¨ | | ¨Fee paid previously with preliminary materials. ¨Check box if any part of the fee is offset as provided by Exchange Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid previously. Identify the previous filing by registration statement number, or the Form or Schedule and the date of its filing. | (1) | Amount Previously Paid: | | | | | | ¨ | | Check box if any part of the fee is offset as provided by Exchange Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid previously. Identify the previous filing by registration statement number, or the Form or Schedule and the date of its filing. |
| (1) | | Amount Previously Paid: |
| (2) | | Form, Schedule or Registration Statement No.: |
 
NOTICE OF ANNUAL GENERAL
AND SPECIAL MEETING OF SHAREHOLDERS &TO BE HELD ON MAY 13, 2019
- and - PROXY STATEMENT AND MANAGEMENT INFORMATION CIRCULAR WITH RESPECT TO THE PROPOSED SALE BY THE CORPORATION OF GOLDEN QUEEN MINING HOLDINGS, INC. GOLDEN QUEEN MINING CO. LTDLTD.. MEETING TO BE HELD ON JUNE 2, 2016
CORPORATE OFFICE 2300 – 1066 West Hastings Street Vancouver, BCBritish Columbia V6E 3X2 Website:www.goldenqueen.comThese materials are important and require your immediate attention. If you have questions or require assistance with voting your shares, you may contact Golden Queen Mining Co. Ltd.’s proxy solicitation agent:
Laurel Hill Advisory Group North American Toll-Free Number: 1-877-452-7184 Collect Calls Outside North America: 416-304-0211 Email: assistance@laurelhill.com The accompanying proxy statement and management information circular is first being mailed to shareholders of Golden Queen Mining Co. Ltd. on or about April [♦], 2019. YOUR VOTE IS IMPORTANT. PLEASE VOTE TODAY.  
Chairman’s Letter to ShareholdersLETTER TO SHAREHOLDERS
April [♦], 2019 Dear Fellow shareholders of Golden Queen Mining Co. Ltd. (“Golden Queen” or the “Company”): The board of directors of Golden Queen (the “Board”) cordially invites you to attend the annual general and special meeting (the “Meeting”) of holders of common shares (the “Shares”) to be held at #2300 – 1066 West Hastings Street, Vancouver, British Columbia at on May 13, 2019 at 10:00 a.m. (Pacific Time). At the Meeting, you will be asked to approve a proposed transaction involving the sale of 100% of the Company’s 50% ownership interest in the Soledad Mountain Project (the “Transaction”). The Soledad Mountain Project is Golden Queen’s primary asset, and its sale represents the sale of all or substantially all of Golden Queen’s assets. The Transaction Pursuant to a share purchase agreement dated February 7, 2019, the Company agreed to sell 100% of the shares of its subsidiary Golden Queen Mining Holdings Inc., which currently owns 50% of the outstanding units of Golden Queen Mining, LLC, to a group of purchasers including Thomas M. Clay and certain members of the Clay family and associated entities (collectively, the “Purchasers”). Golden Queen Mining, LLC owns and operates the Soledad Mountain Project located in Kern County, California. The consideration from the Purchasers is comprised of (i) US$4.25 million in cash; (ii) the extinguishment of all amounts owing to the Purchasers by the Company under a loan agreement (approximately US$26.6 million as of February 7, 2019); and (iii) the cancellation of all of the Purchasers’ ownership interest in the Company (consisting of 177,701,229 Shares, 457,500 options and 18,000,000 share purchase warrants). In addition, the Purchasers may pay a contingent payment to the Company if the Soledad Mountain Project is subsequently sold or transferred to a third party in certain circumstances. The consideration offered by the Purchasers totals approximately US$37.2 million (excluding the contingent payment), based on the volume-weighted average price of the Company’s Shares on the OTCQX Best Market for the 20 trading days ended February 7, 2019, and including the principal and accrued interest payable to the Purchasers pursuant to the loans to be extinguished. The Board, on recommendation of the special committee, composed of independent directors of the Board (the “Special Committee”), and based upon its own investigations, has unanimously determined that the Transaction is in the best interests of Golden Queen and the shareholders of Golden Queen (excluding the Purchasers) and recommends that holders of the Shares vote to approve the Transaction. Reasons for the Transaction Despite the extensive efforts of our management and the Board, operations at the Soledad Mountain Project have not generated sufficient free cash flow to award dividends to Golden Queen and may require significant additional cash to continue. Golden Queen has been unable to attract sufficient capital to fund its own operations and GQM LLC, other than through loans and investment from members of the Clay family. Payments due under such loans have been extended until after the Meeting but are coming due in the near future. The benefits of the Transaction to shareholders include, but are not limited to: | · | Resolves going concern issue and the possibility of entering into bankruptcy and insolvency proceedings by eliminating all outstanding debt payable by Golden Queen, including the scheduled debt repayment that was due on February 8, 2019, and additional payments due in April and May of 2019. |
| · | Provides certainty of value and value that is more favorable than the value that might have been received by pursuing other business opportunities. |
| · | Eliminates the Clay’s majority ownership position, materially increasing the retained ownership by remaining shareholders. |
| · | Provides a meaningful cash treasury to assess various options to provide or return value to shareholders. |
| · | Decreases administrative expenses for Golden Queen following closing of the Transaction. |
We recommend that you review in detail the potential benefits and risks associated with the Transaction which are set out in the attached proxy statement and management information circular (“Proxy Statement”) under “Matters to be Acted Upon at the Meeting – Proposal 1: Sale of the Soledad Mountain Project – Reasons for the Transaction” and “Risk Factors”. Shareholder Vote At the Meeting, you will be asked to consider and vote on a special resolution approving the Transaction (the “Transaction Resolution”), the full text of which is set out in the attached Proxy Statement. The Transaction constitutes the sale of all or substantially all of the assets of Golden Queen and is a related party transaction. Golden Queen has determined that the Transaction Resolution must be approved by (a) ⅔ of the votes cast on the Transaction Resolution, and (b) a simple majority of the votes cast on the Transaction Resolution by the shareholders of Golden Queen, excluding votes cast by shareholders that are required to be excluded pursuant to applicable securities laws and the policies of the Toronto Stock Exchange. The votes attached to an aggregate of 177,701,229 Shares (representing approximately 59.2% of the issued and outstanding Shares) owned by the Purchasers will be excluded from voting in determining whether the Transaction has been approved by the minority shareholders of Golden Queen. We recommend you review “Matters to be Acted Upon at the Meeting – Proposal 1: Sale of the Soledad Mountain Project” in the attached Proxy Statement for additional details. At the Meeting, you will also be asked to consider and vote on a special resolution approving a consolidation (the “Consolidation Resolution”) of Golden Queen’s common shares on the basis of ten existing Shares for each one post-consolidation common share (the “Consolidation”). The Board believes it is in the best interest of Golden Queen to reduce the number of outstanding Shares, making Golden Queen more attractive to investors in potential future financings and transactions that may follow the Transaction. The Consolidation Resolution must be approved by ⅔ of the votes cast on the Consolidation Resolution. Management intends to proceed with the Consolidation on completion of the Transaction, but completion of the Transaction is not contingent on the approval of the Consolidation Resolution. We recommend you review “Matters to be Acted Upon at the Meeting – Proposal 2: Share Consolidation” in the attached Proxy Statement for additional details. At the Meeting you will also be asked to consider and vote on a proposal to approve, on an advisory and non-binding basis, certain compensation that will or may be paid or become payable to our named executive officers under existing employment agreements, including in connection with the proposed Transaction (the “Advisory Say-on-Pay Resolution”) and the frequency of a say-on-pay vote (the “Advisory Vote on Say-on-Pay”). The Advisory Say-on-Pay Resolution requires approval of a simple majority of the votes cast on the Advisory Say-on-Pay Resolution. We recommend you review “Matters to be Acted Upon at the Meeting – Proposal 3: Advisory Vote on Executive Compensation” and “Matters to be Acted Upon at the Meeting – Proposal 4: Advisory Vote on Say-on-Pay Frequency” in the attached Proxy Statement for additional details. Finally, you will also be asked to vote on annual general meeting matters, including the election of directors, appointment of auditors and approval of a stock option plan. See these items under “Matters to be Acted Upon at the Meeting” of the attached Proxy Statement for additional details. A notice of meeting, Proxy Statement, and a proxy (“Proxy”) or voting instruction form (“VIF”) are included with this letter. The Proxy Statement provides detailed information about the Transaction Resolution, Consolidation Resolution and Advisory Say-on-Pay Resolution. We encourage you to carefully consider the information in this Proxy Statement, and to consult your financial, legal or other professional advisors if you require assistance. Special Committee and Board Recommendation The Board appointed the Special Committee to evaluate the Transaction as well as explore potential alternatives to the Transaction. In recommending that the Company enter into the Transaction, the Special Committee carefully considered all aspects of the Transaction, considered strategic alternatives and appointed legal and financial advisors to assist in the evaluation process. The Special Committee received a confidential preliminary valuation and fairness opinion (the “Preliminary Valuation and Fairness Opinion, subsequently confirmed in writing by a formal valuation and fairness opinion (the “Formal Valuation and Fairness Opinion”), from Ernst & Young LLP. The Preliminary Valuation and Fairness Opinion provided a valuation of Golden Queen and concluded, subject to certain assumptions, limitations and qualifications, that the Transaction is fair, from a financial point of view, to the shareholders, other than the Purchasers. After careful consideration of the Company’s financial condition and debt obligations, the Preliminary Valuation and Fairness Opinion, and the lack of strategic alternatives, the Special Committee recommended that the Board approve the Transaction on the basis that it is in the best interests of the Company and the shareholders of the Company (excluding the Purchasers).The Board unanimously recommends that shareholders of the Company vote FOR the Transaction Resolution, Consolidation Resolution and Advisory Say-on-Pay Resolution at the Meeting and FOR the option of “3 Years” as the preferred frequency on Say-on-Pay Votes. Vote Your Shares Today Your vote is important, regardless of the number of Shares you own. If you are a registered shareholder, meaning that your name appears on the records of Golden Queen as the registered holder of common shares (a “Registered Shareholder”), you may wish to vote by proxy whether or not you attend the Meeting in person. Registered Shareholders electing to submit a proxy may do so by completing the enclosed Proxy and returning it to the Company’s transfer agent, Computershare Investor Services Inc. (“Computershare”), in accordance with the instructions on the Proxy. You should ensure that the Proxy is received by Computershare at least 48 hours (excluding Saturdays, Sundays and holidays) before the Meeting or the adjournment thereof at which the Proxy is to be used. If you are a non-registered or beneficial shareholder, meaning your Shares are not registered in your own name but are registered in the name of a broker, bank or other intermediary (a “Beneficial Shareholder”), follow the instructions provided by your broker or other intermediary to vote your common shares. You may also consult the section in the Proxy Statement entitled “General Proxy Information – Proxy Voting – Beneficial Shareholders” for more detailed information. Shareholder Questions If you have any questions about the Transaction or Consolidation, please contact Brenda Dayton, Corporate Secretary, by telephone at 1-778-373-1557, or by email at info@goldenqueen.com. If you need assistance with the completion and delivery of your Proxy or VIF, please contact Laurel Hill Advisory Group, our proxy solicitation agent, by telephone at 1-877-452-7184, or by email at assistance@laurelhill.com. On behalf of the BoardGolden Queen, I would like to thank all our shareholders for their ongoing support. Yours truly, Paul Blythe Chairman of DirectorsSpecial Committee The enclosed Proxy Statement is dated April [♦], 2019 and managementis expected to be first sent or given to shareholders of Golden Queen Mining Co. Ltd.on or about April [♦], we are pleased to invite you to attend the Company’s Annual Meeting of Shareholders. The meeting will be held on Thursday, June 2, 2016 at the Pan Pacific Hotel, Oceanview Suite 7, 999 Pan Pacific Way, Vancouver, BC. The attached Management Information Circular contains important information about the meeting, who is eligible to vote, how to vote, the nominated directors, our governance practices, and compensation of the Company’s executives and directors.
2015 was a momentous year for Golden Queen. As a result of almost three decades of effort, the Soledad Mountain gold and silver mining project is now in production. We will provide a corporate presentation at the meeting, and you will have the opportunity to meet and ask questions of the Board of Directors and members of senior management.
2016 and beyond
Last year, we stated our mission to construct the Soledad Mountain project on time and on budget and to transition smoothly into production. We are pleased to report that construction has been completed essentially on budget, without recourse to the funds set aside as a contingency for cost overruns, and only a few months behind schedule. On March 1st, the team on site celebrated as the first bar of gold-silver doré was poured.
By the end of 2016, we expect to have developed road access to the top of the East Pit area, being the area which should provide the bulk of the material to be mined over the next several years. At the processing plant, our hourly production levels have started out strong, and we are focused on increasing our daily runtimes and adding staff and shifts to ramp up utilization. So far agglomerate quality and leaching kinetics on the heap appear to be very good. This year, our primary goal at Soledad Mountain is to achieve positive operating cash flow, and we will also work to secure a commercial agreement with an experienced industry partner for our aggregates business.
We believe that a successful new long-lived open pit gold-silver operation located in the United States has the potential to be a rare and valuable asset in the years ahead. We are focused on making that a reality.
The Board of Directors and management team thank you for your continued confidence in Golden Queen and look forward to seeing you at the meeting.
Sincerely,
“Thomas M. Clay”
Thomas M. Clay
Chairman of the Board & Interim Chief Executive Officer2019.
NOTICE OF ANNUAL GENERAL AND SPECIAL MEETING OF SHAREHOLDERS TO BE HELD AT 10:00 A.M. ON JUNE 2, 2016
NOTICE IS HEREBY GIVEN that the 2016 Annual General Meetingannual general and special meeting (the “Meeting”) of Shareholdersthe shareholders (the “Meeting”“Shareholders”) of Golden Queen Mining Co. Ltd. (the “Company”“Company” or “Golden Queen”) will be held at #2300 – 1066 West Hastings Street, Vancouver, B.C. on May 13, 2019 at 10:00 a.m. (Pacific Standard Time) on Thursday, June 2, 2016 at the Pan Pacific Hotel, Oceanview Suite 7, 999 Pan Pacific Way, Vancouver, BC, V6C 3B5, for the following purposes: | 1. | Toto consider and, if thought advisable, to pass, a special resolution (the “Transaction Resolution”) to approve the sale of 100% of the shares of Golden Queen Mining Holdings Inc., which currently holds a 50% ownership interest in the Soledad Mountain Project, pursuant to the terms of an agreement for the purchase of shares dated February 7, 2019 (the “Share Purchase Agreement”) between the Company and the Purchasers (as defined in the accompanying proxy statement and management information circular (“Proxy Statement”)) that, for corporate law purposes, constitutes the sale of all or substantially all of the assets of the Company, as described in the accompanying Proxy Statement; |
| 2. | to consider and, if deemed advisable, to pass a special resolution (the “Consolidation Resolution”) to approve the consolidation of the capital of the Company on the basis of ten (10) existing common shares for each one (1) post-consolidation common share, as more particularly described in the accompanying Proxy Statement; |
| 3. | to consider and, if thought advisable, to pass, a resolution (the “Advisory Say-on-Pay Resolution”) to approve, on an advisory and non-binding basis, certain executive compensation, including compensation that will or may be paid or become payable to our named executive officers under existing employment agreements in connection with the Transaction; |
| 4. | to hold an advisory and non-binding vote on the frequency of future Say-on-Pay votes; |
| 5. | to receive the financial statements of the Company for its financial year ended December 31, 20152018 together with the report of the independent auditors thereon; |
| 2.6. | Toto set the number of directors at three (3) and to elect directors to serve until the next Annual General Meetingannual general meeting of Shareholders or until their respective successors are elected or appointed; |
| 3.7. | To ratify the appointment ofto re-appoint PricewaterhouseCoopers LLP as independent auditors of the Company for the financial year ending December 31, 2016; |
| 4. | To consider an advisory vote on2019, and to authorize the executive compensation;directors to fix the auditors’ remuneration; and |
| 5.8. | To transact any other business which may properly come beforeto consider, and, if thought advisable, to pass a resolution to approve the Meeting, or any adjournment or postponement thereof.Company’s stock option plan as more particularly described in the accompanying Proxy Statement. |
The specific details of the matters proposed to be put before the Meeting are set forth in the Management Information CircularProxy Statement accompanying and forming part of this Notice. The full text of the Transaction Resolution, Consolidation Resolution and Advisory Say-on-Pay Resolution and the proposal for frequency on future Say-on-Pay votes are set forth in “Matters to be Acted Upon at the Meeting” of the accompanying Proxy Statement. The board of directorsBoard has fixed April 18, 20163, 2019, as the record date for determining shareholdersShareholders entitled to receive notice of, and to vote at, the Meeting or any adjournment or postponement thereof. Only shareholdersShareholders of record at the close of business on that date will be entitled to receive notice of and to vote at the Meeting. All shareholdersregistered Shareholders are invited to attend the Meeting in person, but even if you expect to be present at the Meeting, you are requested to mark, sign, date and return the enclosed form of proxy card(“Proxy”) as promptly as possible inas directed on the envelope providedform to ensure your representation. Beneficial Shareholders must complete the enclosed voter information form (“VIF”) and return it as directed on the VIF to ensure your representation.All proxiesProxies must be received by our transfer agent not less than 48forty-eight (48) hours, excluding Saturdays, Sundays, and holidays,before the time of the Meeting in order to be counted. All VIFs must be returned as directed and within the time specified on the VIF in order to be counted. The address of our transfer agent is as follows: Computershare Trust Company of Canada, Proxy Dept., 100 University Ave., 8th Floor, Toronto, ON, M5J 2Y1. Shareholders of recordRegistered shareholders attending the Meeting may vote in person even if they have previously voted by proxy.Proxy.
Registered Shareholders have the right to dissent with respect to the Transaction Resolution, as more particularly described in the accompanying Proxy Statement. Those registered Shareholders who validly exercise dissent rights will be entitled to be paid fair value of their common shares. In order to validly exercise dissent rights, registered shareholders must strictly comply with the dissent procedures as set out in Sections 237 to 247 of theBusiness Corporations Act(British Columbia). See “Dissent Rights” in the attached Proxy Statement. If you have any questions or need assistance with the completion and delivery of your Proxy or VIF, please contact Laurel Hill Advisory Group, our proxy solicitation agent, by telephone at 1-877-452-7184, or by email at assistance@laurelhill.com. Dated at Vancouver, British Columbia, this22nd [♦] day of April, 2016. BY ORDER OF THE BOARD OF DIRECTORS2019.
| | “Thomas M. Clay”BY ORDER OF THE BOARD OF DIRECTORS | | | | | By: | /s/ Paul M. Blythe | | | Paul M. Blythe, Director |
Thomas M. Clay, Chairman & Interim Chief Executive Officer
Important Notice Regarding the Availability of Proxy Materials for the Company’s Annual General and Special Meeting of Shareholders to be held on June 2, 2016.May 13, 2019. The Golden Queen Mining Co. Ltd.Company’s Proxy Statement and 2015 Annual Report to Shareholders areis available online atwww.goldenqueen.com
TABLE OF CONTENTS
GOLDEN QUEEN MINING CO. LTD.
2300#2300 – 1066 West Hastings Street
Vancouver, BCBritish Columbia, V6E 3X2
PROXY STATEMENT ANNUAL GENERAL AND SPECIAL MEETING OF SHAREHOLDERS JUNE 2, 2016May 13, 2019
GENERAL This management information circular and proxy statement (“Proxy Statement”), including all schedules and appendices hereto, is being furnished in connection with the solicitation of proxies by or on behalf of management of Golden Queen Mining Co. Ltd. (the “Company” or “Golden Queen”), a British Columbia corporation, for use at the annual general and special meeting of the shareholders (the “Meeting”) of Golden Queen to be held at #2300 – 1066 West Hastings Street, Vancouver, B.C., V6E 3X2, Canada on May 13, 2019 at 10:00 a.m. (Pacific Time), and at any adjournment(s) or postponement(s) thereof. In this Proxy Statement, all references to “$“US$” are references to United States dollars and all references to “C$” are references to Canadian dollars. As at April 18th[♦], 2016,2019, one Canadian dollar was equal to approximately $0.78 in United States dollars. INFORMATION REGARDING ORGANIZATION AND CONDUCT OF MEETING
The enclosed proxy is solicitedUS$[♦], based on the noon rate published by the BoardBank of Directors (the “Board”) of Golden Queen Mining Co. Ltd., a British Columbia corporation (the “Company” or “Golden Queen”), for use at the Annual General Meeting of Shareholders (the “Meeting”) of Golden Queen to be held at 10:00 a.m. (Pacific Standard Time) on Thursday, June 2, 2016, at the Pan Pacific Hotel, Oceanview Suite 7, 999 Pan Pacific Way, Vancouver, BC, V6C 3B5, and at any adjournment or postponement thereof.Canada.
In this Proxy Statement, “Registered Shareholders”“Shares” means the common shares in the capital of the Company as constituted on the date hereof, “Shareholders” means the holders of Shares, “Registered Shareholders” means shareholders whose names appear on the records of the Company as the registered holders of shares. “Beneficial Shareholders”Shares, and “Beneficial Shareholders” means shareholders who do not hold sharesShares in their own name, as further explained under “General Proxy Information – Proxy Voting by– Beneficial Shareholders” below. This Proxy Statement and the accompanying proxy card are being mailed to our shareholdersShareholders on or about May 4, 2016.April [♦], 2019. The Company is sending proxy-related materials directly to Registered Shareholders as well as non-objecting Beneficial Shareholders under Canadian National Instrument 54-101 (“NI 54-101”). Management of the Company does not intendand intends to pay for intermediaries to forward the proxy-related materials to non-objecting and objecting Beneficial Shareholders under NI 54-101. As a result, objecting Beneficial Shareholders will not receiveNational Instrument 54-101 and Rule 14a-7 of the materials unless the objecting Beneficial Shareholder’s intermediary assumes the costSecurities Exchange Act of delivery.1934, as amended (the “Exchange Act”). The costIt is expected that the solicitation of solicitation will be paid by the Company. The solicitationproxies will be made primarily by mail. Proxiesmail, but proxies may also be solicited personally or by telephone or email by certain of the Company’s directors, officers and regular employees, who will not receive additional compensation therefore.for such solicitation. In addition, the Company will reimburse brokerage firms, custodians, nominees and fiduciaries for their expenses in forwarding solicitation materials to non-objecting Beneficial Shareholders. The Company has engaged Laurel Hill Advisory Group to assist in the solicitation of proxies in connection with the Meeting. The Company has agreed to pay Laurel Hill Advisory Group a fee of C$40,000 plus reasonable out-of-pocket expenses to solicit proxies. Half of this cost of solicitation will be paid by the Company and half by the Purchasers (as defined below).
Our administrative offices are located at 2300#2300 – 1066 West Hastings Street, Vancouver, BC, V6E 3X2.
SUMMARY The following summary should be read in conjunction with, and is qualified in its entirety by, the more detailed information contained elsewhere in this Proxy Statement, including the Schedules attached hereto. The full text of the Share Purchase Agreement (as defined below) may be viewed on EDGAR at www.sec.gov and SEDAR at www.sedar.com under the filings made by Golden Queen. Shareholders may also request a copy of the Share Purchase Agreement from Golden Queen free of charge. See the section of this Proxy Statement entitled “Additional Information”. The Transaction Pursuant to a share purchase agreement dated February 7, 2019 (the “Share Purchase Agreement”), the Company agreed to sell 100% of the shares of Golden Queen Mining Holdings Inc. (“GQM US”) to a group of purchasers including Thomas M. Clay and certain members of the Clay family and associated entities (collectively, the “Purchasers”). GQM US currently holds a 50% interest in Golden Queen Mining Company, LLC (“GQM LLC”), the owner of a 100% interest in the Soledad Mountain Project, located at Soledad Mountain, Mojave Mining District, Kern County, California. The 50% interest of GQM US in GQM LLC is subject to potential dilution as a result of warrants of GQM LLC held by Gauss, LLC, which warrants are described under “Matters to be Acted Upon at the Meeting – Proposal 1: Sale of the Soledad Mountain Project – Background to the Transaction”. The Soledad Mountain Project is Golden Queen’s primary asset, and its sale represents the sale of all or substantially all of Golden Queen’s assets. Under the terms of the Share Purchase Agreement, the purchase price is comprised of (i) US$4.25 million in cash; (ii) the extinguishment of all amounts owing to the Purchasers by the Company under a loan agreement (approximately US$26.6 million as of February 7, 2019); and (iii) the cancellation of all the Purchasers’ ownership interest in the Company (consisting of 177,701,229 Shares, 457,500 options and 18,000,000 share purchase warrants). In addition, the Purchasers may pay a contingent payment to the Company if the Soledad Mountain Project is subsequently sold or transferred to a third party in certain circumstances. The consideration offered by the Purchasers totals approximately US$37.2 million (excluding the contingent payment), based on the volume-weighted average price of the Shares on the OTCQX Best Market for the 20 trading days ended February 7, 2019, and including the principal and accrued interest payable to the Purchasers pursuant to the loans to be extinguished. See “Matters to be Acted Upon at the Meeting – Proposal 1: Sale of the Soledad Mountain Project – Terms of the Transaction”. Purpose of the Meeting The purpose of the Meeting is for Shareholders to consider and vote on: | 1. | a special resolution approving the Transaction (the “Transaction Resolution”); |
| 2. | a special resolution approving the consolidation of the capital of the Company on the basis of ten (10) existing Shares for each one (1) Post-Consolidation Share (the “Consolidation Resolution”); |
| 3. | a resolution approving, on an advisory and non-binding basis, certain compensation arrangements with our named executive officers, including under existing employment agreements (the “Advisory Say-on-Pay Resolution��); |
| 4. | to hold an advisory and non-binding vote on the frequency of future Say-on-Pay votes; |
| 5. | setting the number of directors at three (3) and electing directors to serve until the next annual general meeting, or until their respective successors are elected or appointed; |
| 6. | re-appointing PricewaterhouseCoopers LLP as independent auditors of the Company for the financial year ending December 31, 2019, and authorizing the directors to fix the auditors’ remuneration; and |
| 7. | a resolution approving the Company’s stock option plan. |
The full text of these resolutions are set out in “Matters to be Acted Upon at the Meeting” of this Proxy Statement. The Transaction constitutes the sale of all or substantially all of the assets of Golden Queen to related parties of Golden Queen, and requires approval of the Shareholders in accordance with the Business Corporations Act (British Columbia) (“BCBCA”), Multilateral Instrument 61-101 –Protection of Minority Security Holders in Special Transactions(“MI 61-101”) and section 501(c) of the Toronto Stock Exchange (“TSX”) Company Manual. Golden Queen has determined that the Transaction Resolution must be approved by both (a) ⅔ of the votes cast on the Transaction Resolution, and (b) a simple majority of the votes cast on the Transaction Resolution by the Shareholders, excluding votes cast by Shareholders that are required to be excluded pursuant to applicable securities laws and the policies of the TSX. The votes attached to an aggregate of 177,701,229 Shares (representing approximately 59.2% of the issued and outstanding Shares) owned by the Purchasers will be excluded from voting in determining whether the Transaction Resolution has been approved by the minority Shareholders. Golden Queen is also proposing to complete a consolidation of its Shares (the “Consolidation”) whereby each ten existing Shares will be consolidated into one post-consolidation common share of Golden Queen (each a “Post-Consolidation Share”). Shareholders will be asked to consider and vote on the Consolidation Resolution, which must be approved by ⅔ of the votes cast on the Consolidation Resolution. Management intends to proceed with the Consolidation on completion of the Transaction, but completion of the Transaction is not contingent on the approval of the Consolidation Resolution. At the Meeting, Shareholders will also be asked to consider and vote on a proposal to approve, on an advisory and non-binding basis, certain compensation payable to Golden Queen’s named executive officers, including compensation that will or may be paid or become payable under existing employment agreements in connection with the proposed Transaction. The Advisory Say-on-Pay Resolution requires approval by a simple majority of the votes cast on the Advisory Say-on-Pay Resolution. With respect to the advisory vote on the frequency of future Say-on-Pay votes, the Shareholders will be deemed to have selected the frequency option that receives the most votes. See “Matters to be Acted Upon at the Meeting – Proposal 1: Sale of the Soledad Mountain Project – Shareholder Approval”, “Matters to be Acted Upon at the Meeting – Proposal 2: Share Consolidation – Shareholder Approval”, “Matters to be Acted Upon at the Meeting – Proposal 3: Advisory Vote on Executive Compensation” and “Matters to be Acted Upon at the Meeting – Proposal 4: Advisory Vote on Say-on-Pay Frequency”. The election of directors, appointment of auditors and approval of the stock option plan must be approved by a simple majority of the votes cast on such resolutions. See “Matters to be Acted Upon at the Meeting – Proposal 5: Election of Directors”, “Matters to be Acted Upon at the Meeting – Proposal 6: Appointment of Independent Auditors” and “Matters to be Acted Upon at the Meeting – Proposal 7: Approval of Stock Option Plan”. Date, Time and Place of Meeting and Record Date The Meeting will be held at #2300 – 1066 West Hastings Street, Vancouver, B.C. on May 13, 2019 at 10:00 a.m. (Pacific Time). The board of directors of the Company (the “Board”) has fixed April 3, 2019, at the close of business, as the record date for the determination of the Shareholders entitled to receive notice of the Meeting and to vote thereat (the “Record Date”). Reasons for the Transaction Despite the extensive efforts of our management and the Board, operations at the Soledad Mountain Project have not generated sufficient free cash flow to award dividends to Golden Queen and may require significant additional cash to continue. Golden Queen has been unable to attract sufficient capital to fund its own operations and GQM LLC, other than through loans and investment from members of the Clay family. Payments due under such loans have been extended but are coming due in the near future.
The Board appointed a special committee, composed of independent directors of the Board (the “Special Committee”) to, in conjunction with legal and financial advisors, evaluate the Transaction as well as explore potential alternatives to the Transaction. In recommending the Transaction, the Special Committee and the Board considered and evaluated a number of factors, including: | · | The Transaction will allow the Company to eliminate the indebtedness owed to the Purchasers. The Transaction resolves Golden Queen’s going concern issue and the possibility of entering into bankruptcy and insolvency proceedings by eliminating all outstanding debt payable by Golden Queen, including a scheduled debt repayment on February 8, 2019, and additional payments due in April and May 2019. |
| · | The belief of the Special Committee and Board, after consultation with Golden Queen’s financial and legal advisors and management, and after review of the other strategic opportunities reasonably available to Golden Queen, including the possibility of not engaging in the Transaction and pursuing insolvency, in each case taking into account the potential benefits, risks and uncertainties associated with those other opportunities, that the Transaction represents Golden Queen’s best and most certain prospect for continuing in the current economic environment. |
| · | The inability of Golden Queen to obtain refinancing of its maturing debt obligations or to raise new equity |
financing from sources other than the Purchasers. | · | The Special Committee and Board have concluded that the value offered to Shareholders under the Share Purchase Agreement is more favorable than the value that might have been realized by pursuing other business opportunities. Given the challenges that the Company has had in obtaining financing in the past few years, the Transaction was deemed to be a superior alternative which will allow Shareholders to realize the value of its assets. |
| · | The Transaction provides a meaningful cash treasury to assess various options to provide or return value to Shareholders going forward. After closing of the Transaction, the Company will apply to list on the NEX board of the TSX Venture Exchange in order to restructure its affairs and pursue new business opportunities. |
| · | The receipt of a confidential preliminary valuation and fairness opinion (the “Preliminary Valuation and Fairness Opinion”), subsequently confirmed by a formal valuation and fairness opinion (the “Formal Valuation and Fairness Opinion”), from Ernst & Young LLP (“EY”) that, as of the date thereof, and subject to the assumptions, limitations and qualifications contained therein, the Transaction is fair, from a financial point of view, to the Shareholders, other than the Purchasers. |
| · | Eliminates the Purchasers’ majority ownership position, materially increasing retained ownership by remaining shareholders. |
| · | Decreases administrative expenses for Golden Queen following closing of the Transaction. |
| · | The Special Committee considered the further development required of the Soledad Mountain Project, the uncertain and unpredictable nature of the mining industry, the volatility of gold and silver prices, increases in operational and development costs among other factors that would impact Golden Queen’s ability to realize profit from the Soledad Mountain Project in the foreseeable future. |
| · | The Special Committee considered the impending significant capital contributions needed to be made by Golden Queen under the joint venture agreement with respect to the Soledad Mountain Project and Golden Queen’s lack of cash resources and financing opportunities to be able to fund such additional capital. |
| · | The Share Purchase Agreement allowed Golden Queen to continue to solicit, initiate, encourage and participate in discussions regarding competing proposals to the Transaction, until April 1, 2019. In addition, the Board had the right to terminate the Share Purchase Agreement to accept a superior proposal, subject to payment of a US$1M termination fee. |
| · | The Share Purchase Agreement provides for a contingent payment to Golden Queen if the Soledad Mountain Project is subsequently sold or transferred to a third party in certain circumstances. |
| · | The Transaction requires approval of ⅔ of the votes cast on the Transaction Resolution, and a majority of the votes cast on the Transaction Resolution by the Shareholders, excluding votes cast by the Purchasers, meaning that Shareholders who do not have an interest in the Transaction are provided with the opportunity to vote for or against the Transaction. |
We recommend that you review in detail the potential benefits and risks associated with the Transaction which are set out in under “Matters to be Acted Upon at the Meeting – Proposal 1: Sale of the Soledad Mountain Project – Reasons for the Transaction” and “Risk Factors”. Recommendation of the Special Committee and Board After careful consideration, and taking into account the Preliminary Valuation and Fairness Opinion, consultation with its financial and legal advisors, and such matters as it considered relevant, the Special Committee unanimously determined that the Transaction, as proposed in the Share Purchase Agreement, is in the best interests of Golden Queen and the Shareholders (excluding the Purchasers) and recommended the Board approve the Transaction, and recommend that Shareholders vote for the Transaction Resolution. The Board received the recommendation of the Special Committee, and after taking into account the Preliminary Valuation and Fairness Opinion, consulting with its financial and legal advisors, and considering such matters as it deemed relevant, the Board determined that the Transaction, as proposed in the Share Purchase Agreement, is in the best interests of Golden Queen and the Shareholders (excluding the Purchasers) and approved the entering into of the Share Purchase Agreement.The Board recommends that Shareholders vote FOR the Transaction Resolution, Consolidation Resolution and Advisory Say-on-Pay Resolution and FOR the option of “3 Years” as the preferred frequency on Say-on-Pay Votes. See “Matters to be Acted Upon at the Meeting – Proposal 1: Sale of the Soledad Mountain Project – Recommendation of the Special Committee”, “Matters to be Acted Upon at the Meeting – Proposal 1: Sale of the Soledad Mountain Project – Recommendation of the Board”, “Matters to be Acted Upon at the Meeting – Proposal 2: Share Consolidation”, “Matters to be Acted Upon at the Meeting – Proposal 3: Advisory Vote On Executive Compensation” and “Matters to be Acted Upon at the Meeting – Proposal 4: Advisory Vote on Say-on-Pay Frequency”. The Board also recommends that Shareholders vote FOR each nominee for director of the Company, the appointment of PricewaterhouseCoopers LLP as auditors for the ensuing year, and the approval of the stock option plan. See “Matters to be Acted Upon at the Meeting – Proposal 5: Election of Directors”, “Matters to be Acted Upon at the Meeting – Proposal 6: Appointment of Independent Auditors” and “Matters to be Acted Upon at the Meeting – Proposal 7: Approval of Stock Option Plan”. Formal Valuation and Fairness Opinion The Special Committee engaged EY to provide the Preliminary Valuation and Fairness Opinion, subsequently confirmed in writing by the Formal Valuation and Fairness Opinion. Prior to entering into the Share Purchase Agreement, the Special Committee received the Preliminary Valuation and Fairness Opinion that provided a valuation of Golden Queen and concluded, subject to certain assumptions, limitations and qualifications, that the Transaction is fair, from a financial point of view, to the Shareholders, other than the Purchasers. A summary of the Formal Valuation and Fairness Opinion is included in this Proxy Statement. See the section entitled “Matters to be Acted Upon at the Meeting – Proposal 1: Sale of the Soledad Mountain Project – Opinion of the Financial Advisor”. The full Formal Valuation and Fairness Opinion will be filed on EDGAR at www.sec.gov and SEDAR at www.sedar.com under the filings made by Golden Queen on or about [♦], 2019. Shareholders may also request a copy of the Formal Valuation and Fairness Opinion from Golden Queen free of charge. See the section of this Proxy Statement entitled “Additional Information”.
The Board recommends that Shareholders read the Formal Valuation and Fairness Opinion in its entirety for a description of assumptions made, matters considered and limitations and qualifications on the review undertaken in connection with its preparation. It does not constitute a recommendation to Shareholders as to whether they should vote in favor of the Transaction Resolution. It is one of many factors taken into consideration by the Special Committee and Board to unanimously approve the Transaction. Effect of the Transaction If the Transaction is completed, Golden Queen will have no material assets and no active business. Golden Queen intends to restructure its affairs and pursue new business opportunities. Golden Queen will remain a reporting issuer in the Provinces of British Columbia, Alberta, Ontario, Quebec and the United States. Golden Queen intends to apply to list on the NEX board of the TSX Venture Exchange, and expects its listing on the OTCQX Best Market to be moved to a lower tier exchange of the OTC Markets Group Inc. The Transaction will not alter the rights, privileges or nature of the issued and outstanding Shares. A Shareholder, other than the Purchasers, who holds Shares immediately prior to the closing of the Transaction, will continue to hold the same number of Shares immediately following the closing. See “Matters to be Acted Upon at the Meeting – Proposal 1: Sale of the Soledad Mountain Project – Effect of the Transaction”. Tax Consequences of the Transaction Golden Queen expects there will be no material tax consequences to the Company or Shareholders (excluding the Purchasers), under theIncome Tax Act (Canada) or the U.S. Internal Revenue Code of 1986 (the “Code”) as a result of the Transaction. However, Shareholders should consult their own legal and tax advisors for advice with respect to their particular circumstances. See “Matters to be Acted Upon at the Meeting – Proposal 1: Sale of the Soledad Mountain Project – Tax Consequences”. The Consolidation The Board believes it is in the best interest of Golden Queen to reduce the number of outstanding Shares, making Golden Queen more attractive to investors in potential future financings and transactions that may follow the Transaction. If the Transaction is completed and Golden Queen proceeds with the Consolidation, the number of Shares issued and outstanding will be reduced from 122,400,212 Shares, after cancellation of Shares pursuant to the Transaction, to approximately 12,240,021 Post-Consolidation Shares issued and outstanding. Except for any variances attributable to the rounding of fractional Post-Consolidation Shares, the change in the number of issued and outstanding Shares will cause no change in the capital attributable to the Shares and will not materially affect any Shareholder’s percentage ownership in Golden Queen. In addition, the Consolidation will not materially affect any Shareholder’s proportionate voting rights. See “Matters to be Acted Upon at the Meeting – Proposal 2: Share Consolidation”.
QUESTIONS AND ANSWERS The following is a summary of certain information contained in or incorporated by reference into this Proxy Statement, together with some of the questions that you, as Shareholder, may have and answers to those questions. You are urged to read the remainder of this Proxy Statement and the enclosed Proxy carefully, because the information contained below is of a summary nature, and is qualified in its entirety by the more detailed information contained elsewhere in or incorporated by reference into this Proxy Statement, the Proxy and the attached schedules to this Proxy Statement, all of which are important and should be reviewed carefully. This Proxy Statement is provided to you in connection with the solicitation by or on behalf of management of Golden Queen of proxies to be used at the Meeting to be held at #2300 – 1066 West Hastings Street, Vancouver, B.C., V6E 3X2 onMay 13, 2019, at 10:00 a.m. (Pacific Time) for the purposes indicated in the attached Notice of Meeting. Your vote is very important. We encourage you to exercise your right to vote by proxy if: | 1) | you cannot attend the Meeting; or |
| 2) | you plan to attend the Meeting but prefer the convenience of voting in advance. |
The questions and answers below give general guidance for voting your Shares and related matters. Unless otherwise noted, all answers relate to both Registered Shareholders and Beneficial Shareholders. If you have any questions, please feel free to contact Brenda Dayton, the Corporate Secretary of Golden Queen at 1-778-373-1557 or info@goldenqueen.com, or Laurel Hill Advisory Group, our proxy solicitation agent, by telephone at: 1-877-452-7184 (North American Toll Free) or 416-304-0211 (Collect Outside North America), or by email at: assistance@laurelhill.com. | 1. | What matters will be voted on at the Meeting? |
Golden Queen has entered into a Share Purchase Agreement pursuant to which it will sell its interest in the Soledad Mountain Project to the Purchasers, who are related parties of Golden Queen. Golden Queen is also seeking approval of a proposed Consolidation. At the Meeting, Shareholders will be asked to: | (a) | consider and, if thought advisable, to pass, a special resolution to approve the Transaction, that, for corporate law purposes, constitutes the sale of all or substantially all of the assets of the Company; |
| (b) | consider and, if deemed advisable, to pass, a special resolution to approve the consolidation of the capital of the Company on the basis of ten (10) existing Shares for each one (1) Post-Consolidation Share; |
| (c) | consider and, if thought advisable, to pass a resolution, on an advisory and non-binding basis, certain compensation arrangements with our named executive officers, including compensation under existing employment agreements, payable in connection with the Transaction; |
| (d) | hold an advisory and non-binding vote on the frequency of future Say-on-Pay votes; |
| (e) | set the number of directors at three (3) and elect directors to serve until the next annual general meeting, or until their respective successors are elected or appointed; |
| (f) | re-appoint PricewaterhouseCoopers LLP as independent auditors of the Company for the financial year ending December 31, 2019, and authorize the directors to fix the auditors’ remuneration; and |
| (g) | consider and, if thought advisable, to pass, a resolution approving the Company’s stock option plan. |
See “Matters to be Acted Upon at the Meeting”.
| 2. | Does the Board support the Transaction and Consolidation? |
Yes. The Board, on recommendation of the Special Committee and based upon its own investigations, has unanimously determined that the Transaction is in the best interests of Golden Queen and the Shareholders (excluding the Purchasers) and recommends that Shareholders voteFOR the Transaction Resolution. In making its recommendations, the Special Committee and the Board considered a number of factors as described in this Proxy Statement. See“Matters to be Acted Upon at the Meeting – Proposal 1: Sale of the Soledad Mountain Project – Reasons for the Transaction”,“Matters to be Acted Upon at the Meeting – Proposal 1: Sale of the Soledad Mountain Project – Recommendation of the Special Committee” and “Matters to be Acted Upon at the Meeting – Proposal 1: Sale of the Soledad Mountain Project – Recommendation of the Board”. The Board also recommends that Shareholders voteFOR the Consolidation Resolution, Advisory Say-on-Pay Resolution, each nominee for director of the Company, the appointment of PricewaterhouseCoopers LLP as auditors for the ensuing year, and the approval of the stock option plan. | 3. | Why should I support the Transaction? |
Golden Queen faces ongoing operational challenges and requires additional funding for its operations. Golden Queen has been unable to attract sufficient capital, other than receiving loans and investment from members of the Clay family. The benefits of the Transaction to Shareholders include, but are not limited to: | · | Resolves going concern issue and the possibility of entering into bankruptcy and insolvency proceedings by eliminating all outstanding debt payable by Golden Queen, including a scheduled debt repayment on February 8, 2019, and additional payments due in April and May 2019. |
| · | Provides certainty of value and value that is more favorable than the value that might have been received by pursuing other business opportunities. |
| · | The Share Purchase Agreement includes an additional payment to Golden Queen if the Soledad Mountain Project is subsequently sold or transferred to a third party in certain circumstances. |
| · | Eliminates the Clay’s majority ownership position, materially increasing retained ownership by remaining Shareholders. |
| · | Provides a meaningful cash treasury to assess various options to provide or return value to Shareholders. |
| · | Decreases administrative expenses for Golden Queen following closing of the Transaction. |
| · | According to the Preliminary Valuation and Fairness Opinion, as of the date thereof, and subject to certain assumptions, limitations and qualifications, the Transaction is fair, from a financial point of view, to the Shareholders, other than the Purchasers. |
| · | If the Transaction is not approved and cannot be completed, all amounts owing under Golden Queen’s outstanding debt will become immediately due and payable, and Golden Queen will still be required to pay expenses associated with the Transaction, meaning Golden Queen will continue to have a going concern issue. |
We recommend that you review in detail the potential benefits and risks associated with the Transaction set out under “Matters to be Acted Upon at the Meeting – Proposal 1: Sale of the Soledad Mountain Project – Reasons for the Transaction” and “Risk Factors”. 4. Why am I being asked to vote on a proposal to approve, on an advisory basis, certain compensation arrangements with the Company’s named executive officers, including compensation payable in connection with the Transaction? The Dodd-Frank Act requires all public companies to hold a separate non-binding advisory stockholder vote to approve the compensation disclosed in this Proxy Statement for our executive officers who are named in the Summary Compensation Table (commonly known as the “Say on Pay” proposal). The Company has disclosed the compensation of the Named Executive Officers pursuant to rules adopted by the Securities and Exchange Commission (“SEC”). In addition, our existing employment agreements with our named executive officers were not previously subject to an advisory vote of shareholders and under SEC rules, we are required to seek approval, on an advisory and non-binding basis, of these agreements because compensation will or may be paid or become payable in connection with the Transaction. Approval of this proposal is not a condition to the completion of the Transaction and the vote on this proposal is an advisory vote and will not be binding on the Company. | 5. | Why am I being asked to vote on a the frequency of future Say-on-Pay votes? |
The Dodd-Frank act also requires all public companies to hold a separate non-binding advisory shareholder vote with respect to the frequency of the vote on Say on Pay. Companies must give shareholders the choice of whether to cast an advisory vote on the Say on Pay proposal every year, every two years, or every three years (common known as the “Frequency Vote on Say on Pay.”) Shareholders may also abstain from making a choice, pursuant to the proposed rules recently issued by the SEC. After such initial votes are held, the Dodd-Frank Act requires all public companies to submit to their shareholders no less often than every six years thereafter the Frequency Vote on Say on Pay. Our last Frequency Vote on Say on Pay was held on May 30, 2013. Pursuant to Section 14A of the Exchange Act, we are holding a separate non-binding advisory vote on the frequency of Say on Pay in future years at the Annual Meeting. | 6. | Who is entitled to vote? |
Shareholders of record as of the close of business on April 3, 2019 are entitled to vote at the Meeting. Each Shareholder has one vote for each Share held. The Shares are the only securities of the Company that entitle their holders to vote at the Meeting. If you are a Registered Shareholder, you may vote on the Transaction by either attending the Meeting in person or by completing and returning the enclosed Proxy in accordance with its instructions. Registered Shareholders may wish to vote by proxy whether or not they attend the Meeting in person. Registered Shareholders electing to submit a proxy may do so by completing the enclosed Proxy and returning it to the Company’s transfer agent, Computershare, in accordance with the instructions on the Proxy. You should ensure that the Proxy is received by Computershare at least 48 hours (excluding Saturdays, Sundays and holidays) before the Meeting. Beneficial Shareholders who own Shares through their broker or other intermediary should follow the instructions provided by their intermediary. If you do not provide voting instructions to your broker or intermediary, you may lose your right to vote at the Meeting. See “General Proxy Information – Proxy Voting” for more information on how to vote your Shares. | 8. | How many votes are necessary to approve the Transaction and Consolidation? |
Golden Queen has determined that the Transaction Resolution must be approved by (a) ⅔ of the votes cast on the Transaction Resolution, and (b) a simple majority of the votes cast on the Transaction Resolution by the Shareholders, excluding votes cast by Shareholders that are required to be excluded pursuant to applicable securities laws and the policies of the TSX. The votes attached to an aggregate of 177,701,229 Shares (representing approximately 59.2% of the issued and outstanding Shares) owned by the Purchasers will be excluded from voting in determining whether the Transaction has been approved by the minority Shareholders of Golden Queen. The Consolidation Resolution must be approved by ⅔ of the votes cast on the Consolidation Resolution. The Advisory Say-on-Pay Resolution must be approved by a simple majority of the votes cast on the Advisory Say-on-Pay Resolution. Completion of the Transaction is not contingent on the approval of the Consolidation Resolution or Advisory Say-on-Pay Resolution. | 9. | Do I have dissent rights? |
Registered Shareholders have the right to dissent in respect of the Transaction Resolution, and to be paid the fair value of their Shares. To exercise dissent rights in respect of the Transaction Resolution, a written notice of objection to the Transaction Resolution must be received by Golden Queen in accordance with the instructions set out in the Proxy Statement by 4:00 p.m. (Pacific Time) on May 9, 2019, or two business days prior to any adjournment of the Meeting. Failure to strictly comply with the dissent procedures will result in the loss of any right to dissent. See“Matters to be Acted Upon at the Meeting – Proposal 1: Sale of the Soledad Mountain Project – Dissent Rights” and Schedule B of the Proxy Statement.
Shareholders do not have dissent rights with respect to the proposed Consolidation or Advisory Say-on-Pay Resolution. | 10. | Are there any other approvals required for the Transaction or Consolidation? |
In addition to approval by the Shareholders, the Transaction is subject to final approval from the TSX. The Company has received conditional approval of the Transaction from the TSX, and the provisions of the Proxy Statement relating to the Transaction Resolution sought were reviewed and accepted by the TSX, but there is no guarantee that the Transaction will receive final approval from the TSX. Management intends to proceed with the Consolidation on completion of the Transaction. The Consolidation is subject to the approval of the TSX, and there is no guarantee that the Consolidation will receive approval from the TSX. | 11. | When will the Transaction and Consolidation be effective? |
Golden Queen and the Purchasers are working to close the Transaction as soon as reasonably practicable. Subject to the approval of the Shareholders and the final approval from the TSX, the parties currently anticipate that the Transaction will close before May 21, 2019. However, there can be no certainty that the Transaction will close, and Shareholders are advised to review the “Matters to be Acted Upon at the Meeting – Proposal 1: Sale of the Soledad Mountain Project – Reasons for the Transaction” and “Risk Factors” sections of this Proxy Statement. Management intends to proceed with the Consolidation on completion of the Transaction. If the Consolidation Resolution is approved, the Board will have the authority, in their sole discretion, to revoke the Consolidation Resolution and abandon the Consolidation. See “Matters to be Acted Upon at the Meeting – Proposal 2: Share Consolidation”. | 12. | What happens if the Transaction is not approved by the Shareholders or does not close? |
If the Transaction is not approved by the Shareholders, the Share Purchase Agreement will terminate. All amounts owing under Golden Queen’s outstanding debt will become immediately due and payable, and Golden Queen will still be required to pay expenses associated with the Transaction. Golden Queen will continue to have a going concern issue and face the possibility of entering into bankruptcy and insolvency proceedings. See “Matters to be Acted Upon at the Meeting – Proposal 1: Sale of the Soledad Mountain Project – Reasons for the Transaction” and “Risk Factors” in this Proxy Statement. | 13. | What happens if the Consolidation is not approved by the Shareholders or is not implemented? |
If the Consolidation is not approved by the Shareholders or the Consolidation is not implemented by the Board, there will be no change in the Shares. Completion of the Transaction is not contingent on the approval of the Consolidation Resolution. See “Matters to be Acted Upon at the Meeting – Proposal 2: Share Consolidation”. | 14. | Who can I contact if I have questions? |
If you would like additional copies of these materials or who have any questions about the Transaction or Consolidation, the information contained in this Proxy Statement, or the Meeting, please contact Brenda Dayton of Golden Queen at 1-778-373-1557 or info@goldenqueen.com, or Laurel Hill Advisory Group, our proxy solicitation agent, by telephone at 1-877-452-7184, or by email at assistance@laurelhill.com. Shareholders who have questions about how to vote should contact their professional advisors. CAUTIONARY NOTE REGARDING DISCLOSURE This Proxy Statement is furnished in connection with the solicitation of proxies by and on behalf of the management of Golden Queen for use at the Meeting and any adjournments or postponements thereof. No person has been authorized to give any information or make any representation in connection with the Transaction, Consolidation or any other matters to be considered at the Meeting other than those contained in this Proxy Statement and, if given or made, any such information or representation must not be relied upon as having been authorized and should not be relied upon in making a decision as to how to vote on the Transaction and Consolidation.
All summaries of, and references to, the Transaction in this Proxy Statement are qualified in their entirety by reference to the complete text of the Share Purchase Agreement, a copy of which is available with Golden Queen’s filings on EDGAR at www.sec.gov and SEDAR at www.sedar.com, or may be requested free of charge from Golden Queen, and is incorporated by reference into this Proxy Statement. Information contained in this Proxy Statement should not be construed as legal, tax or financial advice and Shareholders are urged to consult their own professional advisors in connection therewith. Information contained in this Proxy Statement is given as of April [♦], 2019, unless otherwise specifically stated. INFORMATION FOR U.S. SECURITYHOLDERS The enforcement by Shareholders of civil liabilities under United States federal securities laws may be affected adversely by the fact that Golden Queen is organized under the laws of a jurisdiction outside the United States and that some of its officers and/or directors are residents of countries other than the United States and that some of the experts named in this Proxy Statement may be residents of countries other than the United States. Neither the Securities and Exchange Commission nor any state securities regulatory authority has approved or disapproved the Transaction, passed upon the merits or fairness of the Transaction or passed upon the adequacy or accuracy of the disclosure in this Proxy Statement. Any representation to the contrary is a criminal offense. CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS Certain statements contained in this Proxy Statement constitute forward-looking information and forward-looking statements within the meaning of applicable securities legislation (collectively “forward-looking statements”). The use of any of the words “anticipate”, “continue”, “expect”, “may”, “will”, “proposed”, “should”, “believe”, “is subject” and similar expressions are intended to identify forward-looking statements. These statements involve known and unknown risks, uncertainties and other factors that may cause actual results or events to differ materially from those anticipated in such forward-looking statements. The Company believes the expectations reflected in those forward-looking statements are reasonable, but no assurance can be given that these expectations will prove to be correct. Such forward-looking statements included in this Proxy Statement should not be unduly relied upon. These forward-looking statements speak only as of the date of this Proxy Statement. In particular, this Proxy Statement includes forward-looking statements pertaining to the following: | · | completion of the Transaction and Consolidation; |
| · | the anticipated benefits of the Transaction and Consolidation to the Company and the Shareholders; |
| · | the timing and receipt of all regulatory, shareholder and other approvals for the Transaction and Consolidation; |
| · | the ability of the Company and the Purchasers to satisfy the other conditions to, and to complete, the Transaction; |
| · | anticipated timing for the completion of the Transaction and Consolidation; |
| · | ability of the Company tolist on the NEX board of the TSX Venture Exchange and remain listed on an OTC Markets Group Inc. exchange; and |
| · | ability of the Company to restructure its affairs and pursue new opportunities. |
In respect of the forward-looking statements and information concerning the anticipated benefits and timing of the Transaction and Consolidation, the Company has provided such in reliance on certain assumptions that it believes are reasonable at this time, including assumptions as to the ability of the Company to receive, in a timely manner and on satisfactory terms, the necessary Shareholder and regulatory approvals; the ability of the parties to satisfy, in a timely manner, the other conditions to the closing of the Transaction; and other expectations and assumptions concerning the Transaction and Consolidation. Anticipated dates provided may change for a number of reasons, such as the inability to secure the necessary Shareholder and regulatory approvals in the time assumed or the need for additional time to satisfy the other conditions to the completion of the Transaction. Accordingly, Shareholders should not place undue reliance on the forward-looking statements and information contained in this Proxy Statement. Actual results could differ materially from those anticipated in these forward-looking statements as a result of the risk factors set forth below and elsewhere in this Proxy Statement, including, without limitation, risk and uncertainties regarding:
| · | the occurrence of any event, change or other circumstance that could give rise to the termination of the Share Purchase Agreement, including a termination under circumstances that could require the Company to pay the termination fee to the Purchasers; |
| · | inability to complete the Transaction due to the failure to obtain Shareholder approval of the Transaction Resolution or the failure to satisfy other conditions to the completion of the Transaction; |
| · | the failure of the Transaction to become effective for any other reason; |
| · | the possibility that alternative acquisition proposals will or will not be made; |
| · | the effect of termination fees being payable in soliciting alternative acquisition proposals; |
| · | risks that the Transaction disrupts current plans and operations and the potential difficulties in employee retention as a result of the Transaction; |
| · | the outcome of any legal proceedings or enforcement matters that may be instituted against us or others relating to the Share Purchase Agreement; |
| · | diversion of management’s attention from ongoing operational concerns; |
| · | the possible adverse effect on our business and the price of the Shares if the Transaction is not consummated in a timely manner or at all; |
| · | the effect of the announcement of the Transaction on our business relationships, operating results and business generally, including our ability to retain key employees; |
| · | the amount of costs, fees, expenses and charges related to the Transaction; |
| · | inability to complete the Consolidation due to the failure to obtain Shareholder approval of the Consolidation; |
| · | uncertainties in the availability and success of future opportunities; |
| · | the ability of the Company to continue to operate upon completion of the Transaction; and |
| · | the other factors discussed under “Matters to be Acted Upon and the Meeting – Proposal 1: Sale of the Soledad Mountain Project – Reasons for the Transaction” and “Risk Factors”. |
Additional information on other factors that could cause actual events or actual results to differ materially from those contemplated by the forward-looking statements and information contained in this Proxy Statement may be found in our filings with the Securities and Exchange Commission on EDGAR, and with Canadian regulatory authorities on SEDAR, including the risk factors contained in Item 1A of our Annual Report on Form 10-K for the fiscal year ended December 31, 2018 and elsewhere in this Proxy Statement. The forward-looking statements and information contained in this Proxy Statement are based on our expectations, estimates and projections as of the date hereof, and should not be relied upon as representing our estimates as of any subsequent date. The forward-looking statements contained in thisProxy Statement are expressly qualified by this cautionary statement. Except as required under applicable securities laws, the Company does not undertake or assume any obligation to publicly update or revise any forward-looking statements. Shareholders should read this entireProxy Statementand consult their own professional advisors to assess the legal issues, risk factors and other aspects of the Transaction and Consolidation prior to voting their Shares. GENERAL PROXY INFORMATION Appointment of Proxyholder The persons named as proxyholder in the accompanying Proxy (“Proxy”Proxy”) or Voting Instruction Form (“VIF”VIF”) were designated by the management of the Company (“Management Proxyholder”Proxyholder”).A shareholderShareholder desiring to appoint some other person (“Alternate Proxyholder”) to represent him or her at the Meeting may do so by inserting such other person's name in the space indicated on the Proxy or VIF, or by completing another proper form of proxy. A person appointed as an Alternate Proxyholder need not be a shareholderShareholder of the Company. Exercise of Discretion by Proxyholder The proxyholder will vote for or against or withhold from voting the shares,Shares, as directed by a shareholderShareholder on the proxy,Proxy, on any ballot that may be called for.In the absence of any such direction, the Management Proxyholder will vote in favourfavor of matters described in the Proxy or VIF. In the absence of any direction as to how to vote the shares,Shares, an Alternate Proxyholder has discretion to vote them as he or she chooses. The enclosed Proxy or VIF confers discretionary authority upon theProxyholder proxyholder with respect to amendments or variations tomatters identified in the attached Notice of Meeting and other matters which may properlycome before the Meeting. At present, management of the Company knows of no such amendments, variations or other matters. Shareholders who are planning on returning the accompanying Proxy are encouraged to review the Proxy Statement carefully before submitting the Proxy. Unless otherwise directed, the persons named in the Proxy intend to vote in favor of the matters to be considered at the Meeting. PROXY VOTINGProxy Voting
Registered Shareholders If you are a Registered Shareholder, you may wish to vote by proxy whether or not you attend the Meeting in person. Registered Shareholders electing to submit a proxyProxy may do so by completing the enclosed Proxy and returning it to the Company’s transfer agent, Computershare Trust Company of Canada (“Computershare”), in accordance with the instructions on the Proxy. Youby: | (i) | completing, dating and signing the enclosed form of Proxy and returning it to Computershare, by mail or hand delivery at 8th Floor, 100 University Avenue, Toronto, Ontario, M5J 2Y1, Canada; |
| (ii) | using a touch-tone phone to transmit voting choices to the toll-free number given in the Proxy. Registered Shareholders who choose this option must follow the instructions of the voice response system and refer to the enclosed Proxy for the toll-free number, the holder’s account number and the Proxy Control Number; or |
| (iii) | using the internet through the website of Computershare at www.investorvote.com. Registered Shareholders who choose this option must follow the instructions that appear on the screen and refer to the enclosed Proxy for the holder’s account number and the Proxy Control Number. |
In all cases you should ensure that the Proxy is received by Computershare at least 48 hours (excluding Saturdays, Sundays and holidays) before the Meeting or the adjournment thereof at which the Proxy is to be used. The chairman of the Meeting may elect to exercise his discretion to accept proxies received after the due date. Beneficial Shareholders The following information is of significant importance to Beneficial Shareholders (shareholders who do not hold sharesShares in their own name). Beneficial Shareholders should note that the only proxies that can be recognized and acted upon at the Meeting are those deposited by Registered Shareholders (those whose names appear on the records of the Company as the registered holders of shares)Shares). If sharesShares are listed in an account statement provided to a shareholderShareholder by a broker, then in almost all cases those sharesShares will not be registered in the shareholder’sShareholder’s name on the records of the Company. Such sharesShares will more likely be registered under the namenames of the shareholder'sShareholder’s broker or an agent of that broker.broker (both referred to as intermediaries). In the United States, the vast majority of such sharesShares are registered under the name of Cede & Co. as nominee for The Depository Trust Company (which acts as depositary for many U.S. brokerage firms and custodian banks), and in Canada, under the name of CDS & Co. (the registration name for The Canadian Depository for Securities Limited, which acts as nominee for many Canadian brokerage firms). If you have consented to disclosure of your ownership information, you will receive a VIF from the Company (through Computershare). If you have declined to disclose your ownership information, you may receive a VIF from your Intermediary if they have assumed the cost of delivering the Proxy Statement and associated meeting materials. Every intermediary has its own mailing procedures and provides its own return instructions to clients. However, most intermediaries now delegate responsibility for obtaining voting instructions from clients to Broadridge Financial Solutions, Inc. (“Broadridge”Broadridge”) in the United States and in Canada.
The majority of Intermediaries now delegate responsibility for obtaining instructions from Beneficial Shareholders to Broadridge Financial Solutions Inc. (“Broadridge”). Broadridge typically mails a scannable VIF to Beneficial Shareholders and asks Beneficial Shareholders to return the VIF to Broadridge. Alternatively, the Beneficial Shareholder may call a toll-free number or go online to www.proxyvote.com to vote. Golden Queen may utilize the Broadridge QuickVoteTM service to assist shareholders with voting their shares. Certain Beneficial Shareholders who have not objected to Golden Queen knowing who they are (non-objecting beneficial owners) may be contacted by Laurel Hill to conveniently obtain a vote directly over the phone.
By returning the VIF in accordance with the instructions noted on it, a Beneficial Shareholder is able to instruct the Registered Shareholder (the intermediary) how to vote on behalf of the Beneficial Shareholder. VIFs, whether provided by the Company or by an intermediary, should be completed and returned in accordance with the specific instructions noted on the VIF. In either case, the purpose of this procedure is to permit Beneficial Shareholders to direct the voting of the shares which they beneficially own. The VIF will name the same persons as named on the Company’sCompany's Proxy to represent you at the Meeting. Although as a Beneficial Shareholder you may not be recognized directly at the Meeting for the purposes of voting sharesShares registered in the name of your intermediary, you, or a person designated by you (who need not be a shareholder)Shareholder), may attend the Meeting as proxyholder for your intermediary and vote your sharesShares in that capacity. To exercise this right to attend the Meeting or appoint a proxyholder of your own choosing, you should insert the name of the desired representative in the blank space provided in the VIF. Alternatively, you may provide other written instructions requesting that you or your desired representative attend the Meeting as proxyholder for your intermediary. The completed VIF or other written instructions must then be returned in accordance with the instructions on the VIF. If you receive a VIF from the Company or Broadridge, you cannot use it to vote shares directly at the Meeting. The VIF must be completed and returned in accordance with its instructions, well in advance of the Meeting in order to have the shares voted.form.
