamated entities. Intercompany transactions have been eliminated. Earnings per share data has been restated for all periods based on the number of shares issued on reorganization and amalgamation.

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The Merger Subsidiaries included in the combined financial statements have not operated as a single entity. These combined financial statements are, therefore, not necessarily indicative of results that would have occurred if the Merger Subsidiaries had operated as a single entity during the years presented or of future results of the Company.

Inter-company transactions and balances within entities in the Company are eliminated.

These combined financial statements were authorized for issue by the Board of Directors on July 12, 2024.

b) Foreign currency translation

Items included in the financial statements of each of the Company's subsidiaries are measured using the currency of the primary economic environment in which the entity operates ("the functional currency"). The combined financial statements are presented in United States ("US") dollars.

Foreign currency exchange gains and losses are presented in the combined statement of loss within other expenses.

c) Cash and cash equivalents

Cash and cash equivalents include cash on hand and other short-term, highly liquid investments with maturities of three months or less that are readily convertible to known amounts of cash and which are subject to an insignificant risk of changes in value.

d) Inventories

Inventories are stated at the lower of weighted average cost and the net realizable value ("NRV"). For work-in-process and finished goods inventories, the NRV is determined by using the estimated gold price at the time of sale less remaining cost of completion to bring the inventory into saleable form. Work-in-process inventory includes ore in the leaching process, stockpiled ore at mining operations, and gold on carbon. Finished goods include gold in doré or bullion. For work-in-process and finished goods inventories, cost includes all direct costs incurred in production, including direct labor and materials, freight, depreciation and amortization of plant and equipment used in the production process, depletion of mineral properties and directly attributable overhead costs. If the NRV is lower than the expected cost of the finished product, the inventory is written down to the NRV. The write down may be reversed if circumstances change. Cost of materials and supplies inventory includes acquisition, freight, and other directly attributable costs.

e) Mineral properties, plant and equipment

i) Plant and equipment

Plant and equipment are recorded at cost less accumulated depreciation and impairment charges. The cost of buildings, mobile equipment, and plant and processing equipment used in the Company's mining operations are amortized on either a straight-line basis over the estimated useful life of the related asset or on a unit-of-production basis over estimated proven and probable reserves, or other relevant metric. The cost of office equipment, furniture and fixtures, and vehicles is amortized on a straight-line basis over the estimated useful life of the related asset.

ii) Exploration and evaluation assets

Exploration and evaluation expenditures relate to properties where the Company has valid ownership and exploration rights and comprise costs that are directly attributable to:

• researching and analyzing existing exploration data;

• conducting geological studies, exploratory drilling, and sampling;

• examining and testing extraction and treatment methods; and

• activities in relation to evaluating the technical feasibility and commercial viability of extracting a mineral resource.

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Exploration and evaluation expenditures for each area of interest are capitalized provided that one of the following conditions is met:

• exploration and evaluation activities in the area of interest have reached a stage which permits a reasonable assessment of the existence of economically recoverable reserves or resources, and active and significant operations in relation to the area are continuing, or planned for the future; or

• such costs are expected to be recouped in full through successful exploration and development of the area of interest or alternatively, by its sale.

Once management has determined that the development potential of the property is economically viable and technically feasible, which generally coincides with the permits for its development and approval of construction, the exploration and evaluation asset is reclassified to assets under construction within mineral properties, plant and equipment. Exploration and evaluation assets are assessed for impairment, and any impairment loss is recognized, before reclassification from exploration and evaluation assets to assets under construction.

Proceeds received from a sale of, or option on, any interest in a mineral property are credited against the carrying value of that property. When interest in a property is sold the accumulated property costs are written-off, with any gain or loss included in the combined statements of income (loss) in the period the transaction takes place.

iii) Mineral properties and mine development costs

The costs of acquiring, exploring and developing mineral properties or property rights, and increasing future output by providing access to additional sources of reserves or resources, are capitalized up to the time the asset is ready to use. Proceeds derived from mining activities and incidental proceeds from the sale of items prior to the assets being ready for use in the manner intended by management are recognized as revenues along with the related costs in the combined statement of loss.

Mineral properties are recorded at cost less accumulated depletion and impairment charges. When assets are ready for use as intended by management, mineral properties and mine development costs are amortized on a unit-of- production basis over the estimated proven and probable reserves, resources or other relevant metrics to which they relate. Mine development costs associated with each distinct section of the mine are amortized over the reserves, resources or other relevant metric to which they relate. Upon sale or abandonment of mineral properties, the cost and related accumulated depletion are written off and any gains or losses thereon are included in the combined statement of loss.

During the production phase, further mining expenditures, including exploration or development costs, incurred either to develop new ore bodies or to develop mine areas in advance of current production are capitalized to mineral properties. Stripping costs incurred in the production phase are accounted for as variable production costs. However, stripping costs incurred to improve access to the identified component of ore, which are determined using strip ratio methodology, will be capitalized and recorded on the statement of financial position as deferred stripping, a component of mineral properties. The deferred stripping will be depleted on a unit-of-production basis over the reserves that directly benefited from the stripping activity.

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iv) Amortization of mineral properties, plant and equipment

The carrying amounts of mineral properties, plant and equipment are depreciated, depleted or amortized to their estimated residual value over the estimated economic life of the specific assets to which they relate, or using the straight-line method over their estimated useful lives indicated below:

• Plant and equipment - 1 to 20 years straight-line;

• Mineral properties and mine development costs - based on a unit-of-production basis over estimated proven and probable reserves;

• Assets under construction - not amortized; and

• Exploration and evaluation assets - not amortized.

Estimates of residual values, useful lives, and proven and probable reserves are reassessed at least annually, and any change in estimate is considered in the determination of remaining depreciation, depletion, or amortization charges. Depreciation, depletion or amortization commences on the date the asset is available for use as intended by management.

f) Impairment of non-current assets

The carrying values of capitalized non-current assets are reviewed for impairment indicators at each reporting date, or when indicators of impairment are present. If any such indication exists, the recoverable amount of the asset is estimated in order to determine the extent of the impairment, if any. In the case of undeveloped projects, there may be only inferred resources to form a basis for the impairment review. The review is based on the Company's intentions for the development of such a project. If a project does not prove viable, all unrecoverable costs associated with the project are charged to the combined statement of loss.

Where the asset does not generate cash flows that are independent from other assets, the Company estimates the recoverable amount of the applicable cash-generating unit ("CGU" or "CGUs") to which the asset belongs. The recoverable amount is determined as the higher of the fair value less cost of disposal ("FVLCD") and the asset's value in use. FVLCD is the amount that would be obtained from the sale of an asset or CGU in an arm's length transaction between knowledgeable and willing parties, less the costs of disposal. For mineral assets, when a third party offer is not readily available, FVLCD is often estimated using a discounted cash flow model using a post-tax discount rate. For certain assets, while calculated FVLCD, the in-situ fair value per ounce is considered for gold equivalent reserves and resources not already considered in the discounted cash flow model. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate. Estimated future cash flows are calculated using estimated recoverable reserves or resources, metallurgical recovery estimates, estimated future commodity prices, future production volume, the expected future operating, capital and reclamation costs. The discount rate applied to the estimated future cash flows reflects current market assessments of the time value of money and the risks specific to the asset. Determining the discount rate includes appropriate adjustments for the risk profile of the countries in which the individual CGUs operate. In-situ fair value per ounce is calculated based on sale transactions of comparable assets. If the carrying amount of an asset or CGU exceeds its recoverable amount, the carrying amount of the asset or CGU is reduced to its recoverable amount. An impairment loss is recognized as an expense in the combined statement of loss.

Non-financial assets that have been impaired are tested for possible reversal of the impairment whenever events or changes in circumstance indicate that the impairment may have reversed. Where an impairment charge subsequently reverses, the carrying amount of the asset or CGU is increased to the revised estimate of its recoverable amount, but only so that the increased carrying amount does not exceed the carrying amount that would have been determined (net of depreciation, depletion, or amortization) had no impairment loss been recognized for the asset in prior years. A reversal of impairment is recognized as a gain in the combined statement of loss.

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g) Leases

For contracts that contain a lease, the right-of-use asset and a corresponding liability are recognized at the date at which the leased asset is available for use by the Company. Each lease payment is allocated between the liability and finance expense. The finance expense is charged to the combined statement of loss over the lease period or capitalized as an asset under construction when they are considered applicable borrowing costs directly attributable to the construction of mineral properties, plant and equipment. The right-of-use asset is depreciated over the shorter of the asset's useful life or the life-of-mine ("LOM"), on a straight-line basis.

Assets and liabilities arising from a lease are initially measured on a present value basis. Lease liabilities include the net present value of the following lease payments:

• fixed payments (including in-substance fixed payments), less any lease incentives receivable;

• variable lease payments that are based on an index or a rate;

• amounts expected to be payable by the lessee under residual value guarantees;

• the exercise price of a purchase option if the lessee is reasonably certain to exercise that option; and

• payments of penalties for terminating the lease, if the lease term reflects the lessee exercising that option.

The lease payments are discounted using the interest rate implicit in the lease, if that rate can be determined, or the Company's incremental borrowing rate.

Right-of-use assets are measured at cost comprising the following:

• the amount of the initial measurement of lease liability;

• any lease payments made at or before the commencement date less any lease incentives received;

• any initial direct costs; and

• restoration costs.

The Company remeasures the lease liability (and makes a corresponding adjustment to the related right-of-use asset) whenever:

• The lease term has changed or there is a significant event or change in circumstances resulting in a change in the assessment of exercise of a purchase option, in which case the lease liability is remeasured by discounting the revised lease payments using a revised discount rate;

• The lease payments change due to changes in an index or rate or a change in expected payment under a guaranteed residual value, in which cases the lease liability is remeasured by discounting the revised lease payments using an unchanged discount rate (unless the lease payments change is due to a change in a floating interest rate, in which case a revised discount rate is used); or

• A lease contract is modified and the lease modification is not accounted for as a separate lease, in which case the lease liability is remeasured based on the lease term of the modified lease by discounting the revised lease payments using a revised discount rate at the effective date of the modification.

Short-term leases are leases with a lease term of 12 months or less. Payments associated with short-term leases and leases of low-value assets are either expensed on a straight-line basis in the combined statement of loss or capitalized as an asset under construction when they are considered applicable borrowing costs directly attributable to the construction of mineral properties, plant and equipment.

Certain leases contain variable payment terms. Non-principal components of variable lease payments are recognized in the combined statement of loss in the period in which the condition that triggers those payments occurs.

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h) Provisions

Provision is made for closure, reclamation and environmental rehabilitation costs (which include the dismantling and demolition of infrastructure, removal of residual materials and remediation of disturbed areas) in the financial period when the related environmental disturbance occurs, based on the estimated future costs using information available at the date of the statement of financial position. At the time of establishing the provision, a corresponding asset is capitalized, where it gives rise to a future benefit, and depreciated over future production from the operations to which it relates. For properties where mining activities have ceased or are in reclamation, changes to the reclamation provision are charged directly to the combined statement of loss. The provision is discounted using a current market-based, risk-free discount rate and the accretion of the discount is included in finance expenses.

The provision is reviewed at each reporting date for changes to obligations, legislation or discount rates that impact estimated costs or lives of operations. The cost of the related asset is adjusted for changes in the provision resulting from changes in the estimated cash flows or discount rate and the adjusted cost of the asset is depreciated prospectively.

i) Revenue recognition

Revenue is recognized to the extent that it is probable that economic benefits will flow to the Company and the revenue can be reliably measured. Revenue is measured at the fair value of the consideration received or receivable, excluding discounts, rebates, and sales taxes or duty. Revenue from the sale of goods is recognized when control has transferred, which is generally considered to occur when title passes to the customer. Once the title has passed to the customer, the significant risks and rewards of ownership have been transferred, and the customer is able to direct the use of and obtain substantially all the remaining benefits from the goods.

j) Income taxes

The separate return method was applied in the preparation of the combined financial statements.

Current tax for each taxable entity of the Company is based on the local taxable income at the local statutory tax rate enacted or substantively enacted at the reporting date and includes adjustments to tax payable or recoverable in respect of previous years.

Deferred tax is accounted for using the liability method, providing for the tax effect of temporary differences between the carrying amount of assets and liabilities for financial reporting purposes and their respective tax bases.

Deferred income tax assets and liabilities are recognized for all taxable temporary differences except where the deferred income tax asset and liability arises from the initial recognition of an asset or liability in a transaction that is not a business combination and, at the time of the transaction, affects neither the accounting profit or loss nor taxable profit or loss.

Deferred income tax assets also consist of carry-forward of unused tax assets and unused tax losses, to the extent that it is probable that taxable profit will be available against which the deductible temporary differences, and the carry-forward of unused tax losses can be utilized. The carrying amount of deferred income tax assets are reviewed at each reporting date and deferred income tax assets where it is no longer probable that sufficient taxable profit is available to allow all or part of the asset to be utilized are not recognized.

Deferred tax is measured on an undiscounted basis using the tax rates that are expected to apply in the period when the liability is expected to be settled or the asset is expected to be realized, based on tax rates and tax laws enacted or substantively enacted at the date of the statement of financial position. Deferred tax assets and liabilities are offset when they relate to income taxes levied by the same taxation authority and the Company intends to settle its current tax assets and liabilities on a net basis. Current and deferred taxes relating to items recognized directly in equity are recognized in equity and not in the combined statement of loss.

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Mining taxes and royalties are treated and disclosed as current and deferred taxes if they have the characteristics of an income tax. This is the case when they are imposed under government authority and the amount payable is calculated by reference to revenue derived (net of any allowable deductions) after adjustment for items comprising temporary differences.

k) Financial instruments

Financial instruments are recognized when the Company becomes party to a contractual obligation. At initial recognition, financial instruments are measured at fair value, net of the attributable transaction costs, except for financial assets and liabilities classified as fair value through profit and loss ("FVTPL"). The transaction costs attributable to assets and liabilities carried at FVTPL are expensed in the period in which they are incurred.

Financial assets are derecognized when the rights to receive cash flows from the financial assets have expired or have been transferred and the Company has transferred substantially all the risks and rewards of ownership. Financial liabilities are derecognized when the Company's obligations are discharged, cancelled, or expire.

On initial recognition, financial assets and liabilities are classified as and measured as follows:

Financial assets are measured at amortized cost if they are held for the collection of contractual cash flows where those cash flows solely represent payments of principal and interest. The Company's intent is to hold these financial assets in order to collect contractual cash flows and the contractual terms give rise to cash flows on specified dates that are solely payments of principal and interest on the principal amount outstanding.

Financial liabilities are measured at amortized cost unless they are measured at FVTPL. These liabilities were recorded using the effective interest rate method and are initially recorded at fair value, net of transaction costs incurred. Any difference between the proceeds (net of transaction costs) and the redemption value is recognized in the combined statement of loss over the period of the debt using the effective interest method.

Financial assets are measured at FVTPL if they do not qualify as financial assets at amortized cost, fair value through other comprehensive income or not designated in hedge relationships. The Company initially recognizes these financial assets at their fair value with subsequent changes to fair values recognized in the combined statement of loss.

Financial liabilities are measured at FVTPL if they are specific liabilities, including derivatives, which cannot be classified as financial liabilities at amortized cost or not designated in hedge relationships. The Company initially recognizes these financial liabilities at their fair value with subsequent changes to fair values recognized in the combined statement of loss.

