UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 20-F
REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR (g) OF THE SECURITIES EXCHANGE ACT OF 1934 | ||
OR
☒ | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For fiscal year ended December 31, 2020
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
OR
SHELL COMPANY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
Date of event requiring this shell company report:
For the transition period from to
Commission file number 001-32570 |
ENTRÉE GOLD INC.
(Exact name of Registrant as specified in its charter)
Province of British Columbia, Canada
(Jurisdiction of incorporation or organization)
1650 – 1066 West Hastings Street
Vancouver, British Columbia, Canada V6E 3X1
(Address of principal executive offices)
Susan McLeod, Vice-President Legal Affairs
1650 – 1066 West Hastings Street
Vancouver, British Columbia, Canada V6E 3X1
Telephone: (604) 687-4777
Email: smcleod@entreegold.com
(Name, Telephone, E-mail and/or Facsimile number and Address of Company Contact Person)
Securities registered pursuant to Section 12(b) of the Act:
Securities registered pursuant to Section 12(g) of the Act:
Title of Class | Trading Symbol(s) | Name of Each Exchange on Which Registered | ||
Common Shares, no par value | ERLFF | Over-the-Counter OTCQB Venture Market |
Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act: None
Indicate the number of outstanding shares of each of the Registrant'sRegistrant’s classes of capital or common stock as of the close of the period covered by the annual report: As at December 31, 2015, 147,330,9172020, 186,530,002 Common Shares of the Registrant were issued and outstanding
Indicate by check mark if the registrantRegistrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.
If this report is an annual or transition report, indicate by check mark if the Registrant is not required to file reports pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934. Yes ☐ No☒
Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrantRegistrant 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 registrantRegistrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted 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 registrantRegistrant was required to submit and post such files).
Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. filer, or an emerging growth company. See definition of "accelerated filer“large accelerated filer”, “accelerated filer” and large accelerated filer"“emerging growth company” in Rule 12b-2 of the Exchange Act. (Check one)
Large accelerated filer ☐ | Accelerated filer ☐ | Non-accelerated filer ☒ | Emerging growth company ☐ |
If an emerging growth company that prepares its financial statements in accordance with U.S. GAAP, 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.
†The term “new or revised financial accounting standard” refers to any update issued by the Financial Accounting Standards Board to its Accounting Standards Codification after April 5, 2012.
Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. ☐
Indicate by check mark which basis of accounting the registrantRegistrant has used to prepare the financial statements included in this filing:
U.S. GAAP | International Financial Reporting Standards as issued | ☒ Other ☐ | |||
by the International Accounting Standards Board |
If "Other"“Other” has been checked in response to the previous question, indicate by check mark which financial statement item the registrantRegistrant has elected to follow:
Item 17 ☐ ItemItem 18 ☐
If this is an annual report, indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No☒
In this annual report on Form 20-F, which we refer to as the "Annual Report"“Annual Report”, except as otherwise indicated or as the context otherwise requires, the "Company"“Company”, "we"“we”, "our"“our” or "us"“us” or "Entrée"“Entrée” or "Entré“Entrée Gold"Resources” refers to Entrée Gold Inc.Resources Ltd. and its consolidated subsidiaries, as applicable. The Company is a "foreign“foreign private issuer"issuer” as defined in Rule 3b-4 under the United States Securities Exchange Act of 1934, as amended (the "U.S.“U.S. Exchange Act"Act”). The equity securities of the Company are accordingly exempt from Sections 14(a), 14(b), 14(c), 14(f) and 16 of the U.S. Exchange Act pursuant to Rule 3a12-3.
Unless we otherwise indicate in this Annual Report, all references to "Canadian Dollars"“Canadian Dollars”, "Cdn $"“Cdn $” or "C$"“C$” are to the lawful currency of Canada and all references to "U.S. Dollars"“U.S. Dollars” or "$"“$” are to the lawful currency of the United States.
This Annual Report contains "forward“forward looking information"information” and "forward-looking statements"“forward-looking statements” (together, "forward-looking statements"“forward-looking statements”) within the meaning of securities legislation in Canada and the United States Private Securities Litigation Reform Act of 1995, as amended. Such forward-looking statements concern the Company'sCompany’s anticipated results and developments in the Company'sCompany’s operations in future periods, planned exploration and development of its properties, plans related to its business and other matters that may occur in the future. These statements relate to analyses and other information that are based on forecasts of future results, estimates of amounts not yet determinable and assumptions of management.
Statements concerning mineral resource estimates may also be deemed to constitute forward-looking statements to the extent that they involve estimates of the mineralization that will be encountered if the property is developed, and such statements reflect the conclusion based on certain assumptions that the mineral deposit can be economically exploited. Any statements that express or involve discussions with respect to predictions, expectations, beliefs, plans, projections, objectives, assumptions or future events or performance (often, but not always, using words or phrases such as "expects"“expects” or "does“does not expect"expect”, "is expected"“is expected”, "anticipates"“anticipates” or "does“does not anticipate"anticipate”, "plans"“plans”, "estimates"“estimates” or "intends"“intends”, or stating that certain actions, events or results "may"“may”, "could"“could”, "would"“would”, "might"“might” or "will"“will” be taken, occur or be achieved) are not statements of historical fact and may be forward-looking statements. While the Company has based these forward-looking statements on its expectations about future events as at the date that such statements were prepared, the statements are not a guarantee of the Company'sCompany’s future performance and are based on numerous assumptions regarding present and future business strategies, the correct interpretation of agreements, laws and regulations, local and global economic conditions legal proceedings and negotiations and the environment in which Entrée will operate in the future, including commodity prices, projected grades, projected dilution, anticipated capital and operating costs, anticipated future production and cash flows, the anticipated location of certain infrastructure and sequence of mining within and across panel boundaries, the continued construction and development of the Oyu Tolgoi underground mine, and the status of Entrée'se’s relationship and interaction with the Government of Mongolia, OTLLC, Rio Tinto and Turquoise Hill. The 2018 PEA is based on a conceptual mine plan that includes Inferred resources. Numerous assumptions were made in the preparation of the 2018 PEA, including with respect to mineability, capital and operating costs, production schedules, the timing of construction and expansion of mining and processing facilities, and recoveries, that may change materially once production commences at Hugo North Extension Lift 1 and additional development and capital decisions are required.
Important risks, uncertainties, assumptions and other factors which could cause actual events or results to differ materially from those expressed or implied by the forward-looking statements include, without limitation:
· |
the timing and cost of the construction and expansion of Oyu Tolgoi mining and processing facilities; |
· | the timing and availability of a |
· | the potential impact of COVID-19, including any restrictions imposed by health and governmental authorities relating thereto; |
· | the ability of OTLLC to secure and draw down on the supplemental debt under the Oyu Tolgoi |
· | the |
· | the willingness and ability of the parties to the |
· | the nature and quantum of the current and projected economic benefits to Mongolia resulting from the continued operation of Oyu |
· | the impact of |
· | delays, and the costs which would result from delays, in the development of the Oyu Tolgoi underground mine; |
· | the status and nature of the relationship and interaction between OTLLC, Rio Tinto, Turquoise Hill and the Government of Mongolia on the continued operation and development of Oyu Tolgoi, future funding plans and requirements and OTLLC internal governance (including the outcome of any such interactions or discussions); |
· | the anticipated location of certain infrastructure pillar location and sequence of mining within and across panel boundaries; |
· | projected commodity prices and their market demand; |
· | production estimates and the anticipated yearly production of copper, gold and silver at the Oyu Tolgoi underground mine; |
· | any changes to the |
· | unanticipated costs, expenses or liabilities; |
· | discrepancies between actual and |
· | development plans for processing resources; |
· | matters relating to proposed exploration or expansion; |
· | mining operational and development risks, including geotechnical risks and ground conditions; |
· | regulatory restrictions (including environmental regulatory restrictions and liability); |
· | communications with local stakeholders and community relations; |
· | risks related to international operations, including legal and political risk in Mongolia; |
· | risks associated with changes in the attitudes of governments to foreign investment; |
· | risks associated with the conduct of joint ventures; |
· | inability to upgrade Inferred mineral resources to Indicated or Measured mineral resources; |
· | inability to convert mineral resources to mineral reserves; |
· | conclusions of economic evaluations; |
· | changing foreign exchange rates; |
· | the speculative nature of mineral exploration; |
· | the global economic climate; |
· | dilution; |
· | share price volatility; |
· | activities, actions or assessments by Rio Tinto, Turquoise Hill |
· | the availability of funding on reasonable terms; |
· |
the terms and timing of obtaining necessary environmental and other government approvals, consents and permits; |
· | the availability and cost of necessary items such as |
· | unanticipated reclamation expenses; |
· | geotechnical or hydrogeological considerations during mining being different from what was assumed; |
· | changes to assumptions as to the availability of electrical power, and the power rates used in |
· | changes to assumptions as to salvage values; |
· | ability to maintain the social licence to operate; |
· |
accidents, labour disputes and other risks of the mining industry; |
· | environmental risks; |
· | global climate change; |
· | title disputes; |
· | limitations on insurance coverage; |
· | competition; |
· | loss of key employees; |
· | cyber security incidents; |
· | misjudgements in the course of preparing forward-looking statements; |
· | the potential application of the Government of |
· | risks related to officers and directors becoming associated with other natural resource companies which may give rise to conflicts of interests; |
· | risks that the Company could be deemed a passive foreign investment company, which could have negative consequences for U.S. investors; |
· | risks related to differences in United States and Canadian reporting of reserves and resources; |
· | risks related to the potential inability of U.S. investors to enforce civil liabilities against the Company or its directors, controlling persons and officers; |
· | risks related to the Company being a foreign private issuer under |
· | risks related to the voluntary delisting of the Company’s Common Shares from the NYSE American LLC. |
The above list is not exhaustive of the factors that may affect our forward-looking statements. Some of the important risks and uncertainties that could affect forward-looking statements are described further under the section heading "Item“Item 3. Key Information – D. Risk Factors"Factors” below in this Annual Report. Should one or more of these risks and uncertainties materialize, or should underlying assumptions prove incorrect, actual results may vary materially from those described in the forward-looking statements. Forward-looking statements are made based on management'smanagement’s beliefs, estimates and opinions on the date the statements are made, and the Company undertakes no obligation to update forward-looking statements if these beliefs, estimates and opinions or other circumstances should change, except as required by law. Investors are cautioned against attributing undue certainty to forward-looking statements.
The Company qualifies all the forward-looking statements contained in this Annual Report by the foregoing cautionary statements.
As used in this Annual Report, the terms "mineral reserve"“mineral reserve”, "Proven“Proven mineral reserve"reserve” and "Probable“Probable mineral reserve"reserve” are Canadian mining terms as defined in accordance with Canadian National Instrument 43-101 – Standards of Disclosure for Mineral Projects ("(“NI 43-101"43-101”) and the Canadian Institute offor Mining, Metallurgy and Petroleum ("CIM"(“CIM”) - CIM Definition Standards on Mineral Resources and Mineral Reserves, adopted by the CIM Council on May 10, 2014, as amended.amended (“CIM Definition Standards)”. These definitions differ from the definitions in the U.S. Securities and Exchange Commission's ("SEC"Commission’s (“SEC”) Industry Guide 7 ("(“SEC Industry Guide 7"7”) under the United States Securities Act of 1933, as amended ("(“U.S. Securities Act"Act”). Under SEC Industry Guide 7 standards, a "final"“final” or "bankable"“bankable” Feasibility Study is required to report reserves, the three-year historical average price is used in any reserve or cash flow analysis to designate reserves and all necessary permits and governmental authorizations must be filed with the appropriate governmental authority.
In addition, the terms "mineral resource"“mineral resource”, "Measured“Measured mineral resource"resource”, "Indicated“Indicated mineral resource"resource” and "Inferred“Inferred mineral resource"resource” are defined in and required to be disclosed by NI 43-101; however, these terms are not defined terms under SEC Industry Guide 7 and are normallyhave historically not been permitted to be used in reports and registration statements filed with the SEC. Investors are cautioned not to assume that any part or all of mineral deposits in these categories will ever be converted into reserves. "Inferred“Inferred mineral resources"resources” have a great amount of uncertainty as to their existence, and great uncertainty as to their economic and legal feasibility. It cannot be assumed that all, or any part, of an Inferred mineral resource will ever be upgraded to a higher category. Under Canadian rules, estimates of Inferred mineral resources may not form the basis of Feasibility or Pre-Feasibility studies, except in rare cases. Investors are cautioned not to assume that all or any part of an Inferred mineral resource exists or is economically or legally mineable. Disclosure of "contained ounces"“contained ounces” in a resource is permitted disclosure under Canadian regulations; however, the SEC normally only permits issuers to report mineralization that does not constitute "reserves"“reserves” by SEC Industry Guide 7 standards as in place tonnage and grade without reference to unit measures.
Accordingly, information contained in this Annual Report and the documents incorporated by reference herein contain descriptions of our mineral deposits that may not be comparable to similar information made public by U.S. companies subjectpursuant to SEC Industry Guide 7.
On October 31, 2018, the SEC adopted the Modernization of Property Disclosures for Mining Registrants (the “New Rule”), introducing significant changes to the reportingexisting mining disclosure framework to better align it with international industry and disclosure requirementsregulatory practice, including NI 43-101. The New Rule became effective as of February 25, 2019 and following a transition period the Company may be required to comply with the New Rule as of its annual report for its first fiscal year beginning on or after January 1, 2021, and earlier in certain circumstances. While early voluntary compliance with the New Rule is permitted, the Company has not elected to comply with the New Rule at this time and the Company does not anticipate needing to comply with the New Rule until March 2022. Under the New Rule, the definitions of “Proven Mineral Reserves” and “Probable Mineral Reserves” have been amended to be substantially similar to the corresponding CIM Definition Standards and the SEC has added definitions to recognize “Measured Mineral Resources”, “Indicated Mineral Resources” and “Inferred Mineral Resources” which are also substantially similar to the corresponding CIM Definition Standards; however, there are differences in the definitions under the United States federal securities lawsNew Rule and the rulesCIM Definition Standards and regulations thereunder.
EXPLANATORY NOTE REGARDING PRESENTATION OF FINANCIAL INFORMATION
The Company is a "foreign“foreign private issuer"issuer” under SEC regulations. The Company files its financial statements with both Canadian and U.S. securities regulatorsregulators. For the years ended December 31, 2020, 2019 and 2018, the consolidated financial statements have been prepared in accordance with International Financial Reporting Standards (“IFRS”) as issued by the International Accounting Standards Board (“IASB”) which differs in certain respects from United States Generally Accepted Accounting Principals (“U.S. GAAP”). For periods up to and including the year ended December 31, 2016, the Company prepared its financial statements in accordance with U.S. GAAP,GAAP. The Company’s consolidated financial statements for the year ended December 31, 2017 were the first that it prepared in accordance with IFRS as permitted under current regulations. In 2008,issued by the Accounting Standards Board in Canada and the Canadian Securities Administrators ("CSA") confirmed that domestic issuers were required to transition to International Financial Reporting Standards ("IFRS") for fiscal years beginning on or after January 1, 2011. On June 27, 2008, the CSA Staff issued Staff Notice 52-321 – Early Adoption of International Financial Reporting Standards, Use of US GAAP and References to IFRS-IASB which confirmed that domestic issuers that are also SEC registrants are able to continue to use U.S. GAAP. Consequently, the Company is not required to convert to IFRS effective January 1, 2011 and has elected to continue using U.S. GAAP.
The annual audited consolidated financial statements contained in this Annual Report are reported in United StatesU.S. dollars, unless otherwise specified. All references to "Common Shares" mean common sharesTable amounts are expressed in the capital stockthousands of Entrée Gold Inc. See "Exchange Rate" below.
Non-IFRS Performance Measurement: "Cash costs"“Cash costs after credits” (“C1”) and "all-inall-in sustaining costs" ("ASIC"cost (“AISC”) are non-U.S. GAAPnon-IFRS performance measurements. These performance measurements are included because these statistics are widely accepted as
the standard of reporting cash costs of production in North America. These performance measurements do not have a meaning within U.S. GAAPIFRS and, therefore, amounts presented may not be comparable to similar data presented by other mining companies. These performance measurements should not be considered in isolation as a substitute for measures of performance in accordance with U.S. GAAP.IFRS.
mineral reserve | A mineral reserve is the economically mineable part of a Measured and/or Indicated mineral |
mineral resource | A mineral resource is a concentration or occurrence of | |
Modifying Factors | Modifying Factors are considerations used to convert mineral resources to mineral reserves. These include, but are not restricted to, mining, processing, metallurgical, infrastructure, economic, marketing, legal, environmental, social and governmental factors. | |
net present value (NPV) | The present value of the total revenue stream for the proposed mine taking into account a discount rate for future revenue and costs, and current capital costs. | |
net smelter returns (NSR) | The gross proceeds that the owner of a mining property receives from the sale of products less deductions of certain limited costs including smelting, refining, transportation and insurance costs. | |
NI 43-101 | National Instrument 43-101 – Standards of Disclosure for Mineral Projects of the CSA establishes the standards for disclosure of scientific and technical information regarding mineral projects that is intended to be, or reasonably likely to be, made available to the Canadian public. | |
NSR royalty | The percentage of net smelter returns that the mine is obligated to pay to the royalty holder. | |
open pit mining | A form of mining designed to extract minerals that lie near the surface. Waste, or overburden is first removed and the mineral-bearing rock is broken, removed and processed to remove the valuable metal. (Similar terms: opencast mining, open cut mining). | |
ore | The naturally occurring material from which a mineral or minerals of economic value can be extracted at a reasonable profit. Also, the mineral(s) thus extracted. | |
oxidation | A chemical reaction caused by exposure to oxygen which results in a change in the chemical composition of a mineral. | |
oxidized | Oxide and carbonate-based minerals formed by the weathering of sulphide minerals. Examples include: malachite, turquoise and chrysocolla. |
porphyry | An igneous rock of any composition that contains conspicuous, large mineral crystals in a fine-grained groundmass; a porphyritic igneous rock. | |
porphyry copper deposit | A large mineral deposit, typically within porphyry rocks, that contains disseminated copper sulphide and other minerals. Such deposits are mined in bulk on a large scale, generally in open pits, for copper and possibly by-product molybdenum, gold and silver. | |
Pre-Feasibility study | A Pre-Feasibility Study is a comprehensive study of a range of options for the technical and economic viability of a mineral project that has advanced to a stage where a preferred mining method, in the case of underground mining, or the pit configuration, in the case of an open pit, is established and an effective method of mineral processing is determined. It includes a financial analysis based on reasonable assumptions on |
Preliminary Economic Assessment (PEA) | A study, other than a Pre-Feasibility or Feasibility study, that includes an economic analysis of the potential viability of mineral resources. | |
Probable mineral reserve | A Probable mineral reserve is the economically mineable part of an Indicated, and in some circumstances, a Measured mineral | |
Proven mineral reserve | A Proven mineral reserve is the economically mineable part of a Measured mineral | |
Qualified Person (QP) | A Qualified Person is an individual | |
quality assurance/quality control (QA/QC) | Quality assurance is information collected to demonstrate and quantify the reliability of assay data. Quality control consists of procedures used to maintain a desired level of quality in an assay database. | |
reverse circulation (RC) drilling | A type of percussion drilling where a hammer force is transmitted down a length of steel drill rods to a rotating bit that breaks the rock into chips. The method involves forcing air and/or water down the outer chamber of twin-walled drill rods to the drill bit where the rock chips are picked up and driven back to the surface through the inner chamber of the rods. RC drilling is faster and less expensive than diamond drilling. However, RC drilling only produces fragments and chips of broken rock, so less geological information is available than would be obtained from drill core. | |
smelter | Any metallurgical operation in which metal is separated by fusion from those impurities with which it may be chemically combined or physically mixed, such as in ores. |
stripping | ||
The removal of earth or non-ore rock materials as required to gain access to the desired ore or mineral materials; the process of removing overburden or waste material in a surface mining operation. | ||
sulphide mineralization | Compounds of sulphur with other metallic elements. Common copper examples are chalcopyrite and bornite. | |
tailings | The fine, sandy material without valuable metals remaining after the treatment of ground ore resulting in the removal of the valuable metals and production of concentrate (see | |
trench | In geological exploration, a narrow, shallow ditch cut across a mineral showing or deposit to obtain samples or to observe rock character. | |
underground mining | Extraction of ores, rocks and minerals from below the surface of the ground. Generally access to the underground mine workings is through an adit |
Units of Measure | ||
billion | B |
billion tonnes | Bt | ||
cubic metre | m3 | ||
cubic metre per tonne | m3/t | ||
degree | ° | ||
degrees Celsius | ° | ||
dollar (U.S.) | $ | ||
dry metric tons | dmt | ||
gram | g | ||
grams per tonne | g/t | ||
greater than | > | ||
hectare (10,000 m2) | ha | ||
kilo troy ounces | koz | ||
kilogram | kg | ||
kilometre | km | ||
kilometres per hour | km/hr | ||
kilovolt | kV | ||
kilotonnes per day | kt/d | ||
kilotonnes per hour | kt/h | ||
kilowatt hour | kWh | ||
kilowatt hours per tonne (metric) | kWh/t | ||
less than | < | ||
litre | L | ||
litres per second | L/s | ||
litres per tonne | L/t | ||
megawatts | MW | ||
metre | m |
metres above sea level | masl |
metres per second | m/s | ||
microns | µm | ||
millimetre | mm | ||
million | M | ||
million pounds | Mlb | ||
million ounces | Moz | ||
million tonnes | Mt | ||
Million tonnes per annum | Mt/a | ||
minute (geographic coordinate) | , | ||
parts per million | ppm | ||
per | / | ||
per annum (year) | /a | ||
per | / | ||
percent | % | ||
pound(s) | lb | ||
second (geographic coordinate) | ,, | ||
square centimetre | cm2 | ||
square | km2 | ||
square | m2 | ||
three dimensional | 3D | ||
tonne (1,000 kg) | t | ||
tonnes per cubic metre | t/m3 | ||
tonnes per day | tpd | ||
tonnes per year | t/a | ||
troy ounce | oz |
PART I.
Discount Rate | Net Present Value ($M) Entrée | |
Before-Tax | After-Tax | |
Undiscounted | 440 | 328 |
5.00% | 215 | 160 |
6.00% | 187 | 139 |
7.00% | 163 | 121 |
8.00% | 142 | 106 |
9.00% | 124 | 93 |
10.00% | 109 | 81 |
Entrée/Oyu Tolgoi JV and OTLLC processing tonnagese’s 20% attributable portion was evaluated for sensitivity to variations in capital costs, operating costs, copper grade, and copper gold,price. Entrée’s 20% attributable portion is most sensitive to changes in copper price and silver metal productiongrade and less sensitive to changes in operating and capital costs.
Figure 4 is an after-tax NPV sensitivity graph for Entrée’s 20% attributable portion. The copper grade sensitivity mirrors the LHTR16 Reserve Casecopper price and plots on the same line.
Figure 4 – After-Tax NPV@8% Sensitivity Analysis for Entrée’s 20% Attributable Portion
Note: Figure prepared by Wood, 2018.
Preliminary Economic Assessment
Introduction
The PEA that follows is shown in Figures 12 to 15 below. The production shown isan alternative development option done at the total production fromconceptual level based on mineral resources, which assesses the Entrée/Oyu Tolgoi JVinclusion of which 20% is attributable to Entrée. Total Entrée/Oyu Tolgoi JV Lift 1 production is forecast to total 34.8 Mt. Underground development on Hugo North Extension is expected to start in 2021 and deposit production is expected to commence in 2027 and continue to 2034. Entrée/Oyu Tolgoi JV Lift 1 production will reach a peak of 8.3 Mt in 2031.
The mine designs noted above that are in the alternative production cases andplan is partly based on the Entrée/Oyu Tolgoi JV Property are:
“Item 4. Information on the Company – D. Property, Plants and Equipment – Entrée/Oyu Tolgoi JV Project, Mongolia – Introduction” through to “Item 4. Information on the Company – D. Property, Plants and Equipment – Entrée/Oyu Tolgoi JV Project, Mongolia – Mineral Resource Statement” and “Item 4. Information on the Company – D. Property, Plants and Equipment – Entrée/Oyu Tolgoi JV Project, Mongolia – Recommendations” also apply to the 2018 PEA. Years presented in the future2018 PEA are for illustrative purposes only.
Mineral Resource Subset within the 2018 PEA Mine Plan
The 2018 PEA is based on the prevailing conditionssubset of mineral resources in Table 11. Mineral resources that are not mineral reserves do not have demonstrated economic viability.
Table 11 – Subset of Mineral Resources within the 2018 PEA Mine Plan
Classification by Deposit | NSR ($/t) | Tonnage (kt) | Grades
CuEq (%) | Cu (%) | Au (g/t) | Ag (g/t) | Mo (ppm) | |||||||||||||
| ||||||||||||||||||||
Hugo North Extension, Lift 1 | ||||||||||||||||||||
Indicated | 100.57 | 34,800 | 1.93 | 1.59 | 0.55 | 3.72 | — | |||||||||||||
Hugo North Extension, Lift 2 | ||||||||||||||||||||
Indicated | 83.80 | 78,400 | 1.64 | 1.34 | 0.48 | 3.59 | — | |||||||||||||
Inferred | 83.80 | 88,400 | 1.64 | 1.34 | 0.48 | 3.59 | — | |||||||||||||
Heruga – Javhlant ML | ||||||||||||||||||||
Inferred | 32.19 | 619,718 | 0.71 | 0.42 | 0.43 | 1.53 | 124 |
Notes:
· | The tabulation was derived by Wood at a conceptual level from data supplied by OTLLC. |
· | Mineral resources that are not mineral reserves do not have demonstrated economic viability. |
· | The Hugo North Extension Lift 1 mineral resource tonnes and grade are not additive to the Hugo North Extension Lift 1 mineral reserves in the 2018 Reserve Case. |
Mine Plan
For planning purposes, the 2016 Oyu Tolgoi Feasibility Study assumes that the overall underground production is capped at approximately 33 Mt/a for the foreseeable mine life, and that this cap is based on the development experience obtained from developing and operatingmill capacity; this capping assumption is used in the initial phases of Oyu Tolgoi.
Since the subset of the decision tree for the possible development options at Oyu Tolgoi, includingmineral resources within the Entrée/Oyu Tolgoi JV Property. This has been updated to include options that take advantage of productivity improvements in plant throughput that have begunProperty is planned to be recognisedmined as part of an overall strategy for the mineralization within the Oyu Tolgoi mining licence combined with that in the process plant. Entrée/Oyu Tolgoi JV Property, there are gaps in the planned production periods. Figure 5 shows the production forecast for the subset of the mineral resources within the 2018 PEA mine plan.
The decision tree shows options assuming that continuous improvementssubset of the mineral resource in plant productivity are achieved over the next five years. Then there would be key decision points for plant expansionmine plan is separated into three mining areas within the Entrée/Oyu Tolgoi JV Property: Hugo North Extension Lift 1, Hugo North Extension Lift 2, and the developmentportion of new mines atthe Heruga deposit within the Javhlant mining licence. The current level of knowledge regarding these areas suggests that panel cave mining is appropriate for all three areas.
Mineralized material delivery from Hugo North (includingExtension Lift 1 is anticipated to begin in 2021, when development commences within this area. Production from the cave is expected in 2026 when the first drawbelling occurs. Production is projected to occur for nine years (2026 to 2034) with a peak production (8.3 Mt/a) occurring in 2031.
The Hugo North Extension)mine planning and optimization indicated that the ideal elevation for the second lift (Lift 2) is approximately 400 m below Lift 1. The mine plan assumes that 723 drawpoints will be constructed between 2035 and 2046 in the Hugo North Extension Lift 2 area.
Figure 5 – 2018 PEA Production Forecast for the Subset of Mineral Resources within the 2018 PEA Mine Plan
Note: Figure prepared by Wood, 2017. Abbreviations: HN1-EJV = Hugo South, and eventually Heruga. This provides an opportunity as OTLLC will haveNorth Extension Lift 1 within the benefit of incorporating actual performanceEntrée/Oyu Tolgoi JV Property; HN2-EJV = Hugo North Extension Lift 2 within the Entrée/Oyu Tolgoi JV Property; Heruga-EJV = Heruga within the Entrée/Oyu Tolgoi JV Property.
Initial mill feed delivery from Hugo North Extension Lift 2 is assumed to begin in 2028 when development commences in the Hugo North Extension Lift 2 area. Production from Hugo North Extension Lift 2 is anticipated to begin in 2035 with the completion of the operating mine into the study before the next investment decisions are required. OTLLC plans to continue to evaluate alternative production cases in order to define the relative ranking and timing requirements for overall development options.
A 2014 study separated Heruga into a north and south zone for mine planning purposes, and assumed that these would be at separate elevations (-20 masl and -350 masl respectively). The 2018 Technical Report considers a total of 2,606 drawpoints to be included for both caves; of these 2,265 would be within the Entrée/Oyu Tolgoi JV Property, while the remainder would be within the Oyu Tolgoi mining licence.
Mineralized material will be removed by means of a conveyor to surface. Four shafts will be needed to accommodate the ventilation requirements and access for personnel, material and equipment into/out of the mine. The production rate from Heruga is considered to be the same as the Hugo North/Hugo North Extension)Extension complex (~95,000 t/d) to meet the capacity of the mill. Hence, the overall scale of the underground and surface infrastructure will be similar to that associated with Hugo North/Hugo North Extension. In the 2018 PEA mine plan, development in mill feed material would begin from the southern Heruga zone in 2065. The first drawbell would be fired in 2069, and the mine would achieve rated capacity in 2083.
Production from the Entrée/Oyu Tolgoi JV Property would cease in 2097. Average production from the Entrée/Oyu Tolgoi JV Property between 2069 and 2097 (inclusive) would be approximately 59,200 t/d.
All three mines in the 2018 PEA case are anticipated to use a similar equipment fleet based on the requirements of the common block cave technique. The following equipment will be required: mucking (LHDs); haulage (road trains and articulated haul trucks); drilling (jumbos, production drills and bolting equipment); raise bore and boxhole; utilities and underground support (flatbeds, boom trucks, fuel and lube trucks, explosive carriers, shotcrete transmixers and sprayers, etc.); surface support; and light vehicles.
Major fixed equipment will include: material handling (crushing and conveying); fans and ventilation equipment; pumping and water handling equipment; power distribution equipment; data and communications equipment; and maintenance equipment (fixed shop furnishing).
Recovery Methods
The 2018 PEA assumes that no changes will be required to the process plant from those contemplated in the Phase 2 concentrator development program (see “Item 4. Information on the Company – D. Property, Plants and Equipment – Entrée/Oyu Tolgoi JV Project, Mongolia – Recovery Methods”), and that the same mill throughput will be maintained.
Project Infrastructure
The majority of the primary infrastructure and facilities required for the Oyu Tolgoi project were completed during Phase 1. The 2018 PEA assumes that the infrastructure in place for Hugo North/Hugo North Extension Lift 1 will be available for Hugo North/Hugo North Extension Lift 2, and that a similar design will be employed for the underground mining operation. For the purposes of the 2018 PEA mine plan, it was assumed that Heruga will be a completely new mine that does not take account of pre-existing mine and support infrastructure associated with the Hugo SouthNorth/Hugo North Extension Lift 1 and Heruga. Three alternativeLift 2 mines.
Key additional infrastructure assumptions that would be needed to support the 2018 PEA mine plan in addition to that contemplated in Phase 2 include:
· | Access roads (Heruga). |
· | Electrical substation and power distribution line (Heruga). |
· | Construction of conveyor decline and shafts (Heruga). |
· | Construction of permanent underground facilities including crushing and materials handling, workshops, services, and related infrastructure (Hugo North Extension Lift 2 and Heruga). |
· | Modifications to the electrical shaft farm substation, and upgrades to some of the distribution systems (Hugo North Extension Lift 2 and Heruga). |
· | Expanded logistical and accommodations infrastructure (Hugo North Extension Lift 2 and Heruga). |
· | Underground maintenance and fuel storage facilities (Hugo North Extension Lift 2 and Heruga). |
· | Expanded water supply and distribution infrastructure (Hugo North Extension Lift 2 and Heruga). |
· | Expanded TSF capacity (Hugo North Extension Lift 2 and Heruga). |
Market Studies and Contracts
For the purposes of the 2018 PEA, it was assumed that the marketing provisions and contracts entered into for Hugo North Extension Lift 1 production caseswould be maintained (see “Item 4. Information on the Company – D. Property, Plants and Equipment – Entrée/Oyu Tolgoi JV Project, Mongolia – Markets and Contracts”).
Commodity pricing for the 2018 PEA estimate is based on pricing from Turquoise Hill’s 2016 Oyu Tolgoi Technical Report, which assume expansionuses the 2016 Oyu Tolgoi Feasibility Study as a basis and incorporates a long-term industry-consensus estimate derived from public reports.
The smelter terms used were from the 2016 Oyu Tolgoi Feasibility Study as reported in Turquoise Hill’s 2016 Oyu Tolgoi Technical Report and OTLLC’s BDT31.
Environmental, Permitting and Social Considerations
Information relating to environmental studies, permitting, and social or community impact remain the same for the 2018 PEA as discussed for Hugo North Extension Lift 1 (see “Item 4. Information on the Company – D. Property, Plants and Equipment – Entrée/Oyu Tolgoi JV Project, Mongolia – Environmental, Permitting and Social Considerations” above).
Tailings Considerations
The 2018 PEA assumes that additional tailings cells that have a similar design and capacity to the plantoperating Cell 1 would be used for deposition of conventional thickened tailings:
· | Future cells to support the 2018 PEA case are assumed to use similar embankment configurations as in the current TSF design. |
· | The same concepts for tailings deposition and reclaim water return will continue to be used. |
· | Improvements to water reclaim mechanisms to recycle as much water as practicable will continue. |
These additional cells would have the capacity will beto contain the life-of-mine tailings under the 2018 PEA assumptions. However, the cost of constructing additional cells may increase as the haul distances for mine waste and other embankment materials increase.
Closure Considerations
No closure considerations were evaluated as part of the strategic2018 PEA plan, due to the long timeframe envisaged before closure would be needed. It was anticipated that the closure planning would be similar to that proposed for the 2014 OTLLC closure plan.
