UNITED STATES

SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------------------

  FORM 10-Q/A
Amendment No. 1

[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the Quarterly Period Ended: September 30, 2019

Commission File Number: 333-182072

-----------------------------

Patagonia Gold Corp.
(Exact name of registrant as specified in its charter)

British Columbia, Canada

 1041
(State or other jurisdiction of incorporation or organization)
 
(Primary Standard Industrial Classification Code Number)

Av. Libertador 498 P.26, Argentina, C.A.B.A
(+5411) 52786950

(Address of principal executive offices)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Yes      No 

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).
Yes      No 

Check whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definitions of "large accelerated filer," "accelerated filer" and "smaller reporting company" in Rule 12b-2 of the Exchange Act. (Check one):

Large Accelerated Filer
Accelerated Filer
Non-accelerated Filer
Smaller Reporting Company
Emerging growth company
   

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.

Indicate by checkmark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes  No 

As of October 14, 2020, the registrant’s outstanding common stock consisted of 317,788,990 common shares.





EXPLANATORY NOTE:

XBRL documents were not included with the registrant’s Form 10-Q filed with the SEC on October 21, 2020. The sole purpose of this Amendment No. 1 to the registrant’s Form 10-Q for the interim period ended September 30, 2019 is to furnish Exhibit 101 to the Form 10-Q in accordance with Rule 405 of Regulation S-T.

Other than fixing typographical errors, no other changes have been made to the registrant’s Form 10-Q. This Amendment No. 1 does not reflect any subsequent events occurring after the original filing date of the Form 10-Q or modify or update in any way disclosures made in the original filing.



Patagonia Gold Corp.

Table of Contents


 
Page
Part I. Financial Information
   
Item 1. Financial Statements
 
   
Condensed Interim Consolidated Balance Sheets (Unaudited) (As Restated)
3
   
Condensed Interim Consolidated Statements of Operations and Comprehensive Income (Loss) (Unaudited) (As Restated)
 4
   
Condensed Interim Consolidated Statement of Changes in Stockholders’ Equity (Unaudited) (As Restated)
5
   
Condensed Interim Consolidated Statements of Cash Flows (Unaudited) (As Restated)
6
   
Notes to the Condensed Interim Consolidated Financial Statements (Unaudited) (As Restated)
7-39
   
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
40-49
   
Item 3. Quantitative and Qualitative Disclosures About Market Risk
49
   
Item 4. Controls and Procedures
49-50
   
Part II. Other Information
 
   
Item 1. Legal Proceedings
50
   
Item 1A. Risk Factors
50
   
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
50
   
Item 3. Defaults Upon Senior Securities.
50
   
Item 4. Mine Safety Disclosures.
50
   
Item 5. Other Information.
50
   
Item 6. Exhibits.
51-52
   
Signatures
53



- 2 -



Patagonia Gold Corp.
Condensed Interim Consolidated Balance Sheets
September 30, 2019 and 2018
(in thousands of U.S. dollars)

   
Note
   
September 30, 2019
(As Restated – Note 2)
   
December 31, 2018
 
         
$ ’000
   
$ ’000
 
Current Assets
                     
     Cash
   
23
   
$
1,490
   
$
660
 
     Receivables
   
13, 23
     
1,280
     
4,923
 
     Inventories
   
7
     
3,260
     
6,286
 
          Total Current Assets
           
6,030
     
11,869
 
                         
Non-Current Assets
                       
     Mineral Properties
   
8, 26
     
10,975
     
2,525
 
     Mining Rights
   
10
     
16,788
     
16,475
 
     Property, plant and equipment
   
12
     
12,901
     
9,478
 
     Goodwill
   
26
     
2,673
     
-
 
     Other financial assets
   
11, 23
     
255
     
11
 
     Deferred tax assets
           
4,378
     
3,778
 
     Other receivables
   
14, 23
     
3,760
     
3,072
 
          Total Non-Current Assets
           
51,730
     
35,339
 
Total Assets
         
$
57,760
   
$
47,208
 
                         
Current Liabilities
                       
     Bank indebtedness
   
15
   
$
14,887
   
$
12,381
 
     Accounts payable and accrued liabilities
   
16, 21, 23
     
6,335
     
6,681
 
     Accounts payable with related parties
   
16, 21, 23
     
6,531
     
246
 
     Loan payable and current portion of long-term debt
   
17, 21, 23
     
481
     
10,102
 
           Total Current Liabilities
           
28,234
     
29,410
 
                         
Non-Current Liabilities
                       
     Long-term debt
   
18, 23
     
425
     
674
 
     Long-term debt with related parties
   
18, 21, 23
     
11,404
     
-
 
     Asset retirement obligation
   
9
     
1,345
     
552
 
     Deferred tax liabilities
           
2,673
     
-
 
     Other long-term payables
           
53
     
79
 
          Total Non-Current Liabilities
           
15,900
     
1,305
 
Total Liabilities
           
44,134
     
30,715
 
                         
Commitments and Contingencies (note 27)
                       
                         
Stockholders’ Equity
                       
Capital stock: Authorized - Unlimited No Par Value Issued and outstanding – 317,943,990 common shares (December 31, 2018 - 63,588,798 common shares)
   
20
     
2,588
     
301
 
Preferred shares - Unlimited No Par Value Issues and outstanding - nil (December 31, 2018 – nil)
   
20
     
-
     
-
 
Additional paid in capital
           
181,595
     
181,549
 
Accumulated Deficit
           
(168,642
)
   
(164,717
)
Accumulated other comprehensive income (loss)
           
(1,744
)
   
(519
)
Total Stockholders' Equity attributable to the parent:
           
13,797
     
16,614
 
Non-controlling interest
           
(171
)
   
(121
)
Total Stockholders' Equity
           
13,626
     
16,493
 
Total Liabilities and Stockholders’ Equity
         
$
57,760
   
$
47,208
 
                         
Going Concern (note 3)
                       
Subsequent events (note 28)
                       

The accompanying notes form an integral part of these condensed interim consolidated financial statements. 


- 3 -



Patagonia Gold Corp.
Condensed Interim Consolidated Statements of Operations and Comprehensive Income (Loss)
For the Three and Nine Months Ended September 30, 2019 and 2018
(in thousands of U.S. dollars)
 
         
Three Months Ended September 30,
   
Nine Months Ended September 30,
 


Note
 
2019
(As Restated - Note 2)
   
2018
 
2019
(As Restated - Note 2)
   
2018
 
 


$ ’000


$ ’000


$ ’000


$ ’000
 
                                       
Revenue
       
$
6,273
   
$
9,479
   
$
16,922
   
$
37,790
 
Cost of Sales
   
7
     
(3,521
)
   
(3,011
)
   
(13,870
)
   
(18,956
)
Gross Profit
           
2,752
     
6,468
     
3,052
     
18,834
 
                                         
Operating Income (Expenses):
                                       
      Exploration expenses
           
(1,283
)
   
323
     
(2,094
)
   
(763
)
      Administrative expense
   
22
     
(1,295
)
   
(1,441
)
   
(5,005
)
   
(4,585
)
      Share-based payments expense
   
20
     
(5
)
   
(3
)
   
(46
)
   
(103
)
      Interest expense
           
(652
)
   
(183
)
   
(1,470
)
   
(1,262
)
Total operating expense:
           
(3,235
)
   
(1,304
)
   
(8,615
)
   
(6,713
)
                                         
Other Income/(Expenses)
                                       
      Interest income
   
11
     
105
     
15
     
131
     
106
 
      Gain/(Loss) on foreign exchange
           
634
     
(397
)
   
1,552
     
(12,384
)
      Accretion expense
   
9
     
(72
)
   
(145
)
   
(115
)
   
(434
)
Total other income/(expenses)
           
667
     
(527
)
   
1,568
     
(12,712
)
Income (Loss) – before income taxes
           
184
     
4,637
     
(3,995
)
   
(591
)
                                         
      Income tax benefit (expense)
           
(1,214
)
   
(30
)
   
20
     
1,680
 
Net Income (Loss)
         
$
(1,030
)
 
$
4,607
   
$
(3,975
)
 
$
1,089
 
                                         
Attributable to non-controlling interest
           
166
     
529
     
(50
)
   
178
 
Attributable to equity share owners of the parent
           
(1,196
)
   
4,078
     
(3,925
)
   
911
 
             
(1,030
)
   
4,607
     
(3,975
)
   
1,089
 
Other Comprehensive Income (Loss) net of tax
                                       
      Change in fair value of investment
   
11
     
(103
)
   
(4
)
   
(107
)
   
(13
)
      Foreign currency translation adjustment
           
61
     
1,060
     
(1,118
)
   
(2,576
)
Total Other comprehensive Income (Loss)
           
(42
)
   
1,056
     
(1,225
)
   
(2,589
 
Total Comprehensive Income (Loss)
         
$
(1,072
)
 
$
5,663
   
$
(5,200
)
 
$
(1,500
)
                                         
Weighted average shares outstanding – basic and diluted
   
19
     
270,252,392
     
254,387,482
     
270,252,392
     
254,387,482
 
                                         
Net Income (Loss) per share – Basic and Diluted
   
19
   
$
(0.00
)
 
$
0.02
   
$
(0.02
)
 
$
0.00
 


The accompanying notes form an integral part of these condensed interim consolidated financial statements.