The Company may hold derivative financial instruments to hedge market risk exposures. These financial instruments are measured at fair value at each reporting period.

l) Earnings (loss) per share

Earnings (loss) per share has been presented for all periods based on the number of shares issued on the reorganization and amalgamation. Diluted earnings per share is calculated using the treasury method whereby proceeds from the exercise of share based compensation and the amount of compensation expense measured but not yet recognized in the combined statement of income are assumed to be used to purchase common shares of the Company at the average market price during the period. The diluted earnings per share excludes any potential conversion of stock options that would increase earnings per share. In periods of loss diluted loss per share is the same as basic loss per share as the effect would be dilutive.

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m) Share capital

The proceeds from the issuance of the common shares and the exercise of stock options together with the fair value of

stock options previously recorded over the vesting period are recorded as share capital. Incremental costs directly attributable to the issue of common shares are charged to share capital.

n) Share based compensation

The Company grants share base awards to its directors and employees. The fair value of the awards is recognized over the vesting period as compensation expense and contributed surplus. The fair value of options is determined using the Black- Scholes option pricing model using estimates at the date of the grant. At each reporting period date prior to vesting, the cumulative expense representing the extent to which the vesting period has expired and management's best estimate of the awards that are ultimately expected to vest is computed. The change in cumulative expense is recognized in the combined statement of loss and contributed surplus. No expense is recognized for awards that do not ultimately vest. When stock options are exercised, the proceeds received together with any related amount in contributed surplus are credited to share capital.

3 SIGNIFICANT ACCOUNTING ESTIMATES AND JUDGMENTS

a) The preparation of combined financial statements requires significant areas where estimates and judgment is applied. The following describe the accounting estimates in judgments that have the most significant effect on the amounts recognized in the combined financial statements:

Functional currency

The functional currency for each of the Company's entities is the currency of the primary economic environment in which the entity operates. The determination of the functional currency may involve judgments to determine the primary economic environment, if the functional currency is not or may not be clear. The Company reconsiders the functional currency if there is a change in conditions used to determine the economic environment. The Company has determined the functional currency to be the US dollar for its operating mines.

Deferred income taxes

The determination of deferred income tax requires management to make judgments related to the probability that future taxable profit will be sufficient to allow the recognition of deferred income tax assets and the likelihood that tax positions taken will be sustained upon assessments by applicable tax authorities.

Tax judgments and assumptions are subject to risk and uncertainty, hence there is a possibility that changes in circumstances will alter expectations, which may impact the amount of deferred tax assets recognized on the statement of financial position and the amount of other tax losses and temporary differences not yet recognized. In such circumstances, some of the entire carrying amount of recognized deferred tax assets may require adjustment, resulting in a corresponding credit or charge to the combined statement of loss.

Deferred tax assets, including those arising from tax losses, capital losses and temporary differences, are recognized only where it is probable that taxable earnings will be available against which the losses or deductible temporary differences can be utilized. Assumptions about the generation of future taxable earnings and repatriation of retained earnings depend on management's estimates of future cash flows. These depend on estimates of future production and sales volumes, commodity prices, reserves, resources, operating costs, closure and decommissioning costs, capital expenditures, dividends and other capital management transactions.

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Stripping costs

The Company incurs waste removal costs (stripping costs) during the pre-production and production phases of its surface mining operations. During the production phase, stripping costs (production stripping costs) can be incurred both in relation to the production of inventory in that period and the creation of improved access and mining flexibility in relation to ore to be mined in the future. The former are included as part of production costs, while the latter are capitalized as deferred stripping, when certain criteria are met. Significant judgment is required to distinguish between pre-production stripping and production stripping and to distinguish between production stripping that relates to the extraction of inventory and that which relates to the creation of a deferred stripping asset.

Once the Company has identified its production stripping for each surface mining operation, it identifies the separate components of the ore bodies for each of its mining operations. An identifiable component is a specific volume of the ore body that is made more accessible by the stripping activity. Significant judgment is required to identify and define these components and to determine the expected volumes (e.g. in tonnes) of waste to be stripped and ore to be mined in each of these components. These assessments are undertaken for each individual mining operation based on the information available in the mine plan.

Judgment is also required to identify a suitable production measure to be used to allocate production stripping costs between inventory and any deferred stripping asset for each component. The Company considers that the ratio of the expected volume of waste to be stripped for an expected volume of ore to be mined for a specific component of the ore body is the most suitable production measure.

Work-in-process inventory / Production costs

The Company's management makes estimates of the expected recoverable ounces of gold on leach pads and the expected timing of recoveries in work-in-process inventory, which is also used in the determination of the cost of sales during the period. Expected recoverable ounces of gold on leach pads are determined based on the type of ore tonnes mined and placed on the leach pad, rock density, grams of gold per tonne and expected recovery rates.

Management relies on internal geological and metallurgical experts to develop estimates related to expected recoverable ounces of gold on leach pads and timing of recoveries. The Company monitors the ongoing recovery of gold ounces from the leach pads and may refine its estimates based on these results. Assumptions used in the net realizable value assessment include the estimated gold price at the time of sale, remaining costs of completion to bring inventory into its saleable form and discount rate. Changes in these estimates can result in a change in the carrying amount of inventories and future cost of sales.

Mineral properties

The cost of acquiring, exploring and developing mineral properties and the cost to increase future output by providing access to additional reserves or resources, are capitalized. Management relies on internal geological and metallurgical experts to develop estimates of recoverable reserves and resources, metallurgical recovery estimates, and future production volumes. After a mine commences production, these costs are amortized over the proven and probable reserves. The determination of reserves and resources is complex and requires the use of estimates and assumptions related to geological sampling and modeling, future commodity prices and costs to extract and process the ore. The mineral reserve or resource is used in estimating the value of the mineral property and in the determination of recoverable ounces which is further used in depletion and depreciation calculations.

Impairment expense (reversal) of non-current assets

The Company reviews the carrying amounts of the non-current assets whenever events or changes in circumstances indicate that the carrying amounts may exceed the estimated recoverable amounts. All information available when preparing the combined financial statements was taken into consideration to determine whether there were indicators of impairment of the non-current assets, including subsequent to December 31, 2023 and prior to the date of these combined financial statements.

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Recoverable amounts are determined by reference to relevant market data, discounted future cash flows, and in-situ fair value per ounce of gold equivalent mineral reserves and resources not considered in the discounted cash flow model. An impairment loss is recognized when the carrying amount of those assets is no longer considered recoverable. Non-current assets that were previously impaired are tested for possible reversal of the impairment whenever events or changes in circumstance indicate that the impairment may have reversed.

Calculating the estimated recoverable amount of the CGU for non-current asset impairment tests requires management to make estimates and assumptions with respect to estimated recoverable mineral reserves and resources, metallurgical recovery estimates, estimated future commodity prices, future production volume, expected future operating, capital and reclamation costs, discount rates and exchange rates. Management relies on internal geological and metallurgical experts to develop estimates of recoverable mineral reserves and resources, metallurgical recovery estimates, and future production volumes as well as expected future operating, capital and reclamation costs. These estimates are subject to various risks and uncertainties which may ultimately influence the estimated recoverability of the carrying amounts of non-current assets. Management has assessed its cash generating units as being all sources of mill feed through a central mill, which is the lowest level for which cash inflows are largely independent of other assets.

Future gold prices, exchange rates, discount rates, estimates of recoverable reserves and resources, operating, capital and reclamation costs, and other key assumptions are used in the Company's impairment assessment. Changes in these assumptions could significantly impact the valuation of the Company's assets in the future.

As further discussed in note 23, an indicator of impairment of the Mexican CGUs was identified as at December 31, 2023, the recoverable amount of the non-current assets was estimated and it was determined that impairments should be recognized. Judgement was required to determine whether the proceeds implied by a non-binding offer received subsequent to the reporting period were indicative of the recoverable value of the non-current assets for the Mexico Business as at December 31, 2023. Calculating the estimated recoverable amount of the non-current assets required judgements that, if changed, would significantly impact the valuation of the assets in the future.

Reclamation provision

Reclamation provision represents the present value of estimated future costs for the reclamation of the Company's mines and properties. These estimates include assumptions as to the future activities, cost of services, timing of the reclamation work to be performed, inflation rates, exchange rates and discount rates.

The actual cost to reclaim a mine may vary from the estimated amounts because there are uncertainties in factors used to estimate the cost and potential changes in regulations or laws governing the reclamation of a mine. Management periodically reviews the reclamation requirements and adjusts the liability as new information becomes available and will assess the impact of new regulations and laws as they are enacted.

Contingencies

Due to the nature of the Company's operations, various legal and tax matters can arise from time to time that require estimation of amounts and probability of outcome. In the event that management's estimate of the future resolution of these matters changes, the Company will recognize the effects of the changes in its financial statements for the period in which such changes occur.

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4 RECENT ACCOUNTING PRONOUNCEMENTS

New standards and interpretations adopted January 1, 2023:

Amendments to IAS 1 - Presentation of Financial Statements

In February 2021, the IASB amendments to IAS 1, Presentation of Financial Statements, and IFRS Practice Statement 2. The amendments to IAS 1 require an entity to disclose its material accounting policies instead of its significant accounting policies. The amendments include clarification on how an entity can determine material accounting policies by applying the 'four-step materiality process' described in IFRS Practice Statement 2. The amendments to IAS 1 are effective for annual periods beginning on or after January 1, 2023. The Company adopted the amendments effective January 1, 2023, with no material impact to the combined financial statements for 2023.

Amendments to IAS 12 - Deferred Tax related to Assets and Liabilities arising from a Single Transaction

The Company also adopted the IASB published amendments to IAS 12 - Income Taxes at January 1, 2023. The amendments require companies to recognize deferred tax on particular transactions that, on initial recognition, give rise to equal amounts of taxable and deductible temporary differences. The amendments typically apply to transactions such as leases for the lessee and decommissioning and restoration obligations related to assets in operation. The Company has concluded that the adoption of the amendments had no significant impact on its combined financial statements.

5 PRODUCTION COSTS

 

6 NET FINANCE EXPENSES

 

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7 OTHER EXPENSE

8 INCOME TAX EXPENSE

b) The income tax recovery (expense) differs from that computed by applying the applicable Canadian federal and provincial statutory rates before taxes as follows:

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c) The significant components of the Company's deferred income tax assets (liabilities), without taking into consideration the offsetting of balances within the same tax jurisdiction, as at December 31 are as follows:

d) On the combined statements of financial position, deferred tax assets and liabilities have been offset where they relate to income taxes within the same taxation jurisdiction and where the Company has the legal right and intent to offset. Deferred tax assets (liabilities) as at December 31 are as follows:

e) Management believes that sufficient uncertainty exists regarding the realization of certain deferred tax assets such that they have not been fully recognized. The tax benefits not recognized reflect management's assessment regarding the future realization of Canadian, Mexican and United States tax assets and estimates of future earnings and taxable income in these jurisdictions as of December 31, 2023. As at December 31, 2023, the Company had unrecognized Canadian operating loss carry-forwards of $21.9 million which expire between the years 2026 and 2041.

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Deductible temporary differences, unused tax losses, and unused tax credits for which no deferred tax assets are recognized in the statement of financial position as at December 31 are as follows:

(1) Capital losses have no expiry date.

9 DISPOSAL OF MINERAL INTERESTS

On December 5, 2022, the Company entered into a binding purchase agreement with Heliostar Metals Limited ("Heliostar"), a publicly traded company listed on the TSX Venture Exchange, for the sale of all of the issued and outstanding shares of Aurea Mining Inc. ("Aurea Mining"), a wholly owned subsidiary of the Company, which, through Aurea Mining's wholly owned subsidiary Minera Aurea, S.A. de C.V., holds a 100% indirect interest in the Ana Paula project. The transaction closed on March 28, 2023.

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At closing, Heliostar acquired all the issued and outstanding shares of Aurea Mining in exchange for a cash payment of $10.0 million and an additional $20.0 million of deferred consideration contingent upon achievement of certain milestones. Subsequent to closing, an additional $0.3 million of cash consideration was received. Upon closing, the Company fair valued the contingent consideration at $2.9 million and as at December 31, 2023, the fair value of the contingent consideration was $3.1 million, recorded in other non-current assets (note 13). The value was determined using the probability of Heliostar achieving the milestones.

At December 31, 2022, all assets and liabilities related to the Ana Paula project were classified as held for sale. Upon reclassification of the Ana Paula project to a disposal group, the Company recorded an impairment of $10.4 million (note 23).

The net assets of the Ana Paula disposal group as at December 31, 2022 are as follows:

San Antonio option

In December 2022, the Company entered into an Option Agreement with Heliostar, whereby Heliostar has been granted the option to acquire a 100% interest in and to the Company's San Antonio gold exploration stage project, located in Baja California Sur, Mexico. The term of the Option Agreement is for a three-year period, provided, however, the term may be extended for an additional 18-months in the event Heliostar is able to successfully acquire the required environmental permits to advance the San Antonio gold project. The consideration payable upon exercise of the option is summarized below:

1. A cash payment to FCGI of $80 million in the event the average gold price is below $1,800 per ounce for the six months preceding Heliostar exercising the option; or

2. A cash payment to FCGI of $120 million in the event the average gold price is between $1,800 per ounce to $2,000 per ounce for the six months preceding Heliostar exercising the option; or

3. A cash payment to FCGI of $150 million in the event the average gold price is above $2,000 per ounce for the six months preceding Heliostar exercising the option; and

4. Granting FCGI a 2% NSR royalty in the event of exercise of the option (capped at 2% for claims with existing NSR considerations).

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10 TRADE AND OTHER RECEIVABLES

11 INVENTORIES

Cost of inventories recognized as an expense in cost of sales totaled $280.1 million (December 31, 2022 - $364.5 million).

The Company recognized the following inventory impairment (reversals) related to the net realizable value of the work-in- process inventories and materials and supplies. The inventory impairment (reversals) are reported in production costs (note 5).

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12 MINERAL PROPERTIES, PLANT AND EQUIPMENT

During the year ended December 31, 2023, the Company capitalized $nil (year ended December 31, 2022 - $19.1 million) of deferred stripping costs to mineral properties. The depreciation expense related to deferred stripping for the year ended December 31, 2023 was $6.1 million (year ended December 31, 2022 - $14.1 million). Included in the mineral properties balance at December 31, 2023, is $1.8 million (December 31, 2022 - $8.0 million) related to deferred stripping costs.

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For the year ended December 31, 2023, the Company recognized an impairment of $29.0 million for mineral properties and plant and equipment. In the prior year, the Company recognized impairments for mineral properties, plant and equipment and exploration and evaluation assets totaling $135.5 million (note 23).

At December 31, 2023, plant and equipment includes $1.3 million and mineral properties includes $1.6 million of mine development costs (December 31, 2022 - $1.0 million and $5.1 million, respectively), which were not subject to depreciation and depletion.

The adjustment to the reclamation provision of $8.1 million is primarily driven by increased closure costs, as well as changes in discount rates (note 16).

The following table summarizes the changes in right-of-use assets recorded in plant and equipment:

13 OTHER NON-CURRENT ASSETS

The Company has reclamation deposits representing funds that have been placed in trust as security relating to site closure obligations of the Florida Canyon mine. These deposits will be released when the government approves successful site restoration or surety bonding is no longer required.

14 TRADE AND OTHER PAYABLES

At December 31, 2023, accounts payable and accrued liabilities include $9.8 million (December 31, 2022 - $1.2 million) related to mineral properties, plant and equipment additions.

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15 LEASE LIABILITIES

Leases liabilities primarily relate to leases on heavy equipment consisting of trucks, loaders, dozers and drill rigs which have remaining lease terms of up to 5 years and interest rates of 2.8% to 9.2% over the terms of the leases.

Certain leases contain variable lease payment terms that are linked to the usage of the equipment. The expense related to variable lease payments that do not depend on an index or a rate and was $26.9 million for the year ended December 31, 2023 (year ended December 31, 2022 - $41.1 million).