Capital Costs
The 2016 Oyu Tolgoi Feasibility Study initial capital cost estimate to develop Hugo North/Hugo North Extension Lift 1 and design, procure, construct, and commission the complete Phase 2 expansion, inclusive of an underground block cave mine, supporting shafts, concentrator conversion, and supporting infrastructure expansion is being undertaken by OTLLC.$5.093 billion (see “Item 4. Information on the Company – D. Property, Plants and Equipment – Entrée/Oyu Tolgoi JV Project, Mongolia – Capital Cost Estimates” above). The three alternative production cases shownadditional capital to develop Hugo North/Hugo North Extension Lift 2 and the entire Heruga deposit is estimated at $1.801 billion and $2.541 billion respectively. Table 12 provides a summary of the overall capital cost projections for Hugo North/Hugo North Extension Lift 1, Hugo North/Hugo North Extension Lift 2 and the entire Heruga deposit.
Overall sustaining capital costs are based on extrapolations from the 2016 Oyu Tolgoi Feasibility Study costs (see “Item 4. Information on the Company – D. Property, Plants and Equipment – Entrée/Oyu Tolgoi JV Project, Mongolia – Capital Cost Estimates” above) with adjustments made for:
· | Tailings management facility costs that were increased to account for longer hauling distances; and a higher contingency due to lack of designs. |
· | Hugo North/Hugo North Extension Lift 2 and Heruga development costs that were increased by approximately 8% and 10% respectively compared to Hugo North/Hugo North Extension Lift 1 only. |
Table 13 provides an overview of the overall sustaining capital cost estimate for Hugo North/Hugo North Extension Lift 1, Hugo North/Hugo North Extension Lift 2 and the entire Heruga deposit.
Wood apportioned the capital cost and sustaining capital cost estimates to the Entrée/Oyu Tolgoi JV Property and to Entrée’s 20% attributable portion based on Entrée’s interpretation of the Entrée/Oyu Tolgoi JVA (see “Item 4. Information on the Company – D. Property, Plants and Equipment – Entrée/Oyu Tolgoi JV Project, Mongolia – Economic Analysis” above). Entrée’s 20% attributable portion of the capital cost and sustaining capital cost estimates is discussed in “Item 4. Information on the decision tree in Figure 19 are:
Table 12 – Overall Capital Costs
Area | Units | Value | ||||||
Hugo North/Hugo North Extension Lift 1 and concentrator expansion | $ | 5,093 | ||||||
Hugo North/Hugo North Extension Lift 2 | $ | 1,801 | ||||||
Heruga | $ | 2,541 | ||||||
Total capital cost (including VAT and duty and contingency) | $ | 9,434 |
Note:
1. | The overall capital cost presented is for |
Table 13 – Overall Sustaining Capital Costs
Description | Unit | Value | ||||
Tailings storage facility construction | $/t processed | 1.09 | ||||
Concentrator | $/t processed | 0.10 | ||||
Underground mining | $/t processed | 7.40 | ||||
Infrastructure | $/t processed | 0.18 | ||||
Total | $/t processed | 8.76 |
Note:
1. | The overall sustaining capital cost presented is for Hugo North/Hugo North Extension Lift 1, Hugo North/Hugo North Extension Lift 2 and the entire Heruga deposit. |
Operating Costs
Table 14 provides a breakdown of the projected operating costs for Hugo North/Hugo North Extension Lift 1, Hugo North/Hugo North Extension Lift 2 and the entire Heruga deposit.
Anticipated operating costs on a per tonne milled basis averages $17.07. Entrée’s 20% attributable portion of the operating cost estimate is discussed in “Item 4. Information on the Company – D. Property, Plants and Equipment – Entrée/Oyu Tolgoi JV Project, Mongolia – Preliminary Economic Analysis – Economic Analysis”.
Table 14 – Overall Operating Costs
Description | Unit | Value | ||||||
Mining | $/t processed | 5.67 | ||||||
Processing | $/t processed | 9.37 | ||||||
Infrastructure | $/t processed | 2.04 | ||||||
Total | $/t processed | 17.07 |
Note:
1. | The overall operating cost presented is for Hugo North/Hugo North Extension Lift 1, Hugo North/Hugo North Extension Lift 2 and the entire Heruga deposit. |
Economic Analysis – 2018 PEA
This section provides the Hugo North (including Hugo North Extension) Lift 1 development is followed by production from Hugo North (including Hugo North Extension) Lift 2, Hugo South and Heruga. The average throughput rate is approximately 140 ktpd or 51 Mtpa and the potential processing schedule for LOM 140 is shown in Figure 20 below.
The PEA mine plan is not yet at the Feasibility Study stage, in particular the definition of the expansion sizes and costing of the cases. OreWin recommends that the options be studied further and that the timing of the new mines be defined in more detail.
The PEA that follows is an alternative development option done at the Reserve Case reported in 2014 OTTR, of which the LHTR16 Reserve Case is a subset.
Wood apportioned the potential for further expansions. The LHTR16 demonstrates the potential for expansioncapital and shows thatsustaining capital costs according to Entrée’s interpretation of the Entrée/Oyu Tolgoi JVA (summarized in “Item 4. Information on the Company – D. Property, Plants and Equipment – Entrée/Oyu Tolgoi JV resources are an integral partProject, Mongolia – Economic Analysis” above) for use in the 2018 PEA. The Entrée/Oyu Tolgoi JV Property total capital and sustaining capital cost for the 2018 PEA is estimated at $8,637.3 million. The total amortized capital cost is estimated at $1,846.7 million. Entrée’s 20% attributable portion of the long-term development plans.
The Entrée/Oyu Tolgoi JV Property operating costs used in the experience obtained from developing2018 PEA average $23.35/t processed and operating the initial phasesare inclusive of the Oyu Tolgoi project.
Based on the above inputs, Wood completed an economic analysis for Entrée’s 20% attributable portion of the Entrée/Oyu Tolgoi JV Property using both pre-tax and after-tax discounted cash flow analysis. The economic analysis has been prepared using the following long-term metal price estimates: copper at $3.00/lb; gold at $1,300.00/oz and silver at $19.00/oz.
Entrée’s 20% attributable portion of pre-tax cash flow is under the control$2,078 million and after-tax cash flow is $1,522 million. Entrée’s 20% attributable portion of after-tax cash flow using NPV@8% is $278 million. A summary of the OTLLC. production and financial results for Entrée’s 20% attributable portion are shown in Table 15. Mine site cash costs, C1 cash costs, and all-in sustaining costs for Entrée’s 20% attributable portion are shown in Table 16. IRR and payback are not presented because with 100% financing, neither is applicable.
The future work recommendationsNPV@8% pre-tax and after-tax sensitivity to Heruga for Entrée’s 20% attributable portion is relatively small, since Heruga’s NPV@8% pre-tax and after-tax is approximately $1.8 million and $1.5 million respectively.
Table 15 – 2018 PEA Production and Financial Results for Entrée’s 20% Attributable Portion (basecase is bolded)
Units | Item | |||||
LOM processed material (Entrée/Oyu Tolgoi JV Property) | ||||||
Subset of Indicated mineral resources in the 2018 PEA mine plan | 113 Mt grading 1.42% Cu, 0.50 g/t Au, 3.63 g/t Ag (1.73% CuEq) | |||||
Subset of Inferred mineral resources in the 2018 PEA mine plan | 708 Mt grading 0.53% Cu, 0.44 g/t Au, 1.79 g/t Ag (0.82 % CuEq) | |||||
Copper recovered | Mlb | 10,497 | ||||
Gold recovered | koz | 9,367 | ||||
Silver recovered | koz | 45,378 | ||||
Entrée’s attributable portion financial results | ||||||
LOM cash flow, pre-tax | $M | 2,078 | ||||
NPV@5%, after-tax | $M | 512 | ||||
NPV@8%, after-tax | $M | 278 | ||||
NPV@10%, after-tax | $M | 192 |
Notes:
1. | Long-term metal prices used in the NPV economic analyses are: copper $3.00/lb, gold $1,300.00/oz and silver $19.00/oz. |
2. | The Mineral resources are reported on a 100% basis. OTLLC has a participating interest of 80%, and Entrée has a participating interest of 20%. Notwithstanding the foregoing, in respect of products extracted from the Entrée/Oyu Tolgoi JV Property pursuant to mining carried out at depths from surface to 560 m below surface, the participating interest of OTLLC is 70% and the participating interest of Entrée is 30%. |
3. | Figures have been rounded. |
4. | The 2018 PEA financial results are not additive to the financial results from the 2018 Reserve Case. |
Table 16 – 2018 PEA Mine Cash and All-in Sustaining Costs for Entrée’s 20% Attributable Portion
Description | Unit | LOM Average | ||||
Mine site cash cost | $/lb payable copper | 1.66 | ||||
TC/RC, royalties and transport | $/lb payable copper | 0.32 | ||||
Total cash costs before credits | $/lb payable copper | 1.97 | ||||
Gold credits | $/lb payable copper | 1.22 | ||||
Silver credits | $/lb payable copper | 0.08 | ||||
Total cash costs after credits | $/lb payable copper | 0.68 | ||||
Total all-in sustaining costs after credits | $/lb payable copper | 1.83 |
Sensitivity Analysis
Entrée’s 20% attributable portion is most sensitive to changes in copper price and grade and less sensitive to changes in operating and capital costs. Figure 6 shows the 2014 OTTR, although primarily focusedafter-tax sensitivity results for NPV@8% for Entrée’s 20% attributable portion. The copper grade sensitivity generally mirrors the copper price.
Figure 6 – 2018 PEA After-Tax NPV@8% Sensitivity Analysis for Entrée’s 20% Attributable Portion
Note: Figure prepared by Wood, 2017.
Recommendations
Wood was not given access by OTLLC to information on the portions of the Oyu Tolgoi licence area, will be of benefit to Entrée as they will include examination of the Entrée/Oyu Tolgoi JV Property.
· | Information on, and site visits to the process plant, TSF, and underground access development. |
· | Access to OTLLC operations site personnel to discuss information relevant to Entrée’s joint venture interest in the Entrée/Oyu Tolgoi JV Property. |
Wood is therefore not in a position to make meaningful recommendations for further work with Turquoise Hillfor areas other than exploration and OTLLC to study the options further and that the timing of the new mines be defined in more detail.
A work program is under the control of Rio Tinto on behalf of manager OTLLC. The future work recommendations in the 2014 OTTR, although focussed on the Oyu Tolgoi licence, will be of benefit to Entrée as they will include examination of the Entrée/OTLLC JV Property.
In the Phase 1 work program, eight widely-spaced core holes for each of the Castle Rock and Southeast IP targets drilled to depths averaging about 400 m, for a total program of 16 core holes totaling 6,400 m, are recommended to test these targets. The exact locations and depths of the holes should be determined through a detailed review of the existing exploration results, and access considerations. Assuming an all-in drilling cost of $275/m, the proposed program is estimated at $1.75 million.
For the Phase 2 work program, Wood recommends an infill drill campaign be conducted within Lift 2 of the Hugo North Extension deposit with the objective of potentially converting the Inferred mineral resources to higher confidence categories. A drill program could also be conducted to investigate a potential further northern continuation of the mineralized zone. These targets are best tested from underground drill stations. Access to any such suitable underground drill stations will not be available until 2021 at the earliest. Therefore, it is not considered to be currently feasible to provide a meaningful drill layout or budget for such programs.
Turquoise Hill’s 2016 Oyu Tolgoi deposits, seeking low-costTechnical Report published multiple development options and continuing assessment of legacy datasets to enable future discover. Castle Rock on the Entrée/for Oyu Tolgoi JV Property is oneincluding a plant expansion to 50 Mt/a, 100 Mt/a, and 120 Mt/a. Wood recommends that Entrée independently complete strategic planning expansion scenarios as part of the identified priority targetsPhase 2 work program in order to understand the impact to value that willthese scenarios could bring to Entrée. This work could be the focuscompleted at a cost of the future exploration program.
NON-MATERIAL PROPERTIES
Entrée has interests in other non-material properties in the United States, Australia and Peru as follows. For additional information regarding these non-material properties, including Entrée'se’s ownership interest and obligations, see "Item“Item 5. Operating and Financial Review and Results -– A. Operating Results"Results” below.
· |
Blue Rose Joint Venture, Australia . |
The rights to explore for and develop iron ore on EL 6006 are held by Lodestone Mines Pty Ltd (“Lodestone”), which is also the joint venture overlicense holder. The Blue Rose JV partners were granted (a) the Golden Sophia shallow gold target confirmedright to receive an additional payment(s) upon completion of an initial or subsequent iron ore resource estimate on EL 6006, to a maximum of A$2 million in aggregate; and (b) a royalty equal to 0.65% of the previous Battle Mountain gold in soil anomalyfree on board value of iron ore product extracted and defined a new, linear gold anomaly located approximately 700 metresrecovered from EL 6006. An additional A$285,000 must also be paid to the northeast.
The Braemar Iron Formation is the host rock to magnetite mineralisation on EL 6006. The Braemar Iron Formation is a meta-sedimentary iron siltstone, which is inherently soft. The mineralization within the Braemar Iron Formation forms a simple dipping tabular body with only minor faulting, folding and intrusives. Grades, thickness, dip, and outcropping geometry remain very consistent over km of strike.
· |
Royalty Pass-Through Payments, Cañariaco Project Royalty, Peru . |
On June 8, 2018, the Company sold the Cañariaco Project Royalty to Anglo Pacific, whereby the Company transferred all the issued and outstanding shares of its subsidiaries that directly or indirectly hold the Cañariaco Project Royalty to Anglo Pacific in return for consideration of $1.0 million, payable by the issuance of 478,951 Anglo Pacific common shares. In addition, Entrée retains the right to a portion of any future royalty income received by Anglo Pacific in relation to the Cañariaco Project Royalty (“Royalty Pass-Through Payments”) as follows:
o | 20% of any royalty payment received for any calendar quarter up to and |
o | 15% of any royalty payment received for any calendar quarter commencing January 1, 2030 up to and including the quarter ending December 31, 2034; and |
o | 10% of any royalty payment received for any calendar quarter commencing January 1, 2035 up to and including the quarter ending December 31, 2039. |
The Cañariaco copper project includes the Cañariaco Norte copper-gold-silver porphyry deposit, as well as the adjacent Cañariaco Sur and Quebrada Verde porphyry prospects, located within the western Cordillera of the Peruvian Andes in the Department of Lambayeque, Northern Peru.
During the three months ended March 31, 2019, the Company disposed of all its investment in Anglo Pacific common shares for net proceeds of $1.0 million.
None.
Overview
Entrée is a resource company engaged in exploring mineral resource propertiescompany with interests in development and exploration properties in Mongolia, Peru and Australia.
The Company’s principal asset is its interest in the United States, Mongolia, Australia and Peru. Our two principal assets are our Ann Mason Project in Nevada and ourEntrée/Oyu Tolgoi JV Property – a carried 20% carriedparticipating interest in two of the Oyu Tolgoi project deposits, and a carried 20% or 30% interest (depending on the depth of mineralization) in Mongolia, throughthe surrounding large, underexplored, highly prospective land package located in the South Gobi region of Mongolia. Entrée’s joint venture partner, OTLLC, holds the remaining interest.
The Oyu Tolgoi project includes two separate land holdings: the Oyu Tolgoi mining licence, which is held by OTLLC (66% Turquoise Hill and 34% the Government of Mongolia), and the Entrée/Oyu Tolgoi JV.
The Entrée/Oyu Tolgoi JV Property includes the Hugo North Extension copper-gold deposit (HNE) and the majority of the Heruga copper-gold-molybdenum deposit. The resources at Hugo North Extension include a Probable reserve, which is included inpart of Lift 1 of the Oyu Tolgoi underground block cave mining operation. Although underground development pre-start activities are underway, first development production from Lift 1 is not expected until after 2020. A second lift for thein development by project operator Rio Tinto. By 2030, Oyu Tolgoi underground block cave operation, including additional resources fromis expected to be the fourth largest copper mine in the world.
In addition to the Hugo North Extension has been proposed but has not yet been modeled withincopper-gold deposit, the existing mine plan
The Company’s financial statements for the yearsyear ended December 31, 2015, 2014, and 20132020 have been prepared in accordance with U.S. GAAP.IFRS. The consolidated financial statements have been prepared underon the historical cost convention, as modified by financialbasis of accounting principles applicable to a going concern which assumes that the Company will be able to continue for the foreseeable future and will be able to realize its assets and financialdischarge its liabilities at fair value through profit or loss.in the normal course of business. The Company has consistently applied the same accounting policies throughout all periods presented, as if these policies had always been in effect.
The Company’s expected 2021 full year expenditures, which include Mongolian site management and compliance costs, is between $1.6 million and $1.8 million.
Critical Accounting Policies and Use of Estimates
The preparation of consolidated financial statements in conformity with generally accepted accounting principles in the United StatesIFRS requires management to make estimates and assumptions that affect the amounts reported amount of assets and liabilities and the disclosure of contingent assets and liabilities at the date ofin the financial statements and the reported amount of revenues and expenses during the period.accompanying notes. Actual results could differ materially from those estimates.
Significant estimates and judgements used in the preparation of these estimates.
Determination of functional currencies
The determination of the Company’s functional currency is a matter of judgment based on an assessment of the specific facts and circumstances relevant to determining the primary economic environment of each individual entity within the group. The Company reconsiders the functional currencies used when there is a change in events and conditions considered in determining the primary economic environment of each entity.
Income taxes
The Company must make significant estimates in respect of the provision for income taxes and judgments in determiningthe composition of its deferred income tax expense for financial statement purposes. These estimates and judgments occur in the calculation of tax credits, benefits, and deductions, the recoverability of deferred tax assets and deferred income tax liabilities. The Company’s operations are, in part, subject to foreign tax laws where interpretations, regulations and legislation are complex and continually changing. As a result, there are usually some tax matters in question which may, on resolution in the calculationfuture, result in adjustments to the amount of certaincurrent or deferred income tax assets or liabilities, and liabilities that arisethose adjustments may be material to the Company’s statement of financial position and results of operations.
The determination of the ability of the Company to utilize tax losses carried forward to offset income taxes payable in the future and to utilize temporary differences which will reverse in the future requires management to exercise judgment and make assumptions about the Company’s future performance. Management is required to assess whether the Company is more likely than not to be able to benefit from differencesthese tax losses and temporary differences. Changes in the timing of recognition of revenue and expense for tax and financial statement purposes. Significant changes in these estimates may result in an increase or decrease to the tax provision in a subsequent period. Recovery of a portion of the deferred tax assets is impacted by Company plans with respect to holding or disposing of certain assets. Changes inproject completion, economic conditions, exploration results, metal prices and other factors having an impact on future taxable income streams could result in changesrevisions to the estimates and judgements usedof benefits to be realized or the Company’s assessments of its ability to utilize tax losses before expiry. These revisions could result in determiningmaterial adjustments to the income tax expense.
Share-based compensation
The Company capitalizesuses the cost of acquiring mineral property interests, including undeveloped mineral property interests, until the viability of the mineral interest is determined. Capitalized acquisition costs are expensed if it is determined that the mineral property has no future economic value. The Company must make estimates and judgments in determining if any capitalized amounts should be written down by assessing if future cash flows, including potential sales proceeds, related to the mineral property are estimated to be less than the property's total carrying value. The carrying value of each mineral property is reviewed periodically, and whenever events or changes in circumstances indicate that the carrying value may not be recoverable. Reductions in the carrying value of a property would be recorded to the extent that the total carrying value of the mineral property exceeds its estimated fair value.
COVID-19
In March 2020, the World Health Organization declared coronavirus COVID-19 a reference). Given that thereglobal pandemic. This contagious disease outbreak, which has continued to spread, and any related adverse public health developments, has adversely affected workforces, economies, and financial markets globally, potentially leading to an economic downturn. It is no marketnot possible for the options and they are not transferable,Company to predict the resulting value calculated is not necessarily the value the holderduration or magnitude of the option could receive in an arm's-length transaction.
A. | Operating Results |
The following discussion is intended to supplement the audited consolidated financial statements of the Company for the years ended December 31, 2015, 20142020, 2019, and 2013,2018 and the related notes thereto, which have been prepared in accordance with U.S. GAAP.IFRS. This discussion should be read in conjunction with the audited consolidated financial statements contained in this Annual Report. This discussion contains "forward-looking statements"“forward-looking statements” that are subject to risk factors set out under the heading "Item“Item 3. Key Information – D. Risk Factors"Factors”. See "Cautionary“Cautionary Note Regarding Forward-Looking Statements"Statements” above.
Year Ended December 31, 2015 | Year Ended December 31, 2014 | Year Ended December 31, 2013 | ||||||||||
Total Revenues | $ | - | $ | - | $ | - | ||||||
Net Loss | (7,831,063 | ) | (8,669,188 | ) | (11,422,025 | ) | ||||||
Net loss per share, basic and diluted | (0.05 | ) | (0.06 | ) | (0.08 | ) | ||||||
Working capital | 21,844,252 | 32,603,711 | 46,394,496 | |||||||||
Total assets | 61,662,485 | 79,690,498 | 97,395,105 | |||||||||
Total long term liabilities | 39,315,880 | 44,269,904 | 50,956,860 | |||||||||
(1) Working Capital is defined as Current Assets less Current Liabilities. |
The Company’s operating results for the yearthree years ended December 31, 2015, net loss was $7,831,063 compared to $8,669,188 in the year ended December 31, 2014. 2020, 2019 and 2018 are summarized as follows:
2020 | 2019 | 2018 | ||||||||||
Expenses | ||||||||||||
Project expenditures | $ | 214 | $ | 173 | $ | 175 | ||||||
General and administrative | 1,430 | 1,490 | 1,145 | |||||||||
Share-based compensation | 538 | 340 | 506 | |||||||||
Depreciation | 98 | 105 | 22 | |||||||||
Other | - | - | (13 | ) | ||||||||
Operating loss | 2,280 | 2,108 | 1,835 | |||||||||
Foreign exchange (gain) loss | (196 | ) | (195 | ) | 287 | |||||||
Interest income | (80 | ) | (137 | ) | (111 | ) | ||||||
Interest expense | 338 | 319 | 287 | |||||||||
Loss from equity investee | 186 | 273 | 175 | |||||||||
Finance costs | 19 | 29 | - | |||||||||
Deferred revenue finance costs | 3,453 | 3,250 | 2,985 | |||||||||
Gain on sale of investments | - | (123 | ) | - | ||||||||
Gain on sale of mining property interest | - | - | (353 | ) | ||||||||
Unrealized loss on investments | - | - | 73 | |||||||||
Loss for the year | 6,000 | 5,524 | 5,198 | |||||||||
Other comprehensive loss (income) | ||||||||||||
Foreign currency translation | 1,114 | 2,095 | (3,372 | ) | ||||||||
Total comprehensive loss | $ | 7,114 | $ | 7,619 | $ | 1,826 | ||||||
Net loss per common share | ||||||||||||
Basic and fully diluted | $ | (0.03 | ) | $ | (0.03 | ) | $ | (0.03 | ) | |||
Total assets | $ | 7,961 | $ | 6,102 | $ | 7,432 | ||||||
Total non-current liabilities | $ | 57,937 | $ | 52,907 | $ | 46,835 | ||||||
Working capital(1) | $ | 7,320 | $ | 5,485 | $ | 6,788 |
(1) | Working capital is defined as Current Assets less Current Liabilities. |
Operating Loss:
During the year ended December 31, 2015, Entrée incurred lower2020, the Company’s operating loss was $2.3 million compared to $2.1 million and $1.8 million for the years ended December 31, 2019 and 2018, respectively.
Project expenditures primarily duein 2020 included expenditures of $0.2 million for administration costs in Mongolia compared to a combination of lower exploration costs, lower consultancy$0.2 million and $0.1 million in the comparative 2019 and 2018 periods, respectively. The increase in the current year compared to previous years was related to professional and advisory fees related to advancing potential amendments to the Entrée/Oyu Tolgoi JVA.
Holding costs on all other properties in 2020, 2019 and 2018 were insignificant.
General and administration expenditures in 2020 was $1.4 million and was consistent with the same period in 2019. General and administration expenditures were 30% higher in 2019 compared to the same period in 2018 due to increased advisory and travel costs in relation to discussions regarding potential amendments to the Entrée/Oyu Tolgoi JVA in 2019 and no receipt of cost-recovery reimbursements.
Depreciation expenses in 2020 were consistent with the same period in 2019 and were higher compared to the comparative period in 2018 due to the adoption of new IFRS accounting standard relating to leases effective January 1, 2019.
Non-operating Items:
The foreign exchange gains. As at December 31, 2015, working capitalgain in 2020 was $21,844,252 comparedprimarily the result of movements between the C$ and U.S. dollar as the Company holds its cash in both currencies and the loan payable is denominated in U.S. dollars.
Interest expense was primarily related to $32,603,711the loan payable to OTLLC pursuant to the Entrée/Oyu Tolgoi JVA and is subject to a variable interest rate.
The amount recognized as a loss from equity investee is related to exploration costs on the Entrée/Oyu Tolgoi JV Property.
Deferred revenue finance costs are related to recording the non-cash finance costs associated with the deferred revenue balance, specifically the Sandstorm stream.
The total assets as at December 31, 2014. The decrease in working capital is primarily the result of cash used in operations during the period. As2020 were higher than at December 31, 2015, total assets were $61,662,485 compared2019 due to $79,690,498 as atfunds received from the Non-Brokered Private Placement completed during Q3 2020. Total non-current liabilities have increased since December 31, 2014. The decrease in total assets over the prior year is primarily the effect of a decrease in working capital described above combined with unrealized foreign currency translation losses on mineral property interests. As at December 31, 2015, total long term liabilities were $39,315,880 compared to $44,269,904 as at December 31, 2014. The decrease in long term liabilities over the prior year is largely2018 due to decreasedrecording the non-cash deferred revenue resulting from unrealized foreign currency translation gains.
REVIEW OF OPERATIONS
Year Ended December 31, 2015 | Year Ended December 31, 2014 | |||||||
Exploration | $ | 5,139,076 | $ | 9,018,994 | ||||
General and administrative | 4,555,363 | 3,936,413 | ||||||
Interest expense (income) | 412,077 | (30,154 | ) | |||||
Stock-based compensation | 197,375 | 251,390 | ||||||
Deferred income tax expense (recovery) | 160,173 | (3,933,392 | ) | |||||
Consultancy and advisory fees | 125,000 | 830,623 | ||||||
Loss from equity investee | 118,712 | 107,907 | ||||||
Depreciation | 42,528 | 65,517 | ||||||
Current income tax expense (recovery) | 218 | (123,255 | ) | |||||
Impairment of mineral property interests | - | 552,095 | ||||||
Gain on sale of mineral property interest | - | (28,096 | ) | |||||
Foreign exchange gain | (2,919,459 | ) | (1,978,854 | ) | ||||
Net loss | $ | 7,831,063 | $ | 8,669,188 |
Year Ended December 31, 2015 | Year Ended December 31, 2014 | ||||||||
US | $ | 3,507,357 | $ | 7,066,997 | |||||
Mongolia | 1,488,452 | 1,672,341 | |||||||
Other | 165,101 | 315,549 | |||||||
Total costs | 5,160,910 | 9,054,887 | |||||||
Less stock-based compensation | (21,834 | ) | (35,893 | ) | |||||
Total expenditures, cash | $ | 5,139,076 | $ | 9,018,994 |
MONGOLIA
Entrée/Oyu Tolgoi JV Property
No significant exploration has been completed by OTLLC on the Entrée/Oyu Tolgoi JV Property since February 2013 and work planned for 20162021 has not yet been finalized.
Since formation, and as of December 31, 2015,2020, the Entrée/Oyu Tolgoi JV hadhas expended $27.8approximately $34.2 million to advance the Entrée/Oyu Tolgoi JV Property. Under the termsAs of the Entrée/Oyu Tolgoi JV,December 31, 2020, OTLLC has contributed on Entrée'se’s behalf the required cash participation amount of $6.8 million, equal to 20% of the $27.8$34.2 million incurred to date, plus accrued interest at prime plus 2%.
For the three months ended December 31, 2020 and December 31, 2019, Entrée has a 100% interest inexpenses related to Mongolian operations were not significant. For the western portion of the Shivee Tolgoi mining licence.
AUSTRALIA
Blue Rose Joint Venture
Entrée has a 55.79%56.53% interest in the Blue Rose copper-iron-gold-molybdenum joint venture property,JV to explore for minerals other than iron ore on EL 6006, with Giralia Resources Pty Ltd, now a subsidiary of Atlas Iron Limited (ASX:AGO) ("Atlas")Pty Ltd (part of the Hancock Group of Companies), retaining a 44.21%43.47% interest. The propertyEL 6006, totalling 257 square km, is located in the Olary Region of South Australia, 300 kilometres north-northeastkm northeast of Adelaide. MagnetiteAdelaide and 130 km west-southwest of Broken Hill.
The rights to explore for and develop iron formations occurore on EL 6006 are held by Lodestone, which is also the license holder. The Blue Rose JV partners were granted (a) the right to receive an additional payment(s) upon completion of an initial or subsequent iron ore resource estimate on EL 6006, to a maximum of A$2 million in the southern portion of this 716 square kilometre tenement,aggregate; and (b) a zone of copper oxide mineralization and a gold target (Golden Sophia) are located in the north-central arearoyalty equal to 0.65% of the tenement. The joint venture covers tenement EL5129, which was grantedfree on July 19, 2012, for a 3-year term. An application to renew the tenement for an additional 2-year term was filed on June 11, 2015 and was approved effective August 4, 2015.
The Braemar Iron Formation is the host rock to magnetite mineralisation on EL 6006. The Braemar Iron Formation is a meta-sedimentary iron ore rights from BMG, Entrée receivedsiltstone, which is inherently soft. The mineralization within the first of two cash payments of A$475,778 plus GST. The third party is currently in breach of this agreement asBraemar Iron Formation forms a consequence of failing to make the second required payment.
Expenditures in 2020 were minimal and related to administrative costs in Australia.
INVESTMENTS
In August 2015, the international border with Chile, and initiation of work is subject to Entrée obtaining a Supreme DecreeCompany acquired from Candente the Peruvian government allowing it to work on the property. Subject to obtaining the Supreme Decree, Entrée may earn a 70% interest by making cash payments totaling $215,000 and expending a minimum of $1.5 million on exploration, to include a minimum 6,000 metres of diamond drilling, within 24 months. Once Entrée has earned a 70% interest, it may acquire a further 30% interest by paying the vendors $2 million within 24 months. The vendors would retain a 2% NSR royalty, half of which may be purchased at any time for $1 million.
On June 8, 2018, the Company sold the Cañariaco Norte copper-gold-silver deposit, as well asProject Royalty to Anglo Pacific, whereby the adjacentCompany transferred all the issued and outstanding shares of its subsidiaries that directly or indirectly hold the Cañariaco Sur and Quebrada Verde prospects, located withinProject Royalty to Anglo Pacific in return for consideration of $1.0 million, payable by the western Cordilleraissuance of the Peruvian Andes in the Department of Lambayeque, Northern Peru.
· | 20% of any Cañariaco Project Royalty payment received for any calendar quarter up to and including December 31, 2029; |
· | 15% of any Cañariaco Project Royalty payment received for any calendar quarter commencing January 1, 2030 up to and including the quarter ending December 31, 2034; and |
· | 10% of any Cañariaco Project Royalty payment received for any calendar quarter commencing January 1, 2035 up to and including the quarter ending December 31, 2039. |
In accordance with IFRS, the Company has attributed a value of nil to the Royalty Pass-Through Payments since realization of the Ann Mason Project in Nevada andproceeds is contingent upon several uncertain future events not wholly within the acquisitioncontrol of the Lordsburg propertyCompany.
In 2019, the Company disposed of all its investment in New Mexico. common shares of Anglo Pacific for net proceeds of $1.0 million and realized a $0.1 million gain.
B. | Liquidity and Capital Resources |
Year ended December 31 | ||||||||
2020 | 2019 | |||||||
Cash flows used in operating activities | ||||||||
- Before changes in non-cash working capital items | $ | (1,560 | ) | $ | (1,502 | ) | ||
- After changes in non-cash working capital items | (1,515 | ) | (1,816 | ) | ||||
Cash flows from (used in) financing activities | 3,248 | (34 | ) | |||||
Cash flows from investing activities | - | 1,035 | ||||||
Net cash inflows (outflows) | 1,733 | (815 | ) | |||||
Effect of exchange rate changes on cash | 147 | 41 | ||||||
Cash balance | $ | 7,260 | $ | 5,380 | ||||
Cash flows used in operating activities per share | ||||||||
- Before changes in non-cash working capital items | $ | (0.01 | ) | $ | (0.01 | ) | ||
- After changes in non-cash working capital items | $ | (0.01 | ) | $ | (0.01 | ) |
Cash flows after changes in non-cash working capital items in 2020 were comparable to the same period in 2019.
Cash flows from financing activities in 2020 were due to the Non-Brokered Private Placement completed in Q3 2020. Cash flows used in financing activities in 2019 were immaterial.
Cash flows from investing activities in 2019 were related to the proceeds from sale of investment (summarized in “Item 5. Operating and Financial Review and Prospects – A. Operating Results – Review of Operations - Investments” section above).
The commodities EntréeCompany is most likely to pursue include copper, goldan exploration stage company and molybdenum, which are often associated with large tonnage, porphyry related environments. Smaller, higher grade systems will be considered by Entrée if they demonstrate potential for near-term production and cash-flow.
Loan Payable to $33.2 million) by paying $5.5 million in cash and issuing 5,128,604 Common Shares at a price of C$0.3496 per share. In the event of a partial expropriation of Entrée's economic interest, contractually or otherwise, in the Entrée/Oyu Tolgoi JV Property, the Amended Funding Agreement provides that the Company will not be required to make any further refund of the Deposit if Entrée's economic interest is reduced by up to and including 17%. If there is a reduction of greater than 17% up to and including 34%, the Amended Funding Agreement provides the Company with greater flexibility and optionality in terms of how the Company will refund a corresponding portion of the Deposit, including the option of not refunding cash. In the event of a full expropriation, the remainder of the Unearned Balance after the foregoing refund must be returned in cash with interest.