Revocation of Proxies In addition to revocation in any other manner permitted by law, a Registered Shareholder who has given a Proxy may revoke it by: | (a) | Executing a Proxy bearing a later date or by executing a valid notice of revocation, either of the foregoing to be executed by the Registered Shareholder or the Registered Shareholder’s authorized attorney in writing, or, if the shareholder is a corporation, under its corporate seal (if applicable) by an officer or attorney duly authorized, and by delivering the Proxy bearing a later date to Computershare at any time up to and including the last business day that precedes the day of the Meeting or, if the Meeting is adjourned, the last business day that precedes any reconvening thereof, or to the chairman of the Meeting on the day of the Meeting or any reconvening thereof, or in any other manner provided by law, or |
| (b) | Personally attending the meeting and voting the Registered Shareholders’ shares.Shares. |
A revocation of a Proxy will not affect a matter on which a vote is taken before the revocation. Only Registered Shareholders have the right to revoke a Proxy. Beneficial Shareholders who wish to change their vote must, at least seven days beforein sufficient time in advance of the Meeting, arrange for their respective intermediaries to change their vote and if necessary, revoke their Proxy, in accordance with the Proxy on their behalf.revocation procedures set out above. VOTING PROCEDURE A quorum for the transaction of business at the Meeting is one person present at the meeting representing in person or by proxy not less than 10% of the votes eligible to be cast at such meeting. Broker non-votes occur when a person holding sharesShares through a bank or brokerage account does not provide instructions as to how his or her sharesShares should be voted and the bank or broker does not exercise discretion to vote those sharesShares on a particular matter. Abstentions and broker non-votes will be included in determining the presence of a quorum at the Meeting. However, an abstention or broker non-voteMeeting, but will not be counted as votes cast at the Meeting and, as a result, will have anyno effect on the outcome forof the election of directors.resolutions to be considered at the Meeting. Shares for which Proxies are properly executed and returned will be voted at the Meeting in accordance with the directions noted thereon or, in the absence of directions, will be voted “FOR” fixing“FOR” the approval, by special resolution, of the numberTransaction Resolution, Consolidation Resolution, and the approval, by ordinary resolution, of the Advisory Say-on-Pay Resolution, election of directors, at four (4), “FOR” the electionappointment of eachauditors and approval of the nominees to the Board of Directors named on the following page, and “FOR” the resolution to ratify the appointment of PricewaterhouseCoopers LLP as independent auditors of the Companystock option plan, other than broker non-votes, which will not be counted for the fiscal year ending December 31, 2016, and “FOR” the approval the compensation awarded by the Company to the named executive officers.or against such resolutions. It is not expected that any matters other than those referred to in this Proxy Statement will be brought before the Meeting. If, however, other matters are properly presented, the persons named as proxies will vote in accordance with their discretion with respect to such matters. To
Golden Queen has determined that the Transaction Resolution must be effective, each matter which is submittedapproved by (a) ⅔ of the votes cast on the Transaction Resolution, and (b) a simple majority of the votes cast on the Transaction Resolution by the Shareholders, excluding votes cast by Shareholders that are required to be excluded pursuant to applicable securities laws and the policies of the TSX. The Consolidation Resolution must be approved by ⅔ of the votes cast on the Consolidation Resolution. The Advisory Say-on-Pay Resolution must be approved by a votesimple majority of shareholders, other than for the votes cast on the Advisory Say-on-Pay Resolution. The election of directors, appointment of auditors and the approval of auditors,the stock option plan must be approved by a simple majority of the votes cast on such resolutions. With respect to the advisory vote on the frequency of future Say-on-Pay votes, the Shareholders will be deemed to have selected the frequency option that receives the most votes. INTEREST OF CERTAIN PERSONS IN MATTERS TO BE ACTED UPON Purchaser Interests
The Purchasers include Thomas M. Clay, a former director and officer of Golden Queen, and certain members of the Clay family and associated entities. The Purchasers own approximately 59.2% of the issued and outstanding Shares. Any votes by the Purchasers will be excluded in determining whether or not a majority of the votes cast by the shareholders of Golden Queen voting in person or by proxy at the Meeting.Meeting have approved the Transaction Resolution. As a result, the votes of the following Shareholders will be excluded from voting on the Transaction Resolution: | Name | | Number of Shares(1) | | | Estate of Landon T. Clay | | | 108,499,796 | | | Monadnock Charitable Lead Annuity Trust | | | 7,031,755 | | | Thomas M. Clay | | | 6,658,116 | (2) | | Arctic Coast Petroleums Ltd. | | | 807,250 | | | EHT, LLC | | | 26,855,821 | | | Jonathan Clay | | | 3,683,413 | | | 933 Milledge LLC | | | 185,000 | | | James Clay | | | 118,400 | | | Lavinia Clay | | | 12,660,818 | | | Lavinia Clay – IRA | | | 4,663 | | | Cassius M.C. Clay | | | 1,465,398 | | | Landon H. Clay | | | 5,665,471 | | | Richard T. Clay | | | 4,065,328 | | | Total number of currently outstanding Shares held | | | 177,701,229 | |
| (1) | The information relating to the above share ownership was provided by the Purchasers. |
| (2) | Excludes 457,500 Shares that are issuable upon the exercise of outstanding, currently exercisable options of Golden Queen held directly by Mr. Thomas M. Clay. |
Executive Officer Employment Agreements
This section sets forth the information required by Item 402(t) of Regulation S-K regarding the compensation for each named executive officer of the Company, as well as the Company’s one other executive officer, that is based on or otherwise relates to the Transaction and that will or may become payable to each such named executive officer and such other executive officer at the closing of the Transaction or on a qualifying termination of employment in connection with the Transaction. Two of our executive officers are entitled to certain change in control severance benefits, which may be triggered by the Transaction. The amounts set out below represent an estimate of each named executive officer’s golden parachute compensation, assuming the following: | · | the Transaction constitutes a change in control for the purposes of the employment agreements; |
| · | the change in control was effective [♦], 2019, the latest practicable date prior to this Proxy Statement; and |
| · | each named executive officer's employment is terminated without cause or for good reason immediately following the change in control. |
Golden Parachute Compensation | Name | | Cash (US$) | | | Equity (US$) | | | Pension (US$) | | | Benefits (US$) | | | Tax Reimbursement (US$) | | | Other (US$) | | | Total (US$) | | | Guy Le Bel | | | 564,225 | (2) | | | Nil | (3) | | | Nil | | | | 21,064 | | | | Nil | | | | Nil | | | | 585,289 | | | Brenda Dayton | | | 195,598 | (4) | | | Nil | (5) | | | Nil | | | | 14,294 | | | | Nil | | | | Nil | | | | 209,892 | |
| (1) | Amounts converted from Canadian dollars to United States dollars based on the March 19, 2019 noon rate of 0.7523 published by the Bank of Canada. |
| (2) | If Mr. Le Bel is terminated within 12 months of a change of control by the Company without cause, for good reason, or for any other reason with 3 months’ notice, he is entitled to receive: (a) a lump sum severance payment equivalent to the sum of (i) 24 months’ base salary and (ii) the total target and signing bonus paid or granted in the last 12 months multiplied by 2; (b) payment for all accrued unused vacation time; and (c) continuing health and dental benefits coverage for the lessor of 24 months or until the employee is eligible under a benefits plan with a new employer. |
| (3) | If Mr. Le Bel is terminated due to a change of control, any stock options held by him may be exercised for 24 months following such termination. As of the date of the Share Purchase Agreement, Mr. Le Bel held 882,501 stock options, all of which are “out of the money”. |
| (4) | If Ms. Dayton is terminated within 12 months of a change of control by the Company without cause, for good reason, or for any other reason with 3 months’ notice, she is entitled to receive: (a) a lump sum severance payment equivalent to the sum of (i) 12 months’ base salary and (ii) the total bonus paid or granted in the last 12 months multiplied by 2; (b) payment for all accrued and unused vacation time; and (c) continuing health and dental benefits coverage for the lessor of 12 months or until the employee is eligible under a benefits plan with a new employer. |
| (5) | If Ms. Dayton is terminated due to a change of control, any stock options held by her may be exercised in accordance with the Company’s stock option plan. As of the date of the Share Purchase Agreement, Ms. Dayton held 220,000 stock options, all of which are “out of the money”. |
The Transaction does not constitute a change of control for the purposes of Golden Queen’s stock option plan. Except as disclosed above, no other Person has any material interest, direct or indirect, by way of beneficial ownership of securities or otherwise, in matters to be acted upon at the Meeting. For the purpose of this paragraph, “Person” shall include each person: (a) who has been a director, senior officer or insider of the Company at any time since the commencement of the Company’s last fiscal year; or (b) who is an associate or affiliate of a person included in subparagraph (a). VOTING SECURITIES AND PRINCIPAL HOLDERS OF VOTING SECURITIES On April 18, 20163, 2019 (the “Record Date”“Record Date”) there were 99,928,683 shares of our common stock (the “Common Stock”),300,101,441 Shares issued and outstanding, each shareShare carrying the right to one vote. Only shareholdersShareholders of record at the close of business on the Record Date will be entitled to vote in person or by proxy at the Meeting or any adjournment thereof. To the knowledge of the directors and executive officers of the Company, no person or corporation beneficially owns, directly or indirectly, or exercises control or direction over, more than 5% of the outstanding Common Stock as of April 18, 2016,voting rights attached to the outstanding Shares, except as describedindicated below: | Name and Address | | Number of Voting
Securities(1) | | | Nature of Ownership | | Percentage of
Outstanding
Voting Securities | | Thomas M. Clay
Boulder, CO, USA | | | 115,157,912 | (2)(3) | | Sole voting and investment control | | | 38.37 | % | | | | | 7,839,005 | (4)(5) | | Shared voting and investment control | | | 2.61 | % | Jonathan Clay
West Palm Beach, FL, USA | | | 30,724,234 | (6) | | Sole voting and investment control | | | 10.23 | % |
| Name and Address | | Number of Voting
Securities(1) | | Nature of Ownership | | Percentage of
Outstanding Voting
Securities | | | Landon T. Clay | | 30,777 | | Sole voting and investment control | | | 0.03 | % | | Peterborough, NH, USA | | 26,699,258 | (2) (3) (4) | Shared voting and investment control | | | 24.1 | % | | Thomas M. Clay | | 1,913,650 | | Sole voting and investment control | | | 1.7 | % | | Peterborough, NH, USA | | 25,354,989 | (2) (3) | Shared voting and investment control | | | 22..8 | % | Brian James
Peterborough, NH, USA | | 9,651,519 | (2) (4) | Shared voting and investment control | | | 8.7 | % | | Jonathan Clay | | 8,340,016 | | Sole voting and investment control | | | 7.5 | % | | Palm Beach, FL, USA | | 889,250 | (5) (6) (7) | Shared voting and investment control | | | 0.8 | % | Sprott Asset Management L.P. Toronto, ON, Canada | | 7,130,800 | | Sole voting and investment control | | | 6.4 | % |
| [1](1) | The information relating to the above share ownership was obtained by the Company from insider reports and beneficial ownership reports on Schedule 13D filed with the SEC or available at www.sedi.ca, or from the shareholder, and includes direct and indirect holdings. |
| [2](2) | Includes (i) 6,658,116 Shares held directly by Mr. Thomas M. Clay; (ii) 108,499,796 Shares held by the Estate of Landon Thomas Clay (the “Estate”), for which Mr. Thomas M. Clay is the executor. Mr. Thomas M. Clay disclaims beneficial ownership of the Shares held by the Estate. |
| (3) | Excludes 257,500 Shares that are issuable upon the exercise of outstanding, currently exercisable options of Golden Queen held directly by Mr. Thomas M. Clay. |
| (4) | Includes (i) 807,250 Shares held by Arctic Coast Petroleums, Ltd. (“Arctic Coast”), for which Mr. Thomas M. Clay is a director; and (ii) 7,031,755 Shares held by the Monadnock Charitable Annuity Lead Trust dated May 31, 1996 (the “Monadnock Trust”), for which East Hill Management Company, LLC (“East Hill”) is the investment manager and Mr. Thomas M. Clay is the sole manager of East Hill. |
| (5) | Excludes (i) 10,740,600 Shares that are issuable upon the exercise of outstanding, currently exercisable warrants of Golden Queen held by the Landon T. Clay 2009 Irrevocable Trust u/a dated March 6, 2006 (the “LTC Trust”), for which Mr. Thomas M. Clay is a trustee; and Brian James have shared voting(ii) 2,759,400 Shares that are issuable upon the exercise of outstanding, currently exercisable warrants of Golden Queen held by the Clay Family 2009 Irrevocable Trust u/a dated April 14, 2009 (the “CF Trust” and, investment controltogether with the LTC Trust, the “Trusts”), for which Mr. Thomas M. Clay is a trustee and has a residual beneficial interest. The CF Trust holds a 50% beneficial interest of 8,307,250 shares, including 7,500,000 sharesthe Shares held by Arctic Coast, and Mr. Thomas M. Clay therefore disclaims beneficial ownership of 50% of the Shares held by Arctic Coast. |
| (6) | Includes (i) 26,855,821 Shares held by EHT LLC and Mr. Jonathan Clay is a beneficiary; (ii) 3,683,413 Shares held directly by Mr. Jonathan Clay; and (iii) 185,000 Shares held by Milledge, LLC. |
To the knowledge of the directors and executive officers of the Company, the directors and executive officers of the Company beneficially own the following Shares of the Company: | Name and Address | | Number of Shares | | | Approximate % of
Total Issued | | Thomas M. Clay(1) Boulder, CO, USA | | | 122,996,917 | (2)(3) | | | 40.99 | % | Bryan A. Coates
Montreal, QC, Canada | | | 17,000 | (2)(4) | | | 0.01 | % | Guy Le Bel
Repentigny, QC, Canada | | | 80,000 | (2) | | | 0.03 | % | Bernard Guarnera
Las Vegas, NV, USA | | | 25,000 | (2) | | | 0.01 | % | Paul M. Blythe
Collingwood, ON, Canada | | | 1,580,000 | (2) | | | 0.53 | % | Robert Walish
Mojave, CA, USA | | | Nil | | | | Nil | | Brenda Dayton
Vancouver, BC, Canada | | | Nil | (2) | | | Nil | | | All Directors and officers | | | 124,698,917 | | | | 41.55 | % |
| (1) | Thomas M. Clay resigned as Chairman of the Board, a director and Chief Executive Officer of Golden Queen on February 7, 2019. Mr. Clay will be reinstated as to such positions should the Transaction be terminated for any reason prior to closing. |
| (2) | These amounts exclude Shares issuable upon exercise of warrants;options as follows: 457,500 Shares issuable to Thomas M. Clay, 382,500 Shares issuable to Bryan A. Coates, 882,501 Shares issuable to Guy Le Bel, 382,500 Shares issuable to Bernard Guarnera,150,000 Shares issuable to Paul M. Blythe and 220,000 Shares issuable to Brenda Dayton. |
| [3](3) | Landon T. Clay andThis amount excludes (i) 10,740,600 Shares that are issuable upon the exercise of outstanding, currently exercisable warrants of Golden Queen held by the LTC Trust, for which Mr. Thomas M. Clay have shared votingis a trustee; and investment control(ii) 2,759,400 Shares that are issuable upon the exercise of 17,047,739 shares;outstanding, currently exercisable warrants of Golden Queen held by the CF Trust, for which Mr. Thomas M. Clay is a trustee and has a residual beneficial interest. |
| [4](4) | Landon T. Clay and Brian James have shared voting and investment controlExcludes 8,500 Shares that are issuable upon the exercise of 1,344, 269 shares; |
| [5] | Jonathan Clay and Arctic Coast have shared voting and investment control of 807,250 shares; |
| [6] | Jonathan Clay and Milledge LLC have shared voting and investment control of 50,000 shares; and |
| [7] | Jonathan Clay has shared voting and investment control of 32,000 shares,outstanding, currently exercisable warrants held in custody for James Clay.by Bryan A. Coates. |
INTEREST OF CERTAIN PERSONS IN MATTERS TO BE ACTED UPONPRIOR SALES
ExceptThe following table sets forth, for the twelve month period prior to the date of the Share Purchase Agreement, the prior sales of Shares and debt convertible into Shares, excluding Shares sold pursuant to the exercise of employee stock options, warrants or conversion rights:
| Description of Security | | Date Issued | | Number of Securities
Issued | | | Price | | | Shares(1) | | February 22, 2018 | | | 188,952,761 | | | US$ | 0.1325 | |
| (1) | The Shares were issued pursuant to a rights offering. A total of 123,485,369 Shares were issued to members of the Clay family and associated entities. |
DIVIDEND RECORD AND POLICY Golden Queen has not declared or paid any dividends on the Shares in the two years prior to the date of this Proxy Statement, and has no current intention to declare a dividend. Any decision to pay dividends on the Shares in the future will be made by the Board on the basis of earnings, financial requirements, and other conditions existing at such future time. TRADING PRICE AND VOLUME The Shares are quoted on the OTCQX Best Market under the symbol GQMNF. The following table sets forth the price range and volume of shares as disclosed herein, no Person has any material interest, direct or indirect,reported by waythe OTCQX Best Market for the periods indicated. | Month | | High (US$) | | | Low (US$) | | | Volume | | | July 2018 | | | 0.1687 | | | | 0.12 | | | | 1,480,412 | | | August 2018 | | | 0.1409 | | | | 0.1053 | | | | 1,053,801 | | | September 2018 | | | 0.145 | | | | 0.10279 | | | | 1,813,878 | | | October 2018 | | | 0.13 | | | | 0.0988 | | | | 1,237,757 | | | November 2018 | | | 0.125 | | | | 0.0812 | | | | 759,763 | | | December 2018 | | | 0.10628 | | | | 0.0701 | | | | 2,781,052 | | | January 2019 | | | 0.095 | | | | 0.0287 | | | | 11,492,440 | | | February 2019 | | | 0.04 | | | | 0.02 | | | | 4,333,218 | | | March 2019 | | | [♦] | | | | [♦] | | | | [♦] | | | April 1 - [♦], 2019 | | | [♦] | | | | [♦] | | | | [♦] | |
On January 7, 2019, the trading date immediately preceding the announcement that Golden Queen had received a proposal letter regarding the Transaction, the closing price for the Shares on the OTCQX Best Market was US$0.094 per Share. The Shares are listed on the TSX under the symbol GQM. The following table sets forth the price range and volume of beneficial ownership of securities or otherwise, in mattersShares as reported by the TSX for the periods indicated. | Month | | High (C$) | | | Low (C$) | | | Volume | | | July 2018 | | | 0.215 | | | | 0.16 | | | | 725,733 | | | August 2018 | | | 0.18 | | | | 0.14 | | | | 953,888 | | | September 2018 | | | 0.185 | | | | 0.14 | | | | 1,236,320 | | | October 2018 | | | 0.17 | | | | 0.135 | | | | 576,164 | | | November 2018 | | | 0.155 | | | | 0.11 | | | | 916,229 | | | December 2018 | | | 0.15 | | | | 0.10 | | | | 656,143 | | | January 2019 | | | 0.135 | | | | 0.045 | | | | 6,518,280 | | | February 2019 | | | 0.06 | | | | 0.025 | | | | 10,951,100 | | | March 2019 | | | [♦] | | | | [♦] | | | | [♦] | | | April 1 - [♦], 2019 | | | [♦] | | | | [♦] | | | | [♦] | |
On January 7, 2019, the trading date immediately preceding the announcement that Golden Queen had received a proposal letter regarding the Transaction, the closing price for the Shares on the TSX was C$0.135 per Share. Following the Transaction, the Shares will be delisted from the TSX and are expected to be acted upon atlisted on the Meeting other than the election of directors and the appointment of auditors and as set out herein. For the purpose of this paragraph, “Person” shall include each person: (a) who has been a director, senior officer or insiderNEX Board of the Company at any time sinceTSX Venture Exchange. In addition, Golden Queen expects its listing on the commencementOTCQX Best Market to be moved to a lower tier exchange of the Company’s last fiscal year; (b) who is a proposed nominee for election as a director of the Company; or (c) who is an associate or affiliate of a person included in subparagraphs (a) or (b).OTC Markets Group Inc. MATTERS TO BE ACTED UPON AT THE MEETING PROPOSAL 1: SALE OF THE SOLEDAD MOUNTAIN PROJECT This section of the Proxy Statement describes the proposed Transaction. Although we believe that the description in this section covers the material terms of the Transaction, this summary may not contain all of the information that is important to you. You should carefully read the entire Proxy Statement for a more complete understanding of the proposed Transaction. The full text of the Share Purchase Agreement may be viewed on EDGAR at www.sec.gov and SEDAR at www.sedar.com under the filings made by Golden Queen. Shareholders may also request a copy of the Share Purchase Agreement from Golden Queen free of charge. See the section of this Proxy Statement entitled “Additional Information”. Golden Queen has agreed to sell 100% of the shares of GQM US to the Purchasers, which include Thomas M. Clay and certain members of the Clay family and associated entities, under the terms of the Share Purchase Agreement dated February 7, 2019, a copy of which was filed by Golden Queen as Exhibit 10.1 to Form 8-K on EDGAR and as a material contract on SEDAR on February 11, 2019. GQM US currently holds a 50% interest in GQM LLC, the owner of a 100% interest in the Soledad Mountain Project. The interest of GQM US in GQM LLC is subject to potential dilution as a result of warrants of GQM LLC held by Gauss LLC, which warrants are described below under “Background to the Transaction”. The Soledad Mountain Project is a gold-silver mine located approximately 5 miles south of the town of Mojave in Kern County, California. The Soledad Mountain Project uses conventional open pit mining methods and the cyanide heap leach and Merrill-Crowe processes to recover gold and silver from crushed, agglomerated ore. The Soledad Mountain Project is Golden Queen’s primary asset, and its sale represents the sale of all or substantially all of Golden Queen’s assets. The following chart depicts the current corporate structure of Golden Queen, including its material subsidiaries and ownership of the Soledad Mountain Project, as well as Golden Queen’s joint venture partner in the Soledad Mountain Project. Following completion of the proposed Transaction, Golden Queen would have no subsidiaries.
Golden Queen’s principal executive offices are located at #2300 – 1066 West Hastings Street, Vancouver, B.C., V6E 3X2, and its primary telephone number is 1-778-373-1557. The Purchaser’s principal executive offices are located at #300 – 70 Main Street, Peterborough, NH, 03458, and its primary telephone number is 1-603-371-9032. Background to the Transaction
Despite the extensive efforts of our management and the Board, operations at the Soledad Mountain Project have not generated sufficient free cash flow to award dividends to Golden Queen and may require significant additional cash to continue. Golden Queen has been unable to attract sufficient capital to fund its own operations and GQM LLC, other than through loans and investment from members of the Clay family and associated entities (the “Clay Group”). Payments due under such loans have been extended but are coming due in the near future. Members of the Clay Group have been involved with Golden Queen for many years. Thomas M. Clay was a director of Golden Queen since January 2009, Chairman of the Board since May 2013 and Chief Executive Officer since August 2015, and resigned prior to the signing of the Share Purchase Agreement. Members of the Clay Group have made significant investments in, and provided multiple loans to, Golden Queen in the past. In addition, 50% of GQM LLC is owned by Gauss LLC. 75.46% of Gauss LLC is owned by Gauss Holdings LLC (wholly-owned by Jefferies Financial Group), and the remaining 24.54% is owned by Auvergne LLC, an investment entity of the Clay Group.
Recent financing by members of the Clay Group included the Second Amended and Restated Term Loan Agreement dated as of November 21, 2016, as amended (the “GQM Loan”). The GQM Loan for was a principal amount of US$31 million, due on May 21, 2019 with an annual interest rate of 8%, payable quarterly. In connection with the GQM Loan, Golden Queen issued 8,000,000 common share purchase warrants exercisable for a period of five years expiring November 21, 2021. In November 2017, Golden Queen and the Clay Group agreed to amend the GQM Loan by reducing the 2018 quarterly and 2019 first quarter principal payments from US$2.5 million to US$1 million, adding the reduction of such payments pro-rata to the remaining 2019 payments, and increasing the annual interest rate from 8% to 10% effective January 1, 2018. A payment of US$1.7 million under the GQM Loan was due on January 1, 2019 but was extended to February 1, 2019 and then further extended to February 8, 2019 to allow Golden Queen to avoid making any payments in the context of the eventual Transaction. Any payments under the GQM Loan have been further waived and postponed until after the Meeting in exchange for a fee of US$0.2 million with such fee to be added to the outstanding balance under the GQM Loan such that Golden Queen will make no further payments under the GQM Loan if the Shareholders approve the Transaction at the Meeting and all other conditions to closing as set forth in the Share Purchase Agreement are met. In February 2018, Golden Queen completed a rights offering, which was backstopped by members of the Clay Group. The total number of Shares issued by Golden Queen under the rights offering was 188,952,761, for gross proceeds of approximately US$25 million. A total of 123,485,369 Shares, being 65.4% of the Shares issued in connection with the rights offering, were acquired by members of the Clay Group. The Clay Group has also provided loans to GQM LLC, through Gauss LLC, to fund operation and development of the Soledad Mountain Project. In October 2018, GQM LLC entered into an agreement with Gauss Holdings LLC and Auvergne LLC (the “Lenders”) whereby the Lenders extended a revolving credit loan facility to GQM LLC (the “Facility”) in the amount of US$20 million. Under the terms of the agreement, the maturity date of the Facility is March 31, 2020 and the annual interest rate on drawn amounts is 8%. GQM LLC has made an initial US$5 million draw on the Facility. In connection with the Facility, the Lenders were issued 21,486 warrants (the “GQM LLC Warrants”), with each warrant entitling the holder to purchase a unit of GQM LLC for a period of five years at an exercise price of $475.384 per unit. The GQM LLC Warrants represent a fully-diluted 7.5% interest in the equity of GQM LLC. If the GQM LLC warrants are exercised, Golden Queen’s interest in GQM LLC will be diluted to 46.25% from the current 50%. The Facility is secured by a pledge of Golden Queen’s equity interest in GQM LLC. The Board has from time to time separately engaged with the management of the Company in reviews and discussions of potential strategic alternatives for the Company, and has constantly been considering ways to enhance its performance and prospects. These reviews and discussions have focused on, among other things, the business environment facing the industry generally and the Company and its current and future liabilities in particular. These reviews have also included periodic discussions with respect to potential transactions that would further its strategic objectives and enhance shareholder value, and the potential benefits and risks of those transactions. The Company has been working with Maxit Capital LP (“Maxit”), a financial advisory boutique specializing in mergers and acquisitions in the mining sector, since 2011. Maxit’s role has included to explore possible transactions to generate value for the Company, including merger and acquisition opportunities, strategic investors, and sourcing third party debt for the Company. During the period between September 2018 and January 4, 2019, Thomas M. Clay first engaged in discussions with the Board and the management of the Company regarding the existing indebtedness of the Company to the Clay Group and the impending debt payment deadlines under the GQM Loan. Mr. Clay informed the Board and the management of the Company that the Clay Group and its related entities would no longer extend the GQM Loan or provide further financing to the Company. On January 4, 2019, Mr. Clay on behalf of the Purchasers, delivered a preliminary, non-binding proposal letter (the “Non-Binding Term Sheet”) to the Company detailing a proposal to acquire all of the Company’s interests in GQM LLC for a purchase price consisting mainly of the extinguishment of all indebtedness owing to the Purchasers under the GQM Loan, the surrender of all Shares, warrants and options of the Company held by the Purchasers for cancellation and a cash payment of $3 million. The Non-Binding Term Sheet also included a 30-day go-shop period among other terms. The Non-Binding Term Sheet was subsequently filed on EDGAR on January 7, 2019 and a corresponding news release and early warning report were filed on SEDAR on January 7, 2019 by the Purchasers. On January 11, 2019, the Board formed the Special Committee along with a special committee mandate and appointed Paul Blythe, Bryan Coates and Bernard Guarnera, all being independent directors of the Company, and retained independent legal counsel to advise the Company and the Special Committee of its rights and obligations in connection with the Non-Binding Term Sheet.
Following the initial meeting the Special Committee outlined a counter proposal to the Purchasers providing for a significant increase in the cash component of the purchase price as well as a number of other provisions for the benefit of the Company post-transaction. At the same time, the Special Committee directed management of the Company to engage with Maxit on specific steps to be taken to identify alternatives to the proposal from the Purchasers and alternative avenues of financing that could be pursued to replace the indebtedness held by the Purchasers. The Purchasers rejected the Company’s counter proposal, but discussions continued between representatives of the two groups. Over the course of the following four weeks, the Special Committee met a total of 7 times. During the course of the Special Committee meetings, Mr. Blythe was appointed chair of the committee and the members discussed all available alternatives and the results of the ongoing discussions between the Company and the Purchasers. Independent legal counsel was asked to advise on the legal considerations relevant to the discussions with input from regular company counsel as well as US counsel to the Company. The Special Committee received advice on the avenues available to the Company if it were to pursue a proceeding under either Canadian or US insolvency protections in order to secure further time to identify alternative transactions. During this period of time, Maxit worked with the Company to reach out to entities that had historically shown interest in transacting with the Company, and fielded numerous inbound inquiries from parties that had become aware of the public announcement of the proposal from the Purchasers. During this period contact was made with over 30 parties by the Company or its advisors. In parallel to these discussions, the Company retained EY on January 18, 2019 to begin work in support of an eventual Formal Valuation and Fairness Opinion in the event that an alternative transaction was not identified. On January 30, 2019, the Special Committee met with Canadian and US legal counsel to the Company, independent counsel to the Special Committee, Maxit and EY to review the status of negotiations with the Purchasers, to receive an update on Maxit’s work to identify alternatives to the proposal from the Purchasers and to hear EY’s Preliminary Valuation and Fairness Opinion. At the conclusion of this discussion the Special Committee determined that a formal proposal to the Purchasers should be made. The formal proposal was delivered to counsel to the Purchasers and was not accepted, as a result of which discussions continued for several more days until on February 5 an agreement was reached on the material terms of the transaction to be pursued including a longer go shop period, a lower break fee payable by the Company in the event of a Superior Proposal 1: Electionduring the go shop period, the addition of Directorsthe contingent payment and an increase in the cash component payable to the Company by the Purchasers. The agreed upon material terms were reflected in a final letter of intent (the “Final Letter of Intent”). Mr. Clay resigned as Golden Queen’s Chief Executive Officer and from the board of directors and all managerial positions with Golden Queen, Golden Queen Mining Canada Ltd. (“GQM Canada”) and GQM US, as applicable, prior to entering into the Share Purchase Agreement. As such, the members of the Special Committee constituted all of the directors of the Company and the recommendation and approval of the members of the Special Committee represented the recommendation and approval of the Board. Having undertaken a thorough review of, and carefully considered, information concerning the Transaction and the Preliminary Valuation and Fairness Opinion from EY and after consulting with its financial and legal advisors, the Special Committee unanimously determined that the Transaction is advisable and is in the best interests of, the Company, and adopted and declared advisable the Transaction, authorized the entering into of the Final Letter of Intent and the Share Purchase Agreement to be settled based on the Final Letter of Intent, and recommended that the Shareholders vote FOR the Transaction Resolution. On February 5, 2019, the Final Letter of Intent was filed on EDGAR and a corresponding news release was disseminated on the same day. Through and until February 7, 2019, the Company, the Purchasers and their legal counsels worked to finalize the Share Purchase Agreement and related documents based on the Final Letter of Intent. The Share Purchase Agreement was executed by the Purchasers and the Company later that day and a news release relating thereto was disseminated. Following execution of the Share Purchase Agreement, the Company worked with Maxit to ensure that all interested parties that could be considered alternatives to the Transaction were again contacted and made aware of the specific terms of the transaction. Paul Blythe, as chair of the Special Committee met weekly with management and Maxit to monitor progress and provide input. Terms of the Transaction
Pursuant to the Share Purchase Agreement, the Company has agreed to sell to the Purchasers all of the issued and outstanding common shares of GQM US (the “GQM US Shares”), a corporation existing under the laws of the State of California, which owns 50% of the outstanding units of GQM LLC, a limited liability company existing under the laws of the State of California, which owns a 100% interest in the Soledad Mountain Project. GQM US is an indirect, wholly owned subsidiary of the Company through GQM Canada. The description of the Share Purchase Agreement is qualified in its entirety by the description set forth in the Form 8-K filed on EDGAR by Golden Queen on February 11, 2019 and a copy of the Share Purchase Agreement attached as Exhibit 10.1 thereto. The Share Purchase Agreement was also filed on SEDAR along with a material change report on February 11, 2019. The Purchasers include the following: | (a) | The Landon T. Clay 2009 Irrevocable Trust Dated March 6, 2009, EHT, LLC, and the Clay Family 2009 Irrevocable Trust Dated April 14, 2009 (the “Purchasers by Loan”) who are lenders to Golden Queen pursuant to the GQM Loan; |
| (b) | Estate of Landon T. Clay, Monadnock Charitable Annuity Lead Trust, Thomas M. Clay, Arctic Coast Petroleums Ltd., EHT, LLC, Jonathan Clay, 933 Milledge, LLC, James Clay, Lavinia Clay, Lavinia Clay – IRA, Cassius M.C. Clay, Landon H. Clay and Richard T. Clay (the “Purchasers by Shares”) who hold Shares of Golden Queen; and |
| (c) | Two Clay family entities, to be determined (the “Purchasers by Cash”). |
The aggregate purchase price payable by the Purchasers to Golden Queen for the GQM US Shares (collectively, the “Consideration”) will be as follows: | (a) | the Purchasers by Cash shall pay US$4,250,000 to the Company; |
| (b) | the Purchasers by Shares shall tender and exchange all Shares legally and beneficially held by the Purchasers by Shares to the Company for cancellation, being 177,701,229 Shares having a total value of US$6,308,394 based on the VWAP of the Shares on the OTCQX Best Market for the 20 trading days ended February 7, 2019 of US$0.0355; |
| (c) | the Purchasers by Shares shall tender and exchange all stock options to purchase Shares (“GQM Options”) held by the Purchasers by Shares to the Company for cancellation, being 457,500 GQM Options having de minimis value; |
| (d) | the Purchasers by Loan shall tender and exchange all principal, interest and applicable fees due under the GQM Loan to the Company for cancellation, having a value of approximately US$26,600,000 as at February 7, 2019; and |
| (e) | the Purchasers by Loan shall tender and exchange all common share purchase warrants (the “GQM Warrants”) held by the Purchasers by Loan to the Company for cancellation, being 18,000,000 GQM Warrants having a value of approximately US$32,000 as at January 31, 2019. |
The Consideration payable by the Purchasers totals approximately US$37,200,000, calculated as at February 7, 2019. See Schedules A, B, C and D of the Share Purchase Agreement for a break down and additional detail regarding the calculation of the Consideration. The Purchasers shall acquire only the GQM US Shares and not any other assets of Golden Queen or any subsidiary and shall not assume or be liable for any debt or other liabilities of Golden Queen or any subsidiary of Golden Queen (except for the GQM Loan).
The Share Purchase Agreement provides for an additional payment to be made to Golden Queen in certain circumstances. If at any time prior to June 30, 2020, (a) the Purchasers sell, transfer or assign the GQM US Shares; (b) GQM US sells, transfers or assigns its 50% ownership interest in GQM LLC; or (c) GQM LLC sells, transfers or assigns its interest in the Soledad Mountain Project, for net proceeds greater than US$55,000,000 (subject to adjustment in certain circumstances) then the Purchasers may be required to make a payment to the Company (the “Contingent Payment”). The Contingent Payment will be an amount equal to 20% of such excess proceeds, calculated in accordance with Schedule E of the Share Purchase Agreement. No Contingent Payment will be due as a result of any transaction among members of the Purchasers or their affiliates or as a result of any internal reorganization of the Purchasers or their affiliates. The Share Purchase Agreement also includes a “go shop” right (the “Go-Shop Right”), which provides that, during the period from February 7, 2019 until April 1, 2019 (the “Go-Shop Period”) Golden Queen was entitled to actively solicit proposals or participate in discussions or negotiations with third parties with respect to an offer to acquire or purchase all of the Shares or substantially all of the assets of Golden Queen, GQM Canada or GQM US (an “Acquisition Proposal”) which the Board could reasonably determine, after consultation with outside financial and legal advisors, would result in a transaction that was more favorable, from a financial point of view, to the Shareholders than the terms of the Share Purchase Agreement (a “Superior Proposal”). Before Golden Queen could accept an Acquisition Proposal, certain requirements must have been met, including but not limited to: (i) the Board determining that the Acquisition Proposal constituted a Superior Proposal; (ii) Golden Queen providing the Purchasers with notice and all documentation concerning the Superior Proposal; and (iii) Golden Queen terminating the Share Purchase Agreement and paying the Purchasers a termination fee of US$1,000,000. The Go-Shop Right provided the Purchasers the right, but not the obligation, to amend the terms of the Share Purchase Agreement, including to increase the Consideration, in response to an Acquisition Proposal, and if the Purchasers’ amendments resulted in the Acquisition Proposal no longer being a Superior Proposal to the Share Purchase Agreement, Golden Queen would be obliged to enter into the amended Share Purchase Agreement with the Purchasers. Upon the expiry of the Go-Shop Period, Golden Queen or any of its representatives or shareholders are prohibited from soliciting alternative offers or engaging in discussions or negotiations with respect to or in connection with any possible sale of GQM US, GQM Canada or GQM US’s indirect ownership of the Soledad Mountain Project (an “Alternative Transaction”). Golden Queen is to immediately provide written notice to the Purchasers of receipt of any proposal for an Alternative Transaction or any requests for information or access to the properties, books or records relating to Golden Queen, GQM US, GQM Canada or the Soledad Mountain Project by a person who has informed Golden Queen that such person is considering making, or has made, a proposal for an Alternative Transaction. The Share Purchase Agreement also includes customary representations and warranties of both Golden Queen and the Purchasers. Golden Queen provides covenants under the Share Purchase Agreement in respect of the conduct of GQM US, primarily that during the interim period, Golden Queen will cause GQM US to operate its business in the ordinary course of business in compliance with applicable law and consistent with past practice. The obligation to complete the Transaction is subject to the satisfaction of certain conditions, including the following: | (a) | the Transaction must be approved by (a) ⅔ of the votes cast on the resolution, and (b) a simple majority of the votes cast on such resolution by the Shareholders, excluding votes cast by Shareholders that are required to be excluded pursuant to applicable securities laws and the policies of the TSX; |
| (b) | all other consents and regulatory approvals necessary for the completion of the Transaction shall have been obtained, including approval of the TSX; |
| (c) | Golden Queen shall have obtained a withholding certificate pursuant to the U.S. Foreign Investment in Real Property Tax Act of 1980 from the U.S. Internal Revenue Service (“IRS”) in respect of GQM US (“Withholding Certificate”); |
| (d) | Golden Queen shall have completed a corporate reorganization for tax purposes, whereby Golden Queen shall amalgamate with its wholly-owned subsidiary GQM Canada, and settle the intercorporate debt owed by GQM US by capitalizing such amount to GQM US; |
| (e) | notices of dissent shall not have been delivered to Golden Queen by Shareholders holding greater than 5% of the outstanding Shares; and |
| (f) | satisfaction of various other closing conditions customary for a transaction of this nature. |
The Share Purchase Agreement may be terminated in the following circumstances on or prior to the closing date: (i) by the mutual written agreement of Golden Queen and the Purchasers; (ii) by either Golden Queen or the Purchasers if any closing conditions specified in the Share Purchase Agreement are not satisfied by closing; (iii) by Golden Queen upon accepting an Acquisition Proposal and paying the Purchasers a $1,000,000 termination fee, in accordance with the Go-Shop Right; (iv) and by either Golden Queen or the Purchasers if closing has not occurred before the outside date specified in the Share Purchase Agreement, or such later date as mutually agreed upon between the parties. With regard to the condition to closing to obtain the Withholding Certificate, the Share Purchase Agreement provides that, at or before the time of closing, if approval of the Shareholders of the Transaction Resolution has been obtained but Golden Queen has not received the Withholding Certificate from the IRS and Golden Queen does not foresee any unreasonable cause for further delay of receipt of the Withholding Certificate, then the Purchasers and Golden Queen will agree to extend the outside date specified in the Share Purchase Agreement and delay closing to a reasonable date to allow time for receipt of such Withholding Certificate. The Company has received conditional approval of the Transaction from the TSX, and the provisions of the Proxy Statement relating to the resolution sought were reviewed and accepted by the TSX, but there is no guarantee that the Transaction will receive final approval from the TSX. The Transaction, if approved by the Shareholders and if all other conditions to closing and actions to be taken at closing set forth in the Share Purchase Agreement are met, completed or where applicable, waived, is expected to close on or before May 21, 2019. Shareholders are advised to consult the full text of the Share Purchase Agreement, which may be viewed on EDGAR at www.sec.gov and SEDAR at www.sedar.com under the filings made by Golden Queen. Effect of the Transaction If the Transaction is completed, we will no longer have a mining property. Golden Queen will have no material assets and no active business, but intends to restructure its affairs and pursue new business opportunities. Golden Queen does not intend to liquidate following the Transaction. We will remain a reporting issuer in the Provinces of British Columbia, Alberta, Ontario, Quebec and the United States. We intend to apply to list on the NEX board of the TSX Venture Exchange and expect our listing on the OTCQX Best Market to be moved to a lower tier exchange of the OTC Markets Group Inc. The Board will evaluate alternatives for the use of the cash proceeds to be received at closing, which alternatives are expected to include using a portion of the proceeds to pursue strategic opportunities, including, without limitation, acquisition of another mining property, and to pay transaction and other expenses. The amounts and timing of our actual expenditures, however, will depend upon numerous factors, and we may find it necessary or advisable to use portions of the proceeds from the Transaction for different or presently non-contemplated purposes. The Transaction will not alter the rights, privileges or nature of the issued and outstanding Shares. A Shareholder, other than the Purchasers, who holds Shares immediately prior to the closing of the Transaction, will continue to hold the same number of Shares immediately following the closing, however the number of Shares may subsequently be adjusted if Golden Queen completes the Consolidation. See “Matters to be Acted Upon at the Meeting – Proposal 2: Share Consolidation” in this Proxy Statement. Reasons for the Transaction The Special Committee and Board carefully considered all aspects of the Transaction, and received advice from Maxit, EY, and legal counsel. The Special Committee evaluated strategic alternatives, reviewed and reported on proposed transactions and carried out negotiations in good faith on behalf of the Company with regards to the proposed sale of GQM US. In recommending the Transaction, the Special Committee and the Board considered and evaluated a number of factors, including:
| · | Avoids Bankruptcy and Insolvency Proceedings.Without ongoing funding from the Purchasers, the Company would be unable to repay its debts as they come due. The Transaction will allow the Company to eliminate all indebtedness owed to the Purchasers. The Transaction resolves Golden Queen’s going concern issue and the possibility of entering into bankruptcy and insolvency proceedings by eliminating all outstanding debt payable by Golden Queen, including a scheduled debt repayment on February 8, 2019, and additional payments due in April and May 2019. |
| · | Review of Strategic Alternatives. The belief of the Special Committee and Board, after consultation with Golden Queen’s financial and legal advisors and management, and after review of the other strategic opportunities reasonably available to Golden Queen, including the possibility of not engaging in the Transaction and pursuing insolvency proceedings, in each case taking into account the potential benefits, risks and uncertainties associated with those other opportunities, that the Transaction represents Golden Queen’s best and most certain prospect for continuing in the current economic environment. |
| · | Value to Shareholders. The Special Committee and Board have concluded that the value offered to Shareholders under the Share Purchase Agreement is more favorable than the value that might have been realized by pursuing other opportunities. Given the challenges that the Company has had in obtaining financing in the past few years, the Transaction was deemed to be a superior alternative which will allow Shareholders to realize the value of its assets. |
| · | Future Prospects of Golden Queen.Despite the extensive efforts of management and the Board, the Company has been unable to secure sufficient capital in order to fund its operations. The Transaction provides a meaningful cash treasury to assess various options to provide or return value to Shareholders going forward. After closing of the Transaction, the Company will apply to list on the NEX board of the TSX Venture Exchange in order to restructure its affairs and pursue new opportunities. |
| · | Formal Valuation and Fairness Opinion. The receipt of the Preliminary Valuation and Fairness Opinion, subsequently confirmed by the Formal Valuation and Fairness Opinion, from EY that, as of the date thereof, and subject to the assumptions, limitations and qualifications contained therein, the Transaction is fair, from a financial point of view, to the Shareholders, other than the Purchasers. |
| · | Improved Ownership by Minority Shareholders.Eliminates the Purchasers’ majority ownership position, materially increasing retained ownership by remaining Shareholders. |
| · | Lower Operating Costs.Decreases administrative expenses for the Company following closing of the Transaction. |
| · | Status of the Soledad Mountain Project. The Special Committee considered the further development required of the Soledad Mountain Project, the uncertain and unpredictable nature of the mining industry, the volatility of gold and silver prices, increases in operational and development costs among other factors that would impact Golden Queen’s ability to realize profit from the Soledad Mountain Project in the foreseeable future. |
| · | Capital Contribution. The Special Committee considered the significant capital contributions needed to be made by Golden Queen under a joint venture agreement with respect to the Soledad Mountain Project and Golden Queen’s lack of cash resources and financing opportunities to be able to fund such additional capital. |
| · | Ability to Solicit Alternative Proposals. The Share Purchase Agreement allowed Golden Queen to continue to solicit, initiate, encourage and participate in discussions regarding competing proposals to the Transaction, until April 1, 2019. In addition, the Board had the right to terminate the Share Purchase Agreement to accept a superior proposal, subject to payment of a US$1M termination fee. |
| · | Shareholder Approvals Required.The Transaction requires approval of ⅔ of the votes cast on the Transaction Resolution, and a majority of the votes cast on the Transaction Resolution by the Shareholders, excluding votes cast by the Purchasers, meaning that Shareholders who do not have an interest in the Transaction are provided with the opportunity to vote for or against the Transaction. |
| · | Contingent Payment. The Share Purchase Agreement provides for a contingent payment to Golden Queen if the Soledad Mountain Project is subsequently sold or transferred to a third party in certain circumstances. |
| · | Dissent Rights. Registered Shareholders who oppose the Transaction may, upon compliance with certain conditions, exercise dissent rights and demand to be paid an amount equal to the fair value of their Shares determined immediately prior to the passing of the Transaction Resolution (described below under “Dissent Rights”). |
| · | Ability to Change Recommendation to Shareholders. The Special Committee noted that subject to certain limitations set forth in the Share Purchase Agreement, if the Board determines in good faith, after consultation with its outside legal counsels and financial advisor and in response to any development, change, event, effect, occurrence or circumstance that does not relate to a superior alternative proposal and is not known as at the date of the Share Purchase Agreement, the Board may make a change in recommendation to the Shareholders. |
| · | Termination Fees. The Special Committee considered the termination fee of US$1 million to be paid to Purchasers if the Share Purchase Agreement is terminated upon the entry into an alternative transaction. The Special Committee believed that a termination fee of this size for the Transaction would not, in and of itself, unduly deter a third party from making a superior alternative proposal or inhibit the Board from evaluating, negotiating and, if appropriate, terminating the Share Purchase Agreement and approving a superior alternative proposal. |
| · | Remedies Available to the Company and Termination Rights. The Special Committee noted the Company could terminate the Share Purchase Agreement if the Purchasers were to breach or fail to perform any of the representations, warranties, covenants or other agreements contained in the Share Purchase Agreement, which breach has prevented or would prevent the satisfaction of certain of the condition to the Closing, and that the Company could terminate the Share Purchase Agreement to enter into a superior alternative transaction subject to the payment of a termination fee. |
| · | Likelihood of Consummation. The Special Committee considered the likelihood that the Transaction would be completed, including its belief that there would not be regulatory impediments to the Transaction. |
The Special Committee and the Board also considered a variety of risk factors concerning the Transaction, including, but not limited to: | · | Loss of Opportunity. If the Transaction is completed, Golden Queen will no longer participate in the future development or benefit from the Soledad Mountain Project. As a result, the Transaction will eliminate the opportunity for Shareholders to participate in the long term potential benefits of the Soledad Mountain Project, to the extent those benefits exceed the potential benefits reflected in the Consideration. In addition, the Soledad Mountain Project is Golden Queen’s only mineral property and there is no guarantee the Company will be successful in finding new opportunities or obtaining additional financing to fund future operations. |
| · | Failure to Complete the Transaction. The risks and costs to Golden Queen if the Transaction is not completed, including (i) all amounts owing under the GQM Loan will become immediately due and payable, (ii) the potentially adverse effect on Golden Queen’s trading price and the market’s perception of Golden Queen’s prospects, (iii) diversion of management and employee attention, potential employee attrition and the potential disruptive effect on business relationships, and (iv) the payment of our expenses associated with the Transaction. |
| · | Limits on Pursuing Alternatives.The Share Purchase Agreement provided for a US$1 million termination fee payable by Golden Queen if the Share Purchase Agreement was terminated in certain circumstances prior to April 1, 2019, which may have discouraged other bidders. However, the Special Committee believed that the termination fee was customary and reasonable and would not unduly preclude a third party from making a superior proposal in accordance with the Share Purchase Agreement. Subsequent to April 1, 2019, the Share Purchase Agreement prohibits Golden Queen from entertaining competing proposals to the Transaction. |
| · | Closing Conditions. The fact that completion of the Transaction requires the satisfaction of closing conditions that are not within our control. This includes receipt of approvals from the Shareholders and the TSX, and the receipt of the Withholding Certificate. There can be no certainty that these conditions will be satisfied or, if satisfied, when they will be satisfied. |
| · | Downgrading of Stock Exchange Listing.Following the Transaction, the Company may no longer meet the listing requirements of the TSX. The Shares are expected to be listed on the NEX Board of the TSX Venture Exchange and a lower tier exchange of the OTC Markets Group Inc. However, there can be no assurance such listings will be obtained or maintained, or that an active liquid market for the Shares will develop or be sustained. Investors may face material adverse consequences, including, but not limited to, a lack of a trading market for our securities, reduced liquidity and decreased analyst coverage of our securities. |
| · | Other Risks.See “Risk Factors” in this Proxy Statement. |
The foregoing summary of the information and factors considered by the Special Committee and the Board is not intended to be exhaustive. In view of the variety of factors and the amount of information considered in connection with its evaluation of the Transaction, the Special Committee and the Board did not find it practical to, and did not, quantify or otherwise attempt to assign any relative weighting to each specific factor considered in reaching its conclusions and recommendations. The Special Committee’s and the Board's recommendations were made after considering all of the above-noted factors, in light of the Special Committee’s and Board's knowledge of the business, financial condition and prospects of Golden Queen. Recommendation of the Special Committee After careful consideration, and taking into account the Preliminary Valuation and Fairness Opinion, consultation with its financial and legal advisors, and such matters as it considered relevant (as described above under “Reasons for the Transaction”) the Special Committee unanimously determined that the Transaction, as proposed in the Share Purchase Agreement, is in the best interests of Golden Queen and recommended the Board approve the Transaction, and recommend that Shareholders vote for the Transaction Resolution. Recommendation of the Board The Board received the recommendation of the Special Committee, and took into account the Preliminary Valuation and Fairness Opinion, consultation with its financial and legal advisors, as well as such matters as it considered relevant (as described above under “Reasons for the Transaction”) the Board determined that the Transaction, as proposed in the Share Purchase Agreement, is in the best interests of Golden Queen and approved the entering into of the Share Purchase Agreement.The Board recommends that Shareholders vote FOR the Transaction Resolution. The full Board was present at the meeting at which the Share Purchase Agreement was approved, and the Board was unanimous in its recommendations. Prior to the execution of the Share Purchase Agreement, Mr. Thomas M. Clay resigned as Chairman of the Board and as Golden Queen’s Chief Executive Officer and from the board of directors and all managerial positions with Golden Queen, GQM Canada and GQM US, as applicable. Formal Valuation and Fairness Opinion This section is subject to change based on the preparation of the Formal Valuation and Fairness Opinion referred to in this Proxy Statement, which will be completed after April 1, 2019, upon the termination of the Go-Shop Period. The Special Committee engaged EY to prepare and deliver the Formal Valuation and Fairness Opinion with respect to the Transaction. Prior to Golden Queen entering into the Share Purchase Agreement, EY provided the Special Committee with the Preliminary Valuation and Fairness Opinion, which was subsequently confirmed in writing in the Formal Valuation and Fairness Opinion on[♦], 2019. A summary of the Formal Valuation and Fairness Opinion is included below. The full Formal Valuation and Fairness Opinion will be filed on EDGAR at www.sec.gov and SEDAR at www.sedar.com under the filings made by Golden Queen on or about[♦], 2019. Shareholders may also request a copy of the Formal Valuation and Fairness Opinion from Golden Queen free of charge. See the section of this Proxy Statement entitled “Additional Information”. Shareholders are urged to read the Formal Valuation and Fairness Opinion in its entirety, especially with regard to the assumptions and limitations contained in that document. The following summary is qualified by the information contained in the Formal Valuation and Fairness Opinion.
In connection with the proposed Transaction, within the context of the requirements of MI 61-101, EY has prepared valuation under MI 61-101 and a corresponding fairness opinion. The Formal Valuation and Fairness Opinion dated and effective as of April[♦], 2019 (the “Valuation Date”) has been prepared for the Special Committee. The Formal Valuation and Fairness Opinion has been prepared to provide information for consideration by the Special Committee with respect to the proposed Transaction, but does not constitute a recommendation to any party as to any course of action they might take. Despite any conclusions reached by EY, the circumstances of individual shareholders will necessarily determine what course of action they will take in responding to the proposed Transaction. Qualifications of EY EY is one of the largest global professional service firms, providing assurance, tax, transaction and advisory services. EY’s global transaction services include: valuations and fairness opinions, corporate finance and merger & acquisition advisory, transaction diligence and integration, transaction tax advisory, and corporate restructuring. The conclusion expressed in the Formal Valuation and Fairness Opinion is that of EY, including approval by a committee of senior EY practitioners, experienced in providing valuation and fairness opinions, merger & acquisition advisory services, and other corporate transaction services. Independence of EY EY has developed its Formal Valuation and Fairness Opinion on the basis of an independent review and analysis of Golden Queen. EY is independent of all parties to the proposed Transaction in accordance with securities regulatory requirements and EY’s professional standards: | · | Over the past three years EY's services to Leucadia National Corp. (an entity related to Jefferies Financial Group Inc.) have been limited to non-audit services that are not a conflict under MI 61-101 or EY's independence policies. |
| · | No services were provided to Golden Queen, Jonathan Clay, Thomas M. Clay, Harris Clay, The Landon T. Clay 2009 Irrevocable Trust, or Auvergne LLC during the past three years. |
| · | EY has no financial interest in Golden Queen or in the outcome of the proposed Transaction. |
| · | EY has not conducted a prior valuation of Golden Queen, as determined in accordance with applicable securities regulations. There are no understandings or agreements between EY and Golden Queen or its associates or affiliates, with respect to future business dealings. |
| · | EY’s fees are not contingent of the completion of the proposed Transaction or the conclusions expressed in the Formal Valuation and Fairness Opinion. |
| · | There are no understandings or agreements between EY and Golden Queen or its associates or affiliates, with respect to future business dealings. |
Scope of Review In developing the Formal Valuation and Fairness Opinion, EY had discussions with the Special Committee and management of Golden Queen, and relied on information deemed to be relevant and obtained from these general procedures, without independent verification, which included, among others: | 1. | Review of the terms of the proposed Transaction. |
| 2. | Understanding the business of Golden Queen, including review of certain business and financial information, including Golden Queen life of mine plan. |
| 3. | Review of historical annual audited financial statements and interim financial statements of Golden Queen. |
| 4. | Discussions with Golden Queen management. |
| 5. | Value analyses relating to the Soledad Mountain Project, GQM LLC, GQM US, and the Shares. |
| 6. | Value analyses of the assets and interests involved in the Transaction. |
| 7. | Review of historical trading prices of the Shares. |
| 8. | Review of various background materials concerning Golden Queen’s business, debt and equity financing efforts by Golden Queen, including efforts of Maxit during the Go-Shop Period. |
| 9. | Review of a range of economic, investment, stock and commodity market trading, and acquisition transaction data in the process of developing factors and rates of return relevant to assessing fairness from a financial point of view. |
| 10. | Preparation of a Formal Valuation and Fairness Opinion. |
| 11. | Assessing fairness, from a financial point of view, of the proposed Transaction to the Shareholders, other than the Purchasers. |
Assumptions and Limitations EY has relied upon the completeness, accuracy and fair presentation of all of the financial and other information obtained from public sources, and from Golden Queen management for purposes of developing the Formal Valuation and Fairness Opinion. Based on representations from Golden Queen management, EY has assumed that there are no material changes in the financial position or operating results for Golden Queen from the date of the most recently available financial statements, December 31, 2018, to the Valuation Date. The Formal Valuation and Fairness Opinion has been prepared for the specific purpose identified above and is not to be used in any other context without the express written consent of EY. The Formal Valuation and Fairness Opinion is developed as of a specific date on the basis of identifiable information and EY has not undertaken to update it to any other date. Should information relevant to the valuation conclusions become available to EY subsequent to the date of its conclusion, EY reserves the right, but will be under no obligation, to revise its opinion. In completing the Formal Valuation and Fairness Opinion, EY made numerous assumptions with respect to economic, industry, and company performance and expectations that are matters over which EY has no control. Going concern business value is inherently and inescapably a matter of implicit or explicit perceptions of the potential future economic performance of the business to be valued and the environment in which that performance will take place. Recognizing that those perceptions are developed under conditions where neither contractual nor other bases exist to ensure that actual operating results will conform to the assumptions employed for valuation purposes, the analysis necessarily works with contingent and uncertain information and there is a corresponding degree of uncertainty in the resultant estimates of value. EY does not warrant that the projections and estimates employed in developing the Formal Valuation and Fairness Opinion represent commitments as to what the future performance of the businesses will be. The values are considered to be reasonable estimates on the basis of the information and assumptions upon which they are predicated and as of the time when the estimates were developed. However, should significant deviations from these assumptions emerge in the future, the estimates may well cease to be representative of value.
Valuation Methodologies Mineral properties can be classified into exploration, development, or producing assets. Depending on the availability of engineering and financial information one or more of the income, market and cost approaches may be favoured. Typically, an income approach is most suitable where a well-developed life of mine plan and financial model are available and this would generally be the case with a development or producing asset. While market approaches can be applied to exploration and development assets it is important to recognize that there are no “true” comparables and application of market approaches can be subjective as every mineral property is unique. Application of a market approach to an income producing property would also be impacted as again there are no “true” comparables. Generally, a business or asset may be valued based on the appropriate application of the income, market, cost approaches and/or adjusted net assets approach. Although all these approaches may be considered in a valuation analysis, the nature of the asset and the availability of data will dictate which approaches are applied. Each approach is discussed below. Selected Approaches EY considered an income approach, in particular a discounted cash flow, and a trading and a transaction multiples (in-situ gold equivalent ounce multiples) approach to estimate a range of fair market value (“FMV”) of the Soledad Mountain Project. EY qualitatively adjusted the range of value to reflect Golden Queen’s potential lack of access to capital markets (debt and equity) and/or an ability to sell its interest in GQM US to parties other than the Clay Group. EY used an adjusted net assets approach to calculate the FMV of the Shares. Formal Valuation Based on the information reviewed, observations, assumptions, limitations, analyses and other relevant factors, it is EY’s opinion that the value of the Golden Queen shares would be in a range of C$[♦] per share (US$[♦], converted to C$ at[♦]) to C$[♦] per share (US$[♦], converted to C$ at[♦]), before considering any costs of the proposed Transaction. Fairness Opinion Based on the information reviewed, observations, assumptions, limitations, analyses and other relevant factors, it is EY’s opinion that, the proposed Transaction is[♦]from a financial point of view to the existing Shareholders, other than the Purchasers. Tax Consequences Golden Queen expects there will be no material tax consequences to the Company under theIncome Tax Act (Canada) or the U.S. Internal Revenue Code of 1986 as a result of the Transaction. The disposition of the shares of GQM US will be treated for income tax purposes as a taxable transaction, upon which Golden Queen does not expect to recognize a gain. Golden Queen also expects there will be no material tax consequences to Shareholders (excluding the Purchasers), under theIncome Tax Act (Canada) or the U.S. Internal Revenue Code of 1986 as a result of the Transaction. However, Shareholders should consult their own legal and tax advisors for advice with respect to their particular circumstances. Shareholder Approval
The Transaction constitutes the sale of all or substantially all of the assets of Golden Queen and requires approval of the Shareholders in accordance with the BCBCA. In addition, the Purchasers include Thomas M. Clay, a former director and officer of Golden Queen, and certain members of the Clay family and associated entities. The Purchasers own approximately 59.2% of the issued and outstanding Shares. As such, the Transaction is considered to be a related party transaction under MI 61-101 and section 501(c) of the TSX Company Manual, and is subject to the minority approval requirements in MI 61-101 and the TSX Company Manual.
Golden Queen has determined that the Transaction Resolution must be approved by both (a) ⅔ of the votes cast on the resolution; and (b) a simple majority of the votes cast on such resolution by the Shareholders, excluding votes cast by Shareholders that are required to be excluded pursuant to applicable securities laws and the policies of the TSX. The votes attached to an aggregate of 177,701,229 Shares (representing approximately 59.2% of the issued and outstanding Shares) owned by the Purchasers will be excluded from voting in determining whether the Transaction has been approved by the minority shareholders of Golden Queen. Shareholders will be asked at the Meeting to approve the following special resolution: “BE IT RESOLVED THAT: | (a) | the share purchase agreement between Golden Queen Mining Co. Ltd. (the “Company”) and the Purchasers (as defined in the Company’s proxy statement and management information circular dated [♦], 2019 (“Proxy Statement”)) dated February 7, 2019 (the “Share Purchase Agreement”) and the sale of all of the shares of Golden Queen Mining Holdings, Inc. in accordance with the terms of the Share Purchase Agreement, be and are hereby authorized, approved, ratified and confirmed, and the Company is hereby authorized to perform all of its obligations thereunder; |
| (b) | notwithstanding that this resolution has been passed by the shareholders of the Company, the directors of the Company are hereby authorized and empowered, at their discretion, without any further notice to or approval of the shareholders of the Company, to amend the Share Purchase Agreement or any agreement ancillary thereto to the extent permitted by the terms thereof or, subject to the terms of the Share Purchase Agreement, not to proceed with any or all of the transactions contemplated thereby; and |
| (c) | any one director or officer of the Company is hereby authorized and directed, for and on behalf of the Company, to do all acts and things and to execute and deliver all documents required, as in the opinion of such director or officer may be necessary or desirable in order to give effect to this resolution and the matters authorized thereby, such determination to be conclusively evidenced by the execution and delivery of such document or the doing of such act or thing.” |
The Board unanimously recommends that Shareholders vote FOR the Transaction Resolution set out above. Unless such authority is withheld, the persons named in the enclosed Proxy intend to vote FOR the approval of the Transaction Resolution. Dissent Rights Under the BCBCA, Shareholders have dissent rights with respect to the resolution approving the Transaction. Shareholders who wish to dissent should take note that the procedures for dissenting to the Transaction Resolution requires strict compliance with Sections 237 to 247 of the BCBCA. The following description of the rights of Registered Shareholders to dissent from the Transaction Resolution is not a comprehensive statement of the procedures to be followed by a dissenting Shareholder who seeks payment of the fair value of their Shares. A Registered Shareholder's failure to follow exactly the procedures set forth in Sections 237 to 247 of the BCBCA will result in the loss of such Registered Shareholder's dissent rights. If you are a Registered Shareholder and wish to dissent in respect of the Transaction Resolution, you should obtain your own legal advice and carefully read the provisions of Sections 237 to 247 of the BCBCA (see Schedule B). Any Registered Shareholder is entitled to be paid the fair value of the Shares held in accordance with Section 245 of the BCBCA if such holder duly dissents in respect of the Transaction Resolution and the Transaction becomes effective (the “Dissent Rights”). A shareholder is not entitled to dissent with respect to such holder’s shares if such holder votes any of those shares in favor of the Transaction Resolution. Anyone who is a beneficial owner of Shares registered in the name of an intermediary and who wishes to dissent should be aware that only Registered Shareholders are entitled to exercise Dissent Rights. A Registered Shareholder who holds Shares as an intermediary for one or more beneficial owners, one or more of whom wish to exercise Dissent Rights, must exercise such Dissent Rights on behalf of such holder(s). In such case, the notice should specify the number of Shares held by the intermediary for such beneficial owner. A dissenting Shareholder may dissent only with respect to all of the Shares held on behalf of any one beneficial owner and registered in the name of the dissenting Shareholder.
A dissenting Shareholder is required to send a written objection to the Transaction Resolution to Golden Queen, prior to the Meeting, as described below.A vote against the Transaction Resolution or not voting on the Transaction Resolution does not constitute a written objection for purposes of the right to dissent under Section 242 of the BCBCA. Each Shareholder of the Company who intends to exercise Dissent Rights must send a written notice of dissent from the Transaction Resolution pursuant to Section 242 of the BCBCA, to the Company by 4:00 p.m. (Pacific time) on May 9, 2019. The notice of dissent should be delivered by registered mail to the Company at the address for notice described below. After the Transaction Resolution is approved by Shareholders and within one month after the Company notifies each Shareholder that has validly exercised Dissent Rights (the “Dissenting Shareholder”) of the Company’s intention to act upon the Transaction Resolution, the Dissenting Shareholder must send to the Company a further written notice. Such notice must state that the Dissenting Shareholder requires the purchase of all of the Shares (the “Dissenting Shares”) in respect of which such Dissenting Shareholder has given notice of dissent (the “Dissent Completion Notice”), together with the share certificate or certificates representing the Dissenting Shares (including a written statement prepared in accordance with Section 244(1)(c) of the BCBCA if the dissent is being exercised by the shareholder on behalf of a beneficial holder). Upon receipt of the Dissent Completion Notice, the Dissenting Shares will be repurchased by the Company in accordance with the BCBCA. The Dissenting Shareholder will be entitled to receive the fair value that the Dissenting Shares had immediately before the passing of the Transaction Resolution. A shareholder who does not strictly comply with the dissent procedures or, for any other reason, is not entitled to be paid fair value for his, her or its Dissenting Shares will participate in the Transaction on the same basis as non-dissenting Shareholders. Address for Notice All notices of dissent to the Transaction Resolution pursuant to Section 242 of the BCBCA should be sent to the Company at: Morton Law LLP 1200 – 750 West Pender Street Vancouver, British Columbia V6C 2T8 Attention: Edward L. Mayerhofer Strict Compliance with Dissent Provisions Required The foregoing summary does not purport to provide a comprehensive statement of the procedures to be followed by Shareholders who wish to dissent from the Transaction Resolution and be paid the fair value of their Shares and is qualified in its entirety by reference to Sections 237 to 247 of the BCBCA. The dissent procedures must be strictly adhered to and any failure by a Shareholder to do so will result in the loss of that holder’s Dissent Rights. Accordingly, each Shareholder who wishes to exercise Dissent Rights should carefully consider and comply with the Dissent Procedures and consult such holder’s legal advisers. PROPOSAL 2: SHARE CONSOLIDATION Following completion of the Transaction, Golden Queen is proposing to consolidate its Shares on the basis of ten existing Shares for each one Post-Consolidation Share. The Board believes it is in the best interest of Golden Queen to reduce the number of outstanding Shares, making Golden Queen more attractive to investors in potential future financings and transactions that may follow the Transaction. Management intends to proceed with the Consolidation on completion of the Transaction, but completion of the Transaction is not contingent on the approval of the Consolidation Resolution. Notwithstanding approval of the proposed Consolidation by Shareholders, the Board, in its sole discretion, may revoke the Consolidation Resolution and abandon the Consolidation without further approval or action by or prior notice to Shareholders. The Consolidation is also subject to the approval of the TSX.
Effect of the Consolidation If the Transaction is completed and Golden Queen proceeds with the Consolidation, the number of Shares issued and outstanding will be reduced from 122,400,212 Shares, after cancellation of Shares pursuant to the Transaction, to approximately 12,240,021 Post-Consolidation Shares issued and outstanding. In the event the Consolidation would result in a Shareholder holding a fraction of a Post-Consolidation Share, no fractional Post-Consolidation Share shall be issued, and such fraction will be rounded to the nearest whole Post-Consolidation Share in accordance with the requirements of the BCBCA. Except for any variances attributable to the rounding of fractional Post-Consolidation Shares, the change in the number of issued and outstanding Shares will cause no change in the capital attributable to the Shares and will not materially affect any Shareholder’s percentage ownership in Golden Queen. In addition, the Consolidation will not materially affect any Shareholder’s proportionate voting rights. See “Risk Factors – Risks Associated with the Consolidation” for a description of risk factors associated with the Consolidation. Procedure for Consolidation If the Transaction is completed and Golden Queen proceeds with the Consolidation, Registered Shareholders holding share certificates will be required to exchange their certificates for share certificates representing Post-Consolidation Shares. A letter of transmittal will be sent to such Registered Shareholders. No delivery of a certificate evidencing a Post-Consolidation Share will be made to a Shareholder until the Shareholder has surrendered the issued certificates representing its pre-consolidation Shares. Until surrendered, each certificate formerly representing pre-consolidation Shares shall be deemed for all purposes to represent the number of Post-Consolidation Shares to which the holder is entitled as a result of the Consolidation. Beneficial Shareholders, holding their Shares through a bank, broker or other nominee should note that such banks, brokers or other nominees may have various procedures for processing the Consolidation. If a Shareholder holds Shares with such a bank, broker or other nominee and has any questions in this regard, the Shareholder is encouraged to contact its nominee. Shareholder Approval At the Meeting, Shareholders will be asked to consider and vote on the Consolidation Resolution approving the Consolidation. The Consolidation Resolution must be approved by ⅔ of the votes cast on the Consolidation Resolution. Shareholders will be asked at the Meeting to approve the following special resolution: “BE IT RESOLVED THAT: | (a) | Golden Queen Mining Co. Ltd. (the “Company”) be and is hereby authorized to consolidate all of its issued and outstanding common shares without par value (the “Shares”) on the basis of one (1) post-consolidation Share for every ten (10) pre-consolidation Shares; |
| (b) | in the event that the consolidation would otherwise result in the issuance of a fractional Share, no fractional Share shall be issued, and such fraction will be rounded to the nearest whole number in accordance with the requirements of theBusiness Corporations Act (British Columbia); |
| (c) | any Director or Officer of the Company be and is hereby authorized and directed on behalf of the Company to prepare, sign and deliver all documents and to do all things necessary and advisable to give effect to these resolutions; |
| (d) | notwithstanding the shareholders’ approval by this resolution of the proposal to consolidate the issued share capital of the Company, the Directors of the Company be and are hereby authorized without further approval of the Shareholders to modify, vary or amend such terms and conditions in respect of the consolidation as may be required by the regulatory authorities having jurisdiction or as the Board may in its sole discretion deem in the best interests of the Company; and |
| (e) | notwithstanding the shareholders’ approval by this resolution of the proposal to consolidate the Shares, the Directors of the Company be and they are hereby authorized without further approval of the shareholders to revoke the resolution consolidating the Shares before it is acted upon.” |
The Board unanimously recommends that Shareholders vote FOR the Consolidation Resolution set out above. Unless such authority is withheld, the persons named in the enclosed Proxy intend to vote FOR the approval of the Consolidation Resolution. Dissent Rights Shareholders do not have dissent rights with respect to the proposed Consolidation. PROPOSAL 3: ADVISORY VOTE ON EXECUTIVE COMPENSATION The Dodd-Frank Wall Street Reform and Consumer Protection Act (the “Dodd-Frank Act”) and Section 14A of the Exchange Act require that we provide our Shareholders the opportunity to vote on a nonbinding, advisory resolution regarding the compensation of our “named executive officers” (as defined in SEC rules) as disclosed in this Proxy Statement in accordance with the compensation disclosure rules of the SEC (commonly referred to as “Say-on-Pay”), including compensation that will or may be paid or become payable to our “named executive officers” under existing employment agreements in connection with the Transaction. This compensation is described in the table in the section of this Proxy Statement entitled “Interests of Certain Persons in Matters to be Acted Upon — Executive Officer Employment Agreements — Golden Parachute Compensation,” including the footnotes to the table and related narrative discussion,above, and “Executive Compensation - Summary Compensation Table,” including the footnotes to the table and related narrative discussion, below. The Board unanimously recommends that Shareholders approve the following Advisory Say-on-Pay Resolution: “BE IT RESOLVED THAT the Shareholders of Golden Queen Mining Co. Ltd. (the “Company”), hereby approve, on an advisory basis (non-binding basis), the compensation of the Company’s named executive officers as disclosed in the “Executive Compensation - Summary Compensation Table” and the related tabular and narrative disclosures in this Proxy Statement, including compensation under existing agreements or understandings that may be paid or become payable in connection with the Transaction, in each case as disclosed pursuant to Item 402(t) of Regulation S-K in the table in the section of the Proxy Statement entitled “Interests of Certain Persons in Matters to be Acted Upon — Executive Officer Employment Agreements — Golden Parachute Compensation,” including the footnotes to the table and the related narrative discussion.” The vote on the Advisory Say-on-Pay Resolution is a vote separate and apart from the vote on the proposal to approve the Transaction. Accordingly, you may vote to approve the Transaction and vote not to approve the Advisory Say-on-Pay Resolution and vice versa. Because the vote on the Advisory Say-on-Pay Resolution is advisory only, it will not be binding on the Company. Accordingly, if the Transaction Resolution is approved and the Transaction is completed, the compensation will be payable, subject only to the conditions applicable thereto under the applicable compensation agreements and arrangements, regardless of the outcome of this advisory (non-binding) vote of the Shareholders. The above resolution approving the Advisory Say-on-Pay Resolution requires the affirmative vote of holders of a majority of the Shares entitled to vote on the matter and casting votes for or against the proposal. The Board unanimously recommends that Shareholders vote FOR the Advisory Say-on-Pay Resolution set out above. Unless such authority is withheld, the persons named in the enclosed Proxy intend to vote FOR the approval of the Advisory Say-on-Pay Resolution. PROPOSAL 4: ADVISORY VOTE ON THE FREQUENCY OF HOLDING THE SAY ON PAY VOTE In addition to the Say-on-Pay vote set forth in Proposal 3, the Dodd-Frank Act and Section 14A of the Exchange Act require that Shareholders have the opportunity, at least once every six years, to vote on how often they believe Say-on-Pay votes should be held in the future. Our last vote on Say-on-Pay frequency was held on May 30, 2013. Shareholders may indicate whether they prefer that a Say-on-Pay vote be held every year, every two years or every three years, or they may abstain from this vote. After careful consideration of the various arguments supporting each frequency level, the Board has determined that an advisory vote on executive compensation every three years is the best approach for the Company. Our executive compensation program is intended to incentivize and reward performance over a multi-year period, and a three-year cycle is consistent with these time horizons. A three-year cycle is an appropriate frequency to provide the Board and the Compensation Committee sufficient time to consider Shareholder input and implement any appropriate changes to our executive compensation strategies. Shareholders who have concerns about executive compensation during the interval between Say-on-Pay votes are welcome to bring their concerns to the attention of the Board. The vote on this proposal is an advisory vote and is not binding on the Company. The outcome of this vote will not require the Board to take any action regarding the frequency of future Say-on-Pay votes. However, the Board will take into consideration the outcome of the vote when considering the frequency of future Say-on-Pay votes. The proxy card provides Shareholders with four choices (every 1 YEAR, 2 YEARS, 3 YEARS, or ABSTAIN). The Board unanimously recommends that Shareholders vote for the option of “3 YEARS” as the preferred frequency of future Say-on-Pay votes. Unless such authority is withheld, the persons named in the enclosed Proxy intend to vote for the option of “3 YEARS” as the preferred frequency of future Say-on-Pay votes. PROPOSAL 5: ELECTION OF DIRECTORS The Board proposes to fix the number of directors of the Company at four (4)three (3) and that the following four (4)three (3) nominees be elected as directors at the Meeting, each of whom will hold office until the expiration of their term or until his or her successor shall have been duly appointed or elected and qualified: ThomasPaul M. Clay,Blythe, Bryan A. Coates, and Bernard Guarnera and Guy Le Bel.Guarnera. Unless otherwise instructed, it is the intention of the persons named as proxies on the accompanying proxy card to vote shares represented by properly executed proxies for the election of such nominees. Although the Board anticipates that the four (4) nominees will be available to serve as directors of Golden Queen, if any of them should be unwilling or unable to serve, it is intended that the proxies will be voted for the election of such substitute nominee or nominees as may be designated by the Board.