16 PROVISIONS

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Reclamation provisions relating to the Company's mining operations are as follows:

The Company expects these liabilities to be settled between 2024 and 2041. The reclamation provisions are discounted using current market pre-tax discount rates which range from 4.1% to 10.3%.

17 SUPPLEMENTAL CASH FLOW INFORMATION

The following table summarizes changes in working capital and other operating items:

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18 SEGMENT INFORMATION

Operating segments are those operations whose operating results are reviewed by the chief operating decision-maker to make decisions about resources to be allocated to the segments and assess their performance, provided those operations meet certain quantitative thresholds, or are deemed significant. The Company's operating segments, before aggregation, have been identified as the Company's individual operating mines. The El Castillo and San Agustin mines have been aggregated into the El Castillo mining complex reportable segment. The early-stage exploration and other operations which are not otherwise disclosed are reported under the Corporate and other category.

The Company operates in the mining industry and its principal product is gold. During the year ended December 31, 2023, the Company had two customers that individually accounted for more than 10% of the Company's total sales (December 31, 2022 - two customers). The Company's revenue was generated on the sale of product originating from the United States, and Mexico. As at December 31, 2023, the Company's significant producing mineral properties were located in the United States (Florida Canyon mine), and Mexico (El Castillo mining complex and the La Colorada mine). The following tables summarize segment information of the Company:

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19 RELATED PARTY TRANSACTIONS

During the years ended December 31, 2023 and 2022, the following transactions were carried out with related parties. Related parties are its Parent and Prodigy Gold Inc ("Prodigy") a subsidiary of the Parent:

a) The Company sells gold to its Parent at a fixed price of $1,856 (2022- $1,905). During the year 108,844 (2022 - 90,000) ounces were delivered. These gold sales are to satisfy gold forward contracts held by the Parent. In addition, a gold prepayment agreement is held by the Parent for the Company to sell gold at market prices. During the year 11,716 ounces were delivered.

b) The Company has allocated employee benefits related to its employees from its Parent which are recorded in general and administrative expenses.

c) The Company charges management fees to its Parent and Prodigy which are recorded in general and administrative expense.

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The balances as of December 31, 2023 and 2022 (note 24) with related parties are shown below:

Included in due to Parent - current loan payable are $38.7 million (2022 - $36.7 million) of interest bearing loans with interest rates ranging between 11.54% to 14.24% (2022 - 11.54% to 14.24%) based on market rates.

Included in due from Prodigy - current loan receivable are $19.8 million (2022 - $nil) of interest bearing loans with interest rates of 14.24% based on market rates.

As at December 31, 2023 and December 31, 2022, the entities within FCGI were guarantors of the Parent's third-party debt arrangements and the Parent had provided corporate guarantees to FCGI for certain surety bonds and equipment leases. On closing of the Transaction, July 12, 2024, FCGI is no longer a guarantor of the Parent's third-party debt arrangements and the Parent no longer guarantee FCGI's surety bonds or equipment leases (note 24).

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20 CAPITAL MANAGEMENT

The Company manages and adjusts its capital structure based on available funds in order to support its operations and the acquisition, exploration and development of mineral properties. The capital of the Company consists primarily of share capital and cash and cash equivalents.

The Company's objectives in managing capital are to safeguard its ability to operate as a going concern and to generate a superior return to shareholders. The Company may finance acquisition, development, and exploration activities through cash flows from operations, sale of non-core assets, joint ventures, and obtaining financing from its parents.

Management reviews its capital management approach on an ongoing basis and believes that this approach, given the size of the Company, is reasonable.

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21 COMMITMENTS AND CONTINGENCIES

At December 31, 2023, the Company has the following commitments:

(1) The Company has agreements for surface and access rights to land associated with operating mines, development projects and exploration projects.

(2) Reclamation provision amounts represent management's estimate of when the reclamation expenditures are expected to be paid (note 16).

Royalty Agreements

Florida Canyon has entered into two royalty agreements with Top Hat Partnership ("Top Hat") and Triple Flag Precious Metals Corp. ("Triple Flag"). The Company must pay 2.5% to Top Hat and 3.00% to Triple Flag of the Net Smelter Returns on all production. Royalty costs for 2023 in the amount of $7.5 million (2022 - $4.9 million) were included in production costs.

Notice of Civil Claim

Alio Gold Inc ("Alio"), a subsidiary of the Company since July 2020, received a Notice of Civil Claim from a former shareholder of Rye Patch Gold Corp ("Rye Patch") whose shares were acquired by Alio. The plaintiff brought the claim in the Supreme Court of British Columbia ("the Court") pursuant to the Class Proceedings Act and is seeking damages against Alio for alleged misrepresentations with respect to anticipated gold production during the year ended December 31, 2018. In March 2021, the Court dismissed, in its entirety, the plaintiff's application to certify the action as a class proceeding. In April 2021, the Company received notice that the plaintiff is pursuing an appeal of the court's decision to dismiss the plaintiff's certification application.

The appeal was argued in the Court of Appeal in January 2022 and in March 2022 the Court of Appeal released its decision allowing the appeal but remitting the matter of certification to the trial court for further consideration. On July 28, 2023, the Court certified a class proceeding against Alio. Pursuant to the Court's decision, the class members in the class proceeding include all individuals or entities whose Rye Patch shares were acquired by Alio in exchange for Alio common shares and cash as part of the plan of arrangement entered into between Alio and Rye Patch, but excludes all of those individuals or entities that sold their shares in Alio prior to August 10, 2018. The proceeding is currently scheduled to proceed to trial before the British Columbia Supreme Court in June 2025.

The Company has reviewed the claim and is of the view that it is without merit. However, the outcome of the claim is not determinable at this time. Accordingly, no liability was accrued in the Alio purchase price allocation and no liability has been recognized in the Company's combined financial statements.

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22 FINANCIAL INSTRUMENTS

The Company is exposed to financial instrument risks such as credit risk, market price and liquidity risk. Argonaut's Board of Directors has overall responsibility for the establishment and oversight of the risk management framework and reviews the Company's policies on an ongoing basis.

a) Credit risk

Credit risk arises from the non-performance by counterparties of contractual financial obligations. The Company maintains substantially all of its cash with major financial institutions. Deposits held with these institutions may exceed the amount of insurance provided on such deposits. The Company manages credit risk for trade and other receivables through established credit monitoring activities. To reduce credit risk, the Company regularly reviews the collectability of its amounts receivable and records an expected credit loss based on its best estimate of potentially uncollectible amounts. The Company currently transacts with highly rated counterparties for the sale of gold and receivables. The Company views its related party receivable and loan receivable amounts to be collectible.

b) Market price risk

i) Commodity price risk

The Company is exposed to commodity price risk as its revenues from the sale of precious metals are exposed to metal price fluctuations in the market. The Company may manage this risk by entering into agreements with various counterparties to mitigate price risk.

Commodity derivative contracts - gold collars

In August 2019, the Company entered into zero-cost collar contracts whereby it purchased a series of gold put option contracts and sold a series of gold call option contracts with equal and offsetting values at inception (referred to as the "Gold Collars"). All of the Gold Collars had expired as at June 30, 2022. Payments for the settlement of the derivatives were finalized in July 2022. During 2022, a reversal of prior period unrealized loss of $1,257 and a realized loss of $1,981 was recognized in the combined statement of loss on the fair value of the Gold Collars. The details of the Company's commodity contracts are as follows: 

(1) Contracts were exercisable based on the average price for the month being below the strike price of the put or above the strike price of the call.

(2) Quantities and strike prices did not fluctuate by month within each calendar year.

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ii) Foreign exchange risk

The Company's cash flows from its Mexican operations are exposed to foreign exchange risk as the majority of operating expenses and capital expenditures are denominated in Mexican pesos. The Company manages a portion of its exposure to foreign exchange risk by various methods, including maintaining adequate funds in Mexican pesos.

The Company is exposed to foreign exchange risk through the following financial instruments denominated in currencies other than the US dollar as at December 31:

A 10.0% change in the Mexican peso would result in a $0.9 million change in the Company's net foreign exchange for 2023 (December 31, 2022 - $1.8 million change in the Company's net foreign exchange).

iii) Interest rate risk

Interest rate risk is the risk that the fair values and future cash flows of the financial instruments will fluctuate because of changes in market interest rates. The Company has additional exposure to interest rate risk for its related party loans that are subject to a floating interest rate which are based on market rates.

c) Liquidity risk

The Company manages liquidity risk by maintaining adequate cash and cash equivalent balances. The Company continuously monitors and reviews both actual and forecasted cash flows, and matches the maturity profile of financial assets and liabilities.

The Company's financial instruments consist of cash and cash equivalents, trade and other receivables, related party receivables and payables and related party loan receivables and loan payables, accounts payable and accrued liabilities, lease liabilities and other liabilities.

The fair value hierarchy that reflects the significance of the inputs used in making the measurements has the following levels:

• Level 1 - quoted prices in active markets for identical assets or liabilities;

• Level 2 - inputs other than quoted prices included in Level 1 that are observable for the asset or liability, either directly (i.e. as prices) or indirectly (i.e. derived from prices); and

• Level 3 - inputs for the asset or liability that are not based on observable market data.

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The following table shows the carrying amounts of financial assets and financial liabilities by category:

(1) Financial assets at amortized cost include cash and cash equivalents, receivables, and related party receivables and loans.

(2) Financial liabilities at amortized cost include accounts payable and accrued liabilities, lease liabilities, related party payables and loans and other liabilities.

(3) Financial assets at fair value through profit or loss include reclamation deposits

The carrying amounts of cash and cash equivalents, receivables, related party receivable and payables, current related party loan receivable and payables and accounts payable and accrued liabilities are considered to be reasonable approximations of their fair values due to the short-term nature of these instruments.

The carrying amounts of related party loan receivable, related party loan payable, and other liabilities are considered to be reasonable approximations of their fair values as either there have been no significant changes in market interest rates or the liability bears interest at a floating rate. These financial assets and liabilities were classified as Level 3 fair values in the fair value hierarchy due to the inclusion of unobservable inputs.

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23 IMPAIRMENT EXPENSE (REVERSAL)

The Company performs an impairment assessment when impairment or impairment reversal indicators for its CGUs are identified. During 2023, the Company recognized an impairment expense and an impairment (reversal) and in 2022 an impairment expense was recognized as summarized in the following tables:

During the year ended December 31, 2023, the Company completed an assessment of impairment expense and impairment reversal indicators for each of the Company's CGUs.

All available information indicative of potential impairments was considered in determining the fair value less cost of sale of the non-current assets including the proposed spin out of Argonaut's assets and liabilities in the United States and Mexico. The fair value of the US and Mexican assets implied by the Transaction, amongst other information, was considered.

The Company identified an indicator of impairment for its Mexican assets subsequent to the reporting period. This recognition arose due to the receipt of a non-binding offer indicating that the fair value less cost to sell of the Mexican assets, was below the carrying value of the CGUs associated with the Mexican assets. The amount of the impairment expense recognized is $53.0 million, and has been proportionally allocated to the CGU's of the El Castillo mining complex, the La Colorada mine and the Cerro del Gallo project.

The Company identified an indicator of impairment reversal for Florida Canyon, following a significant revision to its life-of- mine plan. During 2023, there was a change in strategy to increase the volume of run-of-mine material deposited on the north heap leach pad at Florida Canyon, leading to an increase in gold equivalent ounce production. As a result of this, the life-of- mine plan has been extended to 2033, incorporating additional capital expenditures for the construction of a new heap leach pad which is expected to be completed in 2024 and higher volumes of run-of-mine material. The amount of the impairment reversal recognized is $24.0 million, which is the current carrying amount had the previous impairments not been recognized.

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Impairment reversal testing: 2023 Key assumptions

Florida Canyon projected cash flows used in impairment reversal testing were significantly affected by changes in assumptions for metal prices, estimates of production costs, future capital expenditures, changes in the amount of recoverable reserves, resources, and exploration potential and discount rates.

The determination of FVLCD includes the following key assumptions:

• Long term and short term gold price per ounce: $1,800 and $1,950, respectively;

• Expected future operating and capital costs based on budgeted and LOM costs;

• Future production volume and metallurgical recovery estimates as indicated in the LOM plans;

• In-situ value per ounce of gold equivalent mineral reserves and resources for the Florida Canyon mine of approximately $42 per ounce; and

• Real after-tax discount rate: 5.0%.

Sensitivity analysis 2023

The Company has performed a sensitivity analysis on the Florida Canyon CGU where an impairment reversal was recorded. Based on the impairment testing performed as at December 31, 2023, the sensitivity to changes in these key assumptions appear below for Florida Canyon:

The impact of the sensitivities performed above would not individually change the results of the Company's 2023 impairment reversal recognition.

2022 Impairment

During the year ended December 31, 2022, the Company identified impairment indicators for the La Colorada mine, the Florida Canyon mine, the San Agustin mine, the El Castillo mine, and the Ana Paula project CGUs. Accordingly, the Company estimated the recoverable amounts of these CGUs and compared them to the carrying values of the CGUs. The recoverable amount was determined as the FVLCD for each CGU. The FVLCD was determined using a discounted future cash-flow model for each CGU. For the Ana Paula project, management used initial consideration and management's best estimate of the likelihood of the additional consideration that is contingent upon several triggers including permitting, feasibility and a construction decision, in addition to macroeconomic, country and asset specific risk factors.

The Company identified indicators of potential impairment and recorded an impairment expense in the combined statement of loss. For each CGU the FVLCD was determined using a discounted cash flow model, unless otherwise noted and where applicable the in-situ fair value for mineral reserves and resources not already included in the discounted cash flow model was based on sale transactions of comparable assets. A summary by CGU is as follows:

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• El Castillo mine CGU, the early end of mining operations was identified as an impairment indicator. As a result of the Company's impairment assessment, mineral properties, and plant and equipment were written down by $6.7 million to its recoverable value of $nil, which was determined based on the FVLCD.

• For the Florida Canyon mine's CGU, an increase in expected operating costs and reduction in metallurgical recovery estimates were identified as impairment indicators. As a result of the Company's impairment assessment, mineral properties, and plant and equipment were written down by $48.1 million to its recoverable value of $54.0 million, which was determined based on the FVLCD.

• For the San Agustin mine's CGU, the inability to obtain required permits, an increase in expected operating costs and an updated mine plan resulting in an increased strip ratio were identified as impairment indicators. As a result of the Company's impairment assessment, mineral properties and plant and equipment were written down by $43.0 million to its recoverable value of $6.6 million, which was determined based on the FVLCD.

• For the La Colorada mine's CGU, the inability to obtain required permits and an increase in expected operating costs were identified as impairment indicators. As a result of the Company's impairment assessment, mineral properties and plant and equipment were written down by $27.3 million to its recoverable value of $29.3 million, which was determined based on the FVLCD.

• Upon reclassification of the Ana Paula project to a disposal group in the fourth quarter of 2022, the Company assessed the Ana Paula project for impairment. The Company used initial consideration and management's best estimate of the likelihood of the additional consideration that is contingent upon several triggers including permitting, feasibility and a construction decision, in addition to macroeconomic, country and counterparty specific risk factors. The Company performed a probability assessment of each contractual provision based upon likelihood of the action. Some of the provisions are time-based while others are achievement oriented. This probability analysis was the basis for the valuation of the FVLCD of Ana Paula. The Company assessed the recoverable amount for the non-current assets including the exploration and evaluation assets of the Ana Paula project, and determined a recoverable value based on the FVLCD of the Ana Paula project of $13.3 million, which was lower than the carrying value of the CGU. Accordingly, an impairment of $10.4 million was recognized.