Under the terms of the Entrée/Oyu Tolgoi JV, EntréeJVA, the Company has elected to have OTLLC debt finance Entrée's share of costscontribute funds to approved joint venture programs and budgets on the Entrée/Oyu Tolgoi JV Property, with interest accruingCompany’s behalf, each such contribution to be treated as a non-recourse loan. Interest on each loan advance shall accrue at OTLLC'san annual rate equal to OTLLC’s actual cost of capital or the prime rate of the Royal Bank of Canada, plus 2%,two percent (2%) per annum, whichever is less, as at the date of the advance. As at December 31, 2015,The loan will be repayable by the total amount that OTLLC has contributedCompany monthly from ninety percent (90%) of the Company’s share of available cash flow from the Entrée/Oyu Tolgoi JV. In the absence of available cash flow, the loan will not be repayable. The loan is not expected to costs on the Company's behalf, including interest, was $6.8 million.
Year Ended December 31, 2015 | Year Ended December 31, 2014 | |||||||||||||||
Shares | Amount | Shares | Amount | |||||||||||||
Exercise of stock options | 346,532 | $ | 41,135 | - | $ | - | ||||||||||
346,532 | $ | 41,135 | - | $ | - |
Capital Resources
Entrée had no commitments for capital assets at December 31, 2015.
At December 31, 2015,2020, Entrée had working capital of $21,844,252$7.3 million compared to $32,603,711$5.5 million as at December 31, 2014.
Share Capital
The Company’s authorized share capital consists of unlimited Common Shares without par value. At December 31, 2020, the Company had 186,530,002 Common Shares issued and outstanding.
Share options
As at December 31, 2020, the Company had 10,550,000 stock options outstanding and exercisable.
For the year ended December 31, 2020, the total share-based compensation charges relating to 1,905,000 options granted to officers, employees, directors and consultants was $0.4 million.
Share purchase warrants
At December 31, 2020, 14,403,735 Warrants were outstanding.
Deferred share units
During the year ended December 31, 2020, the Company granted 450,000 deferred share units to the Company’s directors and executives and recorded total share-based compensation relating to the deferred share units of $0.2 million.
C. | Research and Development, Patents and Licenses, etc. |
None.
D. | Trend Information |
While the Company does not have any producing mines it is directly affected by trends in the metal industry. At the present time global metal prices are extremely volatile. Base metal prices and gold prices, driven by rising global demand, climbed dramatically and approached near historic highs several years ago. Prices have declined significantly since those highs.
Overall market prices for securities in the mineral resource sector and factors affecting such prices, including base metal prices, political trends in the countries in which such companies operate, and general economic conditions, may have an effect on the terms on which financing is available to the Company, if available at all.
Except as disclosed, the Company does not know of any trends, demand, commitments, events or uncertainties that will result in, or that are reasonably likely to result in, its liquidity either materially increasing or decreasing at present or in the foreseeable future. Material increases or decreases in liquidity are substantially determined by the success or failureresults of exploration and development programs on the Company's exploration programs.
The Company'sCompany’s financial assets and liabilities generally consist of cash and cash equivalents, receivables, deposits, accounts payable and accrued liabilities, and loansloan payable, some of which are denominated in foreign currencies including United States dollars, Mongolian Tugriks and Australian dollars. The Company is at risk to financial gain or loss as a result of foreign exchange movements against the Canadian dollar. The Company does not currently have major commitments to acquire assets in foreign currencies, but historically it has incurred the majority of its exploration costs in foreign currencies.
E. | Off-balance Sheet Arrangements |
The Company has no off-balance sheet arrangements except for the contractual obligation noted below.
F. | Tabular Disclosure of Contractual Obligations |
The following table lists, as at December 31, 2015,2020, in thousands of U.S. dollars, the Company'sCompany’s contractual obligations.
Less than 1 year | 1-3 Years | 3-5 years | More than 5 years | Total | |
Office lease | $247,906 | $71,578 | $Nil | $Nil | $319,484 |
Total | $247,906 | $71,578 | $Nil | $Nil | $319,484 |
Less than 1 year | 1-3 Years | 3-5 years | More than 5 years | Total | ||||||
Office lease | $124 | $97 | $Nil | $Nil | $221 | |||||
Total | $124 | $97 | $Nil | $Nil | $221 |
G. | Safe Harbor |
The Company seeks safe harbor for our forward-looking statements contained in Items 5.E and F. See the heading "Cautionary“Cautionary Note Regarding Forward-Looking Statements"Statements” above.
A. | Directors and Senior Management |
The following is a list of the Company'sCompany’s directors and executive officers. The directors were elected by the Company'sCompany’s shareholders on June 29, 2015April 30, 2020 and are elected for a term of one year, which term expires at the election of the directors at the next annual meeting of shareholders.
The Board adopted a majority voting policy in May 2013. If the number of shares
The Company'sCompany’s Board consists of six directors. The following is a brief account of the education and business experience of each director and executive officer, indicating each person'sperson’s principal occupation during the last five years.
Mark Bailey, Non-Executive Chair and Director,
Mr. Bailey has been a director of the Company since May 16, 2007, servedJune 28, 2002. On February 5, 2018, Mr. Bailey was appointed Non-Executive Chair of the Board.
Mr. Bailey is a mining executive and registered professional geologist with 44 years of industry experience. Between 1995 and 2012, he was the President and Chief Executive Officer of Minefinders Corporation Ltd. (“Minefinders”), a precious metals mining company that operated the multi-million ounce Dolores gold and silver mine in Mexico before being acquired
by Pan American Silver Corp. Before joining Minefinders, Mr. Bailey held senior positions with Equinox Resources Inc. and Exxon Minerals. Since 1984, Mr. Bailey has worked as a consulting geologist with Mark H. Bailey & Associates LLC. Mr. Bailey is currently the Company's non-executive Deputy Chairman between May 16, 2007 and June 27, 2013of the Board of Fiore Gold Ltd. and was appointed non-executive Chairman on June 27, 2013.
James Harris, Director,
Mr. Harris has been a director of the Company since January 29, 2003, served as the Company's non-executive ChairmanCompany’s Non-Executive Chair between March 15, 2006 and June 27, 2013 and served as the Company's non-executiveCompany’s Non-Executive Deputy ChairmanChair between June 27, 2013 and February 28, 2015.
Mr. Harris was formerly a corporate, securities and business lawyer with over 30 years'years’ experience in Canada and internationally. He has extensive experience with the acquisition and disposition of assets, corporate structuring and restructuring, regulatory requirements and corporate filings, and corporate governance. Mr. Harris was also a Founding Member of the Legal Advisory Committee of the former Vancouver Stock Exchange. Mr. Harris has completed the Directors'Directors’ Education Program of the Institute of Corporate Directors and is an Institute accredited Director.Director (ICD.D). Mr. Harris has also completed a graduate course in business at the London School of Economics.
Alan Edwards, Director,
Mr. Edwards has been a director of the Company since March 8, 2011.
Mr. Edwards has more than 3035 years of diverse mining industry experience. He is a graduate of the University of Arizona, where he obtained a Bachelor of Science Degree in Mining Engineering and an MBA (Finance). Mr. Edwards is currently the President of AE Consulting, a ColoradoResources Corp., an Arizona based company. Mr. Edwards is the non-executiveNon-Executive Chairman of the Board of AQM CopperTonogold Resources, Inc., and is a director of Americas Gold and Silver Corporation.Corporation and Orvana Minerals Corp. He served as the Non-Executive Chair of the Board of Mason Resources until its acquisition by Hudbay. He also served as the non-executive Chairman of the Board of Rise Gold Corp. from April 2017 to September 2018, AQM Copper Inc. from October 2011 to January 2017 and AuRico Gold Inc. (Alamos Gold Inc. following its combination with AuRico Gold in July 2015) from July 2013 to November 2015, and2015. Mr. Edwards served as the Chief Executive Officer of Oracle Mining Corporation, a Vancouver based company, from 2012 to 2013. He also previously served as President and Chief Executive Officer of Copper One Inc. from 2009 to 2011, as President and Chief Executive Officer of Frontera Copper Corporation, from 2007 to 2009, and as Executive Vice President and Chief Operating Officer of Apex Silver Mines Corporation, from 2004 to 2007, where he directed the engineering, construction and development of the San Cristobal project in Bolivia. Mr. Edwards has also worked for Kinross Gold Corporation, P.T. Freeport Indonesia, Cyprus Amax Minerals Company and Phelps Dodge Mining Company, where he started his career.
Anna Stylianides, Director,
Ms. Stylianides has been a director of the Company since July 13, 2015.
Ms. Stylianides has over 2030 years of experience in global capital markets and has spent much of her career in investment banking, private equity, and corporate management and restructuring. She began her career in corporate law by joining the firm of Webber Wentzel Attorneys in 1990 after graduating from the University of the Witwatersrand in Johannesburg, South Africa. In 1992, she joined Investec Merchant Bank Limited where she specialized in risk management and gained extensive experience in the areas of corporate finance, structured finance, mergers and acquisitions, structuring, specialized finance and other banking and financial services transactions. She was also involved in designing and structuring of financial products for financial institutions and corporations.
Ms. Styliandes is currentlywas until most recently the Executive Co-ChairmanDirector of Eco Oro Minerals Corp., a precious metals exploration and mining development company with a portfolio of projects in northeastern Colombia, and is currently a director of Capfin Partners, LLC,Gabriel Resources Ltd., Sabina Gold & Silver Corp., Altius Minerals Corporation and Altius Renewable Royalties Corp.
Michael Price, Director, 65
Dr. Price has been a director of the Fraser Institute.Company since February 5, 2018.
Dr. Price has over 40 years of experience in mining and mining finance. He is currently a Non-Executive Director of Galiano Gold Inc. and is the London Representative of Resource Capital Funds. During his career, Dr. Price has served as Managing Director, Joint Global Head of Mining and Metals, Barclays Capital, Managing Director, Global Head of Mining and Metals, Societe Generale and Head of Resource Banking and Metals Trading, NM Rothschild and Sons. Dr. Price has B.Sc. and Ph.D. qualifications in Mining Engineering from University College Cardiff and he has a Mine Manager’s Certificate of Competency (South Africa).
Stephen Scott, InterimPresident, Chief Executive Officer
Mr. Scott was appointed to the position of Interim Chief FinancialExecutive Officer on November 16, 2015.
Mr. Scott has more than twenty fiveover 30 years of global experience in all mining industry sectors. Most recentlyBefore joining the Company, he was the President of Minenet Advisors, a capital markets and management advisory consultancy providing a broad range of advice and services to clients relating to planning and execution of capital markets transactions, strategic planning, generation and acquisition of projects, and business restructuring. Between 2000 and 2014, heMr. Scott held various global executive positions with Rio Tinto including General Manager Commercial, Rio Tinto Copper and currently servesPresident and Director of Rio Tinto Indonesia. He is an experienced public company director having served as an independent director on the board of directorsboards of a number of publicTSX and privateAIM listed public mining companies.
Duane Lo, Chief Financial Officer,
Mr. ColwillLo was appointed to the position of Interim Chief Financial Officer on April 1, 2016 and was appointed to the position of Chief Financial Officer on FebruaryNovember 1, 2011.
Mr. ColwillLo has over 20 years of experience with publicin accounting and private companies,financial management, the majority of which has been spent in a varietythe financing, management and administration of sectors including oilmining operations and gas, biotech, financial servicesdevelopment projects in Brazil, Africa, the U.S. and manufacturing. Most recently,other jurisdictions. Mr. Colwill served asLo was also the Chief Financial Officer of Transeuro Energy Corp., a public oilMason Resources until its acquisition by Hudbay. He was previously the Executive Vice President and gas company and acted as a financial consultant to private and public companies. Between 2001 and 2009, Mr. Colwill served as Chief Financial Officer of Neuromed PharmaceuticalsLuna Gold Corp. and Corporate Controller for First Quantum Minerals Ltd. Mr. Colwill began his career with KPMG, firstLo was also employed at Deloitte in Canadathe assurance and then in Poland. Mr. Colwill isadvisory practice. He holds a Chartered Professional Accountant, and a member of the Canadian Institute of Chartered Accountants andAccountant (CPA, CA) designation from the Institute of Chartered Accountants of British Columbia. Mr. Colwill holds a BBA from Simon Fraser University.
Susan McLeod, Vice President, Legal Affairs and Corporate Secretary,
Ms. McLeod joined the Company as Vice President, Legal Affairs on September 22, 2010 and was appointed Corporate Secretary on November 22, 2010.
Ms. McLeod was also the Chief Legal Officer and Corporate Secretary of Mason Resources until its acquisition by Hudbay. Prior to joining Entrée, Ms. McLeod was in private practise in Vancouver, Canada since 1997, most recently with Fasken Martineau DuMoulin LLP (from 2008 to 2010) and P. MacNeill Law Corporation (from 2003 to 2008). She has worked as outside counsel to public companies engaged in international mineral exploration and mining. She has advised clients with respect to corporate finance activities, mergers and acquisitions, corporate governance and continuous disclosure matters, and mining-related commercial agreements. Ms. McLeod holds a B.Sc. and an LLB from the University of British Columbia and is a member of the Law Society of British Columbia
Family Relationships
There are no family relationships between any directors or executive officers of the Company.
Arrangements
There are no known arrangements or understandings with any major shareholders, customers, suppliers or others, pursuant to which any of the Company'sCompany’s officers or directors was selected as an officer or director of the Company.
Conflicts of Interest
There are no existing or potential conflicts of interest among the Company, its directors, officers or promoters as a result of their outside business interests with the exception that certain of the Company'sCompany’s directors, officers and promoters serve as directors, officers and promoters of other companies, and, therefore, it is possible that a conflict may arise between their duties as a director, officer or promoter of the Company and their duties as a director or officer of such other companies.
The directors and officers of the Company are aware of the existence of laws governing accountability of directors and officers for corporate opportunity and requiring disclosures by directors of conflicts of interest and the Company will rely upon such laws in respect of any directors'directors’ and officers'officers’ conflicts of interest or in respect of any breaches of duty by any of its directors or officers. All such conflicts will be disclosed by such directors or officers in accordance with the BCBCA, and they will govern themselves in respect thereof to the best of their ability in accordance with the obligations imposed upon them by law.
The majority of the Company'sCompany’s directors are also directors, officers or shareholders of other companies that are engaged in the business of acquiring, developing and exploiting natural resource properties including properties in countries where the Company is conducting its operations. Such associations may give rise to conflicts of interest from time to time. Such a conflict poses the risk that the Company may enter into a transaction on terms which place the Company in a worse position than if no conflict existed. The directors of the Company are required by law to act honestly and in good faith with a view to the best interest of the Company and to disclose any interest which they may have in any project or opportunity of the Company. However, each director has a similar obligation to other companies for which such director serves as an officer or director. The Company has no specificCompany’s Code of Business Conduct and Ethics (the “Code of Ethics”) sets out the Company’s internal policy governing conflictsregarding the avoidance of interest.
B. | Compensation |
For the purposes of this Annual Report, "executive officer"“executive officer” of the Company means an individual who at any time during the year was the Chair, or a Vice-Chair or President of the Company; any Vice President in charge of a principal business unit, division or function including sales, finance or production; and any individual who performed a policy-making function in respect of the Company.
Set out below are particulars of compensation paid to the following persons (the "Named“Named Executive Officers"Officers” or "NEOs"“NEOs”):
1. | a chief executive officer |
2. | a chief financial officer |
3. | each of the three most highly compensated executive officers, or the three most highly compensated individuals acting in a similar capacity, other than the CEO and CFO, at the end of the most recently completed financial year whose total compensation was, individually, more than C$150,000 for that financial year; and |
4. | any individual who would be a NEO under paragraph (3) but for the fact that the individual was neither an executive officer of the Company, nor acting in a similar capacity, at the end of that financial year. |
As at December 31, 2015,2020, the end of the most recently completed financial year of the Company, the Company had seventhree NEOs.
Compensation Discussion and Analysis
The Compensation Committee of the Board typically meets in the fall of each year to discuss and determine the recommendations that it will make to the Board regarding managementexecutive officer compensation. The general objectives of the Company'sCompany’s compensation strategy are to (a) compensate managementexecutive officers in a manner that encourages and rewards a high level of performance and outstanding results with a view to increasing long-term shareholder value; (b) align management'smanagement’s interests with the long-term interests of shareholders; (c) provide a compensation package that is commensurate with other comparable mineral exploration companies to enable the Company to attract and retain talent; and (d) ensure that the total compensation package is designed in a manner that takes into account the constraintsfact that the Company is under by virtue of the fact that it is a junior mineral exploration company without a history of earnings, current market and industry circumstances and the Company'sCompany’s ability to raise capital.
In the course of its annual management compensation evaluation, the Compensation Committee considers, among such other factors as it may deem relevant, management'sthe CEO’s recommendations with respect to compensation of other executive officers, the extent to which corporate goals have been achieved, the Company'sCompany’s overall performance, the value of similar incentive awards to executive officers at comparable companies; awards given to managementexecutive officers in prior years, and general market conditions and economic outlook. General corporate goals for 2015 set by management and approved by the Board included resolving outstanding issues related to the Entrée/Oyu Tolgoi JV Property in Mongolia; increasing corporate development activities through evaluation of merger and acquisition opportunities as well as potential strategic investors for the Ann Mason Project; and implementing cost-cutting and cash preservation measures. Specific corporate targets were not defined.
The Compensation Committee generally considers threefour elements of compensation – a base salary for the next financial year, a discretionary cash bonus to reward superior performance, an award of long-term incentive stock options and a grant of long-term incentive stock options.deferred share units. Base salary comprises the portion of executive compensation that is fixed, whereas discretionary cash bonuses, option-based compensation and option basedshare-based compensation represent compensation that is "at risk"“at risk” depending on whether the executive officer is able to meet or exceed his or her applicable performance expectations, and overall performance of the Company. No specific formula has been developed to assign a specific weighting to each of these components. Rather, the Compensation Committee focuses on ensuring that the total compensation package for each NEOexecutive officer meets the general objectives of the Company'sCompany’s compensation strategy.
Base salary is used to provide the NEOsexecutive officers a set amount of money during the year with the expectation that each NEOexecutive officer will perform his or her responsibilities to the best of his or her ability and in the best interests of the Company. Generally, the Compensation Committee makes recommendations regarding each NEO'sexecutive officer’s base salary for the upcoming year after taking multiple factors into account, including the overall performance of the Company, general market performance and economic outlook, the performance of the NEO, the NEO's experience level and particular responsibilities and a review of base salaries paid to executive officers of comparable companies.
The granting of incentive stock options and deferred share units provides a link between managementexecutive officer compensation and the Company's Common ShareCompany’s share price. It also rewards management for achieving results that improve Company performance and thereby increase shareholder value. Stock options and deferred share units are generally awardedgranted to executive officers at the commencement of employment and periodically thereafter.on an annual basis. In making a determination as to whether a grant of long-term incentive stock options and/or deferred share units is appropriate, and if so, the number of options and/or deferred share units that should be granted,awarded, the Compensation Committee will consider:consider, among such other factors as it may deem relevant, the value in securities of the Company that the Compensation Committee intends to award as compensation;compensation, current and expected future performance of the NEO;executive officer, the potential dilution to shareholders and the cost to the Company;Company, previous grantsawards made to the NEO; option grants made to executive officers of comparable companies;officer and the limits imposed by the terms of the Company'sCompany’s Stock Option Plan (the "Plan"“Plan”) and Deferred Share Unit Plan (the “DSU Plan”) and the TSX. The Company considers the granting of incentive stock options and deferred share units to be a particularly important element of compensation as it allows the Company to encourage and reward each NEO'sexecutive officer’s efforts to increase value for shareholders without requiring the Company to use cash from its treasury. The terms and conditions of the Company'sCompany’s stock option and deferred share unit grants, including vesting provisions, and exercise prices, are determined by the Board at the time of grant, subject to the limits imposed by the terms of the Plan and DSU Plan.
Finally, the Compensation Committee will consider whether it is appropriate and in the best interests of the Company to award a discretionary cash bonus to the NEOsexecutive officers and if so, in what amount. A cash bonus may be awarded to reward extraordinary performance that has led to, among other achievements, strategic property acquisitions or divestitures, achieving corporate development or property exploration milestones, and capital raising efforts. Demonstrations of extraordinary personal commitment to the Company's interests, the community and the industry may also be rewarded through a cash bonus.
Administrative Services Agreement with Mason Resources
Effective May 9, 2017, the Compensation Committee receivedCompany entered into an Administrative Services Agreement with Mason Resources (the “Administrative Services Agreement”), pursuant to which the Company provided office space, furnishings and equipment, communications facilities and personnel necessary for Mason Resources to fulfill its basic day-to-day head office and executive responsibilities on a proposal from managementpro-rata cost-recovery basis. Mason Resources terminated the Administrative Services Agreement on December 19, 2018, concurrently with respect to NEO compensation for 2015. Management provided updated data from the peer group that LaneCaputo developed (excluding Lumina Copper Corp. and Oracle Mining Corp.) as well as Nevada Copper Corp., NGEx Resources Inc. and SilverCrest Mines Inc. Management's compensation proposal took noteclosing of the continuing haltacquisition of Mason Resources by Hudbay Minerals Inc.
During the term of the Administrative Services Agreement, Mason Resources’ executive officers did not receive salaried compensation from Mason Resources. Instead Mason Resources had sufficient access to development at the Oyu Tolgoi underground mine in Mongolia, the continuing need to preserve capital and thus limit development of Ann Mason, and the Company's ongoing efforts to identify a beneficial merger and acquisition opportunity. Management's compensation proposal also took noteuse of the complexityCompany’s executive officers to enable Mason Resources to achieve its corporate goals and objectives. The Company was the sole employer and was responsible for paying 100% of executive officer salaries for services provided by executive officers to
both the issues that management is dealing with,Company and Mason Resources. The Company then invoiced Mason Resources for its proportionate share of actual costs for the key milestonesexecutive officers, including base salary, benefits, vacation pay, perquisites, professional memberships and corporate objectives that had been met during 2014,continuing education expenses. The Company could also propose discretionary cash bonuses to be allocated between the Company and Mason Resources to reward exceptional service by executive officers to Mason Resources and the fact that NEO salaries have been kept to 2011 levels while some peer companies continue to provide salary increases to their executive officers.
Compensation Committee evaluated the performance of the NEOs, taking into account the factors described above. The Compensation Committee accepted management's proposal, and recommended to the Board that the NEOs receive salary increases in the order of 3% effective January 1, 2015, but that no discretionary bonuses be awarded from the bonus pool. At the Board meeting held to consider, and ultimately approve, the Compensation Committee's recommendations, the Company's CEO, Gregory Crowe, voluntarily declined his salary increase.
In late 2015,December 2018, the Compensation Committee met to discuss NEOexecutive officer compensation for 2016. The Compensation Committee noted that management was in the process of implementing steps to significantly reduce overhead in 2016,2019 and determined that no salary increases or discretionary cash bonuses for NEOs should be recommended to the Board at thisthat time. The Compensation Committee recommended to the Board that a cash bonus of up to C$200,000 be paid to Mr. Scott if the Company completes a fundamental transaction by December 31, 2019 or such later date as may be approved by the Board. The Board approved the Compensation Committee’s recommendation and also directed the Compensation Committee to establish a separate bonus pool from which discretionary cash bonuses may be allocated and distributed to other executive officers (excluding the CEO) if the Company completes a fundamental transaction by December 31, 2019 or such later date as may be approved by the Board. In September 2019, the Board approved a separate bonus pool for executive officers (excluding the CEO) of up to C$150,000. In December 2019, the Board extended the date by which a fundamental transaction must be completed to December 31, 2020.
In December 2019, the Compensation Committee met to discuss executive officer compensation for 2020 and recommended modest salary increases for Mr. Scott (5.23% increase to C$342,000 per annum), Mr. Lo (3.47% increase to C$155,200 per annum based on 65% full time equivalent (“FTE”)) and Ms. McLeod (5.15% increase to C$265,000 per annum) effective January 1, 2020. In determining that salary increases were appropriate, the Board noted that Ms. McLeod had not had a salary increase since January 1, 2015 and Mr. Scott and Mr. Lo had not had salary increases since they commenced employment in 2016. The Board also approved the Compensation Committee’s recommendation to award modest discretionary cash bonuses to the NEOs for their work in 2018 and 2019 as follows:
NEO | Discretionary Cash Bonus Paid to NEO in 2019 (C$) | |
Stephen Scott | $22,000 | |
Duane Lo | $11,000 (based on 65% FTE) | |
Susan McLeod | $17,000 |
The Board also extended the date by which a fundamental transaction must be completed for the purposes of the bonus pools to December 31, 2020.
In December 2020, the Compensation Committee met to discuss executive officer compensation for 2021 and did not recommend salary increases for the NEOs, but did recommend the award of discretionary cash bonuses to the NEOs for their work in 2020, including the completion of the Non-Brokered Private Placement. The Board approved payment of the following discretionary cash bonuses as recommended by the Compensation Committee:
NEO | Discretionary Cash Bonus Paid to NEO in 2020 (C$) | |
Stephen Scott | $50,000 | |
Duane Lo | $25,000 (based on 65% FTE) | |
Susan McLeod | $30,000 |
The Compensation Committee also recommending that the bonus pool established for Mr. Scott in the event the Company completes a fundamental transaction be rolled into and included in the bonus pool for the other NEOs and that the size of the bonus pool be increased to C$700,000. The Board accepted the Compensation Committee’s recommendation and extended the date by which a fundamental transaction must be completed to December 31, 2021.
In 2020, the Compensation Committee asked external counsel to draft a DSU Plan, to promote the alignment of interests between directors, officers, employees and consultants (“Designated Participants”) and shareholders of the Company, assist the Company in attracting, retaining and motivating Designated Participants, and provide a compensation system for Designated Participants that is reflective of the responsibility, commitment and risk accompanying their management role
over the medium term. On the recommendation of the Compensation Committee, the Board adopted and approved the DSU Plan and will submit the DSU Plan to the TSX for acceptance and to the Company’s shareholders for approval at the next annual general meeting. The Compensation Committee also recommended, and the Board approved, deferred share unit grants to the NEOs, provided that the deferred share units may not vest or be redeemed prior to the Company obtaining shareholder approval of the DSU Plan. If shareholder approval of the DSU Plan is not obtained at the next annual general meeting, any deferred share units that have been granted will be null and void and will be deemed to have been rescinded.
Management has also annually proposed, and the Compensation Committee has recommended, option awards for directors, officers, employees and consultants of the Company, as a means of rewarding performance without depleting the Company’s treasury.
The Board can exercise discretion
to award compensation absent attainment of corporate goals or to reduce or increase the size of any award. The Board did not exercise this discretion inIn the course of conducting its annual review of compensation, the Compensation Committee considers the implications and risks associated with the Company'sCompany’s executive compensation policies, philosophy and practices. As discussed above, the Compensation Committee follows an overall compensation model which ensures that an adequate portion of overall compensation for the NEOsexecutive officers is "at risk"“at risk” and only realized through the performance of the Company over both the short-term and long-term. The Compensation Committee reviews the model to ensure that there are sufficient features to mitigate the incentive for excessive risk taking. Some of the key risk mitigating features include:
· | balanced design, between fixed and variable pay and between short-term and long-term incentives; and |
· |
a greater reward opportunity derived from long-term incentives compared to short-term incentives, creating a greater focus on sustained performance over time. |
The Company does not permit its executive officers or directors to hedge any of the equity compensation granted to them.
Compensation Governance
The Compensation Committee is composed of James Harris (chair), Mark Bailey (chair), Gord Glenn, James Harris and Alan Edwards, all of whom are independent directors, applying the definition set out in section 1.4 of National Instrument 52-110 – Audit Committees (" (“NI 52-110"52-110”) and under Section 803A of the NYSE MKT Company Guide.. Each member of the Compensation Committee has served on various other public company boards, which gives them sufficient direct experience in executive compensation to assist them in making decisions about the suitability of the Company'sCompany’s compensation practices and policies. For a description of each committee member'smember’s experience, see "Item“Item 6. Directors, Senior Management and Employees – A. Directors and Senior Management"Management” above.
The Board has adopted a Compensation Committee Charter, which governs the organization of the Compensation Committee and sets out the duties and responsibilities of the chair and the Compensation Committee as a whole.
The primary objective of the Compensation Committee is to discharge the responsibilities of the Board relating to compensation and benefits of the executive officers and directors of the Company. The Committee shall consist of three or more directors appointed by the Board, each of whom must be independent. The Committee shall meet as many times as it deems necessary, but not less frequently than one time per year. The CEO may not be present during the Compensation Committee'sCommittee’s voting or deliberations.
Responsibilities of the Compensation Committee include:
· | Reviewing and approving on an annual basis corporate goals and objectives relevant to CEO compensation, evaluating the |
· | Reviewing and approving on an annual basis the adequacy and form of compensation and benefits of all other executive officers and directors, and making recommendations to the Board in that regard; |
· | Making recommendations to the Board with respect to the Plan and any other incentive compensation plans and equity-based plans; |
· | Determining the recipients of, and the nature and size of share compensation awards and bonuses granted from time to time, in compliance with applicable securities law, stock exchanges and other regulatory requirements; and |
· | Approving inducement grants, which include grants of options or stock to new employees in connection with a merger or acquisition, as well as any tax-qualified, non-discriminatory employee benefit plans or non-parallel non-qualified plans, to new employees. |
The Compensation Committee is acutely aware of the dual responsibility that non-executive directors have for overseeing the Company'sCompany’s corporate governance and long-term sustainability, as well as its compensation plans. In the course of determining compensation for non-executive directors, the Compensation Committee tries to ensure that non-executive director interests are closely aligned with those of shareholders, and that best practices for corporate governance are observed in the course of structuring non-executive director pay. In particular, the Compensation Committee is committed to structuring director pay in a manner that enables directors to maintain their independence. One of the ways that the Compensation Committee attempts to achieve this is by imposing reasonable limits on independent director participation in the Plan and the DSU Plan.
The Compensation Committee has the authority to retain outside advisors, including the sole authority to retain or terminate consultants to assist the Compensation Committee in the evaluation of compensation of senior managementexecutive officers and directors. In August 2013, the Compensation Committee retained LaneCaputo to prepare an Executive Compensation Review to assist the Compensation Committee in the review of compensation arrangements for the Company's senior management team and independent directors and to recommend required changes (if any) to pay elements and strategy to align the Company with current market practices. No compensation consultant or advisor has been retained by the Company, and no fees have been paid to a compensation consultant or advisor, in either of the Company'sCompany’s two most recently completed financial years.
Summary Compensation Table
The following table is a summary of compensation paid or granted to the NEOs for the last three financial years ending December 31, 2015, 20142020, 2019 and 2013.2018.
Name and Principal Position | Year | Salary (US$)(4) | Share- (US$)(1) | Option- (US$) | Non-equity incentive plan compensation (US$)(3) (4) | Pension value (US$) | All other compensation (US$)(4) | Total compensation (US$) | ||||||||||
Annual incentive plans | Long- term incentive plans
| |||||||||||||||||
Stephen Scott,
President and CEO(5) | 2020 | $268,615 | $31,857 | $66,149 | $39,040 | Nil | Nil | Nil | $405,600 | |||||||||
2019 | $250,231 | Nil | $76,495 | $16,939 | Nil | Nil | Nil | $343,665 | ||||||||||
2018 | $236,860(6)(7) | Nil | $109,387 | $58,642(6) | Nil | Nil | Nil | $404,890(6) | ||||||||||
Duane Lo,
CFO | 2020 | $121,898 | $23,892 | $42,524 | $19,520 | Nil | Nil | Nil | $207,834 | |||||||||
2019 | $115,491 | Nil | $38,248 | $8,469 | Nil | Nil | Nil | $162,208 | ||||||||||
2018 | $151,188(7)(8) | Nil | $54,694 | $26,389(7) | Nil | Nil | Nil | $232,270(7) | ||||||||||
Susan McLeod,
Vice President, Legal Affairs & Corporate Secretary | 2020 | $208,137 | $23,892 | $42,524 | $23,424 | Nil | Nil | Nil | $297,978 | |||||||||
2019 | $194,025 | Nil | $38,248 | $13,089 | Nil | Nil | Nil | $245,362 | ||||||||||
2018 | $184,724(9) | Nil | $54,694 | $29,321(9) | Nil | Nil | Nil | $268,738(9) |
(1) | The share-based awards are valued using the Company’s share price on the grant date which is consistent with IFRS. The practice of the Company is to grant all share-based awards in Canadian currency, and then convert the grant date fair value amount to United States currency for reporting the value of the grants in the Company’s financials. The conversion rate for each grant is the average of the rates quoted by the Bank of Canada as its daily average exchange rate of the last day of the three months in the quarter in which the grant is made. The exchange rate used to convert the value of the 2020 share-based awards to US$ is 1.2807. |
(2) | The Company uses the Black-Scholes option-pricing model for determining fair value of stock options issued at the grant date. The Company selected the Black-Scholes option-pricing model because it is widely used in estimating |
(3) | The Company does not have a formal annual incentive program, however, bonuses are granted as determined by the Compensation Committee and approved by the Board on an individual basis. The Company does not presently have a pension incentive plan for any of its executive officers, including its NEOs. |
(4) | All compensation is negotiated and settled in Canadian dollars. The exchange rate used to convert |
(5) | Mr. |
(6) | Mr. Scott was |
(7) | Mr. Lo was |
(8) | Effective October 1, 2018, Mr. Lo began to provide part-time (65% FTE) services to the Company at an |
(9) | Ms. McLeod was also the Chief Legal Officer and Corporate Secretary of Mason Resources until its acquisition by Hudbay. The Company is Ms. McLeod’s employer and was responsible for paying 100% of Ms. McLeod’s salary for her services to both the Company and Mason Resources, which is reported in “Salary” above. Pursuant to the Administrative Services Agreement between the Company and Mason Resources, between December 1, 2018 and December 19, 2018 (the termination of the |
The following table provides the exchange rates used to convert the value of the option basedoption-based awards from Canadian dollars to United StatesU.S. dollars as reported above.
