RUBICON MINERALS CORPORATION
Consolidated Financial Statements
(Stated in Canadian Dollars)
For the Years Ended December 31, 2013 and 2012
Suite 1540 – 800 West Pender Street, Vancouver, BC V6C 2V6
Tel: 604-623-3333 Toll free: 1-866-365-4706 Fax: 604-623-3355 E-mail: rubicon@rubiconminerals.com
www.rubiconminerals.com
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MANAGEMENT’S RESPONSIBILITY FOR FINANCIAL REPORTING
Management of Rubicon Minerals Corporation is responsible for the integrity and fair presentation of the financial information contained in this annual report which has been approved by the Board of Directors. Where appropriate, the financial information, including financial statements, reflects amounts based on the best estimates and judgments of management. The financial statements have been prepared in accordance International Financial Reporting Standards as issued by the International Accounting Standards Board. Financial information presented elsewhere in the annual report is consistent with that disclosed in the financial statements.
The Board of Directors oversees management’s responsibility for financial reporting and internal control systems through an Audit Committee, which is composed entirely of independent directors. The Audit Committee meets periodically with management and the independent auditors to review the scope and results of the annual audit and to review the financial statements and related financial reporting and internal control matters before the financial statements are approved by the Board of Directors and submitted to the shareholders.
PricewaterhouseCoopers LLP has audited our financial statements in accordance with generally accepted auditing standards in Canada and the Public Company Accounting Oversight Board (United States), and has expressed their opinion in the auditors’ report.
“Michael A. Lalonde” Michael A. Lalonde President and Chief Executive Officer | “Nicholas J. Nikolakakis” Nicholas J. Nikolakakis Vice President and Chief Financial Officer |
RUBICON MINERALS CORPORATION
MANAGEMENT’S REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING
Management is responsible for establishing and maintaining adequate internal control over financial reporting. Any system of internal control over financial reporting, no matter how well designed, has inherent limitations. Therefore, even those systems determined to be effective can provide only reasonable assurance with respect to financial statement preparation and presentation.
Management has a process in place to evaluate internal control over financial reporting based on the criteria established in Internal Control - Integrated Framework (1992), by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). Based on that evaluation, management has concluded that internal control over financial reporting was effective as of December 31, 2013. PricewaterhouseCoopers LLP, a firm of independent registered chartered accountants, appointed by the shareholders, have performed an audit on the effectiveness of our internal controls over financial reporting, as of December 31, 2013 and their report is attached.
“Michael A. Lalonde” Michael A. Lalonde President and Chief Executive Officer | “Nicholas J. Nikolakakis” Nicholas J. Nikolakakis Vice President and Chief Financial Officer |
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Independent Auditor’s Report
To the Shareholders of
Rubicon Minerals Corporation
We have completed integrated audits of Rubicon Minerals Corporation’s December 31, 2013 and 2012 consolidated financial statements and its internal control over financial reporting as at December 31, 2013. Our opinions, based on our audits are presented below.
Report on the consolidated financial statements
We have audited the accompanying consolidated financial statements of Rubicon Minerals, which comprise the consolidated balance sheets as at December 31, 2013 and December 31, 2012 and the consolidated statements of comprehensive loss, cash flows, and changes in equity for the years then ended December 31, 2013 and 2012, and the related notes, which comprise a summary of significant accounting policies and other explanatory information.
Management’s responsibility for the consolidated financial statements
Management is responsible for the preparation and fair presentation of these consolidated financial statements in accordance with International Financial Reporting Standards as issued by the International Accounting Standards Board and for such internal control as management determines is necessary to enable the preparation of consolidated financial statements that are free from material misstatement, whether due to fraud or error.
Auditor’s responsibility
Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We conducted our audits in accordance with Canadian generally accepted auditing standards and 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 from material misstatement. Canadian generally accepted auditing standards also require that we comply with ethical requirements.
An audit involves performing procedures to obtain audit evidence, on a test basis, about the amounts and disclosures in the consolidated financial statements. The procedures selected depend on the auditor’s judgment, including the assessment of the risks of material misstatement of the consolidated financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the company’s preparation and fair presentation of the consolidated financial statements in order to design audit procedures that are appropriate in the circumstances. An audit also includes evaluating the appropriateness of accounting principles and policies used and the reasonableness of accounting estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements.
We believe that the audit evidence we have obtained in our audits is sufficient and appropriate to provide a basis for our audit opinion on the consolidated financial statements.