Impairment testing: 2022 Key assumptions

The projected cash flows used in impairment testing are significantly affected by changes in assumptions for metal prices, estimates of production costs, future capital expenditures, changes in the amount of recoverable reserves, resources, and exploration potential, discount rates, inflation and exchange rates.

The determination of FVLCD includes the following key assumptions:

• Long term and short term gold price per ounce: $1,650 and $1,730, respectively;

• Exchange rates: $1.35 Canadian dollars per US dollar, and $20.00 Mexican pesos per US dollar;

• Expected future operating and capital costs based on budgeted and LOM costs;

• Future production volume and metallurgical recovery estimates as indicated in the LOM plans;

• In-situ value per ounce of gold equivalent mineral reserves and resources for the Florida Canyon mine of $38 per ounce; and

• Real after-tax discount rate: 5.0% for the El Castillo, San Agustin, and Florida Canyon CGUs, and 7% for the La Colorada CGU.

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24 EVENTS AFTER THE REPORTING PERIOD

Subsequent to December 31, 2023, the following events occurred:

a) On July 8, 2024, the amalgamation of the Merger Subsidiaries was completed to form FCGI. The common shares of the Merger Subsidiaries were exchanged for 65,000,000 common shares of FCGI. In July 2024, a minority interest in the shares of former Argonaut subsidiary Minera Real del Oro, S.A. de C.V ("MRO") were redeemed from by Argonaut such that as of July 12, 2024, ("Closing Date"), FCGI wholly owns MRO. On the Closing Date, FCGI issued an additional 62,877,685 common shares to Argonaut pursuant to the FCGI Contribution Agreement (described below) resulting in 127,877,685 of common shares outstanding prior to the completion of the Transaction.

1 The Merger Subsidiaries number of shares were as follows: Alio Gold Inc. - 85,993,371, Castle Gold Inc.- 85,866,744, Pediment Corp. - 1, San Anton Resources Corporation - 83,815,202.

Under the Agreement (note 1), each existing Argonaut stock option ("Argonaut option") is exchanged for a FCGI stock option ("FCGI option") on a 1:1 exchange basis. Each FCGI option is exercisable for 0.1 of a FCGI share. As a result, upon closing of the Transaction on the Closing Date, following the exchange of Argonaut options for FCGI options, FCGI had 1,983,271 options outstanding at a weighted average exercise price of CA$1.48 and with a weighted average expiry date of 3 years.

For the purposes of computing net loss per share, the number of shares outstanding for the period prior to the Transaction is deemed to be the number of shares issued by the Company as a result of the reorganization that occurred on July 8, 2024 (65,000,000 common shares of FCGI issued to effect the share exchange). The table below summarizes the number of common shares and the calculation of net loss per share for the years ended December 31:

b) In July 2024, the related party payable balances were settled through an increase of $9.7 million (related party payable balance as at December 31, 2023 - $12.8 million) in stated capital which was recorded in shareholders' equity and a share issuance to Argonaut in the amount of $53.1 million (related party payable balance as at December 31, 2023 - $43.7 million) as part of the FCGI Contribution Agreement (described below) and the related party receivable balances were settled through a reduction of stated capital which was recorded in shareholder's equity of $75.1 million (related party receivable balance as at December 31, 2023 - $51.1 million). Related party loans receivable of $6.0 million remain outstanding from Prodigy.

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c) On Closing Date, Alamos and FCGI entered into an agreement by which a 2% Net Smelter Return ("NSR") based-payment on all production with respect to all properties comprising Florida Canyon mine is payable quarterly (the "Alamos NSR"). The Alamos NSR is consideration for the corporate guarantee of Alamos in an amount not to exceed $55 million ("the Guarantee") which was delivered in connection with the Florida Canyon Surety Bonds. The Guarantee will support the continuation of any existing surety bonds required by the relevant authorities in the State of Nevada. On Closing Date, Argonaut is no longer a guarantor.

d) On Closing Date, FCGI, Argonaut and Alamos entered into the FCGI Contribution Agreement by which certain of the Argonaut assets and liabilities, in accordance with the Arrangement Agreement, were transferred or assumed by FCGI in exchange for FCGI shares. Related party loans payable to Argonaut of $53.1 million and the issued and outstanding shares of Argonaut Gold (U.S) Inc, a former subsidiary of Argonaut with a nominal value, were contributed.

e) On the Closing Date, Alamos purchased 10,099,027 of FCGI common shares for a total subscription price of $10.0 million or $0.99 per share by way of private placement resulting in 137,976,712 of FCGI common shares outstanding. On Closing Date, Alamos retains 19.99% or 27,581,545 of FCGI's outstanding shares.

f) Subsequent to the reporting period it was determined that the sale of the Mexican assets is highly probable within one year. This decision follows the initiation of negotiations with a third party. Management anticipates the sales price to approximate the current fair value of the Mexican assets. Given the advanced stage of negotiations and Management's commitment to sell the assets, it is highly probable that the sale will be completed within the specified timeframe.

g) On Closing Date, Argonaut third party debt was repaid by Alamos and FCGI is no longer a guarantor of the debt.

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SCHEDULE "B"

 

 

 

 

 

 

Florida Canyon Gold Inc.

Interim Condensed Combined Financial Statements
For the three and six months ended June 30, 2024
(Unaudited)

 

 

 

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FLORIDA CANYON GOLD INC. INTERIM CONDENSED COMBINED STATEMENTS OF INCOME (LOSS) AND COMPREHENSIVE INCOME (LOSS) (Unaudited and in thousands of United States dollars)

 

			Three months ended June 30,						Six months ended June 30,
	Note		2024			2023			2024			2023
Revenues			41,218			35,893			74,358			58,730
Cost of sales
Production costs	4		26,506			24,599			52,118			43,254
Depreciation, depletion and amortization			3,642			4,394			7,751			7,222
Total cost of sales			30,148			28,993			59,869			50,476
Gross profit			11,070			6,900			14,489			8,254
General and administrative expenses			912			1,359			1,304			1,389
Exploration expenses			75			823			465			823
Impairment expense	15		40,541			-			40,541			-
(Loss) profit from operations			(30,458	)		4,718			(27,821	)		6,042
Net finance expense			(633	)		(505	)		(1,198	)		(1,105	)
Other income (expense)	5		107			(167	)		321			(160	)
(Loss) income before income taxes			(30,984	)		4,046			(28,698	)		4,777
Income tax (expense) recovery	6		(789	)		2,078			(1,329	)		563
(Loss) income from continuing operations			(31,773	)		6,124			(30,027	)		5,340
(Loss) income from discontinued operations	3		(557	)		4,935			(1,345	)		2,239
Net (loss) income			(32,330	)		11,059			(31,372	)		7,579
(Loss) earnings per share from continuing operations Basic and diluted	16		(0.49	)		0.09			(0.46	)		0.08
(Loss) earnings per share from discontinued operations Basic and diluted	16		(0.01	)		0.08			(0.02	)		0.03
(Loss) earnings per share Basic and diluted	16		(0.50	)		0.17			(0.48	)		0.12

The accompanying notes are an integral part of these interim condensed combined financial statements.

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FLORIDA CANYON GOLD INC. INTERIM CONDENSED COMBINED STATEMENTS OF FINANCIAL POSITION (Unaudited and in thousands of United States dollars)

 

	Note		June 30, 2024			December 31, 2023
ASSETS
Current assets
Cash and cash equivalents			18,808			41,064
Trade and other receivables			6,605			15,077
Inventories	7		57,426			91,945
Prepaid income tax			283			14,179
Prepaid expenses and other current assets			2,397			3,447
Related party receivable	12		78,447			57,073
Assets held for sale	3		60,880			-
Total current assets			224,846			222,785
Non-current assets
Mineral properties, plant and equipment	8		46,969			66,945
Deferred income taxes			-			1,108
Other non-current assets			3,428			7,874
Total assets			275,243			298,712
LIABILITIES
Current liabilities
Trade and other payables			19,711			30,209
Current income tax liabilities			3,699			5,526
Current portion of debt			200			218
Current portion of lease liabilities			9,300			12,038
Current portion of provisions	9		1,153			9,509
Related party payable	12		66,362			56,539
Liabilities held for sale	3		51,916			-
Total current liabilities			152,341			114,039
Non-current liabilities
Debt			-			91
Lease liabilities			5,252			9,157
Provisions	9		32,055			54,331
Deferred income taxes			5,061			8,192
Other non-current liabilities			-			996
Total liabilities			194,709			186,806
SHAREHOLDERS' EQUITY	16
Share capital			378,003			378,003
Deficit			(297,469	)		(266,097	)
Total shareholders' equity			80,534			111,906
Total liabilities and shareholders' equity			275,243			298,712
Nature of Operations (note 1)
Commitments and Contingencies (note 13)
Events after reporting period (note 16)

The accompanying notes are an integral part of these interim condensed combined financial statements.

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FLORIDA CANYON GOLD INC. INTERIM CONDENSED COMBINED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY (Unaudited and in thousands of United States dollars)

 

		Share capital			Deficit			Shareholders' equity
Balance at beginning of period		378,003			(260,549	)		117,454
Net income		-			7,579			7,579
Balance, June 30, 2023		378,003			(252,970	)		125,033
Balance at beginning of period		378,003			(266,097	)		111,906
Net (loss) income		-			(31,372	)		(31,372	)
Balance, June 30, 2024		378,003			(297,469	)		80,534

The accompanying notes are an integral part of these interim condensed combined financial statements.

'

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FLORIDA CANYON GOLD INC. INTERIM CONDENSED COMBINED STATEMENTS OF CASH FLOWS (Unaudited and in thousands of United States dollars)

 

			Three months ended June 30,						Six months ended June 30,
	Note		2024			2023			2024			2023
Operating activities
Net (loss) income			(32,330	)		11,059			(31,372	)		7,579
Items not affecting cash and other adjustments:
Depreciation, depletion and amortization			3,584			4,394			7,769			7,222
Share-based compensation expense			285			(48	)		285			(48	)
Net finance expense			633			505			1,198			1,105
Inventory impairment reversal	7		-			(1,551	)		-			(1,551	)
Impairment expense	15		40,541			-			40,541			-
Deferred tax expense			675			1,915			1,195			635
Other			(495	)		76			(470	)		(34	)
			12,893			16,350			19,146			14,908
Changes in working capital	10		(8,008	)		(4,463	)		(17,146	)		(12,449	)
Income taxes paid			118			-			118			(90	)
Interest received			34			127			207			261
Net cash provided by operating activities of continuing operations			5,037			12,014			2,325			2,630
Net cash provided by operating activities of discontinued operations			8,591			2,700			12,739			7,039
Net cash provided by operating activities			13,628			14,714			15,064			9,669
Investing activities
Expenditures on mineral properties, plant and equipment			(14,908	)		1,884			(20,332	)		621
Related party loan receivables			(7,109	)		(13	)		(15,839	)		(13,681	)
Net cash (used in) provided by investing activities of continuing operations			(22,017	)		1,871			(36,171	)		(13,060	)
Net cash (used in) provided by investing activities of discontinued operations			(619	)		(929	)		(1,180	)		7,131
Net cash (used in) provided by investing activities			(22,636	)		942			(37,351	)		(5,929	)
Financing activities
Debt repayments			(54	)		-			(109	)		-
Principal lease payments			(3,212	)		(3,776	)		(6,398	)		(6,709	)
Related party loan payables			6,148			(94	)		8,600			(5,690	)
Interest paid			(410	)		(293	)		(663	)		(614	)
Net cash provided by (used in) financing activities of continuing operations			2,472			(4,163	)		1,430			(13,013	)
Net cash used in financing activities of discontinued operations			(156	)		(58	)		(229	)		(144	)
Net cash provided (used in) financing activities			2,316			(4,221	)		1,201			(13,157	)
Effects of exchange rate changes on cash and cash equivalents			(995	)		3,206			(1,170	)		3,755
Net (decrease) increase in cash and cash equivalents			(7,687	)		14,641			(22,256	)		(5,662	)
Cash and cash equivalents, beginning of period			26,495			24,008			41,064			44,311
Cash and cash equivalents, end of period			18,808			38,649			18,808			38,649
Supplemental cash flow information (note 10)

The accompanying notes are an integral part of these interim condensed combined financial statements.

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1 NATURE OF OPERATIONS

Florida Canyon Gold Inc. (the "Company" or "FCGI") is a Canadian gold company that was formed under the Canada Business Corporation Act by way of a statutory amalgamation on July 8, 2024 between Alio Gold Inc., Castle Gold Corporation, Pediment Gold Corp. and San Anton Resource Corporation (the "Merger Subsidiaries"). Prior to the amalgamation, all of the companies were wholly owned subsidiaries of Argonaut Gold Inc. ("Argonaut" or "Parent"), a publicly listed company on the Toronto Stock Exchange under the Symbol "AR". On March 27, 2024, Argonaut entered into a definitive arrangement agreement (the "Agreement") to sell all of the issued and outstanding shares of Argonaut (the "Transaction"). As part of the Transaction, FCGI, which comprises Argonaut's assets in the United States and Mexico was spun out to Argonaut's existing shareholders.

The Transaction was completed on July 12, 2024. Concurrently, the Company underwent a restructuring and became a publicly listed company on TSX Venture Exchange ("TSXV") under the symbol FCGV on July 16, 2024 (note 16).

On July 16, 2024, the Company entered into a binding agreement with Heliostar Metals Ltd.("Heliostar") to sell its interests in the San Agustin mine, El Castillo mine, La Colorada mine, Cerro del Gallo project and San Antonio project (the "Mexican Assets") (note 3).

On July 28, 2024, the Company entered into a definitive arrangement agreement with Integra Resources Corp. ("Integra") to sell all of the issued and outstanding shares of FCGI pursuant to a court-approved plan of arrangement (the "Arrangement") (note 16).

The registered office of the Company is located at 100 King Street West, Suite 3400, Toronto, Ontario, M5X 1A4, Canada and its head office is located at 200 Bay Street, Suite 1302, Royal Bank Plaza, South Tower, Toronto, ON M5J 2J3.

The Company has two operating mines: the Florida Canyon mine and the San Agustin mine. Residual production is expected from two additional mines located in Mexico. The La Colorada mine was placed on care and maintenance at the end of 2023 pending a decision on strategic options for the mine, while mining activities ceased at the El Castillo mine in December 2022, and the mine is now in reclamation. The Company also has a development project Cerro del Gallo. The San Agustin mine and the El Castillo mine make up the El Castillo mining complex.

2 MATERIAL ACCOUNTING POLICIES

a) Statement of compliance and basis of presentation

These interim condensed combined financial statements have been prepared in accordance with International Financial Reporting Standards ("IFRS") as issued by the International Accounting Standards Board ("IASB") applicable to interim financial reports, including International Accounting Standard ("IAS") 34 - Interim Financial Reporting. Therefore, these interim condensed combined financial statements do not include all the information and note disclosures required by IFRS for annual financial statements and should be read in conjunction with the annual combined financial statements for the year ended December 31, 2023, which have been prepared in accordance with IFRS.

These interim condensed combined financial statements were approved by the Board of Directors on August 29, 2024.

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b) Material accounting policies

These accounting policies applied in these interim condensed combined financial statements are consistent with those applied in the most recent combined financial statements for the year ended December 31, 2023, with the addition of the below.

Assets held for sale and discontinued operations

Non-current assets and disposal groups are considered held for sale when their carrying value will be:

• recovered principally through a sale transaction that is highly probable and expected to be completed within one year, and

• the underlying assets are available for immediate sale in their present condition subject only to terms that are usual and customary.