- 4 -


Patagonia Gold Corp.
Condensed Interim Consolidated Statement of Shareholders’ Equity
For the Three and Nine Months Ended September 30, 2019 and 2018
(in thousands of U.S. dollars)

   
Capital Stock
   
Accumulated
Deficit
   
Accumulated Other Comprehensive Income (Loss)
   
Additional Paid in Capital
   
Total Attributable to parent
   
Non-Controlling Interest
   
Total
 
   

$ ’000
   

$ ’000
   

$ ’000
   

$ ’000
   

$ ’000
   

$ ’000
   

$ ’000
 
Balance at January 1, 2018
   
31,868
     
(157,399
)
   
2,318
     
149,982
     
26,769
     
407
     
27,176
 
Share Reorganization (note 20)
   
(31,567
)
   
-
     
-
     
31,567
     
-
     
-
     
-
 
Net Income (Loss)
   
-
     
911
     
-
     
-
     
911
     
178
     
1,089
 
Share based payment
   
-
     
-
     
-
     
103
     
103
     
-
     
103
 
Other Comprehensive Loss
   
-
     
-
     
(2,589
)
   
-
     
(2,589
)
   
-
     
(2,589
)
Balance at September 30, 2018
   
301
     
(156,488
)
   
(271
)
   
181,652
     
25,194
     
585
     
25,779
 
                                                         
Balance at January 1, 2019
   
301
     
(164,717
)
   
(519
)
   
181,549
     
16,614
     
(121
)
   
16,493
 
Shares issued in reverse Acquisition (note 26)
   
2,287
     
-
     
-
     
-
     
2,287
     
-
     
2,287
 
Net Income (Loss)
   
-
     
(3,925
)
   
-
     
-
     
(3,925
)
   
(50
)
   
(3,975
)
Share based payment
   
-
     
-
     
-
     
46
     
46
     
-
     
46
 
Other Comprehensive Loss
   
-
     
-
     
(1,225
)
   
-
     
(1,225
)
   
-
     
(1,225
)
Balance at September 30, 2019 (As Restated – Note 2)
   
2,588
     
(168,642
)
   
(1,744
)
   
181,595
     
13,797
     
(171
)
   
13,626
 
                                                         


   
Capital Stock
   
Accumulated
Deficit
   
Accumulated Other Comprehensive Income (Loss)
   
Additional Paid in Capital
   
Total Attributable to parent
   
Non-Controlling Interest
   
Total
 
   

$ ’000
   

$ ’000
   

$ ’000
   

$ ’000
   

$ ’000
   

$ ’000
   

$ ’000
 
Balance at July 1, 2018
   
301
     
(160,566
)
   
(1,327
)
   
150,082
     
(11,510
)
   
56
     
(11,454
)
Share Reorganization (note 20)
   
-
     
-
     
-
     
31,567
     
31,567
     
-
     
31,567
 
Net Income (Loss)
   
-
     
4,078
     
-
     
-
     
4,078
     
529
     
4,607
 
Share based payment
   
-
     
-
     
-
     
3
     
3
     
-
     
3
 
Other Comprehensive Loss
   
-
     
-
     
1,056
     
-
     
1,056
     
-
     
1,056
 
Balance at September 30, 2018
   
301
     
(156,488
)
   
(271
)
   
181,652
     
25,194
     
585
     
25,779
 
                                                         
Balance at July 1, 2019
   
301
     
(167,446
)
   
(1,702
)
   
181,590
     
12,743
     
(337
)
   
12,406
 
Shares issued in reverse Acquisition (note 26)
   
2,287
     
-
     
-
     
-
     
2,287
     
-
     
2,287
 
Net Income (Loss)
   
-
     
(1,196
)
   
-
     
-
     
(1,196
)
   
166
     
(1,030
)
Share based payment
   
-
     
-
     
-
     
5
     
5
     
-
     
5
 
Other comprehensive income
   
-
     
-
     
(42
)
   
-
     
(42
)
   
-
     
(42
)
Balance at September 30, 2019 (As Restated – Note 2)
   
2,588
     
(168,642
)
   
(1,744
)
   
181,595
     
13,797
     
(171
)
   
13,626
 
                                                         


The accompanying notes form an integral part of these condensed interim consolidated financial statements




- 5 -



Patagonia Gold Corp.
Condensed Interim Consolidated Statements of Cash Flows
For the Nine Months Ended September 30, 2019 and 2018
(in thousands of U.S. dollars)
 
 
 
Note
   
September 30, 2019
(As Restated – Note 2)
   
September 30, 2018
 
         
$ ’000
   
$ ’000
 
Cash Flow From Operating Activities
                     
Net Income/(Loss)
       
$
(3,975
)
 
$
1,089
 
Items not affecting cash
                     
Depreciation of property, plant and equipment
   
22
     
1,549
     
1,720
 
Depreciation of mining rights
   
22
     
75
     
75
 
Share based payment expense
   
20
     
46
     
103
 
Asset retirement obligation
   
9
     
(61
)
   
(580
)
Write-down of inventory
   
7
     
2,368
     
-
 
Accretion expense
   
9
     
115
     
434
 
Deferred tax benefit/(expense)
           
(20
)
   
(1,680
)
             
97
     
1,161
 
Net change in non-cash working capital items
                       
(Increase)/decrease in receivables
           
4,153
     
2,808
 
(Increase)/decrease in deferred tax assets
           
1,620
     
1,777
 
(Increase)/decrease in inventory
           
1,571
     
8,165
 
(Increase)/decrease in other financial assets
           
111
     
-
 
Increase/(decrease) in accounts payable and accrued liabilities
           
(2,773
)
   
(6,546
)
Increase/(decrease) in accounts payable and accrued liabilities with related parties
           
115
     
-
 
Increase/(decrease) in interest payable
           
260
     
-
 
Increase/(decrease) in provision
           
(26
)
   
(89
)
Increase/(decrease) in transaction taxes payable
           
(126
)
   
(329
)
Increase/(decrease) in deferred tax liabilities
           
(363
)
   
-
 
             
4,542
     
5,786
 
Net cash provided by/(used in) operating activities
           
4,639
     
6,947
 
                         
Cash Flows from Investing Activities
                       
Purchase of property, plant and equipment
   
12
     
(518
)
   
(2,914
)
Purchase of mineral property
   
8
     
(194
)
   
(548
)
Purchase of mining rights
           
-
     
(14,612
)
Proceeds from disposal of property, plant and equipment
           
113
     
7,500
 
Net cash provided by/(used in) investing activities
           
(599
)
   
(10,574
)
                         
Cash Flow from Financing Activities
                       
Bank indebtedness
           
2,506
     
7,718
 
Proceeds from loans
           
-
     
6,263
 
Proceeds from loans with related parties
           
8,211
     
-
 
Repayment of loans
           
(10,530
)
   
(15,693
)
Net cash provided by/(used in) financing activities
           
187
     
(1,712
)
                         
Net Increase/(Decrease) in Cash
           
4,227
     
(5,339
)
Effect of Foreign Exchange on Cash
           
(3,397
)
   
1,285
 
Cash, Beginning of Period
           
660
     
4,199
 
Cash, End of the Period
         
$
1,490
   
$
145
 
                         
Taxes paid
           
(126
)
   
(329
)
Interest paid
           
(407
)
   
(422
)
Supplemental Non-Cash Information
                       
Change in value of investments
           
(107
)
   
(13
)

The accompanying notes form an integral part of these condensed interim consolidated financial statements.


- 6 -



Patagonia Gold Corp.
Notes to the Condensed Interim Consolidated Financial Statements
(in thousands of U.S. dollars unless otherwise stated)

1.  Nature of Business

On July 24, 2019, Patagonia Gold Corp. (PGDC.TSXV – “the Company” or “Patagonia”) [formerly Hunt Mining Corp (“Hunt”, or “Hunt Mining”)] and Patagonia Gold PLC (“PGP”) completed a reverse acquisition (or reverse takeover, the “RTO”) resulting in Hunt acquiring all issued shares of common stock of PGP in exchange for common shares of Hunt on the basis of 10.76 Hunt shares for each PGP share. Hunt issued 254,355,192 common shares to the shareholders of PGP representing an ownership interest of approximately 80%. The operating name of Hunt Mining Corp. was changed to Patagonia Gold Corp (“the Company”) (Note 26).

Comparative information for the Company is that of PGP (accounting acquirer) prior to the reverse acquisition on July 24, 2019.

Patagonia is a mineral exploration and production company incorporated on January 10, 2006 under the laws of Alberta, Canada and, together with its subsidiaries, is engaged in the exploration of mineral properties and exploitation of reserves in Santa Cruz, Rio Negro and Chubut provinces of Argentina.

The condensed interim consolidated financial statements include the accounts of the following subsidiaries after elimination of intercompany transactions and balances:

 
Corporation
 
Incorporation
Percentage
ownership
Functional currency
Business purpose
 
Patagonia Gold S.A. (PGSA)
 
Argentina
 
90
 
US$
Production and Exploration Stage
Minera Minamalu S.A.
Argentina
100
US$
Exploration Stage
Huemules S.A.
Argentina
100
US$
Exploration Stage
Leleque Exploración S.A.
Argentina
100
US$
Exploration Stage
Patagonia Gold Limited (formerly Patagonia Gold PLC)
UK
100
GBP$
Holding
Minera Aquiline S.A.U.
Argentina
100
US$
Exploration Stage
Patagonia Gold Canada Inc.
Canada
100
CAD$
Holding
Patagonia Gold Chile S.C.M.
Chile
100
CH$
Exploration Stage
Cerro Cazador S.A.
Argentina
100
US$
Exploration Stage
Ganadera Patagonia S.R.L.
Argentina
100
US$
Land Holding
1494716 Alberta Ltd.
Canada
100
CAD$
Nominee Shareholder
Hunt Gold USA LLC
USA
100
US$
Management Company

The Company’s activities include the exploration and production of minerals from properties in Argentina and Chile. On the basis of information to date, properties where it has not yet been determined if economically recoverable ore reserves exist are classified as exploration-stage. Properties where economically recoverable ore reserves exist and are being exploited are classified as production-stage. The underlying value of the mineral properties is entirely dependent upon the existence of reserves, the ability of the Company to obtain the necessary financing to complete development and upon future profitable production or a sale of these properties.