Name | Date of Grant | Expiry Date | Exercise Price (C$) | Options Granted | Exchange Rates to US$ |
Gregory Crowe | 23-Dec-14 | 22-Dec-19 | $0.21 | 300,000 | C$1.16/US$1 |
19-Dec-13 | 19-Dec-18 | $0.30 | 350,000 | C$1.07/US$1 | |
15-Mar-13 | 15-Mar-18 | $0.56 | 450,000 | C$1.02/US$1 | |
Stephen Scott | 16-Nov-15 | 15-Nov-20 | $0.35 | 500,000 | C$1.34/US$1 |
Bruce Colwill | 4-Dec-15 | 3-Dec-20 | $0.33 | 125,000 | C$1.34/US$1 |
23-Dec-14 | 22-Dec-19 | $0.21 | 250,000 | C$1.16/US$1 | |
19-Dec-13 | 19-Dec-18 | $0.30 | 200,000 | C$1.07/US$1 | |
15-Mar-13 | 15-Mar-18 | $0.56 | 375,000 | C$1.02/US$1 | |
Mona Forster | 23-Dec-14 | 22-Dec-19 | $0.21 | 225,000 | C$1.16/US$1 |
19-Dec-13 | 19-Dec-18 | $0.30 | 150,000 | C$1.07/US$1 | |
15-Mar-13 | 15-Mar-18 | $0.56 | 350,000 | C$1.02/US$1 | |
Robert Cann | 23-Dec-14 | 22-Dec-19 | $0.21 | 225,000 | C$1.16/US$1 |
19-Dec-13 | 19-Dec-18 | $0.30 | 150,000 | C$1.07/US$1 | |
15-Mar-13 | 15-Mar-18 | $0.56 | 325,000 | C$1.02/US$1 | |
Susan McLeod | 4-Dec-15 | 3-Dec-20 | $0.33 | 110,000 | C$1.34/US$1 |
23-Dec-14 | 22-Dec-19 | $0.21 | 225,000 | C$1.16/US$1 | |
19-Dec-13 | 19-Dec-18 | $0.30 | 150,000 | C$1.07/US$1 | |
15-Mar-13 | 15-Mar-18 | $0.56 | 375,000 | C$1.02/US$1 | |
Robert Cinits | 4-Dec-15 | 3-Dec-20 | $0.33 | 110,000 | C$1.34/US$1 |
23-Dec-14 | 22-Dec-19 | $0.21 | 225,000 | C$1.16/US$1 | |
19-Dec-13 | 19-Dec-18 | $0.30 | 150,000 | C$1.07/US$1 | |
9-Apr-13 | 9-Apr-18 | $0.32 | 50,000 | C$1.02/US$1 | |
15-Mar-13 | 15-Mar-18 | $0.56 | 325,000 | C$1.02/US$1 |
Name | Date of Grant | Expiry Date | Exercise Price (C$) | Options Granted | Exchange Rates to US$ | |||||
Stephen Scott | 8-Dec-20 | 7-Dec-25 | $0.51 | 350,000 | C$1.28/US$1 | |||||
10-Dec-19 |
9-Dec-24 |
$0.365 |
500,000 |
C$1.30/US$1 | ||||||
19-Dec-18 |
18-Dec-23 |
$0.55 |
500,000 |
C$1.36/US$1 | ||||||
Duane Lo | 8-Dec-20 | 7-Dec-25 | $0.51 | 225,000 | C$1.28/US$1 | |||||
10-Dec-19 |
9-Dec-24 |
$0.365 |
250,000 |
C$1.30/US$1 | ||||||
19-Dec-18 |
18-Dec-23 |
$0.55 |
250,000 |
C$1.36/US$1 | ||||||
Susan McLeod | 8-Dec-20 | 7-Dec-25 | $0.51 | 225,000 | C$1.28/US$1 | |||||
10-Dec-19 |
9-Dec-24 |
$0.365 |
250,000 |
C$1.30/US$1 | ||||||
19-Dec-18 |
18-Dec-23 |
$0.55 |
250,000 |
C$1.36/US$1 |
The Company employed Gregory Croweemploys Stephen Scott as President and CEO under an employment agreement dated NovemberApril 1, 2003,2016, as amended. The Company could terminate Mr. Crowe's employment at any time without cause by providing him with a lump sum payment equal to 24 months' salary and statutory entitlements. See "Termination and Change of Control Benefits" below.
in the event he wishedwishes to resign. In February 2016, Mr. Colwill provided one month's prior notice of his resignation as an employee of the Company effective March 22, 2016. He continues to serve as the Company's CFO under a consulting agreement dated March 23, 2016. The consulting agreement is for a three-month term ending June 22, 2016. Mr. Colwill may terminate the consulting agreement by providing at least 30 days' prior written notice to the Company. The Company may only terminate the consulting agreement prior to the end of the term in the event of a material breach by Mr. Colwill. See "Termination and Change of Control Benefits" below.
The Company employs Duane Lo part-time as Chief Financial Officer under an employment agreement dated November 1, 2016, as amended. Mr. Lo is required to provide the Company with one month’s prior notice in the event he wishes to resign. The Company may terminate his employment without cause by providing him with six months’ working notice plus an additional month of working notice for each year of employment completed, to a maximum of twelve months’ working notice, or an amount equal to the salary Mr. Lo otherwise would receive over the working notice period (or a combination thereof). In the event Mr. Lo’s employment is terminated without cause or he resigns for Good Reason within the one year period following a Change of Control, Mr. Lo will be entitled to a lump sum amount equal to 18 months’ salary (calculated using his annualized salary based on full-time employment) and the aggregate amount of all other remuneration, bonuses and benefits that he would otherwise have received over the ensuing 18-month period (collectively, the “Lo Severance Amount”). See “Item 6. Directors, Senior Management and Employees – B. Compensation – Termination and Change of Control Benefits” below.
The Company employs Susan McLeod as Vice President, Legal Affairs and Corporate Secretary under an employment agreement dated September 21, 2010, as amended. Ms. McLeod is required to provide the Company with one month'smonth’s prior notice in the event she wishes to resign. The Company may terminate her employment without cause by providing her with a lump sum amount equal to 18 months’ salary and the aggregate amount of all other remuneration, bonuses and benefits that she would otherwise have received over the ensuing 18-month period (collectively, the “McLeod Severance Amount.Amount”). Ms. McLeod will be entitled to the Severance Amount in the event she elects to terminate her employment within 90 days following a changeChange of controlControl or as a result of conditions that amount to constructive dismissal. See "Termination“Item 6. Directors, Senior Management and Employees – B. Compensation – Termination and Change of Control Benefits"Benefits” below.
Incentive Plan Awards
The following table is a summary of all option-based awards and share-based awards to the NEOs that were outstanding at the end of the most recently completed financial year.
Option-based Awards | Share-based Awards | |||||||||||||
Name | Number of (#) | Option exercise price (C$) | Option expiration date | Value of the-money options (C$)(1) | Number of (#) | Market or (C$)(3) | Market or ($)
| |||||||
Stephen Scott |
400,000 |
$0.36(2) |
November 21, 2021 |
$80,000 |
Nil |
Nil |
Nil | |||||||
325,000 |
$0.52 |
October 15, 2022 |
$13,000 |
Nil |
Nil |
Nil | ||||||||
500,000 |
$0.55 |
December 18, 2023 |
$5,000 |
Nil |
Nil |
Nil | ||||||||
500,000 |
$0.365 |
December 9, 2024 |
$97,500 |
Nil |
Nil |
Nil | ||||||||
350,000 |
$0.51 |
December 7, 2025 |
$17,500 |
80,000 |
$44,800 |
Nil |
Option-based Awards | Share-based Awards | |||||
Name | Number of Securities underlying unexercised options (#) | Option exercise price (C$) | Option expiration date | Value of unexercised in-the-money options (C$) | Number of shares or units of shares that have not vested (#) | Market or payout value of share-based awards that have not vested (#) |
Gregory Crowe | 150,000 | $1.25 | January 6, 2017 | $0 | Nil | Nil |
450,000 | $0.56 | February 11, 2017 | $0 | Nil | Nil | |
350,000 | $0.30 | February 11, 2017 | $0 | Nil | Nil | |
300,000 | $0.21 | February 11, 2017 | $24,000 | Nil | Nil | |
Stephen Scott | 500,000 | $0.35 | November 15, 2020 | $0 | Nil | Nil |
Bruce Colwill | 200,000 | $3.47 | January 4, 2016 | $0 | Nil | Nil |
100,000 | $2.23 | July 15, 2016 | $0 | Nil | Nil | |
125,000 | $1.25 | September 20, 2016 | $0 | Nil | Nil | |
375,000 | $0.56 | September 20, 2016 | $0 | Nil | Nil | |
200,000 | $0.30 | September 20, 2016 | $0 | Nil | Nil | |
250,000 | $0.21 | September 20, 2016 | $20,000 | Nil | Nil | |
Mona Forster | 125,000 | $1.25 | February 11, 2016 | $0 | Nil | Nil |
350,000 | $0.56 | February 11, 2016 | $0 | Nil | Nil | |
150,000 | $0.30 | February 11, 2016 | $0 | Nil | Nil | |
Robert Cann | 125,000 | $1.25 | September 28, 2016 | $0 | Nil | Nil |
325,000 | $0.56 | September 28, 2016 | $0 | Nil | Nil | |
150,000 | $0.30 | September 28, 2016 | $0 | Nil | Nil | |
225,000 | $0.21 | September 28, 2016 | $18,000 | Nil | Nil | |
Susan McLeod | 125,000 | $1.25 | January 6, 2017 | $0 | Nil | Nil |
375,000 | $0.56 | March 15, 2018 | $0 | Nil | Nil | |
150,000 | $0.30 | December 19, 2018 | $0 | Nil | Nil | |
225,000 | $0.21 | December 22, 2019 | $18,000 | Nil | Nil | |
110,000 | $0.33 | December 3, 2020 | $0 | Nil | Nil | |
Robert Cinits | 150,000 | $2.05 | July 7, 2016 | $0 | Nil | Nil |
50,000 | $1.25 | January 6, 2017 | $0 | Nil | Nil | |
325,000 | $0.56 | March 15, 2018 | $0 | Nil | Nil | |
50,000 | $0.32 | April 9, 2018 | $0 | Nil | Nil | |
150,000 | $0.30 | December 19, 2018 | $0 | Nil | Nil | |
225,000 | $0.21 | December 22, 2019 | $18,000 | Nil | Nil | |
110,000 | $0.33 | December 3, 2020 | $0 | Nil | Nil | |
Plan Category | Number of securities to be
(a) | Weighted-average exercise (C$)
(b) | Number of securities (c) (1) | |||
Equity compensation plans approved by securityholders | 10,550,000 | $0.46 | 8,103,000 | |||
Equity compensation plans not approved by securityholders | 450,000 | N/A | 3,280,600 | |||
Total | 11,000,000 | $0.46 | 11,383,600 |
(1) | The maximum aggregate number of Common Shares issuable pursuant to options |
(2) | The maximum aggregate number of Common Shares |
In 2020, the Compensation Committee asked external counsel to draft a DSU Plan, to promote the alignment of interests between Designated Participants and shareholders of the Company, assist the Company in attracting, retaining and motivating Designated Participants, and provide a compensation system for Designated Participants that is reflective of the responsibility, commitment and risk accompanying their management role over the medium term. On the recommendation of the Compensation Committee, the Board adopted and approved the DSU Plan and will submit the DSU Plan to the TSX for acceptance and to the Company’s shareholders for approval at the next annual general meeting. The Compensation Committee also recommended, and the Board approved, deferred share unit grants to the NEOs and independent directors, provided that the deferred share units may not vest or be redeemed prior to the Company obtaining shareholder approval of the DSU Plan. If shareholder approval of the DSU Plan is not obtained at the next annual general meeting, any deferred share units that have been granted will be null and void and will be deemed to have been rescinded.
Key provisions of the DSU Plan are as follows.
The DSU Plan will be administered by the Board, or any committee thereof to which the Board has delegated the power to administer and grant deferred share units under the DSU Plan.
Subject to the provisions of the DSU Plan, the Board from time to time will determine the date on which deferred share units are to be granted, provided that they may not be granted during a black-out period. The Board will also determine, in its sole discretion, in connection with each grant of deferred share units, the number of deferred share units to be granted; the terms, if any, under which deferred share units will vest; and such other terms and conditions (which need not be identical) of all deferred share units covered by any grant.
Independent directors may elect to receive up to 100% of their fees in a particular year in the form of deferred share units in lieu of cash, by filing an election notice as set out in the DSU Plan. Such election notice will apply only to fees earned after the filing of the notice.
Notwithstanding any other provision of the DSU Plan, the aggregate number of deferred share units that may be granted and remain outstanding under the DSU Plan will not at any time be such as to result in (a) the number of securities issuable to insiders (as a group) under the DSU Plan, together with all other security based compensation arrangements of the Company, exceeding 10% of the issued and outstanding securities of the Company; or (b) the number of securities issued to insiders (as a group) within any one year period under the DSU Plan, together with all other security based compensation arrangements of the Company, exceeding 10% of the issued and outstanding securities of the Company.
An account will be maintained by the Company for each Designated Participant and will be credited with such notional grants of deferred share units as are granted to or otherwise credited to a Designated Participant from time to time.
From and after the date of the DSU Plan, whenever cash dividends are paid on Common Shares, additional deferred share unit will be automatically granted to each Designated Participant who has outstanding deferred share units on the record date for the payment of the cash dividends and on the dividend payment date. The number of deferred share units to be granted as of the dividend payment date will be determined by dividing the aggregate dividend that would have been payable to such Designated Participant if the deferred share units held by the Designated Participant on the record date had been Common Shares by the market value of a Common Share on the dividend payment date.
A deferred share unit is personal to the Designated Participant and is non-assignable and non-transferable other than as permitted by will or by the laws of succession to the legal representative of the Designated Participant in the event of death of the Designated Participant.
Vested deferred share units will be redeemable and the value thereof payable only after the Termination Date of a Designated Participant. “Termination Date” means the earliest date on which any of the following conditions are satisfied, as applicable: the date on which a Designated Participant dies; in the case of a director, the date on which a Designated Participant ceases to be a director for any reason whatsoever including resignation, disability, retirement, or loss of office as a director, provided that if the Designated Participant is also an employee or officer immediately preceding such date, the Designated Participant’s last day of active employment with the Company or any of its affiliates is also on such date; in the case of an officer or employee, the Designated Person’s last day of active employment with the Company or any of its affiliates, regardless of whether the termination of employment was lawful, and does not include any period of statutory, contractual, common law or reasonable notice of termination, provided that if the officer or employee is also a director immediately preceding such date, the Designated Person also ceases to be a director on such date; or in the case of a consultant, the termination of the services of the consultant.
On or after the Termination Date, the Designated Participant (or his or her estate) will cause the Company to redeem the vested deferred share units which are held in such Designated Participant’s account by filing a redemption notice specifying the redemption date (which must be received by the Company by, and specify a date, no later than December 15 of the first calendar year commencing after the calendar year in which the Termination Date occurred) and acknowledging that such deferred share units are to be redeemed. Within fifteen trading days after the redemption date but no later than December 31 of the first calendar year commencing after the calendar year in which the Termination Date occurred, the Designated Participant (or his or her estate) will have the right to receive, and will receive, with respect to all vested deferred share units held in his or her account, at the election of the Board, in its sole discretion: cash payment equal to the market value of such deferred share units as of the Redemption Date; such number of treasury Common Shares duly issued by the Company as are equal to the number of such vested deferred share units; or any combination of the foregoing, such that the cash payment, plus such number of treasury Common Shares duly issued by the Company, have a value equal to the market value of such deferred share units as of the redemption date.
The Company may withhold or require a Designated Participant, as a condition of redeeming a deferred share unit to pay or reimburse any taxes, social security contributions and other source deductions which are required to be withheld by the Company under applicable law in connection with the redemption of the deferred share unit. Under no circumstances will the Company be responsible for the payment of any tax, social security contributions or any other source deductions on behalf of any Designated Participant or for providing any tax advice to the Designated Participant.
In addition to the other terms and conditions of the DSU Plan (and notwithstanding any other term or condition of the DSU Plan to the contrary), special requirements for U.S. Designated Participants apply.
The Board may, subject where required to the approval of the TSX, from time to time suspend or terminate the DSU Plan in whole or in part. No action by the Board to terminate the DSU Plan will affect any vested or unvested deferred share units granted pursuant to the DSU Plan prior to such action, and such deferred share units will remain outstanding and in effect and be settled in due course in accordance with the terms of the DSU Plan.
A. | Major Shareholders |
As far as it is known to the Company, other than identified below, it is not directly or indirectly owned or controlled by any other corporation or by the Canadian Government, or any foreign government, or by any other natural or legal person.
To the knowledge of the Company'sCompany’s directors and senior officers, the following table sets forth certain information as at March 30, 2016,29, 2021, concerning the ownership of the Company'sCompany’s Common Shares as to each person known by the directors and senior officers, based solely upon public records and filings, to be the direct or indirect owner of more than five percent (5%) of the Company'sCompany’s Common Shares, who owned more than five percent of the outstanding shares of each class of the Company'sCompany’s voting securities.
Shareholder Name | Number of Shares | Percentage of Issued Shares |
Rio Tinto International Holdings Limited | 30,366,129(1) | 19.90% |
Sandstorm Gold Ltd. | 22,985,746 | 15.10% |
Caisse de depot et placement du Quebec | 12,381,400 | 8.10% |
Shareholder Name | Number of Shares | Percentage of Issued Shares | ||
Rio Tinto International Holdings Limited | 31,981,129(1) | 17.1% | ||
Sandstorm Gold Ltd. | 43,466,678(2) | 23.3% |
(1) | Rio Tinto International Holdings Limited holds |
(2) | Sandstorm also owns 1,657,317 Warrants. |
Changes in ownership by major shareholders
To the best of the Company'sCompany’s knowledge there have been no changes in the ownership of the Company'sCompany’s shares held by major shareholders during the last three fiscal years other than as disclosed herein.
Sandstorm Gold Ltd.
In the year ended December 31, 2015, Caisse de depot et placement du Quebec sold 150,0002018, Sandstorm made market purchases through the facilities of the TSX increasing its ownership from 23,900,380 Common Shares to 28,559,880 Common Shares of the Company, decreasing its ownership from 12,531,400 to 12,381,400 Common Shares of the Company.
In the year ended December 31, 2019, Sandstorm made market purchases through the facilities of the TSX increasing its ownership from 28,559,880 Common Shares to 36,138,880 Common Shares of the Company, or approximately 20.6% of the outstanding Common Shares of the Company as at December 31, 2019.
In the year ended December 31, 2020, Sandstorm acquired 2,400,000 Units of the Company at a price of C$0.43 per Unit as part of the larger Non-Brokered Private Placement. See “Item 4. Information on the Company – B. Business Overview – Non-Brokered Private Placement” above. Sandstorm also made market purchases through the facilities of the TSX increasing its ownership to 40,376,380 Common Shares of the Company, or approximately 21.6% of the outstanding Common Shares of the Company as at December 31, 2020.
As at March 29, 2021, Sandstorm holds 43,466,678 Common Shares (approximately 23.3% of the outstanding Common Shares of the Company) and Warrants to purchase an additional 1,657,317 Common Shares.
Rio Tinto International Holdings Limited
There were no changes in ownership of securities of the Company by Rio Tinto or Turquoise Hill in the years ended December 31, 2019 or 2018.
In the year ended December 31, 2020, Rio Tinto directly acquired 875,000 Units of the Company at a price of C$0.43 per Unit as part of the larger Non-Brokered Private Placement. See “Item 4. Information on the Company – B. Business Overview – Non-Brokered Private Placement” above. Turquoise Hill also acquired 740,000 Units of the Company under the Non-Brokered Private Placement, which Rio Tinto is deemed to have beneficial ownership of.
As at March 29, 2021, Rio Tinto directly holds 17,441,796 Common Shares and holds another 14,539,333 Comon Shares indirectly through Turquoise Hill (totalling approximately 17.1% of the outstanding Common Shares of the Company). Rio Tinto also directly holds Warrants to purchase an additional 437,500 Common Shares and holds another 370,000 Warrants indirectly through Turquoise Hill.
Voting Rights
The Company'sCompany’s major shareholders do not have different voting rights.
Shares Held in the United States
As of March 30, 2016,22, 2021, there were approximately 2224 registered holders of the Company'sCompany’s Common Shares in the United States, with combined holdings of 22,209,37842,900,735 Common Shares.
Change of Control
As of the date of this Annual Report, there were no arrangements known to the Company which may, at a subsequent date, result in a change of control of the Company.
Control by Others
To the best of the Company'sCompany’s knowledge, the Company is not directly or indirectly owned or controlled by another corporation, any foreign government, or any other natural or legal person, severally or jointly.
B. | Related Party Transactions |
The Company did not enterentered into anyno transactions with related parties during the fiscal year ended on December 31, 2020 and has not entered into a transaction with a related party from January 1, 2021 up to the date of this Annual Report.
Directors and Key Management Personnel
The Company’s related parties include its wholly owned subsidiaries and key management personnel. Direct remuneration paid to the Company’s directors and key management personnel during the years ended December 31, 2015.
2020 | 2019 | |||||||
Directors fees | $ | 157 | $ | 132 | ||||
Salaries and benefits | $ | 681 | $ | 588 | ||||
Share-based compensation | $ | 519 | $ | 321 |
As of December 31, 2014.
Upon a pricechange of C$0.3496 per share. The price was calculated using the volume weighted average price of the Company's Common Shares on the TSX for the 15 trading days preceding February 23, 2016, the effective date of the Agreement to Amend. Following closing, Sandstorm holds 22,985,746 Common Shares, or 15.07% of the outstanding Common Shares of the Company.
C. | Interests of Experts and Counsel |
Not Applicable.
A. | Consolidated Statements and Other Financial Information |
The following financial statements of the Company are attached to this Annual Report:
· | Independent |
· |
Consolidated Statements of |
· | Consolidated Statements of Comprehensive Loss for the years ended December 31, |
· | Consolidated Statement of |
· | Consolidated Statements of Cash Flows for the years ended December 31, |
· | Notes to Consolidated Financial Statements for the |
Legal Proceedings
None.
Dividend Policy
The Company has not declared any dividends on its Common Shares since its inception on July 19, 1995. There is no restriction in the Company'sCompany’s Articles that will limit its ability to pay dividends on its Common Shares. However, the Company does not anticipate declaring and paying dividends to its shareholders in the near future.
B. | Significant Changes |
None.
A. | Offer and Listing |
The Company'sCompany’s Common Shares were traded on the TSX Venture Exchange until April 24, 2006. On April 24, 2006 the Company began trading on the TSX. The Company'sCompany is traded on the TSX under the symbol is "ETG"“ETG”. The Company’s Common Shares also traded on the NYSE American LLC under the symbol “EGI” until September 30, 2019. Effective October 1, 2019, the Company voluntarily withdrew its Common Shares from listing on NYSE American LLC and its CUSIP number is 29383-100. The Company's Common Shares commenced trading on the OTCQB under the symbol “ERLFF”.
B. | Plan of Distribution |
Not Applicable.
C. | Markets |
The Company’s outstanding Common Shares are listed on the TSX and are also traded on the NYSE MKT under the symbol "EGI" and on the Frankfurt Stock Exchange under the symbol "EKA" (WKN:121411).
TSX | NYSE MKT | ||||
(Canadian Dollars) | (United States Dollars) | ||||
Last Five Fiscal Years | High | Low | High | Low | |
2015 | 0.66 | 0.18 | 0.51 | 0.08 | |
2014 | 0.52 | 0.18 | 0.47 | 0.16 | |
2013 | 0.62 | 0.25 | 0.62 | 0.22 | |
2012 | 1.41 | 0.39 | 1.41 | 0.40 | |
2011 | 3.40 | 1.05 | 3.52 | 1.00 |
2015 | High | Low | High | Low |
Fourth Quarter ended December 31, 2015 | 0.44 | 0.27 | 0.37 | 0.20 |
Third Quarter ended September 31, 2015 | 0.42 | 0.29 | 0.40 | 0.22 |
Second Quarter ended June 30, 2015 | 0.66 | 0.20 | 0.51 | 0.15 |
First Quarter ended March 31, 2015 | 0.26 | 0.18 | 0.21 | 0.08 |
2014 | High | Low | High | Low |
Fourth Quarter ended December 31, 2014 | 0.31 | 0.18 | 0.26 | 0.16 |
Third Quarter ended September 31, 2014 | 0.35 | 0.27 | 0.34 | 0.25 |
Second Quarter ended June 30, 2014 | 0.43 | 0.31 | 0.39 | 0.28 |
First Quarter ended March 31, 2014 | 0.52 | 0.32 | 0.47 | 0.30 |
Last Six Months | High | Low | High | Low |
Feb-16 | 0.43 | 0.27 | 0.32 | 0.18 |
Jan-16 | 0.34 | 0.25 | 0.24 | 0.17 |
Dec-15 | 0.34 | 0.28 | 0.26 | 0.20 |
Nov-15 | 0.38 | 0.31 | 0.28 | 0.24 |
Oct-15 | 0.44 | 0.32 | 0.37 | 0.24 |
Sep-15 | 0.53 | 0.29 | 0.40 | 0.22 |
Number of Options | Exercise Price (CDN$) | Grant Date | ||
100,000 | $0.38 | July 13, 2015 | ||
500,000 | $0.35 | November 16, 2015 | ||
1,070,000 | $0.33 | December 4, 2015 |
D. | Selling Shareholders |
Not Applicable.
E. | Dilution |
Not Applicable.
F. | Expenses of the Issue |
Not Applicable.
A. | Share Capital |
Not Applicable.
B. | Memorandum and Articles of Association |
The Company is continued under the laws of British Columbia and is governed by the BCBCA.
The Company’s Articles do not address the Company'sCompany’s objects and purposes and there are no restrictions on the business the Company may carry on in the Articles.
The Company is authorized to issue an unlimited number of Common Shares without par value. Each Common Share is entitled to one vote. All Common Shares of the Company rank equally as to dividends, voting power and participation in assets. No Common Shares have been issued subject to call or assessment. There are no pre-emptive or conversion rights and no provision for exchange, exercise, redemption and retraction, purchase for cancellation, surrender or sinking or purchase funds. Provisions as to modification, amendments or variation of such rights or such provisions are contained in the BCBCA and the Company'sCompany’s Articles.
A director or senior officer who has, directly or indirectly, a material interest in an existing or proposed material contract or transaction of the Company may not vote in respect of any such proposed material contract or transaction.
The directors may from time to time in their discretion authorize and cause the Company to:
(a) | borrow money in such amount, in such manner, on such security, from such sources and upon such terms and conditions as they think fit; |
(b) | guarantee the repayment of money borrowed by any person or the performance of any obligation of any person; |
(c) | issue bonds, debentures, notes and other debt obligations either outright or as continuing security for any indebtedness or liability, direct or indirect, or obligation of the Company or of any other person; and |
(d) | mortgage, charge (whether by way of a specific or floating charge), grant a security interest in or give other security on the undertaking or on the whole or any part of the property and assets of the Company, both present and future. |
There are no age considerations pertaining to the retirement or non-retirement of directors.
A director is not required to hold a share in the capital of the Company as qualification for his office but shall be qualified as required by the BCBCA, to become or act as a director.
A director may hold any office or appointment with the Company (except as auditor of the Company) in conjunction with his office of director for such period and on such terms (as to remuneration or otherwise) as the Board may determine. The Company must reimburse each director for the reasonable expenses that he may incur in and about the business of the Company. If a director performs any professional or other services for the Company that in the opinion of the directors are outside the ordinary duties of a director or shall otherwise be specially occupied in or about the Company'sCompany’s business, he may be paid remuneration to be fixed by the Board, or, at the option of such director, by ordinary resolution, and such remuneration may be either in addition to or in substitution for any other remuneration that he may be entitled to receive.
Subject to the provisions of the BCBCA, the Company may indemnify any person. The Company must, subject to the provisions of the BCBCA, indemnify a director, officer or alternate director or a former director, officer or alternate director of the Company or a person who, at the request of the Company, is or was a director, alternate director or officer of another corporation, at a time when the corporation is or was an affiliate of the Company or a person who, at the request of the Company, is or was, or holds or held a position equivalent to that of, a director, alternate director or officer of a partnership, trust, joint venture or other unincorporated entity (in each case, an "eligible party"“eligible party”), and the heirs and personal representatives of any such eligible party, against all judgments, penalties or fines awarded or imposed in, or an amount paid in settlement of, a legal proceeding or investigative action (whether current, threatened, pending or completed) in which such eligible party or any of the heirs and personal representatives of such eligible party, by reason of such eligible party being or having been a director, alternate director or officer or holding or having held a position equivalent to that of a director, alternate director or officer, is or may be joined as a party or is or may be liable for or in respect of a judgment, penalty or fine in, or expenses related to the proceeding.
All of the authorized Common Shares of the Company are of the same class and, once issued, rank equally as to dividends, voting powers, and participation in assets. Holders of Common Shares are entitled to one vote for each Common Share held of record on all matters to be acted upon by the shareholders. Holders of Common Shares are entitled to receive such dividends as may be declared from time to time by the Board, in its discretion, out of funds legally available therefore.
Upon liquidation, dissolution or winding up of the Company, holders of Common Shares are entitled to receive pro rata the assets of the Company, if any, remaining after payments of all debts and liabilities. No Common Shares have been issued subject to call or assessment. There are no pre-emptive or conversion rights and no provisions for redemption or purchase for cancellation, surrender, or sinking or purchase funds.
Provisions as to the modification, amendment or variation of such shareholder rights or provisions are contained in the BCBCA and the Articles. Unless the BCBCA or the Company'sCompany’s Articles otherwise provide, any action to be taken by a resolution of the shareholders may be taken by an ordinary resolution or by a vote of a majority or more of the shares represented at the shareholders'shareholders’ meeting.
The BCBCA contains provisions which require a "special resolution"“special resolution” for effecting certain corporate actions. Such a "special resolution"“special resolution” requires a two-thirds vote of shareholders rather than a simple majority for passage. The principle corporate actions that require a "special resolution"“special resolution” include:
a. | transferring the |
b. | giving financial assistance under certain circumstances; |
c. | certain conflicts of interest by directors; |
d. | disposing of all or substantially all of the |
e. | certain alterations of share capital; |
f. | altering any restrictions on the |
g. | certain reorganizations of the Company. |
There are no restrictions on the repurchase or redemption of Common Shares of the Company while there is any arrearage in the payment of dividends or sinking fund installments.
There is no liability to further capital calls by the Company.
There are no provisions discriminating against any existing or prospective holder of securities as a result of such shareholder owning a substantial number of Common Shares.
No right or special right attached to issued shares may be prejudiced or interfered with unless the shareholders holding shares of the class or series of shares to which the right or special right is attached consent by a separate special resolution of those shareholders.
There are no limitations on the rights to own securities.
There is no provision of the Company'sCompany’s Articles that would have an effect of delaying, deferring or preventing a change in control of the Company and that would operate only with respect to a merger, acquisition or corporate restructuring involving the Company (or any of its subsidiaries).
Shareholder ownership must be disclosed to Canadian securities administrators and the TSX by any shareholder who owns more than 10% of the Company'sCompany’s outstanding Common Shares.
C. | Material Contracts |
The Company has the following material contracts:
1. | Amended and Restated Equity Participation and Funding Agreement dated February 14, 2013 and amended March 1, 2016 between Entrée Gold Inc. and Sandstorm Gold Ltd. |
See "Item“Item 4. Information on the Company – B. Business Overview – Agreements with Sandstorm – Amended and Restated Equity Participation and Funding Agreement"Agreement” above.
2. | Joint Venture Agreement deemed effective June 30, 2008 between Entrée Gold Inc. and Ivanhoe Mines Mongolia Inc. XXK (now OTLLC). |
Pursuant to Earn-In Agreement, a joint venture was formed on June 30, 2008 and the parties were required to enter into a joint venture agreementEntrée/Oyu Tolgoi JVA in the form attached to the Earn-In Agreement as Appendix A (the "Joint Venture Agreement").
The Joint Venture AgreementEntrée/Oyu Tolgoi JVA contains provisions governing the parties'parties’ activities on the Entrée/Oyu Tolgoi JV Property, including exploration, acquisition of additional real property and other interests, evaluation of, and if justified, engaging in development and other operations, engaging in marketing products, and completing and satisfying all environmental compliance and other continuing obligations affecting the Entrée/Oyu Tolgoi JV Property.
3. | Equity Participation and Earn-in Agreement dated October 15, 2004, between Entrée Gold Inc. and Ivanhoe Mines Ltd. (now Turquoise Hill), as amended on November 9, 2004 and subsequently assigned to Ivanhoe Mines Mongolia Inc. XXK (OTLLC) on March 1, 2005. |
Under the Earn-In Agreement, OTLLC earned a 70% interest in mineralization above a depth of 560 metresm on the Entrée/Oyu Tolgoi JV Property, and an 80% interest in mineralization below that depth, by spending an aggregate $35 million on exploration. OTLLC completed its earn-in on June 30, 2008, at which time a joint venture was formed under the terms of the Joint Venture Agreement.Entrée/Oyu Tolgoi JVA. The Joint Venture AgreementEntrée/Oyu Tolgoi JVA was intended
to replace the Earn-In Agreement, with the Earn-In Agreement terminating, except for certain provisions that expressly survive the termination. Those parts include provisions related to the Joint Venture Agreement,Entrée/Oyu Tolgoi JVACo title, tenure and related matters and arbitration.
D. | Exchange Controls |
Canada has no system of exchange controls. There are no Canadian restrictions on the repatriation of capital or earnings of a Canadian public company to non-resident investors. There are no laws in Canada or exchange restrictions affecting the remittance of dividends, profits, interest, royalties and other payments to non-resident holders of the Company'sCompany’s securities, except as discussed below under "Item“Item 10. Additional Information – E. Taxation"Taxation”.
There are no limitations under the laws of Canada or in the organizing documents of the Company on the right of foreigners to hold or vote securities of the Company, except that the Investment Canada Act may require review and approval by the Minister of Industry (Canada) of certain acquisitions of "control"“control” of the Company by a "non-Canadian"“non-Canadian”. The threshold for acquisitions of control is generally defined as being one-third or more of the voting shares of the Company. "Non-Canadian"“Non-Canadian” generally means an individual who is not a Canadian citizen, or a corporation, partnership, trust or joint venture that is ultimately controlled by non-Canadians.