Classification as held for sale results in non-current assets and disposal groups being measured at the lower of carrying amount and fair value less cost to sell ("FVLCS"). If the FVLCS is lower than the carrying amount, an impairment loss is recognized in the combined statement of (loss) income. Non-current assets are not depreciated or amortized once classified as held for sale. Assets and liabilities that are classified as held for sale are presented separately as current assets and current liabilities in the Company's combined balance sheets.

A disposal group qualifies as a discontinued operation if it is a component of the Company's business that either has been disposed of, or is classified as held for sale, and:

• represents a separate major line of business or geographical area of operations;

• is part of a single coordinated plan to dispose of a separate major line of business or geographical area of operations; or

• is a subsidiary acquired exclusively with a view to resale.

A component of the Company comprises of operations and cash flows that can be clearly distinguished, operationally and for financial reporting purposes, from the rest of the Company. Additionally, a component will have been a cash generating unit ("CGU") or a group of CGUs while held for use. Classification of a component as a discontinued operation results in the reclassification of the after-tax loss for the comparative period being restated for the current period. Discontinued operations are excluded from the results of continuing operations and are presented as a single amount of profit or loss after tax from discontinued operations in the combined statement of (loss) income.

c) New and amended accounting standards

The following accounting amendments were adopted by the Company in the current year-to-date period:

IFRS 18, Presentation and Disclosure in Financial Statements

In April 2024, the IASB issued a new standard - IFRS 18 - Presentation and Disclosure in Financial Statements ("IFRS 18"), which is mandatory for annual accounting periods beginning on or after January 1, 2027. IFRS 18 will replace IAS 1; many of the other existing principles in IAS 1 are retained, with limited changes. IFRS 18 will not impact the recognition or measurement of items in the financial statements, but it might change what an entity reports as its 'operating profit or loss'. The Company is currently assessing the impact of this new accounting standard on its combined financial statements.

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d) Significant estimates and judgments

The preparation of these interim condensed combined financial statements requires management to make judgments, estimates, and assumptions that affect the amounts reported in the interim condensed combined financial statements and accompanying notes. Actual results may vary from those estimates and judgments due to inherent uncertainty or other factors. The Company regularly reviews its estimates and judgments. Revisions to estimates and the resulting effects on the carrying amounts of the assets and liabilities are accounted for prospectively.

Key sources of estimation uncertainty that may have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities applied in the preparation of these interim condensed combined financial statements, along with the judgments, estimates, assumptions, and risks discussed here reflect updates from the annual combined financial statements for the year ended December 31, 2023.

Assets held for sale

As at June 30, 2024, the Company classified certain assets and liabilities as held for sale related to the sale of the Mexican Assets as the Company deems the transaction with Heliostar highly probable of being completed within one year of that date. To complete the transaction, the Company requires regulatory approvals which the Company views as highly probable. Significant judgment was required in the application of IFRS 5 - Non-current Assets Held for Sale and Discontinued Operations ("IFRS 5") regarding the classification of the Mexican assets as held for sale and classification as discontinued operations.

The Mexican Assets represent separate geographic locations of operations. The Mexico Assets are held by separate legal entities that have their own employees, financial reporting and operations. Accordingly, the operating results of the Mexico based mining assets have been classified as discontinued operations.

Impairment on non-current assets

The Company reviews the carrying amounts of non-current assets whenever events or changes in circumstances indicate that the carrying amounts may exceed the estimated recoverable amounts. The Company determined that the sale agreements with Heliostar and Integra represent indicators that the carrying amounts of the Company's non-current assets should be assessed for impairment as at June 30, 2024.

Calculating the estimated recoverable amount of the Company's non-current assets required management to make judgments, estimates and assumptions, if changed, would significantly impact the valuation of the assets in the future.

3 HELD FOR SALE / DISCONTINUED OPERATIONS

On July 16, 2024, the Company entered into a binding agreement with Heliostar to sell its interests in the Mexican Assets. Heliostar will pay cash consideration of $5.0 million to FCGI. In addition, FCGI is entitled to cash generated by the Mexican Assets prior to July 11, 2024 and cash of $5.2 million generated from operating cash flow after July 16, 2024, subject to a minimum of $2.0 million of net working capital being left in the Mexican Assets on closing.

As part of the sale of the Mexican Assets, the Company will enter into an agreement with Heliostar to eliminate the outstanding contingent payments payable pursuant to the agreement under which Heliostar previously acquired the Ana Paula project and the conditional option payments on the San Antonio project.

The Company expects to close the sale of the Mexican Assets in the fourth quarter of 2024. The sale is subject to certain closing conditions, including applicable regulatory approvals.

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As at June 30, 2024, the Mexican Assets met the criteria to be classified as held for sale and discontinued operations in accordance with IFRS 5.

Financial results of the Mexican Assets disposal groups are summarized as follows:

a) During the six months ended June 30, 2024, the Company had a blockade at its El Castillo mining complex. The incremental costs related to this blockade were $1.3 million and were recognized in other expenses, offset by gain on foreign exchange.

b) As at June 30, 2024, the Company had measured the disposal group at the lower of carrying value and its estimated FVLCS, which resulted in an impairment expense of $7.4 million being recognized during the three and six months ended June 30, 2024. The impairment has been allocated $3.1 million to contingent consideration from a previous sale of the Ana Paula project and $4.3 million to the mineral properties, plant and equipment (note 8). The FVLCS was based on the consideration agreed upon with Heliostar ($5 million) and the cash flows expected to be generated from the operation of the Mexican Assets prior to closing to which the Company is entitled ($5.2 million), net of estimated transaction costs. The Company determined the composition of the CGUs and the allocation of individual assets and liabilities between the disposal group and FCGI including the exclusion of cash and certain trade receivables. The estimation of the cash flows expected to be generated from the operation of the Mexican Assets prior to closing required management to make judgements and estimates in respect of assumptions such as future commodity prices, future production and operating costs.

c) The Company recognized the following inventory impairment (reversals) related to the net realizable value of the supplies and material, work-in-process inventories and ore stockpiles held by the Mexican disposal group. The inventory impairment (reversals) are reported in production costs.

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4 PRODUCTION COSTS

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5 OTHER INCOME (EXPENSE)

6 INCOME TAX (EXPENSE) RECOVERY

7 INVENTORIES

Cost of inventories recognized as an expense in cost of sales totaled $59.9 million for the six months ended June 30, 2024 (six months ended June 30, 2023 - $50.5 million).

The Company recognized inventory impairment reversal of $nil for the three and six months ended June 30, 2024 ($1.6 million for the three and six months ended June 30, 2023) at the Florida Canyon mine related to the net realizable value of the work-in-process inventories. The inventory impairment reversal is reported in production costs (note 4).

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8 MINERAL PROPERTIES, PLANT AND EQUIPMENT

During the three and six months ended June 30, 2024, the Company recognized an impairment expense of $4.3 million (2023 - $nil) for mineral properties, plant and equipment, and exploration and evaluation assets related to the Mexican Assets held for sale (note 3). The Company recognized an additional impairment expense of $37.5 million (2023 - $nil) for mineral properties, plant and equipment related to the Florida Canyon mine (note 15).

Included in the mineral properties balance at June 30, 2024 is $3.1 million (December 31, 2023 - $0.01 million) related to deferred stripping costs.

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9 PROVISIONS

10 SUPPLEMENTAL CASH FLOW INFORMATION

The following table summarizes changes in working capital and other operating items:

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11 SEGMENT INFORMATION

Operating segments are those operations whose operating results are reviewed by the chief operating decision-maker to make decisions about resources to be allocated to the segments and assess their performance, provided those operations meet certain quantitative thresholds, or are deemed significant. The Company's operating segments, before aggregation, have been identified as the Company's individual operating mines. The La Colorada mine segment, San Agustin and El Castillo mine (together the El Castillo mining complex segment) and early-stage exploration operations, previously included in the Corporate and other segment, are considered assets held for sale and discontinued operations (note 3) and excluded in the segment table below. Prior period figures have been restated to reflect the changes made to the reportable operating segments in the current period.

The Company operates in the mining industry and its principal product is gold. As at June 30, 2024, the Company's producing mineral property is located in the United States (Florida Canyon mine). 

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12 RELATED PARTY TRANSACTIONS

During the three and six months ended June 30, 2024 and 2023, the following transactions were carried out with related parties. Related parties are its Parent and Prodigy Gold Inc ("Prodigy"), a subsidiary of the Parent:

a) The Company sells gold to its Parent at a fixed price of $1,860 (2023 - $1,825). During the three and six months ended June 30, 2024, 25,234 and 42,052 ounces, respectively, (three and six months ended June 2023 - 12,220 and 22,105 ounces, respectively) were delivered. These gold sales are to satisfy gold forward contracts held by the Parent. In addition, a gold prepayment agreement is held by the Parent for the Company to sell gold at market prices. During the six months ended June 30, 2024, 10,520 (six months ended June 2023 - nil) ounces were delivered.

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b) The Company has allocated employee benefits related to its employees from Parent, which are recorded in general and administrative expenses.

c) The Company charges management fees to its Parent and Prodigy which are recorded in general and administrative expense.

The balances as of June 30, 2024 and December 31, 2023 with related parties are shown below: 

Included in due to Parent - current loan payable are $35.6 million (December 31, 2023 - $38.7 million) of interest bearing loans with interest rates ranging between 11.54% to 14.24% (December 31, 2023 - 11.54% to 14.24%) based on market rates.

Included in due from Prodigy - current loan receivable are $25.8 million (December 31, 2023 - $19.8 million) of interest bearing loans with interest rates of 14.24% based on market rates.

As at June 30, 2024 and December 31, 2023, the entities within FCGI were guarantors of the Parent's third-party debt arrangements and the Parent had provided corporate guarantees to the Florida Canyon mine for certain surety bonds and equipment leases. On closing of the Transaction, FCGI is no longer a guarantor of the Parent's third-party debt arrangements and the Parent no longer guarantee the Florida Canyon mine's surety bonds or equipment leases. On closing of the Transaction, Alamos became the guarantor of Florida Canyon mine's surety bonds in exchange for a 2% Net Smelter Return ("NSR') pursuant to a royalty agreement (note 16) and FCGI provides guarantees for the equipment leases at the Florida Canyon mine.

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13 COMMITMENTS AND CONTINGENCIES

Various tax and legal matters are outstanding from time to time. Judgments and assumptions regarding these matters are subject to risk and uncertainty, hence there is a possibility that changes in circumstances will alter expectations. In the event that management's estimate of the future resolution of these matters changes, the Company will recognize the effects of these on the date such changes occur.

Royalty Agreements

Florida Canyon has entered into two royalty agreements with Top Hat Partnership ("Top Hat") and Triple Flag Precious Metals Corp. ("Triple Flag"). The Company must pay 2.5% to Top Hat and 3.00% to Triple Flag of the Net Smelter Returns on all production. Royalty costs for three and six months ended June 30, 2024 in the amount of $2.2 million and $4.2 million, respectively, (three and six months ended June 30, 2023 - $2.0 million and $3.3 million, respectively) were included in production costs.

Notice of Civil Claim

Alio Gold Inc ("Alio"), a subsidiary of the Company since July 2020 received a Notice of Civil Claim from a former shareholder of Rye Patch Gold Corp. ("Rye Patch") whose shares were acquired by Alio. The plaintiff brought the claim in the Supreme Court of British Columbia (the "Court") pursuant to the Class Proceedings Act and is seeking damages against Alio for alleged misrepresentations with respect to anticipated gold production during the year ended December 31, 2018. In March 2021, the Court dismissed the plaintiff's application to certify the action as a class proceeding. In April 2021, the Company received notice that the plaintiff was pursuing an appeal of the Court's decision to dismiss the plaintiff's certification application.

The appeal was argued in the Court of Appeal in January 2022 and in March 2022 the Court of Appeal released its decision allowing the appeal and remitting the matter of certification to the trial court for further consideration. On July 28, 2023, the Court of British Columbia certified a class proceeding against Alio. Pursuant to the Court's decision, the class members in the class proceeding include all individuals or entities whose Rye Patch shares were acquired by Alio in exchange for Alio common shares and cash as part of the plan of arrangement entered into between Alio and Rye Patch, but excludes all of those individuals or entities that sold their shares in Alio prior to August 10, 2018. The proceeding is currently scheduled to proceed to trial before the British Columbia Supreme Court in June 2025.

The Company has reviewed the claim and is of the view that it is without merit. However, the outcome of the claim is not determinable at this time. Accordingly, no liability was accrued in the Alio purchase price allocation and no liability has been recognized in the Company's combined financial statements.

14 FINANCIAL INSTRUMENTS

Fair value of financial instruments

The Company's financial instruments consist of cash and cash equivalents, trade and other receivables, related party receivables and payables and related party loan receivables and payables, trade and other payables, debt, derivative assets and liabilities, and other liabilities.

Fair value is the price that would be received to sell an asset or paid to transfer a liability in an ordinary transaction between market participants at the measurement date. The fair value hierarchy establishes three levels to classify the inputs to valuation techniques used to measure fair value. They are as follows:

Level 1 - quoted prices in active markets for identical assets or liabilities;

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Level 2 - inputs other than quoted prices included in Level 1 that are observable for the asset or liability, either directly (i.e. as prices) or indirectly (i.e. derived from prices); and

⁽¹⁾ Financial assets at amortized cost include cash and cash equivalents, receivables and related party receivables.

⁽²⁾Financial liabilities at amortized cost include accounts payable and accrued liabilities, lease liabilities, related party payables and other liabilities.

⁽³⁾ Financial assets at fair value through profit or loss include reclamation deposits

The following table outlines the fair values of financial assets and liabilities measured at fair value in the interim condensed combined statements of financial position, or financial assets and liabilities measured at amortized cost but for which the fair value is disclosed, and the level of the inputs used to determine those fair values in the context of the hierarchy as defined above:

The carrying amounts of cash and cash equivalents, receivables, related party receivable and payables, current related party loan receivable and loan payables and accounts payable and accrued liabilities are considered to be reasonable approximations of their fair values due to the short-term nature of these instruments.

The carrying amounts of related party loan receivable, related party loan payable, and other liabilities are considered to be reasonable approximations of their fair values as either there have been no significant changes in market interest rates or the liability bears interest at a floating rate. These financial assets and liabilities were classified as Level 3 fair values in the fair value hierarchy due to the inclusion of unobservable inputs.

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15 IMPAIRMENT

During the three and six months ended June 30, 2024, the Company recognized an impairment for the Florida Canyon mine CGU and certain related party loans receivable as summarized in the following tables:

Pursuant to the arrangement with Integra on closing, FCGI shareholders will receive 0.467 of an Integra share for each FCGI share held. The Company has recorded an impairment based upon the implied value of the estimated proceeds. In order to estimate the proceeds, the Company used the share exchange ratio of FCGI shares for Integra shares as defined in the Arrangement. The estimated proceeds imply $0.43 per FCGI share based on the five days weighted average price of the Integra shares on August 20, 2024. The Company recognized an impairment expense of $37.5 million during the three months ended June 30, 2024 and allocated the impairment to the mineral properties and plant and equipment of the Florida Canyon Mine. A 5 % change in the volume weighted average price of the Integra shares in the calculation of the estimated proceeds would result in a decrease/increase in the recorded impairment of approximately $3.1 million.

16 EVENTS AFTER THE REPORTING PERIOD

Subsequent to June 30, 2024, the following events occurred:

a) On July 8, 2024, the amalgamation of the Merger Subsidiaries was completed to form FCGI. The common shares of the Merger Subsidiaries were exchanged for 65,000,000 common shares of FCGI. In July 2024, a minority interest in the shares of former Argonaut subsidiary Minera Real del Oro, S.A. de C.V ("MRO") were redeemed such that as of July 12, 2024, ("Closing Date"), FCGI wholly owns MRO. On the Closing Date, FCGI issued an additional 62,877,685 common shares to Argonaut pursuant to the FCGI Contribution Agreement (described below) resulting in 127,877,685 of common shares outstanding prior to the completion of the Transaction.