On some properties, ongoing production and sales of gold and silver are being undertaken without established mineral resources or reserves and the Company has not established the economic viability of the operations. As a result, there is increased uncertainty and economic risks of failure associated with these production activities. Despite the sale of gold and silver, these projects remain in the exploration stage because management has not established proven or probable ore reserves required to be classified in either the development or production stage.






- 7 -


2.  Basis of presentation

These condensed interim consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“US GAAP”).

These condensed interim consolidated financial statements have been prepared on a historical cost basis except for certain financial instruments measured at fair value. In addition, these condensed interim consolidated financial statements have been prepared using the accrual basis of accounting, except for cash flow information.

The Company’s presentation currency is the US Dollar.

The preparation of the condensed interim consolidated financial statements requires management to make judgments, estimates and assumptions that affect the application of policies and reported amounts of assets and liabilities, income and expenses. Actual results may differ from these estimates.

Judgments made by management in the application of US GAAP that have a significant effect on the condensed interim consolidated financial statements and estimates with significant risk of material adjustment in the current and following periods are discussed in Note 6.

Restatement of previously issued condensed interim consolidated financial statements

Subsequent to the issuance of the condensed interim consolidated financial statements for the three and nine months ended September 30, 2019 on November 28, 2019 on SEDAR (www.sedar.com), the Company determined that there were errors related to the accounting for the reverse acquisition of Hunt completed on July 24, 2019, as well as the conversion of several balances denominated in foreign currencies. As a result, balances reported in the Company’s condensed interim consolidated statements of financial position and comprehensive income (loss) have been restated from amounts previously reported. The Company also made additional presentation changes and note disclosure improvements in these restated condensed interim consolidated financial statements.

The following is a summary of the adjustments made to the restated condensed interim consolidated statement of financial position as at September 30, 2019:

-
Cash – Cash has decreased from $1,543 to $1,490 due to foreign exchange adjustments on the period end balance.

-
Receivables – Current receivables decreased from $2,084 to $1,280. This decrease was due to foreign exchange adjustments on the period end balance, as well as a reclassification of $554 of value added tax (“VAT”) to “other receivables” under non-current assets, as the Company does not expect to collect this within the next 12 months.

-
Inventory – Inventory increased from $3,252 to $3,260. As a result of the increase in balance of mineral properties (see below) depreciation allocated to inventory increased which resulted in a higher ending balance.

-
Mineral Properties – Mineral properties increased from $4,193 to $10,975. This increase in mineral properties is due to an increase in the estimated fair value of mineral properties acquired in the reverse acquisition of Hunt pursuant to a valuation performed by a third-party.

-
Property, plant and equipment – Property, plant and equipment increased from $11,220 to $12,901. This increase was primarily due to the increase in the estimated fair value of the property, plant and equipment acquired in the reverse acquisition of Hunt pursuant to a valuation performed by a third-party.

-
Goodwill – Goodwill decreased from $31,564 to $2,673. The decrease in Goodwill is primarily due to the measurement of the fair value of the Company’s shares given as consideration for the reverse acquisition of Hunt. The Company originally measured the fair value of the share consideration as $23,338 based on the fair value of 254,355,192 common shares of Hunt, issued to shareholders of Patagonia Gold PLC, using Hunt’s closing stock price of $0.092 (rounded) (CAD $0.12) per common share on July 24, 2019.

However, the Company made an error in measuring the share consideration in accordance with ASC 805, Business Combinations. As Patagonia Gold PLC was the ongoing business entity from an accounting perspective, the fair value of the consideration given by the Company is based on the number of common shares Patagonia Gold PLC would have had to issue to give the owners of the Company the same percentage equity interest in the combined entity that results from the reverse acquisition  In these restated financial statements, the fair value of the Company’s shares for the reverse acquisition of Hunt is deemed to be $2,287, which is calculated as  the fair value of 5,908,687 common shares (representing 20% of the ownership in Patagonia Gold PLC) at $0.387 per common share (converted from GBP 0.310 closing stock price of Patagonia Gold PLC prior to the transaction on July 24, 2019).


- 8 -


-
Other financial assets – Other financial assets decreased from $336 to $255. The decrease is due to the period end foreign exchange adjustment of a performance bond which was originally acquired to secure the Company’s rights to explore the La Josefina property. The performance bond trades in the secondary market in Argentina.

-
Other receivables – Other receivables increased from $3,206 to $3,760. The increase was due to a reclassification of VAT recoverable which was previously included in “receivables” under current assets. The Company does not expect to collect this VAT within the next 12 months and hence reclassified it as a non-current receivable.

-
Bank indebtedness – The Company has reclassified bank indebtedness of $14,887 as a separate line item under current liabilities. This balance was previously included in the “loan payable and current portion of long-term debt” line item.

-
Accounts payable and accrued liabilities – Accounts payable and accrued liabilities decreased from $13,473 to $6,335. The decrease is due to foreign exchange adjustment at period end and a reclassification to “accounts payable with related parties”, which has been presented as a separate line item under current liabilities.

-
Accounts payable with related parties – The Company has reclassified accounts payable with related parties of $6,531 as a separate line item under current liabilities. This balance was previously included in the “accounts payable and accrued liabilities” line item.

-
Loan payable and current portion of long-term debt – Loan payable and current portion of long-term debt decreased from $16,050 to $481. This decrease was primarily related to the reclassification of “bank indebtedness” and “long-term debt with related parties” line items that were previously included in this balance.

-
Long-term debt – Long-term debt decreased from $11,724 to $425. This decrease was primarily due to a reclassification of “long-term debt with related parties” of $11,404, which is presented as a separate line item under non-current liabilities. In addition, this balance decreased due to a decrease of the fair value of debt assumed in the reverse acquisition of Hunt pursuant to a valuation performed by a third-party.

-
Long-term debt with related parties – Long-term debt with related parties increased from $Nil to $11,404. This increase is due to a reclassification of liabilities previously included in the line items of “long-term debt”, “loan payable and current portion of long-term debt” and “interest on debt”, These increases were partially offset by a decrease in the  fair market value of debt assumed in the reverse acquisition of Hunt pursuant to a valuation performed by a third-party.

-
Asset retirement obligation – Asset retirement obligation decreased from $2,655 to $1,345. This balance decreased due to a change in the credit-adjusted discount rate (the “discount rate”) used to measure the present value of estimated cash outflows for the obligation. The Company initially used a weighted average discount rate of 10%, whereas the restated asset retirement obligation is calculated using a weighted average discount rate of 24.94%. The balance also decreased due to a lower fair market value assessment of the asset retirement obligation assumed in the reverse acquisition of Hunt pursuant to a valuation performed by a third-party.

-
Deferred tax liabilities – The Company recognized deferred tax liabilities of $2,673 for the liability assumed in the reverse acquisition of Hunt pursuant to a valuation performed by a third-party.

-
Other long-term payables – Other long-term payables increased from $52 to $53 due to a foreign exchange adjustment of the period end balance.

-
Interest on debt – Interest on debt decreased from $607 to $Nil. This balance was reclassified to long-term debt with related parties.

-
Capital stock – Capital stock decreased from $23,639 to $2,588. The decrease in capital stock was due to the measurement of the fair value of the share consideration given for the reverse acquisition of Hunt. Refer to the “Goodwill” explanation above.

-
Additional paid in capital – Additional paid in capital decreased from $181,884 to $181,595. The decrease in this balance is due to a reduction in share-based payments expense.

-
Accumulated Deficit – Accumulated deficit decreased from $170,922 to $168,642 as result of the changes in the condensed interim consolidated statement of comprehensive income (loss).

-
Accumulated other comprehensive loss – Accumulated other comprehensive loss increased from $398 to $1,744 due to a change in the fair value measurement of financial instruments and a foreign currency translation adjustment.

-
Non-controlling interest – Non-controlling interest decreased from $200 to $171.



- 9 -


As a result of the adjustments above, current assets decreased from $6,879 to $6,030, non-current assets decreased from $71,685 to $51,730, total assets decreased from $78,564 to $57,760, current liabilities decreased from $29,523 to $28,234, non-current liabilities increased from $15,038 to $15,900, total liabilities decreased from $44,561 to $44,134 and shareholders equity decreased from $34,003 to $13,626.

The following is a summary of the adjustments made to the restated condensed interim consolidated statement of comprehensive income (loss) for the three months ended September 30, 2019:

-
Revenue – Revenue increased from $5,545 to $6,273. This increase was due to reclassification of silver and gold recovery which was previously presented on a net basis under other income / expenses.

-
Cost of Sales – Cost of sales increased from $2,716 to $3,521. This increase was due to an increase in the fair value of inventory acquired in the reverse acquisition of Hunt pursuant to a valuation performed by a third-party, and a reclassification of silver and gold recovery which was presented on a net basis under other income / expenses.

-
Exploration expenses – Exploration expenses increased from $872 to $1,283 due to adjustment of the expenses between quarters.

-
Administrative expenses – Administrative expenses decreased from $1,558 to $1,295. This decrease was mainly due to foreign exchange adjustments and a reclassification of gain/loss on foreign exchange to its own account under other income / expenses.

-
Other operating expenses – Other operating expenses decreased from $34 to $Nil. This balance consisted of inventory impairment and has been reclassified to cost of sales.