Opinion
In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of Rubicon Minerals Corporation as at December 31, 2013 and 2012 and its financial performance and its cash flows for the years then ended December 31, 2013 and 2012 in accordance with International Financial Reporting Standards as issued by the International Accounting Standards Board.
Report on internal control over financial reporting
We have also audited Rubicon Minerals Corporation’s internal control over financial reporting as at December 31, 2013, based on criteria established in Internal Control - Integrated Framework (1992), issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).
Management’s responsibility for internal control over financial reporting
Management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting included in accompanying Management’s Report on Internal Control over Financial Reporting.
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Auditor’s responsibility
Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit. We conducted our audit of internal control over financial reporting in accordance 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 effective internal control over financial reporting was maintained in all material respects.
An audit of internal control over financial reporting includes obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control, based on the assessed risk, and performing such other procedures as we consider necessary in the circumstances.
We believe that our audit provides a reasonable basis for our audit opinion on the Company’s internal control over financial reporting.
Definition of internal control over financial reporting
A company’s internal control over financial reporting is a process 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. A company’s internal control over financial reporting includes those policies and procedures that: (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the Company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the Company are being made only in accordance with authorizations of management and directors of the Company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the Company’s assets that could have a material effect on the financial statements.
Inherent limitations
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions or that the degree of compliance with the policies or procedures may deteriorate.
Opinion
In our opinion, Rubicon Minerals Corporation maintained, in all material respects, effective internal control over financial reporting as at December 31, 2013, based on criteria established in Internal Control - Integrated Framework (1992) issued by COSO.
(signed) “PriceWaterhouseCoopers LLP”
Chartered Accountants
Vancouver, British Columbia
March 24, 2014
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RUBICON MINERALS CORPORATION
Consolidated Balance Sheets
(in Canadian dollars, in thousands)
December 31, 2013 | December 31, 2012 | |||||||
Assets | ||||||||
Current assets | ||||||||
Cash and cash equivalents (note 21) | $ | 67,828 | $ | 50,789 | ||||
Temporary investments (note 6) | 10,036 | 120,491 | ||||||
Marketable securities (note 7) | 467 | 712 | ||||||
Accounts receivable | 1,414 | 1,981 | ||||||
Prepaid expenses and supplier advances | 923 | 543 | ||||||
80,668 | 174,516 | |||||||
Restricted cash and deposits (note 8) | 7,407 | 7,398 | ||||||
Property, plant and equipment (note 9) | 87,486 | 44,516 | ||||||
Exploration and evaluation assets (note 10) | 304,702 | 253,542 | ||||||
$ | 480,263 | $ | 479,972 | |||||
Liabilities and Equity | ||||||||
Current liabilities | ||||||||
Accounts payable and accrued liabilities (note 11) | $ | 22,008 | $ | 16,673 | ||||
Current portion of finance lease obligation (note 12) | 203 | 237 | ||||||
22,211 | 16,910 | |||||||
Non-current liabilities | ||||||||
Deferred income taxes (note 15) | 25 | 186 | ||||||
Finance lease obligation (note 12) | - | 203 | ||||||
Provision for closure and reclamation (note 13) | 2,794 | 3,357 | ||||||
25,030 | 20,656 | |||||||
Equity | ||||||||
Share capital (note 14) | 523,043 | 520,917 | ||||||
Share-based payment reserve | 25,377 | 23,472 | ||||||
Accumulated other comprehensive loss | (115 | ) | (184 | ) | ||||
Deficit | (93,072 | ) | (84,889 | ) | ||||
455,233 | 459,316 | |||||||
$ | 480,263 | $ | 479,972 |
The accompanying notes are an integral part of these consolidated financial statements.