¹ The Merger Subsidiaries number of shares were as follows: Alio Gold Inc. - 85,993,371, Castle Gold Inc.- 85,866,744, Pediment Corp. - 1, San Anton Resources Corporation - 83,815,202.

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Under the Agreement (note 1), each existing Argonaut stock option ("Argonaut option") was exchanged for a FCGI stock option ("FCGI option") on a 1:1 exchange basis. Each FCGI option is exercisable for 0.1 of a FCGI share. As a result, upon closing of the Transaction on the Closing Date, following the exchange of Argonaut options for FCGI options, FCGI had 1,983,271 options outstanding at a weighted average exercise price of CA$1.48 and with a weighted average expiry date of 3 years.

For the purposes of computing net loss per share, the number of shares outstanding for the period prior to the Transaction is deemed to be the number of shares issued by the Company as a result of the reorganization that occurred on July 8, 2024 (65,000,000 common shares of FCGI issued to effect the share exchange). The table below summarizes the number of common shares and the calculation of net loss per share for the three and six months ended June 30: 

b) On Closing Date, FCGI, Argonaut and Alamos entered into the FCGI Contribution Agreement by which certain of the Argonaut assets and liabilities, in accordance with the Agreement, were transferred or assumed by FCGI in exchange for FCGI shares. Related party loans payable to Argonaut of $53.1 million and the issued and outstanding shares of Argonaut Gold (U.S) Inc, a former subsidiary of Argonaut with a nominal value, were contributed.

c) On the Closing Date, Alamos purchased 10,099,027 of FCGI common shares for a total subscription price of $10.0 million or $0.99 per share by way of private placement resulting in 137,976,712 of FCGI common shares outstanding. On Closing Date, Alamos retains 19.99% or 27,581,545 of FCGI's outstanding shares.

d) In July 2024, the related party payable balances were settled through an increase of $9.7 million (related party payable balance as at June 30, 2024- $13.0 million) in stated capital which was recorded in shareholders' equity and a share issuance to Argonaut in the amount of $53.4 million (related party payable balance as at June 30, 2024 - $53.3 million) as part of the FCGI Contribution Agreement (described below) and the related party receivable balances were settled through a reduction of stated capital which was recorded in shareholder's equity of $75.1 million (related party receivable balance as at June 30, 2024 - $75.4 million). On closing, related party loans receivable of $6.0 million remained outstanding from Prodigy. The Company has concluded that there is no reasonable expectation of recovery for $3.0 million of this related party loan receivable from Prodigy, resulting in an impairment expense of $3.0 million during the three months ended June 30, 2024. The related party loans receivable are non-interest bearing and due on demand.

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e) On the Closing Date, Alamos and FCGI entered into an agreement by which a 2% NSR based-payment on all production with respect to all properties comprising Florida Canyon mine is payable quarterly (the "Alamos NSR"). The Alamos NSR is consideration for the corporate guarantee of Alamos in an amount not to exceed $55 million ("the Guarantee") which was delivered in connection with the Florida Canyon Surety Bonds. The Guarantee supports the continuation of any existing surety bonds required by the relevant authorities in the State of Nevada. On Closing Date, Argonaut is no longer a guarantor. On closing of the Arrangement, Integra will become the guarantor of the surety bond and release the Alamos surety bond guarantee and its NSR.

f) On the Closing Date, Argonaut third party debt was repaid by Alamos and FCGI is no longer a guarantor of the debt.

g) On July 15, 2024, the Company received the final listing approval from the TSXV and commenced trading on the TSXV at the opening of the market on July 16, 2024 under the symbol "FCGV".

h) On July 28, 2024, the Company entered into a definitive arrangement agreement with Integra to sell all of the issued and outstanding shares of FCGI, including the Company's Florida Canyon mine, located in Nevada, United States and all holding companies.

Pursuant to the Arrangement, FCGI shareholders will receive 0.467 of an Integra share for each FCGI share held. Existing shareholders of Integra and FCGI will own approximately 60% and 40% of the combined company, respectively, on a fully- diluted in-the-money basis. The Arrangement is subject to the completion of the sale of the Mexican Assets.

i) On July 16, 2024, the Board of Directors approved the Omnibus Long-Term Incentive Plan ("Plan") for certain qualified directors, executive officers, employees and consultants of the Company.

On August 1, 2024, The Company granted an aggregate of 1,980,833 restricted share units ("RSU") and 498,659 deferred share units ("DSU") under the Plan to certain employees, executive officers, directors, and consultants. Each RSUs and DSUs confers upon its holder the right to receive, without payment of any consideration, one common share or, at the discretion of the Company's Board of Directors, a cash payment equal to the market value at the time the conversion takes place of such common share, with the additional option of receiving any combination of cash and common shares. The DSUs and RSUs will vest on the first anniversary of the date of grant. At the discretion of the Board, vesting may be accelerated in the event of a change of control.

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SCHEDULE "C"

 

 

 

Integra Resources Corp.

 

Pro Forma Condensed Consolidated Financial Statements

(expressed in US dollars)

(unaudited - prepared by management)

June 30, 2024

 

 

 

 

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INTEGRA RESOURCES CORP. PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF FINANCIAL POSITION As at June 30, 2024 (Unaudited, Expressed In United States dollars)

		Integra			Florida Canyon			Adjustments			Notes		Pro Forma Consolidated
ASSETS
Current Assets
Cash and cash equivalents		-			-			13,454,373			(3)		-
		-			-			(4,081,136	)		(2)		-
		-			-			5,000,000			(1-A)		-
		-			-			5,000,000			(4)		-
		10,585,717			18,807,743			(11,063,576	)		(6)		37,703,121
Marketable securities		181,871			-			-					181,871
Receivables and prepaid expenses		6,064,099			9,285,484			-					15,349,583
Other receivables		181,594			-			3,000,000			(1-B)		3,181,594
Related party receivables		-			78,448,118			(78,448,118	)		(1-B)		-
Supply inventory		-			4,841,286			-					4,841,286
Mineral inventory		-			52,585,024			-					52,585,024
Assets held for sale		-			60,879,797			(60,879,797	)		(1-A)		-
Total Current Assets		17,013,281			224,847,452			(128,018,254	)				113,842,479
Non-current assets
Restricted cash		89,790			-			-					89,790
Long-term deposits		72,843			-			-					72,843
Deferred transaction costs - convertible debt		868,277			-			(245,967	)		(4)		622,310
Lease receivable		128,248			-			-					128,248
Mineral properties		-			30,044,790			-					30,044,790
Exploration and evaluation assets		58,679,168			-			-					58,679,168
Property, plant and equipment		1,914,279			16,923,803			-					18,838,082
Other non-current assets		-			3,427,729			11,063,576			(6)		14,491,305
Right-of-use assets		728,780			-			-					728,780
Total assets		79,494,666			275,243,774			(117,200,645	)				237,537,795
LIABILITIES
Current liabilities
Trade and other payables		2,698,345			19,709,761			-					22,408,106
Income taxes payable		-			3,698,807			-					3,698,807
Other liability - Cerro Colorado purchase option		363,465			-			-					363,465
Current lease liability		379,069			9,299,578			-					9,678,647
Current equipment financing liability		71,329			200,277			-					271,606
Convertible debt facility - host liability		10,915,813			-			1,824,033			(4)		12,739,846
Convertible debt facility - derivative component		232,000			-			2,930,000			(4)		3,162,000
Current reclamation and remediation liability		1,056,006			1,153,180			-					2,209,186
Related party payables		391,596			66,362,360			(66,362,360	)		(1-B)		391,596
Liability held for sale		-			51,916,427			(51,916,427	)		(1-A)		-
Total Current Liabilities		16,107,623			152,340,390			(113,524,754	)				54,923,259
Non-current liabilities
Long-term lease liability		586,296			5,251,839			-					5,838,135
Long-term equipment financing liability		6,155			-			-					6,155
Long-term reclamation and remediation liability		21,623,683			32,055,217			-					53,678,900
Deferred tax liability		-			5,061,255			-					5,061,255
Total Liabilities		38,323,757			194,708,701			(113,524,754	)				119,507,704
SHAREHOLDERS' EQUITY
Share capital		182,841,411			378,003,593			(378,003,593	)		(1-C)		-
		-			-			13,454,373			(3)		-
		-			-			68,800,110			(1-C)		265,095,894
Reserves		9,670,875			-			12,986			(1-C)		9,683,861
Accumulated other comprehensive loss		10,025,059			-			-					10,025,059
Accumulated deficit		(161,366,436	)		(297,468,520	)		297,468,520			(1-C)		(161,366,436	)
Current deficit resulting from transaction		-			-			(5,408,287	)		(1-C) (2)		(5,408,287	)
Total Equity		41,170,909			80,535,073			(3,675,891	)				118,030,091
Total liabilities and shareholders' equity		79,494,666			275,243,774			(117,200,645	)				237,537,795

 

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INTEGRA RESOURCES CORP. PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS For the year ended December 31, 2023 (Unaudited, Expressed in United States dollars)

		Integra			Florida Canyon			Mexican Business Unit Carved Out (Note 1-A)			Adjustments			Notes		Pro Forma Consolidated
Revenues		-			312,479,225			(177,775,153	)		-					134,704,072
Cost of sales
Production and transportation costs		-			240,106,653			(142,472,081	)		-					97,634,572
Depreciation		-			39,989,210			(23,413,062	)		-					16,576,148
Total cost of sales		-			280,095,863			(165,885,143	)		-					114,210,720
Gross Profit		-			32,383,362			(11,890,010	)		-					20,493,352
Exploration expenses		22,009,119			6,460,129			(1,471,825	)		-					26,997,423
General and administrative		5,323,694			9,302,275			(8,263,055	)		4,081,136			(2)		10,444,050
Stock based compensation		1,097,850			839,414			(160,894	)		-					1,776,370
Impairment charges		-			28,994,471			(53,025,004	)		-					(24,030,533	)
(Loss) profit from operations		(28,430,663	)		(13,212,927	)		51,030,768			(4,081,136	)				5,306,042
Net finance income		800,699			774,403			(347,285	)		-					1,227,817
Net finance expense		(1,743,606	)		(2,096,632	)		(951,167	)		-					(4,791,405	)
Other income (expense)		357,301			(165,924	)		(114,433	)		796,000			(4)		872,944
Total bargain purchase gain (goodwill)		-			-			-			(1,327,151	)		(1-C)		(1,327,151	)
Total loss carved out		-			-			(47,806,207	)		-					(47,806,207	)
(Loss) income before income taxes		(29,016,269	)		(14,701,080	)		1,811,676			(4,612,287	)				(46,517,960	)
Income tax (expense) recovery		-			(1,906,141	)		(1,811,676	)		-					(3,717,817	)
(Loss) income from operations		(29,016,269	)		(16,607,221	)		-			(4,612,287	)				(50,235,777	)
NET LOSS PER SHARE
Basic and diluted	$	(0.52	)												$	(0.37	)
WEIGHTED AVERAGE NUMBER OF SHARES (000's)
Basic and diluted (000's)		56,355														136,594

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INTEGRA RESOURCES CORP. PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS For six months ended June 30, 2024 (Unaudited, Expressed in United States dollars)

		Integra			Florida Canyon			Mexican Business Unit Carved Out (Note 1-A)			Adjustments			Notes		Pro Forma Consolidated
Revenues		-			74,357,691			(55,623,149	)		-					18,734,542
Cost of sales
Production and transportation costs		-			52,118,134			(44,389,057	)		-					7,729,077
Depreciation		-			7,750,806			(840,476	)		-					6,910,330
Total cost of sales		-			59,868,940			(45,229,533	)		-					14,639,407
Gross Profit		-			14,488,751			(10,393,616	)		-					4,095,135
Exploration expenses		7,486,717			465,449			(162,637	)		-					7,789,529
General and administrative		2,816,954			1,018,622			(3,179,587	)		-					655,989
Stock based compensation		893,022			285,115			(35,200	)		-					1,142,937
Impairment charges		-			40,541,003			(7,423,912	)		-					33,117,091
(Loss) profit from operations		(11,196,693	)		(27,821,438	)		407,720			-					(38,610,411	)
Net finance income		208,617			207,268			(400,575	)		-					15,310
Net finance expense		(998,436	)		(1,405,227	)		(666,976	)		-					(3,070,639	)
Other income (expense)		(284,425	)		322,003			(444,092	)		(270,333	)		(4)		(676,847	)
Total loss carved out		-			-			(1,344,884	)		-					(1,344,884	)
(Loss) income before income taxes		(12,270,937	)		(28,697,394	)		(2,448,807	)		(270,333	)				(43,687,471	)
Income tax (expense) recovery		-			(1,329,032	)		2,448,807			-					1,119,775
(Loss) income from operations		(12,270,937	)		(30,026,426	)		-			(270,333	)				(42,567,696	)
NET LOSS PER SHARE
Basic and diluted	$	(0.15	)												$	(0.26	)
WEIGHTED AVERAGE NUMBER OF SHARES (000's)
Basic and diluted (000's)		80,797														161,036

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INTEGRA RESOURCES CORP.
NOTES TO THE PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited, Expressed in United States dollars)

DESCRIPTION OF THE TRANSACTION

These unaudited pro forma condensed consolidated financial statements have been prepared for the purposes of Business Acquisition Report of Integra Resources Corp. ("Integra" or the "Company") dated November 8th, 2024 (the "BAR"), in connection with the acquisition of Florida Canyon Gold Inc ("FCGI"), (the "Transaction").

The Transaction was announced on July 29, 2024 and closed on November 8, 2024.

Under the terms of the Transaction, Florida Canyon shareholders are entitled to receive 0.467 of a common share of Integra (each whole share, an "Integra Share") for each Florida Canyon Share held (the "Exchange Ratio"). Existing shareholders of Integra and Florida Canyon owned approximately 60% and 40%, respectively, of the outstanding Integra Shares on closing of the Transaction (but prior to the satisfaction of the escrow release conditions in respect of the previously completed equity financing described below) on a fully diluted in-the-money basis.

On closing of the Transaction, the board of directors of Integra has been reconstituted such that seven current directors of Integra remained on the board, and Integra appointed two additional directors from nominees provided by FCGI.

Details regarding the Transaction are set out in the arrangement agreement entered into between Integra and Florida Canyon dated July 28, 2024, as amended September 3, 2024, which is available under the issuer profiles of Integra and FCGI  on the System for Electronic Document Analysis and Retrieval ("SEDAR+") at www.sedarplus.ca. 

BASIS OF PRESENTATION

The accompanying unaudited pro forma condensed consolidated financial statements of Integra as at June 30, 2024 have been prepared by the management of the Company for illustrative purposes only to show the effect of the Arrangement Agreement between Integra and Florida Canyon.

The accounting policies used in the construction of the unaudited pro forma condensed consolidated financial statements are those set out in Integra's consolidated financial statements as at and for the year ended December 31, 2023. These unaudited pro forma condensed consolidated financial statements have been derived from and should be read in conjunction with:

- the audited consolidated financial statements of Integra as at and for the years ended December 31, 2023 and 2022;

- the unaudited interim condensed consolidated financial statements of Integra as at and for the three and six-month periods ended June 30, 2024 and 2023;

- the audited combined financial statements of Florida Canyon as at and for the years ended December 31, 2023 and 2022; and

- the unaudited interim condensed combined financial statements of Florida Canyon as at and for the three and six months ended June 30, 2024 and 2023.