-
Share-based payments expense – Share-based payments expense decreased from $294 to $5. The decrease was due to the revaluation of the 7,650,000 stock options issued on September 25, 2019. The fair value of these stock options was originally estimated to be $294 and was expensed entirely during the period. In the restated financial statements, the fair value was estimated to be $456 due to higher volatility used in the Black-Scholes option pricing model and only $46 of expense was recognized during the period. As the options vest over one year, the Company will recognize the expense over the vesting period. In addition, the Company reversed the previous share-based payments expense of $41 related to the stock options that were cancelled on May 29, 2019.

-
Interest expense – Interest expense increased from $485 to $652. The increase was due to a reclassification of amounts from gain/loss on foreign exchange expense and an increase to the effective interest rate on the debt assumed in the reverse acquisition of Hunt pursuant to a valuation performed by a third-party.

-
Silver and gold recovery, net of expenses – Silver and gold recovery, net of expenses decreased from $182 to $Nil. The revenues and associated costs that made up this balance have been reclassified to revenue and cost of sales, respectively, to present the amounts on a gross basis.

-
Interest income – Interest income increased from $Nil to $105. The increase was due to a foreign exchange adjustment.

-
Gain on foreign exchange – Gain on foreign exchange increased from $Nil to $634. The increase was due to adjustments to the exchange rates used for foreign exchange adjustments at period end and the reclassification of a foreign exchange gain/loss that was previously included in administrative expenses.

-
Accretion expense – Accretion expense decreased from $454 to $72. The decrease was due to a lower measurement of asset retirement obligation pursuant to a valuation performed by a third-party, offset by an increase in the balance due to reclassification of accretion expense previously included in exploration expenses.

-
Income tax expense – Income tax expense decreased from a recovery of $612 to an expense of $1,214 as a result of other changes in the statement of financial position and statement of comprehensive income (loss) that have created temporary differences that have given rise to deferred tax liabilities.

-
Change in fair value of investment – Change in fair value of investment increased from a loss of $15 to a loss of $103. The increase was due to a foreign exchange adjustment at period end.

-
Foreign currency translation adjustment – Foreign currency translation adjustment decreased from a gain of $140 to a gain of $61 as a result of translating the financial statements of the Company’s subsidiaries that have a functional currency that is different from the Company’s presentation currency. There were changes to the financial statements of the Company’s subsidiaries that were used to prepare the initial condensed interim consolidated financial statements.

- 10 -


-
Weighted average share outstanding (basic and diluted) – Weighted average shares outstanding (basic and diluted) decreased from 317,943,990 to 270,252,392.

As a result of the adjustments above, gross profit decreased from $2,829 to $2,752, operating expenses decreased from $3,243 to $3,235, other income increased from $254 to $667, income before income tax increased from a loss of $160 to income of $184, net loss decreased from income of $452 to loss of $1,030, other comprehensive loss decreased from income of $125 to loss of $42, comprehensive loss decreased from income of $577 to loss of $1,072, net income per share (basic and diluted) decreased from $0.01 to $0.00.

The following is a summary of the adjustments made to the restated condensed interim consolidated statement of comprehensive income (loss) for the nine months ended September 30, 2019:

-
Revenue – Revenue increased from $16,194 to $16,922. This increase was due to reclassification of silver and gold recovery which was previously presented on a net basis under other income / expenses.

-
Cost of Sales – Cost of sales increased from $10,697 to $13,870. This increase was due to an increase in the fair value of inventory acquired in the reverse acquisition of Hunt pursuant to a valuation performed by a third-party, reclassification of silver and gold recovery which was presented on a net basis under other income / expenses, and reclassification of inventory impairment which was previously included under other operating expenses.

-
Exploration expenses – Exploration expenses decreased from $2,263 to $2,094. This decreased was due to reclassification of accretion expense that was previously included in this balance.

-
Administrative expenses – Administrative expenses decreased from $6,139 to $5,005. This decrease was mainly due to foreign exchange adjustments and a reclassification of gain/loss on foreign exchange to its own account under other income / expenses.

-
Other operating expenses – Other operating expenses decreased from $2,403 to $Nil. This balance consisted of inventory impairment and has been reclassified to cost of sales.

-
Share-based payments expense – Share-based payments expense decreased from $335 to $46. The decrease was due to the revaluation of the 7,650,000 stock options issued on September 25, 2019. The fair value of these stock options was originally estimated to be $294 and was expensed entirely during the period. In the restated financial statements, the fair value was estimated to be $456 due to higher volatility used in the Black-Scholes option pricing model and only $46 of expense was recognized during the period. As the options vest over one year, the Company will recognize the expense over the vesting period. In addition, the Company reversed the previous share-based payments expense of $41 related to the stock options that were cancelled on May 29, 2019.

-
Interest expense – Interest expense increased from $1,299 to $1,470. The increase was due to a reclassification of amounts from gain/loss on foreign exchange expense and an increase to the effective interest rate on the debt assumed in the reverse acquisition of Hunt pursuant to a valuation performed by a third-party.

-
Silver and gold recovery, net of expenses – Silver and gold recovery (loss), net of expenses decreased from $182 to $Nil. The revenues and associated costs that made up this balance have been reclassified to revenue and cost of sales, respectively, to present the amounts on a gross basis.

-
Interest income – Interest income increased from $98 to $131. The increase was due to a foreign exchange adjustment.

-
Gain on foreign exchange – Gain on foreign exchange increased from $Nil to $1,552. The increase was due to adjustments to the exchange rates used for foreign exchange adjustments at period end and the reclassification of a foreign exchange gain/loss that was previously included in administrative expenses.

-
Accretion expense – Accretion expense decreased from $454 to $115. The decrease was due to a lower measurement of asset retirement obligation pursuant to a valuation performed by a third-party, offset by an increase in the balance due to reclassification of accretion expense previously included in exploration expenses.

-
Income tax benefit – Income tax benefit decreased from$1,846 to $20 as a result of the other changes in the statement of financial position and statement of comprehensive income (loss) that have created temporary differences that have given rise to deferred tax liabilities.

-
Change in fair value of investment – Change in fair value of investment increased from a loss of $19 to a loss of $107. The increase was due to a foreign exchange adjustment at period end.


- 11 -


-
Foreign currency translation adjustment – Foreign currency translation adjustment decreased from a gain of $140 to a loss $1,118 as a result of translating the financial statements of the Company’s subsidiaries that have a functional currency that is different from the Company’s presentation currency. There were changes to the financial statements of the Company’s subsidiaries that were used to prepare the initial condensed interim consolidated financial statements.

-
Weighted average share outstanding (basic and diluted) – Weighted average shares outstanding (basic and diluted) decreased from $317,943,990 to $270,252,392.

As a result of the adjustments above, gross profit decreased from $5,497 to $3,052, operating expenses decreased from $12,439 to $8,615, other income increased from a loss of $174 to income of $1,568, loss before income tax decreased from a loss of $7,116 to $3,995, net loss decreased from $5,270 to $3,975, other comprehensive loss decreased from income of $121 to loss of $1,225, comprehensive loss increased from $5,149 to $5,200, net loss per share (basic and diluted) increased from $0.01 to $0.02.

The following is a summary of the impact of the adjustments above on the condensed interim consolidated statement of cashflows for the nine months ended September 30, 2019:

-
Cashflows provided by operating activities increased from $1,167 to $4,639.
-
Cashflows used in investing activities increased from $520 to $599.
-
Cashflows provided by financing activities increased from $121 to $187.
-
Net increase in cash increased from$768 to $4,227.
-
Effect of foreign exchange on cash decreased from positive $115 to negative $3,397.
-
Cash at the end of period decreased from $1,543 to $1,490.

The following schedules show the adjustments made to restated condensed interim consolidated financial statements for the three and nine months ended September 30, 2019:








- 12 -


Restated Condensed Interim Consolidated Balance Sheets as at September 30, 2019:
       
   
As Reported
   
Adjustment
   
As restated
 
   

$ ’000
   

$ ’000
   

$ ’000
 
Current Assets
                       
     Cash
 
$
1,543
   
$
(53
)
 
$
1,490
 
     Receivables
   
2,084
     
(804
)
   
1,280
 
     Inventories
   
3,252
     
8
     
3,260
 
          Total Current Assets
   
6,879
     
(849
)
   
6,030
 
                         
Non-Current Assets
                       
     Mineral Properties
   
4,193
     
6,782
     
10,975
 
     Mining Rights
   
16,788
     
-
     
16,788
 
     Property, plant and equipment
   
11,220
     
1,681
     
12,901
 
     Goodwill
   
31,564
     
(28,891
)
   
2,673
 
     Other financial assets
   
336
     
(81
)
   
255
 
     Deferred tax assets
   
4,378
     
-
     
4,378
 
     Other receivables
   
3,206
     
554
     
3,760
 
          Total Non-Current Assets
   
71,685
     
(19,955
)
   
51,730
 
Total Assets
 
$
78,564
   
$
(20,804
)
 
$
57,760
 
                         
Current Liabilities
                       
     Bank indebtedness
 
$
-
   
$
14,887
   
$
14,887
 
     Accounts payable and accrued liabilities
   
13,473
     
(7,138
)
   
6,335
 
     Accounts payable with related parties
   
-
     
6,531
     
6,531
 
     Loan payable and current portion of long-term debt
   
16,050
     
(15,569
)
   
481
 
           Total Current Liabilities
   
29,523
     
(1,289
)
   
28,234
 
                         
Non-Current Liabilities
                       
     Long-term debt
   
11,724
     
(11,299
)
   
425
 
     Long-term debt with related parties
   
-
     
11,404
     
11,404
 
     Asset retirement obligation
   
2,655
     
(1,310
)
   
1,345
 
     Deferred tax liabilities
   
-
     
2,673
     
2,673
 
     Other long-term payables
   
52
     
1
     
53
 
     Interest on debt
   
607
     
(607
)
   