The boardBoard unanimously recommends that Shareholders vote FOR the election of directors recommends aeach nominee. Unless such authority is withheld, the persons named in the enclosed Proxy intend to vote “FOR” THE ELECTION OFFOR the election of each nominee.nominee. As part of its ongoing review of corporate governance policies, on March 5, 2014, the Board adopted a policy providing that in an uncontested election of directors, any nominee who receives a greater number of votes “withheld” than votes “for” will tender his or her resignation to the Chairman of the Board promptly following the shareholders’ meeting. The Board will consider the offer of resignation and will make a decision whether or not to accept it. In considering whether or not to accept the resignation, the Board will consider all relevant factors. The Board will be expected to accept the resignation except in situations where the considerations would warrant the applicable director continuing to serve on the Board. The Board will make its final decision and announce it in a press release within 90 days following the shareholders’ meeting. A director who tenders his or her resignation pursuant to this policy will not participate in any meeting of the Board at which the resignation is considered. The following table sets out the names of the nominees, their positions and offices in the Company, principal occupations, the period of time that they have been directors of the Company, whether or not they are considered independent or non-independent, the number of shares of the Company which each beneficially owns or over which control or direction is exercised, Board/Committee membership and attendance, and other public board of directorships information:
Name, Present Office,
Province/State & Country of
Residence | | Present Principal Occupation or Employment[1](1) | Security Holdings(2) |
| PAUL M. BLYTHE | | Security Holdings[2] | THOMAS M. CLAY
 Director Chairman Collingwood, ON, Canada | Mr. Blythehas over 40 years experience in the mining industry including significant international experience in corporate management, project development, open pit and underground operations, mergers and acquisitions, and debt and equity financing. He was the founder and President of Quadra FNX Mining and previously worked for Westmin Resources Limited, Placer Dome Canada Limited, Lac Minerals Limited and BHP Billiton. It is the determination of the Board and Interim Chief Executive Officer Providence, Rhode Island, USA
| | Mr. Clay’s principal occupation is Vice President of East Hill Management Company, LLC. He also serves as a director of The Clay Mathematics Institute, Inc. and of ThromboGenics NV. Mr. Clay represents the interests of certain significant shareholders of the Company, and as such, the Board believes that Mr. Clay is valuableBlythe’s technical expertise as a member ofwell as his corporate development activities are an asset to the Board.Company.
Date first appointed as a Director:January 13, 2009March 30, 2017 | | Common Shares: 19,768,639(3) 1,580,000
Stock Options: 150,000 107,250
Warrants:
7,500,000(4)
| | Independent | Board/Committee
Memberships | Attendance at Meetings
During 2018 | Other Public Board
Directorships | | Yes | Board of Directors | 4 | nil | | Audit Committee | 4 | | | Compensation Committee | nil | | | Nominating Committee | nil | |
IndependentBRYAN A. COATES | | Board/Committee
Memberships | | Attendance at Meetings
During 2015 | | Other Public Board
Directorships | No | | Board of Directors
| | 5/5 (100%) | | ThromboGenics NV
|
Name, Present Office,
Province/State & Country of
Residence | | Present Principal Occupation or Employment[1] | | Security Holdings[2] | BRYAN A. COATES
Director Saint-Lambert, Quebec, Canada | | Mr. Coates currently serves as President of Osisko Gold Royalties since June 2014. Prior to that, he was the Vice President, Finance and Chief Financial Officer of Osisko Mining. He was responsible for all activities related to financing, financial reporting, marketing relatingrelated to the gold industry, risk management and government relations. Mr. Coates has more than 30 years of progressive experience within the international and Canadian mining industry. Before joining Osisko, he was Chief Financial Officer of Iamgold (2006-2007), Cambior Inc. (2001-2006), and Cia Minera Antamina (1998-2001). He also acts as a Member of the Board of Directors of the Fédération des Chambres de Commerce du Quebec’s, the Chairman of Timmins Gold Corp., as well as the chair of the Chamber's Mining Industry Committee. He is a member of the Chartered Professional Accountants of Ontario. It is the determination of the Board that Mr. Coates’ financial acumen in conjunction with his public company expertise is an asset to the Company. Date first appointed as a Director:January 28, 2013 | | Common Shares: 17,000 Stock Options: 157,500 |
382,500 Warrants: 8,500 | Independent | Board/Committee Memberships | Board/Committee
Memberships | | Attendance at Meetings
During 215 2018 | | Other Public Board
Directorships | | Yes | | Board of Directors | 4 | Alio Gold Inc. | | Audit Committee | 4 | Falco Resources | | Compensation Committee | nil | Technosub | | Nominating Committee | nil | |
| BERNARD GUARNERA | | 5/5 (100%)
4/4 (100%
2/2 (100%)
nil
| | Timmins Gold Corp.
|
BERNARD GUARNERA
Director Las Vegas, Nevada, USA | | Mr. Guarnera has over 40 years of experience in the global mining industry and is President of Broadlands Mineral Advisory Services Ltd.. Mr. Guarnera was the former Chairman of the Board of Behre Dolbear Group Inc., a mining consulting firm founded in 1991. Mr. Guarnera is a registered professional engineer and a registered professional geologist. He serves as a director of the Colorado Mining Association and Northern Zinc, and is the president of Mining and Metallurgical Society of America. The Board believes that Mr. Guarnera’s technical expertise and his capital market experience make him a valuable member of the Board. Date first appointed as a Director:May 30, 2013 | | Common Shares: 25,000 Stock Options: 157,500382,500 |
| Independent | Board/Committee Memberships | Board/Committee
Memberships | | Attendance at Meetings
During 20152018 | | Other Public Board
Directorships | | Yes | | Board of Directors Audit Committee
Compensation Committee
Nominating Committee
| | 5/5 (100%)
4/4 (100%)
2/2 (100%)
nil
| | |
Name, Present Office,
Province/State & Country of
Residence | Compensation Committee | nil | | Present Principal Occupation or Employment[1] | | | Security Holdings[2]Nominating Committee | GUY LE BEL
Director
Repentigny, Quebec, Canada
nil | | Mr. Le Bel is a merger and acquisitions, and business development consultant to Canadian mining companies and has over 30 years of international experience in strategic and financial planning. He previously served as Vice President Evaluations for Capstone Mining Corp. and is a Director of RedQuest Capital Corp. Previously, Mr. Le Bel was Vice President, Business Development at Quadra Mining Ltd., and prior to that held business advisory, strategy and planning, business valuation, and financial planning management roles at BHP Billiton Base Metals Ltd., Rio Algom Ltd. and Cambior Inc.The Board believes that Mr. Le Bel’s Canadian and international experience in strategic and financial planning make him a valuable member of the Board.
Date first appointed as a Director:May 30, 2013
| | Stock Options: 157,500 |
Independent | | Board/Committee
Memberships | | Attendance at Meetings
During 2015 | | Other Public Board
Directorships | Yes | | Board of Directors
Audit Committee
Compensation Committee
Nominating Committee
| | 5/5 (100%)
4/4 (100%)
2/2 (100%)
nil
| | RedQuest Capital Corp.
|
| [1](1) | The information as to principal occupation and business or employment has been furnished by the respective nominees. |
| [2](2) | Based upon information furnished to Golden Queen either by the directors and executive officers or from the insider reports and beneficial ownership reports filed with the SEC or available atwww.sedi.ca.www.sedi.ca. These amounts include beneficial ownership of securities not currently outstanding but which are reserved for immediate issuance on exercise of options. |
| [3] | Includes 1,913,650 shares for which Thomas M. Clay has sole voting and investment control. Thomas M. Clay, Landon T. Clay and Brian James have shared voting and investment control of 807,250 shares. Thomas M. Clay and Landon T. Clay have shared voting and investment control of 17,047,739 shares; |
| [4] | Thomas M. Clay, Landon T. Clay and Brian James have shared voting and investment control of 7,500,000 shares issuable upon exercise of warrants. |
The Board seeks to ensure that it is composed of members whose particular experience, qualifications, attributes and skills, when taken together, will allow the Board to satisfy its oversight responsibilities effectively. The Board as a whole is responsible for identifying, screening and/or appointing persons to serve on the Board. In identifying Board candidates, it is the Board’s goals to identify persons whom it believes have appropriate expertise and experience to contribute to the oversight of a company of the Company’s nature while also allowing for other appropriate factors. The Board believes that the process in place to identify candidates and elect directors allows the most qualified candidates to be appointed independently. The Company believes that each of the persons standing for election to the Board at the Meeting has the experience, qualifications, attributes and skills that, when taken as a whole, will enable the Board to satisfy its oversight responsibilities effectively. The Board is responsible for overseeing management of the Company and determining the Company’s strategy and for determining whether or not a director is independent. In making this determination, the Board has adopted the definition of “independence” as set forth in National Instrument 58-101Disclosure of Corporate Governance Practices (“NI 58-10158-101”) and National Policy 58-201Corporate Governance Guidelines(“NP 58-20158-201”) with the recommendation that a majority of the Board be considered “independent”. In applying this definition, the Board considers all relationships of the directors of the Company, including business, family and other relationships. As at the date of this Proxy Statement, there are four (4)three (3) directors on the Board, ThomasPaul M. Clay,Blythe, Bryan A. Coates, and Bernard Guarnera, and Guy Le Bel. OfGuarnera. All of the fourthree (3) directors, Paul M. Blythe, Bryan A. Coates, and Bernard Guarnera and Guy Le Bel are considered independent. Thomas M. Clay, Chairman of the Board and Interim Chief Executive Officer, is not considered independent. Following the Meeting, the Board, as proposed by management in this Proxy Statement, will consist of ThomasPaul M. Clay,Blythe, Bryan A. Coates, and Bernard Guarnera and Guy Le Bel.Guarnera. The Board does not have a policy regarding a Board members’ attendance at annual meetings of shareholders. Two (2) directorsOne director attended the Company’s 20152018 annual meeting of shareholders. Biographical Information Regarding Executive Officers Thomas M. Clay - Chairman and Interim Chief Executive Officer.Mr. Clay is the Vice President of East Hill Management Co., LLC and Director of the Clay Mathematics Institute and of Thrombogenics N.V. His business education was completed at Harvard College, Oxford University and Harvard Business School. Mr. Clay has served on the Board of Directors since 2009.
Robert C. Walish, Jr. – Chief Operating Officer.Mr. Walish is the President & Chief Executive Officer of Golden Queen Mining LLC and was most recently the General Manager of the SCM Franke Operation of KGHM International, formerly QuadraFNX, located in northern Chile, where he was responsible for mining, processing and administration of a four million pound per month open-pit copper mining, heap-leach and SX-EW operation. Prior to that and over the course of more than 30 years, Mr. Walish worked at mines in Guyana, Arizona, Alaska, South Carolina, Montana and Nevada. He received his Bachelor of Arts degree from the University of Colorado and his Master of Science degree from the University of Wisconsin. Andrée St-GermainGuy Le Bel - Chief Financial Officer.OfficerAndrée St-Germain joined Golden Queen. Mr. Le Belhas more than 30 years of international mining experience in 2013strategic and has been involved with the financingsfinancial planning. Until recently, he served as Vice President Evaluations for Capstone Mining Corp. and construction of the Project. She is a former investment banker with Dundee Capital MarketsDirector of Pembridge Resources, PLC and Westbourne Resources Limited. Previously, Mr. Le Bel was VP, Business Development at Quadra Mining Ltd., and prior to that held business advisory, strategy and planning, business valuation, and financial planning management roles at BHP Billiton Base Metals Ltd., Rio Algom Ltd. and Cambior Inc. where she worked exclusively with mining companies on a variety of financings and M&A advisory assignments. She holds a Master of Business Administration degree (Honours) from Schulich School of Business (York University).
Brenda Dayton – Corporate Secretary. Ms. Dayton has served as Corporate Secretary for several mining companies on the NYSE, TSX and TSX Venture and her expertise includes governance, communications and investor relations. Prior to working inwith public companies, she worked in the financial industry in banking and insurance. She holds a Bachelor of Arts degree from the University of Calgary. Proposal 2: Ratification of Appointment of Independent Auditors
PricewaterhouseCoopers LLP (“PWC”) was appointed as Golden Queen’s independent auditors on March 31, 2016. BDO Canada LLP (“BDO”) served as Golden Queen’s independent auditors for the fiscal year ended December 31, 2015. Shareholders of the Company will be asked at the Meeting to vote for the appointment of PWC as auditors of the Company until the next annual general meeting of Shareholders or until a successor is appointed, at a remuneration to be fixed by the directors.PROPOSAL 6: APPOINTMENT OF INDEPENDENT AUDITORS
On March 31, 2016, Golden Queen appointed PricewaterhouseCoopers LLP (“PWC”) as its independent registered public accountant, subject to completion of its standard client acceptance procedures. The appointment of PWC was recommended by Golden Queen’s audit committee after considering proposals from several international public accounting firms, including BDO. As a result of PWC’s appointment, Golden Queen’s engagement of BDO Canada LLP, as its independent registered public accounting firm, was terminated. Attached as Appendix “B” is a copy of the Form 8-K filed with the SEC in connection with the change of Golden Queen’s independent auditor. Although the appointment of PWC is not required to be submitted to a vote of shareholders,Shareholders, the Board believes it is appropriate as a matter of policy to request that shareholders ratifyShareholders approve the appointment of the independent auditors for the fiscal year ending December 31, 2016.2019, and the authorization of the directors to fix the auditors’ remuneration. The affirmative vote of the holders of a majority of the sharesShares present in person or represented by proxy at the Meeting and entitled to vote is required. In the event a majority of the votes cast at the meeting are not voted in favor of ratification,appointment, the adverse vote will be considered as a direction to the Board to select other independent auditors for the fiscal year ending December 31, 2017.2019. Section 10(A)(i) of the Exchange Act prohibits the Company’s independent auditors from performing audit services for the Company as well as any services not considered to be “audit services” unless such services are pre-approved by the Audit Committee of the Board, or unless the services meet certainde minimis standards. Under the Company’s Audit Committee Charter, all non-audit services to be performed by the Company’s independent auditors must be approved in advance by the Audit Committee. All of the 20152018 audit related fees, and tax fees were pre-approved by the Audit Committee. See “External Auditor Service Fees section” in this Proxy Statement for more information. Representatives of the former auditors, BDO Canada LLP,PWC are expected to be present at the Meeting, will have the opportunity to make a statement if they desire to do so, and are expected to be available to respond to questions from Shareholders. THE BOARD OF DIRECTORS RECOMMENDS A VOTE “FOR” RATIFICATION OF THE APPOINTMENT OF PRICE WATERHOUSE COOPERS LLP AS GOLDEN QUEEN'S INDEPENDENT AUDITORSThe Board unanimously recommends that Shareholders vote FOR THE FISCAL YEAR ENDING DECEMBERthe appointment of PWC as Golden Queen’s independent auditors for the fiscal year ending December 31, 2016.2019, and the authorization of the directors to fix their remuneration. Unless such authority is withheld, the persons named in the enclosed Proxy intend to vote FOR the approval of the such appointment and authority.
PROPOSAL 3: ADVISORY (NON-BINDING) VOTE ON EXECUTIVE COMPENSATION7: APPROVAL OF STOCK OPTION PLAN Section 951 ofAt the Dodd-Frank Wall Street Reform and Consumer Protection Act (the “Dodd-Frank Act”) requires that Golden Queen seek a non-binding advisory vote from its shareholdersMeeting, Shareholders will be asked to approve the compensationadoption of our Named Executive Officers as discloseda 2019 stock option plan (the “Plan”). The Plan will come into effect upon the listing of the Shares on the NEX Board of the TSX Venture Exchange. The Company is seeking the approval of the Shareholders in thisorder to comply with the policies of the TSX Venture Exchange. The affirmative vote of the holders of a majority of the Shares present in person or represented by proxy statement.at the Meeting and entitled to vote is required.
Golden Queen seeksThe purpose of the Plan is to provide our executives with appropriate incentivesan incentive to drivedirectors, employees and consultants to acquire a proprietary interest in the success of our business. We striveCompany, to design programs that are performance-based and that encourage executives to furthercontinue their participation in the overall business strategyaffairs of the company. We provide compensation that is competitiveCompany and to retain high-quality executives to produce successful results for shareholders.increase their efforts on behalf of the Company.
The votefollowing summary of the Plan does not purport to be complete and is qualified in its entirety by reference to the Plan. A full copy of the Plan will be available at the Meeting for review by Shareholders. Shareholders may also obtain copies of the Plan from the Company prior to the Meeting on this resolutionwritten request. Eligible Participants. Options may be granted under the Plan to directors and senior officers of the Company or its subsidiaries, management company employees (collectively, the “Directors”), employees of the Company or its subsidiaries (collectively, the “Employees”) or consultants of the Company or its subsidiaries (collectively, the “Consultants”). The Board, in its discretion, determines which of the Directors, Employees or Consultants will be awarded options under the Plan. Number of Shares Reserved. The number of Shares which may be issued pursuant to options granted under the Plan may not exceed 10% of the issued and outstanding Shares at the date of granting of options. Options that are exercised, cancelled or expire prior to exercise continue to be issuable under the Plan. Limitations. Under the Plan, the aggregate number of options granted to any one individual in a 12-month period must not exceed 5% of the issued and outstanding Shares of the Company, calculated on the date the option is granted. The aggregate number of options granted to any one Consultant in a 12-month period must not exceed 2% of the issued and outstanding Shares of the Company, calculated at the date the option is granted. The aggregate number of options granted to all persons retained to provide investor relations services to the Company (including Consultants and Employees or Directors whose role and duties primarily consist of providing investor relations services) must not exceed 2% of the issued and outstanding Shares of the Company in any 12-month period, calculated at the date an option is granted to any such person. Term of Options. Subject to the termination and change of control provisions noted below, the term of any options granted under the Plan is determined by the Board and may not exceed ten years from the date of grant. Exercise Price. The exercise price of options granted under the Plan is determined by the Board, provided that it is not intended to address any specific element of compensation; rather,less than the vote relates todiscounted market price, as that term is defined in the compensation of our Named Executive Officers,TSX Venture Exchange policy manual or such other minimum price as described in this proxy statementis permitted by the TSX Venture Exchange in accordance with the compensation disclosure rulespolicies in effect at the time of the SEC. We believegrant, or, if the Shares are no longer listed on the TSX Venture Exchange, then such other exchange or quotation system on which the Shares are listed or quoted for trading. The exercise price of stock options granted to insiders may not be decreased without disinterested Shareholder approval at the time of the proposed amendment. Vesting. All options granted pursuant to the Plan will be subject to such vesting requirements as may be prescribed by the Exchange, if applicable, or as may be imposed by the Board. Termination. Any options granted pursuant to the Plan will terminate upon the earliest of: | (a) | the end of the term of the option; |
| (b) | on the date the holder ceases to be eligible to hold the option (the “Cessation Date”), if the Cessation Date is as a result of dismissal for cause or regulatory sanction; |
| (c) | one year from the date of death or disability, if the Cessation Date is as a result of death or disability; |
| (d) | on such other date as fixed by the Board, provided that the date is no more than one year from the Cessation Date, if the Cessation Date is as a result of a reason other than death, disability or cause; or |
| (e) | if no date is set by the Board under (d), 90 days from the Cessation Date, if the Cessation Date is as a result of a reason other than death, disability or cause. |
Shareholders will be asked at the Meeting to approve the following ordinary resolution: “BE IT RESOLVED THAT: | (a) | The 2019 Stock Option Plan of Golden Queen Mining Co. Ltd. (the “Company”) be approved, and that in connection therewith, a maximum of 10% of the issued and outstanding common shares of the Company at the time of each grant be approved for granting as options; and |
| (b) | any director or officer of the Company be authorized and directed to do all acts and things and to execute and deliver all documents required, as in the opinion of such director or officer may be necessary or appropriate in order to give effect to this resolution.” |
The Board unanimously recommends that Shareholders vote FOR the resolution approving the Plan set out above. Unless such authority is withheld, the persons named in the enclosed Proxy intend to vote FOR the approval of the resolution approving the Plan. A copy of the Plan is available at the records office of the Company at Suite 1200 – 750 West Pender Street, Vancouver, British Columbia, Canada until the business day immediately preceding the date of the Meeting, and a copy will also be made available at the Meeting. RISK FACTORS Shareholders should carefully consider all of the information disclosed in this Proxy Statement, including the risks and uncertainties described below, prior to voting on the matters being put before them at the Meeting. While the risks and uncertainties described below are those that management of the Company believes to be material to the Company with respect to the Transaction and Consolidation, it is possible that other risks and uncertainties affecting the Company’s business will arise or become material in the future. In addition, Shareholders should review the risk factors disclosed in Golden Queen’s Named Executive Officer compensation programs have been effective at appropriately aligning paylatest Form 10-K filed with the Securities and performanceExchange Commission on March [♦], 2019, which are incorporated by reference into this Proxy Statement. Risks Related to the Transaction The announcement and in enabling Golden Queenpending status of the Transaction, whether or not consummated, may adversely affect our operations.
The announcement and pending status of the Transaction, whether or not consummated, may adversely affect the trading price of our Shares, our current and future operations or our relationships with customers, suppliers and employees. In addition, pending the completion of the Transaction, we may be unable to attract and retain very talented executives withinkey personnel and the dedication of substantial resources of Golden Queen to the completion of the Transaction could have a negative impact on our industry.current operations and could have a material adverse effect on the current and future operations, financial condition and prospects of Golden Queen.
Completion of the Transaction is subject to several conditions that must be satisfied or waived, and we cannot be sure if or when the Transaction will be completed.
The completion of the Transaction is subject to a number of conditions precedent, some of which are outside of the control of Golden Queen, including approvals of the Shareholders and the TSX, and the receipt of the Withholding Certificate. There can be no certainty, nor can Golden Queen provide any assurance, that these conditions will be satisfied or, if satisfied, when they will be satisfied. Moreover, a substantial delay in obtaining satisfactory approvals could result in the Transaction not being completed. If the Transaction is not completed for any reason, there are risks that the announcement of the termination of the Transaction may adversely affect the trading price of our Shares, our current and future operations or our relationships with customers, suppliers and employees. Certain costs relating to the Transaction, such as legal, accounting, financial advisory and meeting related fees and expenses, must be paid by Golden Queen even if the Transaction is not completed.
In addition, if the Transaction is not completed, all amounts owing under the GQM Loan will become immediately due and payable, and the lenders may choose to pursue any rights and remedies available to them. Our Board, in discharging its fiduciary obligations, may evaluate other strategic alternatives that may not be as favorable to Golden Queen as the Transaction. There is no guarantee that a transaction of equivalent or greater value will be available from an alternative party. The Share Purchase Agreement limits our ability to pursue alternatives to the Transaction. Pursuant to the Share Purchase Agreement, Golden Queen was required to pay a termination fee of US$1 million in the event that the Share Purchase Agreement was terminated in certain circumstances prior to April 1, 2019. The termination fee may have discouraged other parties from attempting to propose an alternative transaction, even if such a transaction could have provided better value to Shareholders than the Transaction. However, the Special Committee believed that the termination fee was customary and reasonable and would not unduly preclude a third party from making a superior proposal in accordance with the Share Purchase Agreement. Subsequent to April 1, 2019, the Share Purchase Agreement prohibits Golden Queen from entertaining competing proposals to the Transaction. Risks Related to Future Operations Shareholders will no longer have the opportunity to participate in the prospects of the Soledad Mountain Project.
If the Transaction is completed, we will no longer participate in the future development or benefit from the Soledad Mountain Project. As a result, the Transaction will eliminate the opportunity for Shareholders to participate in the long term potential benefits of the Soledad Mountain Project, to the extent those benefits exceed the potential benefits reflected in the Consideration.
We will no longer have a mineral property and there is no guarantee we will be successful in finding new opportunities. The vote on this resolutionSoledad Mountain Project is advisoryour only mineral property and therefore not binding onthere is no guarantee we will be successful in finding new opportunities of equal or greater value to Golden Queen and the Compensation CommitteeShareholders. Our Board will evaluate different alternatives for the use of the cash proceeds from the Transaction. Although we expect to restructure our affairs and pursue new opportunities, including a strategic acquisition, there is no guarantee we will be successful, or the Board. Board may decide to utilize all of the proceeds for other purposes. In addition, future opportunities may require obtaining additional financing, and there is no guarantee such financing will be available. The uncertainty regarding our future operations and change in our stock exchange listing may negatively impact the value of our Shares. Although our Board will evaluate various alternatives regarding the vote is non-binding,use of the Compensation Committeeproceeds from the Transaction, it has made no decision with respect to the use of proceeds and has not committed to making any such decision by a particular date. This uncertainty may negatively impact the value and liquidity of our Shares. In addition, following the Transaction, the Company may no longer meet the listing requirements of the TSX. The Shares are expected to be listed on the NEX Board of the TSX Venture Exchange and a lower tier exchange of the OTC Markets Group Inc. However, there can be no assurance such listings will reviewbe obtained or maintained, or that an active liquid market for the voting results in connectionShares will develop or be sustained. Investors may face material adverse consequences, including, but not limited to, a lack of a trading market for our securities, reduced liquidity and decreased analyst coverage of our securities. We will continue to incur the expense of complying with public company reporting requirements following the closing of the Transaction.
After the Transaction, even though we will not have an active business, we will continue to be required to comply with the on-going evaluationapplicable reporting requirements of the Provinces of British Columbia, Alberta, Ontario and Quebec, as well as the United States Securities Exchange Act of 1934, as amended. Compliance with such reporting requirements is economically burdensome.
We may become a ‘‘passive foreign investment company’’ in future tax years, which may have adverse U.S. federal income tax consequences for U.S. Shareholders. U.S. shareholders should be aware that we may become a “passive foreign investment company” (as defined under Section 1297 of the Code) or “PFIC” in future tax years. We believe we were not classified as a PFIC for the tax year ended December 31, 2018, and based on current business plans and financial expectations, we expect that we should not be a PFIC for the current tax year ending December 31, 2019. If we are a PFIC for any year during a U.S. Shareholder’s holding period of Shares, then such U.S. Shareholder generally will be required to treat any gain realized upon a disposition of the Shares or any so-called ‘‘excess distribution’’ received on the Shares, as ordinary income, and to pay an interest charge on a portion of such gain or distribution. In certain circumstances, the sum of the tax and the interest charge may exceed the total amount of proceeds realized on the disposition, or the amount of excess distribution received, by the U.S. Shareholder. Subject to certain limitations, these tax consequences may be mitigated if a U.S. Shareholder makes a timely and effective “qualified electing fund” election under Section 1295 of the Code (“QEF Election”) or a “mark-to-market” election under Section 1296 of the Code (“Mark-to-Market Election”). Subject to certain limitations, such elections may be made with respect to the Shares. A U.S. Shareholder who makes a timely and effective QEF Election generally must report on a current basis its share of our net capital gain and ordinary earnings for any year in which we are a PFIC, whether or not we distribute any amounts to our Shareholders. For each tax year in which we determine we are a PFIC, upon the written request of a U.S Shareholder, we intend to provide such U.S. Shareholder with a PFIC Annual Information Statement for such tax year. A U.S. Shareholder who makes the Mark-to-Market Election generally must include as ordinary income each year the excess of the fair market value of the Shares over the Shareholder’s basis therein. Each U.S. Shareholder should consult its own tax advisor regarding the tax consequences of the PFIC rules and the acquisition, ownership, and disposition of the Shares. Risks Related to the Consolidation Golden Queen’s total market capitalization immediately after the proposed Consolidation may be lower than immediately before the proposed Consolidation There can be no assurance that the total market capitalization of Golden Queen’s compensation programs.Queen (the aggregate value of all Shares at the market price then in effect) immediately after the Consolidation will be equal to or greater than the total market capitalization immediately before the Consolidation. In addition, there can be no assurance that the per-share market price of the Post-Consolidation Shares will equal or exceed the direct arithmetical result of the Consolidation. THE BOARD RECOMMENDS SHAREHOLDERS VOTE “FOR” THE APPROVAL OF THE COMPENSATION AWARDED BY GOLDE QUEEN TO THE NAMED EXECUTIVE OFFICERS AS DESCRIBED IN THE DISCLOSURES IN THIS PROXY STATEMENT AS REQUIRED BY THE RULES OF THE SECURITIES AND EXCHANGE COMMISSION.The Consolidation may result in some Shareholders owning “odd lots” of Post-Consolidation Shares.
The Consolidation may result in some Shareholders owning “odd lots” of Post-Consolidation Shares, which may be more difficult to sell, or require greater transaction costs per share to sell, that those held in “board lots”. DIRECTORS AND EXECUTIVE OFFICERS The following table contains information regarding the members and nominees of the Board of Directors and the ExecutiveExecutives of Golden Queen as of the Record Date: | Name | | Age | | Position | | Position Held Since | Thomas M. Clay | | 31 | | Director | | January 13, 2009 | | | | | Chairman | | May 30, 2013 | | | | | Interim CEO | | August 10, 2015 | | Bryan A. Coates | | 5760 | | Director | | January 28, 2013 | | Bernard Guarnera | | 72 | | Director | | May 30, 2013 | Guy Le Bel | | 5775 | | Director | | May 30, 2013 | | Paul Blythe | | 65 | | Director | | March 30, 2017 | | Robert C. Walish, Jr. | | 6365 | | COO | | August 10, 2015 | Andrée St-GermainGuy Le Bel | | 3660 | | CFO | | September 18, 2013March 16, 2017 | | Brenda Dayton | | 4851 | | Corporate Secretary | | October 1, 2015 |
All of the officers identified above serve at the discretion of the Board and have consented to act as directors or officers of the Company.
RELATIONSHIPS AMONG DIRECTORS OR EXECUTIVE OFFICERS There are no family relationships among any of the existing directors or executive officers of Golden Queen. SECURITY OWNERSHIP OF MANAGEMENT
The following table sets forth certain information regarding the beneficial ownership of the Company’s Common Stock as of April 18, 2016 by:
| (i) | each director of Golden Queen; |
| (ii) | each of the Named Executive Officers of Golden Queen; and |
| (iii) | all directors and executive officers as a group. |
Except as noted below, Golden Queen believes that the beneficial owners of the Common Stock listed below, based on information furnished by such owners, have sole voting and investment power with respect to such shares, except as noted in the footnote below the table.
Name and Address of
Beneficial Owner | | Shares
Beneficially
Owned | | | Percentage of
Shares
Beneficially
Owned | | | | | | | | | | THOMAS M. CLAY,Director, Chairman & Interim Chief Executive Officer
Providence, RI | | | 27,268,639 | [1][2] | | | 24.6 | % | | | | | | | | | | | BRYAN A. COATES,Director Saint-Lambert, QC | | | 157,500 | [1] | | | 0.14 | % | | | | | | | | | | | BERNARD GUARNERA,Director Las Vegas, NV | | | 182,500 | [1] | | | 0.16 | % | | | | | | | | | | | GUY LE BEL,Director Repentigny, QC | | | 157,500 | [1] | | | 0.14 | % | | | | | | | | | | | ROBERT C. WALISH, JR.,Chief Operating Officer Mojave, CA | | | nil | | | | 0.0 | % | | | | | | | | | | | ANDRÉE ST-GERMAIN,Chief Financial Officer Vancouver, BC | | | 440,000 | [1] | | | 0.4 | % | | | | | | | | | | | BRENDA DAYTON,Corporate Secretary Vancouver, BC | | | nil | | | | 0.0 | % | | | | | | | | | | | | All officers and directors (7) persons | | | 28,206,139 | | | | 25.4 | % |
| [1] | These amounts include beneficial ownership of securities not currently outstanding but which are reserved for immediate issuance on exercise of options. In particular, these amounts include shares issuable upon exercise of options as follows: 107,250 shares issuable to Thomas M. Clay, 157,500 shares issuable to Bryan A. Coates, 157,500 shares issuable to Guy Le Bel, 157,500 shares issuable to Bernard Guarnera and 440,000 shares issuable to Andrée St-Germain. |
| [2] | Includes 1,913,650 shares for which Thomas M. Clay has sole voting and investment control. Thomas M. Clay, Landon T. Clay and Brian James have shared voting and investment control of 807,250 shares. Thomas M. Clay and Landon T. Clay have shared voting and investment control of 17,047,739 shares; Thomas M. Clay, Landon T. Clay and Brian James have shared voting and investment control of 7,500,000 shares issuable upon exercise of warrants. |
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE Section 16(a) of the Securities Exchange Act of 1934, as amended, requires Golden Queen’s directors, executive officers and persons who own more than 10% of a registered class of Golden Queen’s securities to file with the SEC initial reports of ownership and reports of changes in ownership of Common StockShares and other equity securities of Golden Queen. Directors, executive officers and greater than 10% shareholdersShareholders are required by SEC regulation to furnish Golden Queen with copies of all Section 16(a) reports they file. To the Company’s knowledge, the Form 4 filed by each of Landon T. Clay and Thomas Clay on August 14, 2015 reporting the issuance of a warrant to issue 5,967,000 shares to the Landon T. Clay 2009 Irrevocable Trust and a warrant to issue 1,533,000 shares to the Clay Family 2009 Irrevocable Trust on August 6, 2015 were filed after the required filing date.
To the Company’s knowledge, based solely on a review of Forms 3 and 4, as amended, furnished to it during its most recent fiscal year, and Form 5, as amended, furnished to it with respect to such year, other than as disclosed in this Proxy Statement, the Company believes that during the year ended December 31, 2015,2018, its directors, executive officers and greater than 10% shareholdersShareholders complied with all Section 16(a) filing requirements of the Securities Exchange Act of 1934. DIRECTORS COMPENSATION The following table sets out the compensation provided to the members of the Board during the Company’s year ended December 31, 2015:2018: | Name | | Fees
Earned
or Paid
in Cash
($) | | | Stock
Awards
($) | | | Option
Awards
($) | | | Non-Equity
Incentive Plan
Compensation
($) | | | Change in
Pension Value
and Non-
Qualified
Deferred
Compensation
Earnings | | | All Other
Compensation
($) | | | Total
($) | | H. Lutz
Klingmann(1) | | | Nil | | | | Nil | | | | Nil | | | | Nil | | | | N/A | | | | Nil | | | | Nil | | | Thomas M. Clay | | | 18,750 | | | | Nil | | | | 35,002 | | | | Nil | | | | N/A | | | | Nil | | | | 53,752 | | | Bryan A. Coates | | | 26,995 | | | | Nil | | | | 35,002 | | | | Nil | | | | N/A | | | | Nil | | | | 61,997 | | | Bernard Guarnera | | | 31,876 | | | | Nil | | | | 35,002 | | | | Nil | | | | N/A | | | | Nil | | | | 66,878 | | | Guy Le Bel | | | 29,706 | | | | Nil | | | | 35,002 | | | | Nil | | | | N/A | | | | Nil | | | | 64,708 | |
| Name | | Fees
Earned or
Paid in
Cash
(US$) | | | Stock
Awards
(US$) | | Option
Awards
(US$) | | Non-Equity
Incentive Plan
Compensation
(US$) | | Change in
Pension Value
and Non-
Qualified
Deferred
Compensation
Earnings | | All Other
Compensation
(US$) | | Total
(US$) | | | Bryan A. Coates | | | 35,000 | | | Nil | | Nil | | Nil | | Nil | | Nil | | | 35,000 | | | Bernard Guarnera(1) | | | 35,000 | | | Nil | | Nil | | Nil | | Nil | | Nil | | | 35,000 | | | Paul M. Blythe | | | 35,000 | | | Nil | | Nil | | Nil | | Nil | | Nil | | | 35,000 | | | Thomas Clay(2) | | | Nil | | | Nil | | Nil | | Nil | | Nil | | Nil | | | Nil | |
| [1](1) | H. Lutz KlingmannDirector fees earned by Bernard Guarnera were paid to Broadlands Mineral Advisory Services Ltd., a company which he controls. |
| (2) | Thomas M. Clay resigned fromas the Chairman, the CEO and director on February 7, 2019. Mr. Clay does not receive compensation in his position of Director, President and Chief role as a director, but was compensated in his role as CEO. See “Executive Officer on August 10, 2015.Compensation”. |
It is currently the policy of the Company to grant options to purchase Common Shares to its directors under the Company’s 2013 Stock Option Plan. Other than as disclosed in this Proxy Statement, and Management Information Circular, there are no other arrangements under which directors of the Company were compensated by the Company during the year ended December 31, 20152018 for their services in their capacity as directors and, without limiting the generality of the foregoing, no additional amounts are payable under any standard arrangements for committee participation or special assignments, except that the Articles of the Company provide that the directors are entitled to be paid reasonable traveling, hotel and other expenses incurred by them in the performance of their duties as directors. The Company’s Articles also provide that if a director is called upon to perform any professional or other services for the Company that, in the opinion of the directors, is outside of the ordinary duties of a director, such director may be paid a remuneration to be fixed by the directors and such remuneration may be either in addition to or in substitution for any other remuneration that such director may be entitled to receive. EXECUTIVE COMPENSATION For the purposes set out below a “Named Executive Officer” or “NEO” means: | (a) | the Company’s chief executive officer (“CEO”); |
| (b) | the Company’s chief financial officer (“CFO”); |
| (c) | each of the three most highly compensated executive officers of the company, including any of its subsidiaries, 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 $150,000; and |
| (d) | each individual who would be a named executive officer under subsection (c) above but for the fact that the individual was not an executive officer of the Company or its subsidiaries, nor acting in a similar capacity, at the end of that financial year. |
Summary Compensation Table The following table sets forth information concerning the total compensation of Golden Queen’s president and chief executive officer, chief financial officer, and the chief operating officer (the “Named Executive Officers”)NEOs during the last three completed fiscal years for services rendered to Golden Queen in all capacities. Name and
Principal
Position | | Year | | Salary
($) | | | Bonus[7]
($) | | | Stock
Awards
($) | | | Option
Awards
($)[1] | | | Non-Equity
Incentive Plan
Compensation
($) | | | Nonqualified
Deferred
Compensation
Earnings
($) | | | All Other
Compensation
($) | | | Total ($) | | | Lutz | | 2015 | | | 96,284 | | | | 41,542 | | | | 151,428 | | | | Nil | | | | Nil | | | | Nil | | | | 62,619 | | | | 351,873 | | | Klingmann[2] | | 2014 | | | 163,465 | | | | 40,743 | | | | Nil | | | | Nil | | | | Nil | | | | Nil | | | | Nil | | | | 204,208 | | | Former President, CEO | | 2013 | | | 159,524 | | | | 32,907 | | | | Nil | | | | Nil | | | | Nil | | | | Nil | | | | 1,905 | | | | 194,336 | | | Thomas M. | | 2015 | | | 33,333 | | | | Nil | | | | Nil | | | | Nil | | | | Nil | | | | Nil | | | | Nil | | | | 33,333 | | | Clay[3] | | 2014 | | | Nil | | | | Nil | | | | Nil | | | | Nil | | | | Nil | | | | Nil | | | | Nil | | | | Nil | | | Chairman & Interim CEO | | 2013 | | | Nil | | | | Nil | | | | Nil | | | | Nil | | | | Nil | | | | Nil | | | | Nil | | | | Nil | | | Robert C. | | 2015 | | | 115,984 | | | | 75,000 | | | | Nil | | | | Nil | | | | Nil | | | | Nil | | | | Nil | | | | 190,984 | | | Walish, Jr.[4] | | 2014 | | | Nil | | | | Nil | | | | Nil | | | | Nil | | | | Nil | | | | Nil | | | | Nil | | | | Nil | | | COO | | 2013 | | | Nil | | | | Nil | | | | Nil | | | | Nil | | | | Nil | | | | Nil | | | | Nil | | | | Nil | | | Andrée St- | | 2015 | | | 133,572 | | | | 30,583 | | | | Nil | | | | 15,195 | | | | Nil | | | | Nil | | | | Nil | | | | 179,350 | | | Germain[5] | | 2014 | | | 135,817 | | | | 167,783 | | | | Nil | | | | 141,181 | | | | Nil | | | | Nil | | | | Nil | | | | 444,781 | | | CFO | | 2013 | | | 47,010 | | | | 9,402 | | | | Nil | | | | 161,353 | | | | Nil | | | | Nil | | | | Nil | | | | 217,765 | | | Laurence | | 2015 | | | Nil | | | | Nil | | | | Nil | | | | Nil | | | | Nil | | | | Nil | | | | Nil | | | | Nil | | | Morris[6] | | 2014 | | | 129,041 | | | | Nil | | | | Nil | | | | 92,490 | | | | Nil | | | | Nil | | | | 33,566 | | | | 255,097 | | | Former COO | | 2013 | | | 87,500 | | | | Nil | | | | Nil | | | | 93,935 | | | | Nil | | | | Nil | | | | Nil | | | | 181,435 | |
| | | | | | | | | | | | | | | Non-equity incentive | | | | | | | | | | | | | | | | | | | | | | | | | plan compensation | | | | | | | | | | | | | | | | | | | | | | | | | (US$) | | | | | | | | | | | | | | | | | | | Share- | | | Option- | | | | | Long- | | | | | | | | | | | | Name and | | | | | | | | Based | | | Based | | | Annual | | term | | | Pension | | | All other | | | Total | | | Principal | | | | | Salary | | | Awards | | | Awards | | | incentive | | incentive | | | Value | | | Compensation | | | Compensation | | | position | | Year | | | (US$) | | | (US$) | | | (US$)(1) | | | Plans | | plans | | | (US$) | | | (US$) | | | (US$) | | Robert C. Walish, Jr. | | | 2018 | | | | 184,172 | | | | Nil | | | | Nil | | | Nil | Nil | | | | 100,000 | | | | 284,172 | | | COO | | | 2017 | | | | 175,000 | | | | Nil | | | | Nil | | | Nil | Nil | | | | 87,500 | | | | 262,500 | | | | | 2016 | | | | 115,984 | | | | Nil | | | | Nil | | | Nil | Nil | | | | 75,000 | | | | 226,065 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Guy Le Bel(2) | | | 2018 | | | | 154,357 | | | | Nil | | | | Nil | | | Nil | Nil | | | | 67,531 | | | | 221,888 | | | CFO | | | 2017 | | | | 126,058 | | | | Nil | | | | Nil | | | Nil | Nil | | | | Nil | | | | 126,058 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Thomas M. Clay(3) | | | 2018 | | | | 100,000 | | | | Nil | | | | Nil | | | Nil | Nil | | | | Nil | | | | 100,000 | | | Former Chairman and former CEO | | | 2017 | | | | 100,000 | | | | Nil | | | | 38,250 | | | Nil | Nil | | | | Nil | | | | 138,250 | | | | | 2016 | | | | 33,333 | | | | Nil | | | | Nil | | | Nil | Nil | | | | Nil | | | | 33,333 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| [1](1) | The determination of the value of option awards is based upon the Black-Scholes Option pricing model, details and assumptions of which are set out in the Company’s consolidated financial statements for the fiscal years ended December 31, 2013,2016, December 31, 20142017 and December 31, 2015. The value of the 2013 option awards is based on the options that had vested as of December 31, 2013: 100,000 vested options for the CFO and 100,000 vested options for the former COO. The 2014 option awards reflect the value of the options issued in 2013 to the CFO and former COO but vested during fiscal 2014: 200,000 vested options for the CFO and 100,000 vested options for the former COO. The former COO resigned in November 2014 and as a result 100,000 unvested options were cancelled. The value of the 2015 options awards is based on the options vested as of December 31, 2015; 46,667 vested options for the CFO.2018. |
| [2](2) | Lutz Klingmann wasGuy Le Bel assumed the Chief Executive Officerrole of the Company until August 10, 2015. During fiscal 2015, he received $62,619 in severance income.CFO on March 16, 2017, and resigned as director on March 30, 2017. |
| [3](3) | Thomas M. Clay was appointedresigned as the Interim Chief Executive Officer on August 10, 2015. |
| [4] | Robert C. Walish was appointedChairman, the Chief Operating Officer on August 10, 2015 and receives compensation directly from Golden Queen Mining Company LLC, which the Company contributes 50%. |
| [5] | Andrée St-Germain was appointed the Chief Financial Officer on September 18, 2013. The bonus granted to Ms. St-Germain in 2014 includes a bonus target of C$150,000 as set out in her employment contract. See note 1 for details on the option award. |
| [6] | Laurence Morris was the Chief Operating Officer of the Company until November 11, 2014. | | [7] | Bonus amounts received in 2015 for the former President & CEO and the CFO were awarded for 2014 performance. The bonus amount received by the COO was a signing bonus as set out in his employment contract. The CFO was awarded a performance bonus of C$80,894 and the COO was awarded a bonus in the amount of $51,065 for their performance in 2015. These amounts were paid in the 2016 fiscal year.
director on February 7, 2019. |
OPTION GRANTS DURING THE MOST RECENTLY COMPLETED FISCAL YEAROption Grants During the Most Recently Completed Fiscal Year
The Board approves the issuance of stock options to our directors, officers, employees and consultants. Unless otherwise provided by the Board, of Directors, all vested options are exercisable for a term of five (5) years from the date of grant. During the fiscal year ended December 31, 2015,2018, there were 247,500no options granted to the Named Executive Officers.Company’s directors, officers and employees. OUTSTANDING EQUITY AWARDS AT THE MOST RECENTLY COMPLETED FISCAL YEAROutstanding Equity Awards at the Most Recently Completed Fiscal Year
The following table sets forth the information concerning all option-based awards outstanding for each of Golden Queen’s Named Executive OfficersNEOs as of December 31, 2015:2018:
Name and
Principal Position | | Number of
Securities
Underlying
Unexercised
Options
(#)
Exercisable | | | Number of
Securities
Underlying
Unexercised
Options
(#)
Unexercisable | | | Equity Incentive
Plan Awards;
Number of
Securities
Underlying
Unexercised
Unearned Options
(#) | | | Option
Exercise
Price
(US$) | | | Option Expiration Date | | Guy Le Bel | | | 50,000 | | | | 50,000 | | | | Nil | | | | 1.67 | | | September 4, 2018 | | CFO(1) | | | 107,500 | | | | 107,500 | | | | Nil | | | | 0.58 | | | September 8,2020 | | | | | 75,000 | | | | 75,000 | | | | Nil | | | | 0.66 | | | November 30, 2021 | | | | | 400,002 | | | | 133,334 | | | | 266,668 | | | | 0.65 | | | March 20, 2022 | | | | | 249,999 | | | | Nil | | | | 249,999 | | | | 0.29 | | | October 20, 2022 | | | | | | | | | | | | | | | | | | | | | | Thomas M. Clay | | | 107,500 | | | | 107,500 | | | | Nil | | | | 0.58 | | | September 8, 2020 | | Former Chairman and former CEO(2) | | | 100,000 | | | | 100,000 | | | | Nil | | | | 0.66 | | | November 30, 2021 | | | | | 250,000 | | | | Nil | | | | 250,000 | | | | 0.29 | | | October 20, 2022 |
Name and
Principal Position | | Number of
Securities
Underlying
Unexercised
Options
(#)
Exercisable | | | Number of
Securities
Underlying
Unexercised
Options
(#)
Unexercisable | | | Equity Incentive Plan
Awards; Number of
Securities Underlying
Unexercised
Unearned Options
(#) | | | Option
Exercise
Price
($) | | | Option Expiration
Date | Thomas M. Clay Chairman, Interim CEO(1) | | | 107,500 | | | | Nil | | | | Nil | | | $ | 0.58 | | | September 8, 2020 | | Andrée St-Germain | | | 300,000 | | | | Nil | | | | Nil | | | $ | 1.26 | | | September 18, 2018 | | CFO | | | 46,666 | | | | 93,333 | | | | 93,333 | | | $ | 0.58 | | | September 8, 2020 |
| [1](1) | Guy Le Bel assumed the role of CFO on March 16, 2017 and resigned as director on March 30, 2017. |
| (2) | Thomas M. Clay was appointedresigned as Interim Chief Executive Officerthe Chairman, the CEO and director on August 10, 2015.February 7, 2019. |
SECURITIES AUTHORIZED FOR ISSUANCE UNDER EQUITY COMPENSATION PLANS The following table sets out information as of the end of the fiscal year ended December 31, 20152018 with respect to compensation plans under which equity securities of the Company are authorized for issuance: | Plan Category | | Number of Securities to
be Issued Upon Exercise
of Outstanding Options,
Warrants and Rights
(a) | | | Weighted-Average
Exercise Price of
Outstanding Options.
Warrants and Rights
(b) | | | Number of Securities Remaining
Available for Future Issuances
Under Equity Compensation Plan
[Excluding Securities Reflected in
Column (a)] (c) | | | Equity Compensation | | | 50,000 | | | $ | 1.16 | | | | | | | Plans Approved by | | | 150,000 | | | $ | 1.59 | | | | 5,880,000 | | | Security Holders | | | 300,000 | | | $ | 1.26 | | | | | | | | | | 570,000 | | | $ | 0.58 | | | | | | | Equity Compensation Plans Not Approved by Security Holders | | | Nil | | | | Nil | | | | Nil | | | Total: | | | 1,070,000 | | | $ | 0.94 | | | | 5,880,000 | |
| | | Number of
securities to be
issued upon exercise
of outstanding
options, warrants
and rights | | | Weighted-average
exercise price of
outstanding options,
warrants and rights | | | Number of securities
remaining available for
future issuance under
equity compensation plans
(excluding securities
reflected in column (a)) | | | Plan Category | | (a) | | | (b) | | | (c) | | | | | | 50,000 | | | US$ | 1.16 | | | | | | | | | | 150,000 | | | US$ | 1.59 | | | | | | | Equity compensation plans | | | 430,000 | | | US$ | 0.58 | | | | 4,599,999 | | | approved by securityholders | | | 365,000 | | | US$ | 0.66 | | | | | | | | | | 400,002 | | | US$ | 0.65 | | | | | | | | | | 1,204,999 | | | US$ | 0.29 | | | | | | | | | | | | | | | | | | | Equity compensation plans not approved by securityholders
| | | Nil | | | Nil | | | | Nil | | | | | | | | | | | | | | | | Total | | | 2,600,001 | | | US$ | 0.54 | | | | 4,599,999 | |
AGGREGATED STOCK OPTION EXERCISES DURING THE MOST RECENTLY COMPLETED FISCAL YEAR AND FISCAL YEAR-END OPTION VALUESAggregated Stock Option Exercises During the Most Recently Completed Fiscal Year and Fiscal Year-End Option Values
There were no stock options exercised by the Named Executive Officers during the Company’s fiscal year ended December 31, 2015.2018. TERMINATION OF EMPLOYMENT, CHANGE IN RESPONSIBILITIES AND EMPLOYMENT CONTRACTSTermination and Change of Control Benefits
The Company has entered into consulting or employment contracts with each of the Named Executive OfficersNEOs as follows:
The Company entered into an employment contract on September 18, 2013 with Andrée St-Germain, the Chief Financial Officeramended and Corporate Secretary of the Company. Ms. St-Germain is entitled to an annual salary of C$150,000 and a one-time bonus target of C$150,000 to be payable as to 50% after six (6) months and 50% after twelve (12) months, subject to a performance review by the Compensation Committee. This bonus target was paid to Ms. St-Germain in 2014. Thereafter, Ms. St-Germain may be paid bonuses at the sole discretion of the Board. Pursuant to the contract, if Ms. St-Germain is terminated by the Company without cause during the first twelve (12) months of her employment, she will be entitled to six (6) months base salary being C$75,000. If Ms. St-Germain is terminated by the Company without cause after the first twelve (12) months of her employment, she will be entitled to twelve (12) months base salary being C$150,000. In the event that the employment of Ms. St-Germain is terminated by the Company or its successor without cause, or is terminated by Ms. St-Germain for good reason, in either case within six (6) months following a change of control, she will be entitled to receive a lump-sum severance payment equal to twenty-four (24) months base salary, being C$300,000, and two (2) times her annual bonus, being C$300,000. Ms. St-Germain’s contract continues indefinitely, unless and until terminated. The Company entered into anrestated employment contract on October 1, 20152017 with Brenda Dayton pursuant to which Ms. Dayton waswho is employed as Corporate Secretary of the Company effectivelyeffective October 1, 2015. Her employment with the Company will continue without fixed term. Her position as officer of the Company will be renewed annually subject to the approval of the Board. Ms. Dayton is entitled to an annual salary of C$110,000, subject to periodic review in accordance with Company practice. Pursuant to the contract, if Ms. Dayton is terminated by the Company without cause or terminated by Ms. Dayton for good reason, within 612 months following a change of control, she will be entitled to receive a lump-sum severance payment equal to her gross annual salary received from the Company in the twelve month period immediately preceding the date of written notice of termination provided by Ms. Dayton or the Company.and two times her annual bonus. Ms. Dayton is also entitled to participate in the Company’s stock option plan.
The Company entered into an employment contract on March 16, 2017 with Guy Le Bel pursuant to which Mr. Le Bel assumed the role of Chief Financial Officer. Mr. Le Bel is entitled to an annual salary of C$175,000 and a one-time signing bonus of C$25,000. Thereafter, Mr. Le Bel may be paid bonuses at the sole discretion of the Board. Mr. Le Bel also received an initial grant of 400,002 stock options to purchase common shares of the Company for a period of 5 years. The stock options will vest as follows: 133,334 options at 12 months, 133,334 options at 24 months, and 133,334 options at 36 months. Mr. Le Bel is also entitled to participate in the Company’s stock option plan. If Mr. Le Bel is terminated by the Company without cause after the first six months of his employment, he will be entitled to 12 months base salary being C$175,000 and 100% of the last annual bonus granted. In the event that the employment of Mr. Le Bel is terminated by the Company or its successor without cause, or is terminated by Mr. Le Bel for good reason, in either case within 12 months following a change of control, he will be entitled to receive a lump-sum severance payment equal to 24 months base salary, being C$350,000, and two times his annual bonus. Compensation Committee The Compensation Committee reviews and approves the compensation of Golden Queen’s senior management and officers, reviews and administers Golden Queen’s stock option plan and makes recommendations to the Board regarding such matters. The members of the Compensation Committee are Bernard Guarnera, Bryan A. Coates and Paul M. Blythe, composed entirely of independent directors. The Board has adopted a written charter for the Compensation Committee. The Compensation Committee charter is available on the Company’s website at www.goldenqueen.com. During the fiscal year ended December 31, 2018, the Compensation Committee did not hold a meeting. Composition of the Compensation Committee The members of the Compensation Committee during the year ended December 31, 2018 were Bernard Guarnera who serves as the Committee’s Chairman, Bryan A. Coates, and Paul M. Blythe. Report on Executive Compensation and Compensation Discussion and Analysis The Compensation Committee of the Board is responsible for reviewing and approving the remuneration of the senior management of the Company, including the President and Chief Executive Officer and the Chief Financial Officer. The guiding philosophy of the Compensation Committee in the determination of executive compensation is ensuring that the Company is able to attract the best possible candidates for management positions, given the high level of competition for competent management in the mining industry, and to align the interests of management with those of the Company’s shareholders. The Company’s executive compensation policies are designed to recognize and reward individual contribution, performance and level of responsibility and ensure that the compensation levels remain competitive with other precious metals development and mining companies. The key components of total compensation are base salary and incentives. The Compensation Committee has no formal process for determining appropriate base salary ranges. Currently the Company pays compensation in the form of a base salary to its Chief Executive Officer and its Chief Financial Officer. The base salary to the Chief Executive Officer was based on a proposal from the Chief Financial Officer, which was accepted by the Company after considering his experience and expected responsibility and contribution to the Company. The base salary of the Chief Financial Officer was negotiated based on industry comparatives and the Chief Financial Officer’s experience. Stock options are granted to senior management to align the financial interests of management with the interests of shareholders of the Company and to encourage senior management to focus on strategies and results that enhance shareholder value in the longer term. The number of options to purchase Shares granted to each individual will depend largely on his level of responsibility and contribution to the Company’s performance.
The Compensation Committee is responsible for considering the appropriateness and effectiveness of the Company’s executive compensation policies, given prevailing circumstances. Although the Shareholder vote on executive compensation, which is submitted every three (3) years, is non-binding, the Compensation Committee will review the voting results in connection with the on-going evaluation of the Company’s compensation program. The Compensation Committee may not delegate any of its authority to other persons. Compensation Committee Interlocks and Insider Participation None of the members of the Compensation Committee served as an officer or employee of the Company during the fiscal year ended December 31, 2018 (or subsequently). No current member of the Compensation Committee formerly served as an officer of the Company, and none of the current members of the Compensation Committee have entered into a transaction with the Company in which they had a direct or indirect interest that is required to be disclosed pursuant to Item 404 of Regulation S-K. Performance Graph The performance graph depicts the Company’s cumulative total Shareholder returns over the five (5) most recently completed financial years based on an initial investment of $100 in the Company’s Shares, compared to an equal investment in the S&P/TSX Global Gold Index. The Company does not currently issue dividends. The Share performance as set out in the graph does not necessarily indicate future Share price performance. 
| | | December 31,
2014 | | | December 31,
2015 | | | December 31,
2016 | | | December 31,
2017 | | | December 31,
2018 | | | Company | | $ | 100 | | | $ | 68 | | | $ | 79 | | | $ | 20 | | | $ | 10 | | | S&P/TSX Global Gold Index (TITTGD) | | $ | 100 | | | $ | 89 | | | $ | 133 | | | $ | 134 | | | $ | 128 | |
Source: TSX InfoSuite REPORT OF CORPORATE GOVERNANCE The Canadian Securities Administrators have adopted National Instrument 58-101Disclosure of Corporate Governance Practices (“NI 58-101”) and National Policy 58-201Corporate Governance Guidelines(“NP 58-201”) (the “Guidelines”“Guidelines”), both of which came into force as of June 30, 2005 and effectively replaced the corporate governance guidelines and disclosure policies of the Exchange.TSX. NI 58-101 requires issuers such as the Company to disclose the corporate governance practices that they have adopted, while NP 58-201 provides guidance on corporate governance practices. In this regard, a brief description of the Company’s system of corporate governance, with reference to the items set out in NI 58-101 and NP 58-101 is set forth below.
The Board and management recognize that effective corporate governance is important to the direction and operation of the Company in a manner in which ultimately enhances shareholderShareholder value. As a result, the Company has developed and implemented, and continues to develop, implement and refine formal policies and procedures which reflect its ongoing commitment to good corporate governance. The Company believes that the corporate governance practices and procedures described below are appropriate for a company such as the Company. Board of Directors NP 58-201 recommends that boards of directors of reporting issuers be composed of a majority of independent directors. WithAll three (3) of the four (4) current directors are considered independent, the Board is currently composed of a majority of independent directors. Mr. Clay, in his role as Interim CEO and the Chairman of the Board is not deemed independent. The Board holds regular meetings. Between the scheduled meetings, the Board meets as required. Management also communicates informally with directors on a regular basis, and solicits advice from directors on matters falling within their special knowledge or experience. Chairman of the Board With the recent resignation of Thomas M. Clay, a non-independent director, was appointedthe Company does not currently have an official Chairman of the Board on June 10, 2014. Mr. Clay’sBoard. The Chairman’s primary roles as Chairman arerole is to chair all meetings of the Board and to manage the affairs of the Board, including ensuring the Board is organized properly, functions effectively and meets its obligations and responsibilities. The Chairman’s responsibilities include, among other things, ensuring effective relations and communications among Board members. The Company does not have a In his capacity as chairman that is independent or a lead independent director. Given the size of the Board, the Board believes that the presence of three (3) independent directors out of the four (4) directors currently on the Board, each of whom sits on the Board’s committees,Special Committee, Paul Blythe is sufficient independent oversight ofacting as the Chairman of the Board and Chief Executive Officer. The independent directors work well together in the current Board structure and the Board does not believe that selecting an independent chairman or a lead independent director would add significant benefits to the Board oversight role.Board.
Director Meetings The Board meets on a regular basis and holds additional meetings as considered appropriate to deal with the matters arising from developments in the business and affairs of the Company from time to time. During the fiscal year ended December 31, 2015,2018, the Board held five (5)four (4) regular meetings, including an in-person Board meeting held on site.meetings. In addition to the business conducted at such meetings, various other matters were discussed by phone and approved by written resolution signed by all members of the Board. The Company does not have a policy with regard to Board member’smembers’ attendance at annual meetings of Shareholders. Board Mandate The Board is responsible for the overall stewardship of the Company. The Board discharges this responsibility directly and through the delegation of specific responsibilities to committees of the Board. The Board works with management to establish goals and strategies for the Company, to identify principal risks, to select and assess senior management and to review significant operational and financial matters.Thematters. The Board’s mandate is available on the Company’s website atwww.goldenqueen.com. Position Descriptions The Board has developed written position descriptions for the Chairman of the Board, the Directors of the Board, each chair of each board committee, and for the Chief Executive Officer of the Company, which are available on the Company’s website atwww.goldenqueen.com. Orientation and Continuing Education The Company provides new directors with an overview of their role as a member of the Board and its Committees, and the nature and operation of the Company’s business and affairs. New directors also have the opportunity to discuss the Company’s affairs with legal counsel and with the Company’s independent auditors. New directors are also provided with opportunities to visit the mine site in Mojave and are invited to have discussions with the Company’s operating personnel. In 2015,2016, all of the directors visited the Soledad Mountain Project and had the opportunity to meet with local stakeholders and tour the project facilities.
The Company does not provide formal continuing education to its Board members, but does encourage them to communicate with management, independent auditors and consultants. Board members are also encouraged to participate in industry-related conferences, meetings and education events to maintain their skills and knowledge necessary to meet their obligations as directors of the Company. Code of Business Conduct The Board has adopted a Code of Business Conduct (the “Code”“Code of Conduct”), which is distributed to officers, management and employees of the Company. To ensure and monitor compliance with the Code of Conduct, the Board has adopted a Whistle-blower Policy. A request for a waiver of any provision of the Code of Conduct can be made in writing to the Audit Committee, however, such waiver must be approved by the Board. During the recently completed fiscal year, there was no conduct by an officer, by management or an employee that constituted a departure from the Code.Code of Conduct. The Board has also adopted a Code of Ethics for Senior Financial Officers. The Company’s Code of Business Conduct and Code of Ethics for Senior Financial Officers are available on the Company’s website atwww.goldenqueen.com. If a director or senior officer has a material interest in a transaction or agreement being considered by the Company, such individual is precluded from voting on the matter and the Board considers such matter without the individual present. Assessments Based upon the Company’s size, its current stage of development and the number of individuals on the Board, the Board considers a formal process for assessing the effectiveness and contribution of the Board as a whole, its committees or individual directors to be unnecessary at this time. The Board and its committees meet on numerous occasions during each year, each director having regular opportunity to assess the Board as a whole, its committees, and other directors in relation to assessment of the competencies and skills that the Board as a whole, its committees and directors should possess. The Board will continue to evaluate its own effectiveness and the effectiveness of its committees and individual directors in such manner. Board Leadership Structure The BoardWith the recent resignation of Thomas M. Clay, the Company does not currently have an express policy regarding the separationofficial Chairman of the rolesBoard, however, in his capacity as chairman of the Special Committee, Paul Blythe is acting as the Chairman of the Board and Chief Executive Officer, as the Board believes that it is in the best interests of the Company to make that determination based on the position and direction of the Company and the membership of the Board. The Board has reviewed the Company’s current Board leadership structure. Thomas M. Clay has been the Company’s Chairman of the Board since May 2013 and assumed the role of Interim Chief Executive Officer on August 10, 2015. In light of the composition of the Board, the Company’s size, the nature of the Company’s business, the regulatory framework under which the Company operates, the Company’s shareholder base, the Company’s peer group and other relevant factors, the Board believes that the current leadership structure is appropriate. Mr. Clay brings complimentary attributes to the Company’s business operations and strategic plans and generally are focused on somewhat different aspects of the Company’s operations.
The Companyalso does not have a lead independent director. Given the size of the Board the Board believesand that the presence ofall three (3)directors are independent, directors out of the four (4) directors currently on the Board, each of whom sits on the Board’s committees, is sufficient independent oversight of the Chairman of the Board and Chief Executive Officer. The independent directors work well together in the current Board structure and the Board does not believe that selecting a lead independent director would add significant benefits to the Board oversight role.
Also, the Board does not have a formal policy with respect to the consideration of diversity when assessing directors and director candidates, but considers diversity as part of its overall assessment of the Board’s functions and needs. Board’s Role in Risk Oversight The understanding, identification and management of risk are essential elements for the successful management of the Company. Management is charged with the day-to-day management of the risks the Company faces. However, the Board, directly and indirectly through its committees, is actively involved in the oversight of the Company’s risk management policies. The Board is charged with overseeing enterprise risk management, generally, and with reviewing and discussing with management the Company’s major risk exposure (whether financial, operating or otherwise) and the steps management has taken to monitor, control and manage these exposures, including the Company’s risk assessment and risk management guidelines and policies. Additionally, the Compensation Committee oversees the Company’s compensation policies generally, in part to determine whether or not they create risks that are reasonably likely to have a material adverse effect on the Company. Board Term Limits The Company has not adopted term limits for the directors on the Board or other mechanisms of board renewal because the Company believes that the imposition of term limits for its directors may lead to the exclusion of potentially valuable members of the Board. While there is a benefit to adding new perspectives to the Board from time to time, there are also benefits to having continuity and directors having in-depth knowledge of the Company’s business. The Company’s Nominating Committee considers, among other factors, skills, experience, and tenure when identifying potential director nominees. Gender Diversity The Company has not adopted a written policy relating to the identification and nomination of women directors and the Company has not adopted a target regarding the representation of women on the Board or in executive officer positions. The Company’s Nominating Committee identifies, evaluates and recommends candidates to become members of the Board with the goal of creating a Board that, as a whole, consists of individuals with various and relevant career experience, industry knowledge and experience, and financial and other specialized experience, while taking diversity into account. The consideration of the level of representation of women on the Board and in executive officer positions is one factor among many that plays a role in the Company’s Nominating Committee’s decision-making process. As at the date hereof, there are no female directors on the Board and one (1) femaleor serving as executive officer (33% of the total executive officers)officers of the Company. Board’s Skills Matrix The following table summarizes the particular areas of expertise for each member of the Board: Director Name | | Business
Development | | Corporate
Governance | | Finance | | Risk
Management | | Capital
Markets | | Mining &
Processing | | | | | | | | | | | | | | | Thomas M. Clay | | X | | X | | X | | X | | X | | | | Bryan A. Coates | | X | | X | | X | | X | | X | | | | Bernard Guarnera | | X | | X | | X | | X | | | | X | Guy Le BelPaul M. Blythe | | X | | | | X | | X | | X | | X |
COMMITTEES OF THE BOARD OF DIRECTORS The Board of Directors has established an Audit Committee, a Compensation Committee, and a Nominating Committee. Each of the Audit Committee, Compensation Committee, and Nominating Committee, is responsible to the full Board of Directors.Board. The functions performed by these committees are summarized below: Audit Committee. The Audit Committee considers the selection and retention of independent auditors and reviews the scope and results of the audit. In addition, it reviews the adequacy of internal accounting, financial and operating controls and reviews Golden Queen’s financial reporting compliance procedures. As of the Record Date, the members of the Audit Committee are Bryan A. Coates, Guy Le Bel,Paul M. Blythe, and Bernard Guarnera, each of whom is considered independent.independent (in accordance with Item 407(a)(1)(ii) of SEC Regulation S-K) as defined by the listing standards of the Nasdaq Stock Market, since none of them are believed to have any relationships that, in the opinion of the Board of Directors, would interfere with the exercise of independent judgment in carrying out the responsibilities of a director. Bryan A. Coates is the Chair and the “financial expert” of the Audit Committee.Committee as defined by Item 407(d)(5)(ii) of SEC Regulation S-K. The Board of Directors has adopted a written charter for the Audit Committee. The Audit Committee charter is available on the Company’s website atwww.goldenqueen.com. www.goldenqueen.com. During the fiscal year ended December 31, 2015,2018, the Audit Committee held four (4) meetings, during which all audit committee members were present. As part of its oversight of our financial reporting process, the directors have: (1) reviewed and discussed with management our audited financial statements for the year ended December 31, 2015;2018; (2) received a report from BDO Canada LLPPWC, our independent auditors, on the matters required to be discussed by Statement on Auditing Standards No. 61, “Communications with Audit Committees”; (3) received the written disclosures and the letter from the auditors required by Public Company Accounting Oversight Board Rule 3526 regarding the independent accountant’s communications with the audit committee concerning independence, and discussed with the independent accountant the independent accountant’s independence; and (4) considered whether or not the provision of non-audit services by the auditors is compatible with maintaining their independence and has concluded that it is compatible at this time. Based on the foregoing review and discussions, the Audit Committee recommended to the Board that the audited financial statements should be included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2015,2018, filed with the SEC on March 30, 2016.[♦], 2019.