Commitments and Contingency (note 19) Subsequent Events (note 22) | |||
Approved by the Board of Directors: | |||
“David Adamson” | “Julian Kemp” | ||
David Adamson, Director | Julian Kemp, Director |
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RUBICON MINERALS CORPORATION
Consolidated Statements of Comprehensive Loss
(in Canadian Dollars, in thousands except for share data)
For the years ended December 31 | ||||||||
2013 | 2012 | |||||||
Expenses | ||||||||
Consulting and professional fees | $ | 1,688 | $ | 1,748 | ||||
Depreciation | 81 | 67 | ||||||
General and administrative (note 17) | 1,772 | 1,507 | ||||||
Investor Relations (note 18) | 717 | 1,210 | ||||||
Salaries and Benefits | 3,663 | 3,929 | ||||||
Share based compensation (note 14(b,c)) | 2,095 | 4,063 | ||||||
Loss before other items | (10,016 | ) | (12,524 | ) | ||||
Interest and other income | 1,763 | 2,234 | ||||||
Foreign exchange gains (losses) | 34 | 10 | ||||||
Option payments received in excess of property costs (note 10) | 390 | 892 | ||||||
(Loss) gain on sale of assets | (72 | ) | 13 | |||||
Impairment of marketable securities | (438 | ) | (799 | ) | ||||
Loss on sale of investments | (5 | ) | (146 | ) | ||||
Loss before income taxes | (8,344 | ) | (10,320 | ) | ||||
Deferred income tax recovery (expense) (note 15) | 161 | (47 | ) | |||||
Net loss for the year | $ | (8,183 | ) | $ | (10,367 | ) | ||
Other comprehensive income (loss), that may be reclassified subsequently to net income, net of tax | ||||||||
Fair value adjustment on available for sale financial instruments (net of tax): | ||||||||
Marketable securities and other investments | (374 | ) | 17 | |||||
Realized loss on sales of marketable securities and impairment loss on marketable securities, recycled to net income | 443 | 945 | ||||||
Other comprehensive income for the year | 69 | 962 | ||||||
Comprehensive loss | $ | (8,114 | ) | $ | (9,405 | ) | ||
Basic and diluted loss per common share | $ | (0.03 | ) | $ | (0.04 | ) | ||
Weighted average number of common shares outstanding | 288,531,489 | 279,402,156 |
The accompanying notes are an integral part of these consolidated financial statements.
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RUBICON MINERALS CORPORATION
Consolidated Statements of Changes in Equity
(in Canadian dollars, in thousands except for share data)
Number of Shares | Share Capital | Share-based Payments Reserve | Accumulated Other Comprehensive Income/(Loss)1 | Deficit | Total Equity | |||||||||||||||||||
January 1, 2012 | 237,954,669 | $ | 327,311 | $ | 17,098 | $ | (1,146 | ) | $ | (74,522 | ) | $ | 268,741 | |||||||||||
Public offering (note 14 (a)) | 49,000,000 | 200,900 | - | - | - | 200,900 | ||||||||||||||||||
Public offering – share issuance costs | - | (9,027 | ) | - | - | - | (9,027 | ) | ||||||||||||||||
Exercise of options | 572,500 | 861 | - | - | - | 861 | ||||||||||||||||||
Transfer to share capital on exercise of options | - | 572 | (572 | ) | - | - | - | |||||||||||||||||
Share-based payments - administration | - | - | 4,105 | - | - | 4,105 | ||||||||||||||||||
Share-based payments – property | - | - | 2,841 | - | - | 2,841 | ||||||||||||||||||
Shares issued to settle obligation | 78,813 | 300 | - | - | - | 300 | ||||||||||||||||||
Unrealized net gain on available-for-sale investments | - | - | - | 17 | - | 17 | ||||||||||||||||||
Realized loss on sales of marketable securities and impairment loss on marketable securities, recycled to net income | - | - | - | 945 | - | 945 | ||||||||||||||||||
Net loss for the year | - | - | - | - | (10,367 | ) | (10,367 | ) | ||||||||||||||||
December 31, 2012 | 287,605,982 | $ | 520,917 | $ | 23,472 | $ | (184 | ) | $ | (84,889 | ) | $ | 459,316 |
Number of Shares | Share Capital | Share-based Payments Reserve | Accumulated Other Comprehensive Income (Loss)1 | Deficit | Total Equity | |
January 1, 2013 | 287,605,982 | $520,917 | $ 23,472 | $ (184) | $(84,889) | $459,316 |
Exercise of options | 1,092,500 | 1,176 | - | - | - | 1,176 |
Transfer to share capital on exercise of options | - | 650 | (650) | - | - | - |
Share-based payments – administration | - | - | 2,336 | - | - | 2,336 |
Share-based payments – property | - | - | 219 | - | - | 219 |
Shares issued to settle obligation | 115,621 | 300 | - | - | - | 300 |
Unrealized net loss on available-for-sale investments | - | - | - | (374) | - | (374) |
Realized loss on sales of marketable securities and impairment loss on marketable securities, recycled to net income | - | - | - | 443 | - | 443 |