-
 
          Total Non-Current Liabilities
   
15,038
     
862
     
15,900
 
Total Liabilities
   
44,561
     
(427
)
   
44,134
 
                         
Stockholders’ Equity
                       
Capital stock
   
23,639
     
(21,051
)
   
2,588
 
Additional paid in capital
   
181,884
     
(289
)
   
181,595
 
Accumulated Deficit
   
(170,922
)
   
2,280
     
(168,642
)
Accumulated other comprehensive income (loss)
   
(398
)
   
(1,346
)
   
(1,744
)
Total Stockholders' Equity attributable to the parent:
   
34,203
     
(20,406
)
   
13,797
 
Non-controlling interest
   
(200
)
   
29
     
(171
)
Total Stockholders' Equity
   
34,003
     
(20,377
)
   
13,626
 
Total Liabilities and Stockholders’ Equity
 
$
78,564
   
$
(20,804
)
 
$
57,760
 
                         
                         





- 13 -



Restated Condensed Interim Consolidated Statements of Operations and Comprehensive Income (Loss) for the Three Months Ended September 30, 2019:

   
As Reported
   
Adjustment
   
As Restated
 
   

$ ’000
   

$ ’000
   

$ ’000
 
                         
Revenue
 
$
5,545
   
$
728
   
$
6,273
 
Cost of Sales
   
(2,716
)
   
(805
)
   
(3,521
)
Gross Profit
   
2,829
     
(77
)
   
2,752
 
                         
Operating Income (Expenses):
                       
      Exploration expenses
   
(872
)
   
(411
)
   
(1,283
)
      Administrative expense
   
(1,558
)
   
263
     
(1,295
)
      Other operating expense
   
(34
)
   
34
     
-
 
      Share-based payments expense
   
(294
)
   
289
     
(5
)
      Interest expense
   
(485
)
   
(167
)
   
(652
)
Total operating expense:
   
(3,243
)
   
8
     
(3,235
)
                         
Other Income/(Expenses)
                       
      Silver and gold recovery/(loss), net of expenses
   
182
     
(182
)
   
-
 
      Interest income
   
72
     
33
     
105
 
      Gain/(Loss) on foreign exchange
   
-
     
634
     
634
 
      Accretion expense
   
-
     
(72
)
   
(72
)
Total other income/(expenses)
   
254
     
413
     
667
 
Income (Loss) – before income taxes
   
(160
)
   
344
     
184
 
                         
      Income tax benefit (expense)
   
612
     
(1,826
)
   
(1,214
)
Net Income (Loss)
 
$
452
   
$
(1,482
)
 
$
(1,030
)
                         
Attributable to non-controlling interest
   
(193
)
   
359
     
166
 
Attributable to equity share owners of the parent
   
645
     
(1,841
)
   
(1,196
)
     
452
     
(1,482
)
   
(1,030
)
Other Comprehensive Income (Loss) net of tax
                       
      Change in fair value of investment
   
(15
)
   
(88
)
   
(103
)
      Foreign currency translation adjustment
   
140
     
(79
)
   
61
 
Total Other comprehensive Income (Loss)
   
125
     
(167
)
   
(42
)
Total Comprehensive Income (Loss)
 
$
577
   
$
(1,649
)
 
$
(1,072
)
                         
Weighted average shares outstanding – basic and diluted
   
317,943,990
     
(47,691,598
)
   
270,252,392
 
                         
Net Income (Loss) per share – Basic and Diluted
 
$
0.01
   
$
(0.01
)
 
$
(0.00
)
                         










- 14 -




Restated Consolidated Statements of Operations and Comprehensive Income (Loss) for the Nine Months Ended September 30, 2019:

   
As Reported
   
Adjustment
   
As Restated
 
   

$ ’000
   

$ ’000
   

$ ’000
 
                         
Revenue
 
$
16,194
   
$
728
   
$
16,922
 
Cost of Sales
   
(10,697
)
   
(3,173
)
   
(13,870
)
Gross Profit
   
5,497
     
(2,445
)
   
3,052
 
                         
Operating Income (Expenses):
                       
      Exploration expenses
   
(2,263
)
   
169
     
(2,094
)
      Administrative expense
   
(6,139
)
   
1,134
     
(5,005
)
      Other operating expense
   
(2,403
)
   
2,403
     
-
 
      Share-based payments expense
   
(335
)
   
289
     
(46
)
      Interest expense
   
(1,299
)
   
(171
)
   
(1,470
)
Total operating expense:
   
(12,439
)
   
3,824
     
(8,615
)
                         
Other Income/(Expenses)
                       
      Silver and gold recovery/(loss), net of expenses
   
182
     
(182
)
   
-
 
      Interest income
   
98
     
33
     
131
 
      Gain/(Loss) on foreign exchange
   
-
     
1,552
     
1,552
 
      Accretion expense
   
(454
)
   
339
     
(115
)
Total other income/(expenses)
   
(174
)
   
1,742
     
1,568
 
Income (Loss) – before income taxes
   
(7,116
)
   
3,121
     
(3,995
)
                         
      Income tax benefit (expense)
   
1,846
     
(1,826
)
   
20
 
Net Income (Loss)
 
$
(5,270
)
 
$
1,295
   
$
(3,975
)
                         
Attributable to non-controlling interest
   
(79
)
   
29
     
(50
)
Attributable to equity share owners of the parent
   
(5,191
)
   
1,266
     
(3,925
)
     
(5,270
)
   
1,295
     
(3,975
)
Other Comprehensive Income (Loss) net of tax
                       
      Change in fair value of investment
   
(19
)
   
(88
)
   
(107
)
      Foreign currency translation adjustment
   
140
     
(1,258
)
   
(1,118
)
Total Other comprehensive Income (Loss)
   
121
     
(1,346
)
   
(1,225
)
Total Comprehensive Income (Loss)
 
$
(5,149
)
 
$
(51
)
 
$
(5,200
)
                         
Weighted average shares outstanding – basic and diluted
   
317,943,990
     
(47,691,598
)
   
270,252,392
 
                         
Net Income (Loss) per share – Basic and Diluted
 
$
(0.01
)
 
$
(0.01
)
 
$
(0.02
)
                         

Restated Consolidated Statement of Shareholders’ Equity:

 
Capital Stock
Accumulated Deficit
Accumulated Other Comprehensive Income (Loss)
Additional Paid in Capital
Total Attribute to Parent
Non-Controlling Interest
Total
 
$’000
$’000
$’000
$’000
$’000
$’000
$’000
Three and Nine Months Ended
             
Balance at September 30, 2019, as Reported
23,639
(170,922)
(398)
181,884
34,203
(200)
34,003
Adjustment
(21,051)
2,280
(1,346)
(289)
(20,406)
29
(20,377)
Balance at September 30, 2019, as Restated
2,588
(168,642)
(1,744)
181,595
13,797
(171)
13,626
               



- 15 -


Restated Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2019:
   
 
 
As Reported
   
Adjustment
   
As revised
 
   

$ ’000
   

$ ’000
   

$ ’000
 
Cash Flow From Operating Activities
                       
Net Income/(Loss)
 
$
(5,270
)
 
$
1,295
   
$
(3,975
)
Items not affecting cash
                       
Depreciation of property, plant and equipment
   
1,528
     
21
     
1,549
 
Depreciation of mining rights
   
75
     
-
     
75
 
Share based payment expense
   
335
     
(289
)
   
46
 
Asset retirement obligation
   
-
     
(61
)
   
(61
)
Write-down of inventory
   
2,367
     
1
     
2,368
 
Accretion expense
   
454
     
(339
)
   
115
 
Loss on foreign exchange
   
(832
)
   
832
     
-
 
Gain on sale of asset
   
(33
)
   
33
     
-
 
Deferred tax benefit/(expense)
   
-
     
(20
)
   
(20
)
     
(1,376
)
   
1,473
     
97
 
Net change in non-cash working capital items
                       
(Increase)/decrease in receivables
   
3,913
     
240
     
4,153
 
(Increase)/decrease in deferred tax assets
   
(600
)
   
2,220
     
1,620
 
(Increase)/decrease in inventory
   
1,339
     
232
     
1,571
 
(Increase)/decrease in other financial assets
   
-
     
111
     
111
 
Increase/(decrease) in accounts payable and accrued liabilities
   
(2,140
)
   
(633
)
   
(2,773
)
Increase/(decrease) in accounts payable and accrued liabilities with related parties
   
-
     
115
     
115
 
Increase/(decrease) in interest payable
   
58
     
202
     
260
 
Increase/(decrease) in provision
   
(27
)
   
1
     
(26
)
Increase/(decrease) in transaction taxes payable
   
-
     
(126
)
   
(126
)
Increase/(decrease) in deferred tax liabilities
   
-
     
(363
)
   
(363
)
     
2,543
     
1,999
     
4,542
 
Net cash provided by/(used in) operating activities
   
1,167
     
3,472
     
4,639
 
                         
Cash Flows from Investing Activities
                       
Purchase of property, plant and equipment
   
(386
)
   
(132
)
   
(518
)
Purchase of mineral property
   
(195
)
   
1
     
(194
)
Proceeds from disposal of property, plant and equipment
   
61
     
52
     
113
 
Net cash provided by/(used in) investing activities
   
(520
)
   
(79
)
   
(599
)
                         
Cash Flow from Financing Activities
                       
Bank indebtedness
   
-
     
2,506
     
2,506
 
Proceeds from loans
   
10,567
     
(10,567
)
   
-
 
Proceeds from loans with related parties
   
-
     
8,211
     
8,211
 
Repayment of loans
   
(10,446
)
   