Submitted by the Audit Committee. Bryan A. Coates, Chair Bernard Guarnera, Member Guy Le Bel,Paul M. Blythe, Member
Compensation Committee. The Compensation Committee reviews and approves the compensation of Golden Queen’s senior management and officers, reviews and administers Golden Queen’s stock option plan and makes recommendations to the Board of Directors regarding such matters. As of the Record Date, the members of the Compensation Committee are Bernard Guarnera, Bryan A. Coates and Guy Le Bel,Paul M. Blythe, composed entirely of independent directors. The Board of Directors has adopted a written charter for the Compensation Committee. The Compensation Committee charter is available on the Company’s website atwww.goldenqueen.com. www.goldenqueen.com. During the fiscal year ended December 31, 2015,2018, the Compensation Committee two (2) meetings.did not hold a meeting. Nominating Committee. The Nominating Committee assists the Board in providing effective corporate governance. As of the Record Date, the members of the Nominating Committee are Bryan A. Coates, Bernard Guarnera and Guy Le Bel,Paul M. Blythe, composed entirely of independent directors. The Board of Directors has adopted a written charter for the Nominating Committee. The Nominating Committee charter is available on the Company’s website atwww.goldenqueen.com. www.goldenqueen.com. The Nominating Committee does not have a policy with regards to the consideration of any director candidate recommend by shareholdersShareholders of the Company and the Board is of the view that it is appropriate for the Company to not have such a policy at this time. During the fiscal year ended December 31, 2015,2018, the Nominating Committee did not hold a meeting. Technical Committee. The Technical Committee reviews technical information on the Company’s Soledad Mountain project and makes recommendations to the Board. The Technical Committee was formed in March of 2014 and held two (2) formal meetings. The Board adopted a written charter for the Technical Committee in May 2014. The Technical Committee has been disbanded given the Company’s transition to production.
AUDIT COMMITTEE Pursuant to National Instrument 52-110Audit Committees of the Canadian Securities Administrators, the Company is required to disclose annually in its Information CircularProxy Statement certain information concerning the constitution of its audit committee and its relationship with its independent auditor, as set forth in the following:below. The primary function of the audit committee (the “Committee”) is to assist the board of directorsBoard in fulfilling its financial oversight responsibilities by reviewing (a) the financial reports and other financial information provided by the Company to regulatory authorities and shareholders; (b) the systems for internal corporate controls which have been established by the Board and management; and (c) overseeing the Company’s financial reporting processes generally. In meeting these responsibilities the Committee monitors the financial reporting process and internal control system; reviews and appraises the work of external auditors and provides an avenue of communication between the external auditors, senior management and the company’s Board. The Committee is also mandated to review all material related party transactions. The Audit Committee’s Charter The Company has adopted an Audit Committee Charter, the text of which can be found on the Company’s website atwww.goldenqueen.com. Composition of the Audit Committee TheAs of the Record Date, the Committee iswas comprised of Bryan A. Coates, Bernard Guarnera, and Guy Le Bel.Paul M. Blythe. All of the Audit Committee members are independent and considered to be financially literate in that each Committee member has the ability to read and understand a set of financial statements that present a breadth and level of complexity of accounting issues that are generally comparable to the breadth and complexity of the issues that can presumably be expected to be raised by the Company’s financial statements.
Relevant Education and Experience Bryan A. Coates currently serves as President of Osisko Gold Royalties since June 2014. Prior to that, he was the Vice President, Finance and Chief Financial Officer of Osisko Mining. He was responsible for all activities related to financing, financial reporting, marketing relating to the gold industry, risk management and government relations. Mr. Coates has more than 30 years of progressive experience within the international and Canadian mining industry. Mr. CoateshasCoates has an understanding of the accounting principles used by the Company to prepare its financial statements.
Bernard Guarnera has over 40 years of experience in the global mining industry and is currently President of Broadlands Mineral Advisory Services Ltd. Mr. Guarnera is a Directordirector of the Boardboard of Behre Dolbear Group Inc., a mining consulting firm founded in 1991. Mr. GuarnerahasGuarnera has an understanding of the accounting principles used by the Company to prepare its financial statements. Guy Le Bel is a mergerPaul M. Blythe has over 40 years of experience in the mining industry including significant international experience in corporate management, project development, open pit and underground operations, mergers and acquisitions, and business development consultant to Canadian mining companiesdebt and has over 30 yearsequity financing. He was the founder and President of international experience in strategicQuadra FNX Mining and financial planning. He most recently served as Vice President Evaluationspreviously worked for Capstone Mining Corp.Westmin Resources Limited, Placer Dome Canada Limited, Lac Minerals Limited and is a Director of RedQuest Capital Corp.BHP Billiton. Mr. Le BelBlythe has an understanding of the accounting principles used by the Company to prepare its financial statements.
Reliance on Certain Exemptions Since the commencement of the Company’s most recently completed financial year, the Company has not relied on the exemptions contained in sections 2.4, 3.2, 3.3(2), 3.4, 3.5, 3.6, 3.8 or Part 8 of NI 52-110. Audit Committee Oversight Since the commencement of the Company’s most recently completed financial year, the Company’s Board has not failed to adopt a recommendation of the Audit Committee to nominate or compensate an external auditor. Pre-Approval Policies and Procedures The Audit Committee has not adopted specific policies and procedures for the engagement of non-audit services. Subject to the requirements of NI 52-110, the engagement of non-audit services is considered by the Company’s Board, and where applicable the Audit Committee, on a case-by-case basis. External Auditor Service Fees The fees for services provided by BDO Canada LLPPWC to us in each of the fiscal yearsyear ended 20142018 and 2015 were2017 as follows: | Fees | | 2015[5] | | | 2014 | | | Audit Fees[1] | | C$ | 301,309 | | | C$ | 356,169 | | | Audit-Related Fees[2] | | C$ | 18,960 | | | C$ | 26,371 | | | Tax Fees[3] | | C$ | 64,670 | | | C$ | 94,299 | | | All Other Fees[4] | | $ | Nil | | | $ | Nil | | | Total | | C$ | 384,939 | | | C$ | 476,839 | |
| Fees | | 2018 | | | 2017 | | | Audit Fees(1) | | C$ | 304,500 | | | C$ | 369,500 | | | Audit-Related Fees(2) | | | Nil | | | | Nil | | | Tax Fees(3) | | | Nil | | | | Nil | | | All Other Fees(4) | | | Nil | | | | Nil | | | Total | | C$ | 304,500 | | | C$ | 369,500 | |
| (1) | [1] “Audit“Audit Fees” include fees necessary to perform the annual audit of the Company’s consolidated financial statements. Audit Fees include fees for review of tax provisions and for accounting consultations on matters reflected in the financial statements. Audit Fees also include audit or other attest services required by legislation or regulation, such as comfort letters, consents, reviews of securities filings and statutory audits. Audit fees also include services related to the review of the Company’s quarterly financial reports. The 2015 audit fees include C$51,895 in fees related to quarterly reviews of the Company's consolidated financial statements and C$162,528 in fees related to the audit of the Company's 50%-owned subsidiary, GQM LLC. The 2014 audit fees include C$76,916 in fees related to quarterly reviews of the Company's consolidated financial statements. |
| (2) | [2] “Audit-Related“Audit-Related Fees” include services that are traditionally performed by the auditor. These audit-related services include employee benefit audits, due diligence assistance, accounting consultations on proposed transactions, internal control reviews and audit or attest services not required by legislation or regulation. |
| (3) | [3] “Tax“Tax Fees” include fees for all tax services other than those included in “Audit Fees” and “Audit-Related Fees”. This category includes fees for tax compliance, tax planning and tax advice. Tax planning and tax advice includes assistance with tax audits and appeals, tax advice related to mergers and acquisitions, and requests for rulings or technical advice from tax authorities. |
| (4) | [4] “All“All Other Fees” include all other non-audit services. |
| | [5] The final invoice for the Audit fees for the fiscal year 2015 has not yet been received and as such, those fees are not included within the table set out above.
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COMPENSATION COMMITTEE
Composition of the Compensation Committee
The members of the Compensation Committee during the year ended December 31, 2015 were Bernard Guarnera who serves as the Committee’s Chairman, Bryan A. Coates, and Guy Le Bel.
Report on Executive Compensation and Compensation Discussion and Analysis
The Compensation Committee of the Board of Directors is responsible for reviewing and approving the remuneration of the senior management of the Company, including the President and Chief Executive Officer and the Chief Financial Officer.
The guiding philosophy of the Compensation Committee in the determination of executive compensation is ensuring that the Company is able to attract the best possible candidates for management positions, given the high level of competition for competent management in the mining industry, and to align the interests of management with those of the Company’s shareholders.
The Company’s executive compensation policies are designed to recognize and reward individual contribution, performance and level of responsibility and ensure that the compensation levels remain competitive with other precious metals development and mining companies. The key components of total compensation are base salary and incentives.
The Compensation Committee has no formal process for determining appropriate base salary ranges. Currently the Company pays compensation in the form of a base salary to its Interim Chief Executive Officer and its Chief Financial Officer. The base salary to the Interim Chief Executive Officer was based on a proposal from the Chief Financial Officer, which was accepted by the Company after considering his experience and expected responsibility and contribution to the Company. The base salary of the Chief Financial Officer was negotiated based on industry comparables and the Chief Financial Officer’s experience.
Stock options are granted to senior management to align the financial interests of management with the interests of shareholders of the Company and to encourage senior management to focus on strategies and results that enhance shareholder value in the longer term. The number of options to purchase Common Shares granted to each individual will depend largely on his level of responsibility and contribution to the Company’s performance.
The Compensation Committee is responsible for considering the appropriateness and effectiveness of the Company’s executive compensation policies, given prevailing circumstances. Although the shareholder vote on executive compensation, which is submitted every (3) years, is non-binding, the Compensation Committee will review the voting results in connection with the on-going evaluation of the Company’s compensation program.
The Compensation Committee may not delegate any of its authority to other persons.
Compensation Committee Interlocks and Insider ParticipationINDEBTEDNESS OF DIRECTORS AND EXECUTIVE OFFICERS
None of the members of the Compensation Committee served as an officerdirectors, executive officers, employees and their associates, or employeeany former executive officers, directors and employees of the Company during the fiscal year ended December 31, 2015 (or subsequently). No current memberor any of the Compensation Committee formerly servedits subsidiaries: | (a) | is or at any time since the beginning of the most recently completed financial year of the company has been, indebted to the Company or any of its subsidiaries; or |
| (b) | whose indebtedness to another entity is, or at any time since the beginning of the most recently completed financial year has been, the subject of a guarantee, support agreement, letter of credit or other similar arrangement or understanding provided by the company or any of its subsidiaries. |
INTEREST OF INFORMED PERSONS IN MATERIAL TRANSACTIONS Other than as an officerdescribed in this Proxy Statement, no informed person of the Company, and noneno associate or affiliate of the current members of the Compensation Committee have entered into a transaction with the Company in which theyany such informed person has had aany material interest direct or indirect, interest that is required to be disclosed pursuant to Item 404in any transaction since the commencement of Regulation S-K. Compensation Committee Report
The Compensation Committee hereby reports to the Board that, in connection with the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2015, and this Proxy Statement, we have:
| · | reviewed and discussed with management the Compensation Discussion and Analysis required by Item 402(b) of SEC Regulation S-K; and |
| · | based on such review and discussion, we recommend to the Board that the Compensation Discussion and Analysis be included in the Annual Report on Form 10-K for the fiscal year ended December 31, 2015 and this Proxy Statement on Schedule 14A. |
Submitted by the Compensation Committee.
Bernard Guarnera, Chair
Bryan A. Coates, Member
Guy Le Bel, Member
PERFORMANCE GRAPH
The performance graph depicts the Company’s cumulative total Shareholder returns over the five (5) most recently completed financial years based on an initial investmentyear or in any proposed transaction that, in either case, has materially affected or will materially affect the Company or any of $100its subsidiaries. See “Interest of Certain Persons in Matters to be Acted Upon” and “Matters to be Acted Upon at the Company’s Common Stock, compared to an equal investmentMeeting – Proposal 1: Sale of the Soledad Mountain Project” in the S&P/TSX Global Gold Index. The Company does not currently issue dividends. The Common Stock performance as set out in the graph does not necessarily indicate future Common Stock price performance.this Proxy Statement.
| | | December 31,
2011 | | | December 31,
2012 | | | December 31,
2013 | | | December 31,
2014 | | | December 31,
2015 | | | Company | | $ | 100 | | | $ | 79 | | | $ | 29 | | | $ | 36 | | | $ | 25 | | | S&P/TSX Global Gold Index (TITTGD) | | $ | 100 | | | $ | 84 | | | $ | 42 | | | $ | 40 | | | $ | 36 | |
CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONSMANAGEMENT CONTRACTS
Policy regarding transactions with management and othersManagement functions of Golden Queen are not to any substantial degree performed by anyone other than the directors or executive officers of Golden Queen.
Pursuant to its written charter, our Audit Committee has the responsibility to review all related party transactions on an ongoing basis.
Transactions with management and others
The following is in addition to disclosure contained elsewhere herein respecting transactions involving management.
On July 26, 2013, the Company entered into agreements to issue convertible debentures for aggregate proceeds of C$10,000,000 ($9,710,603). The convertible notes were unsecured and bore interest at 2% per annum, calculated on the outstanding principal balance, payable annually. The principal amounts of the notes were convertible into shares of the Company at a price of C$1.03 per share for a period of two years. The Company agreed to pay the legal fees incurred by the lenders relating to this instrument which amounted to $10,049. On July 24, 2015, the Company repaid its C$10.0 million ($7.7 million) convertible debenture and accrued interest of C$200,000 ($153,500).A total of C$7,500,000 of the offering was subscribed for by an investment vehicle managed by Thomas M. Clay, a Director and insider of the Company.
On January 1, 2014, the Company entered into an agreement to secure a $10,000,000 loan (the “January 2014 Loan”). The January 2014 Loan was provided by members of the Clay family, who are shareholders of the Company, including $7,500,000 provided by an investment vehicle managed by Thomas M. Clay, a Director and insider of the Company. The January 2014 Loan had a twelve-month term and an annual interest rate of 5%, payable on the maturity date.
The January 2014 Loan was repaid on a date that is less than 183 days before the maturity date. As a result, the Company paid the Lenders an additional charge in the amount that is equivalent to 5% of the principal amount, plus interest on the principal amount at the rate of 5% per annum accrued to the date the January 2014 Loan was repaid. The Company repaid $7,500,000 loan plus the $375,000 accrued interest and $375,000 additional charge on December 31, 2014. The remaining balance of the loan, $2,500,000, the accrued interest of $125,000 and the additional charge of $125,000, were paid on January 5, 2015. In total, the Company incurred $500,000 in interest expense and $500,000 in additional charge related to the January 2014 Loan.
On December 31, 2014 the Company also entered into a new loan (the “December 2014 Loan”) with the same parties for an amount of $12,500,000. The December 2014 Loan was due on demand on July 1, 2015 and bore an annual interest rate of 10% payable at the end of each quarter. The loan was guaranteed by GQM Holdings, and secured by a pledge of the Company's interests in GQM Canada, GQM Canada’s interest in GQM Holdings and GQM Holdings' 50% interest in GQM LLC. The Company also incurred a financing fee to secure the loan in the amount of $1,000,000, of which, $750,000 was paid on December 31, 2014 and the remaining $250,000 was paid on January 5, 2015. The Company agreed to pay the legal fees incurred by the lenders relating to this instrument which amounted to $90,916. The total legal fees paid for the transaction were $118,695. The Company also agreed to provide the lenders with the option for certain registration rights whereby the Company would bear the costs and responsibility of registering the lenders common shares for the purposes of disposition subsequent to July 1, 2015. The Company has determined it is unlikely the registration option would be exercised and therefore has not accrued any potential costs related to the registration of the common shares. The Company has presented these transaction costs as a contra liability as substantially all of these costs were paid to the lenders.
On June 8, 2015, the Company amended the December 2014 Loan to extend the maturity to December 8, 2016 and increased the principal amount from $12,500,000 to $37,500,000 (the “June 2015 Loan”). The Company also issued 10,000,000 common share purchase warrants exercisable for a period of five years expiring June 8, 2020. The common share purchase warrants have an exercise price of $0.95. All other terms remained the same as the December 2014 Loan. The Company also incurred a financing fee to secure the loan in the amount of $1,500,000, all of which was paid on June 8, 2015. The Company agreed to pay the legal fees incurred by the lenders relating to this instrument which amounted to $46,408. The legal fees were expensed as the transaction met the definition of a debt extinguishment. The terms of the registration rights remains unchanged as does the Company’s assessment of the likelihood of the registration rights being exercised. As such, as of December 31, 2015, no accrual has been made for the potential costs related to the registration rights.
INVOLVEMENT IN CERTAIN LEGAL PROCEEDINGS During the past ten years, none of the persons currently serving as executive officers and/or directors of the Company has been the subject matter of any of the following legal proceedings that are required to be disclosed pursuant to Item 401(f) of Regulation S-K including: (a) any bankruptcy petition filed by or against any business of which such person was a general partner or executive officer either at the time of the bankruptcy or within two (2) years prior to that time; (b) any criminal convictions; (c) any order, judgment, or decree permanently or temporarily enjoining, barring, suspending or otherwise limiting his involvement in any type of business, securities or banking activities; (d) any finding by a court or the SEC to have violated a federal or state securities or commodities law, any law or regulation respecting financial institutions or insurance companies, or any law or regulation prohibiting mail or wire fraud; or (e) any sanction or order of any self-regulatory organization or registered entity or equivalent exchange, association or entity. Further, no such legal proceedings are believed to be contemplated by governmental authorities against any director or executive officer. Other than as disclosed herein, theThe Company is not aware of any claims, actions, proceedings or investigations pending against the Company, any director, officer or affiliate of the Company, any owner of record or beneficially of more than five percent (5%) of the Common Stock,Shares, or any associate of any such director, officer, affiliate of the Company, or security holder that, individually or in the aggregate, are material to the Company. Neither the Company nor its assets and properties is subject to any outstanding judgment, order, writ, injunction or decree that has had or would be reasonably expected to have a material adverse effect on the Company. Furthermore, the Company is not aware of any threatened lawsuits.
To the best of our knowledge, there are no legal actions pending, threatened or contemplated against the Company or GQM LLC, other than what is noted below.LLC. The Center for Biodiversity Petition to List the Mohave Shoulderband Snail as an Endangered Species
On January 31, 2014, the Center for Biological Diversity (“CBD”) filed an emergency petition (the “Petition”) with the United States Fish and Wildlife Service (“USFWS”) asking the USFWS to list the Mohave Shoulderband snail as a threatened or endangered species. Citing a report published more than 80 years ago, the Petition claims that the snail exists in only three places, and that most of the snail habitat occurs on Soledad Mountain, where the Company is developing the Project.
The Company worked with its environmental and legal advisors to prepare a detailed response to the petition, which was filed with the USFWS on March 31, 2014. The Company’s response is available on the Company’s website atwww.goldenqueen.com.
On April 22, 2014, the Company learned that the USFWS had determined that there is no emergency to justify listing the Mohave Shoulderband snail as threatened or endangered under the Endangered Species Act of 1973, as amended. The USFWS reviewed the petition filed by the CBD and concluded that there was no imminent threat to the snail that would cause them to believe an emergency listing was required.
Even though an emergency listing was not warranted, the USFWS is required by the Endangered Species Act to continue processing the listing petition. A public comment period on the petition commenced on April 10, 2015 for a period of 60 days. On September 9, 2015, the USFWS and the CBD entered into a Stipulated Settlement Agreement that established a 12 Month Finding date of April 11, 2016.
In November 2015, the Company, the USFWS, and the CBD entered into a Memorandum of Understanding under which the USFWS and the CBD agreed to defer the 12 Month Finding date to June 30, 2017, and the Company agreed not to disturb until June 30, 2017 certain points on Soledad Mountain where snails or snail shells had been identified. The Company, the USFWS, and the CBD have jointly selected a third party environmental consultant that will conduct a survey to better understand the snail’s range and distribution on Soledad Mountain before the USFWS prepares its 12 Month Finding. Surveying is anticipated to take place between the fall of 2016 and the spring of 2017.
The Project has received all necessary regulatory approvals. The ongoing review by the USFWS does not affect the Project’s regulatory approvals or interfere with the Project’s operation. The November 2015 Memorandum of Understanding caused no material adjustments to the Project’s mine plan. The Company believes that conservation of the snail can be accomplished without material adjustments to the Project’s mine plan, but if the USFWS ultimately finds that the snail is ‘endangered’ or ‘threatened’ and no agreed conservation plan is established, material adjustments to the Project’s mine plan may be required.
National Labor Relations Board
The Company filed a charge with the National Labor Relations Board (the “NLRB”) against the Building and Construction Trades Council of Kern, Inyo, and Mono Counties (the “Union”) on May 23, 2014. The charge was in response to the action taken by the Union related to a 1997 project labor agreement (“PLA”) that the Company believes is not applicable to the Project and unenforceable under federal labor law.
The NLRB issued a Complaint against the Union and the matter was heard by Administrative Law Judge (“ALJ”) John McCarrick in June 2015. In December 2015 ALJ McCarrick issued his Decision finding that the PLA violates Section 8(e) of the National Labor Relations Act and is therefore unenforceable. The Union is in the process of appealing that Decision to the NLRB in Washington, D.C.
Complaint on Alleged Short-swing Trading Profits
We received notice that a complaint was filed on April 22, 2015 in United States District Court, District of Massachusetts seeking recovery pursuant Section 16(b) of the Securities and Exchange Act of 1934, as amended (the “Exchange Act”), of alleged short-swing trading profits. The complaint was filed by Ryan T. Darby, as plaintiff, and named Landon T. Clay, a shareholder of the Company (“Clay”), and the Company as defendants. The plaintiff alleges that Mr. Clay realized short-swing profits in connection with transactions in Company securities within a period of six months. The Company and the Plaintiff have entered into an agreement to settle the claims. Under the agreement, the Company will agree to adopt certain changes to its existing Section 16 policies and procedures and pay legal fees of $185,000 to Plaintiff’s counsel. A Motion to Dismiss with prejudice the action has been filed. Clay and the Company have, and continue to, expressly deny that either or both have committed any act or omission giving rise to any liability and/or violation of law.
In conjunction with the June 2015 Loan, as defined elsewhere herein, the Company agreed to indemnify the Clay Group and their affiliates for up to $350,000 in legal expenses (not damages) incurred in defense of complaints brought against the lenders and their affiliates by shareholders of the Company under Section 16 of the Exchange Act. The legal fees reimbursed by the Company currently amount to $345,572, including the $185,000 in legal fees paid to the plaintiff’s counsel.
SHAREHOLDER COMMUNICATIONS Shareholders who are interested in communicating directly with members of the Board, or the Board as a group, may do so by writing directly to the individual Board member or the Board generally care of the Corporate Secretary, GOLDEN QUEEN MINING CO. LTD.Golden Queen Mining Co. Ltd., Suite 2300 – 1066 West Hastings Street, Vancouver, British Columbia, Canada, V6E 3X2. The Company’s Secretary will forward communications directly to the appropriate Board member. If the correspondence is not addressed to a particular Board member, the communication will be forwarded to a Board member to bring to the attention of the Board. The Company’s Secretary will review all communications prior to forwarding them to the appropriate Board member. The Board has requested that items unrelated to the duties and responsibilities of the Board, such as junk mail and mass mailings, business solicitations, advertisements and other commercial communications, surveys and questionnaires and resumes or other job inquiries, not be forwarded. “HOUSEHOLDING” OF PROXY MATERIALS SEC rules allow a single copy of this Proxy Statement to be delivered to multiple shareholders sharing the same address and who affirmatively consent, or give their implied consent, to receive a single copy of these materials in a manner provided by applicable SEC rules. This practice is referred to as “householding” and can result in significant savings of paper and mailing costs. Although we do not household for our registered shareholders, some brokers household information circulars and proxy statements, delivering a single copy of each to multiple Shareholders sharing an address unless contrary instructions have been received from the affected Shareholders. Once you have received notice from your broker that they will be householding materials to your address, householding will continue until you are notified otherwise or until you revoke your consent. If, at any time, you no longer wish to participate in householding and would prefer to receive a separate copy of our information circulars and proxy statements, or if you are receiving multiple copies of our information circulars and proxy statements and wish to receive only one, please notify your broker. We will deliver promptly upon written or oral request a separate copy of this Proxy Statement to a Shareholder at a shared address to which a single copy of this Proxy Statement was delivered. For copies of this Proxy Statement, Shareholders should contact Laurel Hill Advisory Group, our proxy solicitation agent, by telephone at 1-877-452-7184, or by email at assistance@laurelhill.com. SHAREHOLDER PROPOSALS Pursuant to the rules of the Securities Exchange Act, shareholder proposals intendedThe deadline has passed for any proposal that a Shareholder wished to be considered for inclusion in the Proxy Statementour proxy statement and management proxy cardcircular for the 2017 Meeting of Shareholders of the Company, and to be included in the Company’s proxy materials for the proxy materials for the 2017our 2019 annual meeting of the Shareholders of the Company,as it must be received byhave been mailed to the Corporate Secretary of Golden Queen by December 1, 2016, and must comply with the requirements of Rule 14a-8 under the Securities Exchange Act of 1934, as amended, and Division 7 of Part 5 of the B.C. Business Corporations Act. After2018. Any Shareholder proposal received after this date any shareholder nomination or proposal will be considered untimely. The Company reserves the right
OTHER MATTERS Golden Queen knows of no other matters that are likely to reject, rule out of order, or take other appropriate action with respect to any nomination or proposal that does not comply with these and other applicable requirements. If the Company changes the date of next year’s annual meeting by more than thirty days from the date of this year’s meeting, then the deadline is a reasonable timebe brought before the Company begins to print and mail its proxy materials. OTHER BUSINESS
Management isMeeting. If, however, other matters not aware of any matters topresently known or determined properly come before the Meeting, other than those set forththe persons named as proxies in the Notice of Meeting. If any other matter properly comes before the Meeting, it is the intention of the person named in the proxy toenclosed Proxy or VIF or their substitutes will vote the shares represented thereby in accordance with their best judgment ondiscretion with respect to such matter.matters.
ADDITIONAL INFORMATION Additional information relating to the Company is available on the Company’s website atwww.goldenqueen.com,, on SEDAR atwww.sedar.com and on EDGAR atwww.sec.gov. The Company will furnish to Shareholders, free of charge, a hard copy of the Company’s financial statements and management’s discussion and analysis and/or a hard copy of the Company’s Annual Report on Form 10K for the fiscal year ended December 31, 20152018 upon request by (i) mail to: 2300 – 1066 West Hastings Street, Vancouver, BC V6E 3X2 or (ii) telephone to: (778) 373-15571-778-373-1557 or (iii) email to:info@goldenqueen.com. info@goldenqueen.com. Financial information is provided in the Company’s annual financial statements and management’s discussion and analysis for its most recently completed fiscal year. OTHER MATERIAL FACTS There are no other material facts to the knowledge of the Board relating to the matters for which this CircularProxy Statement is issued which are not disclosed herein. CERTIFICATEMISCELLANEOUS
The foregoing contains no untrue statement
If you have any questions about the Transaction or Consolidation, please contact Brenda Dayton, Corporate Secretary, by telephone at 1-778-373-1557, or by email at info@goldenqueen.com. If you need assistance with the completion and delivery of a material fact and does not omit to state a material fact that is required to be statedyour Proxy or that is necessary to make a statement not misleading in light of the circumstances in which it was made. VIF, please contact Laurel Hill Advisory Group, our proxy solicitation agent, by telephone at 1-877-452-7184, or by email at assistance@laurelhill.com.
YOU SHOULD RELY ONLY ON THE INFORMATION CONTAINED IN THIS PROXY STATEMENT. WE HAVE NOT AUTHORIZED ANYONE TO PROVIDE YOU WITH INFORMATION THAT IS DIFFERENT FROM WHAT IS CONTAINED IN THIS PROXY STATEMENT. THIS PROXY STATEMENT IS DATED APRIL [♦], 2019. YOU SHOULD NOT ASSUME THAT THE INFORMATION CONTAINED IN THIS PROXY STATEMENT IS ACCURATE AS OF ANY DATE OTHER THAN THAT DATE. NEITHER THE MAILING OF THIS PROXY STATEMENT TO SHAREHOLDERS NOR THE COMPLETION OF THE TRANSACTION CREATES ANY IMPLICATION TO THE CONTRARY. THIS PROXY STATEMENT DOES NOT CONSTITUTE THE SOLICITATION OF A PROXY IN ANY JURISDICTION TO OR FROM ANY PERSON TO WHOM IT IS UNLAWFUL TO MAKE SUCH PROXY SOLICITATION IN THAT JURISDICTION. CERTIFICATE The contents and the sending of this CircularProxy Statement have been approved by the Board. BY ORDER OF THE BOARD OF DIRECTORS THIS22ND DAY OF APRIL 2016.
| “Thomas M. Clay“ | | | Thomas M. Clay, Chairman & Interim CEO | |
APPENDIX “A”
U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
x ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2015
¨ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from _______________ to _______________
0-21777
(Commission File Number)
GOLDEN QUEEN MINING CO. LTD.
(NameBy Order of registrant in its charter)
British Columbia, Canada | | Not Applicable | (State or other jurisdiction | | (IRS Employer | of incorporation or organization) | | Identification No.) | | | | 2300 – 1066 Vancouver, British Columbia, Canada | | V6E 3X2 | (Address of principal executive offices) | | (Zip Code) |
Issuer’s telephone number:(778) 373-1557
Securities registered under Section 12(b) of the Exchange Act:None
Securities registered under section 12(g) of the Exchange Act:Common shares without par value
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes¨ Nox
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes¨ Nox
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 registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yesx No¨
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yesx No¨
Indicate by check mark if disclosure of delinquent filers in response to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. Large accelerated filer¨ Accelerated filer¨ Non-accelerated filerx Smaller reporting company¨
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes¨ Nox
State the aggregate market value of the voting and non-voting common equity held by non-affiliates computed by reference to the price at which the common equity was sold, or the average bid and asked price of such common equity, as of the last business day of the registrant’s most recently completed second fiscal quarter: $49,157,488 as at June 30, 2015.
Indicate the number of shares outstanding of each of the registrant’s classes of common equity, as of the latest practicable date: 99,928,683 common shares as at March 30, 2016.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the registrant's Proxy Statement for the Annual Meeting of Stockholders are incorporated by reference into Part III of this Form 10-K, which Proxy Statement is to be filed within 120 days after the end of the registrant's fiscal year ended December 31, 2015. If the definitive Proxy Statement cannot be filed on or before the 120 day period, the issuer may instead file an amendment to this Form 10-K disclosing the information with respect to Items 10 through 14.
Form 10-K
Table of Contents
References to the “Company”, “Golden Queen”, “we”, “us”, “our” and words of similar meaning refer to Golden Queen Mining Co. Ltd. The U.S. dollar (“$") is used in this Form 10-K and quantities are reported in Imperial units with Metric units in brackets.
CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
Certain statements contained in this Form 10-K and the documents incorporated by reference herein constitute forward-looking information and forward-looking statements within the meaning section 27A of the Securities Act of 1933 (as amended), section 21E of the Securities Exchange Act of 1934 (as amended), the United States Private Securities Litigation Reform Act of 1995 and applicable Canadian securities legislation (collectively “forward-looking statements”). The use of any of the words “anticipate”, “continue”, “estimate”, “expect”, “may”, “will”, “projected”, “propose”, “should”, “believe”, “intend”, “subject to” and similar expressions are intended to identify forward-looking statements. These statements involve known and unknown risks, uncertainties and other factors that may cause actual results or events to differ materially from those anticipated in such forward-looking statements. The Company believes the expectations reflected in those forward-looking statements are reasonable, but no assurance can be given that these expectations will prove to be correct. Such forward-looking statements included in this Form 10-K and the documents incorporated herein by reference should not be unduly relied upon. References in this Form 10-K are to December 31, 2015, unless another date is stated, or in the case of documents incorporated herein by reference, are as of the dates of such documents.
In particular, this Form 10-K and the documents incorporated herein by reference contain forward-looking statements pertaining to the following:
| · | business strategy, strength and focus; |
| · | geological estimates in respect of mineral resources and reserves on the Project; |
| · | projections of market prices and costs and the related sensitivity of distributions; |
| · | supply and demand for precious metals; |
| · | expectations regarding the ability to generate income through operations; |
| · | expectations with respect to the Company’s future working capital position; |
| · | treatment under government regulatory regimes and tax laws; |
| · | anticipated gold and silver revenues; |
| · | estimated costs of anticipated production, sales and costs of sales; |
| · | anticipated mining operations proceeding as planned; and |
| · | the Company’s and GQM LLC’s capital expenditure programs. |
With respect to forward-looking statements contained in this Form 10-K and the documents incorporated by reference herein, assumptions have been made regarding, among other things:
| · | recovery rates from gold and silver production; |
| · | the impact of environmental regulations on our operations; |
| · | future gold and silver prices; |
| · | the Company’s and GQM LLC’s ability to retain qualified staff; |
| · | the impact of any changes in the laws of the United States or the State of California; |
| · | the ability of GQM LLC to maintain its existing and future permits in good standing; |
| · | the ability of GQM LLC to retain its mining rights under agreements with landholders, whether currently in place or may in the future be in place; |
| · | the regulatory framework governing royalties, taxes and environmental matters in the United States; |
| · | future capital expenditures, if any, required to be made by the Company and GQM LLC and the Company’s ability to fund its pro rata capital commitments to the GQM LLC joint venture; |
| · | the Company’s ability to repay or refinance current debt; and |
| · | the ability of the Company to maintain its current ownership level in GQM LLC. |
Actual results could differ materially from those anticipated in these forward-looking statements as a result of the risk factors set forth below and elsewhere in this Form 10-K and in the documents incorporated by reference:
| · | uncertainties in access to future funding for repayment of debt or any future capital requirements of the Project or future acquisitions; |
| · | unexpected liabilities or changes in the cost of operations, including costs of extracting and delivering gold and silver dore to a refinery, that affect potential profitability of the Project; |
| · | operating hazards and risks inherent in mineral exploration and mining; |
| · | volatility in global equities, commodities, foreign exchange, market price of gold and silver and a lack of market liquidity; |
| · | changes to the political environment, laws or regulations, or more stringent enforcement of current laws or regulations in the United States or California; |
| · | ability of GQM LLC to obtain and maintain licenses, access rights or permits, required for current and future planned operations; |
| · | unexpected and uninsurable risks that may arise; |
| · | risks associated with any future hedging activities; and, |
| · | the other factors discussed underItem 1A. Risk Factors. |
Readers are cautioned that the foregoing lists of factors are not exhaustive. The forward-looking statements contained in this Form 10-K and documents incorporated by reference herein are expressly qualified by this cautionary statement. Except as required under applicable securities laws, the Company does not undertake or assume any obligation to publicly update or revise any forward-looking statements.
CAUTIONARY NOTE REGARDING U.S. INVESTORS
The Company uses Canadian Institute of Mining, Metallurgy and Petroleum definitions for the terms “proven reserves”, “probable reserves”, “measured resources”, “indicated resources” and “inferred resources”. U.S. investors are cautioned that while these terms are recognized and required by Canadian regulations, including National Instrument 43-101Standards of Disclosure for Mineral Projects (“NI 43-101”), the U.S. Securities and Exchange Commission (“SEC”) does not recognize them.
Canadian mining disclosure standards, including NI 43-101, differ significantly from the requirements of the SEC and SEC Guide 7, and reserve and resource information contained or incorporated by reference in this Form 10-K and in the documents incorporated by reference herein may not be comparable to similar information disclosed by companies reporting under U.S. standards. In particular, and without limiting the generality of the foregoing, the term “resource” does not equate to the term “reserve”. Under United States standards, mineralization may not be classified as a “reserve” unless the determination has been made that the mineralization could be economically and legally produced or extracted at the time the reserve determination is made. The SEC’s disclosure standards normally do not permit the inclusion of information concerning “measured mineral resources”, “indicated mineral resources” or “inferred mineral resources” or other descriptions of the amount of mineralization in mineral deposits that do not constitute “reserves” by U.S. standards in documents filed with the SEC. U.S. investors should also understand that “inferred mineral resources” have a great amount of uncertainty as to their existence and 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, estimated “inferred mineral resources” may not form the basis of pre-feasibility or feasibility studies. 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” in a resource estimate is permitted disclosure under Canadian regulations; however, the SEC normally only permits issuers to report mineralization that does not constitute “reserves” by SEC standards as tonnage and grade without reference to unit measures. The requirements of NI 43-101 for identification of “reserves” are also not the same as those of the SEC, and reserves in compliance with NI 43-101 may not qualify as “reserves” under SEC standards.
Accordingly, information contained in this Form 10-K and the documents incorporated herein by reference contain descriptions of our mineral deposits that may not be comparable to similar information made public by U.S. companies subject to the reporting and disclosure requirements under the U.S. federal securities laws and the rules and regulations thereunder. SeeItem 1A. Risk Factors.
In addition, financial information in this Form 10-K and the Company’s financial statements is presented in accordance with generally accepted accounting principles in the United States (“U.S. GAAP”). The Company’s financial statements have been prepared in accordance with U.S. GAAP, and are subject to Public Company Accounting Oversight Board (United States), (“PCAOB”). The Company prepares its financial statements in U.S. dollars.
GLOSSARY OF MINING TERMS
We estimate and report our resources and we will estimate and report our reserves according to the definitions set forth in NI 43-101. We will modify and reconcile the reserves as appropriate to conform to SEC Industry Guide 7 for reporting in the U.S. The definitions for each reporting standard are presented below with supplementary explanation and descriptions of the parallels and differences.
NI 43-101 Definitions
indicated mineral resource – an indicated mineral resource is that part of a mineral resource for which quantity, grade or quality, densities, shape and physical characteristics can be established with a level of confidence sufficient to allow the appropriate application of technical and economic parameters, to support mine planning and evaluation of the economic viability of the deposit. The estimate is based on detailed and reliable exploration and testing information gathered through appropriate techniques from locations such as outcrops, trenches, pits, workings and drill holes that are spaced closely enough for geological and grade continuity to be reasonably assumed.
inferred mineral resource– an inferred mineral resource is a mineral resource for which quantity and grade or quality can be estimated on the basis of geological evidence and limited sampling and reasonably assumed, but not verified, geological and grade continuity. The estimate is based on limited information and sampling gathered through appropriate techniques from locations such as outcrops, trenches, pits, workings and drill holes.
mineral reserve –a mineral reserve is economically mineable part of an indicated or measured mineral resource as demonstrated by at least a preliminary feasibility study. This study must include adequate information on mining, metallurgy, processing, economic factors and other relevant factors that demonstrate, at the time of reporting, that economic exploitation can be justified. A mineral reserve includes diluting materials and allowance for losses that may occur when the material is mined. Mineral reserves are sub-divided in order of increasing confidence into probable and proven categories.
mineral resource – a mineral resource is a concentration or occurrence of natural, solid, inorganic or fossilized organic material in or on the earth’s crust in such form and quantity and of such a grade or quality that it has reasonable prospects for economic exploitation. The location, quantity, grade, geological characteristics and continuity of a mineral resource are known, estimated or interpreted from specific geological evidence and knowledge. Mineral resources are sub-divided, in order of increasing geological confidence, into inferred, indicated and measured categories.
Qualified Person –a qualified person is an individual who (a) is an engineer or geoscientist with a university degree, or equivalent accreditation, in an area of geoscience, or engineering, relating to mineral exploration or mining; (b) has at least five years of experience in mineral exploration, mine development or operation, or mineral project assessment, or any combination of these, that is relevant to his or her professional degree or area of practice; (c) has experience relevant to the subject matter of the mineral project and the technical report; (d) is in good standing with a professional association; and (e) in the case of a professional association in a foreign jurisdiction, has a membership designation that (i) requires attainment of a position of responsibility in their profession that requires the exercise of independent judgment; and (ii) requires A. a favourable confidential peer evaluation of the individual’s character, professional judgement, experience, and ethical fitness; or B. a recommendation for membership by at least two peers, and demonstrated prominence or expertise in the field of mineral exploration or mining.
SEC Industry Guide 7 Definitions:
exploration stage – an exploration stage prospect is one which is not in either the development or production stage.
development stage – a development stage project is one which is undergoing preparation of an established commercially mineable deposit for its extraction but which is not yet in production. This stage occurs after completion of a feasibility study.
mineralized material – mineralized material is material that is not included in the reserve as it does not meet all of the criteria for adequate demonstration for economic or legal extraction.
production stage – a production stage project is actively engaged in the process of extraction and beneficiation of mineral reserves to produce a marketable metal or mineral product.
reserve – a reserve is that part of a mineral deposit which could be economically and legally extracted or produced at the time of the reserve determination. Reserves must be supported by a feasibility study done to bankable standards that demonstrates the economic extraction. (“Bankable standards” implies that the confidence attached to the costs and achievements developed in the study is sufficient for the project to be eligible for external debt financing.) A reserve includes adjustments to the in-situ tonnes and grade to include diluting materials and allowances for losses that might occur when the material is mined.
Additional definitions for terms currently or previously used in the Company’s Annual Reports filed on Form 10-K:
Advance minimum royalty - Payment made before the start of commercial production under a mining lease agreement with landholders.
Ag –The chemical symbol for silver.
Au –The chemical symbol for gold.
Block model – The representation of geologic units using three-dimensional blocks of pre-determined sizes.
CIM – Canadian Institute of Mining, Metallurgy and Petroleum.
Cut-off grade – When determining economically viable mineral reserves, the lowest grade of mineralized material that qualifies as ore, i.e. that can be mined at a profit.
Diamond drill – A type of rotary drill in which the cutting is done by abrasion rather than by percussion. The drill cuts a core of rock which is recovered in long cylindrical sections.
Fault- A fracture in the earth’s crust caused by tectonic forces with displacement along the fracture.
Feasibility study – A study or group of studies that determine the economic viability of a given mineral occurrence.
g/t or gpt – Grams per metric tonne.
Grade –A term used to assign metal value to resources and reserves, such as gram per tonne (g/t) or troy ounces per ton (oz/ton). Grades are reported both in Imperial and Metric units in this Form 10-K.
Gravity– A methodology using instrumentation allowing the accurate measuring of the difference between densities of various geological units in situ.
Heap leaching –A process which uses dilute sodium-cyanide solutions to percolate through run-of-mine or crushed ore heaped on lined pad to dissolve gold and/or silver.
Mineral–Anaturallyformed chemical element or compound having a definite chemical composition and, usually, a characteristic crystal form.
Mineralization – A natural occurrence in rocks or soil of one or more metal yielding minerals.
Mineral deposit –A mineralized body, which has been intersected by a sufficient number of drill holes or by underground workings to give an estimate of grade(s) of metal(s) and thus to warrant further exploration or development. A mineral deposit does not qualify as a commercially viable mineral deposit with reserves under standards set by the U.S. Securities and Exchange Commission until a final, comprehensive, economic, technical and legal feasibility study has been completed.
Mining – The process of extraction and beneficiation of mineral reserves to produce a marketable metal or mineral product. Exploration continues during the mining process and, in many cases, mineral reserves are expanded during the life of the mine operations as the exploration potential of the deposit is realized.
National Instrument 43-101 orNI 43-101 – Canadian standards of disclosure for mineral projects.
NSR – A net smelter returns royalty, which is customarily calculated by subtracting from gross revenues a deduction for calculated mill recoveries, transport costs of any concentrates to a smelter, treatment and refining charges, and other deductions at the smelter and multiplying that result by the prescribed rate.
Open pit – Surface mining in which the ore is extracted from a pit or quarry, the geometry of the pit may vary with the characteristics of the ore body.
Ore -A natural aggregate of one or more minerals which, at a specified time and place, may be mined and processed and the product(s) sold at a profit or from which some part may be profitably separated.
Preliminary feasibility study and pre-feasibility study – As defined in NI 43-101, each mean a comprehensive study of the viability of a mineral project that has advanced to a stage where the mining method, in the case of underground mining, or the pit configuration, in the case of an open pit, has been established and an effective method of mineral processing has been determined, and includes a financial analysis based on reasonable assumptions of technical, engineering, legal, operating, economic, social, and environmental factors and the evaluation of other relevant factors which are sufficient for a qualified person, acting reasonably, to determine if all or part of a mineral resource may be classified as a mineral reserve.
Porphyry or porphyritic– An igneous rock characterized by visible crystals in a fine–grained matrix.
Quartz – a mineral composed of silicon dioxide, SiO2 (silica).
Reclamation – The process by which lands disturbed as a result of mining activity are modified to support beneficial land use.Reclamation activity may include the removal of buildings, equipment, machinery and other physical remnants of mining, closure of tailings storage facilities, leach pads and other mine features, and contouring, covering and re-vegetation of waste rock and other disturbed areas.
SEC Industry Guide 7 – U.S. reporting guidelines that apply to registrants engaged or to be engaged in significant mining operations.
Strike – The direction, or bearing from true north, of a vein or rock formation measured on a horizontal surface.
Vein – a thin, sheet like crosscutting body of hydrothermal mineralization, principally quartz.
PART I
Item 1. Business
General Development of Business
The Company was incorporated under the laws of the Province of British Columbia, Canada in November 1985 and has been exploring and developing the Soledad Mountain mining Project (the “Project”) located just south of Mojave in Kern County in southern California since that time.
The Company acquired its initial interest in the Project in 1985 and has since added to its landholdings and interests in the area. Exploration and evaluation work on the Project was done, until September 10, 2014, by Golden Queen Mining Co., Inc. (“GQM Inc.”), a California corporation wholly-owned by the Company. GQM Inc. was converted into a limited liability company, Golden Queen Mining Company, LLC (“GQM LLC”) on September 10, 2014 in preparation for the formation of a joint venture (the “Joint Venture”) between a newly formed entity, Golden Queen Mining Holdings, Inc. (“GQM Holdings”), a wholly owned subsidiary of the Company, and Gauss LLC (“Gauss”). Gauss is an investment entity formed for the purpose of the Joint Venture, and is 70.51% owned by Leucadia National Corporation and 29.49% owned by members of the Clay family, a controlling shareholder group of the Company. SeeProject Financing - Joint Venture Transactionbelow for further details on the Joint Venture. In February 2015, the Company incorporated Golden Queen Mining Canada Ltd. (“GQM Canada”), a wholly-owned British Columbia subsidiary, to hold the Company’s interest in GQM Holdings.
As a result of the changes made in connection with the Joint Venture and the incorporation of GQM Canada, the names, place of formation and ownership of the Company’s subsidiaries and the Project as at March 30, 2016 are as follows:
The registered office of the Company is located at 1200 - 750 West Pender Street, Vancouver, BC, Canada V6C 2T8 and its executive offices are located at 2300 – 1066 West Hastings Street, Vancouver, BC, Canada, V6E 3X2. The California office of GQM LLC is located at 15772 K Street, Mojave, California, 93501.
Significant Developments in 2015
Project Update
The Company engaged Mine Development Associates (“MDA”) in late 2014 to update the Project's geological model from first principles and to provide an updated mineral resource estimate. In late 2014, the Company also engaged Norwest Corporation (“Norwest”) and Kappes, Cassiday & Associates (“KCA”) to update the reserve estimates and prepare a feasibility study and economic analysis based upon current information. The updated mineral resource and reserve estimates and results of the feasibility study were disclosed in a news release on February 10, 2015. In support of the updated mineral resource and reserve estimates, the Company filed a technical report pursuant to National Instrument 43-101 – Standards of Disclosure for Mineral Projects (“NI 43-101”) titled “Soledad Mountain Technical Report and Updated Feasibility Study” with an effective date of February 25, 2015 (the “Technical Report”) on the System for Electronic Document Analysis and Retrieval (“SEDAR”) on February 27, 2015 and with the U.S. Securities And Exchange Commission (“SEC”) on March 2, 2015. The Technical Report was prepared by Carl E. Defilippi of KCA, Sean Ennis of Norwest, Michael M. Gustin of MDA and Peter Ronning of New Caledonian Geological Consulting, each of whom are Qualified Persons and independent of the Company pursuant to NI 43-101. SeeItem 2. Properties below for detailed information regarding the Technical Report and the Project.
Major construction projects completed in 2015, include the Phase 1, stage 1 heap leach pad, the crushing-screening plant and Merrill-Crowe plant, Assay lab, workshop & warehouse, roads and access ramps, power and water supply, conveying and stacking system. The Company acquired mobile mining and support equipment required for the commencement of mining operations and has been stock-piling ore from pre-production mining. In addition the Company conducted an infill drilling program in 2015 as part of its pre-production mine planning.
Commissioning of the crushing-screening plant started in the fourth quarter of 2015 and the first gold pour occurred on March 1, 2016. Commercial production is anticipated to commence later in 2016.
There are a number of risks associated with the Project and readers are urged to consider these risks and possible other risks, in order to obtain an understanding of the Project (seeItem 1A. Risk Factors below).
Joint Venture with Gauss LLC
The Company owns a 50% interest in GQM LLC pursuant to the terms of a joint venture agreement, dated September 15, 2014, entered into between GQM Holdings and Gauss (the “JV Agreement”). The JV Agreement provides, inter alia, details of how GQM LLC will be managed and the obligations of each of the parties in connection with further funding requirements. GQM LLC is managed by a board of managers comprising an equal number of representatives of each of Gauss and GQM Holdings. The current representatives of GQM Holdings on the board of managers are Guy Le Bel, Bryan A. Coates and Thomas Clay. The current officers of GQM LLC are Robert C. Walish, Jr. as Chief Executive Officer and Andrée St-Germain as Chief Financial Officer.
The JV Agreement also provides for future funding requirements, if needed, and dilution of member interests on a straight line basis in the event any member does not equally fund a capital contribution. During 2015, Gauss and GQM Holdings each made a capital contribution to GQM LLC in the amount of $12.5 million, for a total contribution of $25 million. Following the capital contribution, each of Gauss and GQM Holdings retained a 50% ownership interest in GQM LLC. The funds contributed are expected to be sufficient for GQM LLC to commence commercial production and maintain operations until the Project is cash flow positive. However, should additional capital funds be required in the future, the JV partners may be called upon to contribute additional capital.
Following closing of the Joint Venture Transaction, Golden Queen has been treating GQM LLC as a variable interest entity (“VIE”), with Golden Queen considered to be the primary beneficiary. A VIE is an entity in which the investor, Golden Queen, holds a controlling interest, or in this case, is a primary beneficiary, that is not based on the majority of the voting rights. As a result, Golden Queen continues to reflect 100% of the financial results of GQM LLC in its consolidated financial statements, along with a non-controlling interest representing Gauss’ 50% interest in GQM LLC.
Financing – Loans
On June 8, 2015, the Company amended the December Loan to extend the maturity to December 8, 2016 and increased the principal amount from $12,500,000 to $37,500,000 (the “June 2015 Loan”). The Company also issued 10,000,000 common share purchase warrants exercisable for a period of five years expiring June 8, 2020. The common share purchase warrants have an exercise price of $0.95. All other terms remained the same as the December Loan. The Company also incurred a financing fee to secure the loan in the amount of $1,500,000, all of which was paid on June 8, 2015. The Company agreed to pay the legal fees incurred by the lenders relating to this instrument, which amounted to $46,408. The legal fees were expensed as the transaction met the definition of a debt extinguishment. The terms of the registration rights remains unchanged as does the Company’s assessment of the likelihood of the registration rights being exercised. As such, as of December 31, 2015, no accrual has been made for the potential costs related to the registration rights.
On October 1, 2015 and January 1, 2016, the Company chose to exercise its right to pay quarterly interest on the June 2015 Loan in kind by adding interest owed to the principal balance.
Financial Information by Segment and Geographic Area
The Company has a single reportable operating segment, and all mining operations and assets are located in the United States. SeeItem 6. Selected Financial Data,Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operationsand the attached financial statements for all financial information.
Competitive Conditions
The Company and GQM LLC compete with other mining companies in the recruitment and retention of qualified managerial and technical employees, for supplies and equipment, as well as for capital. As a result of this competition in the mining industry, some of which is with large established mining companies with substantial capabilities and with greater financial and technical resources than ours, we may be unable to effectively develop and operate the Project or obtain financing on terms we consider acceptable.
Environmental Regulation
Our current and planned operations are subject to state and federal environmental laws and regulations. Those laws and regulations provide strict standards for compliance, and potentially significant fines and penalties for non-compliance. These laws address emissions, waste discharge requirements, management of hazardous substances, protection of endangered species and reclamation of lands disturbed by mining. Compliance with environmental laws and regulations requires significant time and expense, and future changes to these laws and regulations may cause material changes or delays in the development of our Project or our future activities on site.
SeeEnvironmental Issues, Permits & Approvals below for a detailed description of the effects of federal, state and local environmental regulations and permitting on the Company, GQM LLC and the Project, as well asItem 1A. Risk Factors for a discussion of the related risks.
Employees
As of March 30, 2016, the Company had 130 employees. The Company works with an accounting firm, which is independent from our auditors, on a contract basis for the preparation of its consolidated financial statements, and engages various part-time consultants and contractors as needed for administrative services.
Available Information
We make available, free of charge, our annual report on Form 10-K, our quarterly reports on Form 10-Q and any amendments to those reports, on our website at www.goldenqueen.com. Our current reports on Form 8-K are available at the SEC’s website at www.sec.gov, or we will provide electronic copies of these filings free of charge upon request. Our website and the information on it is not intended to be, and is not incorporated into this Form 10-K. Additional information and filings related to the Company can be found at www.sec.gov and www.sedar.com.
Item 1A. Risk Factors
The following is a discussion of distinctive or special characteristics of our operations and the industry in which we operate, which may have a material impact on, or constitutes risk factors in respect of, our future financial performance and in respect of an investment in the Company. These risk factors should be read in conjunction with disclosure on business and risks appearing in this Form 10-K.
Operational Risks
Mineral resource and reserve estimates are based on interpretation and assumptions, and the Project may yield lower production of gold and silver under actual operating conditions than is currently estimated. A material decrease in the quantity or grade of mineral resource or reserves from those estimates, will affect the economic viability of the Project or the Project’s return on capital
Unless otherwise indicated, mineral resource and reserve figures presented in this Annual Report on Form 10-K and in our filings with securities regulatory authorities, press releases and other public statements that may be made from time to time, are based upon estimates made by independent consulting geologists and mining engineers. Estimates can be imprecise and depend upon geological interpretation and statistical inferences drawn from drilling and sampling, which may prove to be unreliable. We cannot assure you that the estimates are accurate or that mineralized materials from the Project can be mined or processed profitably.
Assumptions about silver and gold market prices are subject to great uncertainty as those prices have fluctuated widely in the past. Declines in the market prices of silver and gold may render reserves containing relatively lower grades of ore uneconomic to exploit, and the Company may be required to reduce reserve estimates, discontinue development or mining at one or more of its properties or write down assets as impaired. Should GQM LLC encounter mineralization or geologic formations at the Project different from those predicted, it may adjust its reserve estimates and alter its mining plans. Either of these alternatives may adversely affect the Company’s actual production and financial condition, results of operations and cash flow.
As production at the Project proceeds, mineral resources and reserves may require adjustments or downward revisions. In addition, the grade of mineralized material ultimately mined, if any, may differ from that indicated by our 2015 updated feasibility study. Gold and silver recovered in small scale tests may not be duplicated on a production scale.
The mineral resource and reserve estimates contained in this Form 10-K have been determined and valued based on assumed future prices for gold and silver, cut-off grades and operating costs that may prove to be different than actual prices, grades and costs. Extended declines in prices for gold or silver may render such estimates uneconomic and result in reduced reported mineralization or adversely affect current determinations of commercial viability. Any material reductions in estimates of mineralization, or of the ability of GQM LLC to profitably extract gold and silver, could have a material adverse effect on our share price and the value of the Project.
The estimates of production rates, costs and financial results contained in the 2015 feasibility study and any future guidance of production rates offered by the Company depend on subjective factors and may not be realized in actual production and such estimates speak only as of their respective dates.
The 2015 feasibility study provides estimates and projections of future production, costs and financial results of the Project. In addition, the Company may in the future provide guidance on projected production rates of the Project. Any such information is forward-looking and depend on numerous assumptions, including assumptions about the availability, accessibility, sufficiency and quality of ore, the costs of production, the market prices of silver and gold, the ability to sustain and increase production levels, the sufficiency of its infrastructure, the performance of its personnel and equipment, its ability to maintain and obtain mining interests and permits and its compliance with existing and future laws and regulations. Actual results and experience may differ materially from these assumptions. Any such production cost, or financial results estimates speak only as of the date on which they are made, and the Company disclaims any intent or obligation to update such estimates, whether as a result of new information, future events or otherwise.
There are significant financial and operational risks associated with an operating mining project such as the project operated by GQM LLC
The financial results of GQM LLC is subject to risks associated with operating and maintaining mining operations on the Property, including:
| · | increases in our projected costs due to differences in grade of mineralized material, metallurgical performance or revisions to mine plans in response to the physical shape and location of mineralized materials as compared to our 2015 feasibility study estimates; |
| · | increases in the costs of commodities such as fuel and electricity, and other materials and supplies which would increase Project development and operating costs; |
| · | the ability to extract sufficient gold and silver from resources and reserves to support a profitable mining operation on the Property; |
| · | decreases in gold and silver prices; |
| · | compliance with approvals and permits for the Project; |
| · | potential opposition from environmental groups, other non-governmental organizations or local residents which may delay or prevent development of the Project or affect our future operations; |
| · | difficult surface conditions, unusual or unexpected geologic formations or failure of open pit slopes; |
| · | mechanical or equipment problems, industrial accidents or personal injury resulting in unanticipated cost and delays; |
| · | environmental hazards or pollution; |
| · | fire, flooding, earthquakes, cave-ins or periodic interruptions due to inclement weather; and |
Any of these hazards and risks can materially and adversely affect, among other things, production quantities and rates, costs and expenditures, potential revenues and production dates. They may also result in damage to, or destruction of, production facilities, environmental damage, monetary losses and legal liability. The value of our interest in GQM LLC may decrease as a result, which would be expected to reduce the value of our common shares.
There are operational risks for which insurance coverage is not available at affordable rates or at all, and the occurrence of any material adverse event for which there is no insurance coverage may decrease financial performance of GQM LLC, or may impede or prevent ongoing operations
GQM LLC currently maintains insurance within ranges of coverage consistent with industry practice in relation to some of these risks, but there are certain risks against which GQM LLC cannot insure, or against which GQM LLC cannot maintain insurance at affordable premiums. Insurance against environmental risks (including pollution or other hazards resulting from the disposal of waste products generated from production activities) is not generally available to GQM LLC. If subjected to environmental liabilities, the costs incurred would reduce funds available for other purposes, and GQM LLC may have to suspend operations or undertake costly interim compliance measures to address environmental issues. Any such events would be expected to have a significant detrimental impact on the value of our interest in GQM LLC and our common stock.
Silver and gold mining involves significant production and operational risks
Silver and gold mining involves significant production and operational risks, including those related to uncertain mineral exploration success, unexpected geological or mining conditions, the difficulty of development of new deposits, unfavorable climate conditions, equipment or service failures, unavailability of or delays in installing and commissioning plants and equipment, import or customs delays and other general operating risks.
Commencement of mining can reveal mineralization or geologic formations, including higher than expected content of other minerals that can be difficult to separate from silver, which can result in unexpectedly low recovery rates. Problems may also arise due to the quality or failure of locally obtained equipment or interruptions to services (such as power, water, fuel or transport or processing capacity) or technical capital expenditure to achieve expected recoveries. Many of these production and operational risks are beyond the Company’s control. Delays in commencing successful mining activities at new or expanded mines, disruptions in production and low recovery rates could have adverse effects on the Company’s financial condition, results of operations and cash flows.
Land reclamation requirements for our properties may be burdensome and expensive
Reclamation requirements are imposed on GQM LLC in order to minimize long term effects of land disturbance, and this includes a requirement to re-establish pre-disturbance land forms.
In order to carry out reclamation obligations imposed on GQM LLC in connection with development activities, GQM LLC must allocate financial resources that might otherwise be spent on further exploration and development. GQM LLC has set up and plans to set up a provision for our reclamation obligations on the Project, as appropriate, but this provision may not be adequate. If GQM LLC is required to carry out unanticipated reclamation work, our financial position could be adversely affected.
Sale of Aggregate
We have not included contributions from the sale of aggregate in the 2015 feasibility study cash flow projections. However, aggregate sales over a period of thirty years are important for the Project as it will permit GQM LLC to meet its closure and reclamation requirements. If no sale of waste rock as aggregate is ever achieved, the initial mine life is expected to be reduced.
The mining industry is intensely competitive
As a result of competition in the mining industry, some of which is with large established mining companies with substantial capabilities and with greater financial and technical resources than ours, GQM LLC may be unable to effectively develop the Project or obtain financing on terms we consider acceptable.
We compete with other mining companies in the recruitment and retention of qualified managerial and technical employees. If we are unable to successfully compete for qualified employees, GQM LLC’s production of minerals from the Project may be slowed down or suspended. We also compete with other mining companies for capital. If we are unable to raise sufficient capital, our interest in GQM LLC may be diluted.
Legal and Regulatory Risks
We are subject to significant governmental regulations, which affect our operations and costs of conducting our business
GQM LLC’s current and future operations are and will be governed by laws and regulations, including, among others, those relating to:
| · | mineral property production and reclamation; |
| · | labor standards, and occupational health and safety; and |
| · | environmental standards for waste disposal, treatment and use of toxic substances, land use and environmental protection. |
Companies engaged in production activities often experience increased costs and delays as a result of the need to comply with applicable laws, regulations, and permits. Failure to comply with these may result in enforcement actions, orders issued by regulatory or judicial authorities requiring operations to cease or be curtailed, and may include corrective measures requiring capital expenditures, installation of additional equipment or costly remedial actions. GQM LLC may be required to compensate those suffering loss or damage by reason of our activities and may have civil or criminal fines or penalties imposed for violations of such laws, regulations and permits.
Existing and possible future laws, regulations and permits governing operations and activities of mining companies, or more stringent implementation, could have a material adverse impact on GQM LLC’s business and cause increases in capital expenditures or require abandonment or delays in development of the Project, all of which would be expected to reduce the value of our interest in the GQM LLC.
GQM LLC’s activities are subject to California state and federal environmental laws and regulations that may increase the costs of doing business and restrict operations
GQM LLC’s current and planned operations are subject to state and federal environmental laws and regulations. Those laws and regulations provide strict standards for compliance, and potentially significant fines and penalties for non-compliance. These laws address air emissions, waste discharge requirements, management of hazardous substances, protection of endangered species and reclamation of lands disturbed by mining. Compliance with environmental laws and regulations requires significant time and expense, and future changes to these laws and regulations may cause material changes or delays in the production of minerals from the Project or future activities.
U.S. Federal Laws: The Comprehensive Environmental, Response, Compensation, and Liability Act (CERCLA), and comparable state statutes, impose strict, joint and several liability on current and former owners and operators of sites and on persons who disposed of or arranged for the disposal of hazardous substances found at such sites. It is not uncommon for the government to file claims requiring cleanup actions, demands for reimbursement for government incurred cleanup costs, or natural resource damages, or for neighbouring landowners and other third parties to file claims for personal injury and property damage allegedly caused by hazardous substances released into the environment. The Federal Resource Conservation and Recovery Act (RCRA), and comparable state statutes, govern the disposal of solid waste and hazardous waste and authorize the imposition of substantial fines and penalties for noncompliance, as well as requirements for corrective actions. CERCLA, RCRA and comparable state statutes can impose liability for clean-up of sites and disposal of substances found on exploration, mining and processing sites long after activities on such sites have been completed.
The Clean Air Act, as amended, and comparable state statutes, restrict the emission of air pollutants from many sources, including mining and processing activities. GQM LLC’s mining operations may produce air emissions, including fugitive dust and other air pollutants from stationary equipment, storage facilities and the use of mobile sources such as trucks and heavy construction equipment, which are subject to review, monitoring and/or control requirements under the Clean Air Act and comparable state air quality laws. New facilities may be required to obtain permits before work can begin, and existing facilities may be required to incur capital costs in order to remain in compliance. In addition, permitting rules may impose limitations on GQM LLC’s production levels or result in additional capital expenditures in order to comply with the rules. The Clean Air Act and comparable state statutes provide for civil, criminal and administrative penalties for unauthorized emissions of pollutants.
The Clean Water Act (CWA), and comparable state statutes, impose restrictions and controls on the discharge of pollutants into waters of the United States, or to the surface or ground waters of the state. The CWA regulates storm water runoff from mining facilities and requires a storm water discharge permit for certain activities. Such a permit requires the regulated facility to monitor and sample storm water run-off from its operations. The CWA and comparable state statutes provide for civil, criminal and administrative penalties for unauthorized discharges of pollutants and impose liability on parties responsible for those discharges for the costs of cleaning up any environmental damage caused by the release and for natural resource damages resulting from the release. Violation of these regulations and/or contamination of groundwater by mining related activities may result in fines, penalties, and remediation costs, among other sanctions and liabilities under state laws. In addition, third party claims may be filed by landowners and other parties claiming damages for alternative water supplies, property damages, and bodily injury.
The Endangered Species Act and comparable state laws are designed to protect critically imperiled species from extinction as a consequence of development. GQM LLC filed a response to statements made in a petition filed on January 31, 2014 with the United States Fish and Wildlife Service (USFWS), which petition sought to list the Mojave Shoulderband snail as a threatened or endangered species (seeItem 3. Legal Proceedings in this report for additional information). In April 2014, USFWS concluded that there was no imminent threat to the snail that would cause them to believe an emergency listing was required, but that USFWS may address the petition in the future, subject to funding. Under the Endangered Species Act if the USFWS determines that the petition contains information that the species is imperiled, it then will proceed with a 90 day screening process to determine if the petition presents substantial information to support listing the subject species as endangered, and if such information exists, the USFWS has a further 12 month period to conduct a detailed assessment of the listing request to approve or deny the listing. The existence of any species listed as endangered under those laws, including as a result of the petition, on Project lands that are to be disturbed as part of the development and operation of the Project could increase the costs associated with the Project or require changes or limitations to the planned project development.
California Laws: At the state level, mining operations are also regulated by the California Department of Conservation, Office of Mine Reclamation. State law requires mine operators to hold a permit, which dictates operating controls and closure and post-closure requirements directed at protecting surface and ground water. In addition, state law requires operators to have an approved mine reclamation plan. Local ordinances require the operators to hold Conditional Use Permits. These permits mandate concurrent and post-mining reclamation of mines and require the posting of reclamation financial assurance sufficient to guarantee the cost of closure and reclamation. Any changes to these laws and regulations could have an adverse impact on our financial performance and results of operations by, for example, requiring changes to operating constraints, technical criteria, fees or financial assurance requirements.
Regulations and pending legislation governing issues involving climate change could result in increased operating costs
A number of governments or governmental bodies have introduced or are contemplating regulatory changes in response to various climate change interest groups and the potential impact of climate change. Legislation and increased regulation regarding climate change could impose significant costs on GQM LLC and its suppliers, including costs related to increased energy requirements, capital equipment, environmental monitoring and reporting and other costs to comply with such regulations. Given the current emotion, political significance and uncertainty around the impact of climate change and how it should be dealt with, we cannot predict how legislation and regulation will affect our financial condition and operating performance. Furthermore, even without such regulation, increased awareness and any adverse publicity in the global marketplace about potential impacts on climate change by GQM LLC or other companies in our industry could harm our reputation. The potential physical impacts of climate change on our operations are highly uncertain, and may include changes in rainfall and storm patterns and intensities, water shortages and changing temperatures. These impacts may adversely impact the cost, production and financial performance of our operations.
Title to the Property may be subject to other claims, which could affect our property rights
There are risks that title to the Property may be challenged or impugned. The Property is located in California and may be subject to prior unrecorded agreements or transfers and title may be affected by undetected defects. There may be valid challenges to the title to the Property which, if successful, could affect development of the Project and/or operations. This is particularly the case in respect of those portions of the Property in which GQM LLC holds its interest solely through a lease with landholders, as such interests are substantially based on contract and have been subject to a number of assignments.
GQM LLC holds a number of unpatented mining claims created and maintained in accordance with the General Mining Law of 1872 (the “General Mining Law”). Unpatented lode mining claims and millsites are unique property interests, and are generally considered to be subject to greater title risk than other real property interests because the validity of unpatented mining claims is often uncertain. This uncertainty arises, in part, out of the federal laws and regulations under the General Mining Law. Also, unpatented mining claims may be subject to possible challenges by third parties or validity contests by the federal government. The validity of an unpatented mining claim or millsite, in terms of both its location and its maintenance, is dependent on strict compliance with a body of U.S. federal law. Should the federal government impose a royalty or additional tax burdens on the properties that lie within public lands, the resulting mining operations could be seriously impacted, depending upon the type and amount of the burden.
Legislation has been proposed in the past that could significantly affect the mining industry
Members of the United States Congress have repeatedly introduced bills which would supplant or alter the provisions of the United States General Mining Law. If enacted, such legislation could change the cost of holding unpatented mining claims and could significantly impact our ability to mine mineralized material on unpatented mining claims. Such bills have proposed, among other things, to either eliminate or greatly limit the right to a mineral patent and to impose a federal royalty on production from unpatented mining claims. Although we cannot predict what legislated royalties might be, the enactment of these proposed bills could adversely affect GQM LLC’s potential to mine mineralized material on unpatented mining claims. Passage of such legislation could adversely affect our financial performance.
GQM LLC may incur increased construction costs if a 1997 project labor agreement is found to be enforceable
The Company filed a complaint with the National Labor Relations Board (the “NLRB”) against the Building and Construction Trades Council of Kern, Inyo, and Mono Counties (the “Union”) on May 23, 2014. Refer to Item 3. Legal Proceedingsfor complete details.
Financial Risks
Our financial statements contain a qualification as to our ability to continue as a going concern due primarily to the need to repay or refinance our current indebtedness due in December of 2016, which is not assured
Until such time as GQM LLC can economically produce and sell gold and silver from the Project and distribute cash to its members, we will continue to have no cash flow from our ownership interest in GQM LLC and will continue to incur an operating deficit. As at December 31, 2015, excluding any cash held by GQM LLC and inclusive of GQM Holdings, we had cash of approximately $6.1 million and current liabilities of approximately $37.1 million, including secured debt with a related party lender which is due in December of 2016. The ability of the Company to continue as a going concern requires that we obtain new financing to replace our current debt obligations or are able to refinance with the existing lenders. Our ability to obtain new financing is dependent on a number of factors including cash flow from operations that are distributed from GQM LLC to the Company, equity market conditions, the market for precious metals, and the willingness of other parties to lend the Company money.