E. | Taxation |
Canadian Federal Income Tax Consequences
The following summarizes the principal Canadian federal income tax consequences applicable to the holding and disposition of Common Shares in the capital of the Company by a holder who is ornot, and is not deemed to be, a United States resident of Canada for the purposes of the Income Tax Act (Canada) (the "Tax Act"“Tax Act”), and who holds Common Shares solely as capital property and does not use or hold, and is not deemed to use or hold, Common Shares in connection with carrying on a business in Canada, referred to in this summary as a "U.S. Holder"“U.S. Holder”. This summary is not applicable to a U.S. Holder that is an insurer carrying on an insurance business in Canada and elsewhere. This summary is based on the current provisions of the Tax Act, the regulations thereunder, all amendments thereto publicly proposed by the government of Canada, the published administrative practices of the Canada Revenue Agency, and the current provisions of the Convention Between Canada and the United States of America with Respect to Taxes on Income and on Capital, signed September 26, 1980, as amended (the "Canada-U.S.“Canada-U.S. Tax Convention"Convention”). Except as otherwise expressly provided, this summary does not take into account any provincial, territorial or foreign (including without limitation, any United States) tax law or treaty. It has been assumed that all currently proposed amendments will be enacted substantially as proposed and that there is no other relevant change in any governing law or practice, although no assurance can be given in these respects.
Each U.S. Holder is advised to obtain tax and legal advice applicable to such U.S. Holder'sHolder’s particular circumstances.
Every U.S. Holder is liable to pay a Canadian withholding tax on every dividend that is or is deemed to be paid or credited to the U.S. Holder on the U.S. Holder'sHolder’s Common Shares. The statutory rate of withholding tax is 25% of the gross amount of the dividend paid. The Canada-U.S. Tax Convention reduces the statutory rate with respect to dividends paid to a U.S. Holder, if that U.S. Holder is eligible for benefits under the Canada-U.S. Tax Convention. Where applicable, the general rate of withholding tax under the Canada-U.S. Tax Convention is 15% of the gross amount of the dividend, but if the U.S. Holder is a company that owns at least 10% of the voting stock of the Company and beneficially owns the dividend, the rate of withholding tax is 5% for dividends paid or credited to such corporate U.S. Holder. The Company is required to withhold the applicable tax from the dividend payable to the U.S. Holder, and to remit the tax to the Receiver General of Canada for the account of the U. S. Holder.
A U.S. Holder generally will not be subject to tax under the Tax Act in respect of a capital gain realized on the disposition or deemed disposition of a Common Share unless the Common Share constitutes "taxable“taxable Canadian property"property” of the U.S. Holder for purposes of the Tax Act and the gain is not exempt from tax pursuant to the terms of the Canada-U.S. Tax Convention.
Provided that the Common Shares are listed on a "designated“designated stock exchange"exchange” for purposes of the Tax Act (which currently includes the TSX) at the time of disposition, the Common Shares generally will not constitute "taxable“taxable Canadian property"property” of a U.S. Holder, unless at any time during the 60 month period immediately preceding the disposition:
(i) | the U.S. Holder, persons with whom the U.S. Holder did not deal at “arm’s length” for the purposes of the Tax Act, partnerships in which the U.S. Holder or a person with whom the U.S. Holder did not deal at “arm’s length” for the purposes of the Tax Act holds a membership interest directly or indirectly through one or more partnerships, or the U.S. Holder together with all such persons, owned 25% or more of the issued shares of any class of the Company; and |
(ii) | more than 50% of the fair market value of the Common Shares was derived directly or indirectly from one or any combination of real or immovable property situated in Canada, “Canadian resource properties” (as defined in the Tax Act), “timber resource properties” (as defined in the Tax Act), or options in respect of, or interests in, or for civil law rights in, such property whether or not such property exists. |
Notwithstanding the foregoing, the Common Shares may otherwise in certain circumstances be deemed to be taxable Canadian property to a U.S. Holder persons with whom the U.S. Holder did not deal at "arm's length" for the purposes of the Tax Act, or the U.S. Holder together with all such persons, owned 25% or more of the issued shares of any class of the Company and; (ii) more than 50% of the fair market value of the Common Shares was derived directly or indirectly from one or any combination of real or immovable property situated in Canada, "Canadian resource properties" (as defined in the Tax Act), "timber resource properties" (as defined in the Tax Act), or options in respect of, or interests in, or for civil law rights in, such property whether or not such property exists.
Even if a Common Share is considered to be "taxable“taxable Canadian property"property” to a U.S. Holder, the U.S. Holder may be exempt from tax under the Tax Act if such shares are "treaty-protected property"“treaty-protected property” for the purposes of the Tax Act. Common Shares owned by a U.S. Holder will generally be "treaty-protected property"“treaty-protected property” if the gain from the disposition of such shares would, because of the Canada-U.S. Tax Convention, be exempt from tax under Part I of the Tax Act.
U.S. Holders who may hold Common Shares as "taxable“taxable Canadian property"property” should consult their own tax advisors.
Certain United States Federal Income Tax Consequences
The following is a general summary of certain material U.S. federal income tax considerations applicable to a U.S. Holder (as defined below) arising from and relating to the acquisition, ownership, and disposition of Common Shares of the Company.
This summary is for general information purposes only and does not purport to be a complete analysis or listing of all potential U.S. federal income tax considerations that may apply to a U.S. Holder arising from and relating to the acquisition, ownership, and disposition of Common Shares. In addition, this summary does not take into account the individual facts and circumstances of any particular U.S. Holder that may affect the U.S. federal income tax consequences to such U.S. Holder, including specific tax consequences to a U.S. Holder under an applicable tax treaty. Accordingly, this summary is not intended to be, and should not be construed as, legal or U.S. federal income tax advice with respect to any U.S. Holder. This summary does not address the U.S. federal net investment income, U.S. federal alternative minimum, U.S. federal estate and gift, U.S. state and local, and non-U.S. tax consequences to U.S. Holders of the acquisition, ownership, and disposition of Common Shares. Except as specifically set forth below, this summary does not discuss applicable tax reporting requirements. Each U.S. Holder should consult its own tax advisor regarding the U.S. federal, U.S. federal net investment income, U.S. federal alternative minimum, U.S. federal estate and gift, U.S. state and local, and non-U.S. tax consequences relating to the acquisition, ownership and disposition of Common Shares.
No legal opinion from U.S. legal counsel or ruling from the Internal Revenue Service (the "IRS"“IRS”) has been requested, or will be obtained, regarding the U.S. federal income tax consequences of the acquisition, ownership, and disposition of Common Shares. This summary is not binding on the IRS, and the IRS is not precluded from taking a position that is different from, and contrary to, the positions taken in this summary. In addition, because the authorities on which this summary is based are subject to various interpretations, the IRS and the U.S. courts could disagree with one or more of the positions taken in this summary.
Scope of this Summary
Authorities
This summary is based on the Internal Revenue Code of 1986, as amended (the "Code"“Code”), Treasury Regulations (whether final, temporary, or proposed), published rulings of the IRS, published administrative positions of the IRS, the Canada-U.S. Tax Convention, and U.S. court decisions that are applicable and, in each case, as in effect and available, as of the date of this document. Any of the authorities on which this summary is based could be changed in a material and adverse manner at any time, and any such change could be applied on a retroactive or prospective basis which could affect the U.S. federal income tax considerations described in this summary. This summary does not discuss the potential effects, whether adverse or beneficial, of any proposed legislation that, if enacted, could be applied on a retroactive or prospective basis.
U.S. Holders
For purposes of this summary, the term "U.S. Holder"“U.S. Holder” means a beneficial owner of Common Shares that is for U.S. federal income tax purposes:
· | an individual who is a citizen or resident of the U.S.; |
· | a corporation (or other entity taxable as a corporation for U.S. federal income tax purposes) organized under the laws of the U.S., any state thereof or the District of Columbia; |
· | an estate whose income is subject to U.S. federal income taxation regardless of its source; or |
· | a trust that (1) is subject to the primary supervision of a court within the U.S. and the control of one or more U.S. persons for all substantial decisions or (2) has a valid election in effect under applicable Treasury Regulations to be treated as a U.S. person. |
Non-U.S. Holders
For purposes of this summary, a "non-U.S. Holder"“non-U.S. Holder” is a beneficial owner of Common Shares that is not a U.S. Holder or is a partnership. This summary does not address the U.S. federal income tax consequences to non-U.S. Holders arising from and relating to the acquisition, ownership, and disposition of Common Shares. Accordingly, a non-U.S. Holder should consult its own tax advisor regarding the U.S. federal, U.S. federal alternative minimum, U.S. federal estate and gift, U.S. state and local, and non-U.S. tax consequences (including the potential application of and operation of any income tax treaties) relating to the acquisition, ownership, and disposition of Common Shares.
U.S. Holders Subject to Special U.S. Federal Income Tax Rules Not Addressed
This summary does not address the U.S. federal income tax considerations applicable to U.S. Holders that are subject to special provisions under the Code, including, but not limited to, U.S. Holders that: (a) are tax-exempt organizations, qualified retirement plans, individual retirement accounts, or other tax-deferred accounts; (b) are financial institutions, underwriters, insurance companies, real estate investment trusts, or regulated investment companies; (c) are broker-dealers, dealers, or traders in securities or currencies that elect to apply a mark-to-market accounting method; (d) have a "functional currency"“functional currency” other than the U.S. dollar; (e) own Common Shares as part of a straddle, hedging transaction, conversion transaction, constructive sale, or other arrangement involving more than one position; (f) acquired Common Shares in connection with the exercise of employee stock options or otherwise as compensation for services; (g) hold Common Shares other than as a capital asset within the meaning of Section 1221 of the Code (generally, property held for investment purposes); (h) are required to accelerate the recognition of any item of gross income with respect to Common Shares as a result of such income being recognized on an applicable financial statement; or (h)(i) own or have owned (directly, indirectly, or by attribution) 10% or more of the total combined voting power or value of the outstanding shares of the Company. This summary also does not address the U.S. federal income tax considerations applicable to U.S. Holders who are: (a) U.S. expatriates or former long-term residents of the U.S.; (b) persons that have been, are, or will be a resident or deemed to be a resident in Canada for purposes of the Tax Act; (c) persons that use or hold, will use or hold, or that are or will be deemed to use or hold Common Shares in connection with carrying on a business in Canada; (d) persons whose Common Shares constitute "taxable“taxable Canadian property"property” under the Tax Act; or (e) persons that have a permanent establishment in Canada for the purposes of the Canada-U.S. Tax Convention. U.S. Holders that are subject to special provisions under the Code, including, but not limited to, U.S. Holders described immediately above, should consult their own tax advisor regarding the U.S. federal, U.S. federal net investment income, U.S. federal alternative minimum, U.S. federal estate and gift, U.S. state and local, and non-U.S. tax consequences relating to the acquisition, ownership and disposition of Common Shares.
If an entity or arrangement that is classified as a partnership (or "pass-through"“pass-through” entity) for U.S. federal income tax purposes holds Common Shares, the U.S. federal income tax consequences to such partnership and the partners (or owners) of such partnership generally will depend on the activities of the partnership and the status of such partners (or owners). This summary does not address the tax consequences to any such partnership or partner (or owner). Partners (or owners) of entities or arrangements that are classified as partnerships for U.S. federal income tax purposes should consult their own tax advisors regarding the U.S. federal income tax consequences arising from and relating to the acquisition, ownership, and disposition of Common Shares.
Passive Foreign Investment Company Rules
If the Company were to constitute a "passive“passive foreign investment company"company” under the meaning of Section 1297 of the Code, or a "PFIC"“PFIC”, as defined below, for any year during a U.S. Holder'sHolder’s holding period, then certain different and potentially adverse rules will affect the U.S. federal income tax consequences to a U.S. Holder resulting from the acquisition, ownership and disposition of Common Shares. In addition, in any year in which the Company is classified as a PFIC, such holder will be required to file an annual report with the IRS containing such information as Treasury Regulations or other IRS guidance may require. A failure to satisfy such reporting requirements may result in an extension of the time period during which the IRS can assess a tax. U.S. Holders should consult their own tax advisors regarding the requirements of filing such information returns under these rules, including the requirement to file an IRS Form 8621.
PFIC Status of the Company
The Company generally will be a PFIC if, for a tax year, (a) 75% or more of the gross income of the Company is passive income (the "income test"“income test”), or (b) 50% or more of the value of the Company'sCompany’s assets either produce passive income or are held for the production of passive income, based on the quarterly average of the fair market value of such assets (the "asset test"“asset test”). "Gross income"“Gross income” generally includes all sales revenues less the cost of goods sold, plus income from investments and from incidental or outside operations or sources, and "passive income"“passive income” generally includes, for example, dividends, interest, certain rents and royalties, certain gains from the sale of stock and securities, and certain gains from commodities transactions.
Active business gains arising from the sale of commodities generally are excluded from passive income if substantially all (85% or more) of a foreign corporation'scorporation’s commodities are stock in trade of such foreign corporation or other property of a kind which would properly be included in inventory of such foreign corporation, or property held by such foreign corporation primarily for sale to customers in the ordinary course of business and certain other requirements are satisfied.
For purposes of the PFIC income test and asset test described above, if the Company owns, directly or indirectly, 25% or more of the total value of the outstanding shares of another corporation, the Company will be treated as if it (a) held a proportionate share of the assets of such other corporation and (b) received directly a proportionate share of the income of such other corporation. In addition, for purposes of the PFIC income test and asset test described above, and assuming certain other requirements are met, "passive income"“passive income” does not include certain interest, dividends, rents, or royalties that are received or accrued by the Company from certain "related persons"“related persons” (as defined in Section 954(d)(3) of the Code), to the extent such items are properly allocable to the income of such related person that is not passive income.
In addition, under certain attribution rules, if the Company is a PFIC, U.S. Holders will be deemed to own their proportionate share of the stock of any subsidiary of the Company that is also a PFIC, or a "Subsidiary PFIC"“Subsidiary PFIC”, and will be subject to U.S. federal income tax on their proportionate share of, (a) a distribution on the stock of a Subsidiary PFIC, and (b) a disposition or deemed disposition of the stock of a Subsidiary PFIC, both as if such U.S. Holders directly held the shares of such Subsidiary PFIC.
The Company believes that it was classified as a PFIC during the tax year ended December 31, 2015,2020 and may be a PFIC in futureits current tax year and subsequent tax years. No opinion of legal counsel or ruling from the IRS concerning the status of the Company as a PFIC has been obtained or is currently planned to be requested. The determination of whether any corporation was, or will be, a PFIC for a tax year depends, in part, on the application of complex U.S. federal income tax rules, which are subject to differing interpretations. In addition, whether any corporation will be a PFIC for any tax year depends on the assets and income of such corporation over the course of each such tax year and, as a result, cannot be predicted with certainty as of the date of this document. Accordingly, there can be no assurance that the IRS will not challenge any determination made by the Company (or a Subsidiary PFIC) concerning its PFIC status. Each U.S. Holder should consult its own tax advisor regarding the PFIC status of the Company and any Subsidiary PFIC.
Default PFIC Rules Under Section 1291 of the Code
If the Company is a PFIC, the U.S. federal income tax consequences to a U.S. Holder of the acquisition, ownership, and disposition of Common Shares will depend on whether such U.S. Holder makes an election to treat the Company and each Subsidiary PFIC, if any, as a "qualified“qualified electing fund"fund”, or "QEF"“QEF”, under Section 1295 of the Code, or a "QEF Election"“QEF Election”, or a mark-to-market election under Section 1296 of the Code, or a "Mark-to-Market Election"“Mark-to-Market Election”. A U.S. Holder that does not make either a QEF Election or a Mark-to-Market Election will be referred to in this summary as a "Non-Electing“Non-Electing U.S. Holder"Holder”.
A Non-Electing U.S. Holder will be subject to the rules of Section 1291 of the Code with respect to, (a) any gain recognized on the sale or other taxable disposition of Common Shares, and (b) any excess distribution received on our Common Shares. A distribution generally will be an "excess distribution"“excess distribution” to the extent that such distribution (together with all other distributions received in the current tax year) exceeds 125% of the average distributions received during the three preceding tax years (or during a U.S. Holder'sHolder’s holding period for our Common Shares, if shorter).
Under Section 1291 of the Code, any gain recognized on the sale or other taxable disposition of Common Shares (including an indirect disposition of the stock of any Subsidiary PFIC), and any "excess distribution"“excess distribution” received on Common Shares, must be ratably allocated to each day in a Non-Electing U.S. Holder'sHolder’s holding period for the respective Common Shares. The amount of any such gain or excess distribution allocated to the tax year of disposition or distribution of the excess distribution and to years before the entity became a PFIC, if any, would be taxed as ordinary income. The amounts allocated to any other tax year would be subject to U.S. federal income tax at the highest tax rate applicable to ordinary income in each such year, and an interest charge would be imposed on the tax liability for each such year, calculated as if such tax liability had been due in each such year. A Non-Electing U.S. Holder that is not a corporation must treat any such interest paid as "personal interest"“personal interest”, which is not deductible.
If the Company is a PFIC for any tax year during which a Non-Electing U.S. Holder holds Common Shares, the Company will continue to be treated as a PFIC with respect to such Non-Electing U.S. Holder, regardless of whether the Company ceases to be a PFIC in one or more subsequent tax years. A Non-Electing U.S. Holder may terminate this deemed PFIC status by electing to recognize gain (which will be taxed under the rules of Section 1291 of the Code discussed above), but not loss, as if such Common Shares were sold on the last day of the last tax year for which the Company was a PFIC.
QEF Election
A U.S. Holder that makes a timely and effective QEF Election for the first tax year in which its holding period of its Common Shares begins generally will not be subject to the rules of Section 1291 of the Code discussed above with respect to its Common Shares. A U.S. Holder that makes a timely and effective QEF Election will be subject to U.S. federal income tax on such U.S. Holder'sHolder’s pro rata share of, (a) the net capital gain of the Company, which will be taxed as long-term capital gain to such U.S. Holder, and (b) the ordinary earnings of the Company, which will be taxed as ordinary income to such U.S. Holder. Generally, "net“net capital gain"gain” is the excess of (i) net long-term capital gain over (ii) net short-term capital loss, and "ordinary earnings"“ordinary earnings” are the excess of (i) "earnings“earnings and profits"profits” over (ii) net capital gain. A U.S. Holder that makes a QEF Election will be subject to U.S. federal income tax on such amounts for each tax year in which the Company is a PFIC, regardless of whether such amounts are actually distributed to such U.S. Holder by the Company. However, for any tax year in which the Company is a PFIC and has no net income or gain, U.S. Holders that have made a QEF Election would not have any income inclusions as a result of the QEF Election. If a U.S. Holder that made a QEF Election has an income inclusion, such U.S. Holder may, subject to certain limitations, elect to defer payment of current U.S. federal income tax on such amounts, subject to an interest charge. If such U.S. Holder is not a corporation, any such interest paid will be treated as "personal interest"“personal interest”, which is not deductible.
A U.S. Holder that makes a timely and effective QEF Election with respect to the Company generally, (a) may receive a tax-free distribution from the Company to the extent that such distribution represents "earnings“earnings and profits"profits” of the Company that were previously included in income by the U.S. Holder because of such QEF Election, and (b) will adjust such U.S. Holder'sHolder’s tax basis in ourits Common Shares to reflect the amount included in income or allowed as a tax-free distribution because of such QEF Election. In addition, a U.S. Holder that makes a QEF Election generally will recognize capital gain or loss on the sale or other taxable disposition of Common Shares.
The procedure for making a QEF Election, and the U.S. federal income tax consequences of making a QEF Election, will depend on whether such QEF Election is timely. A QEF Election will be treated as "timely"“timely” if such QEF Election is made for the first year in the U.S. Holder'sHolder’s holding period for our Common Shares in which the Company was a PFIC. A U.S. Holder may make a timely QEF Election by filing the appropriate QEF Election documents at the time such U.S. Holder files a U.S. federal income tax return for such year. If a U.S. Holder does not make a timely and effective QEF Election for the first year in the U.S. Holder'sHolder’s holding period for our Common Shares, the U.S. Holder may still be able to make a timely and effective QEF Election in a subsequent year if such U.S. Holder also makes a "purging"“purging” election to recognize gain (which will be taxed under the rules of Section 1291 of the Code discussed above) as if such Common Shares were sold for their fair market value on the day the QEF Election is effective.
A QEF Election will apply to the tax year for which such QEF Election is timely made and to all subsequent tax years, unless such QEF Election is invalidated or terminated or the IRS consents to revocation of such QEF Election. If a U.S.
Holder makes a QEF Election and, in a subsequent tax year, the Company ceases to be a PFIC, the QEF Election will remain in effect (although it will not be applicable) during those tax years in which the Company is not a PFIC. Accordingly, if the Company becomes a PFIC in another subsequent tax year, the QEF Election will be effective and the U.S. Holder will be subject to the QEF rules described above during any subsequent tax year in which the Company qualifies as a PFIC.
U.S. Holders should be aware that there can be no assurance that the Company will satisfy record keeping requirements that apply to a QEF, or that the Company will supply U.S. Holders with information that such U.S. Holders require to report under the QEF rules, in event that the Company is a PFIC and a U.S. Holder wishes to make a QEF Election. Thus, U.S. Holders may not be able to make a QEF Election with respect to their Common Shares. Each U.S. Holder should consult its own tax advisor regarding the availability of, and procedure for making, a QEF Election.
A U.S. Holder makes a QEF Election by attaching a completed IRS Form 8621, including a PFIC Annual Information Statement, to a timely filed U.S. federal income tax return. However, if the Company does not provide the required information with regard to the Company or any of its Subsidiary PFICs, U.S. Holders will not be able to make a QEF Election for such entity and will continue to be subject to the rules of Section 1291 of the Code discussed above that apply to Non-Electing U.S. Holders with respect to the taxation of gains and excess distributions.
Mark-to-Market Election
A U.S. Holder may make a Mark-to-Market Election only if the Common Shares are marketable stock. Our Common Shares generally will be "marketable stock"“marketable stock” if our Common Shares are regularly traded on, (a) a national securities exchange that is registered with the SEC, (b) the national market system established pursuant to section 11A of the U.S. Exchange Act, or (c) a foreign securities exchange that is regulated or supervised by a governmental authority of the country in which the market is located, provided that, (i) such foreign exchange has trading volume, listing, financial disclosure, and meets other requirements and the laws of the country in which such foreign exchange is located, together with the rules of such foreign exchange, ensure that such requirements are actually enforced, and (ii) the rules of such foreign exchange ensure active trading of listed stocks. If our Common Shares are traded on such a qualified exchange or other market, our Common Shares generally will be "regularly traded"“regularly traded” for any calendar year during which our Common Shares are traded, other than in de minimis quantities, on at least 15 days during each calendar quarter.
A U.S. Holder that makes a Mark-to-Market Election with respect to its Common Shares generally will not be subject to the rules of Section 1291 of the Code discussed above with respect to such Common Shares. However, if a U.S. Holder does not make a Mark-to-Market Election beginning in the first tax year of such U.S. Holder'sHolder’s holding period for our Common Shares or such U.S. Holder has not made a timely QEF Election, the rules of Section 1291 of the Code discussed above will apply to certain dispositions of, and distributions on, our Common Shares.
A U.S. Holder that makes a Mark-to-Market Election will include in ordinary income, for each tax year in which the Company is a PFIC, an amount equal to the excess, if any, of (i) the fair market value of our Common Shares, as of the close of such tax year over (ii) such U.S. Holder'sHolder’s tax basis in such Common Shares. A U.S. Holder that makes a Mark-to-Market Election will be allowed a deduction in an amount equal to the excess, if any, of (i) such U.S. Holder'sHolder’s adjusted tax basis in our Common Shares, over (ii) the fair market value of such Common Shares (but only to the extent of the net amount of previously included income as a result of the Mark-to-Market Election for prior tax years).
A U.S. Holder that makes a Mark-to-Market Election generally also will adjust such U.S. Holder'sHolder’s tax basis in our Common Shares to reflect the amount included in gross income or allowed as a deduction because of such Mark-to-Market Election. In addition, upon a sale or other taxable disposition of Common Shares, a U.S. Holder that makes a Mark-to-Market Election will recognize ordinary income or ordinary loss (not to exceed the excess, if any, of (i) the amount included in ordinary income because of such Mark-to-Market Election for prior tax years over (ii) the amount allowed as a deduction because of such Mark-to-Market Election for prior tax years).
A U.S. Holder makes a Mark-to-Market Election by attaching a completed IRS Form 8621 to a timely filed U.S. federal income tax return. A Mark-to-Market Election applies to the tax year in which such Mark-to-Market Election is made and to each subsequent tax year, unless ourthe Common Shares cease to be "marketable stock"“marketable stock” or the IRS consents to revocation of such election. Each U.S. Holder should consult its own tax advisor regarding the availability of, and procedure for making, a Mark-to-Market Election.
Although a U.S. Holder may be eligible to make a Mark-to-Market Election with respect to our Common Shares, no such election may be made with respect to the stock of any Subsidiary PFIC that a U.S. Holder is treated as owning, because such
stock is not marketable. Hence, the Mark-to-Market Election will not be effective to eliminate the application of the default rules of Section 1291 of the Code described above with respect to deemed dispositions of Subsidiary PFIC stock or distributions from a Subsidiary PFIC.
Other PFIC Rules
Under Section 1291(f) of the Code, the IRS has issued proposed Treasury Regulations that, subject to certain exceptions, would cause a U.S. Holder that had not made a timely QEF Election to recognize gain (but not loss) upon certain transfers of Common Shares that would otherwise be tax-deferred (e.g., gifts and exchanges pursuant to corporate reorganizations). However, the specific U.S. federal income tax consequences to a U.S. Holder may vary based on the manner in which Common Shares are transferred.
Certain additional adverse rules will apply with respect to a U.S. Holder if the Company is a PFIC, regardless of whether such U.S. Holder makes a QEF Election. For example under Section 1298(b)(6) of the Code, a U.S. Holder that uses Common Shares as security for a loan will, except as may be provided in Treasury Regulations, be treated as having made a taxable disposition of such Common Shares.
Special rules also apply to the amount of foreign tax credit that a U.S. Holder may claim on a distribution from a PFIC. Subject to such special rules, foreign taxes paid with respect to any distribution in respect of stock in a PFIC are generally eligible for the foreign tax credit. The rules relating to distributions by a PFIC and their eligibility for the foreign tax credit are complicated, and a U.S. Holder should consult with their own tax advisor regarding the availability of the foreign tax credit with respect to distributions by a PFIC.
The PFIC rules are complex, and each U.S. Holder should consult its own tax advisor regarding the PFIC rules and how the PFIC rules may affect the U.S. federal income tax consequences of the acquisition, ownership, and disposition of Common Shares.
Ownership and Disposition of Common Shares
The following discussion is subject to the rules described above under the heading "Passive“Passive Foreign Investment Company Rules"Rules”.
Distributions on Common Shares
Subject to the PFIC rules discussed above, a U.S. Holder that receives a distribution, including a constructive distribution, with respect to our Common Shares will be required to include the amount of such distribution in gross income as a dividend (without reduction for any Canadian income tax withheld from such distribution) to the extent of the current or accumulated "earnings“earnings and profits"profits” of the Company, as computed for U.S. federal income tax purposes. A dividend generally will be taxed to a U.S. Holder at ordinary income tax rates if the Company is a PFIC. To the extent that a distribution exceeds the current and accumulated "earnings“earnings and profits"profits” of the Company, such distribution will be treated first as a tax-free return of capital to the extent of a U.S. Holder'sHolder’s tax basis in our Common Shares and thereafter as gain from the sale or exchange of such Common Shares. See "Sale“Sale or Other Taxable Disposition of Common Shares"Shares” below. However, the Company may not maintain the calculations of earnings and profits in accordance with U.S. federal income tax principles, and each U.S. Holder should therefore assume that any distribution by the Company with respect to our Common Shares will constitute ordinary dividend income. Dividends received on Common Shares generally will not be eligible for the "dividends“dividends received deduction"deduction”. Subject to applicable limitations and provided the Company is eligible for the benefits of the Canada-U.S. Tax Convention or the Common Shares are readily tradable on a United States securities market, dividends paid by the Company to non-corporate U.S. Holders generally will be eligible for the preferential tax rates applicable to long-term capital gains for dividends, provided certain holding period and other conditions are satisfied, including that the Company not be classified as a PFIC in the tax year of distribution or in the preceding tax year. The dividend rules are complex, and each U.S. Holder should consult its own tax advisor regarding the application of such rules.
Sale or Other Taxable Disposition of Common Shares
Subject to the PFIC rules discussed above, upon the sale or other taxable disposition of Common Shares, a U.S. Holder generally will recognize capital gain or loss in an amount equal to the difference between the amount of cash plus the fair market value of any property received and such U.S. Holder'sHolder’s tax basis in such Common Shares sold or otherwise disposed of. Subject to the PFIC rules discussed above, gain or loss recognized on such sale or other disposition generally will be long-term capital gain or loss if, at the time of the sale or other disposition, our Common Shares have been held for more than one year.
Preferential tax rates apply to long-term capital gain of a U.S. Holder that is an individual, estate, or trust. There are currently no preferential tax rates for long-term capital gain of a U.S. Holder that is a corporation. Deductions for capital losses are subject to significant limitations under the Code.
Additional Considerations
Receipt of Foreign Currency
The amount of any distribution paid to a U.S. Holder in foreign currency, or on the sale, exchange or other taxable disposition of Common Shares, generally will be equal to the U.S. dollar value of such foreign currency based on the exchange rate applicable on the date of receipt (regardless of whether such foreign currency is converted into U.S. dollars at that time). A U.S. Holder will have a basis in the foreign currency equal to its U.S. dollar value on the date of receipt. Any U.S. Holder who converts or otherwise disposes of the foreign currency after the date of receipt may have a foreign currency exchange gain or loss that would be treated as ordinary income or loss, and generally will be U.S. source income or loss for foreign tax credit purposes. Different rules apply to U.S. Holders who use the accrual method. Each U.S. Holder should consult its own U.S. tax advisors regarding the U.S. federal income tax consequences of receiving, owning, and disposing of foreign currency.
Foreign Tax Credit
Subject to the PFIC rules discussed above, a U.S. Holder that pays (whether directly or through withholding) Canadian income tax with respect to dividends paid on our Common Shares generally will be entitled, at the election of such U.S. Holder, to receive either a deduction or a credit for such Canadian income tax paid. Generally, a credit will reduce a U.S. Holder'sHolder’s U.S. federal income tax liability on a dollar-for-dollar basis, whereas a deduction will reduce a U.S. Holder'sHolder’s income subject to U.S. federal income tax. This election is made on a year-by-year basis and applies to all foreign taxes paid (whether directly or through withholding) by a U.S. Holder during a year.
Backup Withholding and Information Reporting
Under U.S. federal income tax law and Treasury Regulations, certain categories of U.S. Holders must file information returns with respect to their investment in, or involvement in, a foreign corporation. For example, U.S. return disclosure obligations (and related penalties) are imposed on individuals who are U.S. Holders that hold certain specified foreign financial assets in excess of certain threshold amounts. The definition of specified foreign financial assets includes not only financial accounts maintained in foreign financial institutions, but also, unless held in accounts maintained by a financial institution, any stock or security issued by a non-U.S. person, any financial instrument or contract held for investment that has an issuer or counterparty other than a U.S. person and any interest in a foreign entity. U.S. Holders may be subject to these reporting requirements unless their Common Shares are held in an account at certain financial institutions. Penalties for failure to file certain of these information returns are substantial. U.S. Holders should consult with their own tax advisors regarding the requirements of filing information returns, including the requirement to file an IRS Form 8938.
Payments made within the U.S. or by a U.S. payor or U.S. middleman, of dividends on, and proceeds arising from the sale or other taxable disposition of, Common Shares will generally be subject to information reporting and backup withholding tax, at the rate of 28%24%, if a U.S. Holder, (a) fails to furnish such U.S. Holder'sHolder’s correct U.S. taxpayer identification number (generally on IRS Form W-9), (b) furnishes an incorrect U.S. taxpayer identification number, (c) is notified by the IRS that such U.S. Holder has previously failed to properly report items subject to backup withholding tax, or (d) fails to certify, under penalty of perjury, that such U.S. Holder has furnished its correct U.S. taxpayer identification number and that the IRS has not notified such U.S. Holder that it is subject to backup withholding tax. However, certain exempt persons generally are excluded from these information reporting and backup withholding rules. Any amounts withheld under the U.S. backup withholding tax rules will be allowed as a credit against a U.S. Holder'sHolder’s U.S. federal income tax liability, if any, or will be refunded, if such U.S. Holder furnishes required information to the IRS in a timely manner.
The discussion of reporting requirements set forth above is not intended to constitute a complete description of all reporting requirements that may apply to a U.S. Holder. A failure to satisfy certain reporting requirements may result in an extension
of the time period during which the IRS can assess a tax, and under certain circumstances, such an extension may apply to assessments of amounts unrelated to any unsatisfied reporting requirement. Each U.S. Holder should consult its own tax advisors regarding the information reporting and backup withholding rules.
F. | Dividends and Paying Agents |
Not Applicable.
G. | Statement by Experts |
Not Applicable.
H. | Documents on Display |
We are subject to the informational requirements of the U.S. Exchange Act and file reports and other information with the SEC. You may read and copy any of our reports and other information at, and obtain copies upon payment of prescribed fees from, the Public Reference Room maintained by the SEC at 100 F Street, N.E., Washington, D.C. 20549. In addition, theThe SEC maintains a Websitewebsite that contains reports, proxy and information statements and other information regarding registrants that file electronically with the SEC at http://www.sec.gov. The public may obtain information on the operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330.
We are required to file reports and other information with the securities commissions in Canada. You are invited to read and copy any reports, statements or other information, other than confidential filings, that we file with the provincial securities commissions. These filings are also electronically available from the Canadian System for Electronic Document Analysis and Retrieval ("SEDAR"(“SEDAR”) (www.sedar.com), the Canadian equivalent of the SEC'sSEC’s electronic document gathering and retrieval system.
I. | Subsidiary Information |
Not Applicable.
Credit risk
The Company’s credit risk is the risk that one partyprimarily attributable to a financial instrument will fail to discharge an obligation and cause the other party to incur a financial loss. Financial instruments that potentially subject the Company to credit risk consist of cash and cash equivalents and accounts receivable. receivables.
The Company deposits the majority oflimits its credit exposure on cash and cash equivalents held in bank accounts by holding its key transactional bank accounts with highlarge, highly rated financial institutions.
The Company’s receivables balance was not significant and, therefore, was not exposed to significant credit quality financial institutions in Canada, Australia and the United States and holds limited balances in banks in Mongolia, Peru, China and Barbados as required to meet current expenditures. risk.