(84
)
   
(10,530
)
Net cash provided by/(used in) financing activities
   
121
     
66
     
187
 
                         
Net Increase/(Decrease) in Cash
   
768
     
3,459
     
4,227
 
Effect of Foreign Exchange on Cash
   
115
     
(3,512
)
   
(3,397
)
Cash, Beginning of Period
   
660
     
-
     
660
 
Cash, End of the Period
 
$
1,543
   
$
(53
)
 
$
1,490
 
                         
Taxes paid
   
-
     
(126
)
   
(126
)
Interest paid
   
(375
)
   
(32
)
   
(407
)
Supplemental Non-Cash Information
                       
Change in value of investments
   
(19
)
   
(88
)
   
(107
)


 

- 16 -


3.  Going Concern

The accompanying condensed interim consolidated financial statements have been prepared assuming that the Company will continue as a going concern, which contemplates the realization of assets and the liquidation of liabilities in the normal course of business. During the nine months ended September 30, 2019, the Company had net loss of $3,975. As at September 30, 2019, the Company has negative working capital of $22,204 and had an accumulated deficit of $168,642. The Company’s ability to continue as a going concern is dependent upon the ability to generate cashflows from operations and obtain financing. The Company intends to continue funding operations through operation of Cap-Oeste, Lomada, Martha, La Josefina project and equity financing arrangements, which may be insufficient to fund its capital expenditures, working capital and other cash requirements for the year ending December 31, 2019. There can be no assurance that the steps management is taking will be successful.

These factors, among others, indicate the existence of a material uncertainty that cast substantial doubt about the Company's ability to continue as a going concern. The accompanying condensed interim consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty. These adjustments could be material.
 
4. Significant Accounting Policies

The significant accounting policies used in the preparation of these condensed interim consolidated financial statements are described below.

(a) Basis of measurement

The consolidated financial statements have been prepared under the historical cost convention, except for the revaluation of certain financial assets and financial liabilities to fair value.

(b) Consolidation

The Company's consolidated financial statements consolidate the accounts of the Company and its subsidiaries. All intercompany transactions, balances and unrealized gains or losses from intercompany transactions are eliminated on consolidation.

(c) Foreign currency translation

Monetary assets and liabilities denominated in foreign currencies are translated into the functional currency at the rates of exchange prevailing at the reporting date. Non-monetary assets and liabilities are translated at the exchange rate prevailing at the transaction date. Revenues and expenses are translated at average exchange rates throughout the reporting period. Gains and losses on translation of foreign currencies are included in the consolidated statement of operations.

The Company’s functional currency is the Canadian dollar. The Company’s subsidiaries have functional currencies in Canadian dollars (“CAD”), US dollars (“US”), and Great Britain Pound (“GBP”). These consolidated financial statements are translated to their US dollar equivalents using the current rate method. Under this method, the statements of operations and comprehensive loss and cash flows for each period have been translated using the average exchange rates prevailing during each period. All assets and liabilities have been translated using the exchange rate prevailing at the balance sheet date. Translation adjustments are recorded as income or losses in other comprehensive income or loss. Transaction gains and losses resulting from fluctuations in currency exchange rates on transactions denominated in currencies other than the functional currency are recognized as incurred in the accompanying consolidated statement of operations and comprehensive income/(loss).

(d) Financial instruments

The Company measures the fair value of financial assets and liabilities based on US GAAP guidance, which defines fair value, establishes a framework for measuring fair value, and expands disclosures about fair value measurements.

The Company classifies financial assets and liabilities as held-for-trading, available-for-sale, held-to-maturity, loans and receivables or other financial liabilities depending on their nature. Financial assets and financial liabilities are recognized at fair value on their initial recognition, except for those arising from certain related party transactions, which are accounted for at the transferor's carrying amount or exchange amount.
 
Financial assets and liabilities classified as held-for-trading are measured at fair value, with gains and losses recognized in net income or loss. Financial assets classified as held-to-maturity, loans and receivables, and financial liabilities other than those classified as held-for-trading are measured at amortized cost, using the effective interest method of amortization. Financial assets classified as available-for-sale are measured at fair value, with unrealized gains and losses being recognized as other comprehensive income or loss until realized, or if an unrealized loss is considered other than temporary, the unrealized loss is recorded in income or loss.


- 17 -

 
See Note 23 for fair value disclosures.

(e) Cash and equivalents

Cash and equivalents include cash on hand, deposits held with banks and other liquid short-term investments with original maturities of three months or less. The Company has no cash equivalents for all periods presented.

(f) Inventories

Inventory comprises, gold held on carbon, mineral concentrate and mineralized material stockpiles. They are physically measured or estimated and valued at the lower of cost or net realizable value. Net realizable value is the estimated future sales price of the product the Company expects to realize when the product is processed and sold, less estimated costs to complete production and bring the product to sale. Where the time value of money is material, these future prices and costs to complete are discounted.

Stockpiles are measured by estimating the number of tonnes added and removed from the stockpile, the number of contained mineral ounces is based on assay data, and the estimated recovery percentage is based on the expected processing method. Stockpile tonnages are verified by periodic surveys. 

Cost of inventory is determined by using the weighted average method and comprises direct costs, depreciation, depletion and amortization as well as a portion of fixed and variable overhead costs incurred in converting materials into concentrate and ore, based on the normal production capacity.

Materials and supplies are valued at the lower of cost or net realizable value. Any provision for obsolescence is determined by reference to specific items of stock. A regular review is undertaken to determine the extent of any provision for obsolescence.

(g) Mineral properties and exploration and evaluation expenditures

Exploration and evaluation costs are expensed until the determination of the technical feasibility and the commercial viability of the associated project. Exploration costs include costs directly related to exploration and evaluation activities in the areas of interest. The technical feasibility and commercial viability of extracting a mineral resource is considered to be determinable when economically recoverable reserves are determined to exist, the rights of tenure are current and it is considered probable that the costs will be recouped through successful development and exploitation of the area, or alternatively by sale of the property. This determination is normally evidenced by the completion of a technical feasibility study.

Expenditures to develop new mines, to define further mineralization in mineral properties which are in the development or operating stage, and to expand the capacity of operating mines, are capitalized and amortized on a units-of-production basis over proven and probable reserves.

Should a property be abandoned, its capitalized costs are charged to the consolidated statement of operations and comprehensive income/(loss). The Company charges to the consolidated statement of operations and comprehensive income/(loss) the allocable portion of capitalized costs attributable to properties sold. Capitalized costs are allocated to properties sold based on the proportion of claims sold to the claims remaining within the project area.

(h) Mining rights

Mining rights are rights to explore and mine specified areas of land acquired from the landowner. Mining rights acquired for stated terms in excess of 10 years are capitalized as intangible assets and are measured initially at cost and amortized on a straight-line basis over the term of the rights. Mining rights acquired for undefined terms are capitalized as intangible assets and are measured initially at cost and amortized on a unit of production method over the estimated period of economically recoverable reserves. Amortization is charged to administrative expenses in the consolidated statement of operations and comprehensive income/(loss).

(i) Property, plant and equipment

Property, plant and equipment are stated at cost less accumulated depreciation and accumulated impairment losses. Cost includes expenditures that are directly attributable to the acquisition of an asset.

Repairs and maintenance costs are charged to theses consolidated statement of operations and comprehensive income/(loss) during the period in which they are incurred.

Depreciation is calculated to amortize the cost of the property, plant and equipment over their estimated useful lives using the straight-line and unit of production methods. Office equipment, vehicles, machinery and equipment, Mina Martha processing plant, and buildings are stated at cost and depreciated straight line over an estimated useful life of 3 to 20 years. Depreciation of plant, other than Mina Martha, is based on a unit-of-production method over the estimated period of economically recoverable reserves. Depreciation begins once the asset is in the state intended for use by management.


- 18 -


The Company allocates the amount initially recognized in respect of an item of property, plant and equipment to its significant parts and depreciates separately each such part. Residual values, method of depreciation and useful lives of the assets are reviewed annually and adjusted if appropriate.

Gains and losses on disposals of property, plant and equipment are determined by comparing the proceeds with the carrying amount of the asset and are included as part of other gains or losses in these consolidated statement of operations and comprehensive income/(loss).

(j) Impairment of long-lived assets

Long-lived assets held and used by the Company are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Asset impairment is considered to exist if the total estimated undiscounted pre-tax future cash flows are less than the carrying amount of the asset. In estimating future cash flows, assets are grouped at the lowest level for which there is identifiable cash flows that are largely independent of future cash flows from other asset groups. An impairment loss is measured by discounted estimated future cash flows and recorded by reducing the asset's carrying amount to fair value. Future cash flows are estimated based on estimated quantities of recoverable minerals, expected gold and silver (considering current and historical prices, trends and related factors), production levels, operating costs, capital requirements and reclamation costs, all based on life-of-mine plans.

Existing proven and probable reserves and value beyond proven and probable reserves, including mineralization other than proven and probable reserves are included when determining the fair value of mine site asset groups at acquisition and, subsequently, in determining whether the assets are impaired. Estimates of recoverable minerals from exploration stage mineral interests are risk adjusted based on management’s relative confidence in such materials. The ability to achieve the estimated quantities of recoverable minerals from exploration stage mineral interests involves further risks in addition to those risk factors applicable to mineral interests where proven and probable reserves have been identified, due to the lower level of confidence that the identified mineralized material could ultimately be mined economically. Assets classified as exploration potential have the highest level of risk that the carrying value of the asset can be ultimately realized, due to the still lower level of geological confidence and economic modeling.