The aforementioned documents are available on the SEDAR+ at www.sedarplus.ca, or on the respective company's websites.

These unaudited pro forma condensed consolidated financial statements are prepared to give effect to and reflect the Transaction as described previously in the unaudited pro forma condensed consolidated financial statements as if:

- The close of the Transaction occurred on January 1, 2023 for the purposes of the unaudited pro forma condensed consolidated statement of operation for the year ended December 31, 2023 and the six-month period ended June 30, 2024; and

- The close of the Transaction occurred on June 30, 2024 for the purposes of the unaudited pro forma condensed consolidated statements of financial position as at June 30, 2024.

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INTEGRA RESOURCES CORP.
NOTES TO THE PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited, Expressed in United States dollars)

In the opinion of the Company's management, the unaudited pro forma condensed consolidated financial statements include all adjustments necessary for a fair presentation of the Transaction contemplated in the Arrangement Agreement. 

The unaudited pro forma condensed consolidated financial statements may not be indicative of the financial position and results of operations that would have occurred if the transactions had taken place on the dates indicated or of the financial position or operating results which may be obtained in the future. The unaudited pro forma condensed consolidated financial statements are not a forecast or projection of future results. The actual financial position and results of operations of Integra for any period following June 30, 2024, will likely vary from the amounts set forth in the unaudited pro forma condensed consolidated statement of financial position, and such variation may be material.

The Transaction is considered to be a business combination under IFRS 3 Business Combinations ("IFRS 3"). The acquisition method of accounting was used to prepare these unaudited pro forma condensed consolidated financial statements with Integra identified as the acquirer. This method utilizes fair value estimates and assumptions for the allocation of the estimated purchase price to the identifiable assets and liabilities of Florida Canyon. These estimates may be materially different from the actual purchase price and fair value amounts reported subsequent to the Transaction taking place.

These pro forma financials have not been reviewed by the Company's auditors. 

Bought Deal Private Placement Offering of Subscription Receipts

On August 21, 2024, Integra completed a bought deal private placement offering of 14,900,000 subscription receipts (the "Subscription Receipts") at a price of C$1.35 ($0.99) per Subscription Receipt (the "Issue Price") for gross proceeds of approximately C$20 million ($14.7 million) (the "Offering"). The Offering was conducted by Stifel Nicolaus Canada Inc. and Eight Capital, as co-lead underwriters and joint bookrunners, together with a syndicate of underwriters including BMO Nesbitt Burns Inc., Desjardins Securities Inc., and Ventum Financial Corp. (collectively, the "Underwriters").

The gross proceeds from the Offering have been placed into escrow with TSX Trust Company (the "Subscription Receipt Agent"). Each Subscription Receipt represents the right of a holder to receive, upon satisfaction or waiver of certain release conditions (including the satisfaction of all conditions precedent to the completion of the Transaction other than the issuance of the consideration shares to shareholders of FCGI) (the "Escrow Release Conditions"), without payment of additional consideration, one common share in the capital of Integra (the "Integra Share") subject to adjustments and in accordance with the terms and conditions of a subscription receipt agreement entered into among the Company, the Subscription Receipt Agent and the Underwriters. If the Escrow Release Conditions are satisfied on or before December 15, 2024 (the "Termination Date"), the escrowed funds, together with interest earned thereon, will be released to the Company. If the Escrow Release Conditions are not satisfied prior to the Termination Date, the escrowed funds, together with interest earned thereon, will be returned on a pro rata basis to the holders of the Subscription Receipts, and the Subscription Receipts will be cancelled and have no further force and effect. The Subscription Receipts, including the Integra Shares issuable upon conversion thereof, are subject to a statutory hold period expiring on December 22, 2024.

In connection with the Offering, and assuming the Escrow Release Conditions are satisfied prior to the Termination Date, the Underwriters will receive a cash commission equal to 6.0% of the gross proceeds from the sale of Subscription Receipts, other than in respect of certain president's list purchasers, in which case the commission was reduced to 3.0%.

Following completion of the Transaction, the net proceeds from the Offering are expected to be used to fund mine optimization opportunities at the Florida Canyon mine, continued advancement of the DeLamar and Nevada North projects and for general corporate purposes.

Since the closing of the Offering is conditional on the closing of the Transaction, these unaudited pro forma condensed consolidated financial statements give effect to the closing of the Offering.

The Escrow Release Conditions were satisfied subsequent to the quarter-end, and as a result, the escrowed funds were released to the Company, and the Subscription Receipts were exchanged for Integra Shares.

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INTEGRA RESOURCES CORP.
NOTES TO THE PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited, Expressed in United States dollars)

Amendments to the Beedie Capital Credit Facility

In connection with the closing of the Transaction, Integra announced that it has entered into a fourth supplemental credit agreement (the "Fourth Supplemental Credit Agreement") with Beedie Investments Ltd. ("Beedie Capital") to amend the convertible loan agreement dated July 28, 2022, as amended by a first supplemental credit agreement dated as of February 26, 2023, a second supplemental credit agreement dated as of May 4, 2023 and a third supplemental agreement dated as of February 20, 2024 (collectively with the Fourth Supplemental Credit Agreement, the "Credit Agreement", pursuant to which Beedie Capital agreed to loan up to $20 million (the "Convertible Facility")). Beedie Capital agreed to a second advance in the amount of $5.0 million (the "Subsequent Advance") subject to satisfying certain conditions under the Fourth Supplemental Credit Agreement, and to further amend the Convertible Facility to accommodate the assets of Florida Canyon and its subsidiaries, each of which, following the closing of the Transaction, will be loan parties and provide guarantees and security for the obligations under the Credit Agreement.

Beedie Capital and Integra further agreed to, conditional upon closing of the Transaction, amend the terms of the Credit Agreement to provide for the following: (i) subject to TSXV approval, modify the conversion price on the initial advance of $10 million (the "Initial Advance") from C$2.3625 ($1.73) per Integra Share to a 25% premium to the Issue Price, being C$1.6875 ($1.22); (ii) extension of the maturity date of the Credit Agreement from July 28, 2025 to July 31, 2027; (iii) extension of the period during which scheduled interest payments will be capitalized as principal from the current expiry date of October 31, 2024 to December 31, 2024; (iv) modification of the make-whole fee from the amount of interest Integra would have paid had the Convertible Facility continued for 36 months from the Initial Advance to 48 months from the Initial Advance; and (v) modification of the covenant requiring Integra to maintain a balance of unrestricted cash no less than $2.0 million to $5.0 million. Integra will also request to draw a second advance on the Convertible Facility in the principal amount of $5.0 million immediately following completion of the Transaction, with a conversion price equal to a 25% premium to the Issue Price.

Beedie Capital has provided their consent to the Transaction pursuant to the terms of the Arrangement Agreement, subject to, among other things, the satisfaction by Integra (or waiver by Beedie Capital) of certain conditions precedent, including the completion of the Offering in accordance with its respective terms, approval of the TSXV for the revised conversion price of the Initial Advance and the Subsequent Advance (received), and there being no other default or event of default under the Credit Agreement.

Since the amendment of the terms of the Credit Agreement is conditional on the closing of the Transaction, these unaudited pro forma condensed consolidated financial statements give effect to the amendment of the terms of the Credit Agreement.

The Transaction closed subsequent to the quarter-end, and as a result, the amendments to the Convertible Facility became effective on November 8, 2024 and the Company drew the second advance in the amount of $5.0 million.

PRO FORMA ASSUMPTIONS AND ADJUSTMENTS

The unaudited pro forma condensed consolidated financial statements have been prepared to give effect to the Transaction. These unaudited pro forma condensed consolidated financial statements are derived from the historical consolidated financial statements of the Company and the historical combined financial statements of Florida Canyon. These historical financial statements have been adjusted as described in the notes to these unaudited pro forma condensed consolidated financial statements.

1. On July 28, 2024, as amended September 3, 2024, Integra and Florida Canyon entered into an arrangement agreement whereby Integra agreed to acquire all of the outstanding common shares of Florida Canyon. Under the terms of the Transaction, FCGI shareholders are entitled to receive 0.467 of an Integra share for each Florida Canyon share held. The Transaction closed on November 8, 2024.     

The Transaction has been accounted for as a business acquisition as Florida Canyon meets the definition of a business under IFRS 3. Based on the acquisition method of accounting, the consideration paid for Florida Canyon is allocated to its assets and liabilities based on their fair value as of the date of the completion of the Transaction. The purchase price allocation and the fair value of the assets and liabilities of FCGI included in these unaudited pro forma condensed consolidated financial statements are based on preliminary estimates, subject to final adjustments and provided for informational purposes only.

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INTEGRA RESOURCES CORP.
NOTES TO THE PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited, Expressed in United States dollars)

1-A.  Mexican Business Unit Carved Out

Florida Canyon has entered into a binding agreement dated July 16, 2024 with Heliostar Metals Ltd. to sell its interests in the San Agustin mine, El Castillo mine, La Colorado mine, Cerro del Gallo project and San Antonio project (collectively the "Mexican Business Unit"). The Mexican Business Unit sale completed prior to the close of the Transaction. 

These unaudited pro forma condensed consolidated financial statements assume that the Mexican Business Unit sale has already closed. As a result, the Mexican Business Unit has been excluded from the results of operations and the assets and liabilities of the Mexican Business Unit (classified as held for sale in FCGI's interim condensed combined financial statements as at June 30, 2024) have been carved-out of the unaudited pro forma condensed consolidated statement of financial position. In addition,  "cash and cash equivalents" includes $5.0 million in expected proceeds for the sale of the Mexican Business Unit. FCGI is entitled to retain the cash generated by the Mexican Business Unit prior to July 11, 2024 and up to $5.2 million in cash flows from the operations of the Mexican Business Unit after July 16, 2024, subject to a minimum of $2.0 million of net working capital being left in the Mexican Business Unit on closing. These unaudited pro forma condensed consolidated financial statements do not include the estimated cash flows from the operations of the Mexican Business Unit to which FCGI is entitled subsequent to June 30, 2024.

The Business Unit sale was completed on November 7, 2024.

1-B.  Promissory Note

FCGI was formed under the Canada Business Corporation Act by way of a statutory amalgamation on July 8, 2024 between Alio Gold Inc., Castle Gold Corporation, Pediment Gold Corp. and San Anton Resource Corporation (the "Merger Subsidiaries"). Prior to the amalgamation, all of the Merger Subsidiaries were wholly owned subsidiaries of Argonaut Gold Inc. ("Argonaut"). On March 27, 2024, Argonaut entered into a definitive arrangement agreement to sell all of the issued and outstanding shares of Argonaut to Alamos. Concurrently, FCGI, was spun out to Argonaut's existing shareholders. This transaction was completed on July 12, 2024 and FCGI concurrently underwent a restructuring which resulted in the settlement of the related party receivables and payables, with the exception of $3.0 million in loans receivable. The $3.0 million in loans receivable is payable to FCGI by Argonaut's wholly owned subsidiary, Prodigy Gold Inc. ("Prodigy") For the purposes of these unaudited pro forma condensed consolidated financial statements, the settlements resulting from the restructuring have been given effect and the $3.0 million loan receivable from Prodigy has been reclassified to other receivables in the unaudited pro forma condensed consolidated statement of financial position.

The payment was received prior to the close of the Transaction.

1-C.  Purchase Price Allocation

The fair value of the consideration paid is based on the Integra November 6, 2024 share close price of $1.05 (C$1.47 in Canadian dollars translated to United States dollars at a rate of $0.7176) and the estimated fair value of the replacement options was determined using the Black-Scholes pricing model.

The preliminary purchase price of $68,841,983 has been allocated as follows:

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INTEGRA RESOURCES CORP.
NOTES TO THE PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited, Expressed in United States dollars)

Transaction costs

Integra and FCGI's total transaction costs associated with the Transaction are estimated to be approximately $4.1 million and for the purposes of these unaudited pro forma condensed consolidated financial statements it has been assumed that these transaction costs will be expensed and paid on completion of the Transaction.

2. Bought Deal Private Placement Offering of Subscription Receipts

On August 21, 2024, Integra completed the bought deal private placement offering of 14,900,000 subscription receipts at a price of C$1.35 per Subscription Receipt for gross proceeds of approximately C$20.1 million ($14.7 million). The Offering was conducted by Stifel Nicolaus Canada Inc. and Eight Capital, as co-lead underwriters and joint bookrunners, together with a syndicate of underwriters including BMO Nesbitt Burns Inc., Desjardins Securities Inc., and Ventum Financial Corp. The financing cost estimated as $1,242,055, and the net of financing proceeds of $13,454,373 have been adjusted in Equity within these unaudited pro forma condensed consolidated financial statements.

3. Amendments to the Beedie Capital Credit Facility

In connection with the closing of the Transaction, Integra entered into a Fourth Supplemental Credit Agreement with Beedie Capital to amend the Convertible Facility dated July 28, 2022 (as previously described). Beedie Capital agreed to a Subsequent Advance in the amount of $5.0 million subject to satisfying certain conditions under the Fourth Supplemental Credit Agreement, and to further amend the Convertible Facility to accommodate the assets of FCGI and its subsidiaries, each of which, following the closing of the Transaction, will be loan parties and provide guarantees and security for the obligations under the Credit Agreement.

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INTEGRA RESOURCES CORP.
NOTES TO THE PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited, Expressed in United States dollars)

Management analyzed the accounting treatment of loan amendment in accordance with IFRS 9 Financial Instruments. Management concluded that the original terms and new terms of the convertible debt facility are not "substantially different" and therefore, the loan amendment would be accounted for as a modification and not as an extinguishment. The adjustments to the carrying amount of the financial liability due to the modification is recognized as "Other income (expense)" in the pro forma condensed consolidated statements. The loan amendment accounting assessment and valuation is based on preliminary estimates, subject to final adjustments and provided for informational purposes only.

5. Restricted Share Units ("RSU"), Deferred Share Units ("DSU") and Options

RSUs and DSUs of Florida Canyon will vest immediately prior to closing of the Transaction in accordance with Florida Canyon's omnibus equity incentive plan and the terms of the Arrangement, and will be exchanged for Florida Canyon Shares, with such Florida Canyon Shares subsequently exchanged for Integra Shares based on the Exchange Ratio under the Arrangement. The below table shows the expected number of Florida Canyon RSUs and DSUs after estimated withholding deductions, which could vary when the Transaction closes.

Florida Canyon options (the "Options"), whether vested or unvested, will be transferred to Integra and the holder thereof shall receive a replacement option to acquire 0.0467 of an Integra Share, at an exercise price equal to the current Option exercise price, exercisable until the original expiry date of such Option and otherwise subject to the same terms and conditions (including vesting, exercisability terms and expiry date) as were applicable to such Option immediately prior to the effective time of the Transaction.

6. Surety Bonds Collateral

On closing of the transaction between Argonaut and Alamos, Alamos became the guarantor of the FCGI Surety Bonds in exchange for a 2% Net Smelter Return ("NSR') pursuant to a royalty agreement. Upon close of the Transaction, Integra will become the guarantor of the FCGI Surety Bonds, which total $55.3 million, and release the current Alamos Surety Bond Guarantee. The NSR will also be terminated. The Company will provide cash collateral equal to 20% of the surety bonds, which is approximately $11.1 million.

_______________________________

¹ Following the exchange of Argonaut options for FCGI options, FCGI had 1,983,271 options outstanding (the "FCGI Options"). Each FCGI Option is exercisable for 0.1 of a FCGI share, as a result each FCGI option is exercisable for 0.0467 of an Integra Share. The figure in this table represents the amount equivalent to the number of Integra Shares issuable upon conversion of the FCGI Options.