The Company must meet any future cash contribution requirements if required under the terms of the JV Agreement with Gauss LLC, or face dilution of its ownership interest in the Project, which could impact our stock value and our ability to meet stock exchange listing requirements
We hold a 50% interest in the Project pursuant to the terms of the JV Agreement. If in the future there are unexpected costs that require additional capital contributions from us under the terms of the JV Agreement, we will need to raise additional funds in order to maintain our 50% interest in the Project, otherwise we will have our interest diluted to below 50% which will likely have an adverse impact on the price of our common shares. In addition, to the extent our ownership interest of GQM LLC remains our sole business and asset, if we are diluted below 50% ownership we could fail to meet the listing requirements of the TSX and be delisted from the TSX and unable to list on a suitable alternate stock exchange. In such an event the market for our securities would be limited to the US over-the-counter market and related quotation services, being currently the OTCQX in the case of the Company. The anticipated impact of such a delisting will be to reduce venues for trading in our securities, a reduction in available market information, a reduction in liquidity, a decrease in analyst coverage of our securities, and a decrease in our ability for us to obtain additional financing to fund our operations.
GQM LLC’s results of operations, cash flows and operating costs are highly dependent upon the market prices of silver and gold and other commodities, which are volatile and beyond the Company’s control.
Silver and gold are exchange-traded commodities, and the volatility in gold and silver prices is illustrated by the following table, which sets forth, for the periods indicated (calendar year), the average annual market prices in U.S. dollars per ounce of gold and silver, based on the daily London P.M. fix, as shown in the table below:
| Mineral | | 2015 | | | 2014 | | | 2013 | | | 2012 | | | 2011 | | | Gold | | $ | 1,160.06 | | | $ | 1,265.78 | | | $ | 1,411.23 | | | $ | 1,668.98 | | | $ | 1,571.52 | | | Silver | | $ | 15.68 | | | $ | 19.08 | | | $ | 23.79 | | | $ | 31.15 | | | $ | 35.12 | |
Silver and gold prices are affected by many factors including U.S. dollar strength or weakness, prevailing interest rates and returns on other asset clauses, expectations regarding inflation, speculation, global currency values, governmental decisions regarding the disposal of precious metal stockpiles, global and regional demand and production, political and economic conditions and other factors. In addition, Exchange Traded Funds (“ETFs”), which have substantially facilitated the ability of large and small investors to buy and sell precious metals, have become significant holders of gold and silver. Factors that are generally understood to contribute to a decline in the prices of silver and gold include a strengthening of the U.S. dollar, net outflows from gold and silver ETFs, bullion sales by private and government holders and global economic conditions and/or fiscal policies that negatively impact large consumer markets.
Because GQM LLC is expected to derive all of its revenues from sales of silver and gold, its results of operations and cash flows will fluctuate as the prices of these metals increase or decrease. A period of significant and sustained lower gold and silver prices would materially and adversely affect the results of operations and cash flows. Additionally, if market prices for silver and gold decline or remain at relatively low levels for a sustained period of time, GQM LLC may have to revise its operating plans, including reducing operating costs and capital expenditures, terminating or suspending mining operations at one or more of its properties and discontinuing certain exploration and development plans. GQM LLC may be unable to decrease its costs in an amount sufficient to offset reductions in revenues, and may incur losses.
Operating costs at the Project are also affected by the price of input commodities, such as fuel, electricity, labour, chemical reagents, explosives, steel and concrete. Prices for these input commodities are volatile and can fluctuate due to conditions that are difficult to predict, including global competition for resources, currency fluctuations, consumer or industrial demand and other factors. Continued volatility in the prices of commodities and other supplies the Company purchases could lead to higher costs, which would adversely affect results of operations and cash flows.
Investment Risks
Holders of common shares may suffer dilution as a result of any equity financing by us in order to reduce or repay current indebtedness
We require additional capital to repay our current indebtedness, and we may be required to seek funding, including through the issuance of equity based securities. We cannot predict the size or price of any future financing to raise capital, and any issuance of common shares or other instruments convertible into equity. Any additional issuances of common shares or securities convertible into, or exercisable or exchangeable for, common shares may ultimately result in dilution to the holders of common shares, dilution in any future earnings per share and a decrease in the market price of our common shares.
We have been reflecting 100% of the financial results of GQM LLC in our consolidated financial statements based on certain assumptions of management, which assumptions, if incorrect, may require us to account for the Joint Venture differently
Our financial statements are prepared on the basis that GQM LLC meets the requirements for accounting treatment as a variable interest entity with the Company being considered as the primary beneficiary. As a result, we continue to reflect 100% of the financial results of GQM LLC in our consolidated financial statements, along with a non-controlling interest held by Gauss LLC representing a 50% interest in GQM LLC. Although no individual investor holds a controlling financial interest in GQM LLC, GQM LLC is controlled by a related party group. Accordingly, one member of the group must be identified as the primary beneficiary. As the member of the related party group most closely associated with GQM LLC, Golden Queen has determined it is the primary beneficiary. Future changes in the capital or voting structure of GQM LLC could change that outcome. If this is the case, the presentation of the information in Golden Queen’s financial statements would change, which could be perceived negatively by investors, and could have an adverse effect on the market price of Golden Queen’s common shares.
There are differences in U.S. and Canadian practices for reporting mineral resources and reserves
We generally report mineral resources and reserves in accordance with Canadian practices. These practices differ from the practices used to report resource and reserve estimates in reports and other materials filed with the SEC.
It is Canadian practice to report measured, indicated and inferred mineral resources, which are generally not permitted in disclosure filed with the SEC by United States issuers. In the United States, mineralization may not be classified as a “reserve” unless the determination has been made that the mineralization could be economically and legally produced or extracted at the time the reserve determination is made. United States investors are cautioned not to assume that all or any part of measured or indicated mineral resources will ever be converted into reserves. Further, “inferred mineral resources” have a great amount of uncertainty as to their existence and as to whether they can be mined legally or economically. Disclosure of “contained ounces” is permitted disclosure under Canadian regulations, however, the SEC only permits issuers to report “resources” as in place, tonnage and grade without reference to unit measures.
The Company’s future growth will depend upon its ability to develop new mines, either through exploration at existing properties or by acquisition from other mining companies.
Mines have limited lives based on proven and probable ore reserves. The Company’s ability to achieve significant additional growth in revenues and cash flows will depend upon success in further developing the Project and developing or acquiring new mining properties. Any strategies to further develop the Project or acquire new properties are inherently risky, and the Company cannot assure that it will be able to successfully develop existing or new mining properties or acquire additional properties on favorable economic terms or at all.
We believe that we may be a “passive foreign investment company” for the 2015 taxation year which would likely result in materially adverse United States federal income tax consequences for United States investors
We generally will be designated as a “passive foreign investment company” under the meaning of Section 1297 of the United States Internal Revenue Code of 1986, as amended (a “PFIC”) if, for a tax year, (a) 75% or more of our gross income for such year is “passive income” (generally, dividends, interest, rents, royalties, and gains from the disposition of assets producing passive income) or (b) if at least 50% or more of the value of our assets produce, or are held for the production of, passive income, based on the quarterly average of the fair market value of such assets. United States shareholders should be aware that we believe we were classified as a PFIC during our tax year ended December 31, 2015. If we are a PFIC for any taxable year during which a United States person holds our securities, it would likely result in materially adverse United States federal income tax consequences for such United States person. The potential consequences include, but are not limited to, re-characterization of gain from the sale of our securities as ordinary income and the imposition of an interest charge on such gain and on certain distributions received on our Common Shares. Certain elections may be available under U.S. tax rules to mitigate some of the adverse consequences of holding shares in a PFIC.
Two of our directors are ordinarily resident outside of the United States and accordingly it may be difficult to effect service of process on them, or to enforce any legal judgment against them
Two of our directors namely, Bryan A. Coates and Guy Le Bel are residents of Canada. Consequently, it may be difficult for U.S. investors to effect service of process within the U.S. upon these directors, or to realize in the U.S. upon judgments of U.S. courts predicated upon civil liabilities under the U.S. securities laws. A judgment of a U.S. court predicated solely upon such civil liabilities would probably be enforceable in Canada by a Canadian court if the U.S. court in which the judgment was obtained had jurisdiction, as determined by the Canadian court, in the matter. There is substantial doubt whether or not an original action could be brought successfully in Canada against any of such directors predicated solely upon such civil liabilities.
Our directors and officers may have conflicts of interest as a result of their relationships with other companies
Our directors and officers are, or may in the future be, directors, officers or shareholders of other companies that are similarly engaged in the business of acquiring, developing and exploiting natural resource properties. Consequently, there is a possibility that our directors and/or officers may be in a position of conflict in the future.
Members of the Clay family own a substantial interest in Golden Queen and are represented on our board of directors, and thus may exert significant influence on our corporate affairs and actions, including those submitted to a shareholder vote
Thomas M. Clay, a director of the Company is a member of the Clay Group. The Clay Group also controls Auvergne, which holds a 29.49% interest in Gauss, the joint venture that holds a 50% interest in GQM LLC and half the Project. For so long as the Clay Group beneficially owns at least 25% of our common shares, at least one of Golden Queen’s representatives on the board of managers of the Joint Venture will be designated by Auvergne.Accordingly, the Clay Group has considerable influence on our corporate affairs and actions, including those submitted to a shareholder vote, and GQM LLC’s development and operation of the Project. The interests of the Clay family may be different from the interests of other investors.
Members of the Clay family have also provided the Company with a loan of $37.5 million, including approximately $18.75 million provided by an investment vehicle managed by Thomas M. Clay. The loan is guaranteed by GQM Holdings and secured by a pledge of the Company’s interest in GQM Canada, GQM Canada’s interest in GQM Holdings, and GQM Holdings’ 50% interest in GQM LLC. As a result, a default on the loan could result in the Company losing its interest in the Project, which would have a material adverse effect on our share price.
Our share price may be volatile and as a result you could lose all or part of your investment
In addition to volatility associated with equity markets in general, the value of your investment could decline due to the impact of any of the following factors upon the market price of our common shares:
| · | Changes in the price for gold or silver; |
| · | delays, problems or increased costs in the production of minerals from the Project; |
| · | decline in demand for our common stock; |
| · | downward revisions in securities analysts’ estimates; |
| · | our ability to refinance or repay our current and future debt; |
| · | investor perception or our industry or prospects; and |
| · | general economic trends. |
Over the past few years, stock markets have experienced extreme price and volume fluctuations and the market prices of securities have been highly volatile. These fluctuations are often unrelated to operating performance and may adversely affect the market price of our common shares. As a result, you may be unable to resell your shares at a desired price.
Because our common shares trade at prices below $5.00 per share, and because we will not be listed on a national U.S. exchange, there are additional regulations imposed on U.S. broker-dealers trading in our shares that may make it more difficult for you to buy and resell our shares through a U.S. broker-dealer.
Because of U.S. rules that apply to shares with a market price of less than $5.00 per share, known as the “penny stock rules”, investors will find it more difficult to sell their securities in the U.S. through a U.S. broker dealer. The penny stock rules will probably apply to trades in our shares. These rules in most cases require a broker-dealer to deliver a standardized risk disclosure document to a potential purchaser of the securities, along with additional information including current bid and offer quotations, the compensation of the broker-dealer and its salesperson in the transaction, monthly account statements showing the market value of each penny stock held in the customer’s account, and to make a special written determination that the penny stock is a suitable investment for the purchaser and receive the purchaser’s written agreement to the transaction.
Item 1B. Unresolved Staff Comments
Not applicable.
Item 2. Properties
Land Ownership and Mining Rights
The Company acquired its initial property interests in 1985 and has since acquired additional properties in the area. GQM LLC holds directly or controls via agreement a total of 33 patented lode mining claims, 160 unpatented lode mining claims, onepatented millsite, 18 unpatented millsites, and holds directly or controls via agreement approximately 1,328 acres of fee land, which together make up the Property. The Property is located west of California State Highway 14 and lies largely south of Silver Queen Road covering all of Section 6 and portions of Sections 5, 7 and 8 in Township 10 North, Range 12 West; portions of Sections 1 and 12 in Township 10 North, Range 13 West; portions of Section 18 in Township 9 North, Range 12 West, and portions of Section 32 in Township 11 North, Range 12 West, all from the San Bernardino Baseline and Meridian. Some of the ancillary facilities required for a mining operation will be located in Section 6, T10N, R12W.
A Project location map is shown in Figure 1 below:
Figure 1
GQM LLC holds the properties either directly or under mining lease agreements with a number of individual landholders, two groups of landholders and three incorporated entities. The land required for the Project has therefore either been secured under one of the mining lease agreements or is controlled by GQM LLC through ownership of the land in fee or where GQM LLC owns or holds patented and unpatented mining claims or mill sites directly. The mining lease agreements were entered into from 1986 onwards. Refer to sectionProperty Interests Are In Good Standing below for key information.
Fee land surrounding Section 6 is required for the construction of the ancillary facilities for a mining operation, for the construction of the heap leach pad and for construction of two pads for storing quality waste rock. The area that will be disturbed by the Project is a 912 acre block (369 hectare) within the total area of approximately 1,700 acres (689 hectares) owned, held or controlled by GQM LLC. GQM LLC also owns 7 residential properties with buildings north of Silver Queen Road.
GQM LLC continues to review purchases of additional land in the adjacent area.
Record of Survey and Royalty Map
The Company obtained Records of Survey for the Project on July 20, 2011 and March 31, 2014, which are recorded with Kern County under Document No. 211092035 Book 0027, Page 66, and Document No. 3318, Book 29, Page 30, respectively.
The basis for GQM LLC’s royalty map is now the Record of Survey and this has superseded all earlier versions of the royalty map.
Royalties
GQM LLC is required to make advance minimum royalty payments under the mininglease agreements. In some instances, GQM LLC will receive a credit for the advance minimum royalty payments when mining ore on particular properties after the start of commercial production. Most of the royalties are of the net smelter return type and are based on a sliding scale, with the percentage amount of the royalty depending upon the grade of ore mined and processed from the particular property to which the royalty relates. Weighted average royalty rates will range from a low of 1.0% to a high of 5.0% depending upon the area being mined and gold and silver prices. The agreements also typically provide for an additional royalty if non-mineral commodities, such as aggregates, are processed and sold.
Property Interests Are In Good Standing
A number of mining lease agreements expired in 2015 and GQM LLC is in ongoing negotiations with some landholders to extend mining lease agreements. This is not expected to impact GQM LLC’s operations.
Other mining leases have expiry dates ranging from 2016 to 2045. All mining leases contain an “evergreen” clause that becomes effective once the mine commences production.
Project Background
The Project is located approximately 5 miles (8 kilometres) south of Mojave in Kern County in southern California. See Figure 1, a Project location map above.
Geology
The Soledad Mountain mineral deposit is hosted in a volcanic sequence of porphyritic rhyolite, quartz latites and bedded pyroclastics that occur on a large dome-shaped feature, called Soledad Mountain, along the margins of a collapsed caldera. Higher-grade precious metals mineralization is associated with steeply dipping, epithermal veins, which occupy faults and fracture zones that cross cut the rock units and generally trend northwest. The veins are contained within siliceous envelopes of lower-grade mineralization that forms the bulk of the mineral resource.
The primary rock types that occur on the Property are porphyritic rhyolite, flow-banded rhyolite, quartz latite, pyroclastics and siliceous vein material. Clay occurs in variable amounts and the rocks contain upwards of 60% silica as SiO2. Porphyritic rhyolite and flow-banded rhyolite were grouped as a single rock type for the metallurgical test work.
Mineral Resource Estimates
The Company engaged Mine Development Associates (“MDA”) to redo the Project’s geological resource model from first principles and to provide updated mineral resource estimates in 2014. The modeling and mineral resource estimates were completed under the supervision of Michael M. Gustin, a Qualified Person with respect to mineral resource estimations under NI 43-101.
To complete the mineral resource estimates, the drill data was evaluated statistically, gold and silver mineral domains were interpreted independently on cross sections spaced at 50-ft (15 m) and 100-ft (30 m) intervals that span the extents of the presently defined deposit, and the mineral domains were refined on level plans spaced at 20-ft (6 m) intervals. The final modeled mineral domains were then coded into a 20 ft x 20 ft x 20 ft (6 m x 6 m x 6 m) block model and used to constrain the gold and silver grade estimations.
The mineral resource estimates are summarized in the table below:
2015 Mineral Resource Estimates Provided by MDA (100% Basis)
| | | | | | | | | In-Situ Grade | | | Contained Metal | | | | | | | | | | | Gold | | | Silver | | | Gold | | | Silver | | | Classification | | Tonnes | | | Ton | | | g/t | | | oz/ton | | | g/t | | | oz/ton | | | oz | | | oz | | | Measured | | | 4,298,243 | | | | 4,738,000 | | | | 0.960 | | | | 0.028 | | | | 13.37 | | | | 0.39 | | | | 130,000 | | | | 1,865,000 | | | Indicated | | | 79,237,167 | | | | 87,344,000 | | | | 0.549 | | | | 0.016 | | | | 9.26 | | | | 0.27 | | | | 1,415,000 | | | | 23,733,000 | | | Measured & Indicated | | | 83,535,409 | | | | 92,082,000 | | | | 0.575 | | | | 0.017 | | | | 9.53 | | | | 0.28 | | | | 1,545,000 | | | | 25,598,000 | | | Inferred | | | 21,392,329 | | | | 23,581,000 | | | | 0.343 | | | | 0.010 | | | | 7.20 | | | | 0.21 | | | | 245,000 | | | | 4,965,000 | |
| 1. | Mineral resources are inclusive of mineral reserves. |
| 2. | Mineral resources that are not mineral reserves do not have demonstrated economic viability. |
| 3. | Mineral resources are reported at a 0.004 oz/ton (0.137 g/t) AuEq cutoff in consideration of potential open-pit mining and heap-leach processing. |
| 4. | Gold equivalent grades were calculated as follows: AuEq(oz/ton) = Au(oz/ton) + Ag(oz/ton)/88, which reflect a long-term Au:Ag price ratio of 55 and a Au:Ag recovery ratio of 1.6. |
| 5. | Mineral resources are reported as partially diluted. |
| 6. | Rounding as required by reporting guidelines may result in apparent discrepancies between tons, grade and contained metal content. |
| 7. | Tonnage and grade measurements are in imperial and metric units. Grades are reported in troy ounces per short ton and in grams per tonne. |
| 8. | The effective date of the mineral resource estimate is December 31, 2014. |
See“Cautionary note regarding U.S. investors”on Page 3 of this Report.
The gold-equivalent relationship is based on a long-term Au:Ag price ratio of 55 and Ag:Au recovery ratio of 0.625.
The mineral resource estimates were prepared in compliance with the disclosure and reporting requirements set forth in the Canadian Securities Administrators’ NI 43-101, Companion Policy 43-101CP, and Form 43-101F1, as well as with the Canadian Institute of Mining, Metallurgy and Petroleum’s “CIM Definition Standards - For Mineral Resources and Reserves, Definitions and Guidelines” (“CIM Standards”) adopted by the CIM Council on May 10, 2014.
The updated geological model and block model allows for high-confidence mine planning.
Note that mineral resources that are not mineral reserves do not have demonstrated economic viability.
Mineral Reserve Estimates
Norwest Corporation (“Norwest) completed the feasibility level open pit designs and scheduling for the 2015 updated feasibility study and provided the proven and probable reserve estimates shown in the table below:
2015 Mineral Reserve Estimates Provided By Norwest (100% Basis)
| | | | | | | | | In-Situ Grade | | | Contained Metal | | | | | | | | | | | Gold | | | Silver | | | Gold | | | Silver | | | Classification | | Tonnes | | | Ton | | | g/t | | | oz/ton | | | g/t | | | oz/ton | | | oz | | | oz | | | Proven | | | 3,357,000 | | | | 3,701,000 | | | | 0.948 | | | | 0.028 | | | | 14.056 | | | | 0.410 | | | | 102,300 | | | | 1,517,100 | | | Probable | | | 42,957,000 | | | | 47,352,000 | | | | 0.638 | | | | 0.019 | | | | 10.860 | | | | 0.317 | | | | 881,300 | | | | 14,999,100 | | | Total & Average | | | 46,314,000 | | | | 51,053,000 | | | | 0.661 | | | | 0.019 | | | | 11.092 | | | | 0.324 | | | | 983,600 | | | | 16,516,200 | |
| 1. | The Qualified Person for the mineral reserve estimates is Sean Ennis, Vice President, Mining, P.Eng., APEGBC Registered Member who is employed by Norwest Corporation. |
| 2. | A gold equivalent cut-off grade of 0.005 oz/ton was used for Quartz Latite and a cut-off grade of 0.006 oz/ton was used for all other rock types. The cut-off grade was varied to reflect differences in estimated metal recoveries for the different rock types mined. |
| 3. | Gold equivalent grades were calculated as follows: AuEq(oz/ton) = Au(oz/ton) + Ag(oz/ton)/88, which reflects a long-term Au:Ag price ratio of 55 and a Au:Ag recovery ratio of 1.6. Gold-equivalent grades were used for open pit optimizations. |
| 4. | Tonnage and grade measurements are in imperial and metric units. Grades are reported in troy ounces per short ton and in grams per tonne. |
See“Cautionary note regarding U.S. investors”on Page 3 of this Report.
The mineral reserves estimates are included in the measured and indicated mineral resource estimates set out in the table in the section Mineral Resource Estimatesabove.
Detailed information on the open pit design and other information is provided in the sectionOpen Pit Designand the sections that follow on all aspects of the open pit operation.
2015 Drilling Program and Exploration Potential
GQM LLC completed an infill drill program in 2015. The main objective of the infill drill program was to enhance GQM LLC's understanding of the Northwest Pit and Main Pit Phase 1 mineralization.
Additional geological targets have been identified on the Property. These targets are generally peripheral (northwest, east, and southwest) to the currently defined mineral resource estimates. In the northwest, additional vein mineralization was identified in the hanging-wall of the Soledad vein system and the potential for deeper gold-silver mineralization has been postulated based on hydrothermal alteration patterns. To the east, vein mineralization was identified in the hanging-wall of the Karma/Ajax vein system. Toward the southwest, extensions along the Karma/Ajax and Starlight/Golden Queen vein systems have been identified during an extensive re-logging program by GQM LLC’s geologic team. Historic drill results indicate widths of 26 ft (8 m) with good gold and silver grades.
The exploration work to date has focused on known fault/vein structures central to the deposit. The volcanic host rocks associated with mineralization on the Property extend further to the south and west and have not been fully evaluated. The continuity of mineralization at depth remains untested.
2015 Independent Feasibility Study
The Company engaged Kappes, Cassiday & Associates (“KCA”) and Norwest to prepare an updated feasibility study and economic analysis for the Project based upon current information in December 2014.
The base case cash flow analysis is done on a constant United States dollar, after-tax, stand-alone Project basis.
Gold and silver prices used to model the base case cash flows are $1,250.00/oz and $17.00/oz, respectively, and these were the consensus estimates used by a number of analysts. Prices are fixed for the life of the mine.
The Project has an indicated after-tax internal rate of return (“IRR”) on capital employed of 28.3%. The after-tax net present value (“NPV”) is $214 million with a discount rate of 5.0% and the undiscounted, cumulative net cash flow after tax is approximately $342 million. A 5.0% discount rate is reasonable for a project at this stage and is in-line with standard industry practices. By comparison, at an 8.0% discount rate, the after-tax NPV is $160 million. The indicated contribution of gold and silver to gross revenues is 88% and 12% respectively at current gold and silver prices with an average total cash cost per ounce of gold produced, net of silver credits, of $518/oz.
The Project generates positive cash flow in the first year of production and reaches cumulative positive cash flow in the fourth year of production. Cash flows remain positive each year through the mine life.
Project After-Tax NPV with Changing Metal Prices
Of note is that only 65% of the resource estimate has been included in the current mine design. Successful infill drill programs and expanding the Approved Project Boundary could increase the mine life.
A report on the 2015 feasibility study entitled “Soledad Mountain Project Technical Report and Updated Feasibility Study” dated February 25, 2015 in the form required by NI 43-101 is available on the Company’s website at www.goldenqueen.com.
Feasibility Study Capital and Operating Cost Estimates
The 2015 feasibility study capital cost estimates are based upon fixed-price contracts for construction of all the key facilities for the Project and detailed cost estimates prepared for ongoing construction based upon actual experience with costs incurred since the start of construction in July 2013. Pre-production capital costs of approximately $144 million are in-line with the capital costs update provided in March 2014 and include $99.3 million in pre-production capital costs, $15.0 million contingency, $10.5 million in working capital and financial assurance cost estimate and $19.2 million for the mobile mining equipment. These estimates also included all sales taxes. The sustaining capital was estimated to be a further $25.6 million over the life of the Project. The Company also expects GQM LLC to spend a further $10.9 million on additional mobile mining equipment starting in Year 2 of production. Most of the sustaining capital would be required for the construction of heap leach pads and for mining equipment replacement.
Detailed operating costs estimates were prepared with information provided by vendors of services and supplies such as diesel fuel and explosives, reagents such as cement and sodium-cyanide and operating supplies and spare parts for both the major mining equipment and support equipment and equipment in the various processing facilities. The operating cost estimates were reviewed by KCA and Norwest and confirmed as being reasonable.
The project was built in-line with the feasibility study cost estimates. Construction was completed in early 2016.
Open Pit Operation
Standard, open pit mining methods is used to mine ore and waste rock. Mining operations include drilling, blasting, loading, hauling and support equipment and GQM LLC is completing the mining. All open pit mining will occur in dry conditions above the water table.
The 2015 Feasibility Study estimated the total quantity of ore to be mined, crushed and screened and stacked on the heap leach pads to be 51 million tons (46.4 million tonnes). Total waste rock to be mined is estimated to be 174 million tons (158 million tonnes).
The initial mine life is projected to be 12 years. Aggregate sales over a period of thirty years is important for the Project as this will assist GQM LLC in meeting its closure and closing reclamation requirements.
Closure, Reclamation and Financial Assurance
Closure and reclamation will be completed in accordance with the requirements set out in the CUPs and an approved Surface Mining and Reclamation Plan and as set out in the Board Order issued by the Regional Board.
Reclamation will proceed concurrently where feasible, but is nonetheless expected to require two years following ending of mining and all aggregate operations, and a further three years of post-closure monitoring. Monitoring will continue until the reclamation success criteria are met.
Revegetation
Sites have been revegetated successfully elsewhere in the California deserts, and it is expected that revegetation can be completed successfully for the Project as described in the revegetation plan prepared by independent consulting engineers.
Financial Assurances
GQM LLC is required to provide the following financial assurances for the Project:
| · | To the Bureau of Land Management, State of California and Kern County for general reclamation on site; |
| · | To the State Water Resources Control Board for rinsing and closing reclamation of the leached residues on the heap and |
| · | “Unforeseen events financial assurance” required by the State Water Resources Control Board to provide for an unforeseen event that could contaminate surface or groundwater. |
Cleanup on Site
The Company has done extensive cleanup on site since 2006 at a cost of approximately $550,000 and GQM LLC is continuing this effort. This demonstrates that the Company and GQM LLC are committed to environmental stewardship and good housekeeping in its operations.
Environmental, Safety and Health Policy
GQM LLC has an Environmental, Safety and Health Policy and a management system to implement the Policy.
The Company prepared a Cyanide Management Plan for the Project and became a signatory to the International Cyanide Management Code in 2013. The Code was developed under the auspices of the United Nations Environment Program and the International Council on Metals and the Environment. The International Cyanide Management Institute, a non-profit organization, administers the Code. Signatories to the Code commit to follow the Principles set out in Code and to follow the Standards of Practice. Companies are expected to design, construct, operate and decommission their facilities consistent with the requirements of the Code and must have their operations audited by an independent third party. Audit results are made public.
Item 3. Legal Proceedings
To the best of our knowledge, there are no legal actions pending, threatened or contemplated against the Company or GQM LLC, other than what is noted below.
The Center for Biodiversity Petition to List the Mojave Shoulderband Snail as an Endangered Species
On January 31, 2014, the Center for Biological Diversity (“CBD”) filed an emergency petition (the "Petition") with the United States Fish and Wildlife Service ("USFWS") asking the USFWS to list the Mohave Shoulderband snail as a threatened or endangered species. Citing a report published more than 80 years ago, the Petition claims that the snail exists in only three places, and that most of the snail habitat occurs on Soledad Mountain, where the Company is developing the Project.
The Company worked with its environmental and legal advisors to prepare a detailed response to the petition, which was filed with the USFWS on March 31, 2014. The Company’s response is available on the Company’s website at www.goldenqueen.com.
On April 22, 2014, the Company learned that the USFWS had determined that there is no emergency to justify listing the Mohave Shoulderband snail as threatened or endangered under the Endangered Species Act of 1973, as amended. The USFWS reviewed the petition filed by the CBD and concluded that there was no imminent threat to the snail that would cause them to believe an emergency listing was required.
Even though an emergency listing was not warranted, the USFWS is required by the Endangered Species Act to continue processing the listing petition. On April 10, 2015, the USFWS announced the commencement of a 60-day public comment period as part of its decision to study the merits of the assertions made in the petition. As USFWS states in its notice, taking this step does not mean that a listing will be warranted at the end of the 12-month study period.
The Project has received all necessary regulatory approvals. The decision by the USFWS to proceed with a study does not affect the Project’s regulatory approvals or prevent the Project from moving forward.
Other Legal Matters
National Labor Relations Board
The Company filed a charge with the National Labor Relations Board (the “NLRB”) against the Building and Construction Trades Council of Kern, Inyo, and Mono Counties (the “Union”) on May 23, 2014. The charge was in response to the action taken by the Union related to a 1997 project labor agreement (PLA) that the Company believes is not applicable to the Project and unenforceable under federal labor law.
The NLRB issued a Complaint against the Union and the matter was heard by Administrative Law Judge (ALJ) John McCarrick in June 2015. In December 2015 ALJ McCarrick issued his Decision finding that the PLA violates Section 8(e) of the National Labor Relations Act and is therefore unenforceable. The Union is in the process of appealing that Decision to the NLRB in Washington, D.C.
Complaint on Alleged Short-swing Trading Profits
We received notice that a complaint was filed on April 22, 2015 in United States District Court, District of Massachusetts seeking recovery pursuant Section 16(b) of the Securities and Exchange Act of 1934, as amended (the “Exchange Act”), of alleged short-swing trading profits. The complaint was filed by Ryan T. Darby, as plaintiff, and named Landon T. Clay, a shareholder of the Company (“Clay”), and the Company as defendants. The plaintiff alleges that Mr. Clay realized short-swing profits in connection with transactions in Company securities within a period of six months. The Company and the Plaintiff have entered into an agreement to settle the claims. Under the agreement, the Company will agree to adopt certain changes to its existing Section 16 policies and procedures and pay legal fees of $185,000 to Plaintiff’s counsel. A Motion to Dismiss with prejudice the action is expected to be filed on or before March 31, 2016. Clay and the Company have, and continue to, expressly deny that either or both have committed any act or omission giving rise to any liability and/or violation of law.
In conjunction with the June 2015 Loan, as defined elsewhere herein, the Company agreed to indemnify the Clay Group and their affiliates for up to $350,000 in legal expenses (not damages) incurred in defense of complaints brought against the lenders and their affiliates by shareholders of the Company under Section 16 of the Exchange Act. The legal fees reimbursed by the Company currently amount to $64,532. Please refer to theTransaction with Related Parties section for further details on the June 2015 Loan.
Item 4. Mine Safety Disclosures
GQM LLC is the operator of the Project, which is located in Mojave in Kern County, California. The Company and GQM LLC have no mine safety violations to report.
PART II
Item 5. Market for Common Equity, Related Stockholder Matters and Small Business Issuer Purchases of Equity Securities
Market and Trading Price
The common shares of the Company are listed and traded on the Toronto Stock Exchange under the trading symbol “GQM”. The high and low sales prices of the common shares as traded on the Toronto Stock Exchange for the calendar periods indicated are set out in the table below. All prices are reported in Canadian dollars.
| Year ended December 31 | | High | | | Low | | | 2015 | | Fourth Quarter | | $ | 1.07 | | | $ | 0.67 | | | | | Third Quarter | | $ | 1.12 | | | $ | 0.65 | | | | | Second Quarter | | $ | 1.18 | | | $ | 0.75 | | | | | First Quarter | | $ | 1.68 | | | $ | 1.03 | | | 2014 | | Fourth Quarter | | $ | 1.59 | | | $ | 0.92 | | | | | Third Quarter | | $ | 1.72 | | | $ | 1.15 | | | | | Second Quarter | | $ | 1.98 | | | $ | 1.19 | | | | | First Quarter | | $ | 1.99 | | | $ | 0.80 | |
Exchange Rates
The following table sets forth, for the periods indicated, certain exchange rates based on the noon buying rate in Canadian dollars. Such rates are the number of Canadian dollars per one (1) U.S. dollar quoted by the Bank of Canada. The high and low exchange rates for each month during the previous six months were as follows:
| | | High | | | Low | | | February 2016 | | $ | 1.4083 | | | $ | 1.3481 | | | January 2016 | | $ | 1.4589 | | | $ | 1.3969 | | | December 2015 | | $ | 1.3990 | | | $ | 1.3360 | | | November 2015 | | $ | 1.3360 | | | $ | 1.3095 | | | October 2015 | | $ | 1.3242 | | | $ | 1.2904 | | | September 2015 | | $ | 1.3413 | | | $ | 1.3147 | |
Exchange rate information (from U.S.$ to Canadian $), based on the closing rates, as at each of the years ended December 31, 2014 and 2015 is set out in the table below:
| | | Year Ended December 31 | | | | | 2014 | | | 2015 | | | Rate at end of Period | | $ | 1.1601 | | | $ | 1.3840 | | | Low | | $ | 1.0639 | | | $ | 1.1728 | | | High | | $ | 1.1656 | | | $ | 1.3990 | |
As of March 30, 2016, there were 222 registered holders of record of the Company’s common shares and an undetermined number of beneficial holders.
The high and low sales prices of the common stock as traded on the OTCQX for the calendar periods indicated are set out in the table below. All prices are reported in U.S. dollars.
| Year ended December 31 | | High | | | Low | | | 2015 | | Fourth Quarter | | $ | 0.85 | | | $ | 0.51 | | | | | Third Quarter | | $ | 0.88 | | | $ | 0.49 | | | | | Second Quarter | | $ | 0.99 | | | $ | 0.61 | | | | | First Quarter | | $ | 1.38 | | | $ | 0.85 | | | 2014 | | Fourth Quarter | | $ | 1.42 | | | $ | 0.79 | | | | | Third Quarter | | $ | 1.61 | | | $ | 1.03 | | | | | Second Quarter | | $ | 1.79 | | | $ | 1.07 | | | | | First Quarter | | $ | 1.81 | | | $ | 0.75 | |
Dividends
The Company has not declared dividends on its common shares since inception.
Securities Authorized for Issuance Under Compensation Plans
The following table sets forth information as at December 31, 2015 respecting the compensation plans under which shares of the Company’s common stock are authorized to be issued.
| Plan Category | | Number of securities to
be issued upon exercise
of outstanding options,
warrants and rights
(a) | | | Weighted-average
exercise price of
outstanding options,
warrants and rights
(b) | | | Number of securities
remaining available for
future issuance under
equity compensation
plans (excluding
securities reflected in
column (a))
(c) | | | Equity compensation plans approved by security holders | | | 1,070,000 | | | $ | 0.94 | | | | 6,130,000 | | | Equity compensation plans not approved by security holders | | | Nil | | | | Nil | | | | Nil | | | Total | | | 1,070,000 | | | $ | 0.94 | | | | 6,130,000 | |
Performance Graph
The performance graph below shows the Company’s cumulative total return based on an initial investment of $100 in GQM common stock, as compared with the S&P/TSX Global Gold Index. The chart shows performance marks as of the last trading day during each of the last five years ended December 31.
| | | December 31,
2011 | | | December 31,
2012 | | | December 31,
2013 | | | December 31,
2014 | | | December 31,
2015 | | | Company | | | 100 | | | | 79 | | | | 29 | | | | 36 | | | | 25 | | | S&P/TSX Global Gold Index (TITTGD) | | | 100 | | | | 84 | | | | 42 | | | | 40 | | | | 36 | |
Purchases of Equity Securities by the Company and Affiliated Purchasers
Neither the Company nor an affiliated purchaser of the Company purchased common shares of the Company in the year ended December 31, 2015.
Item 6. Selected Financial Data
The following table summarizes certain selected consolidated financial data of the Company and should be read in conjunction withItem 7. Management’s Discussion and Analysis of Financial Condition and Results of Operation and the consolidated financial statements and notes thereto (for the applicable period) appearing elsewhere in this report.
Results for the five most recent years are set out in the table below.
| Results for the year ended on: | | December 31, 2015 | | | December 31, 2014 (Restated) | | | December 31, 2013 | | | December 31, 2012 | | | December 31, 2011 | | | Item | | $ | | | $ | | | $ | | | $ | | | $ | | | Revenues | | - | | | - | | | - | | | - | | | - | | | Net income (loss) and comprehensive income (loss) | | | (5,461,205 | )* | | | (8,469,204 | )* | | | 1,978,014 | | | | (1,270,988 | ) | | | (3,230,641 | ) | | Basic income (loss) per share | | | (0.05 | ) | | | (0.09 | ) | | | 0.02 | | | | (0.01 | ) | | | (0.03 | ) | | Diluted income (loss) per share | | | (0.05 | ) | | | (0.09 | ) | | | (0.01 | ) | | | (0.01 | ) | | | (0.03 | ) | | Cash | | | 37,587,311 | | | | 91,407,644 | | | | 5,030,522 | | | | 4,031,403 | | | | 7,922,255 | | | Total assets | | | 169,444,179 | | | | 129,517,335 | | | | 15,791,743 | | | | 6,567,069 | | | | 8,692,866 | | | Total long term liabilities | | | 27,330,560 | | | | 14,236,435 | | | | 8,028,857 | | | | 3,998,009 | | | | 4,779,714 | | | Redeemable portion of NCI | | | 27,123,741 | | | | 22,833,645 | | | | - | | | | - | | | | - | | | Stockholders' equity (deficiency), attributable to common shareholders | | | 26,581,933 | | | | 31,732,709 | | | | 6,240,932 | | | | 2,413,780 | | | | 3,631,916 | | | Non-controlling interest | | | 40,685,611 | | | | 34,250,468 | | | | - | | | | - | | | | - | |
* - Net income (loss) for the period attributable to the Company.
For more information of the assets and liabilities specific to GQM LLC, the variable interest entity, see Note 8 (vii) of the audited consolidated financial statements.
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operation
The following discussion of the operating results and financial condition of the Company should be read in conjunction with the audited, consolidated financial statements of the Company for the year ended December 31, 2015 and the notes thereto (the “Consolidated Financial Statements”). Additionally, please note that the operating results and financial conditions described below include the amounts attributable to the non-controlling interest.
The information in this Management Discussion and Analysis of Financial Condition and Results of Operation is prepared in accordance with U.S. generally accepted accounting principles and all amounts herein are in U.S. dollars unless otherwise noted.
Results of Operation
The following are the results of operation for the year ended December 31, 2015.
The Company had no revenue from operations for the year ended December 31, 2015.
The Company incurred general and administrative expenses of $4,615,532 during the year ended December 31, 2015 (2014 - $4,984,750; 2013 - $2,532,279). General and administrative costs were slightly lower when compared with 2014.
The following significant general and administrative expenses were incurred during the year with a comparison to expenses in 2014 and 2013:
| · | $1,566,224 (2014 - $1,148,626; 2013 - $202,848) for corporate salary. The increase is due to an increase in administrative staff in Mojave in 2015. |
| · | $851,731 (2014 - $1,278,374; 2013 - $421,616) in legal fees. The legal fees for the fiscal year ended 2014 were significantly higher than in fiscal year 2015 due to 2014 specific matters such as the fees related to the Joint Venture Transaction, work required for financing activities and the Company’s response to the Petition (refer toThe Center for Biodiversity Petition to List the Mojave Shoulderband Snail as an Endangered Speciesabove). |
| · | $461,879 (2014 - $122,004; 2013 - $58,507) for insurance expenses. The insurance expenses increase is related to the general increase in corporate, site activities and the acquisition of more mining equipment and vehicles as the Company moves towards production. Enhanced insurance coverage is required for its mining equipment, vehicles and infrastructure. |
| · | $414,327 (2014 - $570,078; 2013 - $274,935) for accounting, taxation and auditing fees during the year. The accounting fees for the fiscal year ended December 31, 2014 were higher than in fiscal year 2015 due to the fees related to the Joint Venture Transaction completed in 2014. |
| · | $256,171 (2014 - $743,216; 2013 - $285,177 for corporate expenses. The corporate expenses for the fiscal year 2014 were higher than in fiscal year 2015 due to the fees related to the Joint Venture Transaction completed in 2014. |
| · | $208,121 (2014 - $Nil; 2013 - $Nil) for site support costs. The Company incurred outside services costs related to construction which were not incurred in prior years. |
| · | $159,001 (2014 - $233,672; 2013 - $475,263) for stock based compensation. The Company granted 570,000 stock options in 2015 as compared with no stock options granted in 2014. The Company granted 800,000 stock options in 2013 and a significant portion was expensed in 2014 due to vesting terms. |
| · | $149,925 (2014 - $29,878; 2013 - $Nil) for operating supplies. The Company purchased operating supplies, such as first aid and safety supplies, which were not incurred in prior years. |
The Company experienced a net foreign exchange gain of $774,471 for the year ended December 31, 2015, as compared to a net foreign exchange gain of $497,155 for the year ending 2014. The net foreign exchange gain is made up by realized and unrealized gains and losses related to the Company’s convertible debentures, Canadian expenditures and the Canadian balances of cash and accounts payable. The net foreign exchange gain was mainly the result of the gain realized on the convertible debentures, which were denominated in Canadian dollars while the Company’s functional currency is the US dollar. The exchange rate, stated in Canadian dollars per one US dollar, moved from $1.16 as of December 31, 2014 to $1.38 on December 31, 2015.
For the year ended December 31, 2015, the Company incurred a total interest expense of $4,507,268 related to its various loans and its convertible debentures as compared to a total interest expense of $1,493,034 for the year ending 2014. The increase was mainly due to the amortization of the discounts and the interest payable related to the convertible debentures, the December 2014 Loan and the June 2015 Loan. Please refer to theTransaction with Related Parties section for a complete breakdown of the interest expenses as there was a portion of the interest capitalized to mineral property interests.
The amount of the Company’s derivative liability includes the convertible debentures issued in 2013 and the warrants issued in conjunction with the June 2015 Loan. The Company recorded a decrease in the derivative liability including foreign exchange of $3,334,224 as a result of a decrease in the Company’s share price during the year ended 2015 as compared to a decrease of $1,004,217 for fiscal 2014. The convertible debenture was repaid in July 2015 and therefore there is no related derivative liability as of December 31, 2015. These derivative liability changes are a non-cash item and were recorded in accordance with accounting pronouncement ASC 850-40-15. Refer to Note 8 of the audited consolidated annual financial statements for a detailed analysis of the changes in fair value of the derivative liability.
Interest income of $204,149 (2014 - $126,884) was higher during the year ended December 31, 2015 as compared with the same period in 2014 due to higher cash balances held in 2015. Interest rates remained low during 2015.
The Company recorded a net and comprehensive loss of $5,461,205* ($0.05 loss per basic share) during the year ended December 31, 2015 as compared to net and comprehensive loss of $8,469,204* ($0.09 loss per basic share) during the year ended December 31, 2014. As explained below the difference between 2015 and 2014 is mainly due to a significant decrease in the derivative liability in 2015 and reduced transaction and financing fees in 2015 when compared to 2014. These were partially offset by greater interest expenses in 2015.
* Net income (loss) for the period attributable to the Company.
Summary of Quarterly Results
Results for the eight most recent quarters are set out in the table below:
| Results for the quarter ended on: | | December 31,
2015 | | | September 30,
2015 | | | June 30, 2015 | | | March 31, 2015 | | | Item | | $ | | | $ | | | $ | | | $ | | | Revenue | | | Nil | | | | Nil | | | | Nil | | | | Nil | | | Net income (loss) for the quarter | | | (721,587 | )* | | | (1,924,167 | )* | | | (1,379,265 | )* | | | (1,436,186 | )* | | Basic net income (loss) per share | | | (0.01 | ) | | | (0.02 | ) | | | (0.01 | ) | | | (0.01 | ) | | Diluted net income (loss) per share | | | (0.01 | ) | | | (0.02 | ) | | | (0.01 | ) | | | (0.01 | ) |
| Results for the quarter ended on: | | December 31,
2014 | | | September 30,
2014 | | | June 30, 2014 | | | March 31, 2014 | | | Item | | $ | | | $ | | | $ | | | $ | | | Revenue | | | Nil | | | | Nil | | | | Nil | | | | Nil | | | Net income (loss) for the quarter | | | 1,543,120 | * | | | (1,811,843 | )* | | | (705,843 | ) | | | (7,494,638 | ) | | Basic net income (loss) per share | | | 0.02 | | | | (0.02 | ) | | | (0.01 | ) | | | (0.08 | ) | | Diluted net income (loss) per share | | | 0.00 | | | | (0.02 | ) | | | (0.01 | ) | | | (0.08 | ) |
* - Net income (loss) for the period attributable to the Company.
For the quarters illustrated in the above table, the main reasons for the significant fluctuations in net income (loss) between periods are the fluctuations in the Company’s derivative liabilities, interest expenses and the costs related to the Joint Venture Transaction. The Company’s derivative liabilities are a function of the Company’s stock price against the instruments strike price and the exchange rate between the Canadian dollar and the US dollar. As the stock price rises, the derivative liabilities increase resulting in the Company recognizing losses. When the stock price decreases, the Company recognizes gains.
For fiscal 2015, the Company experienced a loss related to its derivative liabilities in the amount of $101,749 (2014 – Loss of $5,747,376) in the first quarter whereas it recorded a gain of $2,568,849 (2014 – Gain of $1,634,681) during the second quarter. The second quarter gain was however off-set by higher interest expenses and a one-time financing fee of $1,500,000 paid in connection with the June 2015 Loan. In the third quarter of 2015, the Company experienced a loss of $598,770 (2014 – Gain of $2,861,314) related to the derivative liabilities. Adding to the losses for the three months ended September 30, 2015 was the interest expense and amortization of the discount on the June 2015 loan and the convertible debenture and the interest expense related to the Komatsu loans. In the fourth quarter of 2015, the Company experienced a gain of $1,465,895 (2014 – Gain of $2,255,598) related to the derivative liabilities. This gain was partially off-set by interest expense and amortization of the discount on the June 2015 loan and the interest expense related to the Komatsu loans.
For fiscal 2014, the Company experienced a significant loss related to its derivative liabilities in the amount of $5,747,376 (2013 – Gain of $611,949) in the first quarter whereas the second, third and fourth quarters of 2014 resulted in gains of $1,634,681 (2013 –$1,672,861), $2,861,314 (2013 –$475,862) and $2,255,598 (2013 –$2,624,988), respectively. In addition to the derivative liabilities, the Company also incurred in 2014 a commitment fee of $2,250,000 (2013 - $Nil) and a Joint Venture Transaction fee of $2,275,000 (2013 - $Nil) in the third quarter of fiscal 2014 that were meaningful contributing factors to the significant loss recognized in that quarter. Both fees were one-time fees not previously incurred in earlier quarters or to be incurred in future quarters.
In general, the results of operations can vary from quarter to quarter depending upon the nature, timing and cost of activities undertaken during the quarter, whether or not the Company incurs gains or losses on foreign exchange or grants stock options, and the movements in its derivative liability.
Reclamation Financial Assurance and Asset Retirement Obligation
Reclamation Financial Assurance
The Company is required to provide the Bureau of Land Management, the State Office of Mine Reclamation and Kern County with a revised reclamation cost estimate annually. The financial assurance is adjusted once the cost estimate is approved. The Company’s provision for reclamation of the property is estimated each year by an independent consulting engineer. This estimate, once approved by state and county authorities, forms the basis for a cash deposit of reclamation financial assurance. The reclamation assurance provided as at December 31, 2015 was $624,142 (December 31, 2014 - $553,329).
In addition to the above, the Company is required to obtain and maintain financial assurance for initiating and completing corrective action and remediation of a reasonably foreseeable release from the Project’s waste management units as required by the Lahontan Regional Water Quality Control Board (the “Regional Board”). The reclamation financial assurance estimate for 2015 is $278,240 (December 31, 2014 - $Nil).
Subsequent to year-end, the Company received approval to have the financial assurance amounts released and have the assurance replaced with surety bond agreements to cover the financial assurance. The Company pays a yearly premium.
Asset Retirement Obligation
The total asset retirement obligation as of December 31, 2015 is $978,453 (December 31, 2014 - $624,142).
The Company estimated its asset retirement obligations based on its understanding of the requirements to reclaim and clean-up its property based on its activities to date. During the year ended December 31, 2015, there was an increase of $354,311 to the retirement obligations as compared with the year ended December 31, 2014, where $71,892 was capitalized to property, plant, equipment and mineral interests as the asset portion of the retirement obligation. As at December 31, 2015, as the mine nears production, the Company estimates the cash outflow related to these reclamation activities will be incurred in 2028. Reclamation provisions are measured at the expected value of future cash flows discounted to their present value using a credit adjusted risk-free interest rate.
Property Rent Payments
The Company has acquired a number of mineral properties outright. It has acquired exclusive rights to explore, develop and mine other portions of the Project under various mining lease agreements with landowners.
The Company is required to make property rent payments related to its mining lease agreements with landholders, in the form of advance minimum royalties. The total property rent payments for the year ended December 31, 2015 were $134,417 (2014 - $67,513), and the Company is expected to make approximate payments of $2,500 in 2016 to various landowners under the existing lease agreements. The significant reduction is due to the expected commencement of production. At that point, production royalties will commence.
There are multiple third party landholders and the royalty amount due to each landholder over the life of the Project varies with each property.
Mine Development Commitments and Contractual Obligations
As of December 31, 2015, GQM LLC has entered into contracts for construction totaling approximately $47.6 million of which $4.4 million remains to be paid. The major commitments relate to the construction of the crushing-screening plant, the construction of the conveying and stacking system and work related to the Merrill-Crowe plant equipment. The commitments are expected to be paid out in early 2016. GQM LLC did not make material additional construction commitments subsequent to December 31, 2015.
See Note 12 of audited consolidated annual financial statements for further details on the mining equipment loans. Please refer toSubsequent Events below for additional commitments entered into by the Company subsequent to December 31, 2015.
GQM LLC’s contractual obligations as of December 31, 2015 are shown in the table below:
| GQM LLC | | Payments Due by Period | | | Contractual Obligations | | Total | | | Less than 1
year | | | 1-3 years | | | 3-5 years | | | More than
5 years | | | Debt obligations (mostly mobile mining equipment financing) | | $ | 18,372,823 | | | $ | 4,942,716 | | | $ | 10,374,912 | | | $ | 3,055,195 | | | | - | | | Capital lease obligations | | | - | | | | - | | | | - | | | | - | | | | - | | | Operating lease obligations | | | - | | | | - | | | | - | | | | - | | | | - | | | Purchase obligations (see above) | | $ | 4,428,583 | | | $ | 4,428,583 | | | | - | | | | - | | | | - | | Asset retirement obligations
(Face value) | | $ | 2,297,332 | | | | - | | | | - | | | | - | | | $ | 2,297,332 | | | Other long-term liabilities | | | - | | | | - | | | | - | | | | - | | | | - | | | Total | | $ | 25,098,738 | | | $ | 9,371,299 | | | $ | 10,374,912 | | | $ | 3,055,195 | | | $ | 2,297,332 | |
GQM LTD’s contractual obligations as of December 31, 2015 are shown in the table below:
| GQM LTD | | Payments Due by Period | | | Contractual Obligations | | Total | | | Less than 1
year | | | 1-3 years | | | 3-5 years | | | More than
5 years | | | Interest payable - June 2015 Clay loan | | $ | 969,645 | | | $ | 969,645 | | | | - | | | | - | | | | - | | | 2015 June Clay Loan (Face value) | | $ | 38,681,507 | | | $ | 38,681,507 | | | | - | | | | - | | | | - | | | Other long-term liabilities | | | - | | | | - | | | | - | | | | - | | | | - | | | Total | | $ | 39,651,152 | | | $ | 39,651,152 | | | | - | | | | - | | | | - | |
Off-balance Sheet Arrangements
The Company has no off-balance sheet arrangements.
Stock Option Plan
The Company’s current stock option plan (the “Plan”) was adopted by the Company in 2013 and approved by shareholders of the Company in 2013. The Company also adopted a house keeping amendment to the plan on April 27, 2015 to clarify the procedure for fixing the earlier termination date of stock options. The Plan provides a fixed number of 7,200,000 common shares of the Company that may be issued pursuant to the grant of stock options. The exercise price of stock options granted under the Plan shall be determined by the Company’s board of directors (the “Board”), but shall not be less than the volume-weighted, average trading price of the Company’s shares on the Toronto Stock Exchange (the “TSX”) for the five trading days immediately prior to the date of the grant. The expiry date of a stock option shall be the date so fixed by the Board subject to a maximum term of five years. The Plan provides that the expiry date of the vested portion of a stock option will be the earlier of the date so fixed by the Board at the time the stock option is awarded and the early termination date (the “Early Termination Date”). The Early Termination Date will be the date the vested portion of a stock option expires following the option holder ceasing to be a director, employee or consultant, as determined by the Board at the time of grant, or in the absence thereof at any time prior to the time the option holder ceases to be a director, employee or consultant, in accordance with and subject to the provisions of the Plan. All options granted under the 2013 Plan will be subject to such vesting requirements as may be prescribed by the TSX, if applicable, or as may be imposed by the Board.
The Company granted 50,000 stock options to a consultant of the Company on April 19, 2010. The options were exercisable at a price of $1.22 per share for a period of 5 years from the date of grant. The options expired unexercised on April 19, 2015.
On June 3, 2013, the Company granted 300,000 options to an officer of the Company. The options are exercisable at a price of $1.16 for a period of five years from the date of grant and vest over a period of 18 months with 100,000 vesting in 6, 12 and 18 months respectively. During the fourth quarter of 2014, the officer resigned and as a result, 100,000 unvested stock options were forfeited. The remaining 200,000 options expired unexercised on November 11, 2015. The Company also granted 50,000 stock options to a consultant of the Company on June 3, 2013. The options are exercisable at a price of $1.16 for a period of five years from the date of grant and vest immediately.
On September 18, 2013 the Company granted 300,000 options to Ms. Andrée St-Germain, the Company’s Chief Financial Officer. The options are exercisable at a price of $1.26 for a period of five years from the date of grant and vest over a period of 12 months with 100,000 vesting on the date of grant, 100,000 vesting in 6 and 12 months respectively. The Company also granted 150,000 stock options to the Company’s independent directors on September 4, 2013. The options are exercisable at a price of $1.59 for a period of five years from the date of grant and vest immediately.
The Company granted the aggregate amount of 430,000 options on September 8, 2015 to the Company’s directors. The options are exercisable at a price of $0.58 for a period of five years from the date of grant and vest immediately. At the same time, the Company granted 140,000 options to Ms. Andrée St-Germain at an exercise price of $0.58. The amount of 46,666 options vest immediately, 46,667 options vest 12 months from the grant date, and a further 46,667 options vest 24 months from the grant date. The Company recorded stock-based compensation of $159,001 during the year ended December 31, 2015 related to the issuance of the stock options.
A total of 1,070,000 (976,667 exercisable) (December 31, 2014 – 750,000 outstanding and exercisable) common shares were issuable pursuant to such stock options as at December 31, 2015.
Transactions with Related Parties
Consulting Fees
For the year ended December 31, 2015, the Company paid $201,312 (2014 – 163,465; 2013 - $192,431) to Mr. H. Lutz Klingmann for services as President of the Company of which $Nil (2014 - $Nil; 2013 – 47,467) is payable as at December 31, 2015. Included in the consulting fees for the year ended December 31, 2015 was $151,428 (2014 - $Nil; 2013 - $Nil) related to 150,000 bonus shares issued in accordance with Mr. Klingmann’s management agreement (Refer to Note 7 – Commitments and Contingencies of the audited consolidated financial statements). On May 1, 2015 Mr. Klingmann became an employee of the Company and his salary, since that date, is included under corporate salary expenses. Included in salaries expense is the severance payments received upon resignation.
During the year ended December 31, 2015, the Company paid a total of $107,327 (2014 - $150,199; 2013 – $35,484) to four directors, consisting of the three independent directors and Thomas M. Clay.
Convertible Debentures
On July 26, 2013, the Company entered into agreements to issue convertible debentures for aggregate proceeds of C$10,000,000 ($9,710,603), from a significant shareholder group. The convertible debentures were unsecured and bore interest at 2% per annum, calculated on the outstanding principal balance, payable annually. The principal amounts of the notes were convertible into shares of the Company at a price of C$1.03 per share for a period of two years.
A total of C$7,500,000 of the offering was subscribed for by an investment vehicle managed by Thomas M. Clay, a Director and insider of the Company. The Company agreed to pay the legal fees incurred by the lenders relating to this instrument which amounted to $10,049.
The conversion feature of the convertible debentures met the definition of a derivative liability instrument because the conversion feature is denominated in a currency other than the Company’s functional currency as well as the fact the exercise price is not a fixed price as described above. Therefore, the conversion feature does not meet the “fixed-for-fixed” criteria outlined in ASC 815-40-15.
As a result, the conversion feature of the notes was required to be recorded as a derivative liability recorded at fair value and marked-to-market each period with the changes in fair value each period being charged or credited to income or loss.
On July 24, 2015, the Company repaid its C$10.0 million ($7.7 million) convertible debenture and accrued interest of C$200,000 ($153,500).
The fair value of the derivative liability related to the conversion feature as at December 31, 2015 is $Nil (December 31, 2014 - $1,829,770). During 2015 and 2014 the derivative liability was calculated using an acceptable option pricing valuation model with the following assumptions:
| | | 2015 | | 2014 | | Risk-free interest rate | | 0.49% - 0.50% | | 1.00% - 1.09% | | Expected life of derivative liability | | 0.07 - 0.32 years | | 0.57 - 1.32 years | | Expected volatility | | 49.36% - 77.00% | | 73.03% - 98.21% | | Dividend rate | | 0.00% | | 0.00% |
The changes in the derivative liability related to the conversion feature are as follows:
| | | December 31, 2015 | | | December 31, 2014 | | | | | | | | | | | Balance, beginning of the period | | $ | 1,829,770 | | | $ | 2,833,987 | | | Change in fair value of derivative liability including foreign exchange | | | (1,829,770 | ) | | | (1,004,217 | ) | | Balance, end of the period | | $ | - | | | $ | 1,829,770 | |
The change in the convertible debentures is as follows:
| | | December 31, 2015 | | | December 31, 2014 | | | Balance, beginning of the period | | $ | 6,649,967 | | | $ | 4,642,620 | | | Amortization of discount | | | 1,852,754 | | | | 2,510,611 | | | Foreign exchange | | | (827,721 | ) | | | (503,264 | ) | | Repayment of convertible debenture | | | (7,675,000 | ) | | | - | | | Balance, end of the period | | $ | - | | | $ | 6,649,967 | |
During the year ended December 31, 2015, in addition to the amortization of the discount on the convertible debenture, the Company incurred interest expense of $94,907 (2014 - $181,479) based on the 2% per annum stated interest rate for a total amortization of discount and interest expense of $1,947,661 for the year ended December 31, 2015 (2014- $2,692,090). Interest payable relating to the convertible debenture as at December 31, 2015 was $Nil (December 31, 2014 - $70,721).
Notes Payable
On January 1, 2014, the Company entered into an agreement to secure a $10,000,000 loan (the “January 2014 Loan”). The January 2014 Loan was provided by members of the Clay family, who are shareholders of the Company, including $7,500,000 provided by an investment vehicle managed by Thomas M. Clay, a Director and insider of the Company. The January 2014 Loan had a twelve-month term and an annual interest rate of 5%, payable on the maturity date.
The January 2014 Loan was repaid on a date that is less than 183 days before the maturity date. As a result, the Company paid the Lenders an additional charge in the amount that is equivalent to 5% of the principal amount, plus interest on the principal amount at the rate of 5% per annum accrued to the date the January 2014 Loan was repaid. The Company repaid $7,500,000 loan plus the $375,000 accrued interest and $375,000 additional charge on December 31, 2014. The remaining balance of the loan, $2,500,000, the accrued interest of $125,000 and the additional charge of $125,000, were paid on January 5, 2015. In total, the Company incurred $500,000 in interest expense and $500,000 in additional charge related to the January 2014 Loan.
On December 31, 2014 the Company also entered into a new loan (the “December 2014 Loan”) with the same parties for an amount of $12,500,000. The December 2014 Loan was due on demand on July 1, 2015 and bore an annual interest rate of 10% payable at the end of each quarter. The loan was guaranteed by GQM Holdings, and secured by a pledge of the Company's interests in GQM Canada, GQM Canada’s interest in GQM Holdings and GQM Holdings' 50% interest in GQM LLC. The Company also incurred a financing fee to secure the loan in the amount of $1,000,000, of which, $750,000 was paid on December 31, 2014 and the remaining $250,000 was paid on January 5, 2015. The Company agreed to pay the legal fees incurred by the lenders relating to this instrument which amounted to $90,916. The total legal fees paid for the transaction were $118,695. The Company also agreed to provide the lenders with the option for certain registration rights whereby the Company would bear the costs and responsibility of registering the lenders common shares for the purposes of disposition subsequent to July 1, 2015. The Company has determined it is unlikely the registration option would be exercised and therefore has not accrued any potential costs related to the registration of the common shares. The Company has presented these transaction costs as a contra liability as substantially all of these costs were paid to the lenders.
On June 8, 2015, the Company amended the December 2014 Loan to extend the maturity to December 8, 2016 and increased the principal amount from $12,500,000 to $37,500,000 (the “June 2015 Loan”). The Company also issued 10,000,000 common share purchase warrants exercisable for a period of five years expiring June 8, 2020. The common share purchase warrants have an exercise price of $0.95. All other terms remained the same as the December 2014 Loan. The Company also incurred a financing fee to secure the loan in the amount of $1,500,000, all of which was paid on June 8, 2015. The Company agreed to pay the legal fees incurred by the lenders relating to this instrument which amounted to $46,408. The legal fees were expensed as the transaction met the definition of a debt extinguishment. The terms of the registration rights remains unchanged as does the Company’s assessment of the likelihood of the registration rights being exercised. As such, as of December 31, 2015, no accrual has been made for the potential costs related to the registration rights.
| | | December 31, 2015 | | | December 31, 2014 | | | Balance, beginning of the period | | $ | 13,881,305 | | | $ | - | | | Fair value at inception, notes payable | | | 33,497,277 | | | | 22,500,000 | | | Repayment of loans | | | (2,500,000 | ) | | | (7,500,000 | ) | | Accretion of financing and legal fees | | | 967,156 | | | | - | | | Accretion of discount on the June 2015 Loan | | | 1,374,228 | | | | - | | | Extinguishment of the December 2014 Loan | | | (12,500,000 | ) | | | - | | | Loss on extinguishment of debt | | | 151,539 | | | | - | | | Interest payable transferred to principal balance of the June 2015 Loan | | | 1,181,507 | | | | - | | | Capitalized financing fee and legal fees | | | - | | | | (1,118,695 | ) | | Balance, end of the period | | | 36,053,012 | | | $ | 13,881,305 | |
Interest payable relating to the June 2015 Loan as at December 31, 2015 was $969,645 (December 31, 2014 - $250,000 – of which $125,000 was interest expense and $125,000 related to the additional charge for the January 2014 Loan).
Share Purchase Warrants
On June 8, 2015 the Company issued 10,000,000 share purchase warrants to the Clay family in connection with the June 2015 Loan. The share purchase warrants are exercisable until June 8, 2020 at an exercise price of $0.95. Included in the June 2015 Loan agreement was an anti-dilution provision. If the Company were to complete a financing at a share price lower than the exercise price of the share purchase warrants, the exercise price of the share purchase warrants would be adjusted to match the price at which the financing was completed.
The share purchase warrants meet the definition of a derivative liability instrument as the exercise price is not a fixed price as described above. Therefore, the settlement feature does not meet the “fixed-for-fixed” criteria outlined in ASC 815-40-15.
The fair value of the derivative liability related to the share purchase warrants as at December 31, 2015 is $2,498,269 (December 31, 2014 - $Nil). The derivative liability was calculated using an acceptable option pricing valuation model with the following assumptions:
| | | 2015 | | 2014 | | Risk-free interest rate | | 0.73% - 1.02% | | - | | Expected life of derivative liability | | 4.44 - 5 years | | - | | Expected volatility | | 72.29% - 76.11% | | - | | Dividend rate | | 0.00% | | - |
The change in the derivative share purchase warrants is as follows:
| | | December 31, 2015 | | | December 31, 2014 | | | Balance, beginning of the period | | $ | - | | | $ | - | | | Fair value at inception | | | 4,002,723 | | | | - | | | Change in fair value | | | (1,504,454 | ) | | | - | | | Balance, end of the period | | $ | 2,498,269 | | | $ | - | |
Advance
In July 2014, GQM Inc. entered into a $10,000,000 short-term advance agreement (the “Advance”) with Leucadia and Auvergne (collectively, the “Lenders”), with the Company as guarantor. Leucadia provided $6,500,000 of the loan and Auvergne provided $3,500,000. The Advance had an interest rate of 10.0% per annum, compounded monthly. Auvergne is an investment vehicle managed by Thomas M. Clay, a Director and insider of the Company. On closing of the Joint Venture Transaction on September 15, 2014, GQM LLC applied part of the investment of $110,000,000 to repayment of principal and accrued interest on the $10,000,000 bridge loan advanced by the Lenders in July 2014. GQM LLC paid $209,607 in interest payment, including $73,632 paid to Auvergne on the July 2014 Advance, of which $45,264 was capitalized to mineral property interests.
Amortization of Discounts and Interest Expense
The following table summarizes the amortization of discounts and interest on loans and convertible debentures:
.
| | | Year Ended
December 31,
2015 | | | Year Ended
December 31,
2014 | | | Year Ended
December 31,
2013 | | | Interest expense related to the convertible debentures | | $ | 94,907 | | | $ | 181,479 | | | $ | - | | | Interest expense related to the January 2014 Loan | | | - | | | | 1,000,000 | | | | - | | | Interest expense related to the December 2014 Loan | | | 547,945 | | | | - | | | | - | | | Interest expense related to the June 2015 Loan | | | 2,151,152 | | | | - | | | | - | | | Interest expense related to Komatsu Financial loans | | | 281,958 | | | | 3,352 | | | | - | | | Accretion of debt discount on the convertible debentures | | | 1,852,754 | | | | 2,510,611 | | | | 888,026 | | | Interest in Gauss advance | | | - | | | | 209,607 | | | | | | | Accretion of the December 2014 Loan financing fees | | | 967,155 | | | | - | | | | | | | Accretion of the June 2015 Loan discount | | | 1,374,228 | | | | - | | | | | | | Accretion of discount and interest on loan and convertible debentures | | $ | 7,270,099 | | | $ | 3,905,049 | | | $ | 888,026 | |
The Company’s loans were contracted to fund significant development costs. The Company capitalizes a portion of the interest expense as it related to funds borrowed to complete development activities at the Project site.
| | | Year Ended
December 31, 2015 | | | Year Ended
December 31, 2014 | | | Year Ended
December 31, 2013 | | | Accretion of discounts and interest on loan, advance and convertible debenture | | $ | 7,270,099 | | | $ | 3,905,049 | | | $ | 888,026 | | | Less: Interest costs capitalized | | | (2,762,831 | ) | | | (2,412,015 | ) | | | - | | | Accretion of discounts and interest expensed | | $ | 4,507,268 | | | $ | 1,493,034 | | | $ | 888,026 | |
Joint Venture Transaction
On September 15, 2014, the Company closed the Joint Venture Transaction with Gauss resulting in both parties owning a 50% interest in the Project. Pursuant to the Joint Venture Transaction, Golden Queen converted its wholly-owned subsidiary GQM Inc., the entity developing the Project, into a California limited liability company named GQM LLC. On closing of the transaction, Gauss acquired 50% of GQM LLC by investing $110 million cash in exchange for newly issued membership units of GQM LLC. GQ Holdings, a newly incorporated subsidiary of the Company, holds the other 50% of GQM LLC.
Gauss is a funding vehicle owned by entities controlled by Leucadia National Corporation (NYSE: LUK) (“Leucadia”) and certain members of the Clay family, a shareholder group which collectively owned approximately 27% of the issued and outstanding shares of Golden Queen (the “Clay Group”) at the time of the transaction. Gauss is owned 70.51% by Gauss Holdings LLC (“Gauss Holdings”, Leucadia’s investment entity) and 29.49% by Auvergne LLC (“Auvergne”, the Clay Group’s investment entity). Pursuant to the transaction, Leucadia was paid a transaction fee of $2,000,000 and $275,000 was paid to Auvergne through GQM LLC in 2014. The Company has adopted an accounting policy of expensing these transaction costs.