Net loss for the year | - | - | - | - | (8,183) | (8,183) |
December 31, 2013 | 288,814,103 | $523,043 | $ 25,377 | $ (115) | $(93,072) | $455,233 |
The accompanying notes are an integral part of these consolidated financial statements
1 Pertains to accumulated fair value adjustments on Available for Sale investments |
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RUBICON MINERALS CORPORATION
Consolidated Statements of Cash Flows
(in Canadian Dollars, in thousands)
For the years ended December 31 | ||||||||
2013 | 2012 | |||||||
Operating activities | ||||||||
Net loss for the year | $ | (8,183 | ) | $ | (10,367 | ) | ||
Items not involving cash: | ||||||||
Accretion | 76 | 37 | ||||||
Depreciation | 81 | 67 | ||||||
Impairment loss on marketable securities | 438 | 799 | ||||||
Share-based compensation | 2,095 | 4,063 | ||||||
Option share receipts in excess of property costs | (237 | ) | (519 | ) | ||||
Interest and other income | (1,772 | ) | (2,251 | ) | ||||
Loss on sale of investments | 5 | 146 | ||||||
Loss on sale of assets | 72 | 75 | ||||||
Deferred income tax | (161 | ) | 47 | |||||
Changes in non-cash working capital: | ||||||||
Accounts receivable and prepaid expenses | (366 | ) | (408 | ) | ||||
Accounts payable and accrued liabilities | (1,359 | ) | 640 | |||||
Interest received | 2,755 | 1,174 | ||||||
Net cash used in operating activities | (6,556 | ) | (6,497 | ) | ||||
Investing activities | ||||||||
Temporary investments | 109,463 | (119,410 | ) | |||||
Expenditures on exploration and evaluation | (43,694 | ) | (55,362 | ) | ||||
Expenditures on property, plant and equipment | (43,221 | ) | (24,676 | ) | ||||
Proceeds on sale of marketable securities | 109 | 3,843 | ||||||
Restricted cash | - | (5,712 | ) | |||||
Net cash from (used in) investing activities | 22,657 | (201,317 | ) | |||||
Financing activities | ||||||||
Issuance of common shares, net of issue costs | 1,176 | 201,760 | ||||||
Repayment of finance lease obligation | (238 | ) | (9,027 | ) | ||||
Net cash from financing activities | 938 | 192,733 | ||||||
Increase (decrease) in cash and cash equivalents | 17,039 | (15,081 | ) | |||||
Cash and cash equivalents, beginning of the year | 50,789 | 65,870 | ||||||
Cash and cash equivalents, end of the year | $ | 67,828 | $ | 50,789 |
See Supplemental cash flow and non-cash activities (note 21)
See accompanying notes to the consolidated financial statements
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RUBICON MINERALS CORPORATION
Consolidated Statements of Cash Flows
(in Canadian Dollars, in thousands)
1. | NATURE OF OPERATIONS |
Rubicon Minerals Corporation (“the Company”) has been primarily involved in the acquisition, and exploration and development of mineral property interests in Canada and the United States. The Company is incorporated and domiciled in British Columbia, Canada. The address of its registered office is Suite 2800 - 666 Burrard Street Vancouver, BC V6C 2Z7. The Company maintains its office at Suite 1540 – 800 West Pender Street, Vancouver, BC V6C 2V6.
The ability of the Company to recover the costs it has incurred to date on its properties, including the Phoenix Gold Project, is dependent upon profitable extraction of gold or other minerals from its properties, the ability of the Company to resolve any environmental, regulatory, or other constraints which may hinder the successful development of its properties, obtaining, if required, financing to complete exploration and development, and upon future profitable production or proceeds from disposition of mineral properties.
Although the Company is unaware of any defects in its title to its mineral properties, no guarantee can be made that none exist.
2. | SIGNIFICANT ACCOUNTING POLICIES |
a) | Statement of compliance |
These consolidated financial statements have been prepared in accordance with International Financial Reporting Standards ("IFRS") as issued by the International Accounting Standards Board (“IASB”) and Interpretations issued by the International Financial Reporting Interpretations Committee (“IFRIC”) under the historical cost convention, except for the revaluation of financial instruments classified as available-for-sale. The comparative information has also been prepared on this basis.
The policies applied in these consolidated financial statements are based on IFRS issued and outstanding as of December 31, 2013, and were approved as of March 18, 2014, the date the Audit Committee of the Board of Directors approved the statements.
