Related Party Transactions | 12 Months Ended |
Dec. 31, 2014 |
Related Party Transactions [Text Block] | 8. Related Party Transactions |
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Except as noted elsewhere in these consolidated financial statements, related party transactions are disclosed as follows: |
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(i) | Consulting Fees | | | | | | |
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| For the year ended December 31, 2014, the Company paid $163,465 (2013 - $192,431 ; 2012 - $138,885) to Mr. H. L. Klingmann for services as President of the Company of which $Nil (2013 - $47,967 ; 2012 - $26,977) is payable as at December 31, 2014; paid $Nil (2013 - $17,622 ; 2012 - $26,977 to Mr. Chester Shynkaryk, a former director, for his consulting services to the Company; paid $Nil (2013 - $21,987 ; 2012 - $29,930), to Mr. Ross McDonald for his services as the former CFO of the Company; paid $Nil (2013 - $11,759 ; 2012 - $Nil) to a company controlled by one of the directors for consulting services during the year. | | | | | | |
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| During the year ended December 31, 2014, the Company paid a total of $150,199 (2013 - $35,484 ; 2012 – $10,068) to four directors. This includes $60,000 in fees paid to the three independent directors as compensation for their position on a special committee formed to assist with the JV transaction and $20,000 paid to two independent directors for their position on the Company’s technical committee. A total of $70,199 for regular director fees was paid to the three independent directors and Thomas M. Clay. | | | | | | |
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(ii) | Convertible Debentures | | | | | | |
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| 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 are unsecured and bear interest at 2% per annum, calculated on the outstanding principal balance, payable annually. The principal amounts of the notes are convertible into shares of the Company at a price of C$1.03 per share for a period of two years. If the notes have not been converted by the holder prior to the maturity date, then the Company may convert them at the lower of C$1.03 or the market price as at the maturity date. | | | | | | |
(ii) | Convertible Debentures - Continued | | | | | | |
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| The market price on the maturity date will be determined based on the volume- weighted average price of the shares traded on the Toronto Stock Exchange for the five trading days preceding the maturity date. | | | | | | |
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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. | | | | | | |
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The conversion feature of the convertible debentures meets 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. | | | | | | |
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As a result, the conversion feature of the notes is 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. | | | | | | |
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On inception of the debentures, the fair value of the derivative liability related to the conversion feature was $5,741,520 and as at December 31, 2014, was $1,829,770 (December 31, 2013 - $2,833,987). The derivative liability was calculated using an acceptable option pricing valuation model with the following assumptions: | | | | | | |
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| 2014 | 2013 | | | | | |
Risk-free interest rate | 1.00% - 1.09% | 1.13% - 1.15% | | | | | |
Expected life of derivative liability | 0.57 - 1.32 years | 1.57 - 2 years | | | | | |
Expected volatility | 73.03 - 98.21% | 73.43% - 89.52% | | | | | |
Dividend rate | 0.00% | 0.00% | | | | | |
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The changes in the derivative liability related to the conversion feature are as follows: |
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| | 31-Dec-14 | | | 31-Dec-13 | | |
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Balance, beginning of the year | $ | 2,833,987 | | $ | - | | |
Fair value at inception | | - | | | 5,741,520 | | |
Change in fair value of derivative liability including foreign exchange | | (1,004,217 | ) | | (2,907,533 | ) | |
Balance, end of the year | $ | 1,829,770 | | $ | 2,833,987 | | |
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With the conversion feature initially being valued at $5,741,520, the resulting residual value allocated to the host debenture was $3,975,480, being the difference between the face value of the convertible debentures and the fair value of the conversion feature derivative liability. |
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The change in the convertible debentures is as follows: |
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| | 31-Dec-14 | | | 31-Dec-13 | | |
Balance, beginning of the year | $ | 4,642,620 | | $ | - | | |
Discounted convertible debentures | | - | | | 3,975,480 | | |
Amortization of discount | | 2,510,611 | | | 811,327 | | |
Foreign exchange | | (503,264 | ) | | (144,187 | ) | |
Balance, end of the year | $ | 6,649,967 | | $ | 4,642,620 | | |
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During the year ended December 31, 2014, in addition to the amortization of the discount on the convertible debenture, the Company incurred interest expense of $181,479 (2013 - $76,699) based on the 2% per annum stated interest rate for a total interest expense of $2,692,090 for the year ended December 31, 2014 (2013- $888,026). Interest payable relating to the convertible debenture as at December 31, 2014 was $70,721 (2013 - $76,699). |
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(iii) | Notes Payable | | | | | | |
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| On January 1, 2014, the Company entered into an agreement to secure a $10,000,000 loan (the “Loan”). The 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 Loan had a twelve-month term and an annual interest rate of 5%, payable on the maturity date. | | | | | | |
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| The 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 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 interest expense and $500,000 in additional charge during the year. | | | | | | |
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| On December 31, 2014 the Company also entered into a new loan with the same parties for an amount of $12,500,000. The loan is due on demand on July 1, 2015 and bears an annual interest rate of 10% payable at the end of each quarter. The loan is 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 closing 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 has presented these transaction costs as a contra liability as substantially all of these costs were paid to the lenders. | | | | | | |
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| | 31-Dec-14 | | | | | |
Balance, beginning of the year | $ | - | | | | | |
Proceeds from loans | | 22,500,000 | | | | | |
Repayment of loans | | (7,500,000 | ) | | | | |
Capitalized closing fee and legal fees | | (1,118,695 | ) | | | | |
Balance, end of the year | $ | 13,881,305 | | | | | |
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(iv) | Advance | | | | | | |
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| In July 2014, GQM Inc. entered into a $10,000,000 short-term advance agreement (the “Advance”) with Leucadia and Auvergne (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. | | | | | | |
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(v) | Amortization of Discount and Interest Expense | | | | | | |
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| The following summarizes the capitalized amortization of discount and interest expense as at: | | | | | | |