The carrying amount of financial assets recorded in the consolidated financial statements, net of any allowances for losses, represents the Company'sCompany’s maximum exposure to credit risk.
Liquidity risk
The carrying amountCompany manages liquidity risk by trying to maintain enough cash balances to ensure that it is able to meet its short term and long-term obligations as and when they fall due. Company-wide cash projections are managed centrally and regularly updated to reflect the dynamic nature of accounts receivable, accounts payablethe business and accrued liabilitiesfluctuations caused by commodity price and exchange rate movements.
The Company’s operating results may vary due to fluctuation in commodity price, inflation, foreign exchange rates and certain share prices.
Interest rate risk
The Company’s interest rate risk arises primarily from related parties approximates fair value duethe interest received on cash and cash equivalents and on loan payable which is at variable rates. As at December 31, 2020, with other variables unchanged, a 1% increase in the interest rate applicable to the short termloan payable would result in an insignificant change in net loss. Deposits are invested on a short-term basis to enable adequate liquidity for payment of these financial instruments.
As at December 31, 2020, the Company has not entered into any contracts to manage interest rate risk.
Foreign exchange risk
The functional currency of the parent company is C$. The functional currency of the significant subsidiaries and the reporting currency of the Company is the U.S. dollar.
As at December 31, 2020, the Company has not entered into contracts to manage foreign exchange risk.
The Company is exposed to foreign exchange risk arising from transactions denominated in a foreign currency.
December 31, 2020 | December 31, 2019 | |||||||||
Cash and cash equivalents | $ | 7,260 | $ | 5,380 | ||||||
Accounts payable and accrued liabilities | (124) | (72) | ||||||||
$ | 7,136 | $ | 5,308 |
As at December 31, 2015 and 2014:
2015 | ||||||||||||||||||||
(in thousands) | ||||||||||||||||||||
US Dollars | Australian Dollars | Peruvian Nuevo Sol | Chinese Yuan | Mongolian Tugriks | ||||||||||||||||
Cash and cash equivalents | 20,265 | 358 | - | 27 | 27,070 | |||||||||||||||
Other | 268 | 9 | - | - | 37,319 | |||||||||||||||
Accounts payable and accrued liabilities | (40 | ) | (101 | ) | - | - | 162 | |||||||||||||
Net balance | 20,493 | 266 | - | 27 | 64,550 | |||||||||||||||
Equivalent in Canadian Dollars | 28,362 | 268 | - | 6 | 45 | |||||||||||||||
Rate to convert to C$ | 1.3840 | 1.0083 | 0.4056 | 0.2131 | 0.0006953 | |||||||||||||||
2014 | ||||||||||||||||||||
(in thousands) | ||||||||||||||||||||
US Dollars | Australian Dollars | Peruvian Nuevo Sol | Chinese Yuan | Mongolian Tugriks | ||||||||||||||||
Cash and cash equivalents | 31,052 | 1,084 | (97 | ) | 28 | 87,976 | ||||||||||||||
Other | 312 | 13 | - | - | 43,624 | |||||||||||||||
Accounts payable and accrued liabilities | (1,556 | ) | (95 | ) | - | - | (122 | ) | ||||||||||||
Net balance | 29,808 | 1,002 | (97 | ) | 28 | 131,478 | ||||||||||||||
Equivalent in Canadian Dollars | 34,580 | 950 | (38 | ) | 5 | 81 | ||||||||||||||
Rate to convert to C$ | 1.1601 | 0.9479 | 0.3898 | 0.1869 | 0.0006144 |
A. – C.
Not Applicable.
D. | American Depository Receipts |
The Company does not have securities registered as American Depository Receipts.
None.
A. -D.
None.
E. | Use of Proceeds |
Not Applicable.
A. | Disclosure Controls and Procedures |
An evaluation was performed under the supervision and with the participation of the Company'sCompany’s Audit Committee and management, including the Company'sCompany’s CEO and the Company'sCompany’s CFO, of the effectiveness of the design and operation of the Company'sCompany’s disclosure controls and procedures pursuant to Rules 13a-15(b) and 15d-15(b) of the U.S. Exchange Act as of December 31, 2015.2020. Based on their evaluation, the Company'sCompany’s CEO and CFO have concluded that the disclosure controls
and procedures were effective to give reasonable assurance that the information required to be disclosed by the Company in reports that it files or submits under the U.S. Exchange Act is, (a) recorded, processed, summarized and reported, within the time periods specified in the SEC'sSEC’s rules and forms, and (b) accumulated and communicated to management, including its principal executive and principal financial officers, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure.
B. | Management’s Annual Report on Internal Control Over Financial Reporting |
The Company'sCompany’s management, including the Company'sCompany’s CEO and CFO, is responsible for establishing and maintaining adequate internal control over the Company'sCompany’s internal control over financial reporting, as such term is defined in Rule 13a-15(f) under the U.S. Exchange Act. The Company'sCompany’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of consolidated financial statements for external purposes in accordance with U.S. GAAP.IFRS. The Company'sCompany’s internal control over financial reporting includes policies and procedures that: pertain to the maintenance of records that, in reasonable detail accurately and fairly reflect the transactions and disposition of assets; provide reasonable assurance that transactions are recorded as necessary to permit preparation of the consolidated financial statements in accordance with U.S. GAAPIFRS and that receipts and expenditures are being made only in accordance with authorization of management and directors of the Company; and provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of assets that could have a material effect on the consolidated financial statements.
Because of their inherent limitations, internal control over financial reporting can provide only reasonable assurance and may not prevent or detect misstatements. Furthermore, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
The Company'sCompany’s management (with the participation of the CEO and the CFO) conducted an evaluation of the effectiveness of the Company'sCompany’s internal control over financial reporting as of December 31, 2015.2020. This evaluation was based on the criteria set forth in the 2013 Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on its assessment, management has concluded that the Company'sCompany’s internal control over financial reporting was effective as at December 31, 2015,2020, and management'smanagement’s assessment did not identify any material weaknesses.
C. | Attestation Report of the Registered Public Accounting Firm |
This Annual Report does not include an attestation report of our registered public accounting firm regarding internal control over financial reporting. Management'sManagement’s report was not subject to attestation by our registered public accounting firm pursuant the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010, which permits the companyCompany to provide only management'smanagement’s report in this Annual Report. The Dodd-Frank Act permits a "non-accelerated filer"“non-accelerated filer” to provide only management'smanagement’s report on internal control over financial reporting in an Annual Report and omit an attestation report of the issuer'sissuer’s registered public accounting firm regarding management'smanagement’s report on internal control over financial reporting.
D. | Changes in Internal Control Over Financial Reporting |
Based upon their evaluation of our controls, our CEO and CFO have concluded that there were no significant changes in our internal control over financial reporting or in other factors during our last fiscal year that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
The Company'sCompany’s Board has determined that Gorden GlennAnna Stylianides qualifies as a financial expert (as defined in Item 407(d)(5) of Regulation S-K under the U.S. Exchange Act), is financially sophisticated (as determined in accordance with Section 803B(2)(iii) of the NYSE MKT Company Guide), and is independent (as determined under U.S. Exchange Act Rule 10A-3 and section 803A of the NYSE MKTAmerican Company Guide).
The Company is committed to the highest standards of legal and ethical business conduct. The Company has the Code of Ethics, which applies to all of its directors, officers, employees and employees,consultants, including the CEO and CFO. This Code of Ethics summarizes the legal, ethical and regulatory standards that the Company must follow and serves as a reminder to the directors, officers, employees and employeesconsultants of the seriousness of that commitment. Compliance with this Code of Ethics and high standards of business conduct is mandatory for every director, officer, employee and employeeconsultant of the Company. The Code of Ethics meets the requirements for a "code“code of ethics"ethics” within the meaning of that term in Form 20-F.
A copy of the Code of Ethics in full text is available on the Company'sCompany’s website at www.entreegold.comwww.EntreeResourcesLtd.com and in print to any shareholder who requests it. All required substantive amendments to the Code of Ethics, and all waivers of the Code of Ethics with respect to any of the officers covered by it, will be posted on the Company'sCompany’s website at www.entreegold.comwww.EntreeResourcesLtd.com within five business days of the amendment or waiver,, and provided in print to any shareholder who requests them.
During the fiscal year ended December 31, 2015,2020, the Company did not substantively amend, waive or implicitly waive any provision of the Code of Ethics with respect to any of the directors, officers or employees subject to it.
The following table shows the aggregate fees billed to the Company by Davidson & Company LLP and its affiliates, Chartered Professional Accountants, the Company'sCompany’s independent registered public auditing firm, in each of the last two years.
2015 (US$) | 2014 (US$) | |||||||
Audit Fees(1) | $ | 36,127 | $ | 51,720 | ||||
Audit Related Fees(2) | $ | 11,778 | $ | 19,393 | ||||
Tax Fees(3) | $Nil | $Nil | ||||||
All other fees(4) | $ | 10,838 | $Nil | |||||
Total: | $ | 58,743 | $ | 71,113 |
2020 (US$) | 2019 (US$) | |||||||||
Audit Fees(1)
|
| $17,913
|
|
| $45,591
|
| ||||
Audit Related Fees(2) | $Nil | $Nil | ||||||||
Tax Fees(3) | $Nil | $5,004 | ||||||||
All other fees | $Nil | $Nil | ||||||||
Total: | $17,913 | $50,595 |
(1) | Audits of the |
(2) | Audit-related fees paid for assurance and related services by the auditors that were reasonably related to the performance of the audit or the review of the |
(3) | Tax compliance, taxation advice and tax planning for international operations. |
Pre-Approval of Audit and Non-Audit Services Provided by Independent Auditors
The Audit Committee pre-approves all audit and non-audit services to be provided to the Company by its independent auditors and none were approved on the basis of the de minimus exemption set forth in Rule 2-01(c)(7)(i)(C) of Regulation S-X during the fiscal year ended December 31, 2015. 2020. Non-audit services that are prohibited to be provided to the Company by its independent auditors may not be pre-approved. In addition, prior to the granting of any pre-approval, the Audit Committee must be satisfied that the performance of the services in question will not compromise the independence of the independent auditors. Non-auditNo material non-audit services pre-approved by the Audit Committee andwere performed by the Company'sCompany’s auditor during the fiscal year ended December 31, 2015 comprised surplus calculations for one of the Company's Mongolian subsidiaries.
None.
None.
Pursuant to Section 1503(a) of the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010, issuers that are operators, or that have a subsidiary that is an operator, of a coal or other mine in the United States are required to disclose in their periodic reports filed with the SEC information regarding specified health and safety violations, orders and citations, related assessments and legal actions, and mining-related fatalities with respect to mining operations and properties in the United States that are subject to regulation by the Federal Mine Safety and Health Administration ("MSHA"(“MSHA”) under the Federal Mine Safety and Health Act of 1977 (the "Mine Act"“Mine Act”). During the year ended December 31, 2015,2020, the Company had no mines in the United States that were subject to regulation by the MSHA under the Mine Act.
See "Item“Item 18 – Financial Statements"Statements”.
The Company'sCompany’s financial statements are stated in U.S. Dollars and are prepared in accordance with U.S. GAAP.
The following financial statements pertaining to the Company are filed as part of this Annual Report:
· | Independent |
· |
Consolidated Statements of |
· | Consolidated Statements of Comprehensive Loss for the years ended December 31, |
· | Consolidated Statement of |
· | Consolidated Statements of Cash Flows for the years ended December 31, |
· | Notes to Consolidated Financial Statements for the |
CONSOLIDATED FINANCIAL STATEMENTS
(Expressed in United States dollars)
December 31, 20152020
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Shareholders and Directors of
Entrée Gold Inc.
Opinion on the Consolidated Financial Statements
We have audited the accompanying consolidated statements of financial statementsposition of Entrée Gold Inc.Resources Ltd. (the "Company"“Company”), which comprise the consolidated balance sheets of Entrée Gold Inc. as of December 31, 20152020 and 2014,2019, and the related consolidated statements of operations and comprehensive loss, stockholders' equity,changes in shareholders’ deficiency, and cash flows for the years ended December 31, 2015, 20142020, 2019 and 2013. 2018, and the related notes (collectively referred to as the “financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2020 and 2019, and the results of its operations and its cash flows for the years ended December 31, 2020, 2019 and 2018, in conformity with International Financial Reporting Standards as issued by the International Accounting Standards Board.
Basis for Opinion
These consolidated financial statements are the responsibility of the Company'sCompany’s management. Our responsibility is to express an opinion on thesethe Company’s consolidated financial statements based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States).PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement. Anmisstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit includesof its internal control over financial reporting. As part of our audits we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.
Our audits included performing procedures to assess the risks of material misstatements of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence supportingregarding the amounts and disclosures in the consolidated financial statements. An auditOur audits also includes assessingincluded evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statement presentation.statements. We believe that our audits provide a reasonable basis for our opinion.
Critical Audit Matters
Critical audit matters are matters arising from the consolidatedcurrent period audit of the financial statements referredthat were communicated or required to above present fairly, in allbe communicated to the audit committee and that: (1) relate to accounts or disclosures that are material respects,to the financial position of Entrée Gold Inc.statements and (2) involved our especially challenging, subjective, or complex judgments. We determined that there are no critical audit matters.
We have served as of December 31, 2015 and 2014, and the results of its operations and its cash flows for the years ended December 31, 2015, 2014 and 2013 in conformity with accounting principles generally accepted in the United States of America.
/s/ DAVIDSON & COMPANY LLP"
Vancouver, Canada | Chartered Professional Accountants | |
March |
ENTRÉE GOLD INC. | ||||||||
CONSOLIDATED BALANCE SHEETS | ||||||||
(Expressed in United States dollars) | ||||||||
December 31, | December 31, | |||||||
2015 | 2014 | |||||||
ASSETS | ||||||||
Current | ||||||||
Cash and cash equivalents (Note 3) | $ | 22,785,658 | $ | 33,517,096 | ||||
Receivables | 97,783 | 133,729 | ||||||
Prepaid expenses | 311,072 | 856,358 | ||||||
Total current assets | 23,194,513 | 34,507,183 | ||||||
Equipment (Note 5) | 109,184 | 177,566 | ||||||
Mineral property interests (Note 6) | 37,714,492 | 44,419,538 | ||||||
Reclamation deposits | 478,925 | 474,959 | ||||||
Other assets | 165,371 | 111,252 | ||||||
Total assets | $ | 61,662,485 | $ | 79,690,498 | ||||
LIABILITIES AND STOCKHOLDERS' EQUITY | ||||||||
Current | ||||||||
Accounts payable and accrued liabilities | $ | 1,350,261 | $ | 1,903,472 | ||||
Loans payable to Oyu Tolgoi LLC (Note 7) | 6,823,726 | 6,355,408 | ||||||
Deferred revenue (Note 8) | 28,924,857 | 34,507,372 | ||||||
Deferred income tax liabilities (Note 11) | 3,567,297 | 3,407,124 | ||||||
Total liabilities | 40,666,141 | 46,173,376 | ||||||
Stockholders' equity | ||||||||
Common stock, no par value, unlimited number authorized, (Note 9) | 177,206,360 | 177,138,693 | ||||||
147,330,917 (December 31, 2014 - 146,984,385) issued and outstanding | ||||||||
Additional paid-in capital | 20,517,394 | 20,346,551 | ||||||
Accumulated other comprehensive loss (Note 14) | (7,778,347 | ) | (2,850,122 | ) | ||||
Accumulated deficit | (168,949,063 | ) | (161,118,000 | ) | ||||
Total stockholders' equity | 20,996,344 | 33,517,122 | ||||||
Total liabilities and stockholders' equity | $ | 61,662,485 | $ | 79,690,498 |
Entré Resources Ltd.
Consolidated Statements of Financial Position
As at December 31, 2020 and continuance2019
(expressed in thousands of U.S. dollars, except where indicated)
Note | December 31,
| December 31,
| ||||||||||
Assets | ||||||||||||
Current assets | ||||||||||||
Cash and cash equivalents | $ | 7,260 | $ | 5,380 | ||||||||
Receivables and prepaid expenses | 130 | 122 | ||||||||||
Prepaid licence fees | 162 | 158 | ||||||||||
7,552 | 5,660 | |||||||||||
Non-current assets | ||||||||||||
Property and equipment | 6 | 220 | 316 | |||||||||
Oyu Tolgoi asset | 7 | 177 | 114 | |||||||||
Deposits and other | 12 | 12 | ||||||||||
409 | 442 | |||||||||||
Total assets | $ | 7,961 | $ | 6,102 | ||||||||
Liabilities | ||||||||||||
Current liabilities | ||||||||||||
Accounts payable and accrued liabilities | 19 | $ | 124 | $ | 72 | |||||||
Current portion of lease liabilities | 8 | 108 | 103 | |||||||||
232 | 175 | |||||||||||
Non-current liabilities | ||||||||||||
Lease liabilities | 8 | 100 | 201 | |||||||||
Loan payable to Oyu Tolgoi LLC | 9 | 9,615 | 9,035 | |||||||||
Deferred revenue | 10 | 48,222 | 43,671 | |||||||||
57,937 | 52,907 | |||||||||||
Total liabilities | 58,169 | 53,082 | ||||||||||
Shareholders’ deficiency | ||||||||||||
Share capital | 11 | 176,221 | 173,095 | |||||||||
Reserves | 23,205 | 22,445 | ||||||||||
Accumulated other comprehensive loss | (1,521) | (407) | ||||||||||
Deficit | (248,113) | (242,113) | ||||||||||
Total shareholders’ deficiency | (50,208) | (46,980) | ||||||||||
Total liabilities and shareholders’ deficiency | $ | 7,961 | $ | 6,102 |
Nature of operations
Commitments and Contingencies
Subsequent events (Note 16)
The accompanying notes are an integral part of these consolidated financial statements.
ENTRÉE GOLD INC. | ||||||||||||
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS | ||||||||||||
(Expressed in United States dollars) | ||||||||||||
Year Ended December 31, 2015 | Year Ended December 31, 2014 | Year Ended December 31, 2013 | ||||||||||
EXPENSES | ||||||||||||
Exploration (Note 6) | $ | 5,160,910 | $ | 9,054,887 | $ | 6,102,992 | ||||||
General and administration | 4,730,904 | 4,151,910 | 6,638,262 | |||||||||
Consultancy and advisory fees | 125,000 | 830,623 | 1,941,130 | |||||||||
Impairment of mineral property interests (Note 6) | - | 552,095 | 437,732 | |||||||||
Depreciation | 42,528 | 65,517 | 102,941 | |||||||||
Gain on sale of mineral property interests | - | (28,096 | ) | (451,892 | ) | |||||||
Foreign exchange gain | (2,919,459 | ) | (1,978,854 | ) | (1,113,728 | ) | ||||||
Loss from operations | (7,139,883 | ) | (12,648,082 | ) | (13,657,437 | ) | ||||||
Interest income (expense) | (412,077 | ) | 30,154 | 171,143 | ||||||||
Loss from equity investee (Note 4) | (118,712 | ) | (107,907 | ) | (146,051 | ) | ||||||
Fair value adjustment of asset backed commercial paper | - | - | 147,564 | |||||||||
Loss before income taxes | (7,670,672 | ) | (12,725,835 | ) | (13,484,781 | ) | ||||||
Current income tax recovery (expense) (Note 11) | (218 | ) | 123,255 | (319,112 | ) | |||||||
Deferred income tax recovery (expense) (Note 11) | (160,173) | 3,933,392 | 2,381,868 | |||||||||
Net loss | $ | (7,831,063 | ) | $ | (8,669,188 | ) | $ | (11,422,025 | ) | |||
Comprehensive loss: | ||||||||||||
Net loss | $ | (7,831,063 | ) | $ | (8,669,188 | ) | $ | (11,422,025 | ) | |||
Foreign currency translation adjustment (Note 14) | (4,928,225 | ) | (3,315,737 | ) | (2,787,404 | ) | ||||||
Comprehensive loss: | $ | (12,759,288 | ) | $ | (11,984,925 | ) | $ | (14,209,429 | ) | |||
Basic and diluted net loss per share | $ | (0.05 | ) | $ | (0.06 | ) | $ | (0.08 | ) | |||
Weighted average number of common shares outstanding | 147,036,578 | 146,883,700 | 143,847,888 |
Entrée Resources Ltd.
Consolidated Statements of Comprehensive Loss
For the years ended December 31, 2020, 2019 and 2018
(expressed in thousands of U.S. dollars, except where indicated)
Note | 2020 | 2019 | 2018 | |||||||||||
Expenses | ||||||||||||||
Project expenditures | 13 | $ | 214 | $ | 173 | $ | 175 | |||||||
General and administrative | 1,430 | 1,490 | 1,145 | |||||||||||
Share-based compensation | 11 | 538 | 340 | 506 | ||||||||||
Depreciation | 6 | 98 | 105 | 22 | ||||||||||
Other | - | - | (13) | |||||||||||
Operating loss | 2,280 | 2,108 | 1,835 | |||||||||||
Foreign exchange (gain) loss | (196) | (195) | 287 | |||||||||||
Interest income | (80) | (137) | (111) | |||||||||||
Interest expense | 9 | 338 | 319 | 307 | ||||||||||
Loss from equity investee | 7 | 186 | 273 | 175 | ||||||||||
Finance costs | 19 | 29 | - | |||||||||||
Deferred revenue finance costs | 10 | 3,453 | 3,250 | 2,985 | ||||||||||
Gain on sale of investments | 5 | - | (123) | - | ||||||||||
Gain on sale of mining property interest | - | - | (353) | |||||||||||
Unrealized loss on investments | - | - | 73 | |||||||||||
Loss for the year | 6,000 | 5,524 | 5,198 | |||||||||||
Other comprehensive loss (income) | ||||||||||||||
Foreign currency translation | 1,114 | 2,095 | (3,372) | |||||||||||
Total comprehensive loss | $ | 7,114 | $ | 7,619 | $ | 1,826 | ||||||||
Net loss per common share | ||||||||||||||
Basic and fully diluted | $ | (0.03) | $ | (0.03) | $ | (0.03) | ||||||||
Weighted average number of common shares outstanding | ||||||||||||||
Basic and fully diluted (000’s) | 178,612 | 174,907 | 174,344 | |||||||||||
Total common shares issued and outstanding (000’s) | 11 | 186,530 | 175,470 | 174,807 |
The accompanying notes are an integral part of these consolidated financial statements.
ENTRÉE GOLD INC. | ||||||||||||||||||||||||
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY | ||||||||||||||||||||||||
(Expressed in United States dollars) | ||||||||||||||||||||||||
Number of Shares | Common Stock | Additional Paid-in Capital | Accumulated Other Comprehensive Income (Loss) | Accumulated Deficit | Total Stockholders' Equity | |||||||||||||||||||
Balance, December 31, 2012 | 128,877,243 | $ | 167,428,814 | $ | 18,672,864 | $ | 3,253,019 | $ | (141,026,787 | ) | $ | 48,327,910 | ||||||||||||
Shares issued: | ||||||||||||||||||||||||
Private placement | 17,857,142 | 9,722,897 | - | - | - | 9,722,897 | ||||||||||||||||||
Stock-based compensation | - | - | 1,422,297 | - | - | 1,422,297 | ||||||||||||||||||
Share issuance costs | - | (86,636 | ) | - | - | - | (86,636 | ) | ||||||||||||||||
Foreign currency translation adjustment | - | - | - | (2,787,404 | ) | - | (2,787,404 | ) | ||||||||||||||||
Net loss | - | - | - | - | (11,422,025 | ) | (11,422,025 | ) | ||||||||||||||||
Balance, December 31, 2013 | 146,734,385 | $ | 177,065,075 | $ | 20,095,161 | $ | 465,615 | $ | (152,448,812 | ) | $ | 45,177,039 | ||||||||||||
Shares issued: | ||||||||||||||||||||||||
Mineral property interests | 250,000 | 73,618 | - | - | - | 73,618 | ||||||||||||||||||
Stock-based compensation | - | - | 251,390 | - | - | 251,390 | ||||||||||||||||||
Foreign currency translation adjustment | - | - | - | (3,315,737 | ) | - | (3,315,737 | ) | ||||||||||||||||
Net loss | - | - | - | - | (8,669,188 | ) | (8,669,188 | ) | ||||||||||||||||
Balance, December 31, 2014 | 146,984,385 | $ | 177,138,693 | $ | 20,346,551 | $ | (2,850,122 | ) | $ | (161,118,000 | ) | $ | 33,517,122 | |||||||||||
Shares issued: | ||||||||||||||||||||||||
Exercise of stock options | 346,532 | 67,667 | (26,532 | ) | - | - | 41,135 | |||||||||||||||||
Stock-based compensation | - | - | 197,375 | - | - | 197,375 | ||||||||||||||||||
Foreign currency translation adjustment | - | - | - | (4,928,225 | ) | - | (4,928,225 | ) | ||||||||||||||||
Net loss | - | - | - | - | (7,831,063 | ) | (7,831,063 | ) | ||||||||||||||||
Balance, December 31, 2015 | 147,330,917 | $ | 177,206,360 | $ | 20,517,394 | $ | (7,778,347 | ) | $ | (168,949,063 | ) | $ | 20,996,344 |
Entrée Resources Ltd.
Consolidated Statements of these consolidated financial statements
ENTRÉE GOLD INC. | ||||||||||||
CONSOLIDATED STATEMENTS OF CASH FLOWS | ||||||||||||
(Expressed in United States dollars) | ||||||||||||
Year Ended December 31, 2015 | Year Ended December 31, 2014 | Year Ended December 31, 2013 | ||||||||||
CASH FLOWS FROM OPERATING ACTIVITIES | ||||||||||||
Net loss | $ | (7,831,063 | ) | $ | (8,669,188 | ) | $ | (11,422,025 | ) | |||
Items not affecting cash: | ||||||||||||
Depreciation | 42,528 | 65,517 | 102,941 | |||||||||
Stock-based compensation | 197,375 | 251,390 | 1,422,297 | |||||||||
Loss from equity investee | 118,712 | 107,907 | 146,051 | |||||||||
Interest expense | 279,405 | 264,869 | 260,453 | |||||||||
Deferred income tax expense (recovery) | 160,173 | (3,933,392 | ) | (2,381,868 | ) | |||||||
Gain on sale of mineral property interests | - | (28,096 | ) | (451,892 | ) | |||||||
Impairment of mineral property interests | - | 552,095 | 437,732 | |||||||||
Unrealized foreign exchange gain | (2,988,185 | ) | (1,966,349 | ) | (919,289 | ) | ||||||
Other items not affecting cash | 11,992 | 38,075 | 44,202 | |||||||||
Changes in assets and liabilities: | ||||||||||||
Receivables | 15,457 | 55,362 | 6,109 | |||||||||
Prepaid expenses | 439,319 | (176,164 | ) | (22,569 | ) | |||||||
Other assets | (2,291 | ) | 35,451 | (3,592 | ) | |||||||
Accounts payable and accrued liabilities | (264,914 | ) | 784,886 | 760,600 | ||||||||
Deposit on metal credit delivering obligation | - | - | 40,000,000 | |||||||||
Net cash provided by (used in) operating activities | (9,821,492 | ) | (12,617,637 | ) | 27,979,150 | |||||||
CASH FLOWS FROM FINANCING ACTIVITIES | ||||||||||||
Proceeds from issuance of capital stock | 41,135 | - | 9,722,897 | |||||||||
Share issue costs | - | - | (86,636 | ) | ||||||||
Net cash provided by financing activities | 41,135 | - | 9,636,261 | |||||||||
CASH FLOWS FROM INVESTING ACTIVITIES | ||||||||||||
Mineral property interests | (500,000 | ) | (100,000 | ) | (50,000 | ) | ||||||
Reclamation deposits | (3,628 | ) | 17,249 | 115,180 | ||||||||
Acquisition of equipment | (12,445 | ) | (13,074 | ) | (7,623 | ) | ||||||
Proceeds from sale of royalty interest | - | - | 5,000,000 | |||||||||
Proceeds from sale of mineral property interests | - | 28,096 | 451,892 | |||||||||
Net cash provided by (used in) investing activities | (516,073 | ) | (67,729 | ) | 5,509,449 | |||||||
Effect of foreign currency translation on cash and | ||||||||||||
cash equivalents | (435,008 | ) | (498,754 | ) | (679,152 | ) | ||||||
Change in cash and cash equivalents | ||||||||||||
during the year | (10,731,438 | ) | (13,184,120 | ) | 42,445,708 | |||||||
Cash and cash equivalents, beginning of year | 33,517,096 | 46,701,216 | 4,255,508 | |||||||||
Cash and cash equivalents, end of year | $ | 22,785,658 | $ | 33,517,096 | $ | 46,701,216 | ||||||
Cash paid for interest during the year | $ | - | $ | - | $ | - | ||||||
Cash paid for income taxes during the year | $ | - | $ | - | $ | - |
For the years ended December 31, 2020, 2019, and 2018
(expressed in thousands of U.S. dollars, except where indicated)
Note
| Number of Shares (000’s)
| Share capital
| Reserves
| Accumulated other comprehensive (loss) income
| Deficit
| Total
| ||||||||||||||||||||
Balance at December 31, 2019 | 175,470 | $ | 173,095 | $ | 22,445 | $ | (407) | $ | (242,113) | $ | (46,980) | |||||||||||||||
Loss and comprehensive loss | - | - | - | (1,114) | (6,000) | (7,114) | ||||||||||||||||||||
Share-based compensation | 11 | - | - | 538 | - | - | 538 | |||||||||||||||||||
Issuance of share capital – private placement | 11 | 10,278 | 2,912 | 401 | - | - | 3,313 | |||||||||||||||||||
Issuance of share capital – share options | 11 | 782 | 299 | (179) | - | - | 120 | |||||||||||||||||||
Share issuance costs | 11 | - | (85) | - | - | - | (85) | |||||||||||||||||||
Balance at December 31, 2020 | 186,530 | $ | 176,221 | $ | 23,205 | $ | (1,521) | $ | (248,113) | $ | (50,208) | |||||||||||||||
Balance at December 31, 2018 | 174,807 | $ | 172,955 | $ | 22,199 | $ | 1,688 | $ | (236,591) | $ | (39,749) | |||||||||||||||
Adjustment on initial application of IFRS 16 | - | - | - | - | 2 | 2 | ||||||||||||||||||||
Loss and comprehensive loss | - | - | - | (2,095) | (5,524) | (7,619) | ||||||||||||||||||||
Share-based compensation | - | - | 340 | - | - | 340 | ||||||||||||||||||||
Issuance of share capital – share options | 663 | 140 | (94) | - | - | 46 | ||||||||||||||||||||
Balance at December 31, 2019 | 175,470 | $ | 173,095 | $ | 22,445 | $ | (407) | $ | (242,113) | $ | (46,980) | |||||||||||||||
- | ||||||||||||||||||||||||||
Balance at December 31, 2017 | 173,573 | $ | 172,308 | $ | 22,175 | $ | (1,684) | $ | (217,288) | $ | (24,489) | |||||||||||||||
Loss and comprehensive income | - | - | - | 3,372 | (5,198) | (1,826) | ||||||||||||||||||||
IFRS adjustments for implementation of IFRS 15 | - | - | - | - | (14,105) | (14,105) | ||||||||||||||||||||
Share-based compensation | - | - | 506 | - | - | 506 | ||||||||||||||||||||
Issuance of share capital – share options | 1,234 | 647 | (482) | - | - | 165 | ||||||||||||||||||||
Balance at December 31, 2018 | 174,807 | $ | 172,955 | $ | 22,199 | $ | 1,688 | $ | (236,591 | ) | $ | (39,749 | ) |
The accompanying notes are an integral part of these consolidated financial statements.
Entrée Resources Ltd.
Consolidated Statements of Cash Flows
For the years ended December 31, 2015
(Expressedexpressed in United States dollars)thousands of U.S. dollars, except where indicated)
Note | 2020 | 2019 | 2018 | |||||||||||
Cash flows used in operating activities | ||||||||||||||
Net loss | $ | (6,000) | $ | (5,524) | $ | (5,198) | ||||||||
Items not affecting cash: | ||||||||||||||
Depreciation | 98 | 105 | 22 | |||||||||||
Share-based compensation | 11 | 538 | 340 | 506 | ||||||||||
Loss from equity investee | 7 | 186 | 273 | 175 | ||||||||||
Interest expense | 9 | 335 | 319 | 307 | ||||||||||
Finance cost, net | 19 | 29 | - | |||||||||||
Gain on sale of investments | 5 | - | (123) | - | ||||||||||
Unrealized foreign exchange (gains) losses | (170) | (176) | 249 | |||||||||||
Deferred revenue finance costs | 10 | 3,453 | 3,250 | 2,985 | ||||||||||
Gain on sale of mining property interest | - | - | (353) | |||||||||||
Unrealized loss on investments | - | - | 73 | |||||||||||
Other | - | 5 | (9) | |||||||||||
(1,541) | (1,502) | (1,243) | ||||||||||||
Changes in non-cash operating working capital: | ||||||||||||||
(Increase) decrease in receivables and prepaids | (8) | (54) | 333 | |||||||||||
Increase (decrease) in accounts payable and accrued liabilities | 53 | (260) | 133 | |||||||||||
(1,496) | (1,816) | (777) | ||||||||||||
Cash flows from (used in) investing activities | ||||||||||||||
Proceeds from sale of investments | 5 | - | 1,035 | - | ||||||||||
Net cash outflow on sale of mining property interest | - | - | (120) | |||||||||||
Purchase of equipment | - | - | (6) | |||||||||||
- | 1,035 | (126) | ||||||||||||
Cash flows from (used in) financing activities | ||||||||||||||
Repayment of lease liability | 8 | (118) | (80) | - | ||||||||||
Proceeds from issuance of common shares – share options | 11 | 120 | 46 | 165 | ||||||||||
Proceeds from issuance of common shares – private placement | 11 | 3,313 | - | - | ||||||||||
Share issuance costs | (85) | - | - | |||||||||||
3,230 | (34) | 165 | ||||||||||||
Increase (decrease) in cash and cash equivalents | 1,734 | (815) | (738) | |||||||||||
Cash and cash equivalents - beginning of year | 5,380 | 6,154 | 7,068 | |||||||||||
Effect of exchange rate changes on cash and cash equivalents | 146 | 41 | (176) | |||||||||||
Cash and cash equivalents - end of year | $ | 7,260 | $ | 5,380 | $ | 6,154 | ||||||||
Cash and cash equivalents is represented by: | ||||||||||||||
Cash | $ | 7,226 | $ | 5,346 | $ | 6,120 | ||||||||
Cash equivalents | 34 | 34 | 34 | |||||||||||
Total cash and cash equivalents | $ | 7,260 | $ | 5,380 | $ | 6,154 |
Supplemental cash flow information (Note 17)
The accompanying notes are an integral part of these consolidated financial statements.