(k) Asset retirement obligations

Upon retirement of the Company’s mineral properties, retirement costs will be incurred by the Company. Estimates of these costs are subject to uncertainty associated with the method, timing and extent of future decommissioning activities. The Company records the fair value of an asset retirement obligation as a liability in the period in which it incurs a legal or constructive obligation associated with the retirement of tangible long-lived assets that result from the acquisition, construction, development, and/or normal use of the long-lived assets. The Company also records a corresponding asset, which is depleted over the life of the asset. Subsequent to the initial measurement of the asset retirement obligation, the obligation is adjusted at the end of each period to reflect the passage of time (accretion expense) and changes in the estimated future cash flows underlying the obligation (asset retirement cost).

The Argentine mining regulations require that mine properties to be restored in accordance with specified standards and an approved reclamation plan. Significant reclamation activities include reclaiming refuse and slurry ponds, reclaiming the pit and support acreage at surface mines, and sealing portals at deep mines. The Company accrues for the cost of final mine closure reclamation over the estimated useful mining life of the property. At each period, the Company reviews the entire reclamation liability and makes necessary adjustments for revisions to cost estimates to reflect current experience.

The Company has adopted Asset Retirement and Environmental Obligations ASC 410, which requires legal obligations associated with the retirement of long-lived assets to be recognized at their fair value at the time that the obligations are incurred. Upon initial recognition of a liability, that cost is capitalized as part of the related long-lived asset and allocated to expense over the useful life of the asset.


- 19 -


(l) Income taxes

The Company accounts for income taxes under the asset and liability method. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. Under the asset and liability method, the effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. A valuation allowance is recognized if it is more likely than not that some portion or all of the deferred tax asset will not be recognized.

The Company operates are in multiple jurisdictions which involves dealing with uncertainties and judgments in the application of complex tax regulations. The final taxes paid or recovered are dependent upon many factors including resolutions arising from federal and state audits. The Company changes is tax assets and liabilities in light of the changing facts and circumstances but due to the complexity of the uncertainties in the tax regulations, the ultimate tax liability or asset could be materially different from the Company’s estimate recorded in the condensed interim consolidated financial statements.

(m) Share-based payments

The Company offers a share option plan for its directors, officers, employees and consultants. ASC 718 “Compensation – Stock Compensation” prescribes accounting and reporting standards for all share-based payment transactions in which employee services are acquired. Transactions include incurring liabilities, or issuing or offering to issue shares, options, and other equity instruments such as employee stock ownership plans and stock appreciation rights. Share-based payments to employees, including grants of employee stock options, are recognized as compensation expense in the condensed interim consolidated financial statements based on their fair values. That expense is recognized over the period during which an employee is required to provide services in exchange for the award, known as the requisite service period (usually the vesting period).

Measurement of share-based payment transactions with non-employees is based on the fair value of whichever is more reliably measurable: (a) the goods or services received; or (b) the equity instruments issued. The fair value of the share-based payment transaction is determined at the earlier of the performance commitment date or performance completion date.

(n) Earnings (loss) per share

The calculation of earnings (loss) per share (“EPS”) is based on the weighted average number of shares outstanding for each period. The basic EPS is calculated by dividing the income or loss attributable to the equity owners of the Company by the weighted average number of common shares outstanding during the period.

The computation of diluted EPS assumes the conversion, exercise or contingent issuance of securities only when such conversion, exercise or issuance would have a dilutive effect on the earnings per share. The treasury stock method is used to determine the dilutive effect of the warrants and share options. When the Company reports a loss, the diluted net loss per common share is equal to the basic net loss per common share due to the anti-dilutive effect of the outstanding warrants and share options.

(o) Revenue recognition

The Company recognizes sales revenue in accordance with ASC 606 when it has satisfied the following criteria: identifiable contract, identifiable performance obligation, determinable transaction price, allocating the transaction price and satisfying performance obligations.

The Company produces doré and concentrate that is shipped to third-party refiners and smelters, respectively, for processing. The Company enters into contracts to sell its metal to third-party customers which may include the refiners and smelters that process the doré and concentrate. The Company’s performance obligation in these transactions is generally the transfer of metal to the customer. In the case of doré shipments, the Company generally sells refined metal at market prices agreed upon by both parties. The Company also has the right, but not the obligation, to sell a portion of the anticipated refined metal in advance of being fully refined. When the Company sells refined metal or advanced metal, the performance obligation is satisfied when the metal is delivered to the customer. Revenue and Cost of Sales are recorded on a gross basis under these contracts at the time the performance obligation is satisfied.

(p) Segment reporting

In accordance with ASC 280, the management approach is used to identify operating segments. An operating segment is a component of an entity (i) that engages in business activities from which it may earn revenues and incur expenses (including revenues and expenses relating to transactions with other components of the same entity), (ii) whose operating results are regularly reviewed by the entity's management, and (iii) for which discrete financial information is available. The Company has identified its reportable segments on the basis of their geographic location. As a result, the Company discloses information geographically based on the location of each of its operations and within Argentina on the basis of operating mines and projects under construction

No operating segments have been aggregated to form the above reportable operating segments.

Management monitors the operating results of its business units separately for the purpose of making decisions about resource allocation and performance assessment.

(q) Highly inflationary economy

The Company has operations in Argentina through its subsidiaries as disclosed in Note 1 and their functional currency has historically been the Argentine Peso. The Company monitors inflation rates in the countries it operates under ASC 830-10-45-12. An economy must be classified as highly inflationary when the cumulative three-year inflation rate exceeds 100%.


- 20 -


During the year ended December 31, 2018, the economic environment in Argentina experienced the acceleration of multiple local inflation indices, a three-year cumulative inflation rate of the local Argentine wholesale price index exceeding 100% in July 1, 2018, and the significant devaluation of the Argentine Peso.

As such, the Company has considered Argentina to be a highly inflationary economy. In accordance with ASC 830, beginning on July 1, 2018, the functional currency of the Company’s Argentinian subsidiaries was changed to the Company’s reporting currency ($USD). The following table presents the application ASC 830-10 for a highly inflationary economy for the conversion of account balances:

Non-monetary Assets and Liabilities
Monetary assets and Liabilities
Equity
Translated at the balance of prior period end
Translated at the balance of prior period end
Remeasured using historical exchange rate
     

(r) Business Combinations

The Company accounts for business combinations under the acquisition method of accounting in accordance with ASC 805, Business Combinations, by recognizing identifiable tangible and intangible assets acquired, liabilities assumed, and non-controlling interests in the acquired business at their fair values. The excess of the costs of the acquired business over the fair value of the identifiable tangible and intangible assets acquired and liabilities assumed is recorded as Goodwill. Acquisition related costs are expensed as incurred.

5.  Recent Accounting Pronouncements

Recently issued and adopted accounting pronouncements

Leases
 
In February 2016, Accounting Standard Update (“ASU”) No. 2016-02 Leases was issued related to leases. The new guidance modifies the classification criteria and requires lessees to recognize the assets and liabilities arising from most leases on the balance sheet. This update is effective in fiscal years, including interim periods, beginning after December 15, 2018 and early adoption is permitted. The Company has evaluated all contracts which could be classified as leases under the new standards and determined that any impact as a result of adoption would not be material.

Recently issued but not yet adopted accounting pronouncements

Financial Instruments - Credit Losses

In June 2016, the FASB issued ASU 2016-13, “Financial Instruments - Credit Losses (Topic 326)”. The new standard is effective for reporting periods beginning after December 15, 2019. The standard replaces the incurred loss impairment methodology under current GAAP with a methodology that reflects expected credit losses and requires the use of a forward-looking expected credit loss model for accounts receivables, loans, and other financial instruments. The standard requires a modified retrospective approach through a cumulative-effect adjustment to retained earnings as of the beginning of the first reporting period in which the guidance is effective. We plan to adopt the new credit loss standard effective January 1, 2020. We do not expect the new credit loss standard to have a material effect on our financial position, results of operations or cash flows.
Income Taxes

In December 2019, the FASB issued ASU 2019-12, “Income Taxes - Simplifying the Accounting for Income Taxes (Topic 740)” which is intended to simplify various aspects related to accounting for income taxes. ASU 2019-12 removes certain exceptions to the general principles in Topic 740 and also clarifies and amends existing guidance to improve consistent application. ASU 2019-12 will be effective for interim and annual periods beginning after December 15, 2020 (January 1, 2021 for the Company). Early adoption is permitted. The Company is currently evaluating the impact the adoption of ASU 2019-12 will have on its consolidated financial statements.

6. Critical accounting judgments and estimates

(a) Significant judgments

Preparation of the consolidated financial statements requires management to make judgments in applying the Company's accounting policies. Judgments that have the most significant effect on the amounts recognized in these consolidated financial statements relate to functional currency; income taxes; provisions and reclamation and closure cost obligations. These judgments have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year.


- 21 -



Functional currency

Management determines the functional currency for each entity. This requires that management assess the primary economic environment in which each of these entities operates. Management’s determination of functional currencies affects how the Company translates foreign currency balances and transactions. Determination includes an assessment of various indicators. In determining the functional currency of the Company’s operations in Canada (Canadian dollar), UK (British Pound) and Argentina (U.S. dollar and Argentine Peso), management considered the indicators of ASC 830 Foreign Currency Matters.

Income taxes and taxes receivable

Significant judgment is required in determining the provision for income taxes. There are many transactions and calculations undertaken during the ordinary course of business for which the ultimate tax determination is uncertain and subject to judgment. The Company recognizes liabilities and contingencies for anticipated tax audit issues based on the Company’s current understanding of the tax law in the various jurisdictions in which it operates. For matters where it is probable that an adjustment will be made, the Company records its best estimate of the tax liability including the related interest and penalties in the current tax provision. Management believes they have adequately provided for the probable outcome of these matters; however, the final outcome may result in a materially different outcome than the amount included in the tax liabilities.