Variable Interest Entity
In accordance with ASC 810-10-30, the Company has determined that GQM LLC meets the definition of a VIE and that the Company is part of a related party group that, in its entirety, would meet the definition of a primary beneficiary. Although no individual variable interest holder individually meets the definition of a primary beneficiary in the absence of the related party group, Golden Queen has determined it is considered the member of the related party group most closely associated with GQM LLC. As a result, the Company has consolidated 100% of the accounts of GQM LLC in these consolidated financial statements, while presenting a non-controlling interest portion representing the 50% interest of Gauss in GQM LLC on its balance sheet. A portion of the non-controlling interest has been presented as temporary equity on the Company’s balance sheet representing the initial value of the non-controlling interest that could potentially be redeemable by Gauss in the future. The net assets of GQM LLC as of December 31, 2015 and December 31, 2014 are as follows:
| | | December 31, 2015 | | | December 31, 2014 | | | Assets, GQM LLC | | $ | 158,209,916 | | | $ | 118,937,371 | | | Liabilities, GQM LLC | | | (22,591,211 | ) | | | (4,769,144 | ) | | Net assets, GQM LLC | | $ | 135,618,705 | | | $ | 114,168,227 | |
Included in the assets above, is $31,531,853 (December 31, 2014 - $83,282,403) in cash held as at December 31, 2015. The cash in GQM LLC is directed specifically to fund capital expenditures required to take the Project to production and settle GQM LLC’s obligations. The liabilities of GQM LLC do not have recourse to the general credit of the primary beneficiary except in one situation. Please refer to Note 12 of the audited consolidated annual financial statements for details on the exception.
Non-Controlling Interest
In accordance with ASC 810, the Company has presented Gauss’ ownership in GQM LLC as a non-controlling interest amount on the balance sheet within the equity section. However, the Amended and Restated Limited Liability Company Agreement (“LLC Agreement”) contains terms within Section 12.5 that provides for the exit from the investment in GQM LLC for an initial member whose interest in GQM LLC becomes less than 20%. The following is a summary of the terms of the clause:
Pursuant to Section 12.5, if a member becomes less than a 20% interest holder, its remaining unit interest will (ultimately) be terminated through one of three events at the non-diluted member’s option within 60 days of the diluted member’s interest dropping below 20% (the “triggering event”):
| a. | Through conversion to a net smelter royalty (“NSR”) (in which case the conversion ratio is based on a pro rata percentage, determined on a linear basis, based on the following: 0-20% membership interest translates to 0-5% NSR) obligation of GQM LLC; |
| b. | Through a buy-out (at fair value) by the non-diluted member; or |
| c. | Through a sale process by which the diluted member’s interest is sold |
| · | If such sale process does not result in a binding offer acceptable to the non-diluted member within six months after the election by the non-diluted member, the sale process terminates and the non-diluted member has 15 days to choose between (a) and (b). |
If the non-diluted member does not make an election pursuant to the above within 60 days, the diluted member may choose (a) or (b) above. If no election is made by the diluted member, option (a) is deemed to have been elected.
This clause in the Joint Venture Transaction constitutes contingent redeemable equity as outlined in Accounting Series Release No. 268 (“ASR 268”) and has been classified as temporary equity.
On initial recognition the amount of the temporary equity is calculated using the guidance that specifies that the initial measurement of redeemable instruments should be the carrying value. The amount allocated to temporary equity and the permanent equity on initial recognition is shown below. Temporary equity represents the amount of redeemable equity within Gauss’ ownership interest in the net assets of GQM LLC. The remaining 60% of their interest is considered permanent equity as it is not redeemable.
| | | September 15, 2014 | | | Net assets, GQM LLC before Joint Venture Transaction | | $ | 16,973,184 | | | Investment by Gauss | | | 110,000,000 | | | Net assets, GQM LLC after Joint Venture Transaction | | | 126,973,184 | | | Gauss’ ownership percentage | | | 50 | % | | Net assets of GQM LLC attributable to Gauss | | $ | 63,486,592 | | | | | | | | | Allocation of non-controlling interest between permanent equity and temporary equity: | | | | | | Permanent non-controlling interest (60% of total non-controlling interest) | | $ | 38,091,955 | | | Temporary non-controlling interest (40% of total non-controlling interest) | | $ | 25,394,637 | |
Subsequent to the initial transaction, the carrying value of the non-controlling interest will be adjusted for net income and loss, distributions and contributions pursuant to ASC 810-10 based on the same percentage allocation used to calculate the initial book value of temporary equity.
| | | December 31, 2015 | | | December 31, 2014 | | | Net and comprehensive loss in GQM LLC | | $ | (3,549,522 | ) | | $ | (2,804,957 | ) | | Non-controlling interest percentage | | | 50 | % | | | 50 | % | | Net and comprehensive loss attributable to non-controlling interest | | | (1,774,761 | ) | | | (1,402,479 | ) | | Net and comprehensive loss attributable to permanent non-controlling interest | | $ | (1,064,857 | ) | | $ | (841,487 | ) | | Net and comprehensive loss attributable to temporary non-controlling interest | | $ | (709,904 | ) | | $ | (560,992 | ) |
| | | Permanent Non-
Controlling Interest | | | Temporary Non-
Controlling Interest | | | Carrying value of non-controlling interest, September 15, 2014 | | $ | 38,091,955 | | | $ | 25,394,637 | | | Distributions to non-controlling interest | | | (3,000,000 | ) | | | (2,000,000 | ) | | Net and comprehensive loss for the period | | | (841,487 | ) | | | (560,992 | ) | | Carrying value of non-controlling interest , December 31, 2014 | | $ | 34,250,468 | | | $ | 22,833,645 | |
| | | Permanent Non-
Controlling Interest | | | Temporary Non-
Controlling Interest | | | Carrying value of non-controlling interest, December 31, 2014 | | $ | 34,250,468 | | | $ | 22,833,645 | | | Capital contribution | | | 7,500,000 | | | | 5,000,000 | | | Net and comprehensive loss for the period | | | (1,064,857 | ) | | | (709,904 | ) | | Carrying value of non-controlling interest , December 31 2015 | | $ | 40,685,611 | | | $ | 27,123,741 | |
Dilution of Interest in Subsidiary
As a result of the Joint Venture Transaction, the Company’s interest in GQM LLC was diluted from 100% to 50% and ordinarily, the Company would recognize a gain on dilution with the book value of the investment in GQM LLC increasing. However, since the transaction was with a related party and the Company retained control, the excess has not been recognized in net income but rather has been recorded in equity as an increase to APIC based on guidance provided in ASC 810-10-55-4D and -4E.
| | | September 15, 2014 | | | Investment by Gauss | | $ | 110,000,000 | | | Less: | | | | | | Initial carrying value of permanent equity | | | (38,091,955 | ) | | Initial carrying value of temporary equity | | | (25,394,637 | ) | Deferred tax liability resulting from dilution gain | | | (12,922,000 | ) | | Effect of dilution of subsidiary recorded to APIC | | $ | 33,591,408 | |
The deferred tax liability resulted from the increase in the book value over tax value of the investment in GQM LLC. Please refer to Notes 4 and 15 of the audited consolidated annual financial statements
Management Agreement
GQM LLC is managed by a board of managers comprising an equal number of representatives of each of Gauss and GQM Holdings. The initial officers of GQM LLC were H. Lutz Klingmann as Chief Executive Officer, and Andrée St-Germain as Chief Financial Officer. During fiscal 2015, Robert C. Walish Jr. was appointed to replace Mr. Klingmann as Chief Executive Officer of GQM LLC. Bryan A. Coates was appointed to the GQM LLC Board of Managers as a nominee of the Company, replacing Mr. Klingmann. As long as members of the Clay family beneficially hold in the aggregate greater than 25% of the Company, the Clay Group is entitled to appoint one of the Company’s representatives to the GQM LLC board of managers.
Capital Contribution Agreement
Pursuant to the Joint Venture Transaction, GQM Holdings’ made a single capital contribution to GQM LLC of $12.5 million on June 15, 2015. Gauss funded an amount equal to GQM Holdings’ capital contribution to GQM LLC. Both partners maintain their 50% ownership of the Project.
Standby Commitment
In 2014, Golden Queen also entered into a backstop guarantee agreement with Gauss (the “Backstop Agreement”) whereby, if the Company conducts a rights offering, Gauss has agreed to purchase, upon the terms set forth in the Backstop Agreement, any common shares which have not been acquired pursuant to the exercise of rights under the Rights Offering at a purchase price to be determined but not to exceed $1.10 per common share, up to a maximum amount of $45 million in the aggregate. In consideration for entering into the Backstop Agreement, on closing of the Joint Venture, the Company paid Leucadia and Auvergne a standby guarantee fee of $2,250,000, of which $731,250 was paid to Auvergne.
The Transaction Agreement and Backstop Agreement contemplated that the Company would file a registration statement in connection with the rights offering by October 15, 2014. The Company has decided not to proceed with a rights offering, and as a result the standby commitment has expired.
Private Placement
The Company completed a private placement of Convertible Debentures in July 2013 (refer toConvertible Debentures above). Other than the foregoing, there were no private placements completed during the 2015, 2014, or 2013 fiscal years.
Fair Value of Financial Instruments
The carrying amounts reported in the balance sheets for cash, receivables, accounts payable and accrued liabilities, and interest payable approximate fair values because of the immediate or short-term maturity of these non-level 3 financial instruments. The fair value of the short-term and long-term loans payable approximate their carrying values as the interest rates are based on the market. The market rates have remained steady for the loans payable during the past four quarters. The fair value of the notes payable approximates their carrying value and have been estimated based on discounted cash flows using interest rates being offered for similar debt instruments. The carrying amount of the notes payable are being recorded at amortized cost using the effective interest rate method.
All financial assets and financial liabilities are recorded at fair value on initial recognition. Transaction costs are expensed when they are incurred, unless they are directly attributable to the acquisition of qualifying assets, in which case they are added to the costs of those assets until such time as the assets are substantially ready for their intended use or sale.
The three levels of the fair value hierarchy are as follows:
| Level 1 | Unadjusted quoted prices in active markets that are accessible at the measurement date for identical, unrestricted assets or liabilities; |
| Level 2 | Quoted prices in markets that are not active, or inputs that are observable, either directly or indirectly, for substantially the full term of the asset or liability; |
| Level 3 | Prices or valuation techniques that require inputs that are both significant to the fair value measurement and unobservable (supported by little or no market activity). |
| | | December 31, 2015 | | | | | Total | | | Level 1 | | | Level 2 | | | Level 3 | | | Liabilities: | | | | | | | | | | | | | | | | | | Share purchase warrants | | $ | 2,498,269 | | | $ | - | | | $ | 2,498,269 | | | $ | - | | | | | $ | 2,498,269 | | | $ | - | | | $ | 2,498,269 | | | $ | - | |
| | | December 31. 2014 | | | | | Total | | | Level 1 | | | Level 2 | | | Level 3 | | | Liabilities: | | | | | | | | | | | | | | | | | | Derivative liability | | $ | 1,829,770 | | | $ | - | | | $ | 1,829,770 | | | $ | - | | | | | $ | 1,829,770 | | | $ | - | | | $ | 1,829,770 | | | $ | - | |
Under fair value accounting, assets and liabilities are classified in their entirety based on the lowest level of input that is significant to the fair value measurement. The fair value measurement of the financial instruments above use observable inputs in option price models such as the binomial and the Black-Scholes valuation models.
Please refer also to the note on fair value of derivative liability underResults of Operations above for more information.
Liquidity and Capital Resources
The Company and GQM Holdings (100%-owned by the Company) held $6,055,458 in cash on December 31, 2015 as compared to $8,125,242 on December 31, 2014. The decrease in cash is due to general corporate expenditures, repayment of the convertible debentures and the $12.5 million capital contribution paid to GQM LLC, partly off-set by the proceeds from the June 2015 Loan. It is expected that the cash held by the Company will fund the Company’s corporate expenses until 2017. The convertible debenture was repaid on July 24, 2015 for a total of $7.7 million (C$10 million), including, $153,500 (C$200,000) of accrued interest.
On October 1, 2015, the Company was to make the quarterly interest payment on the June 2015 loan. In accordance with the terms of the June 2015 loan agreement, the Company chose to exercise its right to pay in kind by adding the interest owed on October 1st, 2015 to the principal balance of the June 2015 loan. The principal balance of the loan was increased by $1,181,507. The principal balance of the loan as of December 31, 2015 was $38,681,507. SeeSubsequent Events section for details on the January 1, 2016 interest expense.
The Company is evaluating its options, including debt and equity, to re-finance the June 2015 Loan which matures on December 8, 2016.
The Company’s 50%-owned subsidiary, GQM LLC, held $31,531,853 in cash as of December 31, 2015 as compared to $83,282,403 on December 31, 2014. The decrease in cash is the result of increased capital expenditures in 2015 as the Company progressed construction. It is expected that the current cash on hand will fund the remaining capital expenditures and working capital needs until the Project reaches positive cash flows in 2016.
As of December 31, 2015, GQM LLC has entered into contracts for construction totaling approximately $47.6 million of which $4.4 million remains to be paid. The major commitments relate to the construction of the crushing-screening plant, the construction of the conveying and stacking system and work related to the Merrill-Crowe plant equipment. The remaining commitments were paid out in early 2016. GQM LLC did not make material additional construction commitments subsequent to December 31, 2015.
Remaining capital expenditures of approximately $2 million, as of December 31, 2015, mostly relate to spare parts and commissioning related expenses.
Cash used in Operating Activities:
Cash used to fund operating activities, including general and administrative expenses such as legal fees, accounting, taxation and auditing fees, insurance expenses, corporate expenses, office expenses and corporate salary was $8,182,110 (2014 - $11,153,251) for the year ended December 31, 2015. The decrease in cash used in operating activities in 2015 is mostly due to the significant costs incurred in 2014 related to the Joint Venture Transaction. The decrease is partially off-set by an increase in interest expenses in 2015, as compared to 2014.
Cash used in Investing Activities:
The Company began capitalizing all development expenditures directly related to the Project in July 2012. Prior to July 2012, all Project-related expenditures were written off due to uncertainties around obtaining the necessary approvals for proceeding with the Project.
Cash used in investing activities totaled $69,305,674 during the year ended December 31, 2015 (2014 - $21,698,945). The increase is due to the increased level of activity on site.
The development costs incurred/capitalized, by the Company totalled $68,956,621 (2014 - $21,624,355) for the year ended December 31, 2015, which was an increase of $47,606,729 as compared to the same period in 2014. See Note 9 – Supplementary Disclosures of Cash Flow Information in the audited consolidated annual financial statements for non-cash adjustments to property, plant, equipment and mineral interests investing activities. There was a significant increase in activity on site during 2015 due to the initiation of full construction in the fourth quarter of 2014. The following is a breakdown of significant development costs incurred during the year ended December 31, 2015 as compared with the same period in 2014:
| · | $18.0 million (2014 - $6.8 million) in costs related to the construction of the crushing-screening plant. |
| · | $9.1 million (2014 - $0.9 million) in costs related to the construction of the Merrill-Crowe plant. |
| · | $7.6 million (2014 - $0.4 million) in costs related to the construction of the Phase 1, Stage 1 heap leach pad. |
| · | $4.2 million (2014 - $Nil) in pre-production operating costs related to mining, processing and maintenance. |
| · | $3.9 million (2014 - $1.6 million) related to costs to prepare the power supply for the site. |
| · | $3.8 million (2014 - $3.4 million) in costs related to the construction of the conveying and stacking system. |
| · | $3.7 million (2014 - $2.8 million) in engineering and consulting costs. |
| · | $3.6 million (2014 - $0.2 million) paid in cash for the purchase of Komatsu mobile mining equipment. GQM LLC paid the sales tax and 10% deposit upon delivery. The remaining of the purchase costs was financed through loans with Komatsu Financial. |
| · | $3.3 million (2014 - $0.8 million) in costs related to the water supply and water storage infrastructure. |
| · | $1.6 million (2014 - $0.4 million) in costs related to the construction of the assay laboratory. |
| · | $1.6 million (2014 - $0.3 million) in support equipment. |
| · | $1.4 million (2014 - $Nil) paid in cash in sustaining capital. The Company purchased two production drills, one of which was financed with the distributor. GQM LLC paid the sales tax and 10% deposit upon delivery. |
The Company, through GQM LLC, continued construction in 2015 and commenced commissioning in late 2015. Construction was completed in early 2016 and the first gold and silver dore was poured on March 1, 2016. Construction was completed in-line with the budget.
Workshop-Warehouse: This project was completed in 2014. The workshop-warehouse was fully equipped with the necessary lubrication equipment, compressor, work-benches and a waste oil storage tank in February 2015. Construction of four offices on the floor above the warehouse was completed in March. We received approval for early occupancy of the workshop-warehouse in April. The workshop-warehouse is fully functional and is now being used.
Assay Laboratory: The construction started in the fourth quarter of 2014 and was completed during the first quarter of 2015. We received approval for early occupancy of the assay laboratory in April. The laboratory was equipped during the second quarter of 2015 and ventilation balancing, mechanical equipment installation and electrical hookups were completed in June. The laboratory was commissioned in July and is now fully operational.
Water Supply & Water Storage: The electrical installations at water well PW-1 were completed in March 2015 and water supply from the well is now fully automated. Five water storage tanks were delivered during the second quarter and the construction was completed in early 2016. The construction of the water supply infrastructure for the Project has been completed. The backup production water well (PW-4) was drilled, equipped and tested in June 2015 and the connection to the mine water supply infrastructure was completed in early 2016.
Power Supply: Construction of the site-wide power distribution system was completed during the fourth quarter of 2015. The primary sub-station was completed in November and we received full power in early December.
Crushing-Screening Plant: The Hilfiker wall was completed in February. Construction of the footings and construction of a retaining wall in the primary crusher area was completed in April. Structural steel and equipment for the crushing-screening plant was delivered during the second and third quarters and assembly started shortly thereafter. The order for the high pressure grinding roll or HPGR was placed with ThyssenKrupp Industrial Solutions (USA), Inc. in the third quarter of 2014 and the HPGR was delivered to site in early August. Construction of a second Hilfiker wall in the HPGR was completed mid-July. The Primary section of the crushing-screening plant was commissioned in November. The Secondary and Tertiary (HPGR) sections of the crushing-screening were commissioned in December.
Stacking and Conveying System: Equipment and structural steel components of the conveying and stacking system were delivered during the second quarter and the assembly started shortly thereafter. This turn-key project was completed in November and commissioning commenced in December.
Heap Leach Pad Phase 1/Stage 1: The earthmoving phase of the Phase 1, Stage 1 heap-leach pad, the events pond and the solution conveying channel were completed during the first quarter. Mixing of the historical tailings and natural clay from a deposit along Mojave Tropico Road was completed in May and the mix has been used to construct the lower, impervious liner for the events pond, the solution conveying channel and for the heap leach pad. The synthetic upper liner was placed in the events pond and solution collection ditch in May and the upper synthetic liner was placed on the heap leach pad in May and June. A sub-contractor mobilized a portable crushing-screening plant to site and over-liner material was crushed and placed on the heap leach pad. The Phase 1, Stage 1 heap-leach pad turn-key project was completed in September. Pad loading of agglomerated ore was initiated in mid-December.
Merrill-Crowe Plant: Basic construction of the pump box was completed in March. Construction of the footings was completed in August and the erection of the building started shortly thereafter. The equipment was received during the third quarter of 2015 and the installation continued until early February 2016. The Merrill-Crowe plant was commissioned in late February 2016 and the first gold and silver dore was poured on March 1, 2016.
Mobile Mining equipment: GQM LLC purchased the Komatsu mobile equipment fleet through Komatsu’s local distributor, Road Machinery. GQM LLC purchased a total of 21 piece of equipment, including seven 100-ton haul truck, two articulated trucks, two water trucks, three loaders and two excavators.
Cash from Financing Activities:
Cash from financing activities totalled $23,667,451 during the year ended December 31, 2015 (2014 - proceeds of $119,229,318). The cash from financing activities was significantly higher during the year ended December 31, 2014 as compared to the same period in 2015 due to the Joint Venture Transaction.
Financing activities during the year ended December 31, 2015 include the June 2015 Loan incremental proceeds of $25,000,000 and Gauss LLC’s $12,500,000 capital contribution to GQM LLC. As described below, the $2,500,000 remaining balance of the January 2014 Loan and financing fees of $250,000 on the December 2014 Loan were paid during the first quarter of 2015. The Company also paid financing fees of $1,500,000 in conjunction with the June 2015 Loan and retired its convertible debentures on July 26, 2015 for $7,675,000.
The Company issued two convertible debentures for net proceeds of C$10,000,000 ($9,710,603) on July 26, 2013.
On January 1, 2014, the Company entered into the $10,000,000 January 2014 Loan. The January Loan had a twelve-month term and an annual interest rate of 5%, payable on the maturity date. The Company repaid $7,500,000 of the loan on December 31, 2014. The remaining balance of the loan, $2,500,000 was repaid on January 5, 2015. Financing fees of $250,000 on the December 2014 Loan were also paid.
On December 31, 2014 the Company entered into the December 2014 Loan for an amount of $12,500,000. The December Loan matured on July 1, 2015 and bore an annual interest rate of 10% payable at the end of each Quarter.
On June 8, 2015, the Company amended the December 2014 Loan to extend the maturity to December 8, 2016 and increasing the principal amount from $12,500,000 to $37,500,000. The Company also issued 10,000,000 common share purchase warrants exercisable for a period of five years expiring June 8, 2020. The common share purchase warrants have an exercise price of $0.95. All other terms remained the same as the December 2014 Loan. The Company also incurred a financing fee to secure the loan in the amount of $1,500,000, all of which was paid on June 8, 2015. The Company agreed to pay the legal fees incurred by the lenders relating to this debt instrument which amounted to $46,408. The total legal fees were expensed as the transaction met the definition of a debt extinguishment.
During the year-ended December 31, 2015 the Company made principal payments of $1,907,549 (2014 - $13,408) related to the loans payable on the mining equipment and machinery.
Please seeTransactions with Related Parties above for more information of the Company’s 2013, 2014 and 2015 loans.
During the 2015 fiscal year, no stock options were exercised.
During the 2014 fiscal year, options were exercised by former directors as follows:
| · | In May 2014, 300,000 stock options were exercised by a former director and the Company issued 300,000 shares at $0.21 per share for proceeds of $63,000. |
| · | In April 2014, 170,000 stock options were exercised by two former directors and the Company issued 170,000 shares at $0.21 per share for proceeds of $35,700. |
| · | In February 2014, 60,000 stock options were exercised by a former director and the Company issued 60,000 shares at $0.21 per share for proceeds of $12,721. |
During the 2013 fiscal year, options were exercised by former directors, insiders and consultants as follows:
Second Quarter of 2013
| · | 200,000 options for proceeds of $50,674 (C$52,000) |
| · | 100,000 options for proceeds of $25,722 (C$26,000) |
Third Quarter of 2013
| · | 20,000 options for proceeds of $5,017 (C$5,200) |
Fourth Quarter of 2013
| · | 500,000 options for proceeds of $126,373 (C$130,000) |
| · | 300,000 options for proceeds of $74,677 (C$78,000) |
| · | 100,000 options for proceeds of $24,900 (C$26,000) |
Working Capital:
As at December 31, 2015, the Company, on a consolidated basis, had current assets of $39,979,225 (December 31, 2014 - $91,574,405) and current liabilities of $47,722,334 (December 31, 2014 - $26,464,078) or working capital deficit of $7,743,109 (December 31, 2014 – working capital surplus of $65,110,327). The decrease in current assets from December 31, 2014 is the result of project-related expenditures, partially off-set by the proceeds from the June 2015 loan and the $12.500,000 capital contribution from Gauss LLC. The increase in current liabilities is the result of the June 2015 Loan which is now included in current liabilities and an increase in mobile equipment loans at the Joint Venture level. These were partly off-set by the repayment of the convertible debenture.
GQM LLC will use its cash on hand for remaining capital expenditures and for working capital needs until the Project reaches positive cash flows in 2016.
Golden Queen Mining Co. Ltd will use its cash for general corporate expenditures such as accounting fees, legal fees, interest expense and corporate salary expenses. The Company is evaluating its options, including debt and equity, to re-finance the June 2015 Loan which matures on December 8, 2016.
Refer also toOutlookbelow.
Outstanding Share Data
At a special meeting of the holders of common shares of the Company held on December 17, 2013, the shareholders approved a special resolution to change the authorized share capital of the Company from 150,000,000 common shares to an unlimited number of common shares, all without par value, and no preferred shares.
On December 23, 2013, the Board of Directors of the Company passed a resolution to convert the exercise prices of granted stock options to U.S. dollars, being the functional currency of the Company for the purposes of financial reporting, in order to avoid recording a derivative liability in the Company’s financial statements.
The number of shares issued and outstanding and the fully diluted share position are set out in the table below:
| Item | | No. of Shares | | | | | | | | Shares issued and outstanding on December 31, 2014 | | | 99,778,683 | | | | | | | | | Shares issued as part of management agreement | | | 150,000 | | | | | | | | | Shares issued for mineral properties | | | Nil | | | | | | | | | Shares issued pursuant to the exercise of stock options | | | Nil | | | | | | | | | Shares issued and outstanding on December 31, 2015 | | | 99,928,683 | | | | Exercise Price | | | Expiry Date | | Shares to be issued on exercise of directors and employees stock options | | | 1,070,000 | | | | $0.58 to $1.59 | | | From 11/11/15 to 09/08/20 | | Shares to be issued on exercise of warrants | | | 10,000,000 | | | | $0.95 | | | 06/08/20 | Shares to be issued as a finder’s fee
(due upon commercial production) | | | 100,000 | | | | Not Applicable | | | Not Applicable | | Fully diluted on December 31, 2015 | | | 111,098,683 | | | | | | | | | Fully diluted March 30, 2016 | | | 111,098,683 | | | | | | | | | The company has an unlimited authorized share capital |
Outlook
GQM LLC started commissioning the processing facilities in late 2015 and commenced production in March 2016. GQM LLC anticipates reaching commercial production later in 2016.
Recent developments include:
| · | Construction was completed in February 2016. Capital expenditures were in-line with the budget; |
| · | Leaching of stacked ore has been ongoing since early February. Initial flow rates and ore porosity have been very good; |
| · | The Merrill-Crowe plant was commissioned in late February and the first gold and silver dore was poured on March 1, 2016; |
| · | Pad-loading continues to ramp-up toward full production; |
| · | Mining of the North-West pit and Main pit is ongoing. We expect to commence mining of the East pit by the end of 2016; and |
| · | There are now 130 full-time employees in Mojave with an expected increase to approximately 145 full-time employees by April as the production ramps-up. |
The ability of GQM LLC to develop a mine on the Property is subject to numerous risks, certain of which are disclosed underItem 1A. Risk Factorsabove. Readers should evaluate the Company’s prospects in light of these and other risk factors.
The Company is evaluating its options, including debt and equity, to re-finance the June 2015 Loan which matures on December 8, 2016.
Mineral Interests
In July 2012, the Company received notice that it had met all remaining major conditions of the conditional use permits for the Project. As a result, Management made the decision to begin capitalizing all development expenditures related to the Project while all other expenses not related to the development of the project continue to be expensed as incurred. Refer also to Note 3 Property, Plant, Equipment and Mineral Interests of the audited consolidated financial statements for a more detailed discussion.
Subsequent Events
No subsequent events have been identified up to the date of March 30, 2016, the date the financial statements were approved, other than denoted below.
On January 1st, 2016, the Company was to make the quarterly interest payment on the June 2015 loan. In accordance with the terms of the June 2015 loan agreement, the Company chose to exercise its right to pay in kind by adding the interest owed on January 1st, 2016 to the principal balance of the June 2015 loan. The principal balance of the loan was increased by $974,986. The principal balance of the loan moving forward will be $39,656,493 and interest will be calculated on this balance.
Subsequent to December 31, 2015, GQM LLC took possession of a used crane, valued at $0.4 million. The Company made total payments, tax and a 10% down payment, of $0.06 million. The remaining $0.3 million will be financed over 48 months at an interest rate of 3.90%.
In January 2016 the company entered into $2.1 million in surety bond agreements in order to release its reclamation deposits and post a portion of the financial assurance due in 2016.
Application of Critical Accounting Estimates
The financial statements of the Company have been prepared in accordance with generally accepted accounting principles in the United States. Because a precise determination of many assets and liabilities is dependent upon future events, the preparation of financial statements for a period necessarily involves the use of estimates which have been made using careful judgment.
The financial statements have, in management’s opinion, been properly prepared within reasonable limits of materiality and within the framework of the significant accounting policies summarized below:
Inventory
Inventories include stock piles, in-process inventory, doré, and operating materials and supplies. The classification of inventory is determined by the stage at which the ore is in the production process. As at December 31, 2015, the Company had stock-piles, operating materials, supplies and spare parts. All inventories are stated at the lower of cost or market, with cost being determined using a weighted average cost method. Dore inventory includes product at the mine site. Dore inventory costs include direct labor, materials, depreciation, depletion and amortization as well as overhead costs relating to mining activities.
Ore on Heap Leach Pad
The heap leach process extracts silver and gold by placing ore on an impermeable pad and applying a diluted cyanide solution that dissolves a portion of the contained silver and gold, which are then recovered in metallurgical processes. As at December 31, 2015, the Company had placed a small amount of ore on the heap leach pad but had not started placing leaching solution on the ore. The procedures and policies discussed below that pertain to more advanced stages will be applied once that specific process has been reached.
The Company uses several integrated steps to scientifically measure the metal content of ore placed on the leach pads. As the ore body is drilled in preparation for the blasting process, samples are taken of the drill residue which are assayed to determine estimated quantities of contained metal. The Company then processes the ore through crushing facilities where the output is weighed and sampled for assaying. The Company weighs the ore using a belt mounted weightometer to accurately measure the quantity of ore placed on the leach pad. The crushed ore is then transported to the leach pad for application of the leaching solution. As the leach solution is collected from the leach pads, it is continuously sampled for assaying. The quantity of leach solution is measured by flow meters throughout the leaching and precipitation process. After precipitation, the product is converted to doré, which is the final product produced by the mine. The inventory is stated at lower of cost or market, with cost being determined using a weighted average cost method.
The historical cost of the metal that is expected to be extracted within twelve months is classified as current and the historical cost of metals contained within the broken ore that is expected to be extracted beyond twelve months is classified as non-current. Ore on leach pad is valued based on actual production costs incurred to produce and place ore on the leach pad, less costs allocated to minerals recovered through the leach process.
The estimate of both the ultimate recovery expected over time and the quantity of metal that may be extracted relative to the time the leach process occurs requires the use of estimates, which are inherently inaccurate due to the nature of the leaching process. The quantities of metal contained in the ore are based upon actual weights and assay analysis. The rate at which the leach process extracts gold and silver from the crushed ore is based upon metallurgical test column estimates. The assumptions that will be used by the Company to measure metal content during each stage of the inventory conversion process includes estimated recovery rates based on laboratory testing and assaying. The Company will periodically review its estimates compared to actual experience and revise its estimates when appropriate. As operations begin, the Company will not have any actual experience as a basis to compare estimates to and therefore will begin comparing estimates to actual results once the Company’s actual experiences have a sufficiently predictive quality. Variations between actual and estimated quantities resulting from changes in assumptions and estimates that do not result in write-downs to net realizable value are accounted for on a prospective basis.
Property, Plant, Equipment and Mineral Interests
Costs related to the development of our mineral reserves are capitalized whenit has been determined an ore body can be economically developed. An ore body is determined to be economically minable based on proven and probable reserves and when appropriate permits are in place. Major mine development expenditures are capitalized, including primary development costs such as costs of building access roads, heap leach pads, processing facilities, and infrastructure development. The Company also capitalizes additional development expenditures that are directly related to the development of the mine.
Drilling and related costs are classified as additional development expenditures, are charged to operations as incurred, or capitalized, based on the following criteria:
Whether or not the costs are incurred to further define mineralization at and adjacent to existing reserve areas or intended to assist with mine planning within a reserve area;
Whether or not the drilling costs relate to an ore body that has been determined to be commercially mineable, and a decision has been made to put the ore body into commercial production; and
Whether or not at the time that the cost is incurred, the expenditure: (a) embodies a probable future benefit that involves a capacity, singly or in combination, with other assets to contribute directly or indirectly to future net cash inflows, (b) we can obtain the benefit and control others’ access to it, and (c) the transaction or event giving rise to our right to or control of the benefit has already occurred.
If all of these criteria are met, drilling and related costs are capitalized. Drilling costs not meeting all of these criteria are expensed as incurred. The following factors are considered in determining whether or not the criteria listed above have been met, and capitalization of drilling costs is appropriate:
Completion of a favourable economic study and mine plan for the ore body targeted;
Authorization of development of the ore body by management and/or the Board of Directors; and
All permitting and/or contractual requirements necessary for us to have the right to or control of the future benefit from the targeted ore body have been met.
Property, plant, equipment and mineral interests are stated at the lower of cost or net realizable value less accumulated depreciation. Depreciation is provided by the straight-line method over the estimated service lives of the respective assets, which range from 0 to 30 years, and using the units-of-production method as follows:
| | Land | Not depreciated | Mineral property interests and claims | Units-of-production | Mine development | Units-of-production | Mine equipment | 5 – 10 years | Buildings | 12 – 30 years | Leasehold improvements | 30 years | Vehicles | 5 – 10 years | Computer equipment and software | 3 years | Asset retirements costs | Units-of-production | Capitalized interest | Units-of-production |
The Company has instituted a policy that all property, plant, and equipment, not related to the actual mine development, acquired for an amount over $3,000 will be capitalized and all property, plant and equipment purchased for under this threshold will be expensed as incurred. All property, plant, and equipment related to the mine development was capitalized.
Once production has commenced, the capitalization of certain mine construction costs ceases and expenditures are either variable production costs as a component of inventory or expensed as incurred. Exceptions include costs incurred for additions or improvements to property, plant, equipment and mineral interests. If mineral interests are subsequently abandoned or impaired, any capitalized costs will be charged to the Consolidated Statements of Income (Loss) and Comprehensive Income (Loss) for that period.
A mine construction project is considered to have entered the production stage when the mine construction assets are available for use. At this point the Company will begin depletion of its assets as outlined in the above breakdown. In determining whether mine construction assets are considered available for use, the criteria considered include, but are not limited to, the following:
• Completion of a reasonable period of testing mine plant and equipment;
• Ability to produce minerals in saleable form (within specifications); and
• Ability to sustain ongoing production of minerals.
As at December 31, 2015, the Project was not considered to be in commercial production
Capitalized Interest
For significant exploration and development projects, interest is capitalized as part of the historical cost of developing and constructing assets in accordance with ASC 835-20 ("capitalization of interest"). Interest is capitalized until the asset is ready for service. Capitalized interest is determined by multiplying the Company’s weighted-average borrowing cost on general debt by the average amount of qualifying costs incurred. Once an asset subject to interest capitalization is completed and placed in service, the associated capitalized interest is expensed through depletion or impairment. See Note 8(vi) of the audited consolidated annual financial statements.
Asset Retirement Obligations
Asset retirement obligations (‘‘AROs’’) arise from the acquisition, development and construction of mining properties and plant and equipment due to government controls and regulations that protect the environment on the closure and reclamation of mining properties. The major parts of the carrying amount of AROs relate to tailings and heap leach pad closure and rehabilitation, demolition of buildings and mine facilities, ongoing water treatment and ongoing care and maintenance of closed mines. The Company recognizes an ARO at the time the environmental disturbance occurs. When the ARO provision is recognized, the corresponding cost is capitalized to property, plant, equipment and mineral interests and depreciated over the life of the related assets.
The timing of the actual environmental remediation expenditures is dependent on a number of factors such as the life and nature of the asset, the operating license conditions and the environment in which the mine operates. Reclamation provisions are measured at the expected value of future cash flows discounted to their present value using a credit adjusted risk-free interest rate. AROs are adjusted each period to reflect the passage of time (accretion). Accretion expense is recorded in cost of sales each period. Upon settlement of an ARO, the Company records a gain or loss if the actual cost differs from the carrying amount of the ARO. Settlement gains/losses are recorded in the consolidated statements of income (loss).
Expected ARO is updated to reflect changes in facts and circumstances. The principal factors that can cause the ARO to change are the construction of new processing facilities, changes in the quantities of material in proven and probable mineral reserves and a corresponding change in the life-of-mine plan, changing ore characteristics that impact required environmental protection measures and related costs, changes in water quality that impact the extent of water treatment required and changes in laws and regulations governing the protection of the environment.
Each reporting period, provisions for AROs are re-measured to reflect any changes to significant assumptions, including the amount and timing of expected cash flows and credit adjusted risk-free interest rates. Changes to the reclamation provision resulting from changes in estimate are added to or deducted from the cost of the related asset, except where the reduction of the reclamation provision exceeds the carrying value of the related assets in which case the asset is reduced to nil and the remaining adjustment is recognized in the consolidated statements of income (loss).
Non-controlling Interest
Non-controlling interest consists of equity in GQM LLC not attributable, directly or indirectly, to Golden Queen. GQM LLC meets the definition of a Variable Interest Entity (“VIE”). Golden Queen has determined it is the member of the related party group that is most closely associated with GQM LLC and, as a result, is the primary beneficiary who consolidates GQM LLC. The non-controlling interest has been classified into two categories; permanent equity and temporary equity.
Non-controlling interests in temporary equity represent the estimated portion of non-controlling interest that could potentially be convertible through either a conversion of the non-controlling interest into a net smelter royalty obligation of GQM LLC or a buy-out of the non-controlling interest at fair value by the Company. The convertible portion of non-controlling interest recorded in temporary equity is initially recorded at the carrying value and then adjusted for net income or loss and distributions attributable to the temporary equity.
The non-controlling interest in permanent equity represents the portion of the non-controlling interest that is not convertible. Please refer to Note 8(vii) of the audited consolidated annual financial statements for complete details of how the transaction has been accounted for.
Derivative Liabilities
Derivative liabilities consist of the derivative liabilities related to the convertible debentures and derivative liabilities related to the share purchase warrants related to the June 2015 Loan.
If the Company’s convertible debentures had not been converted by the holder prior to the maturity date, then either the Company or the holder may convert them at the lower of C$1.03 or the market price as at the maturity date. The convertible debentures were required to be accounted for as separate derivative liabilities due to this possible variability in conversion price.
The share purchase warrants issued by the Company are exercisable at $0.95 per share purchase warrant for a period of five years. They are required to be accounted for as a separate derivative liability due to an anti-dilution clause that could potentially result in the exercise price being reduced.
These liabilities were required to be measured at fair value. These instruments were adjusted to reflect fair value at each period end. Any increase or decrease in the fair value was recorded in results of operations as change in fair value of derivative liabilities. In determining the appropriate fair value, we used the Binomial pricing model.
New Accounting Policies
| (i) | Effective August 2014, FASB issued Accounting Standards update (“ASU”) 2014-15, Presentation of Financial Statements – Going Concern (Subtopic 205-40 –Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going Concern. The update essentially requires management of all entities, for annual and interim periods, to evaluate whether there are conditions or events, considered in the aggregate, that raise substantial doubt about the entity’s ability to continue as a going concern within one year after the date the financial statements are issued. |
If conditions or events raise substantial doubt about an entity’s ability to continue as a going concern, but the substantial doubt is alleviated as a result of consideration of management’s plans, the entity should disclose information that enables users of the financial statements to understand all of the following:
| 1. | Principal conditions or events that raised substantial doubt about the entity’s ability to continue as a going concern (before consideration of management’s plans). |
| 2. | Management’s evaluation of the significance of those conditions or events in relation to the entity’s ability to meet its obligations. |
| 3. | Management’s plans that alleviated substantial doubt about the entity’s ability to continue as a going concern. |
If conditions or events raise substantial doubt about an entity’s ability to continue as a going concern, and substantial doubt is not alleviated after consideration of management’s plans, an entity should include a statement in the footnotes indicating that there issubstantial doubt about the entity’s ability to continue as a going concernwithin one year after the date that the financial statements are issued (or available to be issued). Additionally, the entity should disclose information that enables users of the financial statements to understand all of the following:
| 1. | Principal conditions or events that raise substantial doubt about the entity’s ability to continue as a going concern. |
| 2. | Management’s evaluation of the significance of those conditions or events in relation to the entity’s ability to meet its obligations. |
| 3. | Management’s plans that are intended to mitigate the conditions or events that raise substantial doubt about the entity’s ability to continue as a going concern. |
This update will come into effect for the annual period ending after December 15, 2016, and for annual periods and interim periods thereafter. The Company is assessing the impact of this standard.
| (ii) | In February, 2015, the FASB issued ASU 2015-02,Consolidation (Topic 810) – Amendments to the Consolidation Analysis whichfocuses on the consolidation evaluation for reporting organizations (public and private companies and not-for-profit organizations) that are required to evaluate whether they should consolidate certain legal entities. In addition to reducing the number of consolidation models from four to two, the new standard simplifies the standards and improves current GAAP by: |
| · | Placing more emphasis on risk of loss when determining a controlling financial interest. A reporting organization may no longer have to consolidate a legal entity in certain circumstances based solely on its fee arrangement, when certain criteria are met. |
| · | Reducing the frequency of the application of related-party guidance when determining a controlling financial interest in a variable interest entity (VIE). |
| · | Changing consolidation conclusions for public and private companies in several industries that typically make use of limited partnerships or VIEs. |
The ASU will be effective for periods beginning after December 15, 2015, for public companies. Early adoption is permitted, including adoption in an interim period. The Company will adopt the ASU effective January 1, 2016.
| (iii) | In April, 2015, FASB issued ASU 2015-03, Interest – Imputation of Interest (Subtopic 835-30) which focuses on simplifying the presentation of debt issuance costs, the amendments in this update require that debt issuance costs related to a recognized debt liability be presented in the balance sheet as a direct deduction from the carrying amount of that debt liability, consistent with debt discounts. The recognition and measurement guidance for debt issuance costs are not affected by the amendments in this update. |
The ASU will be effective for periods beginning after December 15, 2015, for public companies. Early adoption is permitted, including adoption in an interim period. The Company has adopted the ASU for the December 31, 2015 year end.
| (iv) | In July 2015, FASB issued ASU 2015-11, Inventory – Simplifying the Measurement of Inventory (Topic 330) which focuses on simplifying the guidance on subsequent measurement of inventory. Currently, the guidance requires an entity to measure inventory at the lower of cost or market. Market could be replacement cost, net realizable value, or net realizable value less an approximately normal profit margin. The ASU now updated the measurement to lower of cost and net realizable value.Net realizable value is the estimated selling prices in the ordinary course of business, less reasonably predictable costs of completion, disposal, and transportation. |
The ASU will be effective for periods beginning after December 15, 2016, for public companies. Early adoption is permitted, including adoption in an interim period. The Company assessed the impact of this new standard and adopted the new standard effective October 1, 2015. As the Company had a small inventory balance, the impact of the adoption of the new standard was immaterial.
| (v) | In November 2015, FASB issued ASU 2015-17, Income taxes – Balance sheet classification of deferred taxes (Topic 740), which simplifies the requirement to classify deferred tax assets and liabilities as non-current and current on the statement of financial position to only having to classify the deferred tax assets and liabilities as non-current. |
This update will come into effect for the annual period ending after December 15, 2016, and for annual periods and interim periods thereafter. Early adoption is permitted as of the beginning of an interim or annual reporting period. The Company has assessed the impact of the new standard and has adopted it for the year ending December 31, 2015.
| (vi) | In January 2016, FASB issued ASU 2016-01, Financial Instruments – Recognition and measurement of financial assets and financial liabilities (Subtopic 825-10) which updates several aspects of recognition, measurement, presentation and disclosure of financial instruments. The amendments are as follows: |
| 1. | Require equity investments (except those accounted for under the equity method of accounting or those that result in consolidation of the investee) to be measured at fair value with changes in fair value recognized in net income. However, an entity may choose to measure equity investments that do not have readily determinable fair values at cost minus impairment, if any, plus or minus changes resulting from observable price changes in orderly transactions for the identical or a similar investment of the same issuer. |
| 2. | Simplify the impairment assessment of equity investments without readily determinable fair values by requiring a qualitative assessment to identify impairment. When a qualitative assessment indicates that impairment exists, an entity is required to measure the investment at fair value |
| 3. | Eliminate the requirement to disclose the fair value of financial instruments measured at amortized cost for entities that are not public business entities. |
| 4. | Eliminate the requirement for public business entities to disclose the method(s) and significant assumptions used to estimate the fair value that is required to be disclosed for financial instruments measured at amortized cost on the balance sheet. |
| 5. | Require public business entities to use the exit price notion when measuring the fair value of financial instruments for disclosure purposes. |
| 6. | Require an entity to present separately in other comprehensive income the portion of the total change in the fair value of a liability resulting from a change in the instrument-specific credit risk when the entity has elected to measure the liability at fair value in accordance with the fair value option for financial instruments. |
| 7. | Require separate presentation of financial assets and financial liabilities by measurement category and form of financial asset (that is, securities or loans and receivables) on the balance sheet or the accompanying notes to the financial statements. |
| 8. | Clarify that an entity should evaluate the need for a valuation allowance on a deferred tax asset related to available-for-sale securities in combination with the entity’s other deferred tax assets. |
The ASU will be effective for periods beginning after December 15, 2017, for public companies. The Company is assessing the impact of this standard.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
Credit Risk
Credit risk is the risk that the counterparty to a financial instrument will cause a financial loss for the Company by failing to discharge its obligations. To mitigate exposure to credit risk on financial assets the Company has established policies to ensure liquidity of funds and ensure counterparties demonstrate minimum acceptable credit worthiness.
The Company maintains its US Dollar and Canadian Dollar cash in bank accounts with major financial institutions with high credit standings. Cash deposits held in the United States are insured by the FDIC for up to $250,000 and Canadian Dollar cash deposits held in Canada are insured by the Canada Deposit Insurance Corporation (“CDIC”) for up to C$100,000.
Certain United States and Canadian bank accounts held by the Company exceed these federally insured limits or are uninsured as they relate to US Dollar deposits held in Canadian financial institutions. As of December 31, 2015 and 2014, the Company’s cash balances held in United States and Canadian financial institutions include $37,587,311 and $91,407,644 respectively, which are not fully insured by the FDIC or CDIC. The Company has not experienced any losses on such accounts and management believes that using major financial institutions with high credit ratings mitigates the credit risk in cash.
Interest Rate Risk
The Company holds 63% of its cash in bank deposit accounts with a single major financial institution. The interest rates received on these balances may fluctuate with changes in economic conditions. Based on the average cash balances during the year ended December 31, 2015, a 1% decrease in interest rates would have reduced the interest income for 2015 to a trivial amount.
Foreign Currency Exchange Risk
Certain purchases of labour are denominated in Canadian dollars. As a result, currency exchange fluctuations may impact the costs of our operations. Specifically, the appreciation of the Canadian dollar against the U.S. dollar may result in an increase in the Canadian operating expenses in U.S. dollar terms. As of December 31, 2015, the Company maintained the majority of its cash balance in U.S. dollars. The Company currently does not engage in any currency hedging activities.
Commodity Price Risk
The Company’s primary business activity is the development of the open pit, gold and silver, heap leach project on the Property. Decreases in the price of either of these metals from current levels has the potential to negatively impact thefuture viability of the Project. .
Refer also toItem 1A. Risk Factorsabove.
Item 8. Financial Statements and Supplementary Data.
The Consolidated Financial Statements of the Company and the notes thereto are attached to this report following the signature page and Certifications.
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.
Subsequent to year-end, the Company went through a bidding process for its auditor. The audit committee recommended a change to PricewaterhouseCoopers Inc. located in Vancouver, BC. The Board is reviewing this recommendation.
Item 9A.Controls and Procedures.
Disclosure controls and procedures.
An evaluation was performed under the supervision and with the participation of our management, including the Chief Executive Officer (“CEO”) and Chief Financial Officer (“CFO”), of the effectiveness of the design and operation of our disclosure controls and procedures. Based on that evaluation, our CEO and CFO concluded that our disclosure controls and procedures were effective as of December 31, 2015, in assuring them in a timely manner that material information required to be disclosed in this report has been properly recorded, processed, summarized and reported.
An evaluation was performed under the supervision and with the participation of management, including the CEO and CFO, of the effectiveness of the design and operation of our disclosure controls and procedures as required by Exchange Act Rules 13a-15(e) and 15(d)-15(e) as of the end of the reporting period covered by this report. Based on that evaluation, our CEO and CFO concluded that our disclosure controls and procedures, including controls and procedures designed to ensure that information required to be disclosed by us is accumulated and communicated to our management (including our CEO and CFO), were effective as of December 31, 2015, in assuring them in a timely manner that material information required to be disclosed in this report has been properly recorded, processed, summarized and reported.
Management’s report on internal control over financial reporting.
Management is responsible for establishing and maintaining adequate internal control over our financial reporting, which is designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles in the United States of America.
Because of its inherent limitations, any system of internal control over financial reporting, no matter how well designed, may not prevent or detect misstatements due to the possibility that a control can be circumvented or overridden or that misstatements due to error or fraud may occur that are not detected. Also, because of changes in conditions, internal control effectiveness may vary over time.
Management assessed the effectiveness of our internal control over financial reporting as of December 31, 2015, using criteria established in Internal Control-Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”) and concluded that we have effective internal control over financial reporting as of December 31, 2015, based on these criteria.
This annual report does not include an attestation report of the Company’s independent registered public accounting firm regarding internal control over financial reporting. Management’s report was not subject to attestation by the Company’s independent registered public accounting firm pursuant to the rules of the SEC that permit the Company to provide only management’s report in this annual report.
Changes in Internal Control.
There were changes made in our internal control over financial reporting (as defined in Rule 13a-15(e) and Rule 15d-15(e) under the Exchange Act) during the fiscal year ended December 31, 2015. The Company hired a US tax expert to prepare the Company’s deferred tax calculations and review the Company’s tax returns. The Company hired the expert in response to a material weakness identified as at December 31, 2014 in the area of deferred taxes.
Item 9B. Other Information
None.
PART III
Information with respect to Items 10 through 14 is set forth in the definitive Proxy Statement to be filed with the Securities and Exchange Commission on or before April 30, 2016 and is incorporated herein by reference. If the definitive Proxy Statement cannot be filed on or before April 30, 2016, the issuer will instead file an amendment to this Form 10-K disclosing the information with respect to Items 10 through 14.
PART IV
Item 15. Exhibits
Exhibit
No. | | Description of Exhibit | | Manner of Filing | 3.1 | | Notice of Articles | | Filed herewith | | | | | | 3.2 | | Articles | | Incorporated by reference to Exhibit 3.2 to the Form 8-K of the Company, filed with the SEC on September 2, 2010 | | | | | | 10.1 | | Amendment to Pledge Agreement between the Company, Golden Queen Mining Holdings Inc., Golden Queen Mining Canada Ltd., The Landon T. Clay 2009 Irrevocable Trust Dated March 6, 2009 and Jonathan C. Clay dated February 27, 2015 | | Incorporated by reference to Exhibit 10.1 to the Form 10-Q of the Company, filed with the SEC on May 11, 2015 | | | | | | 10.2 | | Amended and Restated Term Loan Agreement dated June 8, 2015 among the Company, The Landon T. Clay 2009 Irrevocable Trust Dated March 6, 2009, EHT, LLC, Harris Clay, and The Clay Family 2009 Irrevocable Trust Dated April 14, 2009 | | Incorporated by reference to Exhibit 10.1 to the Form 8-K of the Company, filed with the SEC on June 9, 2015 | | | | | | 10.3 | | Amended and Restated Guaranty dated June 8, 2015 among Golden Queen Mining Holdings Inc., Golden Queen Mining Canada Ltd., The Landon T. Clay 2009 Irrevocable Trust Dated March 6, 2009, EHT, LLC, Harris Clay and The Clay Family 2009 Irrevocable Trust Dated April 14, 2009 | | Incorporated by reference to Exhibit 10.2 to the Form 8-K of the Company, filed with the SEC on June 9, 2015 | | | | | | 10.4 | | Amended and Restated Pledge Agreement dated June 8, 2015 among the Company, Golden Queen Mining Holdings Inc., Golden Queen Mining Canada Ltd., The Landon T. Clay 2009 Irrevocable Trust Dated March 6, 2009, EHT, LLC, Harris Clay and The Clay Family 2009 Irrevocable Trust Dated April 14, 2009 | | Incorporated by reference to Exhibit 10.3 to the Form 8-K of the Company, filed with the SEC on June 9, 2015 | | | | | | 10.5 | | Amended and Restated Registration Rights Agreement dated June 8, 2015 among the Company, The Landon T. Clay 2009 Irrevocable Trust Dated March 6, 2009, EHT, LLC, Harris Clay and The Clay Family 2009 Irrevocable Trust Dated April 14, 2009 | | Incorporated by reference to Exhibit 10.4 to the Form 8-K of the Company, filed with the SEC on June 9, 2015 |
10.6 | | Amended and Restated Option Agreement dated June 8, 2015 among Gauss LLC, Gauss Holdings LLC, Auvergne, LLC, The Landon T. Clay 2009 Irrevocable Trust Dated March 6, 2009, EHT, LLC, Harris Clay, The Clay Family 2009 Irrevocable Trust Dated April 14, 2009, Golden Queen Mining Canada Ltd. and Golden Queen Mining Holdings Inc. | | Incorporated by reference to Exhibit 10.5 to the Form 8-K of the Company, filed with the SEC on June 9, 2015 | | | | | | 10.7 | | Indemnity Agreement between the Company and the Clay Family Holders dated June 8, 2015 | | Incorporated by reference to Exhibit 10.6 to the Form 8-K of the Company, filed with the SEC on June 9, 2015 | | | | | | 10.8 | | Form of Share Purchase Warrants of the Company dated June 8, 2015 | | Incorporated by reference to Exhibit 10.7 to the Form 8-K of the Company, filed with the SEC on June 9, 2015 | | | | | | 10.9 | | Mining Lease dated April 22, 1986 between the Company, Southwestern Refining Corporation, and Claude and Mary J.Birtle, and amendment dated March 23, 2007. | | Incorporated by reference to Exhibit 10.2 to the Form 10-K/A of the Company, filed with the SEC on January 14, 2011 | | | | | | 10.10 | | Convertible Debenture dated July 26, 2013 issued by the Company to Jonathan C. Clay. | | Incorporated by reference to Exhibit 10.3 to the Form 10-K of the Company, filed with the SEC on March 16, 2015 | | | | | | 10.11 | | Convertible Debenture dated July 25, 2014 issued by the Company to Landon T. Clay 2013-14 Annuity Trust. | | Incorporated by reference to Exhibit 10.3 to the Form 10-K of the Company, filed with the SEC on March 16, 2015 | | | | | | 10.12 | | Convertible Debenture dated July 25, 2014 issued by the Company to Landon T. Clay. | | Incorporated by reference to Exhibit 10.3 to the Form 10-K of the Company, filed with the SEC on March 16, 2015 | | | | | | 10.13 | | 2013 Stock option plan of the Company. | | Incorporated by reference to Exhibit 10.1 to the Company’s Form 8-K filed with the SEC on September 24, 2013 | | | | | | 10.14 | | Employment Agreement dated September 18, 2013 between the Company and Andree St-Germain. | | Incorporated by reference to Exhibit 10.1 of the Company’s Form 10-Q filed with the SEC on May 12, 2014 | | | | | | 10.15 | | Transaction Agreement among the Company, Golden Queen Mining Company, Inc., Gauss LLC, Gauss Holdings LLC, and Auvergne, LLC dated June 8, 2014. | | Incorporated by reference to Exhibit 10.1 to the Form 8-K of the Company, filed with the SEC on June 12, 2014 | | | | | | 10.16 | | Standby Purchase Agreement among the Company, Gauss Holdings LLC and Auvergne, LLC dated June 8, 2014. | | Incorporated by reference to Exhibit 10.2 to the Form 8-K of the Company, filed with the SEC on June 12, 2014 | | | | | | 10.17 | | Registration Rights Agreement between the Company and Gauss Holdings LLC dated June 8, 2014. | | Incorporated by reference to Exhibit 10.3 to the Form 8-K of the Company, filed with the SEC on June 12, 2014 |
10.18 | | Registration Rights Agreement between the Company and Auvergne, LLC dated June 8, 2014. | | Incorporated by reference to Exhibit 10.4 to the Form 8-K of the Company, filed with the SEC on June 12, 2014 | | | | | | 10.19 | | Amended and Restated Limited Liability Company Agreement between the Company, Golden Queen Mining Company, LLC, Gauss LLC, and Golden Queen Mining Holdings, Inc. dated September 15, 2014. | | Incorporated by reference to Exhibit 10.5 to the Form 8-K of the Company, filed with the SEC on September 16, 2014 | | | | | | 10.20 | | Term Loan Agreement between the Company, The Landon T. Clay 2009 Irrevocable Trust Dated March 6, 2009 and Harris Clay dated December 31, 2014. | | Incorporated by reference to Exhibit 10.1 to the Form 8-K of the Company filed with the SEC on December 31, 2014 | | | | | | 10.21 | | Guaranty between Golden Queen Mining Holdings, Inc., The Landon T. Clay 2009 Irrevocable Trust Dated March 6, 2009 and Harris Clay dated December 31, 2014. | | Incorporated by reference to Exhibit 10.2 to the Form 8-K of the Company filed with the SEC on December 31, 2014 | | | | | | 10.22 | | Pledge Agreement between the Company and Golden Queen Mining Holdings, Inc. in favor of The Landon T. Clay 2009 Irrevocable Trust Dated March 6, 2009 and Harris Clay dated December 31, 2014. | | Incorporated by reference to Exhibit 10.3 to the Form 8-K of the Company filed with the SEC on December 31, 2014 | | | | | | 10.23 | | Registration Rights Agreement between the Company, The Landon T. Clay 2009 Irrevocable Trust Dated March 6, 2009 and Harris Clay dated December 31, 2014. | | Incorporated by reference to Exhibit 10.4 to the Form 8-K of the Company filed with the SEC on December 31, 2014 | | | | | | 10.24 | | Option Agreement between Golden Queen Mining Holdings Inc., Gauss LLC, Gauss Holdings LLC, Auvergne, LLC, The Landon T. Clay 2009 Irrevocable Trust Dated March 6, 2009 and Harris Clay dated December 31, 2014. | | Incorporated by reference to Exhibit 10.5 to the Form 8-K of the Company filed with the SEC on December 31, 2014 | | | | | | 21.1 | | Subsidiaries of the Company. | | Filed herewith | | | | | | 23.1 | | Consent of BDO Canada LLP | | Filed herewith | | | | | | 23.2 | | Consent of Kappes, Cassiday & Associates | | Filed herewith | | | | | | 23.3 | | Consent of Norwest Corporation | | Filed herewith | | | | | | 23.4 | | Consent of Mine Development Associates | | Filed herewith | | | | | | 23.5 | | Consent of Peter A. Ronning | | Filed herewith | | | | | | 23.6 | | Consent of Carl E. Defilippi | | Filed herewith | | | | | | 23.7 | | Consent of Sean Ennis | | Filed herewith | | | | | | 23.8 | | Consent of Michael M. Gustin | | Filed herewith | | | | | | 31.1 | | Rule 13a-14(a)/15(d)-14(a) Certification (CEO) | | Filed herewith | | | | | | 31.2 | | Rule 13a-14(a)/15(d)-14(a) Certification (CFO) | | Filed herewith | | | | | | 32.1 | | Section 1350 Certification (CEO) | | Filed herewith | | | | | | 32.2 | | Section 1350 Certification (CFO) | | Filed herewith | | | | | | 95 | | Mine Safety Disclosure | | Filed herewith | | | | | | 101 | | Financial Statements from the Annual Report on Form 10-K of the Company for the year ended December 31, 2015, formatted in XBRL | | Filed herewith |
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
GOLDEN QUEEN MINING CO. LTD. By: | /s/ Thomas M. Clay | | | Thomas M. Clay | | | Chairman and Principal Executive Officer | |
Paul M. Blythe Date: March 30, 2016Director
Vancouver, British Columbia [♦], 2019
SCHEDULE A Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
Signature | | Title | | Date | | | | | | /s/ Thomas Clay | | Chairman, Principal Executive Officer and Director | | March 30, 2016 | Thomas Clay | | | | | | | | | | /s/ Bryan A. Coates | | Director | | March 30, 2016 | Bryan A. Coates | | | | | | | | | | /s/ Guy Le Bel | | Director | | March 30, 2016 | Guy Le Bel | | | | | | | | | | /s/ Bernard Guarnera | | Director | | March 30, 2016 | Bernard Guarnera | | | | | | | | | | /s/ Andrée St-Germain | | Principal Financial Officer | | March 30, 2016 | Andrée St-Germain | | | | |
Golden Queen Mining Co. Ltd.
Consolidated Financial Statements
December 31, 2015
(US Dollars)
 | Tel: 604 688 5421
Fax: 604 688 5132
www.bdo.ca
| BDO CanadaCONSENT OF ERNST & YOUNG LLP
600 Cathedral Place
925 West Georgia Street
Vancouver BC V6C 3L2 Canada
|
Report of Independent Registered Public Accounting Firm
To the Shareholders and Board of Directors
Golden Queen Mining Co. Ltd.
We have auditedrefer to the accompanying consolidated balance sheets offormal valuation and fairness opinion dated [♦], 2019, which we prepared for Golden Queen Mining Co. Ltd. as of December 31, 2015 and 2014 and the related consolidated statements of income/(loss) and comprehensive income / (loss), shareholders’ equity, non-controlling interest and redeemable portion of non-controlling interest, and cash flows for each of the three years in the period ended December 31, 2015. These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We conducted our audits in accordanceconnection with the standards of the Public Company Accounting Oversight Board (United States). 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. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the consolidated financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall consolidated financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial positionsale of Golden Queen Mining Co. Ltd. at December 31, 2015Holdings Inc. to a group of purchasers including Thomas M. Clay and 2014,certain members of the Clay family and associated entities. We consent to the filing of the formal valuation and fairness opinion with the securities regulatory authority and the resultsinclusion of its operations and its cash flows for eacha summary of the three yearsformal valuation and fairness opinion in the period ended December 31, 2015, in conformity with accounting principles generally accepted in the United States of America.this document.
The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 1 to the consolidated financial statements, the Company as of December 31, 2015 on a non-consolidated basis currently does not have sufficient funds to repay a $37,500,000 loan that will come due in December 2016. This condition raises substantial doubt about the Company’s ability to continue as a going concern. Management’s plan in regard to this matter is also described in Note 1. The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.[♦]
As discussed in Note 15 to the financial statements, the consolidated financial statements as of December 31, 2014 and for the year then ended have been restated to correct a misstatement in the accounting for deferred income taxes.Toronto, Ontario
(signed) BDO CANADA LLP
Chartered Professional Accountants
Vancouver, Canada
March 30, 2016
BDO Canada LLP, a Canadian limited liability partnership, is a member of BDO International Limited, aUK company limited by guarantee, and forms part of the international BDO network ofindependent member firms.
[♦], 2019 GOLDEN QUEEN MINING CO. LTD.
Consolidated Balance Sheets
(US dollars)SCHEDULE B
| | | December 31, | | | December 31, | | | | | 2015 | | | 2014 | | | Assets | | | | | | | (Restated – Note 15) | | | Current assets: | | | | | | | | | | Cash ($31,531,853 and $83,282,403 attributable to VIE) | | $ | 37,587,311 | | | $ | 91,407,644 | | | Receivables ($18,238 and $20,286 attributable to VIE) | | | 23,962 | | | | 52,136 | | | Inventory (Note 2) ($1,852,359 and $Nil attributable to VIE) | | | 1,852,359 | | | | - | | | Ore on leach pad (Note 2) ($83,240 and $Nil attributable to VIE) | | | 83,240 | | | | - | | | Prepaid expenses and other current assets ($388,854 and $58,503 attributable to VIE) | | | 432,353 | | | | 114,625 | | | Total current assets | | | 39,979,225 | | | | 91,574,405 | | | | | | | | | | | | | Property, plant, equipment and mineral interests (Note 3) ($123,432,990 and $35,022,850 attributable to VIE) | | | 128,562,572 | | | | 37,389,601 | | | Reclamation financial assurance (Note 6) ($902,382 and $ 553,329 attributable to VIE) | | | 902,382 | | | | 553,329 | | | Total Assets | | $ | 169,444,179 | | | $ | 129,517,335 | | | Liabilities and Shareholders’ Equity | | | | | | | | | | Current liabilities: | | | | | | | | | | Accounts payable and accrued liabilities (Note 8(i)) ($3,239,935 and $3,231,870 attributable to VIE) | | $ | 3,258,692 | | | $ | 3,309,476 | | | Interest payable (Note 8(ii) and (iii)) | | | 969,645 | | | | 320,721 | | | Financing fee payable (Note 8(iii)) | | | - | | | | 250,000 | | | Notes payable (Note 8(iii)) | | | 36,053,012 | | | | 13,881,305 | | Current portion of loan payable (Note 12) ($4,942,716 and $222,839 attributable to VIE) | | | 4,942,716 | | | | 222,839 | | | Derivative liability – Warrants (Note 8(iv)) | | | 2,498,269 | | | | - | | | Derivative liability–Convertible debentures (Note 8(ii)) | | | - | | | | 1,829,770 | | | Convertible debenture (Note 8(ii)) | | | - | | | | 6,649,967 | | | Total current liabilities | | | 47,722,334 | | | | 26,464,078 | | | Asset retirement obligations (Note 6) ($978,453 and $624,142 attributable to VIE) | | | 978,453 | | | | 624,142 | | | Loan payable (Note 12) ($13,430,107 and $690,293 attributable to VIE) | | | 13,430,107 | | | | 690,293 | | Deferred tax liability (Notes 4 and 15) | | | 12,922,000 | | | | 12,922,000 | | | | | | | | | | | | | Total liabilities | | | 75,052,894 | | | | 40,700,513 | | | | | | | | | | | | | Temporary Equity | | | | | | | | | | Redeemable portion of non-controlling interest (Note 8(vii)) | | | 27,123,741 | | | | 22,833,645 | | | Shareholders’ Equity | | | | | | | | | | Common shares, no par value, unlimited shares authorized (2014 -unlimited); 99,928,683 (2014 – 99,778,683) shares issued and outstanding (Note 5) | | | 62,860,443 | | | | 62,709,015 | | | Additional paid-in capital | | | 43,627,511 | | | | 43,468,510 | | | Deficit accumulated | | | (79,906,021 | ) | | | (74,444,816 | ) | | | | | | | | | | | | Total shareholders’ equity attributable to GQM Ltd. | | | 26,581,933 | | | | 31,732,709 | | | Non-controlling interest (Note 8(vii)) | | | 40,685,611 | | | | 34,250,468 | | | | | | | | | | | | | Total Shareholders’ Equity | | | 67,267,544 | | | | 65,983,177 | | | Total Liabilities, Temporary Equity and Shareholders’ Equity | | $ | 169,444,179 | | | $ | 129,517,335 | |
DISSENT RIGHTS BasisDIVISION 2 OF PART 8 OF THEBUSINESS CORPORATIONS ACT (BRITISH COLUMBIA)
Definitions and application 237 (1) In this Division: "dissenter" means a shareholder who, being entitled to do so, sends written notice of Presentationdissent when and Abilityas required by section 242; "notice shares" means, in relation to Continue as a Going Concern (Note 1)notice of dissent, the shares in respect of which dissent is being exercised under the notice of dissent; Commitments and Contingencies (Note 7)
Subsequent Events (Note 14)"payout value" means,
Approved | (a) | in the case of a dissent in respect of a resolution, the fair value that the notice shares had immediately before the passing of the resolution, |
| (b) | in the case of a dissent in respect of an arrangement approved by a court order made under Section 291(2)(c) that permits dissent, the fair value that the notice shares had immediately before the passing of the resolution adopting the arrangement, |
| (c) | in the case of a dissent in respect of a matter approved or authorized by any other court order that permits dissent, the fair value that the notice shares had at the time specified by the Directors:court order, or |
| (d) | | | | | “Thomas M. Clay” | | “Bryan A. Coates” | Thomas M. Clay, Director | | Bryan A. Coates, Directorin the case of a dissent in respect of a community contribution company, the value of the notice shares set out in the regulations, |
See Accompanying Summaryexcluding any appreciation or depreciation in anticipation of Accounting Policies and Notes to Consolidated Financial Statements
GOLDEN QUEEN MINING CO. LTD.
Consolidated Statements of Income/(Loss) and Comprehensive Income/(Loss)
(US dollars)
| | | Year Ended
December 31,
2015 | | | Year Ended
December 31,
2014 | | | Year Ended
December 31,
2013 | | | | | | | | | | | | | | General and administrative expenses | | | (4,615,532 | ) | | | (4,984,750 | ) | | | (2,532,279 | ) | | Asset impairment loss | | | - | | | | - | | | | (2,522 | ) | | Change in fair value of derivative liability including change in foreign exchange (Notes 8(ii) and 8(iv)) | | | 3,334,224 | | | | 1,004,217 | | | | 5,385,660 | | | | | | (1,281,308 | ) | | | (3,980,533 | ) | | | 2,850,859 | | | | | | | | | | | | | | | | | Interest expense (Note 8(vi)) | | | (4,507,268 | ) | | | (1,493,034 | ) | | | (888,026 | ) | | Loss on extinguishment of debt (Note 8(iii)) | | | (151,539 | ) | | | - | | | | - | | | Financing fee (Note 8(iii)) | | | (1,500,000 | ) | | | | | | | | | | Joint-venture transaction fee (Note 8(vii)) | | | - | | | | (2,275,000 | ) | | | - | | | Commitment fee (Note 8(vii)) | | | - | | | | (2,250,000 | ) | | | - | | | Interest income | | | 204,149 | | | | 126,884 | | | | 15,181 | | | Net and comprehensive income (loss) for the year | | | (7,235,966 | ) | | | (9,871,683 | ) | | | 1,978,014 | | | Deduct: Net and comprehensive loss attributable to the non-controlling interest for the year (Note 8(vii)) | | | 1,774,761 | | | | 1,402,479 | | | | - | | | Net and comprehensive income (loss) attributable to Golden Queen Mining Co Ltd. for the year | | $ | (5,461,205 | ) | | $ | (8,469,204 | ) | | $ | 1,978,014 | | | Income (loss) per share - basic (Note 11) | | $ | (0.05 | ) | | $ | (0.09 | ) | | $ | 0.02 | | | Income (loss) per share - diluted (Note 11) | | $ | (0.05 | ) | | $ | (0.09 | ) | | $ | (0.01 | ) | | | | | | | | | | | | | | | | Weighted average number of common shares outstanding - basic | | | 99,893,341 | | | | 99,611,278 | | | | 98,390,561 | | | Weighted average number of common shares outstanding - diluted | | | 99,893,341 | | | | 99,611,278 | | | | 102,737,593 | |
See Accompanying Summary of Accounting Policies and Notes to Consolidated Financial Statements
GOLDEN QUEEN MINING CO. LTD.