Entre | Resources Ltd. |
Notes to Consolidated Financial Statements
For the year ended December 31, 2020
(tabular amounts expressed in thousands of U.S. dollars, except per share amounts and where indicated)
1 | Nature of operations |
Entrée Gold Inc. was incorporated under the laws of the Province of British Columbia on July 19, 1995 and continued under the laws of the Yukon Territory on January 22, 2003. On May 27, 2005, Entrée Gold Inc. changed its governing jurisdiction from the Yukon Territory to British Columbia by continuing into British Columbia under the Business Corporations Act (British Columbia). The principal business activity of Entrée Gold Inc.Resources Ltd., together with its subsidiaries (collectively referred to as the "Company"“Company” or “Entrée”), is focused on the development and exploration of mineral property interests. To date, theThe Company is principally focused on its Entrée/Oyu Tolgoi JV Property in Mongolia (Note 7).
The Company has not generated significant revenues from its operationsprimary listing in Canada on the Toronto Stock Exchange (“TSX”) and is considered to beits common shares also trade in the exploration stage.
The Company’s registered office is at Suite 2900, 550 Burrard Street, Vancouver, BC, V6C 0A3, Canada.
All amounts are expressed in United States dollars, except for certain amounts denoted in Canadian dollars ("(“C$"”).
These consolidated financial statements have been prepared on the assumptionbasis of accounting principles applicable to a going concern which assumes that the Company will be able to continue for the foreseeable future and will be able to realize its assets and discharge its liabilities in the normal course of business. The Company currently earns no operating revenues. Continued operations of the Company are dependent upon the Company's abilityestimates it has adequate financial resources to secure additional equity capital or receive other financial support, and in the longer term to generate profits from business operations. Management believes that the Company has sufficient working capital to maintainsatisfy its operations forobligations over the next 12 months.
2 | Basis of presentation |
These consolidated financial statements have been prepared in conformityaccordance with generally accepted accounting principles ("GAAP"International Financial Reporting Standards (“IFRS”) as issued by the International Accounting Standards Board (“IASB”).
These consolidated financial statements have been prepared on a going concern basis, and in making the United States of America and include the accounts ofassessment that the Company is a going concern, management have taken into account all available information about the future, which is at least, but is not limited to, twelve months from December 31, 2020.
The consolidated financial statements were approved and allauthorized for issue by the Board of its subsidiaries. All significant intercompany transactions and balances have been eliminated upon consolidation.
3 | Use of estimates and judgements |
The preparation of consolidated financial statements in accordanceconformity with United States generally accepted accounting principlesIFRS requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ materially from those estimates.
Significant estimates and judgements used in the preparation of these consolidated financial statements include: determination of functional currencies; recoverable amount of property and equipment; title to mineral properties; share-based compensation; and income taxes. Estimates that have the most significant effect on the amounts recognized in the Company’s consolidated financial statements are as follows:
a) | Determination of functional currencies |
The determination of the Company’s functional currency is a matter of judgment based on an assessment of the specific facts and circumstances relevant to determining the primary economic environment of each individual entity within the group. The Company reconsiders the functional currencies used when there is a change in events and conditions considered in determining the primary economic environment of each entity.
b) | Income taxes |
The Company must make significant estimates in respect of the provision for income taxes and the composition of its deferred income tax assets and deferred income tax liabilities. The Company’s operations are, in part, subject to foreign tax laws where interpretations, regulations and legislation are complex and continually changing. As a result, there are usually some tax matters in question which may, on resolution in the future, result in adjustments to the amount of current or deferred income tax assets or liabilities, and those adjustments may be material to the Company’s statement of financial position and results of operations.
Entrée Resources Ltd.
Notes to Consolidated Financial Statements
For the year ended December 31, 2020
(tabular amounts expressed in thousands of U.S. dollars, except per share amounts and where indicated)
The determination of the ability of the Company to utilize tax losses carried forward to offset income taxes payable in the future and to utilize temporary differences which will reverse in the future requires management to exercise judgment and make assumptions about the Company’s future performance. Management is required to assess whether the Company is more likely than not to be able to benefit from these tax losses and temporary differences. Changes in the timing of project completion, economic conditions, metal prices and other factors having an impact on future taxable income streams could result in revisions to the estimates of benefits to be realized or the Company’s assessments of its ability to utilize tax losses before expiry. These revisions could result in material adjustments to the consolidated financial statements.
c) | Share-based compensation |
The Company uses the Black-Scholes option pricing model for the valuation of share-based compensation.. Option pricing models require the input of the subjective assumptions including expected price volatility, interest rate and forfeiture rate. Changes in the input assumptions can materially affect the fair value estimate and the Company’s net loss and reserves.
d) | COVID-19 |
In March 2020, the World Health Organization declared coronavirus COVID-19 a global pandemic. This contagious disease outbreak, which has continued to spread, and any related adverse public health developments, has adversely affected workforces, economies, and financial markets globally, potentially leading to an economic downturn. It is not possible for the Company to predict the duration or magnitude of the adverse results of the outbreak and its effects on the Company’s business, results of operations and the timing of proposed transactions at this time.
4 | Significant accounting policies |
The accounting policies set out below have been applied consistently by the Company and all of its wholly owned subsidiaries and to all periods presented in these consolidated financial statements.
a) | Basis of consolidation |
These consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries. The Company’s significant subsidiaries are Entrée LLC and Entrée Resources LLC.
Wholly owned subsidiaries are entities in which the Company has direct or indirect control, where control is defined as the investor’s power over an investee with exposure, or rights, to variable returns from the investee and the ability to affect the investor’s returns through its power over the investee. The results of subsidiaries acquired or disposed of during the year are included in the consolidated statements of comprehensive loss from the effective date of acquisition or up to the effective date of disposal, as appropriate. All intercompany transactions and balances have been eliminated on consolidation.
b) | Foreign currency translation |
The functional currency of Entrée Resources Ltd. is the Canadian dollar. Accordingly, monetary assets and liabilities denominated in a foreign currency are translated at the exchange rate in effect at the statement of financial position date while non-monetary assets and liabilities denominated in a foreign currency are translated at historical rates. Revenue and expense items denominated in a foreign currency are translated at exchange rates prevailing when such items are recognized in the disclosurestatement of contingentcomprehensive loss. Exchange gains or losses arising on translation of foreign currency items are included in the statement of comprehensive loss. The functional currency of Entrée Resources Ltd.’s significant subsidiaries is the United States dollar. Upon translation into Canadian dollars for consolidation, monetary assets and liabilities are translated at the exchange rate in effect at the statement of financial position date while non-monetary assets and liabilities are translated at historical rates. Revenue and expense items are translated at exchange rates prevailing when such items are recognized in the statement of comprehensive loss. Exchange gains or losses arising on translation of foreign currency items are included in the statement of comprehensive loss.
The Company follows the current rate method of translation with respect to its presentation of these consolidated financial statements in the reporting currency, which is the United States dollar. Accordingly, assets and liabilities are translated into United States dollars at the period-end exchange rates while revenue and expenses are translated at the prevailing exchange rates during the period. Related exchange gains and losses are included in a separate component of shareholders’ deficiency as accumulated other comprehensive loss / income.
Entrée Resources Ltd.
Notes to Consolidated Financial Statements
For the year ended December 31, 2020
(tabular amounts expressed in thousands of U.S. dollars, except per share amounts and where indicated)
c) | Financial instruments |
Classification
The Company classifies its financial instruments in the following categories: at fair value through profit and loss (“FVTPL”), at fair value through other comprehensive income (loss) (“FVTOCI”), or at amortized cost. The Company determines the classification of financial assets at initial recognition. The classification of debt instruments is driven by the Company’s business model for managing the financial assets and their contractual cash flow characteristics. Equity instruments that are held for trading are classified as FVTPL. For other equity instruments, on the day of acquisition the Company can make an irrevocable election (on an instrument-by-instrument basis) to designate them as at FVTOCI. Financial liabilities are measured at amortized cost, unless they are required to be measured at FVTPL (such as instruments held for trading or derivatives) or the Company has opted to measure them at FVTPL.
The following table shows the classification of the Company’s financial instruments:
Financial assets / liabilities | Classification | |
Cash and cash equivalents | FVTPL | |
Receivables | Amortized costs | |
Deposits | Amortized costs | |
Accounts payable and accrued liabilities | Amortized costs | |
Lease liabilities | Amortized costs | |
Loan payable to Oyu Tolgoi LLC | Amortized costs |
Measurement
Financial assets and liabilities at amortized cost
Financial assets and liabilities at amortized cost are initially recognized at fair value plus or minus transaction costs, respectively, and subsequently carried at amortized cost less any impairment.
Financial assets and liabilities at FVTPL
Financial assets and liabilities carried at FVTPL are initially recorded at fair value and transaction costs are expensed in the dateconsolidated statements of comprehensive loss / income. Realized and unrealized gains and losses arising from changes in the fair value of the financial assets and liabilities held at FVTPL are included in profit or loss.
Financial assets at FVTOCI
Financial assets at FVTOCI are initially recorded at fair value adjusted for transaction costs. Dividends are recognized as income in the consolidated statements of comprehensive loss / income unless the dividend clearly represents a recovery of part of the cost of the investment. Gains or losses recognized on the sale of the equity investment are recognized in other comprehensive loss / income and are never reclassified to profit or loss.
Impairment
An ‘expected credit loss’ impairment model applies which requires a loss allowance to be recognized based on expected credit losses. The estimated present value of future cash flows associated with the asset is determined and an impairment loss is recognized for the difference between this amount and the reportedcarrying amount as follows: the carrying amount of revenuesthe asset is reduced to estimated present value of the future cash flows associated with the asset, discounted at the financial asset’s original effective interest rate, either directly or through the use of an allowance account and expenses during the reportingresulting loss is recognized in profit or loss for the period.
In a subsequent period, if the amount of the impairment loss related to financial assets measured at amortized cost decreases, the previously recognized impairment loss is reversed through profit or loss to the extent that the carrying amount of the investment at the date the impairment is reversed does not exceed what the amortized cost would have been had the impairment not been recognized.
Entrée Resources Ltd.
Notes to Consolidated Financial Statements
For the year ended December 31, 2020
(tabular amounts expressed in thousands of U.S. dollars, except per share amounts and where indicated)
Derecognition
Financial assets
The Company regularly evaluates estimates and assumptions relatedderecognizes financial assets only when the contractual rights to deferred income tax asset valuations, asset impairment, stock-based compensation and loss contingencies. The Company bases its estimates and assumptions on current facts, historical experience and various other factors that it believes to be reasonable under the circumstances, the results of which form the basis for making judgements about the other sources. The actual results experienced by the Company may differ materially and adverselycash flows from the Company's estimates. Tofinancial assets expire, or when it transfers the extent therefinancial assets and substantially all of the associated risks and rewards of ownership to another entity. Gains and losses on derecognition are material differences between estimates andgenerally recognized in the actual results, future resultsconsolidated statements of operations will be affected.
d) | Cash and cash equivalents |
Cash and cash equivalents includesinclude cash in banks, money market funds, and certificates of term deposits with maturities of less than three months from inception, which are readily convertible to known amounts of cash and which, in the opinion of management, are subject to an insignificant risk of loss in value.
e) | Exploration and evaluation assets |
All direct costs related to the acquisition of mineral property interest are capitalized in the period incurred.
Exploration and evaluation costs are charged to operations in the period incurred until such time as it has been determined that a mineral property has proven and probable reserves and the property is economically viable, in which case subsequent evaluation costs incurred to develop a mineral property are capitalized.
f) | Property, plant and equipment |
Mineral property interests and mine development costs
All exploration and evaluation expenditures and property maintenance costs incurred for projects outside the boundary of a known mineral deposit containing proven and probable reserves are expensed as incurred to the date of establishing that property costs are economically recoverable.
Development expenditures are those incurred subsequent to the establishment of economic recoverability and after a number of key development and milestones have been achieved. These milestones include obtaining sufficient financial resources, permits, and licenses to develop the mineral property. Development costs are capitalized and included in the carrying amount of the related property.
Mineral property and mine development costs capitalized are amortized using the units-of-production method over the estimated life of the proven and probable reserves.
Plant and equipment
Items of plant and equipment are recorded at cost less accumulated depletion and amortization. Cost includes all expenditures incurred to bring assets to the location and condition necessary for them to be operated in the manner intended by management, including estimated decommissioning and restoration costs and, where applicable, borrowing costs. If significant parts of an item of plant and equipment have different useful lives, then they are accounted for as separate items (major components) of plant and equipment.
Depreciation is recorded on a declining balance basis at rates ranging from 20% to 30% per annum.
No depletion and amortization is recorded until the asset is substantially complete and available for its intended use.
Entrée Resources Ltd.
Notes to Consolidated Financial Statements
For the year ended December 31, 2020
(tabular amounts expressed in thousands of U.S. dollars, except per share amounts and where indicated)
Impairment of non-current assets
The Company reviews the carrying amounts of its non-financial assets every reporting period. If there is any indication that the assets or cash-generating unit (“CGU”) may not be fully recoverable, the recoverable amount of the asset or CGU is estimated in order to determine the extent of the impairment loss, if any.
Recoverable amount is the higher of fair value less costs to sell and value in use. In assessing value in use, the estimated future cash flows to be derived from continuing use of the asset or CGU are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset. Fair value less cost to sell is the amount obtainable from the sale of an asset or CGU in an arm’s length transaction between knowledgeable, willing parties, less the cost of disposal. When a binding sale agreement is not available, fair value less costs to sell is estimated using a discounted cash flow approach with inputs and assumptions consistent with those at market. If the recoverable amount of an asset or CGU is estimated to be less than its carrying amount, the carrying amount of the asset or CGU is reduced to its recoverable amount. An impairment loss is recognized immediately in profit or loss. Where an impairment loss subsequently reverses, the carrying amount of the asset or CGU is increased to the revised estimate of its recoverable amount, such that the increased carrying amount does not exceed the carrying amount that would have been determined had $22,785,658 in cash at December 31, 2015.
g) | Long-term investments |
Long-term investments in companies in which the Company has voting interests of 20% to 50%or more or where the Company has the ability to exercise significant influence, are accounted for using the equity method. Under this method, the Company'sCompany’s share of the investees'investees’ earnings and losses is included in operations and its investments therein are adjusted by a like amount. Dividends received are credited to the long-term investment accounts.
h) | Decommissioning obligations |
The Company recognizes liabilities for statutory, contractual, legal or constructive obligations associated with the retirement of office, computer, fieldproperty, plant and equipment, when those obligations result from the acquisition, construction, development or normal operation of the assets. Initially, a provision for a decommissioning obligation is recognized at its net present value in the period in which it is incurred, using a discounted cash flow technique with market-based risk-free discount rates and buildings,estimates of the timing and amount of the settlement of the obligation.
Upon initial recognition of the liability, the corresponding decommissioning cost is recordedadded to the carrying amount of the related asset. Following initial recognition of the decommissioning obligation, the carrying amount of the liability is increased for the passage of time and adjusted for changes to significant estimates including the current discount rate, the amount or timing of the underlying cash flows needed to settle the obligation and the requirements of the relevant legal and regulatory framework. Subsequent changes in the provisions resulting from new disturbance, updated cost estimates, changes to estimated lives of operations and revisions to discount rates are also capitalized to the related property, plant and equipment. Amounts capitalized to the related property, plant and equipment are depreciated over the lives of the assets to which they relate. The amortization or unwinding of the discount applied in establishing the net present value of provisions is charged to expense and is included within finance costs in the consolidated statement of comprehensive loss / income.
i) | Other provisions |
Provisions are recognized when the Company has a present obligation (legal or constructive) as a result of past events, and it is probable that an outflow of resources that can be reliably estimated will be required to settle the obligation. Provisions are measured at cost less accumulated depreciation. Depreciationthe present value of the expenditures expected to be required to settle the obligation.
j) | Taxation |
Income tax expense comprises current and deferred tax. Current tax and deferred taxes are recognized in the consolidated statements of comprehensive loss / income except to the extent that they relate to items recognized directly in equity or in other comprehensive loss / income.
Current tax is recordedthe expected tax payable or receivable on the taxable income or loss for the year, using tax rates enacted or substantively enacted at the reporting date.
Entrée Resources Ltd.
Notes to Consolidated Financial Statements
For the year ended December 31, 2020
(tabular amounts expressed in thousands of U.S. dollars, except per share amounts and where indicated)
Deferred tax is recognized in respect of unused tax losses and credits, as well as temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for taxation purposes. Deferred tax is measured at the tax rates that are expected to be applied to temporary differences when they reverse, based on enacted or substantively enacted laws at the reporting date.
The Company computes the provision for deferred income taxes under the liability method. A deferred tax asset is recognized for unused tax losses, tax credits and deductible temporary differences, only to the extent that it is probable that future taxable profits will be available against which they can be utilized. Future taxable profits are estimated using an income forecast derived from cash flow projections, based on detailed life-of-mine plans and corporate forecasts. Where applicable, the probability of utilizing tax losses or credits is evaluated by considering risks relevant to future cash flows, and the expiry dates after which these losses or credits can no longer be utilized.
Deferred tax is not recognized for the initial recognition of assets or liabilities in a transaction that is not a business combination and that affects neither accounting nor taxable profit or loss, and differences relating to investments in subsidiaries, associates and joint arrangements to the extent that it is probable that they will not reverse in the foreseeable future.
The Company is subject to assessments by various taxation authorities, who may interpret tax legislation differently from the Company. The final amount of taxes to be paid depends on a declining balance basis at rates ranging from 20% to 30% per annum.
The Company considers mineral rights to be tangiblemust make significant estimates and judgments in respect of its provision for income taxes and the composition and measurement of its deferred income tax assets and accordingly,liabilities. The Company’s operations are, in part, subject to foreign tax laws where interpretations, regulations and legislation are complex and continually changing. As a result, there are usually some tax matters in question that may, upon resolution in the Company capitalizes certain costs relatedfuture, result in adjustments to the acquisitionamount of mineral rights.
k) | Share-based compensation |
The Company recordsCompany’s stock option plan allows the Company’s directors, officers, employees, and consultants to acquire shares of the Company. The fair value of options granted is recognized as share-based compensation expense with a corresponding increase in reserves. An individual is classified as an employee when the individual is an employee for legal or tax purposes (direct employee) or provides services similar to those performed by a direct employee. Where options are subject to vesting, each vesting tranche is considered a separate award with its own vesting period and grant date fair value. The fair value of each tranche is measured at the grant date using the Black-Scholes option pricing model, taking into account the terms and conditions upon which the options were granted. Share-based compensation expense is recognized over the tranche’s vesting period by a charge to profit or loss. For employees, the compensation expense is amortized on a straight-line basis over the requisite service period which approximates the vesting period. Compensation expense for share options granted to non-employees is recognized over the contract services period or, if none exists, from the date of grant until the options vest. Compensation associated with unvested options granted to non-employees is re-measured on each statement of financial position date.
At each financial position reporting date, the amount recognized as an expense is adjusted to reflect the actual number of options that are expected to vest. In situations where equity instruments are issued to non-employees and some or all of the goods or services received by the entity as consideration cannot be specifically identified, they are measured at the fair value of the liability for closure and removal costs associated with the legal obligations upon retirement or removal of any tangible long-lived assets where the initial recognition of any liability will be capitalized as part of the asset cost and depreciated over its estimated useful life. To date, the Company has not incurred any asset retirement obligations.
l) | Deferred share units |
The Company applieshas established a deferred share plan under which deferred share units (“DSUs”) are granted to directors of the fair value methodCompany as part of accountinglong-term incentive compensation. DSUs are classified as equity settled share-based payment transactions as the participants will receive either common shares of the Company or payment of cash, or any combination of the foregoing, as determined by the Company in its sole discretion, following a redemption event. As such, the Company recognizes the expense based on the quoted market price of the Company’s common shares at the grant date and a corresponding increase in equity for the eventual redemption when the DSUs are issued.
Entrée Resources Ltd.
Notes to Consolidated Financial Statements
For the year ended December 31, 2020
(tabular amounts expressed in thousands of U.S. dollars, except per share amounts and where indicated)
m) | Loss per share |
Basic loss per share is computed by dividing net loss attributable to common shares by the weighted average number of common shares outstanding during the reporting period. Diluted loss per share is computed similarly to basic loss per share except that the weighted average common shares outstanding are increased to include additional shares for the assumed exercise of share options and share purchase warrants, if dilutive. The number of additional common shares is calculated by assuming that outstanding share options and equity settled instruments were exercised and that the proceeds from such exercises were used to acquire common shares at the average market price during the reporting periods.
n) | Related party transactions |
Parties are considered related if one party has the ability, directly or indirectly, to control the other party or exercise significant influence over the other party in making financial and operating decisions. Parties are also considered related if they are subject to common control or significant influence. A transaction is considered a related party transaction when there is a transfer of resources or obligations between related parties.
o) | Right-of-use assets and lease liability |
At inception of a contract, the Company assesses whether a contract is, or contains, a lease. A contract is, or contains, a lease if the contract conveys the right to control the use of an identified asset for a period of time in exchange for consideration. The Company assesses whether the contract involves the use of an identified asset, whether the right to obtain substantially all stock option awards, wherebyof the economic benefits from use of the asset during the term of the arrangement exists, and if the Company has the right to direct the use of the asset. At inception or on reassessment of a contract that contains a lease component, the Company allocates the consideration in the contract to each lease component on the basis of their relative standalone prices.
As a lessee, the Company recognizes a compensation expenseright-of-use asset and a lease liability at the commencement date of a lease. The right-of-use asset is initially measured at cost, which is comprised of the initial amount of the lease liability adjusted for all stock options awardedany lease payments made at or before the commencement date, plus any decommissioning and restoration costs, less any lease incentives received.
The right-of-use asset is subsequently depreciated using the straight line method from the commencement date to employees, officersthe earlier of the end of the lease term, or the end of the useful life of the asset. In addition, the right-of-use asset may be reduced due to impairment losses, if any, and consultants based onadjusted for certain remeasurements of the fairlease liability.
A lease liability is initially measured at the present value of the optionslease payments that are not paid at the commencement date, discounted by the interest rate implicit in the lease, or if that rate cannot be readily determined, the incremental borrowing rate. Lease payments included in the measurement of the lease liability are comprised of:
fixed payments, including in-substance fixed payments, less any lease incentives receivable;
variable lease payments that depend on the date of grant, which is determinedan index or a rate, initially measured using the Black Scholes option pricing model. The options are expensed over the vesting period of the options.
amounts expected to be payable under a residual value guarantee;
exercise prices of purchase options if the Company is reasonably certain to exercise that option; and
payments of penalties for terminating the lease, if the lease term reflects the lessee exercising an option to terminate the lease.
The lease liability is 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 until realized, or if an unrealized lossmethod. It is considered other than temporary, the unrealized lossremeasured when there is recorded in income.
The Company has elected not to recognize right-of-use assets and lease liabilities for short-term leases that have a lease term of 12 months or less and leases of low-value assets. The lease payments associated with these leases are charged directly to profit or loss on a straight-line basis over the lease term.
p) | Warrants issued in equity financing transactions |
The Company engages in equity financing transactions to obtain the funds necessary to continue operations and comprehensive loss. The functional currency of Entrée Gold Inc.'s significant subsidiaries is the United Sates dollar. Upon translation into Canadian dollars for consolidation, monetary assetsexplore and liabilities are translated at the exchange rate in effect at the balance sheet date while non-monetary assets and liabilities are translated at historical rates. Revenue and expense items are translated at exchange rates prevailing when such items are recognized in the statement of operations and comprehensive loss. Exchange gains or losses arising on translation of foreign currency items are included in the statement of operations and comprehensive loss.
Entrée Resources Ltd. ("Turquoise Hill") and 34% by the Government of Mongolia (Note 6), as a 20% equity investment. The Company's share of the loss of the joint venture is $118,712 for
Notes to Consolidated Financial Statements
For the year ended December 31, 2015 (December 31, 2014 - $107,907;2020
(tabular amounts expressed in thousands of U.S. dollars, except per share amounts and where indicated)
comprises a certain number of common shares and a certain number of share purchase warrants. Depending on the terms and conditions of each equity financing agreement, the warrants are exercisable into additional common shares prior to expiry at a price stipulated by the agreement. Warrants that are part of units are valued based on the relative fair value method and included in share capital with the common shares that were concurrently issued. Warrants that are issued as payment for an agency fee or other transactions costs are accounted for as share-based payments.
q) | Standards issued or amended but not yet effective |
The Company has not applied the following revised IFRS that has been issued but was not yet effective at December 31, 2013 - $146,051) plus accrued interest expense2020. This accounting standard is not currently expected to have a significant effect on the Company’s accounting policies or financial statements.
· | IAS 16, Property, Plant and Equipment - Proceeds before Intended Use (effective January 1, 2022). The amendment prohibits deducting from the cost of property, plant and equipment amounts received from selling items produced while preparing the asset for its intended use. Instead, a company will recognize such sale proceeds and related cost in profit or loss. |
5 | Investments |
In June 2018, the Company acquired 478,951 common shares of $279,405Anglo Pacific Group PLC (“Anglo Pacific”), a public company listed on the London Stock Exchange and the TSX, through the sale of the Cañariaco Project Royalty.
In 2019, the Company disposed of all its investments in Anglo Pacific common shares for net proceeds of $1.0 million and realized a $0.1 million gain.
Entrée Resources Ltd.
Notes to Consolidated Financial Statements
For the year ended December 31, 2015 (December 31, 2014 - $264,869; December 31, 2013 - $260,453).
(Expressedtabular amounts expressed in United States dollars)
6 | Property and equipment |
Office equipment | Computer equipment | Field equipment | Buildings | Right-of-use assets | Total | |||||||||||||||||||
Cost | ||||||||||||||||||||||||
Balance, January 1, 2018 | $ | 55 | $ | 149 | $ | 39 | $ | 45 | $ | - | $ | 288 | ||||||||||||
Additions | - | 6 | - | - | - | 6 | ||||||||||||||||||
Foreign exchange | (5 | ) | (12 | ) | (4 | ) | (4 | ) | - | (25 | ) | |||||||||||||
Balance, December 31, 2018 | 50 | 143 | 35 | 41 | - | 269 | ||||||||||||||||||
Additions | - | - | - | - | 337 | 337 | ||||||||||||||||||
Disposals | - | (33 | ) | (37 | ) | - | - | (70 | ) | |||||||||||||||
Foreign exchange | 3 | 4 | 2 | 3 | 4 | 16 | ||||||||||||||||||
Balance at December 31, 2019 | 53 | 114 | - | 44 | 341 | 552 | ||||||||||||||||||
Foreign exchange | 1 | 4 | - | 1 | 4 | 10 | ||||||||||||||||||
Balance at December 31, 2020 | $ | 54 | $ | 118 | $ | - | $ | 45 | $ | 345 | $ | 562 | ||||||||||||
Accumulated depreciation | ||||||||||||||||||||||||
Balance, January 1, 2018 | $ | (8 | ) | $ | (130 | ) | $ | (33 | ) | $ | (5 | ) | $ | - | $ | (176 | ) | |||||||
Depreciation | (8 | ) | (5 | ) | (2 | ) | (7 | ) | - | (22 | ) | |||||||||||||
Foreign exchange | 1 | 10 | 4 | 1 | - | 16 | ||||||||||||||||||
Balance, December 31, 2018 | (15 | ) | (125 | ) | (31 | ) | (11 | ) | - | (182 | ) | |||||||||||||
Depreciation | (7 | ) | (2 | ) | - | (6 | ) | (90 | ) | (105 | ) | |||||||||||||
Disposals | - | 32 | 33 | - | - | 65 | ||||||||||||||||||
Foreign exchange | (1 | ) | (8 | ) | (2 | ) | (1 | ) | (2 | ) | (14 | ) | ||||||||||||
Balance at December 31, 2019 | (23 | ) | (103 | ) | - | (18 | ) | (92 | ) | (236 | ) | |||||||||||||
Depreciation | (6 | ) | (4 | ) | - | (5 | ) | (83 | ) | (98 | ) | |||||||||||||
Foreign exchange | - | (3 | ) | - | - | (5 | ) | (9 | ) | |||||||||||||||
Balance at December 31, 2020 | $ | (29 | ) | $ | (110 | ) | $ | - | $ | (23 | ) | $ | (180 | ) | $ | (342 | ) | |||||||
Net book value | ||||||||||||||||||||||||
January 1, 2019 | $ | 35 | $ | 18 | $ | 4 | $ | 30 | $ | - | $ | 87 | ||||||||||||
December 31, 2019 | $ | 40 | $ | 11 | $ | - | $ | 26 | $ | 249 | $ | 316 | ||||||||||||
December 31, 2020 | $ | 25 | $ | 8 | $ | - | $ | 22 | $ | 165 | $ | 220 |
December 31, 2015 | December 31, 2014 | |||||||||||||||||||||||
Accumulated | Net Book | Accumulated | Net Book | |||||||||||||||||||||
Cost | Depreciation | Value | Cost | Depreciation | Value | |||||||||||||||||||
Office equipment | $ | 57,207 | $ | 46,282 | $ | 10,925 | $ | 81,314 | $ | 60,877 | $ | 20,437 | ||||||||||||
Computer equipment | 276,534 | 231,335 | 45,199 | 363,823 | 290,361 | 73,462 | ||||||||||||||||||
Field equipment | 181,925 | 134,245 | 47,680 | 217,036 | 141,797 | 75,239 | ||||||||||||||||||
Buildings | 40,053 | 34,673 | 5,380 | 48,762 | 40,334 | 8,428 | ||||||||||||||||||
$ | 555,719 | $ | 446,535 | $ | 109,184 | $ | 710,935 | $ | 533,369 | $ | 177,566 |
7 | Oyu Tolgoi assets |
Entrée/Oyu Tolgoi JV Property
The Company has investigated title to its mineral property interests and, except as otherwise disclosed below, to the best of its knowledge, title to the mineral property interests is in good standing.
In October 2004, the Company entered into an arm's-lengtharm’s-length Equity Participation and Earn-In Agreement (the "Earn In Agreement"“Earn-In Agreement”) with Turquoise Hill.Hill Resources Ltd. (“Turquoise Hill”). Under the Earn-In Agreement, Turquoise Hill agreed
Entrée Resources Ltd.
Notes to Consolidated Financial Statements
For the year ended December 31, 2020
(tabular amounts expressed in thousands of U.S. dollars, except per share amounts and where indicated)
to purchase equity securities of the Company and was granted the right to earn an interest in what is now the eastern portion of the ShiveeEntrée/Oyu Tolgoi mining licence and all of the Javhlant mining licence (together the "Joint Venture Property").JV Property. Most of Turquoise Hill'sHill’s rights and obligations under the Earn-In Agreement were subsequently assigned by Turquoise Hill to what was then its wholly-owned subsidiary, OTLLC.Oyu Tolgoi LLC (“OTLLC”). The Government of Mongolia subsequently acquired a 34% interest in OTLLC from Turquoise Hill.
On June 30, 2008, OTLLC gave notice that it had completed its earn-in obligations by expending a total of $35 million on exploration of the Joint VentureEntrée/Oyu Tolgoi JV Property. OTLLC earned an 80% interest in all minerals extracted below a sub-surface depth of 560 metres from the Joint VentureEntrée/Oyu Tolgoi JV Property and a 70% interest in all minerals extracted from surface to a depth of 560 metres from the Joint VentureEntrée/Oyu Tolgoi JV Property. In accordance with the Earn-In Agreement, the Company and OTLLC formed a joint venture (the "Entrée-OTLLC Joint Venture"“Entrée/Oyu Tolgoi JV”) on terms annexed to the Earn-In Agreement.
The portion of the Shivee Tolgoi mining licence outside of the Joint VentureEntrée/Oyu Tolgoi JV Property, ("Shivee West")West, is 100% owned by the Company, but is subject to a right of first refusal by OTLLC.
The conversion of the original Shivee Tolgoi and Javhlant exploration licences into mining licences was a condition precedent to the Investment Agreement (the "Investment Agreement"“Oyu Tolgoi Investment Agreement”) between Turquoise Hill, OTLLC, the Government of Mongolia and Rio Tinto International Holdings Limited. The licences are part of the contract area covered by the Oyu Tolgoi Investment Agreement, although the Company is not a party to the Oyu Tolgoi Investment Agreement. The Shivee Tolgoi and Javhlant mining licences were each issued for a 30 year term and have rights of renewal for two further 20 year terms.
As of December 31, 2015,2020, the Entrée-OTLLC Joint Venturee/Oyu Tolgoi JV had expended approximately $27.8$34.2 million (December 31, 2019—$32.9 million; December 31, 2018 - $31.2 million) to advance the Joint VentureEntrée/Oyu Tolgoi JV Property. Under the terms of the Entrée-OTLLC Joint Venture,e/Oyu Tolgoi JV, OTLLC contributed on behalf of the Company its required participation amount charging interest at prime plus 2% (Note 7)9).
Investment – Entrée/Oyu Tolgoi JV Property
For accounting purposes, the Company treats its interest in the Entrée/Oyu Tolgoi JV as a 20% equity investment. Historically, all Company expenditures related to its interest in the Entrée/Oyu Tolgoi JV have been expensed as incurred through the statement of comprehensive loss or recognized as part of the Company’s share of the loss of the joint venture.
The Company’s share of the loss of the joint venture was $0.2 million for the year ended December 31, 2015
The Entrée/Oyu Tolgoi JV investment carrying value at December 31, 2020 was $0.2 million (December 31, 2019 - $0.1 million) and was recorded in United States dollars)
8 | Leases |
Lease liability
December 31, 2020 | December 31, 2019 | |||||||
Lease liability | $ 208 | $ 304 | ||||||
Less: current portion | (108 | ) | (103 | ) | ||||
Long-term portion | $ 100 | $ 201 |
Entrée Resources Ltd.