The Company has receivables due from the Argentinean government for value-added taxes. Significant estimates and judgments are involved in the assessment of recoverability of these receivables. Changes in management’s impairment assumptions may result in an additional impairment provision, or a reduction to any previously recorded impairment provision, with the impact recorded in profit or loss.

The Company has accrued deferred income tax assets but may not be able to utilize part or all of these assets in the future. The Company only recognizes the expected future tax benefit from these assets if it is considered more likely than not that the tax benefit will be realized. Otherwise, a valuation allowance is applied against deferred tax assets that are not more likely than not to be utilized. Assessing the recoverability of deferred tax assets requires management to make significant estimates related to expectations of future taxable income, including application of existing tax laws in each jurisdiction, assumptions about future metals prices, the macroeconomic environment and results of the Company’s operations. To the extent that future cash flows and taxable income differ significantly from estimates, the Company’s ability to realize deferred tax assets could be impacted. Additionally, future changes in tax laws could limit the ability to obtain the future benefits represented by the deferred tax assets

Title to mineral property interests

Although the Company has taken steps to verify title to mineral properties in which it has an interest, these procedures do not guarantee the Company’s title. Such properties may be subject to prior agreements or transfers and title may be affected by undetected defects.

Highly inflationary economy

The Company has designated Argentina as a highly inflationary economy in accordance with ASC 830, Foreign Currency Matters, and has therefore employed the use of the highly inflationary accounting. The determination of whether an economy is highly inflationary requires the Company to monitor, assess and calculate whether the three-year cumulative inflation rate exceeds 100%. The determination of whether an economy is highly inflationary requires the Company to make certain estimates and judgements, such as assessment of historic inflation rates and anticipation of future trends.

(b) Use of estimates

The preparation of theses consolidated financial statements in conformity with US GAAP requires the Company to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of these consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. The Company also makes estimates and assumptions concerning the future. The determination of estimates requires the exercise of judgment based on various assumptions and other factors such as historical experience and current and expected economic conditions. Actual results could differ from those estimates.

The more significant areas requiring the use of management estimates and assumptions relate to mineral reserves, asset retirement obligations, inventories and the allocation of fair value to assets and liabilities assumed in connection with business combinations. These estimates have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year.

The Company is also exposed to legal risk. The outcome of currently pending and future proceedings cannot be predicted with certainty. Thus, an adverse decision in a lawsuit could result in additional costs that are not covered, either wholly or partly, under insurance policies and that could significantly influence the business and results of operations.


- 22 -


Estimates and assumptions are continually evaluated and are based on historical experience and other factors, including expectations of future events that are believed to be reasonable under the circumstances.

Mineral reserves

The Company uses estimates and assumptions related to mineral reserves that are the basis for future cash flow estimates utilized in impairment calculations and units-of production amortization calculations, environmental, reclamation and closure obligations and estimates of recoverable silver and gold in inventories. The Company relies on their technical personnel and independent mining consultants to determine the estimates of mineral reserves. Mineral reserve estimates are based upon engineering evaluations of samplings of drill holes and other openings.

Business Combinations

The acquisition method of accounting for business combinations in accordance with ASC 805 requires management to determine the fair value of assets acquired and liabilities assumed on the date of the acquisition. In determining and allocating the fair values of assets and liabilities in a business combination, the Company relies on appraisals, internal valuations based on discounted cash flow, historical experience and other reliable information available as of the date of the acquisition.

Change in estimates

During the year 2018, the Company conducted a review of its plant and buildings which resulted in changes in its expected use. It was determined that the renovation work performed in 2016 and 2017 on these assets was having greater success than originally anticipated in extending their useful life. Additionally, metallurgical studies performed throughout 2018 confirmed that the plant could be successfully used to process mineralized materials from other mineral properties of the Company. It is now expected that the useful life of these assets will be extended from an original estimate of 36 months in 2017 to 87 months from December 31, 2018. The changes to the useful life of these assets were adopted prospectively for the year ended December 31, 2018.

7.  Inventories

 
 
September 30,
2019
     
Decmeber 31,
2018
 
   

$ ’000
   

$ ’000
 
 
               
Gold held on carbon
   $ 1,259
   
$
1,571
 
Silver and gold concentrate
    489      
-
 
Material stockpiles
    -      
2,996
 
Materials and supplies
    1,512
     
1,179
 
 
   $ 3,260
   
$
6,286
 

During the nine months ended September 30, 2019, the Company closed the Lomada project and put the Cap-Oeste project into care and maintenance. As a result, the carrying value of inventory for these projects has been reviewed for impairment. The net realizable value of the inventory is less than the costs incurred in establishing the ore stockpile and therefore a write down of $2.37 million was required and is recorded in cost of sales in the condensed interim consolidated statements of operations and comprehensive income (loss).

8.  Mineral properties

   
Mining assets
   
Surface rights acquired
   
Total
 
   

$ ’000
   

$ ’000
   

$ ’000
 
Cost
                       
Balance at January 1, 2018
 
$
1,280
   
$
847
   
$
2,127
 
Additions
   
500
     
198
     
698
 
Exchange differences
   
-
     
(300
)
   
(300
)
Balance December 31, 2018
 
$
1,780
   
$
745
   
$
2,525
 
Reverse acquisition (Note 26)
   
6,830
     
1,426
     
8,256
 
Additions
   
194
     
-
     
194
 
Balance September 30, 2019
 
$
8,804
   
$
2,171
   
$
10,975
 


- 23 -


Trilogy Mining Corporation

In January 2016, Patagonia Gold PLC (PGP) entered into an earn–in agreement with Trilogy Mining Corporation (“Trilogy”) in relation to the San José Project in Uruguay. This has been recognized within mining assets at a cost of $1,996 (2018: $1,780).

Surface rights

The Company owns the surface rights of land encompassing the Estancia (ranch) La Bajada, Estancia El Tranquilo, Estancia El Rincon, Estancia La Josefina and the Estancia 1° de Abril.

There is a back in right granted to the sellers under Estancia El Rincon’s title deed whereby the Company irrevocably committed to resell the estancia to its former owner in the event that two consecutive years elapse without mining activities. Current activity on this property includes the Lomada Project.

Mina Martha project

On May 6, 2016, the Company acquired the assets of the Mina Martha project from Coeur Mining Inc. (“Coeur”). The Mina Martha project consists of land, mineral rights, a mine camp, offices, a warehouse, maintenance shop, mining facilities including a flotation mill and a tailings retention facility.

La Josefina project

In March 2007, the Company acquired the exploration and development rights to the La Josefina project from Fomento Minero de Santa Cruz Sociedad del Estado (“Fomicruz”) the Santa Cruz provincial mining and petroleum company.

In July 2007, the Company entered into an agreement (subsequently amended) with Fomicruz which provides that, in the event that a positive feasibility study is completed on the La Josefina property, a Joint Venture Corporation (“JV Corporation”) would be formed by the Company and Fomicruz. The Company would own 81% of the joint venture company and Fomicruz would own the remaining 19%. Fomicruz has the option to earn up to a 49% participating interest in the JV Corporation by reimbursing the Company an equivalent amount, up to 49%, of the exploration investment made by the Company. The Company has the right to buy back any increase in Fomicruz’s ownership interest in the JV Corporation at a purchase price of $0.2 million per each percentage interest owned by Fomicruz down to its initial ownership interest of 19%; the Company can also purchase 10% of the Fomicruz’s initial 19% JV Corporation ownership interest by negotiating a purchase price with Fomicruz. Under the agreement, the Company has until the end of 2019 to complete cumulative exploration expenditures of $18 million and determine if it will enter into production on the property. As at December 31, 2018, the Company had incurred approximately $20 million and is in current discussions with Fomicruz to develop a plan for production.

As at September 30, 2019, this project has a carrying amount of $Nil (2018 - $Nil) on the condensed interim consolidated balance sheet.

La Valenciana project

On November 1, 2012, the Company entered into an agreement for the exploration of the La Valenciana project in Santa Cruz province, Argentina.  The agreement is for a total of 7 years, expiring on October 31, 2019. The agreement requires the Company to spend $5million in exploration on the project over 7 years. If the Company elects to exercise its option to bring the La Valenciana project into production, it must grant Fomicruz a 9% ownership in a new JV Corporation to be created by the Company to manage the project and the Company will have a 91% ownership interest in the JV Corporation. Subsequent to September 30, 2019, this agreement was extended until April 30, 2021, which period may be extended for an additional one-year term.

As at September 30, 2019 this project has a carrying amount of $Nil (2018 - $Nil) on the condensed interim consolidated balance sheet.

9. Asset retirement obligation

The Company is legally required to perform reclamation on sites where environmental disturbance is caused by the development or on-going mining of a property to restore it to its original condition at the end of its useful life. In accordance with FASB ASC 410-20, Asset Retirement Obligations, the Company recognized the fair value of that liability as an asset retirement obligation. The total amount of undiscounted cash flows required to settle the estimated obligation is $3,030 which has been discounted using a credit-adjusted rate of 24.94% (2018 – 24.94%) and an inflation rate of 2.29% (2018 – 2.29%).


- 24 -


The following table describes the changes to the Company's asset retirement obligation liability:



 
 
September 30,
2019
   
December 31,
2018
 
   
$ ’000
   
$ ’000
 
Asset retirement obligation at beginning of period
 
$
552
   
$
686
 
Reverse acquisition (note 26)
   
739
     
-
 
Change in estimate
   
(61
)
   
(712
)
Accretion expense
   
115
     
578
 
Asset retirement obligation at end of period
 
$
1,345
   
$