Consolidated Statements of Shareholders’ Equity, Non-controlling Interest and Redeemable Portion of Non-controlling Interest
(US dollars)
| | | Common
Shares | | | Amount | | | Additional
Paid-in Capital
(Restated –
Note 15) | | | Deficit
Accumulated | | | Total
Shareholders’
Equity attributable
to GQM Ltd
(Restated –
Note 15) | | | Non-controlling
Interest | | | Total
Shareholders’
Equity
(Restated) | | | Redeemable
Portion of Non-
controlling
Interest | | | Balance, December 31, 2012 | | | 97,998,383 | | | $ | 61,959,471 | | | $ | 8,407,935 | | | $ | (67,953,626 | ) | | $ | 2,413,780 | | | $ | - | | | $ | 2,413,780 | | | $ | - | | | Issuance of common shares for mineral property interests | | | 15,000 | | | | 22,568 | | | | - | | | | - | | | | 22,568 | | | | - | | | | 22,568 | | | | - | | | Stock options exercised | | | 1,220,000 | | | | 307,363 | | | | - | | | | - | | | | 307,363 | | | | - | | | | 307,363 | | | | - | | | Stock-based compensation | | | - | | | | - | | | | 271,137 | | | | - | | | | 271,137 | | | | - | | | | 271,137 | | | | - | | | Reclassification of derivative liability on the exercise of stock options | | | - | | | | - | | | | 910,054 | | | | - | | | | 910,054 | | | | - | | | | 910,054 | | | | - | | | Reclassification of derivative liability upon conversion of exercise price of stock (Note 10)options from Canadian dollars to US dollars | | | - | | | | - | | | | 338,016 | | | | - | | | | 338,016 | | | | - | | | | 338,016 | | | | - | | | Net income for the year | | | - | | | | - | | | | - | | | | 1,978,014 | | | | 1,978,014 | | | | - | | | | 1,978,014 | | | | - | | | Balance, December 31, 2013 | | | 99,233,383 | | | $ | 62,289,402 | | | $ | 9,927,142 | | | $ | (65,975,612 | ) | | $ | 6,240,932 | | | $ | - | | | $ | 6,240,932 | | | $ | - | | | Issuance of common shares for mineral property interests | | | 15,300 | | | | 24,480 | | | | - | | | | - | | | | 24,480 | | | | - | | | | 24,480 | | | | - | | | Stock options exercised | | | 530,000 | | | | 395,133 | | | | (283,712 | ) | | | - | | | | 111,421 | | | | - | | | | 111,421 | | | | - | | | Stock-based compensation | | | - | | | | - | | | | 233,672 | | | | - | | | | 233,672 | | | | - | | | | 233,672 | | | | - | | | Dilution of ownership interest in subsidiary to non-controlling interest (Note 8(vii)) | | | - | | | | - | | | | 46,513,408 | | | | - | | | | 46,513,408 | | | | 38,091,955 | | | | 84,605,363 | | | | 25,394,637 | | Deferred tax liability related to the dilution gain (Note 8(vii) | | | - | | | | - | | | | (12,922,000 | ) | | | - | | | | (12,922,000 | ) | | | - | | | | (12,922,000 | ) | | | - | | | Distributions to non-controlling interest | | | - | | | | - | | | | - | | | | - | | | | - | | | | (3,000,000 | ) | | | (3,000,000 | ) | | | (2,000,000 | ) | | Net loss for the year | | | - | | | | - | | | | - | | | | (8,469,204 | ) | | | (8,469,204 | ) | | | (841,487 | ) | | | (9,310,691 | ) | | | (560,992 | ) | | Balance, December 31, 2014 (Restated – Note 15) | | | 99,778,683 | | | $ | 62,709,015 | | | $ | 43,468,510 | | | $ | (74,444,816 | ) | | $ | 31,732,709 | | | $ | 34,250,468 | | | $ | 65,983,177 | | | $ | 22,833,645 | |
See Accompanying Summary of Accounting Policies and Notes to Consolidated Financial Statements
GOLDEN QUEEN MINING CO. LTD.
Consolidated Statements of Shareholders’ Equity, Non-controlling Interest and Redeemable Portion of Non-controlling Interest – Continued
(US dollars)
| | | Common
Shares | | | Amount | | | Additional
Paid-in Capital
(Restated –
Note 15) | | | Deficit
Accumulated | | | Total Shareholders’
Equity attributable
to GQM Ltd
(Restated –
Note 15) | | | Non-controlling
Interest | | | Total
Shareholders’
Equity
(Restated –
Note 15) | | | Redeemable
Portion of Non-
controlling
Interest | | | Balance, December 31, 2014 (Restated – Note 15) | | | 99,778,683 | | | $ | 62,709,015 | | | $ | 43,468,510 | | | $ | (74,444,816 | ) | | $ | 31,732,709 | | | $ | 34,250,468 | | | $ | 65,983,177 | | | $ | 22,833,645 | | | Issuance of common shares as part of management agreement (Note 5) | | | 150,000 | | | | 151,428 | | | | - | | | | - | | | | 151,428 | | | | - | | | | 151,428 | | | | - | | | Stock-based compensation | | | - | | | | - | | | | 159,001 | | | | - | | | | 159,001 | | | | - | | | | 159,001 | | | | - | | | Capital contribution from non-controlling interest (Note 8(vii)) | | | - | | | | - | | | | - | | | | - | | | | - | | | | 7,500,000 | | | | 7,500,000 | | | | 5,000,000 | | | Net loss for the year | | | - | | | | - | | | | - | | | | (5,461,205 | ) | | | (5,461,205 | ) | | | (1,064,857 | ) | | | (6,526,062 | ) | | | (709,904 | ) | | Balance, December 31, 2015 | | | 99,928,683 | | | $ | 62,860,443 | | | $ | 43,627,511 | | | $ | (79,906,021 | ) | | $ | 26,581,933 | | | $ | 40,685,611 | | | $ | 67,267,544 | | | $ | 27,123,741 | |
See Accompanying Summary of Accounting Policies and Notes to Consolidated Financial Statements
GOLDEN QUEEN MINING CO. LTD.
Consolidated Statements of Cash Flows
(US dollars)
| | | Year Ended
December 31, 2015 | | | Year Ended
December 31, 2014 | | | Year Ended
December 31, 2013 | | | Operating activities: | | | | | | | | | | | | | | Net income (loss) for the year | | $ | (7,235,966 | ) | | $ | (9,871,683 | ) | | $ | 1,978,014 | | | Adjustments to reconcile net income (loss) to cash used in operating activities: | | | | | | | | | | | | | | Donated land | | | - | | | | 34,378 | | | | - | | | Amortization and depreciation | | | 28,625 | | | | 34,789 | | | | 9,688 | | | Asset impairment loss | | | - | | | | - | | | | 2,522 | | | Amortization of debt discount and interest accrual | | | 4,225,311 | | | | 1,489,682 | | | | 888,026 | | | Change in fair value of derivative liabilities including change in foreign exchange | | | (3,334,224 | ) | | | (1,004,217 | ) | | | (5,385,660 | ) | | Stock-based compensation | | | 159,001 | | | | 233,672 | | | | 475,263 | | | Non-cash consulting expense | | | 151,428 | | | | - | | | | - | | | Financing fee related to long-term debt | | | 1,500,000 | | | | - | | | | - | | | Loss on extinguishment of debt | | | 151,539 | | | | - | | | | - | | | Foreign exchange gain | | | (839,849 | ) | | | (504,539 | ) | | | (137,790 | ) | | Changes in assets and liabilities: | | | | | | | | | | | | | | Receivables | | | 28,174 | | | | (38,350 | ) | | | 3,186 | | | Inventory | | | (1,852,359 | ) | | | - | | | | - | | | Ore on leach pad | | | (83,240 | ) | | | - | | | | - | | | Prepaid expenses and other current assets | | | (317,728 | ) | | | (51,674 | ) | | | 18,897 | | | Accounts payable and accrued liabilities | | | 188,623 | | | | (329,523 | ) | | | 386,666 | | | Interest payable | | | (951,445 | ) | | | (1,145,786 | ) | | | - | | | Cash used in operating activities | | | (8,182,110 | ) | | | (11,153,251 | ) | | | (1,761,188 | ) | | Investment activities: | | | | | | | | | | | | | | Additions to property, plant, equipment and mineral interests | | | (68,956,621 | ) | | | (21,624,355 | ) | | | (7,117,996 | ) | | Purchase of financial assurance | | | (349,053 | ) | | | (74,590 | ) | | | (139,663 | ) | | | | | | | | | | | | | | | | Cash used in investing activities | | | (69,305,674 | ) | | | (21,698,945 | ) | | | (7,257,659 | ) | | Financing activities: | | | | | | | | | | | | | | Investment in Golden Queen Mining Company LLC by non-controlling interest | | | 12,500,000 | | | | 110,000,000 | | | | - | | | Distribution to non-controlling interest | | | - | | | | (5,000,000 | ) | | | - | | | Proceeds from convertible debt | | | - | | | | - | | | | 9,710,603 | | Borrowing under long-term debt | | | 25,000,000 | | | | 32,500,000 | | | | - | | | Repayment of short-term debt | | | (2,500,000 | ) | | | (17,500,000 | ) | | | - | | | Financing fees related to short-term debt | | | (1,500,000 | ) | | | (868,695 | ) | | | - | | | Repayment of convertible debentures | | | (7,675,000 | ) | | | - | | | | - | | | Repayment of loans payable | | | (1,907,549 | ) | | | (13,408 | ) | | | | | | Financing fees related to short-term debt capitalized to the loan | | | (250,000 | ) | | | - | | | | - | | | Issuance of common shares upon exercise of stock options | | | - | | | | 111,421 | | | | 307,363 | | | Cash provided by financing activities | | | 23,667,451 | | | | 119,229,318 | | | | 10,017,966 | | | Net change in cash | | | (53,820,333 | ) | | | 86,377,122 | | | | 999,119 | | | Cash, Beginning balance | | | 91,407,644 | | | | 5,030,522 | | | | 4,031,403 | | | Cash, Ending balance | | $ | 37,587,311 | | | $ | 91,407,644 | | | $ | 5,030,522 | |
Supplementary Disclosures of Cash Flow Information (Note 9)the corporate action approved or authorized by the resolution or court order unless exclusion would be inequitable.
See Accompanying Summary(2) This Division applies to any right of Accounting Policies and Notesdissent exercisable by a shareholder except to Consolidated Financial Statementsthe extent that
| (a) | the court orders otherwise, or |
| (b) | in the case of a right of dissent authorized by a resolution referred to in Section 238(1)(g), the court orders otherwise or the resolution provides otherwise. |
GOLDEN QUEEN MINING CO. LTD.
NotesRight to Consolidated Financial Statements
Years Ended December 31, 2015, 2014 and 2013
(US dollars)dissent
Nature of Business Golden Queen Mining Co. Ltd. (“Golden Queen”, “GQM Ltd.” or the “Company”) is engaged in the development of the Soledad Mountain Project (“the Project”), located in the Mojave Mining District, Kern County, California. The Company originally used its wholly owned subsidiary, Golden Queen Mining Company, Inc. (“GQM Inc.”), to explore and develop the Project. On September 10, 2014, GQM Inc. was converted to a limited liability company, Golden Queen Mining Company, LLC (“GQM LLC”). The Company entered into a Joint Venture (the “JV”) agreement with Gauss LLC (“Gauss”) through its newly formed, wholly owned subsidiary, Golden Queen Mining Holdings, Inc. (“GQM Holdings”). The JV was completed on September 15, 2014. Upon completion of the JV, both the Company, through GQM Holdings, and Gauss each owned, and continue to own, 50% of GQM LLC. In February 2015, the Company incorporated Golden Queen Mining Canada Ltd. (“GQM Canada”), a wholly-owned British Columbia subsidiary, to hold the Company’s interest in GQM Holdings.
Principles of ConsolidationThe Company consolidates all entities in which it can vote a majority of the outstanding voting stock. In addition, it consolidates entities which meet the definition238 (1) A shareholder of a variable interest entity for which it is the primary beneficiary. The primary beneficiary is the party who has the power to direct the activities of a variable interest entity that most significantly impact the entity’s economic performance and who has an obligation to absorb losses of the entity or a right to receive benefits from the entity that could potentially be significant to the entity. We consider special allocations of cash flows and preferences, if any, to determine amounts allocable to non-controlling interests. All intercompany transactions and balances are eliminated in consolidation.
These consolidated financial statements include the accounts of Golden Queen, a British Columbia corporation, its wholly-owned subsidiary, GQM Holdings, a US (State of California) corporation, and GQM LLC, a limited liability company, in which Golden Queen has a 50% interest, through GQM Canada’s ownership of GQM Holdings. GQM LLC meets the definition of a Variable Interest Entity (“VIE”). Golden Queen has determined it is the member of the related party group that is most closely associated with GQM LLC and, as a result, is the primary beneficiary who consolidates GQM LLC.
Generally Accepted Accounting Principles (“GAAP”) The consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States.
Cash and Cash EquivalentsFor purposes of balance sheet classification and the statements of cash flows, the Company considers all highly liquid investments purchased with an original maturity of three months or less to be cash equivalents. As at December 31, 2015 and 2014, the Company did not have any cash equivalents.
The Company places its cash and cash equivalents with high quality financial institutions. At times, such cash deposits may be in excess of Federal Deposit Insurance Corporation insurance limits. To date, the Company has not experienced a loss or lack of access to its cash and cash equivalents. However, no assurance can be provided that access to the Company’s cash and cash equivalents will not be impacted by adverse economic conditions in the financial markets.
InventoryInventories include stockpiles, in-process inventory, doré, and operating materials and supplies. The classification of inventory is determined by the stage at which the ore is in the production process. As at December 31, 2015, the Company had stockpiles, operating materials, supplies and spare parts. All inventories are stated at the lower of cost or market, with cost being determined using a weighted average cost method. Dore inventory includes product at the mine site. Dore inventory costs include direct labor, materials, depreciation, depletion and amortization as well as overhead costs relating to mining activities.
Ore on Heap Leach PadThe heap leach process extracts silver and gold by placing ore on an impermeable pad and applying a diluted cyanide solution that dissolves a portion of the contained silver and gold, which are then recovered in metallurgical processes. As at December 31, 2015, the Company had placed a small amount of ore on the heap leach pad but had not started placing leaching solution on the ore. The procedures and policies discussed below that pertain to more advanced stages will be applied once that specific process has been reached.
GOLDEN QUEEN MINING CO. LTD.
Notes to Consolidated Financial Statements
Years Ended December 31, 2015, 2014 and 2013
(US dollars)
The Company uses several integrated steps to scientifically measure the metal content of ore placed on the leach pads. As the ore body is drilled in preparation for the blasting process, samples are taken of the drill residue which are assayed to determine estimated quantities of contained metal. The Company then processes the ore through crushing facilities where the output is weighed and sampled for assaying. The Company weighs the ore using a belt mounted weightometer to accurately measure the quantity of ore placed on the leach pad. The crushed ore is then transported to the leach pad for application of the leaching solution. As the leach solution is collected from the leach pads, it is continuously sampled for assaying. The quantity of leach solution is measured by flow meters throughout the leaching and precipitation process. After precipitation, the product is converted to doré, which is the final product produced by the mine. The inventory is stated at lower of cost or market, with cost being determined using a weighted average cost method.
The historical cost of the metal that is expected to be extracted within twelve months is classified as current and the historical cost of metals contained within the broken ore that is expected to be extracted beyond twelve months is classified as non-current. Ore on leach pad is valued based on actual production costs incurred to produce and place ore on the leach pad, less costs allocated to minerals recovered through the leach process.
The estimate of both the ultimate recovery expected over time and the quantity of metal that may be extracted relative to the time the leach process occurs requires the use of estimates, which are inherently inaccurate due to the nature of the leaching process. The quantities of metal contained in the ore are based upon actual weights and assay analysis. The rate at which the leach process extracts gold and silver from the crushed ore is based upon metallurgical test column estimates. The assumptions that will be used by the Company to measure metal content during each stage of the inventory conversion process includes estimated recovery rates based on laboratory testing and assaying. The Company will periodically review its estimates compared to actual experience and revise its estimates when appropriate. As operations begin, the Company will not have any actual experience as a basis to compare estimates to and therefore will begin comparing estimates to actual results once the Company’s actual experiences have a sufficiently predictive quality. Variations between actual and estimated quantities resulting from changes in assumptions and estimates that do not result in write-downs to net realizable value are accounted for on a prospective basis.
Property, Plant, Equipment and Mineral Interests Costs related to the development of our mineral reserves are capitalized whenit has been determined an ore body can be economically developed. An ore body is determined to be economically minable based on proven and probable reserves and when appropriate permits are in place. Major mine development expenditures are capitalized, including primary development costs such as costs of building access roads, heap leach pads, processing facilities, and infrastructure development. The Company also capitalizes additional development expenditures that are directly related to the development of the mine.
Drilling and related costs are classified as additional development expenditures, are charged to operations as incurred, or capitalized, based on the following criteria:
Whether or not the costs are incurred to further define mineralization at and adjacent to existing reserve areas or intended to assist with mine planning within a reserve area;
Whether or not the drilling costs relate to an ore body that has been determined to be commercially mineable, and a decision has been made to put the ore body into commercial production; and
Whether or not at the time that the cost is incurred, the expenditure: (a) embodies a probable future benefit that involves a capacity, singly or in combination, with other assets to contribute directly or indirectly to future net cash inflows, (b) we can obtain the benefit and control others’ access to it, and (c) the transaction or event giving rise to our right to or control of the benefit has already occurred.
If all of these criteria are met, drilling and related costs are capitalized. Drilling costs not meeting all of these criteria are expensed as incurred. The following factors are considered in determining whether or not the criteria listed above have been met, and capitalization of drilling costs is appropriate:
Completion of a favourable economic study and mine plan for the ore body targeted;
Authorization of development of the ore body by management and/or the Board of Directors; and
All permitting and/or contractual requirements necessary for us to haveshareholder's shares carry the right to or control of the future benefit from the targeted ore body have been met.
Property, plant, equipment and mineral interests are stated at the lower of cost or net realizable value less accumulated depreciation.
GOLDEN QUEEN MINING CO. LTD.
Notesvote, is entitled to Consolidated Financial Statements
Years Ended December 31, 2015, 2014 and 2013
(US dollars)
Depreciation is provided by the straight-line method over the estimated service lives of the respective assets, which range from 0 to 30 years, and using the units-of-production methoddissent as follows:
Land | (a) | Not depreciated | Mineral property interests and claims | | Units-of-production | Mine development | | Units-of-production | Mine equipment | | 5 – 10 years | Buildings | | 12 – 30 years | Leasehold improvements | | 30 years | Vehicles | | 5 – 10 years | Computer equipment and software | | 3 years | Asset retirements cost | | Units-of-production | Capitalized interest | | Units-of-production |
The Company has instituted a policy that all property, plant, and equipment, not related to the actual mine development, acquired for an amount over $3,000 will be capitalized and all property, plant and equipment purchased for under this threshold will be expensed as incurred. All property, plant, and equipment related to the mine development was capitalized.
Once production has commenced, the capitalization of certain mine construction costs ceases and expenditures are either variable production costs as a component of inventory or expensed as incurred. Exceptions include costs incurred for additions or improvements to property, plant, equipment and mineral interests. If mineral interests are subsequently abandoned or impaired, any capitalized costs will be charged to the Consolidated Statements of Income (Loss) and Comprehensive Income (Loss) for that period.
A mine construction project is considered to have entered the production stage when the mine construction assets are available for use. At this point the Company will begin depletion of its assets as outlined in the above breakdown. In determining whether mine construction assets are considered available for use, the criteria considered include, but are not limited to, the following:
• Completion of a reasonable period of testing mine plant and equipment;
• Ability to produce minerals in saleable form (within specifications); and
• Ability to sustain ongoing production of minerals.
As at December 31, 2015, the Project was not considered to be in commercial production
Capitalized Interest For significant exploration and development projects, interest is capitalized as part of the historical cost of developing and constructing assets in accordance with ASC 835-20 ("capitalization of interest"). Interest is capitalized until the asset is ready for service. Capitalized interest is determined by multiplying the Company’s weighted-average borrowing cost on general debt by the average amount of qualifying costs incurred. Once an asset subject to interest capitalization is completed and placed in service, the associated capitalized interest is expensed through depletion or impairment. SeeNote 8(vi) - Amortization of Discount and Interest Expense.
Valuation of Long-lived Assets The Company reviews and evaluates its long-lived assets for impairment when events or changes in circumstances indicate that the related carrying amounts may not be recoverable. Asset impairment is considered to exist if the total estimated undiscounted pre-tax future cash flows are less than the carrying amount of the asset. In estimating future cash flows, assets are grouped at the lowest level for which there is identifiable cash flows that are largely independent of future cash flows from other asset groups. An impairment loss is measured and recorded based on discounted estimated future cash flows. Future cash flows are estimated based on estimated quantities of recoverable minerals, expected silver and gold prices (considering current and historical prices, trends and related factors), production levels, operating costs, capital requirements and reclamation costs, all based on life-of mine plans.
GOLDEN QUEEN MINING CO. LTD.
Notes to Consolidated Financial Statements
Years Ended December 31, 2015, 2014 and 2013
(US dollars)
Existing proven and probable reserves are included when determining the fair value of mine site asset groups at acquisition and, subsequently, in determining whether the assets are impaired. The term “recoverable minerals” refers to the estimated amount of silver and gold that will be obtained after taking into account losses during ore processing and treatment. Estimates of recoverable minerals from exploration stage mineral interests are risk adjusted based on management’s relative confidence in such materials. The ability to achieve the estimated quantities of recoverable minerals from exploration stage mineral interests involves further risks in addition to those risk factors applicable to mineral interests where proven and probable reserves have been identified, due to the lower level of confidence that the identified mineralized material could ultimately be mined economically. Assets classified as exploration potential have the highest level of risk that the carrying value of the asset can be ultimately realized, due to the still lower level of geological confidence and economic modeling.
Silver and gold prices are volatile and affected by many factors beyond the Company’s control, including prevailing interest rates and returns on other asset classes, expectations regarding inflation, speculation, currency values, governmental decisions regarding precious metals stockpiles, global and regional demand and production, political and economic conditions and other factors may affect the key assumptions used in the Company’s impairment testing. Various factors could impact our ability to achieve forecasted production levels from proven and probable reserves. Additionally, production, capital and reclamation costs could differ from the assumptions used in the cash flow models used to assess impairment. Actual results may vary from the Company’s estimates and result in additional impairment charges.
Foreign Currency Translation The Company’s functional and reporting currency, the US dollar, is the primary economic currency. Assets and liabilities in foreign currencies are generally translated into US dollars at the exchange rate on the balance sheet date. Revenues and expenses are translated at exchange rates on the date of the transaction. Where amounts denominated in a foreign currency are converted into US dollars by remittance or repayment, the realized exchange differences are included in other income. The exchange rates prevailing at December 31, 2015, December 31, 2014 and December 31, 2013 were $1.38, $1.16, and $1.06 stated in Canadian dollars per one US dollar, respectively. The average rates of exchange during the year ended December 31, 2015, December 31, 2014 and December 31, 2013 were $1.28, $1.10 and $1.06, stated in Canadian dollars per one US dollar, respectively.
Earnings (Loss) Per Share The Company computes and discloses earnings (loss) per share in accordance with ASC 260, “Earnings per Share”, which requires dual presentation of basic earnings (loss) per share and diluted earnings (loss) per share on the face of all income statements presented for all entities with complex capital structures. Basic earnings (loss) per share is computed as net income (loss) attributed to the Company divided by the weighted average number of common shares outstanding for the period. Diluted earnings (loss) per share reflects the potential dilution that could occur from common shares issuable through stock options, warrants and convertible instruments. Net income attributable to any non-controlling interest is not included in the calculation of the basic and diluted earnings (loss) per share.
Asset Retirement Obligations Asset retirement obligations (‘‘AROs’’) arise from the acquisition, development and construction of mining properties and plant and equipment due to government controls and regulations that protect the environment on the closure and reclamation of mining properties. The major parts of the carrying amount of AROs relate to tailings and heap leach pad closure and rehabilitation, demolition of buildings and mine facilities, ongoing water treatment and ongoing care and maintenance of closed mines. The Company recognizes an ARO at the time the environmental disturbance occurs. When the ARO provision is recognized, the corresponding cost is capitalized to property, plant, equipment and mineral interests and depreciated over the life of the related assets.
The timing of the actual environmental remediation expenditures is dependent on a number of factors such as the life and nature of the asset, the operating license conditions and the environment in which the mine operates. Reclamation provisions are measured at the expected value of future cash flows discounted to their present value using a credit adjusted risk-free interest rate. AROs are adjusted each period to reflect the passage of time (accretion). Accretion expense is recorded in cost of sales each period. Upon settlement of an ARO, the Company records a gain or loss if the actual cost differs from the carrying amount of the ARO. Settlement gains/losses are recorded in the consolidated statements of income (loss).
GOLDEN QUEEN MINING CO. LTD.
Notes to Consolidated Financial Statements
Years Ended December 31, 2015, 2014 and 2013
(US dollars)
Expected ARO is updated to reflect changes in facts and circumstances. The principal factors that can cause the ARO to change are the construction of new processing facilities, changes in the quantities of material in proven and probable mineral reserves and a corresponding change in the life-of-mine plan, changing ore characteristics that impact required environmental protection measures and related costs, changes in water quality that impact the extent of water treatment required and changes in laws and regulations governing the protection of the environment.
Each reporting period, provisions for AROs are re-measured to reflect any changes to significant assumptions, including the amount and timing of expected cash flows and credit adjusted risk-free interest rates. Changes to the reclamation provision resulting from changes in estimate are added to or deducted from the cost of the related asset, except where the reduction of the reclamation provision exceeds the carrying value of the related assets in which case the asset is reduced to nil and the remaining adjustment is recognized in the consolidated statements of income (loss).
EstimatesThe preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting period. Significant estimates and judgements have been made by Management in several areas including the accounting for the joint venture transaction and determination of the temporary and permanent non-controlling interest (Note 8(vii)), the recoverability of mineral properties expenditures, royalty obligations, inventory valuations, ore on heap leach pads, asset retirement obligations (Note 6),convertible debentures (Note 8(ii)) and derivative liability – warrants (Note 8(iv)). Actual results could differ from those estimates.
Fair Value of Financial Instruments The carrying amounts reported in the balance sheets for cash, receivables, accounts payable and accrued liabilities, interest payable, financing fee payable and reclamation financial assurance approximate fair values because of the immediate or short-term maturity of these financial instruments. The fair value of the short-term and long-term loans payable approximate their carrying values as the interest rates are based on the market rates. The market rates have remained steady for the loans payable during the past four quarters. The fair value of the short and long term portions of the notes payable approximates their carrying value and have been estimated based on discounted cash flows using interest rates being offered for similar debt instruments. The carrying amount of the notes payable are being recorded at amortized cost using the effective interest rate method.
As at December 31, 2015, the fair value of the convertible debt and the notes payable was $Nil (December 31, 2014: $7,972,993) and $32,972,361 (December 31, 2014: $13,351,649), respectively. These financial instruments were estimated using a discounted cash flow analysis based on an interest rate for a similar type of instrument without a conversion feature. The notes payable does not have a conversion feature but rather are bifurcated out due to the warrant liability. The embedded derivatives in connection with the share purchase warrants are being recorded at their fair values using an acceptable valuation model at each reporting period.
Income TaxesThe Company follows the asset and liability method of accounting for income taxes whereby the deferred tax assets and liabilities are recognized for the future tax consequences of differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax basis. If it is determined that the realization of a future tax benefit is not more likely than not, the Company establishes a valuation allowance.
Stock Option Plan The Company’s current stock option plan (the “Plan”) was adopted by the Company in 2013 and approved by shareholders of the Company in 2013. The Plan provides a fixed number of 7,200,000 common shares of the Company that may be issued pursuant to the grant of stock options. The exercise price of stock options granted under the Plan shall be determined by the Company��s Board of Directors (the “Board”), but shall not be less than the volume-weighted, average trading price of the Company’s shares on the TSX for the five trading days immediately prior to the date of the grant. The expiry date of a stock option shall be the date so fixed by the Board subject to a maximum term of five years. The Plan provides that the expiry date of the vested portion of a stock option will be the earlier of the date so fixed by the Board at the time the stock option is awarded and the early termination date (the “Early Termination Date”). The Early Termination Date will be the date the vested portion of a stock option expires following the option holder ceasing to be a director, employee or consultant, as determined by the Board at the time of grant, or in the absence thereof at any time prior to the time the option holder ceases to be a director, employee or consultant, in accordance with and subject to the provisions of the Plan. All options granted under the 2013 Plan will be subject to such vesting requirements as may be prescribed by the TSX, if applicable, or as may be imposed by the Board. A total of 1,070,000 (December 31, 2014 – 750,000) common shares were issuable pursuant to such stock options as at December 31, 2015.
GOLDEN QUEEN MINING CO. LTD.
Notes to Consolidated Financial Statements
Years Ended December 31, 2015, 2014 and 2013
(US dollars)
Stock-based CompensationCompensation costs are charged to the consolidated statements of income (loss) and comprehensive income (loss). Compensation costs for employees are amortized over the period from the grant date to the date the options vest. Compensation expense for non-employees is recognized immediately for past services and pro-rata for future services over the service provision period.
We account for stock-based compensation awards granted to non-employees in accordance with FASB ASC Topic 505-50,Equity-Based Payments to Non-Employees, or ASC 505-50. Under ASC 505-50, we determine the fair value of the stock-based compensation awards granted as either the fair value of the consideration received or the fair value of the equity instruments issued, whichever is more reliably measurable. If the fair value of equity instruments issued is used, it is measured using the stock price and other measurement assumptions as of the earlier of either (1) the date at which commitment for performance by the counterparty to earn the equity instruments is reached, or (2) the date at which the counterparty’s performance is complete.
The Company uses the Black-Scholes option valuation model to calculate the fair value of stock options at the date of grant. Option pricing models require the input of highly subjective assumptions, including the expected price volatility. Changes in these assumptions can materially affect the fair value estimate.
Derivative Financial Instruments The Company reviews the terms of its equity instruments and other financing arrangements to determine whether or not there are embedded derivative instruments that are required to be accounted for separately as a derivative financial instrument. Also, in connection with the issuance of financing instruments, the Company may issue freestanding options or warrants that may, depending on their terms, be accounted for as derivative instrument liabilities, rather than as equity. The Company may also issue options or warrants to non-employees in connection with consulting or other services.
Derivative financial instruments are measured at their fair value. For derivative financial instruments that are accounted for as liabilities, the derivative instrument is initially recorded at its fair value and is then re-valued at each reporting date, with changes in the fair value reported as charges or credits to profit or loss. For warrant-based derivative financial instruments, the Company uses the Black-Scholes option pricing model to estimate fair value of the derivative instruments. For more complex derivative financial instruments, the Company uses acceptable pricing models to estimate fair value of the derivative instrument.
The classification of derivative instruments, including whether or not such instruments should be recorded as liabilities or as equity, is reassessed at the end of each reporting period. If reclassification is required, the fair value of the derivative instrument, as of the determination date, is reclassified. Any previous charges or credits to income for changes in the fair value of the derivative instrument are not reversed. Derivative instrument liabilities are classified in the balance sheet as current or non-current based on whether net-cash settlement of the derivative instrument could be required within 12 months of the balance sheet date.
Non-Controlling Interest The non-controlling interest balance consists of equity in GQM LLC not attributable, directly or indirectly, to Golden Queen. GQM LLC meets the definition of a Variable Interest Entity (“VIE”). Golden Queen has determined it is the member of the related party group that is most closely associated with GQM LLC and, as a result, is the primary beneficiary who consolidates GQM LLC. The non-controlling interest has been classified into two categories; permanent equity and temporary equity.
Non-controlling interests in temporary equity represent the estimated portion of non-controlling interest that could potentially be convertible through either a conversion of the non-controlling interest into a net smelter royalty obligation of GQM LLC or a buy-out of the non-controlling interest at fair value by the Company. The convertible portion of non-controlling interest recorded in temporary equity is initially recorded at the carrying value and then adjusted for net income or loss and distributions attributable to the temporary equity.
The non-controlling interest in permanent equity represents the portion of the non-controlling interest that is not convertible. Please refer to Note 8(vii) of the audited consolidated annual financial statements for complete details of how the transaction has been accounted for.
GOLDEN QUEEN MINING CO. LTD.
Notes to Consolidated Financial Statements
Years Ended December 31, 2015, 2014 and 2013
(US dollars)
New Accounting Policies
| (i) | Effective August 2014, FASB issued Accounting Standards update (“ASU”) 2014-15, Presentationunder Section 260, in respect of Financial Statements – Going Concern (Subtopic 205-40 –Disclosure of Uncertainties about an Entity’s Abilitya resolution to Continue as a Going Concern. The update essentially requires management of all entities, for annual and interim periods, to evaluate whether there are conditions or events, considered inalter the aggregate, that raise substantial doubt about the entity’s ability to continue as a going concern within one year after the date the financial statements are issued. |
If conditions or events raise substantial doubt about an entity’s ability to continue as a going concern, but the substantial doubt is alleviated as a result of consideration of management’s plans, the entity should disclose information that enables users of the financial statements to understand all of the following:
| 1. | Principal conditions or events that raised substantial doubt about the entity’s ability to continue as a going concern (before consideration of management’s plans). |
| 2. | Management’s evaluation of the significance of those conditions or events in relation to the entity’s ability to meet its obligations. |
| 3. | Management’s plans that alleviated substantial doubt about the entity’s ability to continue as a going concern. |
If conditions or events raise substantial doubt about an entity’s ability to continue as a going concern, and substantial doubt is not alleviated after consideration of management’s plans, an entity should include a statement in the footnotes indicating that there issubstantial doubt about the entity’s ability to continue as a going concernwithin one year after the date that the financial statements are issued (or available to be issued). Additionally, the entity should disclose information that enables users of the financial statements to understand all of the following:
| 1. | Principal conditions or events that raise substantial doubt about the entity’s ability to continue as a going concern. |
| 2. | Management’s evaluation of the significance of those conditions or events in relation to the entity’s ability to meet its obligations. |
| 3. | Management’s plans that are intended to mitigate the conditions or events that raise substantial doubt about the entity’s ability to continue as a going concern. |
This update will come into effect for the annual period ending after December 15, 2016, and for annual periods and interim periods thereafter. The Company is assessing the impact of this standard.
| (ii) | In February, 2015, the FASB issued ASU 2015-02,Consolidation (Topic 810) – Amendments to the Consolidation Analysiswhich focuses on the consolidation evaluation for reporting organizations (public and private companies and not-for-profit organizations) that are required to evaluate whether they should consolidate certain legal entities. In addition to reducing the number of consolidation models from four to two, the new standard simplifies the standards and improves current GAAP by:articles |
| ·(i) | Placing more emphasisto alter restrictions on risk of loss when determining a controlling financial interest. A reporting organization may no longer have to consolidate a legal entity in certain circumstances based solely on its fee arrangement, when certain criteria are met. |
| · | Reducing the frequencypowers of the application of related-party guidance when determining a controlling financial interest in a variable interest entity (VIE). |
| · | Changing consolidation conclusions for public and private companies in several industries that typically make use of limited partnershipscompany or VIEs. |
The ASU will be effective for periods beginning after December 15, 2015, for public companies. Early adoption is permitted, including adoption in an interim period. The Company will adopt the ASU effective January 1, 2016.
| (iii) | In April, 2015, FASB issued ASU 2015-03, Interest – Imputation of Interest (Subtopic 835-30) which focuses on simplifying the presentation of debt issuance costs, the amendments in this update require that debt issuance costs related to a recognized debt liability be presented in the balance sheet as a direct deduction from the carrying amount of that debt liability, consistent with debt discounts. The recognition and measurement guidance for debt issuance costs are not affected by the amendments in this update. |
GOLDEN QUEEN MINING CO. LTD.
Notes to Consolidated Financial Statements
Years Ended December 31, 2015, 2014 and 2013
(US dollars)
The ASU will be effective for periods beginning after December 15, 2015, for public companies. Early adoption is permitted, including adoption in an interim period. The Company has adopted the ASU for the December 31, 2015 year end.
| (iv) | In July 2015, FASB issued ASU 2015-11, Inventory – Simplifying the Measurement of Inventory (Topic 330) which focuses on simplifying the guidance on subsequent measurement of inventory. Currently, the guidance requires an entity to measure inventory at the lower of cost or market. Market could be replacement cost, net realizable value, or net realizable value less an approximately normal profit margin. The ASU now updated the measurement to lower of cost and net realizable value.Net realizable value is the estimated selling prices in the ordinary course of business, less reasonably predictable costs of completion, disposal, and transportation. |
The ASU will be effective for periods beginning after December 15, 2016, for public companies. Early adoption is permitted, including adoption in an interim period. The Company assessed the impact of this new standard and adopted the new standard effective October 1, 2015. As the Company had a small inventory balance, the impact of the adoption of the new standard was immaterial.
| (v) | In November 2015, FASB issued ASU 2015-17, Income taxes – Balance sheet classification of deferred taxes (Topic 740), which simplifies the requirement to classify deferred tax assets and liabilities as non-current and current on the statement of financial positionbusiness the company is permitted to only having to classify the deferred tax assets and liabilities as non-current. |
This update will come into effect for the annual period ending after December 15, 2016, and for annual periods and interim periods thereafter. Early adoption is permitted as of the beginning of an interimcarry on, or annual reporting period. The Company has assessed the impact of the new standard and has adopted the standard for the December 31, 2015 year end.
| (vi) | In January 2016, FASB issued ASU 2016-01, Financial Instruments – Recognition and measurement of financial assets and financial liabilities (Subtopic 825-10) which updates several aspects of recognition, measurement, presentation and disclosure of financial instruments. The amendments are as follows: |
| 1. | Require equity investments (except those accounted for under the equity method of accounting or those that result in consolidation of the investee) to be measured at fair value with changes in fair value recognized in net income. However, an entity may choose to measure equity investments that do not have readily determinable fair values at cost minus impairment, if any, plus or minus changes resulting from observable price changes in orderly transactions for the identical or a similar investment of the same issuer. |
| 2. | Simplify the impairment assessment of equity investments without readily determinable fair values by requiring a qualitative assessment to identify impairment. When a qualitative assessment indicates that impairment exists, an entity is required to measure the investment at fair value |
| 3. | Eliminate the requirement to disclose the fair value of financial instruments measured at amortized cost for entities that are not public business entities. |
| 4. | Eliminate the requirement for public business entities to disclose the method(s) and significant assumptions used to estimate the fair value that is required to be disclosed for financial instruments measured at amortized cost on the balance sheet. |
| 5. | Require public business entities to use the exit price notion when measuring the fair value of financial instruments for disclosure purposes. |
| 6. | Require an entity to present separately in other comprehensive income the portion of the total change in the fair value of a liability resulting from a change in the instrument-specific credit risk when the entity has elected to measure the liability at fair value in accordance with the fair value option for financial instruments. |
| 7. | Require separate presentation of financial assets and financial liabilities by measurement category and form of financial asset (that is, securities or loans and receivables) on the balance sheet or the accompanying notes to the financial statements. |
| 8. | Clarify that an entity should evaluate the need for a valuation allowance on a deferred tax asset related to available-for-sale securities in combination with the entity’s other deferred tax assets. |
The ASU will be effective for periods beginning after December 15, 2017, for public companies. The Company is assessing the impact of this standard.
GOLDEN QUEEN MINING CO. LTD.
Notes to Consolidated Financial Statements
Years Ended December 31, 2015, 2014 and 2013
(US dollars)
| 1. | Basis of Presentation and Ability to Continue as a Going Concern |
The Company has had no revenues from operations since inception and as at December 31, 2015 had accumulated deficit of $79,906,021 (December 31, 2014 - $74,444,816) and working capital deficit of $7,743,109 (December 31, 2014 –working capital of $65,110,327).
At the Project level, GQM LLC is a going concern as it has sufficient funds to meet its contractual obligations for the next twelve months. On a non-consolidated basis, the ability of Golden Queen to obtain financing for its ongoing activities and repay its obligations, thus maintaining its solvency, or to fund its attributable portion of capital requirements under the joint venture, is dependent on equity market conditions, the market for precious metals, and the willingness of other parties to lend this entity money. Golden Queen has related party outstanding loans totalling $38,681,507 plus accrued interest that will come due in December 2016.
Golden Queen, on a non-consolidated basis, currently does not have sufficient funds to repay the $37,500,000 loan plus accrued interest at the issuance date of the consolidated financial statements. However, in order to secure the necessary funds to meet this upcoming obligation and mitigate the going concern issue, management is actively exploring several options including debt financing and equity offering.
While Golden Queen has been successful at certain of these efforts in the past, there can be no assurance that future efforts will be successful. This raises substantial doubt about this entity’s ability to continue as a going concern.
The Company’s access to the net assets of GQM LLC is determined by the Board of Managers of GQM LLC. The Board of Managers is not controlled by the Company and therefore there is no guarantee that any access to the net assets of GQM LLC would be provided to the Company in order to continue as a going concern. The Board of Managers of GQM LLC determine when and if distributions from GQM LLC are made to the holders of its membership units at their sole discretion. Please refer to Note 16 for non-consolidated balance sheets, statements of income/(loss) and comprehensive income/(loss) and statements of cash flows for GQM Ltd.
These consolidated financial statements do not include any adjustments to the recoverability and classification of recorded asset amounts and classification of liabilities that might be necessary should the Company be unable to continue as a going concern.
| 2. | Inventory and Ore on Heap Leach Pad |
| | | December 31, 2015 | | | December 31, 2014 | | | | | | | | | | | Stockpile inventory | | $ | 1,259,669 | | | $ | - | | | Supplies and spare parts | | | 592,690 | | | | - | | | | | $ | 1,852,359 | | | $ | - | | | | | | | | | | | | | Ore on heap leach pad: | | | | | | | | | | Current | | $ | 83,240 | | | | - | |
GOLDEN QUEEN MINING CO. LTD.
Notes to Consolidated Financial Statements
Years Ended December 31, 2015, 2014 and 2013
(US dollars)
| 3. | Property, Plant, Equipment and Mineral Interests |
| | | December 31, 2015 | | | December 31, 2014 | | | | | | | | | | | Land | | $ | 109,600 | | | $ | 109,600 | | | Mineral property interests and claims | | | 4,458,744 | | | | 3,299,319 | | | Mine development | | | 86,038,407 | | | | 29,609,116 | | | Mining equipment | | | 25,425,661 | | | | 1,167,872 | | | Buildings | | | 5,691,335 | | | | 378,260 | | | Leasehold improvements | | | 51,030 | | | | 46,402 | | | Computer equipment and software | | | 218,822 | | | | 72,509 | | | Vehicles | | | 978,573 | | | | 204,640 | | | Asset retirement costs | | | 626,878 | | | | 272,567 | | | Capitalized interest | | | 5,174,846 | | | | 2,412,015 | | | Less: | | | | | | | | | | Accumulated depreciation, depletion and Amortization expensed | | | (211,324 | ) | | | (182,699 | ) | | | | $ | 128,562,572 | | | $ | 37,389,601 | |
During the year ended December 31, 2015, the Company capitalized depreciation of $2,255,056 (2014 - $126,631) relating to assets used in the development of the mine.
The Company is capitalizing a portion of the interest expense related to the convertible debenture and notes payable in accordance with its accounting policy.See Note 8 (vi) –Amortization of Discounts and Interest Expense.
The tax effects of the temporary differences that give rise to the Company's deferred tax assets and liabilities are as follows:
| | | 2015 | | | 2014
(Restated) | | | Deferred Tax Assets / (Liabilities): | | | | | | | | | | Net operating and capital losses | | $ | 10,944,000 | | | $ | 12,051,000 | | | Un-deducted interest | | | 823,000 | | | | - | | | Other items | | | 124,000 | | | | 569,000 | | | Reorganization costs | | | 47,000 | | | | - | | | Foreign exchange (gain) loss | | | (127,000 | ) | | | (186,000 | ) | | Financing costs | | | 444,000 | | | | - | | | Investment in GQM LLC | | | (12,922,000 | ) | | | (12,922,000 | ) | | Valuation allowance | | | (12,255,000 | ) | | | (12,434,000 | ) | | | | | | | | | | | | Deferred tax liabilities | | $ | (12,922,000 | ) | | $ | (12,922,000 | ) |
GOLDEN QUEEN MINING CO. LTD.
Notes to Consolidated Financial Statements
Years Ended December 31, 2015, 2014 and 2013
(US dollars)
The annual tax benefit (provision) is different from the amount provided by applying the statutory federal income tax rate to our pre-tax income (loss). The reason for the differences are:
| | | December
31, 2015 | | | December
31, 2014
(Restated) | | | December
31, 2013 | | | Income tax (benefit) provision at Canadian statutory rate | | $ | (1,733,000 | ) | | $ | (2,567,000 | ) | | $ | 509,000 | | | Foreign income taxes at other than Canadian statutory rate | | | (841,000 | ) | | | (638,000 | ) | | | (125,000 | ) | | Change in fair value of derivative liability | | | (867,000 | ) | | | (288,000 | ) | | | (1,271,000 | ) | | Non-deductible accretion and other | | | 839,000 | | | | 80,000 | | | | 204,000 | | | Non-deductible stock-based compensation | | | 41,000 | | | | 67,000 | | | | 119,000 | | | Non-taxable effect on foreign exchange | | | 407,000 | | | | 175,000 | | | | (17,000 | ) | | Permanent differences, other | | | 50,000 | | | | 1,458,000 | | | | - | | | Non-controlling Interest | | | 838,000 | | | | 561,000 | | | | - | | | Change in statutory rate | | | - | | | | (322,000 | ) | | | (64,000 | ) | | Adjustment due to change in estimates | | | 1,265,000 | | | | - | | | | 72,000 | | | Increase (decrease) in valuation allowance | | | 1,000 | | | | 1,474,000 | | | | 573,000 | | | Tax (benefit) provision | | $ | - | | | $ | - | | | $ | - | |
Included in the increase in valuation allowance is tax-affected $180,000 (2014 - $705,000, 2013 - $2,045,000) relating to the expiry of losses.
The Company evaluates its valuation allowance requirements based on projected future operations. When circumstances change and this causes a change in management’s judgment about the recoverability of deferred tax assets, the impact of the change on the valuation allowance is reflected in current income or loss. As management of the Company does not currently believe that the Company will receive the benefit of this asset, a valuation allowance equal to certain net deferred tax assets has been established at both December 31, 2015 and 2014.
As at December 31, 2015, the Company had net operating loss carry-forwards available to reduce taxable income in future years as follows:
| Country | | Amount | | | Expiration Dates | | | | | | | | | United States – Federal | | $ | 23,618,000 | | | 2018 - 2034 | | Canada (C$) | | $ | 5,863,000 | | | 2026 - 2034 |
These consolidated financial statements do not reflect the potential effect on future income taxes of the application of these losses.
The Company has evaluated its tax positions for the years ended December 31, 2015 and 2014 and determined that it has no uncertain tax positions requiring financial statement recognition.
Under current federal and state income tax laws and regulations, GQM LLC, a multi-member limited liability company (“LLC”) is treated as a partnership for income tax reporting purposes and is generally not subject to income taxes. Additionally, at the LLC level no provision has been made for federal, state, or local income taxes on the results of operations generated by partnership activities; as such taxes are the responsibility of its Members.
GOLDEN QUEEN MINING CO. LTD.
Notes to Consolidated Financial Statements
Years Ended December 31, 2015, 2014 and 2013
(US dollars)
The Company’s common shares outstanding are no par value, voting shares with no preferences or rights attached to them.
Common shares – 2015
In March 2015, the Company issued 150,000 common shares to the former President of the Company for achieving two of the three milestones outlined in his management agreement (See Note 7 – Commitments and Contingencies). The common shares had a total fair value of $151,428 (Note 8(i)). The fair value was based on the market price on the date of issuance.
Common shares - 2014
In May 2014, 300,000 stock options were exercised and the Company issued 300,000 common shares at $0.21 per share for proceeds of $63,000. The total transferred to share capital from additional paid-in capital upon exercise of stock options was $160,592.
In April 2014, 170,000 stock options were exercised and the Company issued 170,000 common shares at $0.21 per share for proceeds of $35,700. The total transferred to share capital from additional paid-in capital upon exercise of stock options was $91,002.
In February 2014, the Company issued 15,300 common shares for mineral property interests with a total fair value of $24,480. The fair value was based on the market price on the date of issuance.
In February 2014, 60,000 stock options were exercised and the Company issued 60,000 common shares at $0.21 per share for proceeds of $12,721. The total transferred to share capital from additional paid-in capital upon exercise of stock options was $32,118.
Common shares - 2013
In March 2013, the Company issued 15,000 common shares for mineral property interests with a total fair value of $22,568 (C$23,250).
In April 2013, 200,000 stock options were exercised and the Company issued 200,000 common shares at C$0.26 per share for proceeds of $50,674 (C$52,000). The total reclassified from derivative liability to additional paid-in capital upon exercise of stock options was $132,011.
In May 2013, 100,000 stock options were exercised and the Company issued 100,000 common shares at C$0.26 per share for proceeds of $25,722 (C$26,000). The total reclassified from derivative liability to paid-in capital upon exercise of stock options was $90,496.
In September 2013, 20,000 stock options were exercised and the Company issued 20,000 common shares at C$0.26 per share for proceeds of $5,017 (C$5,200). The total reclassified from derivative liability to additional paid-in capital upon exercise of stock options was $24,724.
In October 2013, 500,000 stock options were exercised and the Company issued 500,000 common shares at C$0.26 per share for proceeds of $126,373 (C$130,000). The total reclassified from derivative liability to additional paid-in capital upon exercise of stock options was $355,351.
In October 2013, 300,000 stock options were exercised and the Company issued 300,000 common shares at C$0.26 per share for proceeds of $74,677 (C$78,000). The total reclassified from derivative liability to additional paid-in capital upon exercise of stock options was $238,623.
In November 2013, 100,000 stock options were exercised and the Company issued 100,000 common shares at C$0.26 per share for proceeds of $24,900 (C$26,000). The total reclassified from derivative liability to additional paid-in capital upon exercise of stock options was $68,849.
GOLDEN QUEEN MINING CO. LTD.
Notes to Consolidated Financial Statements
Years Ended December 31, 2015, 2014 and 2013
(US dollars)
| 5. | Share Capital – Continued |
Stock options
The Company has elected to use the Black-Scholes option pricing model to determine the fair value of stock options granted. In accordance with the accounting standard 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 stock options granted to non-employees is amortized 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 balance sheet date using the Black-Scholes option pricing model.
The following is a summary of stock option activity during the years ended December 31, 2015, 2014 and 2013:
| | | Shares | | | Weighted
Average Exercise
Price per Share | | | Options outstanding, December 31, 2012 | | | 1,800,000 | | | $ | 0.24 | | | Options issued | | | 800,000 | | | $ | 1.28 | | | Options exercised | | | (1,220,000 | ) | | $ | 0.21 | | | Options outstanding, December 31, 2013 | | | 1,380,000 | | | $ | 0.87 | | | Options exercisable, December 31, 2013 | | | 880,000 | | | $ | 0.68 | | | | | | | | | | | | | Options outstanding, December 31, 2013 | | | 1,380,000 | | | $ | 0.87 | | | Options exercised | | | (530,000 | ) | | $ | 0.21 | | | Options forfeited | | | (100,000 | ) | | $ | 1.16 | | | Options outstanding, December 31, 2014 | | | 750,000 | | | $ | 1.29 | | | Options exercisable, December 31, 2014 | | | 750,000 | | | $ | 1.29 | | | | | | | | | | | | | Options outstanding, December 31, 2014 | | | 750,000 | | | $ | 1.29 | | | Options issued | | | 570,000 | | | $ | 0.58 | | | Options expired | | | (250,000 | ) | | $ | 1.18 | | | Options outstanding, December 31, 2015 | | | 1,070,000 | | | $ | 0.94 | | | Options exercisable, December 31, 2015 | | | 976,667 | | | $ | 0.97 | |
During the year ended December 31, 2015, the Company recognized $159,001 (2014 - $233,672; 2013 - $475,263) in stock-based compensation relating to employee stock options that were issued and/or had vesting terms. This included a reversal of $Nil (2014 - $46,245; 2013 - $Nil) in stock based compensation related to forfeited stock options.
The fair value of stock options granted as above is calculated using the following weighted average assumptions:
| | | 2015 | | | 2014 | | | 2013 | | | | | | | | | | | | | | Expected life years | | | 5.00 | | | | - | | | | 5.00 | | | Interest rate | | | 0.75 | % | | | - | | | | 1.78 | % | | Volatility | | | 76.83 | % | | | - | | | | 98.25 | % | | Dividend yield | | | 0.00 | % | | | - | | | | 0.00 | % |
As at December 31, 2015, the aggregate intrinsic value of the outstanding exercisable options was $Nil (2014 - $Nil; 2013 – $325,995).
There were no stock options exercised during the year-ended December 31, 2015. The total intrinsic value of 530,000 (2013 – $1,220,000) options exercised during 2014 was approximately $754,513 (2013 - $325,158).
GOLDEN QUEEN MINING CO. LTD.
Notes to Consolidated Financial Statements
Years Ended December 31, 2015, 2014 and 2013
(US dollars)
| 5. | Share Capital – Continued |
The following table summarizes information about stock options outstanding and exercisable at December 31, 2015:
Expiry
Date | | Number
Outstanding | | | Number
Exercisable | | | Remaining
Contractual Life
(Years) | | | Exercise
Price | | | | | | | | | | | | | | | | | | | | | June 3, 2018 | | | 50,000 | | | | 50,000 | | | | 2.42 | | | $ | 1.16 | | | September 3, 2018 | | | 150,000 | | | | 150,000 | | | | 2.68 | | | $ | 1.59 | | | September 18, 2018 | | | 300,000 | | | | 300,000 | | | | 2.72 | | | $ | 1.26 | | | September 8, 2020 | | | 570,000 | | | | 476,667 | | | | 4.69 | | | $ | 0.58 | | | Balance, December 31, 2015 | | | 1,070,000 | | | | 976,667 | | | | 3.75 | | | | | |
| 6. | Asset Retirement Obligations and Financial Reclamation Assurance |
Financial Reclamation Assurance
The Company is required to provide the Bureau of Land Management, the State Office of Mine Reclamation and Kern County with a revised reclamation cost estimate annually. The financial assurance is adjusted once the cost estimate is approved. The Company’s provision for reclamation of the property is estimated each year by an independent consulting engineer. This estimate, once approved by state and county authorities, forms the basis for a cash deposit of reclamation financial assurance. The reclamation assurance provided as at December 31, 2015 was $624,142 (December 31, 2014 - $553,329).
In addition to the above, the Company is required to obtain and maintain financial assurance for initiating and completing corrective action and remediation of a reasonably foreseeable release from the Project’s waste management units as required by the Lahontan Regional Water Quality Control Board (the “Regional Board”). The reclamation financial assurance estimate for 2015 is $278,240 (December 31, 2014 - $Nil).
Subsequent to year-end, the Company received approval to have the financial assurance amounts released and have the assurance replaced with surety bond agreements to cover the financial assurance. The Company pays a yearly premium.
Asset Retirement Obligation
The total asset retirement obligation as of December 31, 2015 is $978,453 (December 31, 2014 - $624,142).
The Company estimated its asset retirement obligations based on its understanding of the requirements to reclaim and clean-up its property based on its activities to date. During the year ended December 31, 2015, there was an increase of $354,311 to the retirement obligations as compared with the year ended December 31, 2014, where $71,892 was capitalized to property, plant, equipment and mineral interests as the asset portion of the retirement obligation. As at December 31, 2015, as the mine nears production, the Company estimates the cash outflow related to these reclamation activities will be incurred in 2028. Reclamation provisions are measured at the expected value of future cash flows discounted to their present value using a credit adjusted risk-free interest rate.
The following is a summary of asset retirement obligations:
| | | December 31, 2015 | | | December 31, 2014 | | | Balance, beginning of the year | | $ | 624,142 | | | $ | 552,250 | | | Changes in cash flow estimates | | | 354,311 | | | | 71,892 | | | Balance, end of the year | | $ | 978,453 | | | $ | 624,142 | |
GOLDEN QUEEN MINING CO. LTD.
Notes to Consolidated Financial Statements
Years Ended December 31, 2015, 2014 and 2013
(US dollars)
| 7. | Commitments and Contingencies |
Property rent payments (Advance minimum royalties)
The Company has acquired a number of mineral properties outright. It has acquired exclusive rights to explore, develop and mine other portions of the Project under various mining lease agreements with landowners.
The Company is required to make property rent payments related to its mining lease agreements with landholders, in the form of advance minimum royalties. The total property rent payments for the year ended December 31, 2015 were $134,417 (2014 - $67,513), and the Company is expected to make approximate payments of $2,500 in 2016 to various landowners under the existing lease agreements. The significant reduction is due to the expected commencement of production. At that point, production royalties will commence.
There are multiple third party landholders and the royalty amount due to each landholder over the life of the Project varies with each property.
Finder’s fee
The Company has agreed to issue 100,000 common shares as a finder’s fee in connection with certain property acquisitions upon commencement of commercial production of the Project. As of December 31, 2015, commercial production has not commenced and no shares have been issued.
Management agreement
In 2004, the Company entered into an agreement with the President of the Company to issue 300,000 bonus shares upon completion of certain milestones. Upon receipt by the Company of a bankable feasibility study and the decision to place the Property into commercial production (Achieved), a bonus of 150,000 (Issued) common shares would be issued. Upon commencement of commercial production on the Property, a further bonus of 150,000 common shares would be issued. In May 2010, the Company entered into an amendment to the agreement whereby the 300,000 bonus shares would alternatively be issuable upon a change of control transaction, or upon a sale of all or substantially all of the Company’s assets, having a value at or above C$1.00 per share of the Company, with a further 300,000 bonus shares being issuable in the event the change of control transaction or asset sale occurred at a value at or above C$1.50 per share. This amended agreement was for a term of three years and automatically renewed for two years. The first of two milestones was reached during the first quarter of 2015 and as a result 150,000 bonus shares, valued at $151,428, were issued to H. Lutz Klingmann on March 27, 2015.
In May 2015, the Company replaced the President’s management agreement with an employment agreement. In addition to the previously mentioned bonus shares issuable upon commencement of commercial production, included in the agreement with the President is a provision that if the President’s position is lost upon a change of control or within six months of a change of control the President would be entitled to a one-time payment equal to twice the annual salary C$438,000 total plus twice the annual bonus. The annual bonus is determined by the Board subsequent to a review of the President’s performance.
On August 10, 2015, the President and Chief Executive Officer of the Company resigned. The Company and the former President and Chief Executive Officer entered into a separation agreement as of August 10, 2015, which provides for the termination of the employment agreement and an agreement for the Company to pay six month’s salary commencing from the date of termination. The separation agreement also confirms that as a result of the termination of the employment agreement, the 150,000 bonus shares that were to be issued upon reaching the commencement of production, will no longer be issuable as that milestone was not met as at the date of termination of the employment agreement.
The Company hired current board member, Thomas M. Clay, to take over the position of Interim Chief Executive Officer with a yearly salary of $100,000. No consulting agreement or management agreement has been signed at this time.
In 2013, the Company entered into an employment agreement with the Chief Financial Officer (“CFO”). Included in the agreement with the CFO is a provision that if the CFO’s position is lost upon a change of control or within six months of a change of control the CFO would be entitled to a one-time payment equal to twice the annual salary, C$300,000 total, plus twice the annual bonus. The annual bonus is determined by the Board subsequent to a review of the CFO’s performance.
GOLDEN QUEEN MINING CO. LTD.
Notes to Consolidated Financial Statements
Years Ended December 31, 2015, 2014 and 2013
(US dollars)
| 7. | Commitments and Contingencies – Continued |
Compliance with Environmental Regulations
The Company’s exploration and development activities are subject to laws and regulations controlling not only the exploration and mining of mineral properties, but also the effect of such activities on the environment. Compliance with such laws and regulations may necessitate additional capital outlays or affect the economics of a project, and cause changes or delays in the Company’s activities.
The Company may, from time to time, be involved in legal proceedings and claims that arise in the ordinary course of business. The Company believes that any adverse outcome of existing claims, individually or in the aggregate, would not have a material effect on its financial position, results of operations or cash flows.
Mine Development Commitments
As of December 31, 2015, GQM LLC has entered into contracts for construction totaling approximately $47.6 million of which $4.4 million remains to be paid. The major commitments relate to the construction of the crushing-screening plant, the construction of the conveying and stacking system and work related to the Merrill-Crowe plant equipment. The commitments were paid out in early 2016. GQM LLC did not make material additional construction commitments subsequent to December 31, 2015.
See Note 12 for further details on the mining equipment loans.
| 8. | Related Party Transactions |
Except as noted elsewhere in these consolidated financial statements, related party transactions are disclosed as follows:
For the year ended December 31, 2015, the Company paid $201,312 (2014 – 163,465; 2013 - $192,431) to Mr. H. Lutz Klingmann for services as President of the Company of which $Nil (2014 - $Nil; 2013 – 47,467) is payable as at December 31, 2015. Included in the consulting fees for the year ended December 31, 2015 was $151,428 (2014 - $Nil; 2013 - $Nil) related to 150,000 bonus shares issued in accordance with Mr. Klingmann’s management agreement. On May 1, 2015 Mr. Klingmann became an employee of the Company and his salary, since that date, is included under corporate salary expenses. Included in salaries expense is the severance payments received upon resignation.
During the year ended December 31, 2015, the Company paid a total of $107,327 (2014 - $150,199; 2013 – $35,484) to four directors, the three independent directors and Thomas M. Clay.
| (ii) | Convertible Debentures |
On July 26, 2013, the Company entered into agreements to issue convertible debentures for aggregate proceeds of C$10,000,000 ($9,710,603), from a significant shareholder group. The convertible debentures were unsecured and bore interest at 2% per annum, calculated on the outstanding principal balance, payable annually. The principal amounts of the notes were convertible into shares of the Company at a price of C$1.03 per share for a period of two years.
A total of C$7,500,000 of the offering was subscribed for by an investment vehicle managed by Thomas M. Clay, a Director and insider of the Company. The Company agreed to pay the legal fees incurred by the lenders relating to this instrument which amounted to $10,049.
The conversion feature of the convertible debentures meet the definition of a derivative liability instrument because the conversion feature is denominated in a currency other than the Company’s functional currency as well as the fact the exercise price is not a fixed price as described above. Therefore, the conversion feature does not meet the “fixed-for-fixed” criteria outlined in ASC 815-40-15.
GOLDEN QUEEN MINING CO. LTD.
Notes to Consolidated Financial Statements
Years Ended December 31, 2015, 2014 and 2013
(US dollars)
| 8. | Related Party Transactions – Continued |
| (ii) | Convertible Debentures – Continued |
As a result, the conversion feature of the notes was required to be recorded as a derivative liability recorded at fair value and marked-to-market each period with the changes in fair value each period being charged or credited to income or loss.
On July 24, 2015, the Company repaid its C$10.0 million ($7.7 million) convertible debenture and accrued interest of C$200,000 ($153,500).
The fair value of the derivative liability related to the conversion feature as at December 31, 2015 is $Nil (December 31, 2014 - $1,829,770). During 2015 and 2014 the derivative liability was calculated using an acceptable option pricing valuation model with the following assumptions:
| | | 2015 | | | 2014 | | | Risk-free interest rate | | | 0.49% - 0.50 | % | | | 1.00% - 1.09 | % | | Expected life of derivative liability | | | 0.07 - 0.32 years | | | | 0.57 - 1.32 years | | | Expected volatility | | | 49.36% - 77.00 | % | | | 73.03% - 98.21 | % | | Dividend rate | | | 0.00 | % | | | 0.00 | % |
The changes in the derivative liability related to the conversion feature are as follows:
| | | December 31, 2015 | | | December 31, 2014 | | | Balance, beginning of the period | | $ | 1,829,770 | | | $ | 2,833,987 | | | Change in fair value of derivative liability including foreign exchange | | | (1,829,770 | ) | | | (1,004,217 | ) | | Balance, end of the period | | $ | - | | | $ | 1,829,770 | |
The change in the convertible debentures is as follows:
| | | December 31, 2015 | | | December 31, 2014 | | | Balance, beginning of the period | | $ | 6,649,967 | | | $ | 4,642,620 | | | Amortization of discount | | | 1,852,754 | | | | 2,510,611 | | | Foreign exchange | | | (827,721 | ) | | | (503,264 | ) | | Repayment of convertible debenture | | | (7,675,000 | ) | | | - | | | Balance, end of the period | | $ | - | | | $ | 6,649,967 | |
During the year ended December 31, 2015, in addition to the amortization of the discount on the convertible debenture, the Company incurred interest expense of $94,907 (2014 - $181,479) based on the 2% per annum stated interest rate for a total amortization of discount and interest expense of $1,947,661 for the year ended December 31, 2015 (2014- $2,692,090). Interest payable relating to the convertible debenture as at December 31, 2015 was $Nil (December 31, 2014 - $70,721).
On January 1, 2014, the Company entered into an agreement to secure a $10,000,000 loan (the “January 2014 Loan”). The January 2014 Loan was provided by members of the Clay family, who are shareholders of the Company, including $7,500,000 provided by an investment vehicle managed by Thomas M. Clay, a Director and insider of the Company. The January 2014 Loan had a twelve-month term and an annual interest rate of 5%, payable on the maturity date.
The January 2014 Loan was repaid on a date that is less than 183 days before the maturity date. As a result, the Company paid the Lenders an additional charge in the amount that is equivalent to 5% of the principal amount, plus interest on the principal amount at the rate of 5% per annum accrued to the date the January 2014 Loan was repaid. The Company repaid $7,500,000 loan plus the $375,000 accrued interest and $375,000 additional charge on December 31, 2014.
GOLDEN QUEEN MINING CO. LTD.
Notes to Consolidated Financial Statements
Years Ended December 31, 2015, 2014 and 2013
(US dollars)
| 8. | Related Party Transactions – Continuedwithout limiting subparagraph (i), in the case of a community contribution company, to alter any of the company's community purposes within the meaning of section 51.91; |
| (iii)(b) | Notes Payable – Continued |
The remaining balance of the loan, $2,500,000, the accrued interest of $125,000 and the additional charge of $125,000, were paid on January 5, 2015. In total, the Company incurred $500,000 in interest expense and $500,000 in additional charge related to the January 2014 Loan.
On December 31, 2014 the Company also entered into a new loan (the “December 2014 Loan”) with the same parties for an amount of $12,500,000. The December 2014 Loan was due on demand on July 1, 2015 and bore an annual interest rate of 10% payable at the end of each quarter. The loan was guaranteed by GQM Holdings, and secured by a pledge of the Company's interests in GQM Canada, GQM Canada’s interest in GQM Holdings and GQM Holdings' 50% interest in GQM LLC. The Company also incurred a financing fee to secure the loan in the amount of $1,000,000, of which, $750,000 was paid on December 31, 2014 and the remaining $250,000 was paid on January 5, 2015. The Company agreed to pay the legal fees incurred by the lenders relating to this instrument which amounted to $90,916. The total legal fees paid for the transaction were $118,695. The Company also agreed to provide the lenders with the option for certain registration rights whereby the Company would bear the costs and responsibility of registering the lenders common shares for the purposes of disposition subsequent to July 1, 2015. The Company has determined it is unlikely the registration option would be exercised and therefore has not accrued any potential costs related to the registration of the common shares. The Company has presented these transaction costs as a contra liability as substantially all of these costs were paid to the lenders.
On June 8, 2015, the Company amended the December 2014 Loan to extend the maturity to December 8, 2016 and increased the principal amount from $12,500,000 to $37,500,000 (the “June 2015 Loan”). The Company also issued 10,000,000 common share purchase warrants exercisable for a period of five years expiring June 8, 2020. The common share purchase warrants have an exercise price of $0.95. All other terms remained the same as the December 2014 Loan. The Company also incurred a financing fee to secure the loan in the amount of $1,500,000, all of which was paid on June 8, 2015. The Company agreed to pay the legal fees incurred by the lenders relating to this instrument which amounted to $46,408. The legal fees were expensed as the transaction met the definition of a debt extinguishment. The terms of the registration rights remains unchanged as does the Company’s assessment of the likelihood of the registration rights being exercised. As such, as of December 31, 2015, no accrual has been made for the potential costs related to the registration rights.
| | | December 31, 2015 | | | December 31, 2014 | | | Balance, beginning of the period | | $ | 13,881,305 | | | $ | - | | | Fair value at inception, notes payable | | | 33,497,277 | | | | 22,500,000 | | | Repayment of loans | | | (2,500,000 | ) | | | (7,500,000 | ) | | Accretion of financing and legal fees | | | 967,156 | | | | - | | | Accretion of discount on the June Loan | | | 1,374,228 | | | | - | | | Extinguishment of the December 2014 Loan | | | (12,500,000 | ) | | | - | | | Loss on extinguishment of debt | | | 151,539 | | | | - | | | Interest payable transferred to principal balance of the June 2015 Loan | | | 1,181,507 | | | | - | | | Capitalized financing fee and legal fees | | | - | | | | (1,118,695 | ) | | Balance, end of the period | | | 36,053,012 | | | $ | 13,881,305 | |
Interest payable relating to the June 2015 Loan as at December 31, 2015 was $969,645 (December 31, 2014 - $250,000 – of which $125,000 was interest expense and $125,000 related to the additional charge for the January 2014 Loan).
GOLDEN QUEEN MINING CO. LTD.