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| | 31-Dec-14 | | | 31-Dec-13 | | |
Amortization of discount and interest on loan, advance and convertible debenture | $ | 3,905,049 | | $ | 888,026 | | |
Less: Interest costs capitalized | | (2,412,015 | ) | | - | | |
Amortization of discount and interest expensed | $ | 1,493,034 | | $ | 888,026 | | |
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(vi) | Joint Venture Transaction | | | | | | |
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| On September 15, 2014, the Company closed the JV with Gauss resulting in both parties owning a 50% interest in the Project. Pursuant to the JV, 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. | | | | | | |
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| 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 67.5% by Gauss Holdings LLC (“Gauss Holdings”, Leucadia’s investment entity) and 32.5% 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. The Company has adopted an accounting policy of expensing these transaction costs. | | | | | | |
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| Variable Interest Entity | | | | | | |
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| 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, 2014 are as follows: | | | | | | |
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| | 31-Dec-14 | | | | | |
Assets, GQM LLC | $ | 118,937,371 | | | | | |
Liabilities, GQM LLC | | (4,769,144 | ) | | | | |
Net assets, GQM LLC | $ | 114,168,227 | | | | | |
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Included in assets above, is $83,282,403 in cash held as of December 31, 2014. 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. |
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| Non-Controlling Interest | | | | | | |
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| 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: | | | | | | |
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| 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”): | | | | | | |
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| 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 | | | | | |
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| • | 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). | | | | | |
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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. |
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This clause in the JV constitutes contingent redeemable equity as outlined in Accounting Series Release No. 268 (“ASR 268”) and has been classified as temporary equity. |
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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. |
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| | 15-Sep-14 | | | | | |
Net assets, GQM LLC before JV | $ | 16,973,184 | | | | | |
Investment by Gauss | | 110,000,000 | | | | | |
Net assets, GQM LLC after JV | | 126,973,184 | | | | | |
Gauss’ ownership percentage | | 50% | | | | | |
Net assets of GQM LLC attributable to Gauss | $ | 63,486,592 | | | | | |
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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 | | | | | |
| Non-Controlling Interest - Continued | | | | | | |
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| Subsequent to the initial transaction, the carrying value of the non-controlling interest will be adjusted for net income and loss and distributions pursuant to ASC 810-10 based on the same percentage allocation used to calculate the initial book value of temporary equity. | | | | | | |
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| | | 31-Dec-14 | | | 31-Dec-13 | |
| Net and comprehensive loss in GQM LLC | $ | (2,804,957 | ) | $ | - | |
| Non-controlling interest percentage | | 50% | | | | |
| Net and comprehensive loss attributable to non- controlling interest | | (1,402,479 | ) | | - | |
| Net and comprehensive loss attributable to permanent non-controlling interest | $ | (841,487 | ) | $ | - | |
| Net and comprehensive loss attributable to temporary non-controlling interest | $ | (560,992 | ) | $ | - | |
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| | | Permanent Non- | | | Temporary Non- | |
| | | Controlling Interest | | | Controlling Interest | |
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| Carrying value of non-controlling interest, September 15, 2014 | $ | 38,091,955 | | $ | 25,394,637 | |
| Distributions to non-controlling interests | | (3,000,000 | ) | | (2,000,000 | ) |
| Net and comprehensive loss for the period | | (841,487 | ) | | (560,992 | ) |
| Carrying value of non-controlling interest , end of year | $ | 34,250,468 | | $ | 22,833,645 | |
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Dilution of Interest in Subsidiary |
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As a result of the JV transaction, the Company’s interest in GQM LLC was diluted from 100% to 50% and ordinarily, the Company would recognize a charge on dilution. 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. |
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| | 15-Sep-14 | | | | | |
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 | ) | | | | |
Effect of dilution of subsidiary recorded to APIC | $ | 46,513,408 | | | | | |
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Management Agreement |
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GQM LLC is managed by a board of managers comprising an equal number of representatives of each of Gauss and GQ Holdings. The initial officers of GQM LLC are Lutz Klingmann as Chief Executive Officer, and Andrée St-Germain as Chief Financial Officer. 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. |
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| Capital Contribution Agreement | | | | | | |
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| Pursuant to the JV, GQ Holdings will have the right to make a single capital contribution to GQM LLC of between $15 million and $25 million (the “Top-Up Contribution”), with each such threshold to be reduced by 50% of the amount of any proceeds received by GQM LLC from any debt financing transaction. | | | | | | |
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Pursuant to the JV Agreement, if the Company (through GQ Holdings) makes the Top-Up Contribution, Gauss is committed to fund an amount equal to the Top-Up Contribution to GQM LLC, and the aggregate amount of such contributions are anticipated to provide GQM LLC with the necessary funds to fully develop the Project. If the Company does not make the Top-Up Contribution, Gauss will be obligated to make up to a $40 million capital contribution to GQM LLC, in which case GQ Holdings’ ownership interest in GQM LLC will be diluted and GQ Holdings will surrender one of its board seats in GQM LLC. If Gauss makes the $40 million capital contribution, the Company will need to reassess whether the resulting dilution of its interest in the JV affects the accounting treatment of the variable interest entity and if consolidation of GQM LLC is still appropriate. |
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Standby Commitment |
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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. |
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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, however, the Company is conducting a full review of available financing alternatives, and as a result, whether the Company will proceed with a possible rights offering (if any), and the size of any such rights offering, is not known at this time. The Company will not be subject to additional fees or expenses as a result of not filing a registration statement in connection with a rights offering. |