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INTEGRA RESOURCES CORP.
NOTES TO THE PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited, Expressed in United States dollars)

PRO FORMA SHARE CAPITAL

Pro forma share capital as at June 30, 2024 has been determined as follows:

Pro forma Earnings Per Share ("EPS"):

The pro forma basic and diluted net loss per share for the year ended December 31, 2023, and six months ended June 30, 2024 are based on the historical basic number of shares of Integra common share outstanding adjusted for the impact of 65.3 million shares expected to be issued in connection with the acquisition of Florida Canyon and 14.9 million shares issued in connection with the Offering, assuming the Transaction closed on January 1, 2023.

Pro forma RSU and DSU:

Pro forma RSUs and DSUs as at June 30, 2024 has been determined as follows:

_______________________________

² Florida Canyon Shares outstanding at July 12, 2024 when Florida Canyon underwent a restructuring and subsequently became a publicly listed company on TSX Venture Exchange.

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INTEGRA RESOURCES CORP.
NOTES TO THE PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited, Expressed in United States dollars)

Pro forma Options:

Pro forma options as at June 30, 2024 has been determined as follows:

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FORM 51-102F3

MATERIAL CHANGE REPORT

Item 1. Name and Address of Company

Integra Resources Corp. ("Integra" or the "Company")
1050 - 400 Burrard Street
Vancouver, British Columbia
V6C 3A6

Item 2. Date of Material Change

November 8, 2024.

Item 3. News Release

A joint news release of Integra and Florida Canyon Gold Inc. ("FCGI", and together with Integra, the "Companies") was disseminated through the facilities of Cision on November 8, 2024, and subsequently filed under the Companies' respective issuer profiles on SEDAR+ at www.sedarplus.ca.

Item 4. Summary of the Material Changes

On November 8, 2024, the Companies completed the previously announced merger (the "Transaction") by way of a court-approved plan of arrangement under the Canada Business Corporations Act (the "Arrangement").

Item 5. Full Description of Material Change

5.1 Full Description of Material Change

On November 8, 2024, the Companies completed the previously announced Transaction by way of a court-approved Arrangement. Under the terms of the Transaction, Integra acquired all of the issued outstanding common shares of FCGI (each, an "FCGI Share"). Shareholders of FCGI received 0.467 of a common share of Integra (each whole share, an "Integra Share") for each FCGI Share held. In aggregate, 65,213,010 Integra Shares were issued today for the benefit of former FCGI shareholders as consideration for their FCGI Shares.

Board of Directors

Integra's Board of Directors (the "Board") will continue to be led by George Salamis, as Executive Chairman and now includes Janet Yang and Ian Atkinson, former directors of FCGI, as new members. Sara Heston and Stephen de Jong have resigned from the Board.

Subscription Receipt Financing

In connection with closing of the Transaction, the escrow release conditions in respect of an aggregate of 14,900,000 subscription receipts (the "Subscription Receipts") of Integra issued on August 21, 2024 at a price of C$1.35 per Subscription Receipt (the "Subscription Receipt Financing") were satisfied, and the net proceeds of approximately C$19.4 million were released to Integra. The net proceeds are expected to be used to fund mine optimization opportunities at the Florida Canyon Mine and for the continued advancement of the DeLamar Project and the Nevada North Project, and for general corporate purposes. Each Subscription Receipt automatically converted today into one Integra Share for no additional consideration. The Integra Shares issued today upon conversion of the Subscription Receipts are subject to a statutory hold period expiring on December 22, 2024.

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Credit Facility Draw

The Company also announces that it has drawn a second advance under its up to US$20 million convertible facility with Beedie Investments Ltd. in the principal amount of US$5 million, with a conversion price equal to C$1.6875 per Integra Share. The number of Integra Shares issuable upon conversion of the principal amount of the second advance is 4,098,360. The proceeds from the subsequent draw are expected to be used to finance the exploration and development of the Company's DeLamar and Nevada Projects, and for general working capital purposes in respect of each of Integra's projects.             

Further information about the Transaction is set forth in the management information circular (the "Circular") prepared by FCGI in respect of the special meeting of shareholders of FCGI held on October 25, 2024, which was mailed to shareholders of FCGI and filed under FCGI's issuer profile on SEDAR+ at www.sedarplus.ca.

5.2 Disclosure for Restructuring Transactions

Not applicable.

Item 6. Reliance on Section 7.1(2) of National Instrument 51-102

Not applicable.

Item 7. Omitted Information

There is no information of a material nature that has been omitted.

Item 8. Executive Officer

Andrée St-Germain
Chief Financial Officer
778.873.8190

Item 9. Date of Report

November 8, 2024

Forward looking and other cautionary statements

Certain information set forth in this material change report release contains "forward looking information" within the meaning of applicable securities legislation Except for statements of historical fact, certain information contained herein constitutes forward looking information which includes, but is not limited to, statements with respect to: the potential benefits to be derived from the Transaction; the use of proceeds from the Subscription Receipt Financing and the second advance under the Company's credit facility; the future financial or operating performance of the Company and the Company's mineral properties and project portfolio.

---

Forward looking statements necessarily involve known and unknown risks and uncertainties, which may cause actual performance and financial results in future periods to differ materially from any projections of future performance or result expressed or implied by such forward‐looking statements. These risks and uncertainties include, but are not limited to: integration risks; general business, economic and competitive uncertainties; the actual results of current and future exploration activities; conclusions of economic evaluations; meeting various expected cost estimates; benefits of certain technology usage; changes in project parameters and/or economic assessments as plans continue to be refined; future prices of metals; possible variations of mineral grade or recovery rates; the risk that actual costs may exceed estimated costs; geological, mining and exploration technical problems; failure of plant, equipment or processes to operate as anticipated; accidents, labour disputes and other risks of the mining industry; delays in obtaining governmental approvals or financing; the speculative nature of mineral exploration and development (including the risks of obtaining necessary licenses, permits and approvals from government authorities); title to properties; and management's ability to anticipate and manage the foregoing factors and risks. Although the Company has attempted to identify important factors that could cause actual actions, events or results to differ materially from those described in the forward-looking statements, there may be other factors that cause actions, events or results not to be as anticipated, estimated or intended. Readers are advised to study and consider risk factors disclosed in Integra's Form 20- F dated March 28, 2024 for the fiscal year ended December 31, 2023, FCGI's listing application on TSXV Form 2B dated July 12, 2024, and the Circular.

There can be no assurance that forward‐looking statements will prove to be accurate, as actual results and future events could differ materially from those anticipated in such statements. The Company undertakes no obligation to update forward‐looking statements if circumstances or management's estimates or opinions should change except as required by applicable securities laws. The forward-looking statements contained herein are presented for the purposes of assisting investors in understanding the Company's plans, objectives and goals, and may not be appropriate for other purposes. Forward-looking statements are not guarantees of future performance and the reader is cautioned not to place undue reliance on forward‐looking statements.

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EARLY WARNING REPORT

Form 62-103F1

Required Disclosure under the Early Warning Requirements

State if this report is filed to amend information disclosed in an earlier report. Indicate the date of the report that is being amended.

Item 1 - Security and Reporting Issuer

1.1 State the designation of securities to which this report relates and the name and address of the head office of the issuer of the securities.

This report relates to common shares ("FCGI Shares") of Florida Canyon Gold Inc. (the "Issuer" or "FCGI"). The Issuer's head office is located at:

200 Bay Street, Suite 1302

Royal Bank Plaza, South Tower

Toronto, Ontario M5J 2J3

1.2 State the name of the market in which the transaction or other occurrence that triggered the requirement to file this report took place.

Not Applicable.

Item 2 - Identity of the Acquiror

2.1 State the name and address of the acquiror.

Integra Resources Corp. ("Integra")

1050 - 400 Burrard Street
Vancouver, British Columbia V6C 3A6

Integra is a corporation continued under the Business Corporations Act (British Columbia) that is focused on advancing gold and silver projects in Idaho and Nevada, United States.

2.2 State the date of the transaction or other occurrence that triggered the requirement to file this report and briefly describe the transaction or other occurrence.

On November 8, 2024, Integra acquired all of the issued and outstanding FCGI Shares pursuant to a statutory plan of arrangement under the Canada Business Corporations Act (the "Arrangement").

2.3 State the names of any joint actors.

Not applicable.

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Item 3 - Interest in Securities of the Reporting Issuer

3.1 State the designation and number or principal amount of securities acquired or disposed of that triggered the requirement to file this report and the change in the acquiror's security holding percentage in the class of securities.

Pursuant to the Arrangement, Integra acquired 139,642,515 FCGI Shares representing 100% of the issued and outstanding FCGI Shares. Prior to the Arrangement, Integra did not own any FCGI Shares, and accordingly, Integra's ownership increased from nil to 100% of the issued and outstanding FCGI Shares following completion of the Arrangement.

3.2 State whether the acquiror acquired or disposed ownership of, or acquired or ceased to have control over, the securities that triggered the requirement to file this report.

Integra directly acquired all of the issued and outstanding FCGI Shares pursuant to the Arrangement.

3.3 If the transaction involved a securities lending arrangement, state that fact.

Not applicable.

3.4 State the designation and number or principal amount of securities and the acquiror's security holding percentage in the class of securities, immediately before and after the transaction or other occurrence that triggered the requirement to file this report.

Immediately prior to the Arrangement, Integra held nil FCGI Shares.

As a result of the Arrangement, Integra acquired 139,642,515 FCGI Shares and, as a result, owns 100% of the issued and outstanding FCGI Shares.

3.5 State the designation and number or principal amount of securities and the acquiror's security holding percentage in the class of securities referred to in Item 3.4 over which

(a) the acquiror, either alone or together with any joint actors, has ownership and control,

See Item 3.4 above.

(b) the acquiror, either alone or together with any joint actors, has ownership but control is held by persons or companies other than the acquiror or any joint actor, and

See Item 3.4 above.

(c) the acquiror, either alone or together with any joint actors, has exclusive or shared control but does not have ownership.

See Item 3.4 above.

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3.6 If the acquiror or any of its joint actors has an interest in, or right or obligation associated with, a related financial instrument involving a security of the class of securities in respect of which disclosure is required under this item, describe the material terms of the related financial instrument and its impact on the acquiror's security holdings.

Not applicable.

3.7 If the acquiror or any of its joint actors is a party to a securities lending arrangement involving a security of the class of securities in respect of which disclosure is required under this item, describe the material terms of the arrangement including the duration of the arrangement, the number or principal amount of securities involved and any right to recall the securities or identical securities that have been transferred or lent under the arrangement.

State if the securities lending arrangement is subject to the exception provided in section 5.7 of NI 62-104.

Not applicable.

3.8 If the acquiror or any of its joint actors is a party to an agreement, arrangement or understanding that has the effect of altering, directly or indirectly, the acquiror's economic exposure to the security of the class of securities to which this report relates, describe the material terms of the agreement, arrangement or understanding.

Not applicable.

Item 4 - Consideration Paid

4.1 State the value, in Canadian dollars, of any consideration paid or received per security and in total.

Pursuant to the Arrangement, each holder of an FCGI Share received 0.467 (the "Exchange Ratio") of a common share of Integra (each whole common share of Integra, an "Integra Share") for each FCGI Share held. In aggregate, 65,213,010 Integra Shares were issued to former shareholders of the Issuer as consideration for their respective FCGI Shares.

The Exchange Ratio implies a consideration of C$0.69 per FCGI Share, or an aggregate of approximately C$95 million, based on the closing market price of the Integra Shares on the TSX Venture Exchange on July 26, 2024, the last trading day prior to the announcement of the Arrangement.

4.2 In the case of a transaction or other occurrence that did not take place on a stock exchange or other market that represents a published market for the securities, including an issuance from treasury, disclose the nature and value, in Canadian dollars, of the consideration paid or received by the acquiror.

See Item 4.1 above.

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4.3 If the securities were acquired or disposed of other than by purchase or sale, describe the method of acquisition or disposition.

See Items 2.2, 3.4, and 4.1 above.

Item 5 - Purpose of the Transaction

State the purpose or purposes of the acquiror and any joint actors for the acquisition or disposition of securities of the reporting issuer. Describe any plans or future intentions which the acquiror and any joint actors may have which relate to or would result in any of the following:

(a) the acquisition of additional securities of the reporting issuer, or the disposition of securities of the reporting issuer;

(b) a corporate transaction, such as a merger, reorganization or liquidation, involving the reporting issuer or any of its subsidiaries;

(c) a sale or transfer of a material amount of the assets of the reporting issuer or any of its subsidiaries;

(d) a change in the board of directors or management of the reporting issuer, including any plans or intentions to change the number or term of directors or to fill any existing vacancy on the board;

(e) a material change in the present capitalization or dividend policy of the reporting issuer;

(f) a material change in the reporting issuer's business or corporate structure;

(g) a change in the reporting issuer's charter, bylaws or similar instruments or another action which might impede the acquisition of control of the reporting issuer by any person or company;

(h) a class of securities of the reporting issuer being delisted from, or ceasing to be authorized to be quoted on, a marketplace;

(i) the issuer ceasing to be a reporting issuer in any jurisdiction of Canada;

(j) a solicitation of proxies from securityholders;

(k) an action similar to any of those enumerated above.

See Items 2.2, 3.4, and 4.1 above.

The purpose of the Arrangement was to effect the business combination of Integra and FCGI and for Integra to acquire all of the issued and outstanding FCGI Shares of the Issuer. Following closing of the Arrangement, the Issuer became a wholly-owned subsidiary of Integra. 

The Issuer intends to delist the FCGI Shares from the TSXV and intends on applying to cease to be a reporting issuer in all jurisdictions in Canada.

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Item 6 - Agreements, Arrangements, Commitments or Understandings With Respect to Securities of the Reporting Issuer

Describe the material terms of any agreements, arrangements, commitments or understandings between the acquiror and a joint actor and among those persons and any person with respect to securities of the class of securities to which this report relates, including but not limited to the transfer or the voting of any of the securities, finder's fees, joint ventures, loan or option arrangements, guarantees of profits, division of profits or loss, or the giving or withholding of proxies. Include such information for any of the securities that are pledged or otherwise subject to a contingency, the occurrence of which would give another person voting power or investment power over such securities, except that disclosure of standard default and similar provisions contained in loan agreements need not be included.

On July 28, 2024 FCGI and Integra entered into an arrangement agreement, as amended September 3, 2024 (the "Arrangement Agreement") pursuant to which parties agreed to effect the Arrangement. A copy of the Arrangement Agreement is available at www.sedarplus.ca under the profile of the Issuer.

Item 7 - Change in Material Fact

If applicable, describe any change in a material fact set out in a previous report filed by the acquiror under the early warning requirements or Part 4 in respect of the reporting issuer's securities.

Not applicable.

Item 8 - Exemption

If the acquiror relies on an exemption from requirements in securities legislation applicable to formal bids for the transaction, state the exemption being relied on and describe the facts supporting that reliance.

Not applicable.

Item 9 - Certification

The acquiror must certify that the information in this report is true and complete in every respect. In the case of an agent, the certification is based on the agent's best knowledge, information and belief but the acquiror is still responsible for ensuring that the information filed by the agent is true and complete.

This report must be signed by each person on whose behalf the report is filed or his or her authorized representative.

It is an offence to submit information that, in a material respect and at the time and in the light of the circumstances in which it is submitted, is misleading or untrue.

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Certificate

I, as an authorized representative of the acquiror, certify to the best of my knowledge, information and belief, that the statements made in this report are true and complete in every respect.

DATE: November 8, 2024.

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