Notes to Consolidated Financial Statements
Years Ended December 31, 2015, 2014 and 2013
(US dollars)
| 8. | Related Party Transactions – Continuedunder Section 272, in respect of a resolution to adopt an amalgamation agreement; |
| (iv)(c) | Share Purchase Warrantsunder Section 287, in respect of a resolution to approve an amalgamation under Division 4 of Part 9; |
On June 8, 2015 the Company issued 10,000,000 share purchase warrants to the Clay family in connection with the June 2015 Loan. The share purchase warrants are exercisable until June 8, 2020 at an exercise price of $0.95. Included in the June 2015 Loan agreement was an anti-dilution provision. If the Company were to complete a financing at a share price lower than the exercise price of the share purchase warrants, the exercise price of the share purchase warrants would be adjusted to match the price at which the financing was completed.
The share purchase warrants meet the definition of a derivative liability instrument as the exercise price is not a fixed price as described above. Therefore, the settlement feature does not meet the “fixed-for-fixed” criteria outlined in ASC 815-40-15.
The fair value of the derivative liability related to the share purchase warrants as at December 31, 2015 is $2,498,269 (December 31, 2014 - $Nil). The derivative liability was calculated using an acceptable option pricing valuation model with the following assumptions:
| | | 2015 | | | 2014 | | | Risk-free interest rate | | | 0.73% - 1.02 | % | | | - | | | Expected life of derivative liability | | | 4.44 - 5 years | | | | - | | | Expected volatility | | | 72.29% - 76.11 | % | | | - | | | Dividend rate | | | 0.00 | % | | | - | |
The change in the derivative share purchase warrants is as follows:
| | | December 31, 2015 | | | December 31, 2014 | | | Balance, beginning of the period | | $ | - | | | $ | - | | | Fair value at inception | | | 4,002,723 | | | | - | | | Change in fair value | | | (1,504,454 | ) | | | - | | | Balance, end of the period | | $ | 2,498,269 | | | $ | - | |
In July 2014, GQM Inc. entered into a $10,000,000 short-term advance agreement (the “Advance”) with Leucadia and Auvergne (collectively, the “Lenders”), with the Company as guarantor. Leucadia provided $6,500,000 of the loan and Auvergne provided $3,500,000. The Advance had an interest rate of 10.0% per annum, compounded monthly. Auvergne is an investment vehicle managed by Thomas M. Clay, a Director and insider of the Company. On closing of the Joint Venture Transaction on September 15, 2014, GQM LLC applied part of the investment of $110,000,000 to repayment of principal and accrued interest on the $10,000,000 bridge loan advanced by the Lenders in July 2014. GQM LLC paid $209,607 in interest payment, including $73,632 paid to Auvergne on the July 2014 Advance, of which $45,264 was capitalized to mineral property interests.
GOLDEN QUEEN MINING CO. LTD.
Notes to Consolidated Financial Statements
Years Ended December 31, 2015, 2014 and 2013
(US dollars)
| 8. | Related Party Transactions – Continued |
| (vi) | Amortizationin respect of Discounts and Interest Expense |
The following table summarizes the amortization of discounts and interest on loans and convertible debentures:
| | | Year Ended
December 31,
2015 | | | Year Ended
December 31,
2014 | | | Year Ended
December 31,
2013 | | | Interest expense related to the convertible debentures | | $ | 94,907 | | | $ | 181,479 | | | $ | - | | | Interest expense related to the January 2014 Loan | | | - | | | | 1,000,000 | | | | - | | | Interest expense related to the December 2014 Loan | | | 547,945 | | | | - | | | | - | | | Interest expense related to the June 2015 Loan | | | 2,151,152 | | | | - | | | | - | | | Interest expense related to Komatsu Financial loans | | | 281,958 | | | | 3,352 | | | | - | | | Accretion of debt discount on the convertible debentures | | | 1,852,754 | | | | 2,510,611 | | | | 888,026 | | | Interest on Gauss advance | | | - | | | | 209,607 | | | | | | | Accretion of the December 2014 Loan financing fees | | | 967,155 | | | | - | | | | | | | Accretion of the June 2015 Loan discount | | | 1,374,228 | | | | - | | | | | | | Accretion of discount and interest on loan and convertible debentures | | $ | 7,270,099 | | | $ | 3,905,049 | | | $ | 888,026 | |
The Company’s loans were contracted to fund significant development costs. The Company capitalizes a portion of the interest expense as it related to funds borrowed to complete development activities at the Project site.
| | | Year Ended
December 31, 2015 | | | Year Ended
December 31, 2014 | | | Year Ended
December 31, 2013 | | | Accretion of discounts and interest on loan, advance and convertible debenture | | $ | 7,270,099 | | | $ | 3,905,049 | | | $ | 888,026 | | | Less: Interest costs capitalized | | | (2,762,831 | ) | | | (2,412,015 | ) | | | - | | | Accretion of discounts and interest expensed | | $ | 4,507,268 | | | $ | 1,493,034 | | | $ | 888,026 | |
| (vii) | Joint Venture Transaction |
On September 15, 2014, the Company closed the Joint Venture Transaction with Gauss resulting in both parties owning a 50% interest in the Project. Pursuant to the Joint Venture Transaction, Golden Queen converted its wholly-owned subsidiary GQM Inc., the entity developing the Project, into a California limited liability company named GQM LLC. On closing of the transaction, Gauss acquired 50% of GQM LLC by investing $110 million cash in exchange for newly issued membership units of GQM LLC. GQM Holdings, a newly incorporated subsidiary of the Company, holds the other 50% of GQM LLC.
GOLDEN QUEEN MINING CO. LTD.
Notes to Consolidated Financial Statements
Years Ended December 31, 2015, 2014 and 2013
(US dollars)
| 8. | Related Party Transactions – Continueda resolution to approve an arrangement, the terms of which arrangement permit dissent; |
| (vii)(e) | Joint Venture Transaction - Continued |
Gauss is a funding vehicle owned by entities controlled by Leucadia National Corporation (NYSE: LUK) (“Leucadia”) and certain members of the Clay family, a shareholder group which collectively owned approximately 27% of the issued and outstanding shares of Golden Queen (the “Clay Group”) at the time of the transaction. Gauss is owned 70.51% by Gauss Holdings LLC (“Gauss Holdings”, Leucadia’s investment entity) and 29.49% by Auvergne LLC (“Auvergne”, the Clay Group’s investment entity). Pursuant to the transaction, Leucadia was paid a transaction fee of $2,000,000 and $275,000 was paid to Auvergne through GQM LLC in 2014. The Company has adopted an accounting policy of expensing these transaction costs.
Variable Interest Entity
In accordance with ASC 810-10-30, the Company has determined that GQM LLC meets the definition of a VIE and that the Company is part of a related party group that, in its entirety, would meet the definition of a primary beneficiary. Although no individual variable interest holder individually meets the definition of a primary beneficiary in the absence of the related party group, Golden Queen has determined it is considered the member of the related party group most closely associated with GQM LLC. As a result, the Company has consolidated 100% of the accounts of GQM LLC in these consolidated financial statements, while presenting a non-controlling interest portion representing the 50% interest of Gauss in GQM LLC on its balance sheet. A portion of the non-controlling interest has been presented as temporary equity on the Company’s balance sheet representing the initial value of the non-controlling interest that could potentially be redeemable by Gauss in the future. The net assets of GQM LLC as of December 31, 2015 and December 31, 2014 are as follows:
| | | December 31, 2015 | | | December 31, 2014 | | | Assets, GQM LLC | | $ | 158,209,916 | | | $ | 118,937,371 | | | Liabilities, GQM LLC | | | (22,591,211 | ) | | | (4,769,144 | ) | | Net assets, GQM LLC | | $ | 135,618,705 | | | $ | 114,168,227 | |
Included in the assets above, is $31,531,853 (December 31, 2014 - $83,282,403) in cash held as at December 31, 2015. The cash in GQM LLC is directed specifically to fund capital expenditures required to take the Project to production and settle GQM LLC’s obligations. The liabilities of GQM LLC do not have recourse to the general credit of the primary beneficiary except in one situation. Please refer to note 12 for details on the exception.
Non-Controlling Interest
In accordance with ASC 810, the Company has presented Gauss’ ownership in GQM LLC as a non-controlling interest amount on the balance sheet within the equity section. However, the Amended and Restated Limited Liability Company Agreement (“LLC Agreement”) contains terms within Section 12.5 that provides for the exit from the investment in GQM LLC for an initial member whose interest in GQM LLC becomes less than 20%. The following is a summary of the terms of the clause:
Pursuant to Section 12.5, if a member becomes less than a 20% interest holder, its remaining unit interest will (ultimately) be terminated through one of three events at the non-diluted member’s option within 60 days of the diluted member’s interest dropping below 20% (the “triggering event”):
| a. | Through conversionunder Section 301(5), in respect of a resolution to a net smelter royalty (“NSR”) (in which case the conversion ratio is based on a pro rata percentage, determined on a linear basis, based on the following: 0-20% membership interest translates to 0-5% NSR) obligation of GQM LLC; |
| b. | Through a buy-out (at fair value) by the non-diluted member;authorize or |
| c. | Through a sale process by which the diluted member’s interest is sold |
| · | If such sale process does not result in a binding offer acceptable to the non-diluted member within six months after the election by the non-diluted member, ratify the sale, process terminates andlease or other disposition of all or substantially all of the non-diluted member has 15 days to choose between (a) and (b). |
GOLDEN QUEEN MINING CO. LTD.
Notes to Consolidated Financial Statements
Years Ended December 31, 2015, 2014 and 2013
(US dollars)
| 8. | Related Party Transactions – Continuedcompany's undertaking; |
| (vii)(f) | Joint Venture Transaction - Continued |
Non-Controlling Interest - Continued
If the non-diluted member does not make an election pursuant to the above within 60 days, the diluted member may choose (a) or (b) above. If no election is made by the diluted member, option (a) is deemed to have been elected.
This clause in the Joint Venture Transaction constitutes contingent redeemable equity as outlined in Accounting Series Release No. 268 (“ASR 268”) and has been classified as temporary equity.
On initial recognition the amount of the temporary equity is calculated using the guidance that specifies that the initial measurement of redeemable instruments should be the carrying value. The amount allocated to temporary equity and the permanent equity on initial recognition is shown below. Temporary equity represents the amount of redeemable equity within Gauss’ ownership interest in the net assets of GQM LLC. The remaining 60% of their interest is considered permanent equity as it is not redeemable.
| | | September 15, 2014 | | | Net assets, GQM LLC before Joint Venture Transaction | | $ | 16,973,184 | | | Investment by Gauss | | | 110,000,000 | | | Net assets, GQM LLC after Joint Venture Transaction | | | 126,973,184 | | | Gauss’ ownership percentage | | | 50 | % | | Net assets of GQM LLC attributable to Gauss | | $ | 63,486,592 | | | | | | | | | Allocation of non-controlling interest between permanent equity and temporary equity: | | | | | | Permanent non-controlling interest (60% of total non-controlling interest) | | $ | 38,091,955 | | | Temporary non-controlling interest (40% of total non-controlling interest) | | $ | 25,394,637 | |
Subsequent to the initial transaction, the carrying value of the non-controlling interest will be adjusted for net income and loss, distributions and contributions pursuant to ASC 810-10 based on the same percentage allocation used to calculate the initial book value of temporary equity.
| | | December 31, 2015 | | | December 31, 2014 | | | Net and comprehensive loss in GQM LLC | | $ | (3,549,522 | ) | | $ | (2,804,957 | ) | | Non-controlling interest percentage | | | 50 | % | | | 50 | % | | Net and comprehensive loss attributable to non-controlling interest | | | (1,774,761 | ) | | | (1,402,479 | ) | | Net and comprehensive loss attributable to permanent non-controlling interest | | $ | (1,064,857 | ) | | $ | (841,487 | ) | | Net and comprehensive loss attributable to temporary non-controlling interest | | $ | (709,904 | ) | | $ | (560,992 | ) |
GOLDEN QUEEN MINING CO. LTD.
Notes to Consolidated Financial Statements
Years Ended December 31, 2015, 2014 and 2013
(US dollars)
| 8. | Related Party Transactions – Continuedunder Section 309, in respect of a resolution to authorize the continuation of the company into a jurisdiction other than British Columbia; |
| (vii)(g) | Joint Venture Transaction - Continued |
Non-Controlling Interest – Continued
| | | Permanent Non-
Controlling Interest | | | Temporary Non-
Controlling Interest | | | Carrying value of non-controlling interest, September 15, 2014 | | $ | 38,091,955 | | | $ | 25,394,637 | | | Distributions to non-controlling interest | | | (3,000,000 | ) | | | (2,000,000 | ) | | Net and comprehensive loss for the period | | | (841,487 | ) | | | (560,992 | ) | | Carrying value of non-controlling interest , December 31, 2014 | | $ | 34,250,468 | | | $ | 22,833,645 | |
| | | Permanent Non-
Controlling Interest | | | Temporary Non-
Controlling Interest | | | Carrying value of non-controlling interest, December 31, 2014 | | $ | 34,250,468 | | | $ | 22,833,645 | | | Capital contribution | | | 7,500,000 | | | | 5,000,000 | | | Net and comprehensive loss for the period | | | (1,064,857 | ) | | | (709,904 | ) | | Carrying value of non-controlling interest , December 31 2015 | | $ | 40,685,611 | | | $ | 27,123,741 | |
Dilution of Interest in Subsidiary
As a result of the Joint Venture Transaction, the Company’s interest in GQM LLC was diluted from 100% to 50% and ordinarily, the Company would recognize gain on dilution with the book value of the investment in GQM LLC increasing. However, since the transaction was with a related party and the Company retained control, the excess has not been recognized in net income but rather has been recorded in equity as an increase to APIC based on guidance provided in ASC 810-10-55-4D and -4E.
| | | September 15, 2014 | | | Investment by Gauss | | $ | 110,000,000 | | | Less: | | | | | | Initial carrying value of permanent equity | | | (38,091,955 | ) | | Initial carrying value of temporary equity | | | (25,394,637 | ) | Deferred tax liability resulting from dilution gain (Notes 4 and 15) | | | (12,922,000 | ) | | Effect of dilution of subsidiary recorded to APIC | | $ | 33,591,408 | |
The deferred tax liability resulted from the increase in the book value over tax value of the investment in GQM LLC.
Management Agreement
GQM LLC is managed by a board of managers comprising an equal number of representatives of each of Gauss and GQM Holdings. The initial officers of GQM LLC were H. Lutz Klingmann as Chief Executive Officer, and Andrée St-Germain as Chief Financial Officer. During fiscal 2015, Robert C. Walish Jr. was appointed to replace Mr. Klingmann as Chief Executive Officer of GQM LLC. Bryan A. Coates was appointed to the GQM LLC Board of Managers as a nominee of the Company, replacing Mr. Klingmann. As long as a member of the Clay family holds greater that 25% of the Company, the Clay Group is entitled to appoint one of the Company’s representatives to the GQM LLC board of managers.
GOLDEN QUEEN MINING CO. LTD.
Notes to Consolidated Financial Statements
Years Ended December 31, 2015, 2014 and 2013
(US dollars)
| 8. | Related Party Transactions – Continuedin respect of any other resolution, if dissent is authorized by the resolution; |
| (vii)(h) | Joint Venture Transaction - Continuedin respect of any court order that permits dissent. |
Capital Contribution Agreement
Pursuant(2) A shareholder wishing to the Joint Venture Transaction, GQM Holdings’ made a single capital contribution to GQM LLC of $12.5 million on June 15, 2015. Gauss funded an amount equal to GQM Holdings’ capital contribution to GQM LLC. Both partners maintain their 50% ownership of the Project.
Standby Commitment
In 2014, Golden Queen also entered into a backstop guarantee agreement with Gauss (the “Backstop Agreement”) whereby, if the Company conducts a rights offering, Gauss has agreed to purchase, upon the terms set forth in the Backstop Agreement, any common shares which have not been acquired pursuant to the exercise of rights under the Rights Offering at a purchase price to be determined but not to exceed $1.10 per common share, up to a maximum amount of $45 million in the aggregate. In consideration for entering into the Backstop Agreement, on closing of the Joint Venture, the Company paid Leucadia and Auvergne a standby guarantee fee of $2,250,000, of which $731,250 was paid to Auvergne.
The Transaction Agreement and Backstop Agreement contemplated that the Company would file a registration statement in connection with the rights offering by October 15, 2014. The Company has decided not to proceed with a rights offering, and as a result the standby commitment has expired.
| 9. | Supplementary Disclosures of Cash Flow Information |
| | | December 31, 2015 | | | December 31, 2014 | | | | | | | | | | | Cash paid during year for: | | | | | | | | | | Interest | | $ | 1,214,255 | | | $ | 1,145,786 | | | Income taxes | | $ | - | | | $ | - | | | Non-cash financing and investing activities: | | | | | | | | | | Common shares issued for mineral property | | $ | - | | | $ | 24,480 | | | Financing fee and legal fees related to short term debt capitalized | | $ | - | | | $ | 1,118,695 | | | Asset retirement costs charged to mineral property interests | | $ | 354,311 | | | $ | 71,892 | | | Mobile equipment acquired through issuance of debt | | $ | 19,367,240 | | | $ | 926,540 | | | Property, plant, equipment and mineral interests expenditures included in accounts payable | | $ | 2,857,646 | | | $ | 3,097,053 | | | Non-cash interest cost capitalized to mineral property interests | | $ | 2,762,831 | | | $ | 2,412,015 | | | Non-cash amortization of discount and interest expense | | $ | 4,225,311 | | | $ | 1,493,034 | | Interest payable converted to principal balance on notes
payable | | $ | 1,181,507 | | | $ | - | |
GOLDEN QUEEN MINING CO. LTD.
Notes to Consolidated Financial Statements
Years Ended December 31, 2015, 2014 and 2013
(US dollars)
Fair Value Measurements
All financial assets and financial liabilities are recorded at fair value on initial recognition. Transaction costs are expensed when they are incurred, unless they are directly attributable to the acquisition of qualifying assets, in which case they are added to the costs of those assets until such time as the assets are substantially ready for their intended use or sale.
The three levels of the fair value hierarchy are as follows:
Level 1 | Unadjusted quoted prices in active markets that are accessible at the measurement date for identical, unrestricted assets or liabilities; | | | Level 2 | Quoted prices in markets that are not active, or inputs that are observable, either directly or indirectly, for substantially the full term of the asset or liability; | | | Level 3 | Prices or valuation techniques that require inputs that are both significant to the fair value measurement and unobservable (supported by little or no market activity). |
| | | December 31, 2015 | | | | | Total | | | Level 1 | | | Level 2 | | | Level 3 | | | Liabilities: | | | | | | | | | | | | | | | | | | Share purchase warrants (Note 8) | | $ | 2,498,269 | | | $ | - | | | $ | 2,498,269 | | | $ | - | | | | | $ | 2,498,269 | | | $ | - | | | $ | 2,498,269 | | | $ | - | |
| | | December 31. 2014 | | | | | Total | | | Level 1 | | | Level 2 | | | Level 3 | | | Liabilities: | | | | | | | | | | | | | | | | | | Derivative liability (Note 8) | | $ | 1,829,770 | | | $ | - | | | $ | 1,829,770 | | | $ | - | | | | | $ | 1,829,770 | | | $ | - | | | $ | 1,829,770 | | | $ | - | |
Under fair value accounting, assets and liabilities are classified in their entirety based on the lowest level of input that is significant to the fair value measurement. The fair value measurement of the financial instruments above use observable inputs in option price models such as the binomial and the Black-Scholes valuation models.
Credit Risk
Credit risk is the risk that the counterparty to a financial instrument will cause a financial loss for the Company by failing to discharge its obligations. To mitigate exposure to credit risk on financial assets the Company has established policies to ensure liquidity of funds and ensure counterparties demonstrate minimum acceptable credit worthiness.
The Company maintains its US Dollar and Canadian Dollar cash in bank accounts with major financial institutions with high credit standings. Cash deposits held in the United States are insured by the FDIC for up to $250,000 and Canadian Dollar cash deposits held in Canada are insured by the Canada Deposit Insurance Corporation (“CDIC”) for up to C$100,000.
GOLDEN QUEEN MINING CO. LTD.
Notes to Consolidated Financial Statements
Years Ended December 31, 2015, 2014 and 2013
(US dollars)
10. Financial Instruments - Continued
Certain United States and Canadian bank accounts held by the Company exceed these federally insured limits or are uninsured as they relate to US Dollar deposits held in Canadian financial institutions. As of December 31, 2015 and 2014, the Company’s cash balances held in United States and Canadian financial institutions include $37,587,311 and $91,407,644 respectively, which are not fully insured by the FDIC or CDIC. The Company has not experienced any losses on such accounts and management believes that using major financial institutions with high credit ratings mitigates the credit risk in cash.
Interest Rate Risk
The Company holds 63% of its cash in bank deposit accounts with a single major financial institution. The interest rates received on these balances may fluctuate with changes in economic conditions. Based on the average cash balances during the year ended December 31, 2015, a 1% decrease in interest rates would have reduced the interest income for 2015 to a trivial amount.
Foreign Currency Exchange Risk
Certain purchases of corporate overhead expenditures are denominated in Canadian Dollar. As a result, currency exchange fluctuations may impact the costs of our operations. Specifically, the appreciation of the Canadian Dollar against the US Dollar may result in an increase in the Canadian operating expenses in US dollar terms. As of December 31, 2015, the Company maintained the majority of its cash balance in US Dollar. The Company currently does not engage in any currency hedging activities.
Commodity Price Risk
The Company’s primary business activity is the development of the open pit, gold and silver, heap leach project on the Project. Decreases in the price of either of these metals from current levels has the potential to negatively impact thefuture viability of the Project.dissent must
| 11.(a) | Earnings (Loss) Per Shareprepare a separate notice of dissent under Section 242 for |
| | | Year Ended
December 31,
2015 | | | Year Ended
December 31,
2014 | | | Year Ended
December 31,
2013 | | | Numerator: | | | | | | | | | | | | | | Net income (loss) – numerator for basic EPS | | $ | (5,461,205 | ) | | $ | (8,469,204 | ) | | $ | 1,978,014 | | | Amortization of discount | | | - | | | | - | | | | 888,026 | | | Change in derivative liability – Convertible debentures | | | - | | | | - | | | | (2,907,533 | ) | | Change in derivative – Stock options | | | - | | | | - | | | | (767,419 | ) | | Numerator for diluted EPS | | $ | (5,461,205 | ) | | $ | (8,469,204 | ) | | $ | (808,912 | ) |
GOLDEN QUEEN MINING CO. LTD.
Notes to Consolidated Financial Statements
Years Ended December 31, 2015, 2014 and 2013
(US dollars)
| 11. | Earnings (Loss) Per Share – Continued |
| | | Year Ended
December 31,
2015 | | | Year Ended
December 31,
2014 | | | Year Ended
December 31,
2013 | | | Denominator: | | | | | | | | | | | | | | Denominator for basic EPS | | | 99,893,341 | | | | 99,611,278 | | | | 98,390,561 | | | Effect of dilutive securities: | | | | | | | | | | | | | | Employee stock options | | | - | | | | - | | | | 132,800 | | | Convertible debenture | | | - | | | | - | | | | 4,214,232 | | | Denominator for diluted EPS | | | 99,893,341 | | | | 99,611,278 | | | | 102,737,593 | | | Basic earnings(loss) per share | | | (0.05 | ) | | $ | (0.09 | ) | | $ | 0.02 | | | Diluted loss per share | | | (0.05 | ) | | $ | (0.09 | ) | | $ | (0.01 | ) |
For the year ended December 31, 2015, 1,070,000 (2014 – 750,000; 2013 – 850,000) options, the convertible debenture and 10,000,000 (2014 & 2013 – Nil) warrants were not included above as their impact would be anti-dilutive.
During the year ended December 31, 2015, the Company acquired (19) nineteen (2014 – (2) two) pieces of mining equipment from Komatsu through financing agreements. The Company also acquired a mining drill through a financing agreement with Atlas Copco. As at December 31, 2015 and December 31, 2014, the finance agreement balances are as follows:
| | | December 31, 2015 | | | December 31, 2014 | | | Balance, beginning of year | | $ | 913,132 | | | $ | - | | | Additions | | | 23,155,510 | | | | 1,106,521 | | | Down payments, taxes and principal repayments | | | (5,695,819 | ) | | | (193,389 | ) | | Balance, end of year | | $ | 18,372,823 | | | $ | 913,132 | |
The terms of the financing agreements are as follows:
| | | December 31, 2015 | | | December 31, 2014 | | | Total acquisition costs | | $ | 24,262,031 | | | $ | 1,106,521 | | | Interest rates | | | 0.00% - 4.40% | | | | 1.80% - 2.99% | | | Monthly payments | | | $4,669 - $33,906 | | | | $5,268 - $15,109 | | | Average remaining life (Years) | | | 3.46 | | | | 3.89 | | | Short-term portion | | | 4,942,716 | | | | 222,839 | | | Long-term portion | | $ | 13,430,107 | | | $ | 690,293 | |
For the year ended December 31, 2015, the Company made total down payments of $3,788,070 (2014 - $179,981). The down payments consist of the sales tax on the assets and a 10% payment of the pre-tax purchase price. All of the loan agreements are for a term of four years, except one which is for three years, and are secured by the underlying asset except for the mining drill loan for which GQM Ltd. has provided a corporate guarantee.
GOLDEN QUEEN MINING CO. LTD.
Notes to Consolidated Financial Statements
Years Ended December 31, 2015, 2014 and 2013
(US dollars)
| 12. | Loan Payable - Continued |
The following table outlines the principal payments to be made for each of the remaining years:
| Year | | Principal Payments | | | 2016 | | $ | 4,942,716 | | | 2017 | | $ | 5,126,206 | | | 2018 | | $ | 5,248,707 | | | 2019 | | $ | 3,055,194 | | | Total | | $ | 18,372,823 | |
Certain comparative figures have been reclassified to conform to the financial statement presentation adopted for the current year. The reclassifications had no impact on the net loss, deficit accumulated or the cash flows as previously reported. Also see Note 15 for restatement of certain 2014 balances.
No subsequent events have been identified up to the date of March 30, 2016, the date the financial statements were approved, other than denoted below.
On January 1st, 2016, the Company was to make the quarterly interest payment on the June 2015 loan. In accordance with the terms of the June 2015 loan agreement, the Company chose to exercise its right to pay in kind by adding the interest owed on January 1, 2016 to the principal balance of the June 2015 loan. The principal balance of the loan was increased by $974,986. The principal balance of the loan moving forward will be $39,656,493 and interest will be calculated on this balance.
Subsequent to December 31, 2015, GQM LLC took possession of a used crane, valued at $0.4 million. The Company made total payments, tax and a 10% down payment, of $0.06 million. The remaining $0.3 million will be financed over 48 months at an interest rate of 3.90%.
In January 2016 the company entered into $2.1 million in surety bond agreements in order to release its reclamation deposits and post a portion of the financial assurance due in 2016. GQM Ltd. has provided a corporate guarantee on the surety bonds.
GOLDEN QUEEN MINING CO. LTD.
Notes to Consolidated Financial Statements
Years Ended December 31, 2015, 2014 and 2013
(US dollars)
| 15. | Prior Periods Financial Restatements |
During the preparation of the deferred tax calculations for 2015 the Company found an accounting error in the calculation of the deferred income taxes for the year ended December 31, 2014. The accounting error related to the recognition of a deferred tax liability resulting from the dilution gain recorded in additional paid-in capital from the JV transaction (Note 8(vii)). The impact of the error on the financial statements for the year ended December 31, 2014, the first three quarters of 2015 and the third quarter of 2014 are presented below. There was no impact on the Company’s Consolidated Statements of Income/(Loss) and Comprehensive Income/(Loss) or the Consolidated Statement of Cash Flows.
Impact for the year ended December 31, 2014
| | | As Previously Reported | | | As Restated | | | | | | | | | | | | | Liabilities: | | | | | | | | | | Deferred tax liability | | $ | - | | | $ | 12,922,000 | | | Total liabilities | | $ | 27,778,513 | | | $ | 40,700,513 | | | Shareholders’ Equity: | | | | | | | | | | Additional paid-in capital | | $ | 56,390,510 | | | $ | 43,468,510 | | | Total shareholders’ equity attributable to GQM Ltd. | | $ | 44,654,709 | | | $ | 31,732,709 | | | Total shareholders’ equity | | $ | 78,905,177 | | | $ | 65,983,177 | | | | | | | | | | | |
There was no impact on the Company’s Consolidated Statements of Income/(Loss) and Comprehensive Income/(Loss) or the Consolidated Statement of Cash Flows.
Impact on the first three quarters of 2015 and third quarter of 2014(Unaudited)
| | | September 30, 2014 | | | March 31, 2015 | | | | | As Previously Reported | | | As Restated | | | As Previously Reported | | | As Restated | | | | | | | | | | | | | | | | | Liabilities: | | | | | | | | | | | | | | | | | | Deferred tax liability | | $ | - | | | $ | 12,922,000 | | | $ | - | | | $ | 12,922,000 | | | Total liabilities | | $ | 23,138,376 | | | $ | 36,060,376 | | | $ | 31,358,690 | | | $ | 44,280,690 | | | Shareholders’ Equity: | | | | | | | | | | | | | | | | | | Additional paid-in capital | | $ | 56,436,755 | | | $ | 43,514,755 | | | $ | 56,390,510 | | | $ | 43,468,510 | | | Total shareholders’ equity attributable to GQM Ltd. | | $ | 43,157,822 | | | $ | 30,235,822 | | | $ | 43,369,950 | | | $ | 30,447,950 | | | Total shareholders’ equity | | $ | 77,553,630 | | | $ | 64,631,630 | | | $ | 77,448,394 | | | $ | 64,526,394 | |
GOLDEN QUEEN MINING CO. LTD.
Notes to Consolidated Financial Statements
Years Ended December 31, 2015, 2014 and 2013
(US dollars)
| 15. | Prior Periods Financial Restatements - Continued |
Impact on the first three quarters of 2015 and third quarter of 2014(Unaudited) - Continued
| | | June 30, 2015 | | | September 30, 2015 | | | | | As Previously Reported | | | As Restated | | | As Previously Reported | | | As Restated | | | | | | | | | | | | | | | | | Liabilities: | | | | | | | | | | | | | | | | | | Deferred tax liability | | $ | - | | | $ | 12,922,000 | | | $ | - | | | $ | 12,922,000 | | | Total liabilities | | $ | 59,791,117 | | | $ | 72,713,117 | | | $ | 57,891,299 | | | $ | 70,813,299 | | | Shareholders’ Equity: | | | | | | | | | | | | | | | | | | Additional paid-in capital | | $ | 56,390,510 | | | $ | 43,468,510 | | | $ | 56,545,713 | | | $ | 43,623,713 | | | Total shareholders’ equity attributable to GQM Ltd. | | $ | 41,990,686 | | | $ | 29,068,686 | | | $ | 40,221,722 | | | $ | 27,299,722 | | | Total shareholders’ equity | | $ | 83,141,709 | | | $ | 70,219,709 | | | $ | 81,205,389 | | | $ | 68,283,389 | | | | | | | | | | | | | | | | | | | |
GOLDEN QUEEN MINING CO. LTD.
Notes to Consolidated Financial Statements
Years Ended December 31, 2015, 2014 and 2013
(US dollars)
| 16. | GQM Ltd. Non-Consolidated Information |
The following condensed unconsolidated financial information represents the financial information of GQM Ltd. The information is presented in accordance with the requirements of Rule 12-04 under the SEC’s Regulation S-X. Investments in the Company’s subsidiaries are accounted for under the equity method. In addition, disclosure requirements of Rule 12-04 of Regulation S-X regarding material contingencies, long-term obligations, and guarantees are the same as those included in Note 8(ii), Note8(iii) and Note 12. The Company has no material contingencies.
| (i) | Non-Consolidated Balance Sheets |
| | | December 31, | | | December 31, | | | | | 2015 | | | 2014 | | | Assets | | | | | | | | | | | | | | | | | | | | Current assets: | | | | | | | | | | Cash | | $ | 5,002,974 | | | $ | 4,973,955 | | | Receivables | | | 54,803 | | | | 129,965 | | | Prepaid expenses and other current assets | | | 43,499 | | | | 56,122 | | | | | | | | | | | | | Total current assets | | | 5,101,276 | | | | 5,160,042 | | | | | | | | | | | | | Mineral interests | | | 5,129,582 | | | | 2,366,751 | | | Investment in subsidiaries | | | 28,162,449 | | | | 32,661,592 | | | Due from subsidiaries | | | 27,777,387 | | | | 14,651,807 | | | Total Assets | | $ | 66,170,694 | | | $ | 54,840,192 | | | | | | | | | | | | | Liabilities and Shareholders’ Equity | | | | | | | | | | Liabilities: | | | | | | | | | | Accounts payable and accrued liabilities | | $ | 67,835 | | | $ | 175,720 | | | Interest payable | | | 969,645 | | | | 320,721 | | | Financing fee payable | | | - | | | | 250,000 | | | Notes payable | | | 36,053,012 | | | | 13,881,305 | | | Derivative liability - Warrants | | | 2,498,269 | | | | - | | | Derivative liability–Convertible debentures | | | - | | | | 1,829,770 | | | Convertible debenture | | | - | | | | 6,649,967 | | | Total Liabilities | | | 39,588,761 | | | | 23,107,483 | | | | | | | | | | | | | Shareholders’ Equity | | | | | | | | | | Common shares, no par value, unlimited shares authorized (2014 -unlimited); 99,928,683 (2014 – 99,778,683) shares issued and outstanding | | | 62,860,443 | | | | 62,709,015 | | | Additional paid-in capital | | | 43,627,511 | | | | 43,468,510 | | | Deficit accumulated | | | (79,906,021 | ) | | | (74,444,816 | ) | | | | | | | | | | | | Total Shareholders’ Equity | | | 26,581,933 | | | | 31,732,709 | | | | | | | | | | | | | Total Liabilities and Shareholders’ Equity | | $ | 66,170,694 | | | $ | 54,840,192 | |
GOLDEN QUEEN MINING CO. LTD.
Notes to Consolidated Financial Statements
Years Ended December 31, 2015, 2014the shareholder, if the shareholder is dissenting on the shareholder's own behalf, and 2013
(US dollars)
| 16. | GQM Ltd. Non-Consolidated Information - Continued |
| (ii) | Non-Consolidated Statements of Comprehensive Income (Loss) |
| | | Year Ended
December 31,
2015 | | | Year Ended
December 31,
2014 | | | Year Ended
December 31,
2013 | | | | | | | | | | | | | | | | | General and administrative expenses | | $ | (596,583 | ) | | $ | (2,998,824 | ) | | $ | (2,002,240 | ) | | Change in fair value of derivative liability including change in foreign exchange | | | 3,334,224 | | | | 1,004,217 | | | | 5,385,660 | | | | | | 2,737,641 | | | | (1,994,607 | ) | | | 3,383,420 | | | Other income (expenses) | | | | | | | | | | | | | | Interest expense | | | (4,225,311 | ) | | | (1,325,339 | ) | | | (888,026 | ) | | Loss on extinguishment of debt | | | (151,539 | ) | | | - | | | | - | | | Financing fee | | | (1,500,000 | ) | | | - | | | | - | | | Commitment fee | | | - | | | | (2,250,000 | ) | | | - | | | Interest income | | | 2,177,147 | | | | 1,458,932 | | | | 448,058 | | | Net income (loss) before equity in earnings (losses) of subsidiaries | | | (962,062 | ) | | | (4,111,014 | ) | | | 2,943,452 | | | Equity in earnings (losses) of subsidiaries | | | (4,499,143 | ) | | | (4,358,190 | ) | | | (965,438 | ) | | Net and comprehensive income (loss) for the year | | $ | (5,461,205 | ) | | $ | (8,469,204 | ) | | $ | 1,978,014 | |
GOLDEN QUEEN MINING CO. LTD.
Notes to Consolidated Financial Statements
Years Ended December 31, 2015, 2014 and 2013
(US dollars)
| 16. | GQM Ltd. Non-Consolidated Information - Continuedeach other person who beneficially owns shares registered in the shareholder's name and on whose behalf the shareholder is dissenting, |
| (iii)(b) | Non-Consolidated Statementsidentify in each notice of Cash Flows |
| | | Year Ended
December 31,
2015 | | | Year Ended
December 31,
2014 | | | Year Ended
December
31, 2013 | | | Operating activities: | | | | | | | | | | | | | | Net income (loss) for the year | | $ | (5,461,205 | ) | | $ | (8,469,204 | ) | | $ | 1,978,014 | | | Adjustments to reconcile net income (loss) to cash used in operating activities: | | | | | | | | | | | | | | Equity in losses (earnings) of subsidiaries | | | 4,499,143 | | | | 4,358,190 | | | | 965,438 | | | Amortization of debt discount and interest accrual | | | 4,225,311 | | | | 1,534,946 | | | | 888,026 | | | Change in fair value of derivative liabilities including change in foreign exchange | | | (3,334,224 | ) | | | (1,004,217 | ) | | | (5,385,660 | ) | | Stock-based compensation | | | 159,001 | | | | 233,672 | | | | 475,263 | | | Non-cash consulting expense | | | 151,428 | | | | - | | | | - | | | Financing fee related to long-term debt | | | 1,500,000 | | | | - | | | | - | | | Loss on extinguishment of debt | | | 151,539 | | | | - | | | | - | | | Foreign exchange | | | (839,849 | ) | | | (504,539 | ) | | | (137,790 | ) | | Changes in assets and liabilities: | | | | | | | | | | | | | | Receivables | | | 75,162 | | | | (116,178 | ) | | | 3,184 | | | Prepaid expenses and other current assets | | | 12,623 | | | | (27,165 | ) | | | 26,311 | | | Accounts payable and accrued liabilities | | | (107,885 | ) | | | (177,278 | ) | | | 239,341 | | | Interest payable | | | (951,445 | ) | | | (1,145,786 | ) | | | - | | | Cash used in operating activities | | | 79,599 | | | | (5,317,559 | ) | | | (947,873 | ) | | Investment activities: | | | | | | | | | | | | | | Investment in subsidiaries | | | - | | | | - | | | | (2,418,217 | ) | | Advances to subsidiaries | | | (13,125,580 | ) | | | (8,936,581 | ) | | | (5,668,178 | ) | | Cash used in investing activities | | | (13,125,580 | ) | | | (8,936,581 | ) | | | (8,086,395 | ) | | Financing activities: | | | | | | | | | | | | | | Proceeds from convertible debt | | | - | | | | - | | | | 9,710,603 | | | Borrowing under long-term debt | | | 25,000,000 | | | | 32,500,000 | | | | - | | | Repayment of short-term debt | | | (2,500,000 | ) | | | (17,500,000 | ) | | | - | | | Financing fees related to short-term debt | | | (1,500,000 | ) | | | (868,695 | ) | | | - | | | Repayment of convertible debentures | | | (7,675,000 | ) | | | - | | | | - | | | Financing fees related to short-term debt capitalized to the loan | | | (250,000 | ) | | | - | | | | - | | | Issuance of common shares upon exercise of stock options | | | - | | | | 111,421 | | | | 307,363 | | | Cash provided by financing activities | | | 13,075,000 | | | | 14,242,726 | | | | 10,017,966 | | | Net change in cash | | | 29,019 | | | | (11,414 | ) | | | 983,698 | | | Cash, Beginning balance | | | 4,973,955 | | | | 4,985,369 | | | | 4,001,671 | | | Cash, Ending balance | | $ | 5,002,974 | | | $ | 4,973,955 | | | $ | 4,985,369 | |
Exhibit 3.1
Exhibit 21.1
Subsidiaries of the Registrant
The names and ownership structure of Golden Queen’s subsidiaries are set out in the table below.
Name | | Jurisdiction of Incorporation or
Organization | | Ownership Percentage | Golden Queen Mining Canada Ltd.
(“GQM Canada”) | | British Columbia, Canada | | 100% by Golden Queen | | | | | | Golden Queen Holdings, Inc.
(“GQM Holdings”) | | California, United States | | 100% by GQM Canada | | | | | | Golden Queen Mining Company, LLC | | California, United States | | 50% by GQM Holdings |
Exhibit 23.1
 | Tel: 604 688 5421
Fax: 604 688 5132
www.bdo.ca
| BDO Canada LLP
600 Cathedral Place
925 West Georgia Street
Vancouver BC V6C 3L2 Canada
|
Consent of Independent Registered Public Accounting Firm
Golden Queen Mining Co. Ltd.
Vancouver, Canada
We hereby consent to the incorporation by reference in the Registration Statements on Form S-8 (No. 333-102112, No. 333-164950 and No. 333-191478) and Form S-3 (No. 333-198285) of Golden Queen Mining Co. Ltd., of our reports dated March 30, 2016, relating to the consolidated financial statements and the effectiveness of Golden Queen Mining Co. Ltd.’s internal control over financial reporting which appear in this Form 10-K. Our report contains an explanatory paragraph regarding the Company’s ability to continue as a going concern.
/s/ BDO CANADA LLP
Chartered Accountants
Vancouver, Canada
March 30, 2016
BDO Canada LLP, a Canadian limited liability partnership, is a member of BDO International Limited, aUK company limited by guarantee, and forms part of the international BDO network ofindependent member firms.
Exhibit 23.2
 | Kappes, Cassiday & Associates | | | 7950 Security Circle Reno, Nevada 89506 | | | Telephone: (775) 972-7575 FAX: (775) 972-4567 | |
March 30, 2016
Golden Queen Mining Co. Ltd.
2300 – 1066 West Hastings Street
Vancouver, BC V6E 3X2
Re: | Golden Queen Mining Co. Ltd. (the “Company”) | | Annual Report on Form 10K |
Reference is made to the Annual Report on Form 10-K of the Company for the year ended December 31, 2015 (the “Annual Report”).
We hereby consent to the references to our firm and to the summary of the technical report entitled “Soledad Mountain Project Technical Report and Updated Feasibility Study”, dated February 25, 2015 issued by Kappes, Cassiday & Associates, Mine Development Associates and Norwest Corporation, which appear in the Annual Report, and the incorporation therein of such references to the Company’s registration statements on Form S-3 (No. 333-198285) and on Form S-8 (No. 333-191478).
Yours truly,
Kappes, Cassiday & Associates
Per: | /s/ Carl E. Defilippi | | | Carl E. Defilippi | | | | [Authorized Signatory] | |
Exhibit 23.3
March 30, 2016
Golden Queen Mining Co. Ltd.
2300 – 1066 West Hastings Street
Vancouver, BC V6E 3X2
Re: | Golden Queen Mining Co. Ltd. (the “Company”) | | Annual Report on Form 10K |
Reference is made to the Annual Report on Form 10-K of the Company for the year ended December 31, 2015 (the “Annual Report”).
We hereby consent to the references to our firm and to the summary of the technical report entitled “Soledad Mountain Project Technical Report and Updated Feasibility Study”, dated February 25, 2015 issued by Kappes, Cassiday & Associates, Mine Development Associates and Norwest Corporation, which appear in the Annual Report, and the incorporation therein of such references to the Company’s registration statements on Form S-3 (No. 333-198285) and on Form S-8 (No. 333-191478).
Yours truly,
Norwest Corporation
Per: | /s/ Sean Ennis | | | Sean Ennis - Vice President, Mining | |
Exhibit 23.4
March 30, 2016
Golden Queen Mining Co. Ltd.
2300 – 1066 West Hastings Street
Vancouver, BC V6E 3X2
Re: | Golden Queen Mining Co. Ltd. (the “Company”) | | Annual Report on Form 10K |
Reference is made to the Annual Report on Form 10-K of the Company for the year ended December 31, 2015 (the “Annual Report”).
We hereby consent to the references to our firm and to those portions of the summary of the technical report entitled “Soledad Mountain Project Technical Report and Updated Feasibility Study”, dated February 25, 2015 issued by Kappes, Cassiday & Associates, Mine Development Associates and Norwest Corporation, which appear in the Annual Report, and for which personnel of Mine Development Associates are responsible for, and the incorporation therein of such references to the Company’s registration statements on Form S-3 (No. 333-198285) and on Form S-8 (No. 333-191478).
Yours truly,
Mine Development Associates
Per: | /s/ Michael M. Gustin | | | Michael M. Gustin, President | |
775-856-5700
210 South Rock Blvd.
Reno, Nevada 89502
FAX: 775-856-6053
Exhibit 23.5
March 30, 2016
Golden Queen Mining Co. Ltd.
2300 – 1066 West Hastings Street
Vancouver, BC V6E 3X2
Re: | Golden Queen Mining Co. Ltd. (the “Company”) | | Annual Report on Form 10K |
Reference is made to the Annual Report on Form 10-K of the Company for the year ended December 31, 2015 (the “Annual Report”).
Reference is also made to the technical report entitled “Soledad Mountain Project Technical Report and Updated Feasibility Study” dated February 25, 2015 issued by Kappes, Cassiday & Associates, Mine Development Associates and Norwest Corporation (the “Technical Report”).
I hereby consent to the references to my name in the Annual Report. Furthermore, I consent to any parts of the summary of the Technical Report, appearing in the Annual Report, that describe or reference work which I did or for which I took professional responsibility in the Technical Report.
Yours truly,
/s/ Peter Ronning | | Peter Ronning, P. Eng. | | dba “New Caledonian Geological Consulting” | |
Exhibit 23.6
 | Kappes, Cassiday & Associates | | 7950 Security Circle Reno, Nevada 89506 | | | | Telephone: (775) 972-7575 FAX: (775) 972-4567 |
March 30, 2016
Golden Queen Mining Co. Ltd.
2300 – 1066 West Hastings Street
Vancouver, BC V6E 3X2
Re: | Golden Queen Mining Co. Ltd. (the “Company”) | | Annual Report on Form 10K |
Reference is made to the Annual Report on Form 10-K of the Company for the year ended December 31, 2015 (the “Annual Report”).
I hereby consent to the references to my name and to the summary of the technical report entitled “Soledad Mountain Project Technical Report and Updated Feasibility Study”, dated February 25, 2015 issued by Kappes, Cassiday & Associates, Mine Development Associates and Norwest Corporation, which appear in the Annual Report, and the incorporation therein of such references to the Company’s registration statements on Form S-3 (No. 333-198285) and on Form S-8 (No. 333-191478).
Yours truly,
/s/ Carl E. Defilippi | | Carl E. Defilippi | | [Project Manager] | | Kappes, Cassiday & Associates | |
Exhibit 23.7
March 30, 2016
Golden Queen Mining Co. Ltd.
2300 – 1066 West Hastings Street
Vancouver, BC V6E 3X2
Re: | Golden Queen Mining Co. Ltd. (the “Company”) | | Annual Report on Form 10K |
Reference is made to the Annual Report on Form 10-K of the Company for the year ended December 31, 2015 (the “Annual Report”).
I hereby consent to the references to my name and to the summary of the technical report entitled “Soledad Mountain Project Technical Report and Updated Feasibility Study”, dated February 25, 2015 issued by Kappes, Cassiday & Associates, Mine Development Associates and Norwest Corporation, which appear in the Annual Report, and the incorporation therein of such references to the Company’s registration statements on Form S-3 (No. 333-198285) and on Form S-8 (No. 333-191478).
Yours truly,
/s/ Sean Ennis | | Sean Ennis | | Vice President, Mining | | Norwest Corporation | |
Exhibit 23.8
March 30, 2016
Golden Queen Mining Co. Ltd.
2300 – 1066 West Hastings Street
Vancouver, BC V6E 3X2
Re: | Golden Queen Mining Co. Ltd. (the “Company”) | | Annual Report on Form 10K |
Reference is made to the Annual Report on Form 10-K of the Company for the year ended December 31, 2015 (the “Annual Report”).
I hereby consent to the references to my name and to those portions of the summary of the technical report entitled “Soledad Mountain Project Technical Report and Updated Feasibility Study”, dated February 25, 2015 issued by Kappes, Cassiday & Associates, Mine Development Associates and Norwest Corporation, which appear in the Annual Report and for which I am responsible for, and the incorporation therein of such references to the Company’s registration statements on Form S-3 (No. 333-198285) and on Form S-8 (No. 333-191478).
Yours truly,
/s/ Michael M. Gustin | | Michael M. Gustin, Senior Geologist | | Mine Development Associates | |
775-856-5700
210 South Rock Blvd.
Reno, Nevada 89502
FAX: 775-856-6053
Exhibit 31.1
CERTIFICATION
PURSUANT TO RULE 13a-14(a) OR 15d-14(a)
OF THE U.S. SECURITIES EXCHANGE ACT OF 1934
I, Thomas M. Clay, certify that:
| 1. | I have reviewed this annual report on Form 10-K for the year ended December 31, 2015 of Golden Queen Mining Co. Ltd. |
| 2. | Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary in order to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
| 3. | Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; |
| 4. | The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: |
| a) | designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which the annual report is being prepared; |
| b) | designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposesdissent, in accordance with generally accepted accounting principles; |
| c) | evaluatedSection 242(4), the effectivenessperson on whose behalf dissent is being exercised in that notice of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation;dissent, and |
| d)(c) | disclosed in this report any changedissent with respect to all of the shares, registered in the registrant’s internal control over financial reporting that occurred duringshareholder's name, of which the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter inperson identified under paragraph (b) of this subsection is the case of an annual report) that has materially affected, or is reasonably likely to materially affect the registrant’s internal control over financial reporting;beneficial owner. |
(3) Without limiting subsection (2), a person who wishes to have dissent exercised with respect to shares of which the person is the beneficial owner must | 5.(a) | The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluationdissent with respect to all of internal control over financial reporting, to the registrant’s auditorsshares, if any, of which the person is both the registered owner and the audit committee of registrant’s board of directors (or persons performing the equivalent function): |
| a) | all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information;beneficial owner, and |
| b)(b) | cause each shareholder who is a registered owner of any fraud, whether or not material, that involves management or other employees who have a significant role inshares of which the registrant’s control over financial reporting. |
Date: March 30, 2016 | By: | /s/ Thomas M. Clay | | | Thomas M. Clay | | | Principal Executive Officer person is the beneficial owner to dissent with respect to all of those shares. |
Exhibit 31.2Waiver of right to dissent
CERTIFICATION
PURSUANT TO RULE 13a-14(a) OR 15d-14(a)
OF THE U.S. SECURITIES EXCHANGE ACT OF 1934239 (1) A shareholder may not waive generally a right to dissent but may, in writing, waive the right to dissent with respect to a particular corporate action.
I, Andrée St-Germain, certify that:(2) A shareholder wishing to waive a right of dissent with respect to a particular corporate action must
| 1.(a) | I have reviewed this annual report on Form 10-Kprovide to the company a separate waiver for the year ended December 31, 2015 of Golden Queen Mining Co. Ltd. |
| 2.(i) | Basedthe shareholder, if the shareholder is providing a waiver on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary in order to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;shareholder's own behalf, and |
| 3.(ii) | Basedeach other person who beneficially owns shares registered in the shareholder's name and on my knowledge,whose behalf the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; |
| 4. | The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: |
| a) | designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries,shareholder is made known to us by others within those entities, particularly during the period in which the annual report is being prepared; |
| b) | designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; |
| c) | evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation;providing a waiver, and |
| d)(b) | disclosedidentify in this report any change ineach waiver the registrant’s internal control over financial reporting that occurred duringperson on whose behalf the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, orwaiver is reasonably likely to materially affect the registrant’s internal control over financial reporting; |
| 5. | The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent function): |
| a) | all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and |
| b) | any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s control over financial reporting. |
Date: March 30, 2016 | By: | /s/ Andrée St-Germain | | | Andrée St-Germain | | | Principal Financial Officermade. |
EXHIBIT 32.1
CERTIFICATION
PURSUANT TO 18 U.S.C. SECTION 1350
AND RULE 13a-14(b) OR RULE 15d-14(b)
OF THE U.S. SECURITIES EXCHANGE ACT OF 1934
In connection(3) If a shareholder waives a right of dissent with the Annual Report of Golden Queen Mining Co. Ltd. (the "Company") on Form 10-K for the year ended December 31, 2015 (the "Report"), the undersigned,respect to a particular corporate action and indicates in the capacities andwaiver that the right to dissent is being waived on the date indicated below, hereby certifies pursuantshareholder's own behalf, the shareholder's right to 18 U.S.C. Section 1350, as adopted pursuantdissent with respect to Section 906the particular corporate action terminates in respect of the Sarbanes-Oxley Actshares of 2002, thatwhich the shareholder is both the registered owner and the beneficial owner, and this Division ceases to his knowledge:apply to
| 1. | The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and |
| 2. | The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. |
Dated: March 30, 2016 | /s/ Thomas M. Clay | | | Thomas M. Clay | | | Principal Executive Officer | |
EXHIBIT 32.2
CERTIFICATION
PURSUANT TO 18 U.S.C. SECTION 1350
AND RULE 13a-14(b) OR RULE 15d-14(b)
OF THE U.S. SECURITIES EXCHANGE ACT OF 1934
In connection with the Annual Report of Golden Queen Mining Co. Ltd. (the "Company") on Form 10-K for the year ended December 31, 2015 (the "Report"), the undersigned, in the capacities and on the date indicated below, hereby certifies pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that to her knowledge:
| 1. | The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and |
| 2. | The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. |
Dated: March 30, 2016 | /s/ Andrée St-Germain | | | Andrée St-Germain | | | Principal Financial Officer | |
Exhibit 95
Mine Safety Disclosure
GQM LLC is the operator of the Project, which is located in Mojave in Kern County, California. The Company and GQM LLC have no mine safety violations to report. There were no lost-time accidents at GQM LLC during the fiscal year 2015.
APPENDIX “B”
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934
Date of Report: April 6, 2016
(Date of earliest event reported)
Golden Queen Mining Co. Ltd.
(Exact name of registrant as specified in its charter)
Commission File Number: 001-21777
British Columbia, Canada | Not Applicable | (State or other jurisdiction of incorporation) | (IRS Employer Identification No.) |
#2300 – 1066 West Hastings Street, Vancouver, British Columbia, Canada, V6E 3X2
(Address of principal executive offices, including zip code)
(778) 373-1557
(Registrant’s telephone number, including area code)
Not Applicable
(Former name or former address, if changed since last report)
Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:
| ¨ | Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425) |
| ¨ | Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12) |
| ¨ | Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b)) |
| ¨ | Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c)) |
| Item 4.01(a) | Changesthe shareholder in Registrant’s Certifying Accountant.respect of the shares of which the shareholder is both the registered owner and the beneficial owner, and |
| (b) | any other shareholders, who are registered owners of shares beneficially owned by the first mentioned shareholder, in respect of the shares that are beneficially owned by the first mentioned shareholder. |
Effective(4) If a shareholder waives a right of dissent with respect to a particular corporate action and indicates in the waiver that the right to dissent is being waived on March 31, 2016, Golden Queen Mining Co. Ltd. (the “Registrant”) appointed PricewaterhouseCoopers LLP, Vancouver, British Columbia (“PWC”) asbehalf of a specified person who beneficially owns shares registered in the principal independent registered public accountantname of the Registrant, subjectshareholder, the right of shareholders who are registered owners of shares beneficially owned by that specified person to completiondissent on behalf of its standard client acceptance procedures. The appointmentthat specified person with respect to the particular corporate action terminates and this Division ceases to apply to those shareholders in respect of PWC was recommendedthe shares that are beneficially owned by the Registrant’s audit committee after considering proposals from several international public accounting firms, including BDO LLP (“BDO”), the Company’s independent public accounting firm for the fiscal year ended December 31, 2015. As a result of PWC’s appointment, the Registrant’s engagement of BDO, as the Company’s independent registered public accounting firm, was terminated.that specified person.
BDO’s principal accountant reports on the Registrant’s consolidated financial statements for eachNotice of the past two fiscal years ended December 31, 2014 and 2015, did not contain any adverse opinion or disclaimer of opinion and were not qualified or modified as to uncertainty, audit scope or accounting principles.resolution
In240 (1) If a resolution in respect of which a shareholder is entitled to dissent is to be considered at a meeting of shareholders, the two most recent fiscal years precedingcompany must, at least the terminationprescribed number of BDO and through to March 31, 2016, the Registrant is not aware of any disagreements with BDO on any matter of accounting principles or practices, financial statement disclosure, or auditing scope or procedure, which disagreement(s), if not resolved to the satisfaction of BDO, would have caused it to make references to the subject matter of the disagreement(s) in connection with its reports on the Registrant’s consolidated financial statements for such years.
The Registrant is not aware of any reportable events (as defined in Item 304(a)(1)(v) of Regulation S-K) that have occurred during the two most recent fiscal years preceding the termination of BDO.
BDO has been provided the disclosure in this Current Report on Form 8-K, and has provided herewith a letter commenting on the disclosure, pursuant to Item 304(a)(3) of Regulation S-K, which is attached as Exhibit 16.1.
Effective March 31, 2016, the Registrant, upon the recommendation of its audit committee and approval of its board of directors, engaged PWC as its principal independent registered public accountant.
During the Registrant’s two most recent fiscal years and throughdays before the date of this Form 8-K, neither the Registrant nor anyone onproposed meeting, send to each of its behalf has consulted with PWC regarding either (i)shareholders, whether or not their shares carry the application of accounting principlesright to a specific transaction, either completed or proposed, or the type of audit opinion that might be rendered on the Registrant’s consolidated financial statements, nor did PWC provide either a written report or oral advice that PWC concluded was an important factor considered by the Registrant in reaching a decision as to accounting, auditing or financial reporting issues, or (ii) any matter that was either the subject of a disagreement within the meaning of Item 304(a)(1)(iv) of Regulation S-K, or a reportable event within the meaning of Item 304(a)(1)(v) of Regulation S-K.vote,
| Item 9.01(a) | Financial Statementsa copy of the proposed resolution, and Exhibits. |
| (b) | a notice of the meeting that specifies the date of the meeting, and contains a statement advising of the right to send a notice of dissent. |
(2) If a resolution in respect of which a shareholder is entitled to dissent is to be passed as a consent resolution of shareholders or as a resolution of directors and the earliest date on which that resolution can be passed is specified in the resolution or in the statement referred to in paragraph (b), the company may, at least 21 days before that specified date, send to each of its shareholders, whether or not their shares carry the right to vote, | (a) | a copy of the proposed resolution, and |
| (b) | a statement advising of the right to send a notice of dissent. |
(3) If a resolution in respect of which a shareholder is entitled to dissent was or is to be passed as a resolution of shareholders without the company complying with subsection (1) or (2), or was or is to be passed as a directors' resolution without the company complying with subsection (2), the company must, before or within 14 days after the passing of the resolution, send to each of its shareholders who has not, on behalf of every person who beneficially owns shares registered in the name of the shareholder, consented to the resolution or voted in favour of the resolution, whether or not their shares carry the right to vote, | (a) | a copy of the resolution, |
| (b) | a statement advising of the right to send a notice of dissent, and |
| (c) | if the resolution has passed, notification of that fact and the date on which it was passed. |
(4) Nothing in subsection (1), (2) or (3) gives a shareholder a right to vote in a meeting at which, or on a resolution on which, the shareholder would not otherwise be entitled to vote. Notice of court orders 241 If a court order provides for a right of dissent, the company must, not later than 14 days after the date on which the company receives a copy of the entered order, send to each shareholder who is entitled to exercise that right of dissent | (a) | a copy of the entered order, and |
| (b) | a statement advising of the right to send a notice of dissent. |
Notice of dissent 242 (1) A shareholder intending to dissent in respect of a resolution referred to in Section 238(1)(a), (b), (c), (d), (e) or (f) must, | (a) | if the company has complied with Section 240(1) or (2), send written notice of dissent to the company at least 2 days before the date on which the resolution is to be passed or can be passed, as the case may be, |
| (b) | if the company has complied with Section 240(3), send written notice of dissent to the company not more than 14 days after receiving the records referred to in that section, or |
| (c) | if the company has not complied with Section 240(1), (2) or (3), send written notice of dissent to the company not more than 14 days after the later of |
| (i) | the date on which the shareholder learns that the resolution was passed, and |
| (ii) | the date on which the shareholder learns that the shareholder is entitled to dissent. |
(2) A shareholder intending to dissent in respect of a resolution referred to in Section 238(1)(g) must send written notice of dissent to the company | (a) | on or before the date specified by the resolution or in the statement referred to in Section 240(2)(b) or (3) (b) as the last date by which notice of dissent must be sent, or |
| (b) | if the resolution or statement does not specify a date, in accordance with subsection (1) of this section. |
(3) A shareholder intending to dissent under Section 238(1)(h) in respect of a court order that permits dissent must send written notice of dissent to the company | (a) | within the number of days, specified by the court order, after the shareholder receives the records referred to in Section 241, or |
| (b) | if the court order does not specify the number of days referred to in paragraph (a) of this subsection, within 14 days after the shareholder receives the records referred to in Section 241. |
(4) A notice of dissent sent under this section must set out the number, and the class and series, if applicable, of the notice shares, and must set out whichever of the following is applicable: | (a) | if the notice shares constitute all of the shares of which the shareholder is both the registered owner and beneficial owner and the shareholder owns no other shares of the company as beneficial owner, a statement to that effect; |
| (b) | if the notice shares constitute all of the shares of which the shareholder is both the registered owner and beneficial owner but the shareholder owns other shares of the company as beneficial owner, a statement to that effect and |
| (i) | the names of the registered owners of those other shares, |
| (ii) | the number, and the class and series, if applicable, of those other shares that are held by each of those registered owners, and |
| (iii) | a statement that notices of dissent are being, or have been, sent in respect of all of those other shares; |
| (c) | if dissent is being exercised by the shareholder on behalf of a beneficial owner who is not the dissenting shareholder, a statement to that effect and |
| (i) | the name and address of the beneficial owner, and |
| (ii) | a statement that the shareholder is dissenting in relation to all of the shares beneficially owned by the beneficial owner that are registered in the shareholder's name. |
(5) The right of a shareholder to dissent on behalf of a beneficial owner of shares, including the shareholder, terminates and this Division ceases to apply to the shareholder in respect of that beneficial owner if subsections (1) to (4) of this Section, as those subsections pertain to that beneficial owner, are not complied with. Notice of intention to proceed 243 (1) A company that receives a notice of dissent under Section 242 from a dissenter must, | (a) | if the company intends to act on the authority of the resolution or court order in respect of which the notice of dissent was sent, send a notice to the dissenter promptly after the later of |
| (i) | the date on which the company forms the intention to proceed, and |
| (ii) | the date on which the notice of dissent was received, or |
| (b) | if the company has acted on the authority of that resolution or court order, promptly send a notice to the dissenter. |
(2) A notice sent under subsection (1)(a) or (b) of this section must | (a) | be dated not earlier than the date on which the notice is sent, |
| (b) | state that the company intends to act, or has acted, as the case may be, on the authority of the resolution or court order, and |
| (c) | advise the dissenter of the manner in which dissent is to be completed under Section 244. |
Completion of dissent 244 (1) A dissenter who receives a notice under Section 243 must, if the dissenter wishes to proceed with the dissent, send to the company or its transfer agent for the notice shares, within one month after the date of the notice, | (a) | a written statement that the dissenter requires the company to purchase all of the notice shares, |
| (b) | the certificates, if any, representing the notice shares, and |
| (c) | if Section 242(4)(c) applies, a written statement that complies with subsection (2) of this section. |
(2) The written statement referred to in subsection (1)(c) must | (a) | be signed by the beneficial owner on whose behalf dissent is being exercised, and |
| (b) | set out whether or not the beneficial owner is the beneficial owner of other shares of the company and, if so, set out |
| (i) | the names of the registered owners of those other shares, |
| (ii) | the number, and the class and series, if applicable, of those other shares that are held by each of those registered owners, and |
| (iii) | that dissent is being exercised in respect of all of those other shares. |
(3) After the dissenter has complied with subsection (1), | (a) | the dissenter is deemed to have sold to the company the notice shares, and |
| (b) | the company is deemed to have purchased those shares, and must comply with Section 245, whether or not it is authorized to do so by, and despite any restriction in, its memorandum or articles. |
(4) Unless the court orders otherwise, if the dissenter fails to comply with subsection (1) of this section in relation to notice shares, the right of the dissenter to dissent with respect to those notice shares terminates and this Division, other than Section 247, ceases to apply to the dissenter with respect to those notice shares. (5) Unless the court orders otherwise, if a person on whose behalf dissent is being exercised in relation to a particular corporate action fails to ensure that every shareholder who is a registered owner of any of the shares beneficially owned by that person complies with subsection (1) of this section, the right of shareholders who are registered owners of shares beneficially owned by that person to dissent on behalf of that person with respect to that corporate action terminates and this Division, other than Section 247, ceases to apply to those shareholders in respect of the shares that are beneficially owned by that person. (6) A dissenter who has complied with subsection (1) of this section may not vote, or exercise or assert any rights of a shareholder, in respect of the notice shares, other than under this Division. Payment for notice shares 245 (1) A company and a dissenter who has complied with Section 244(1) may agree on the amount of the payout value of the notice shares and, in that event, the company must | (a) | promptly pay that amount to the dissenter, or |
| (b) | if subsection (5) of this section applies, promptly send a notice to the dissenter that the company is unable lawfully to pay dissenters for their shares. |
(2) A dissenter who has not entered into an agreement with the company under subsection (1) or the company may apply to the court and the court may | (a) | determine the payout value of the notice shares of those dissenters who have not entered into an agreement with the company under subsection (1), or order that the payout value of those notice shares be established by arbitration or by reference to the registrar, or a referee, of the court, |
| (b) | join in the application each dissenter, other than a dissenter who has entered into an agreement with the company under subsection (1), who has complied with Section 244(1), and |
| (c) | make consequential orders and give directions it considers appropriate. |
(3) Promptly after a determination of the payout value for notice shares has been made under subsection (2) (a) of this section, the company must | (a) | pay to each dissenter who has complied with Section 244(1) in relation to those notice shares, other than a dissenter who has entered into an agreement with the company under subsection (1) of this section, the payout value applicable to that dissenter's notice shares, or |
| (b) | if subsection (5) applies, promptly send a notice to the dissenter that the company is unable lawfully to pay dissenters for their shares. |
(4) If a dissenter receives a notice under subsection (1) (b) or (3) (b), | (a) | the dissenter may, within 30 days after receipt, withdraw the dissenter's notice of dissent, in which case the company is deemed to consent to the withdrawal and this Division, other than Section 247, ceases to apply to the dissenter with respect to the notice shares, or |
| (b) | if the dissenter does not withdraw the notice of dissent in accordance with paragraph (a) of this subsection, the dissenter retains a status as a claimant against the company, to be paid as soon as the company is lawfully able to do so or, in a liquidation, to be ranked subordinate to the rights of creditors of the company but in priority to its shareholders. |
(5) A company must not make a payment to a dissenter under this section if there are reasonable grounds for believing that | (a) | the company is insolvent, or |
| (b) | the payment would render the company insolvent. |
Loss of right to dissent 246 The right of a dissenter to dissent with respect to notice shares terminates and this Division, other than Section 247, ceases to apply to the dissenter with respect to those notice shares, if, before payment is made to the dissenter of the full amount of money to which the dissenter is entitled under Section 245 in relation to those notice shares, any of the following events occur: | (a) | the corporate action approved or authorized, or to be approved or authorized, by the resolution or court order in respect of which the notice of dissent was sent is abandoned; |
| (b) | the resolution in respect of which the notice of dissent was sent does not pass; |
| (c) | the resolution in respect of which the notice of dissent was sent is revoked before the corporate action approved or authorized by that resolution is taken; |
| (d) | Exhibitsthe notice of dissent was sent in respect of a resolution adopting an amalgamation agreement and the amalgamation is abandoned or, by the terms of the agreement, will not proceed; |
| (e) | the arrangement in respect of which the notice of dissent was sent is abandoned or by its terms will not proceed; |
| (f) | a court permanently enjoins or sets aside the corporate action approved or authorized by the resolution or court order in respect of which the notice of dissent was sent; |
| (g) | with respect to the notice shares, the dissenter consents to, or votes in favour of, the resolution in respect of which the notice of dissent was sent; |
| (h) | the notice of dissent is withdrawn with the written consent of the company; |
| (i) | the court determines that the dissenter is not entitled to dissent under this Division or that the dissenter is not entitled to dissent with respect to the notice shares under this Division. |
Shareholders entitled to return of shares and rights 247 If, under Section 244(4) or (5), 245 (4) (a) or 246, this Division, other than this section, ceases to apply to a dissenter with respect to notice shares, Exhibit No. | Description | 16.1(a) | Letter from BDO LLPthe company must return to the Securities and Exchange Commission dated March 31, 2016.dissenter each of the applicable share certificates, if any, sent under Section 244(1)(b) or, if those share certificates are unavailable, replacements for those share certificates, |
| (b) | the dissenter regains any ability lost under Section 244(6) to vote, or exercise or assert any rights of a shareholder, in respect of the notice shares, and |
| (c) | the dissenter must return any money that the company paid to the dissenter in respect of the notice shares under, or in purported compliance with, this Division. |
QUESTIONS AND REQUESTS FOR ASSISTANCE SIGNATUREMAY BE DIRECTED TO THE PROXY SOLICITOR
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.
| GOLDEN QUEEN MINING CO. LTD. | | | | | | | | | Date: April 6, 2016 | By: | /s/ Andrée St-Germain
North American Toll Free 1-877-452-7184 | | | | | Andrée St-Germain
Chief Financial Officer
| |
Collect Calls Outside North America 416-304-0211 Email: assistance@laurelhill.com Exhibit 16.1
| Tel: 604 688 5421 | BDO Canada LLP | Fax: 604 688 5132 | 600 Cathedral Place
| www.bdo.ca | 925 West Georgia Street
Vancouver BC V6C 3L2 Canada
|
March 31, 2016
Securities and Exchange Commission
100 F Street N.E.
Washington, D.C. 20549
We have been furnished with a copy of the response to Item 4.01 of Form 8-K for the event that occurred on March 31, 2016, to be filed by our former client, Golden Queen Mining Co. Ltd. We agree with the statements made in response to that Item insofar as they relate to our Firm.
Very truly yours,
/s/BDO Canada LLP
Chartered Professional Accountants
|