Notes to Consolidated Financial Statements
For the year ended December 31, 2020
(tabular amounts expressed in non-material properties in Australia,thousands of U.S. dollars, except per share amounts and where indicated)
Undiscounted lease payments
December 31, 2020 | December 31, 2019 | |||||||
Less than one year | $ | 124 | $ | 123 | ||||
One to five years | 97 | 216 | ||||||
$ | 221 | $ | 339 |
Interest expense on the United States and Peru.
December 31, 2015 | December 31, 2014 | |||||||
Ann Mason | $ | 36,853,690 | $ | 43,966,474 | ||||
Other | 860,802 | 453,064 | ||||||
Total | $ | 37,714,492 | $ | 44,419,538 |
Year Ended December 31, 2015 | Year Ended December 31, 2014 | Year Ended December 31, 2013 | |||||||||||
US | $ | 3,507,357 | $ | 7,066,997 | $ | 3,940,264 | |||||||
Mongolia | 1,488,452 | 1,672,341 | 1,355,493 | ||||||||||
Other | 165,101 | 315,549 | 807,235 | ||||||||||
Total all locations | $ | 5,160,910 | $ | 9,054,887 | $ | 6,102,992 |
9 | Loan payable to Oyu Tolgoi LLC |
Under the terms of the Entrée-OTLLC Joint Venturee/Oyu Tolgoi JV (Note 6)7), Entrée has elected to have OTLLC will contribute funds to approved joint venture programs and budgets on the Company'sCompany’s behalf. Interest on each loan advance shall accrue at an annual rate equal to OTLLC'sOTLLC’s actual cost of capital or the prime rate of the Royal Bank of Canada, plus two percent (2%) per annum, whichever is less, as at the date of the advance. The loansloan is non-recourse and will be repayable by the Company monthly from ninety percent (90%) of the Company'sCompany’s share of available cash flow from the Entrée-OTLLC Joint Venture.e/Oyu Tolgoi JV. In the absence of available cash flow, the loansloan will not be repayable. The loans areloan is not expected to be repaid within one year.
During the year ended December 31, 2015
10 | Deferred revenue |
In February 2013, the Company entered into an equity participation and funding agreement (the “2013 Agreement”) with Sandstorm (the "2013 Agreement"Gold Ltd. (“Sandstorm”) thatwhereby Sandstorm provided an upfront deposit (the "Deposit"“Deposit”) from Sandstorm of $40$40.0 million. The Company will use future payments that it receives from its mineral property interests to purchase and deliver metal credits to Sandstorm, in amounts that are indexed to the Company'sCompany’s share of gold, silver and copper production from the Joint Venture Property as follows:
On February 23, 2016, the Company and Sandstorm entered into an Agreement to Amend, whereby the Company refunded 17% of the Deposit ($6.8 million) (the “Refund”) in cash and shares thereby reducing the Deposit to $33.2 million for a 17% reduction in the metal credits that the Company is required to deliver to Sandstorm. At closing on March 1, 2016, the parties entered into an Amended and Restated Equity Participation and Funding Agreement (the “Amended Sandstorm Agreement”). Under the terms of the Amended Sandstorm Agreement, the Company will purchase and deliver gold, silver and copper credits equivalent to:
· | 28.1% of |
· | 21.3% of |
Upon the Deposit, upon delivery of the metal credits, Sandstorm will make a cash payment to the Company equal to the lesser of the prevailing market price and $220 per ounce of gold, $5 per ounce of silver and $0.50 per pound of copper (subject to inflation adjustments). After approximately 8.6 million ounces of gold, 40.3 million ounces of silver and 9.1 billion pounds of copper have been produced from the entire Joint Venturecurrent Entrée/Oyu Tolgoi JV Property the cash payment will increasebe increased to the lesser of the prevailing market price and $500 per ounce of gold, $10 per ounce of silver and $1.10 per pound of copper (subject to inflation adjustments). To the extent that the prevailing market price is greater than the amount of the cash payment, the difference between the two will be credited against the Deposit (the net amount of the Deposit being the "Unearned Balance"“Unearned Balance”).
Entrée Resources Ltd.
Notes to Consolidated Financial Statements
For the year ended December 31, 2020
(tabular amounts expressed in thousands of U.S. dollars, except per share amounts and where indicated)
This arrangement does not required to deliverrequire the delivery of actual metal, and the Company may use revenue from any of its assets to purchase the requisite amount of metal credits.
Under the Amended Sandstorm Agreement, Sandstorm has a right of first refusal, subject to certain exceptions, on future production-based funding agreements. The Amended Sandstorm Agreement also contains other customary terms and conditions, including representations, warranties, covenants and events of default. The initial term of the Amended Sandstorm Agreement is 50 years, subject to successive 10-year extensions at the discretion of Sandstorm.
In addition, the Amended Sandstorm Agreement provides that the Company recordedwill not be required to make any further refund of the Deposit if Entrée’s economic interest is reduced by up to and including 17%. If there is a reduction of greater than 17% up to and including 34%, the Amended Sandstorm Agreement provides the Company with the ability to refund a corresponding portion of the Deposit in cash or common shares of the Company or any combination of the two at the Company’s election, in which case there would be a further corresponding reduction in deliverable metal credits. If the Company elects to refund Sandstorm with common shares of the Company, the value of each common share shall be equal to the volume weighted average price for the five (5) trading days immediately preceding the 90th day after the reduction in Entrée’s economic interest. In no case will Sandstorm become a “control person” under the Amended Sandstorm Agreement. In the event an issuance of shares would cause Sandstorm to become a “control person”, the maximum number of shares will be issued, and with respect to the value of the remaining shares, 50% will not be refunded (and there will not be a corresponding reduction in deliverable metal credits) and the remaining 50% will be refunded by the issuance of shares in tranches over time, such that the number of shares that Sandstorm holds does not reach or exceed 20%. All shares will be priced in the context of the market at the time they are issued.
In the event of a full expropriation, the remainder of the Unearned Balance after the foregoing refunds must be returned in cash.
For accounting purposes, the Deposit is accounted for as deferred revenue on the statement of financial position and will recognize amounts in revenue as metal credits are delivered to Sandstorm, which are expected to be delivered until after 2020. As a nonmonetary item, the deferred revenue balance isoriginal Deposit was recorded at the historical basisamount of C$40,032,000 and40.0 million. As a result of the Amended Sandstorm Agreement, the deferred revenue amount was adjusted to reflect the $6.8 million Refund which was recorded at the foreign exchange amount at the date of the Refund resulting in a net balance of C$30.9 million. This amount is subject to foreign currency fluctuations upon conversion to USU.S. dollars at each reporting period.
The $6.8 million Refund was paid with $5.5 million in cash and the issuance of $1.3 million of common shares of the Company. On February 23,March 1, 2016, the Company and Sandstorm entered into an Agreement to Amend the 2013 Agreement (Note 18, Subsequent Events).
The Deposit contains a significant financing component and, as such, the Company issued 250,000 sharesrecognizes a financing charge at each reporting period and grosses up the deferred revenue balance to recognize the significant financing element that is part of this contract at a fair valuediscount rate of $73,618 to acquire certain claims within the boundaries of its Ann Mason Project.
11 | Share capital |
a) | Common shares |
The Company’s authorized share capital consists of unlimited common shares without par value. At December 31, 2020, the Company had 186,530,002 (December 31, 2019 – 175,470,074) shares issued 346,532and outstanding.
b) | Net loss per common share |
Net loss per common share is computed by dividing net loss attributable to common shares by the weighted average number of common shares outstanding during the reporting period. All share options and equity settled instruments outstanding at each period end have been excluded from the weighted average common share calculation as they are anti-dilutive.
Entrée Resources Ltd.
Notes to Consolidated Financial Statements
For the year ended December 31, 2020
(tabular amounts expressed in thousands of U.S. dollars, except per share amounts and where indicated)
c) | Private placement |
On September 14, 2020, the Company closed a non-brokered private placement issuing 10,278,000 units at a price of C$0.43 per unit for cashaggregate gross proceeds of $41,135 on the exerciseC$4.4 million. Each unit consisted of stock options. The fair value recorded when the options were granted of $26,532 has been transferred from additional paid-in capital toone common stock on the exerciseshare of the options.
d) | Share options |
The Company provides share-based compensation to its directors, officers, employees, and consultants through grants of share options.
The Company has adopted a stock option plan (the "Plan"“Plan”) to grant options to directors, officers, employees and consultants. Under the Plan, the Company may grant optionsconsultants to acquire up to 10% of the issued and outstanding shares of the Company. Options granted can have a term of up to ten years and an exercise price typically not less than the Company'sCompany’s closing stockshare price on the Toronto Stock ExchangeTSX on the last trading day before the date of grant. Vesting is determined at the discretion of the Board of Directors.
Under the Black-ScholesPlan, an option pricing modelholder may elect to determinetransform an option, in whole or in part and, in lieu of receiving shares to which the fairterminated option relates (the “Designated Shares”), receive the number of shares, disregarding fractions, which, when multiplied by the weighted average trading price of the shares on the TSX during the five trading days immediately preceding the day of termination (the “Fair Value” per share) of the Designated Shares, has a total dollar value equal to the number of stock options granted. For employees,Designated Shares multiplied by the compensation expense is amortized on a straight-line basis overdifference between the requisite service period which approximatesFair Value and the vesting period. Compensation expense for stock options granted to non-employees is recognized overexercise price per share of the contract services period or, if none exists, from the date of grant until the options vest. Compensation associated with unvested options granted to non-employees is re-measured on each balance sheet date using the Black-Scholes option pricing model.
The Company uses historical data to estimate option exercise, forfeiture and employee termination within the valuation model. The risk-free interest rate is based on a treasury instrument whose term is consistent with the expected term of the stockshare options. TheSince the Company has not paid and does not anticipate paying dividends on its common stock; therefore,shares, the expected dividend yield is assumed to be zero. Companies are required to utilize an estimated forfeiture rate when calculating the expense for the reporting period. Based on the best estimate, management applied the estimated forfeiture rate of Nilnil in determining the expense recorded in the accompanying Statements of OperationsComprehensive Loss.
Entrée Resources Ltd.
Notes to Consolidated Financial Statements
For the year ended December 31, 2020
(tabular amounts expressed in thousands of U.S. dollars, except per share amounts and Comprehensive Loss.
Share option transactions are summarized as follows:
Number of share options (000’s)
| Weighted average C$ | |||||||
Outstanding – December 31, 2017 | 9,175 | 0.38 | ||||||
Granted | 2,290 | 0.55 | ||||||
Exercised | (1,233) | 0.40 | ||||||
Cancelled | (1,522) | 0.41 | ||||||
Outstanding – December 31, 2018 | 8,710 | 0.42 | ||||||
Granted | 2,290 | 0.37 | ||||||
Exercised | (663) | 0.20 | ||||||
Cancelled | (347) | 0.22 | ||||||
Forfeited/expired | (45) | 0.54 | ||||||
Outstanding – December 31, 2019 | 9,945 | 0.43 | ||||||
Granted | 1,905 | 0.51 | ||||||
Exercised | (782) | 0.29 | ||||||
Cancelled | (358) | 0.29 | ||||||
Forfeited/expired | (160) | 0.31 | ||||||
Outstanding – December 31, 2020 | 10,550 | 0.46 |
Number of Options | Weighted Average Exercise Price (C$) | |||||||
Balance at December 31, 2012 | 9,223,000 | 1.98 | ||||||
Granted | 7,560,000 | 0.47 | ||||||
Expired | (2,379,500 | ) | 1.80 | |||||
Forfeited | (3,000 | ) | 1.25 | |||||
Balance at December 31, 2013 | 14,400,500 | 1.22 | ||||||
Granted | 2,815,000 | 0.21 | ||||||
Expired | (2,811,500 | ) | 1.99 | |||||
Forfeited | (625,000 | ) | 1.43 | |||||
Balance at December 31, 2014 | 13,779,000 | 0.85 | ||||||
Granted | 1,670,000 | 0.34 | ||||||
Exercised | (346,532 | ) | 0.22 | |||||
Cancelled | (163,468 | ) | 0.25 | |||||
Expired | (1,472,500 | ) | 2.75 | |||||
Forfeited | (258,500 | ) | 0.61 | |||||
Balance at December 31, 2015 | 13,208,000 | 0.60 |
At December 31, 2015,2020, the following stockshare options were outstanding:
Number of Options | Exercise Price (C$) | Aggregate Intrinsic Value (C$) | Expiry Date | Number of Options Exercisable | Aggregate Intrinsic Value (C$) | ||||||||||||
200,000 | 3.47 | - | January 4, 2016 | 200,000 | - | ||||||||||||
125,000 | 2.94 | - | March 8, 2016 | 125,000 | - | ||||||||||||
150,000 | 2.05 | - | July 7, 2016 | 150,000 | - | ||||||||||||
100,000 | 2.23 | - | July 15, 2016 | 100,000 | - | ||||||||||||
1,533,000 | 1.25 | - | January 6, 2017 | 1,533,000 | - | ||||||||||||
100,000 | 0.73 | - | June 18, 2017 | 100,000 | - | ||||||||||||
4,480,000 | 0.56 | - | March 15, 2018 | 4,480,000 | - | ||||||||||||
50,000 | 0.32 | - | April 9, 2018 | 50,000 | - | ||||||||||||
150,000 | 0.34 | - | June 27, 2018 | 150,000 | - | ||||||||||||
2,245,000 | 0.30 | - | December 19, 2018 | 2,245,000 | - | ||||||||||||
2,405,000 | 0.21 | 192,400 | December 22, 2019 | 2,405,000 | 192,400 | ||||||||||||
100,000 | 0.38 | - | July 12, 2020 | 50,000 | - | ||||||||||||
500,000 | 0.35 | - | November 15, 2020 | - | - | ||||||||||||
1,070,000 | 0.33 | - | December 3, 2020 | 1,070,000 | - | ||||||||||||
13,208,000 | 192,400 | 12,658,000 | $ | 192,400 |
Number of share options (000`s) |
Exercise price per share option C$ |
Expiry date | ||||||
2,210 | 0.33 – 0.36 | Mar – Nov 2021 | ||||||
1,880 | 0.52 – 0.62 | May – Oct 2022 | ||||||
2,265 | 0.55 – 0.63 | Feb – Dec 2023 | ||||||
2,290 | 0.365 | Dec 2024 | ||||||
1,905 | 0.51 | Dec 2025 | ||||||
10,550 |
December 31, 2020 | ||||
Weighted average exercise price for exercisable options | C$0.46 | |||
Weighted average share price for options exercised | C$0.45 | |||
Weighted average years to expiry for exercisable share options | 2.87 years |
For the year ended December 31, 20152020, the total share-based compensation charges relating to 1,905,000 options granted to officers, employees, directors and consultants was $192,400 (December 31, 2014$0.4 million (2019 - $Nil; December 31, 2013$0.3 million; 2018 - $Nil)$0.5 million).
The weighted average fair value at date of C$0.30 and 35,000 stockgrant for the options with an exercise price of C$0.21 were exercised. 200,000 stock options with an exercise price of C$3.47 and 125,000 stock options with an exercise price of C$2.94 expired. 137,500 stock options with an exercise price of C$1.25, 410,000 stock options with an exercise price of C$0.56, 165,000 stock options with an exercise price of C$0.30 and 30,000 stock options with an exercise price of C$0.21 were forfeited.
Year Ended December 31, 2015 | Year Ended December 31, 2014 | Year Ended December 31, 2013 | ||||||||||
General and administration | $ | 175,541 | $ | 215,497 | $ | 1,127,621 | ||||||
Exploration | 21,834 | 35,893 | 294,676 | |||||||||
$ | 197,375 | $ | 251,390 | $ | 1,422,297 |
December 31, 2015 | December 31, 2014 | December 31, 2013 | ||||||||||
Risk-free interest rate | 0.77 | % | 1.25 | % | 1.30 | % | ||||||
Expected life of options (years) | 4.6 | 4.3 | 4.3 | |||||||||
Annualized volatility | 75 | % | 65 | % | 75 | % | ||||||
Dividend rate | 0.00 | % | 0.00 | % | 0.00 | % | ||||||
Fair value per option | $ | 0.15 | $ | 0.09 | $ | 0.19 | ||||||
Entrée Resources Ltd.
Notes to Consolidated Financial Statements
For the year ended December 31, 2015
(Expressedtabular amounts expressed in United States dollars)thousands of U.S. dollars, except per share amounts and where indicated)
2020 | 2019 | 2018 | ||||||||||
Risk-free interest rate | 0.41% | 1.62% | 1.91% | |||||||||
Expected life of options (years) | 4.9 | 4.7 | 4.7 | |||||||||
Expected volatility | 56% | 65% | 64% | |||||||||
Expected dividend | 0.00% | 0.00% | 0.00% |
e) | Share purchase warrants |
As part of the Company’s private placement on September 14, 2020, the Company issued 5,139,000 Warrants. Each Warrant entitles the holder to acquire one common share of the Company at a price of C$0.60 per share for a period of 3 years.
The fair value per Warrant issued during fiscal 2020 was determined to be C$0.12 using the following weighted average assumptions using the Black-Scholes option pricing model:
Share price | C$0.43 | |||
Risk-free interest rate | 0.24% | |||
Expected dividend | 0.00% | |||
Expected life | 3 years | |||
Expected volatility | 56% |
At December 31, 2020, the following Warrants were outstanding:
Number of share purchase warrants (000’s) | Exercise price per share purchase warrant C$ | Expiry date | ||||||
8,655 | 0.55 | January 10, 2022 | ||||||
610 | 0.55 | January 12, 2022 | ||||||
5,139 | 0.60 | September 13, 2023 | ||||||
14,404 |
There has been no exercise or cancellation of Warrants as at December 31, 2018, 2019, or 2020.
f) | Deferred share units |
DSUs are granted to the Company’s directors and executives as a part of compensation under the terms of the Company’s deferred share unit plan (the “DSU Plan”). DSUs vest when certain conditions as stated in the DSU Plan are met, except in the event of an earlier change of control, in which case, the DSUs will vest fully upon such change of control.
During the year ended December 31, 2020, the Company granted 450,000 DSUs to the Company’s directors and executives. The Company recorded share-based compensation of $179,193 (2019 - $nil, 2018 - $nil) related to the DSUs in the year ended December 31, 2020. Each vested DSU entitles the holder to receive one common share of the Company or a cash payment equivalent to the closing price of one common share of the Company on the TSX on the last trading day preceding the DSU’s redemption date. The DSUs granted in 2020 will vest in full upon the date of the TSX’s acceptance of the DSU Plan or the shareholder approval date, whichever is the last to occur. The DSUs may not vest or be redeemed prior to the Company obtaining shareholder approval of the DSU Plan. If shareholder approval of the DSU Plan is not obtained at the next annual general meeting, the DSUs will be null and void and will be deemed to have been rescinded. The DSUs are expected to fully vest in fiscal 2021. As at December 31, 2020, no DSUs have vested.
Entrée Resources Ltd.
Notes to Consolidated Financial Statements
For the year ended December 31, 2020
(tabular amounts expressed in thousands of U.S. dollars, except per share amounts and where indicated)
The fair value per DSU granted during fiscal 2020 was determined to be C$0.51 which is the share price of the Company on the grant date.
12 | Segmented information |
The Company operates in one business segment being the exploration and evaluation of mineral property interests.
2020 | 2019 | |||||||
Canada | ||||||||
Property and equipment | $ | 208 | $ | 299 | ||||
Deposit and other | 10 | 10 | ||||||
$ | 218 | $ | 309 | |||||
Other | ||||||||
Property and equipment | $ | 12 | $ | 17 | ||||
Other assets | 177 | 114 | ||||||
Deposit and other | 2 | 2 | ||||||
$ | 191 | $ | 133 |
December 31, 2015 | December 31, 2014 | |||||||
Identifiable assets | ||||||||
USA | $ | 38,323,231 | $ | 46,949,474 | ||||
Canada | 22,501,015 | 31,274,058 | ||||||
Other | 838,239 | 1,466,966 | ||||||
$ | 61,662,485 | $ | 79,690,498 |
Other assets in the reported taxes is as follows: Year Ended December 31, 2015 Year Ended December 31, 2014 Year Ended December 31, 2013 Loss for the year before income taxes $ (7,670,672 ) $ (12,725,835 ) $ (13,484,781 ) Statutory rate 26.00 % 26.00 % 25.75 % Expected income tax recovery (1,994,375 ) (3,308,717 ) (3,472,331 ) Permanent differences and other (44,676 ) 1,645,947 (78,811 ) Difference in foreign tax rates 247,060 1,011,166 (366,039 ) Effect of change in future tax rates 3,396,564 - - Effect of dissolution of subsidiaries 6,338,818 (4,065,731 ) - Change in valuation allowance (7,783,000 ) 660,688 1,611,239 Withholding taxes - - 243,186 Total income tax expense (recovery) $ 160,391 $ (4,056,647 ) $ (2,062,756 ) Current income tax expense (recovery) 218 (123,255 ) 319,112 Deferred income tax expense (recovery) 160,173 (3,933,392 ) (2,381,868 ) Total income taxes $ 160,391 $ (4,056,647 ) $ (2,062,756 )
‘Other’ category are related to the Company’s investment in the Entrée/Oyu Tolgoi JV Property in Mongolia (Note 7).
13 | Exploration costs |
2020 | 2019 | 2018 | ||||||||||
Mongolia | $ | 206 | $ | 161 | $ | 134 | ||||||
Other | 8 | 12 | 41 | |||||||||
$ | 214 | $ | 173 | $ | 175 |
14 | Income tax |
2020 | 2019 | 2018 | ||||||||||
Loss for the year before income taxes | $ | (6,000) | $ | (5,524) | $ | (5,198) | ||||||
Statutory rate | 27.00% | 27.00% | 27.00% | |||||||||
Expected income tax recovery | (1,620) | (1,491) | (1,403) | |||||||||
Permanent differences and other | 551 | (1,277) | (8,163) | |||||||||
Difference in foreign tax rates | 84 | 73 | 140 | |||||||||
Effect of change in future tax rates | - | - | (805) | |||||||||
Change in valuation allowance | 985 | 2,695 | 10,231 | |||||||||
Total income tax recovery | $ | - | $ | - | $ | - |
Entrée Resources Ltd.
Notes to Consolidated Financial Statements
For the year ended December 31, 2015
(Expressedtabular amounts expressed in United States dollars)thousands of U.S. dollars, except per share amounts and where indicated)
2020 | 2019 | 2018 | ||||||||||
Current income tax recovery | $ | - | $ | - | $ | - | ||||||
Deferred income tax expense | - | - | - | |||||||||
Total income taxes | $ | - | $ | - | $ | - |
The significant components of the Company'sCompany’s deferred income tax assets and liabilities are as follows:liability consisted of:
2020 | 2019 | 2018 | ||||||||||
Deferred income tax assets: | ||||||||||||
Non-capital loss carryforward | $ | 11,803 | $ | 11,092 | $ | 9,140 | ||||||
Resource expenditures | 2,683 | 2,647 | 2,507 | |||||||||
Equipment | 278 | 272 | 239 | |||||||||
Share issue and legal costs | 26 | 15 | 22 | |||||||||
Other | 12,190 | 11,957 | 11,355 | |||||||||
26,980 | 25,983 | 23,263 | ||||||||||
Unrecognized tax assets | (26,939) | (25,954) | (23,263) | |||||||||
Net deferred income tax assets | 41 | 29 | - | |||||||||
Deferred income tax liabilities: | ||||||||||||
Foreign exchange on loan | (25) | (29) | - | |||||||||
Mineral property interests | (16) | - | - | |||||||||
Net deferred income tax liabilities | $ | (41) | $ | (29) | $ | - | ||||||
Net deferred income tax | $ | - | $ | - | $ | - |
Year Ended December 31, 2015 | Year Ended December 31, 2014 | |||||||
Deferred income tax assets: | ||||||||
Non-capital loss carry forward | $ | 13,085,490 | $ | 19,506,412 | ||||
Resource expenditures | 4,610,549 | 7,259,556 | ||||||
Equipment | 131,337 | 152,063 | ||||||
Share issue and legal costs | 10,757 | 70,341 | ||||||
Other | 1,925,091 | 5,015,648 | ||||||
19,763,224 | 32,004,020 | |||||||
Valuation allowance | (16,576,867 | ) | (24,634,353 | ) | ||||
Net deferred income tax assets | $ | 3,186,357 | $ | 7,369,667 | ||||
Deferred income tax liabilities: | ||||||||
Foreign exchange on loan | $ | (306,065 | ) | $ | (1,441,120 | ) | ||
Mineral property interests | (6,447,589 | ) | (9,335,671 | ) | ||||
Net deferred income tax liabilities | $ | (6,753,654 | ) | $ | (10,776,791 | ) | ||
Net deferred income tax liabilities | $ | (3,567,297 | ) | $ | (3,407,124 | ) |
The Company has available for deduction against future taxable income non-capital losses of approximately $26,790,000 (2014: $36,340,000)$41.6 million (2019: $38.2 million) in Canada, $660,000 (2014: $690,000) in China, $6,990,000 (2014: $7,160,000)$5.6 million (2019: $5.7 million) in Mongolia $14,880,000 (2014: $23,260,000)and $0.1 million (2019: $0.0 million) in the United States of America, $30,000 (2014: $Nil) in Australia and $580,000 (2014: $520,000) in Peru.Australia. These losses, if not utilized, will expire through 2035.2040. Subject to certain restrictions, the Company also has foreign resource expenditures available to reduce taxable income in future years. Deferred tax benefits which may arise as a result of these losses, resource expenditures, equipment, share issue and legal costs have not been recognized in these consolidated financial statements.
15 | Financial instruments |
a) | Fair value classification of financial instruments |
The fair value hierarchy which requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. The standard describesestablishes three levels ofto classify the inputs that may beto valuation techniques used to measure fair value which are:
The Company’s financial instruments consisting of cash and cash equivalents, with a fair value of $22,785,658.
Entrée Resources Ltd.
Notes to Consolidated Financial Statements
For the year ended December 31, 2020
(tabular amounts expressed in thousands of U.S. dollars, except per share amounts and where indicated)
The carrying values of receivables and accounts payable and accrued liabilities approximate their fair value due to their short terms to maturity. Cash and cash equivalents are measured at fair value using Level 1 inputs.
The following table summarizes the classification and carrying values of the Company’s financial instruments at December 31, 2020 and 2019:
December 31, 2020 | FVTPL | Amortized cost (financial assets) | Amortized cost (financial liabilities) | Total | ||||||||||||
Financial assets | ||||||||||||||||
Cash and cash equivalents | $ | 7,260 | $ | - | $ | - | $ | 7,260 | ||||||||
Receivables | - | 28 | - | 28 | ||||||||||||
Deposits | - | 12 | - | 12 | ||||||||||||
Total financial assets | $ | 7,260 | $ | 40 | $ | - | $ | 7,300 | ||||||||
Financial liabilities | ||||||||||||||||
Accounts payable and accrued liabilities | $ | - | $ | - | $ | 124 | $ | 124 | ||||||||
Lease liabilities | - | - | 208 | 208 | ||||||||||||
Loan payable | - | - | 9,615 | 9,615 | ||||||||||||
Total financial liabilities | $ | - | $ | - | $ | 9,947 | $ | 9,947 | ||||||||
| ||||||||||||||||
December 31, 2019 | FVTPL | Amortized cost (financial assets) | Amortized cost (financial liabilities) | Total | ||||||||||||
Financial assets | ||||||||||||||||
Cash and cash equivalents | $ | 5,380 | $ | - | $ | - | $ | 5,380 | ||||||||
Receivables | - | 26 | - | 26 | ||||||||||||
Deposits | - | 12 | - | 12 | ||||||||||||
Total financial assets | $ | 5,380 | $ | 38 | $ | - | $ | 5,418 | ||||||||
Financial liabilities | ||||||||||||||||
Accounts payable and accrued liabilities | $ | - | $ | - | $ | 72 | $ | 72 | ||||||||
Lease liabilities | - | - | 304 | 304 | ||||||||||||
Loan payable | - | - | 9,035 | 9,035 | ||||||||||||
Total financial liabilities | $ | - | $ | - | $ | 9,411 | $ | 9,411 |
b) | Financial risk management |
i) | Credit risk |
The Company’s credit risk is management's opinion thatprimarily attributable to cash and cash equivalents and receivables.
Entrée Resources Ltd.
Notes to Consolidated Financial Statements
For the year ended December 31, 2020
(tabular amounts expressed in thousands of U.S. dollars, except per share amounts and where indicated)
The Company islimits its credit exposure on cash and cash equivalents held in bank accounts by holding its key transactional bank accounts and investments with large, highly rated financial institutions.
The Company’s receivables balance was not significant and, therefore, was not exposed to significant credit risk.
The carrying amount of financial assets recorded in the consolidated financial statements, net of any allowances for losses, represents the Company’s maximum exposure to credit risk.
ii) | Liquidity risk |
The Company manages liquidity risk by trying to maintain enough cash balances to ensure that it is able to meet its short term and long-term obligations as and when they fall due. Company-wide cash projections are managed centrally and regularly updated to reflect the dynamic nature of the business and fluctuations caused by commodity price and exchange rate movements.
The Company’s operating results may vary due to fluctuation in commodity price, inflation, foreign exchange rates and certain share prices.
iii) | Interest rate risk |
The Company’s interest or credit risks arisingrate risk arises primarily from these financial instruments.the interest received on cash and cash equivalents and on loan payable which is at variable rates (Note 9). As at December 31, 2020, with other variables unchanged, a 1% increase in the interest rate applicable to loan payable would result in an insignificant change in net loss. Deposits are invested on a short-term basis to enable adequate liquidity for payment of operational and exploration expenditures. The fair valueCompany does not believe that it is exposed to material interest rate risk on its cash and cash equivalents.
As at December 31, 2020, the Company has not entered into any contracts to manage interest rate risk.
iv) | Foreign exchange risk |
The functional currency of these financial instruments approximates their carrying values.
As at December 31, 2020, the Company has not entered into contracts to manage foreign exchange risk.
The Company is exposed to currencyforeign exchange risk by incurring certain expendituresthrough the following assets and liabilities:
December 31, 2020 | December 31, 2019 | |||||||
Cash and cash equivalents | $ | 7,260 | $ | 5,380 | ||||
Accounts payable and accrued liabilities | (124 | ) | (72) | |||||
$ | 7,136 | $ | 5,308 |
As at December 31, 2020, with other variables unchanged, a 10% increase or decrease in currencies other than the Canadian dollar. In addition, as certainvalue of the Company's consolidated subsidiaries' functional currency isUSD against the United States dollar,currencies to which the Company is normally exposed to foreign currency translation risk. (C$) would result in an insignificant change in net loss.
16 | Capital management |
The Company does not use derivative instrumentsconsiders items included in shareholders’ deficiency as capital. The Company’s objective when managing capital is to reduce this currency risk.
Year Ended December 31, 2015 | Year Ended December 31, 2014 | Year Ended December 31, 2013 | ||||||||||
Accumulated OCI(L), beginning of period: | ||||||||||||
Currency translation adjustment | $ | (2,850,122 | ) | $ | 465,615 | $ | 3,253,019 | |||||
OCL for the period: | ||||||||||||
Currency translation adjustments | $ | (4,928,225 | ) | $ | (3,315,737 | ) | $ | (2,787,404 | ) | |||
Accumulated OCI(L), end of period: | ||||||||||||
Currency translation adjustment | $ | (7,778,347 | ) | $ | (2,850,122 | ) | $ | 465,615 | ||||
The Company manages its capital structure and makes adjustments in United States dollars)
Entrée Resources Ltd.
Notes to Consolidated Financial Statements
For the year ended December 31, 2015. 2020
(tabular amounts expressed in thousands of U.S. dollars, except per share amounts and where indicated)
17 | Supplemental cash flow information |
2020 | 2019 | 2018 | ||||||||||
Non-cash investing activities | ||||||||||||
Acquisition of investments from the sale of asset | $ | - | $ | - | $ | 1,000 |
18 | Commitments and contingencies |
As at December 31, 2020, the Company had the following commitments:
Total | Less than 1 year | 1 -3 years | 3-5 years | More than 5 years | ||||||||||||||||
Lease commitments | $ | 221 | $ | 124 | $ | 97 | $ | - | $ | - |
Under the terms of the Amended Sandstorm Agreement, the Company may be subject to a contingent liability if certain events occur (Note 10).
19 | Related party transactions |
The significant non-cash transaction forCompany’s related parties include key management personnel and directors. Direct remuneration paid to the yearCompany’s directors and key management personnel during the years ended December 31, 2014 consisted2020, 2019 and 2018 are as follows:
2020 | 2019 | 2018 | ||||||||||
Directors’ fees | $ | 157 | $ | 132 | $ | 142 | ||||||
Salaries and benefits | $ | 681 | $ | 588 | $ | 1,143 | ||||||
Share-based compensation | $ | 519 | $ | 321 | $ | 461 |
As of December 31, 2020, included in the accounts payable and accrued liabilities balance on the consolidated statement of financial position is $0.0 million (December 31, 2019 - $0.0 million) due to the Company’s directors and key management personnel.
Upon a change of control of the issuance of 250,000 common sharesCompany, amounts totaling $1.1 million (December 31, 20132019 - Nil) in payment of mineral property acquisitions valued at $73,618 (December 31, 2013 - $Nil) which have been capitalized as mineral property interests.
2016 | 247,906 | ||||||||||
2017 | 71,578 | ||||||||||
$ 319,484 |
20 | Subsequent events |
Subsequent to December 31, 2015, 25,0002020, stock options to purchase 100,000 common shares with an exercise price of C$0.300.33 and 35,000 stock options to purchase 30,000 common shares with an exercise price of C$0.210.36 were exercised. 200,000 stock options with an exercise price of C$3.47exercised and 125,000 stock options with an exercise price of C$2.94 expired. 137,500 stock options with an exercise price of C$1.25, 410,000 stock options with an exercise price of C$0.56, 165,000 stock options with an exercise price of C$0.30 and 30,000 stock options with an exercise price of C$0.21 were forfeited.
The Registrant hereby certifies that it meets all of the requirements for filing on Form 20-F and has duly caused and authorized the undersigned to sight this Annual Report on its behalf.
Entrée Resources Ltd. | ||||
By: | /s/ Stephen Scott | |||
Name: | Stephen Scott | |||
Title: | ||||
Date: | March |
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