The preparation of financial statements in conformity with IFRS requires the use of certain critical accounting estimates. It also requires management to exercise its judgment in the process of applying the Company’s accounting policies. The areas involving judgment or complexity, or areas where assumptions and estimates are significant and could affect the reported amounts of assets and liabilities and disclosure of contingent liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the period, are discussed in note 2 (d).
b) | Basis of consolidation |
The consolidated financial statements include the accounts of the Company and its subsidiaries. The principal subsidiaries of the Company and their place of operations at December 31, 2013 were as follows:
Name of Subsidiary | Place of Operation | Ownership Interest | Principal Activity | |||
0691403 B.C. Ltd. | British Columbia, Canada | 100% | Holding company | |||
1304850 Ontario Inc. | Ontario, Canada | 100% | Mineral property staking and sale | |||
Rubicon Minerals Nevada Inc. | British Columbia, Canada | 100% | Holding company | |||
Rubicon Nevada Corp. | Nevada, United States | 100% | Mineral exploration | |||
Rubicon Alaska Holdings Inc. | Alaska, United States | 100% | Inactive | |||
Rubicon Alaska Corp. | Alaska, United States | 100% | Inactive |
All material intercompany transactions and balances are eliminated on consolidation.
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RUBICON MINERALS CORPORATION
Consolidated Statements of Cash Flows
(in Canadian Dollars, in thousands)
2. | SIGNIFICANT ACCOUNTING POLICIES (continued) |
c) | Foreign currency translation |
The functional and reporting currency of the Company and its subsidiaries is the Canadian dollar. Transactions in currencies other than the functional currency are recorded at the rates of exchange prevailing on dates of transactions. Monetary assets and liabilities that are denominated in foreign currencies are translated at the rates prevailing at each reporting date. Non-monetary items that are measured in terms of historical cost in a foreign currency are not re-translated. Foreign currency translation differences are recognized in profit or loss, except for differences on the re-translation of available-for-sale instruments which are recognized in other comprehensive income.
d) | Significant accounting judgments and sources of estimation uncertainty |
The preparation of financial statements in conformity with IFRS requires management to make judgments, estimates and assumptions that affect the reported amounts and the valuation of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenditures during the period reported. Management uses its best estimates for these purposes, based on assumptions that it believes reflect the most probable set of economic conditions and planned courses of action. While actual results could differ materially from these estimates, no specific sources of estimation uncertainty have been identified by management that are believed to have a significant risk of resulting in a material adjustment within the next financial year to the carrying amount of the Corporation’s assets and liabilities as recorded at December 31, 2013.
The most significant judgment and estimates made by management in preparing the Corporation’s financial statements are described as follows:
Impairment of Non-Current Non-Financial Assets
The Corporation reviews and evaluates the carrying value of each of its non-current non-financial assets for impairment when events or changes in circumstances indicate that the carrying amounts of the related asset may not be recoverable. The identification of such events or changes and the performance of the assessment requires significant judgment. Furthermore, management’s estimates of many of the factors relevant to completing this assessment, including commodity prices, foreign currency exchange rates, mineral resources, and operating, capital and reclamation costs, are subject to risks and uncertainties that may further affect the determination of the recoverability of the carrying amounts of its non-current non-financial assets.
e) | Cash and cash equivalents |
Cash and cash equivalents are comprised of cash on hand, deposits in banks and highly liquid investments having terms to maturity of 90 days or less when acquired.
f) | Temporary investments |
Temporary investments consist of short-term money market instruments that have original maturities of greater than 90 days and up to one year.
g) | Property plant and equipment |
Property, plant and equipment is carried at cost, less accumulated depreciation and net accumulated impairment losses. Cost comprises the fair value of consideration given to acquire or construct an asset and includes the direct charges associated with bringing the asset to the location and condition necessary for putting it into use along with the future cost of dismantling and removing the asset. When parts of an item of property, plant and equipment have different useful lives, they are accounted for as separate items (components) of property, plant and equipment.
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RUBICON MINERALS CORPORATION
Consolidated Statements of Cash Flows
(in Canadian Dollars, in thousands)
2. | SIGNIFICANT ACCOUNTING POLICIES (continued) |
Assets under construction are depreciated over their estimated useful lives once they are substantially complete and available for their intended use.
Plant and equipment associated with mining operations are depreciated over the estimated useful lives of the assets on a declining balance basis at the following rates:
Underground operating equipment | 20 | % | ||
Trucks | 30 | % | ||
Buildings/Hoist/Powerlines | 5 | % |
All other equipment are depreciated over the estimated useful life of the assets using the declining balance method at the following rates:
Furniture, fixtures and office equipment | 20 | % | ||
Computers | 30 | % | ||
Software | 50 | % |
Depreciation methods and useful lives are reviewed at each reporting date and adjusted as required.
Residual values, method of amortization and useful lives of the assets are reviewed annually and adjusted if appropriate.
Impairment losses and gains and losses on disposals of property, plant and equipment are included in results from operations.
h) | Exploration and Evaluation |
Exploration expenditures relate to the initial search for deposits with economic potential and to detailed assessments of deposits or other projects that have been identified as having economic potential.
Expenditures on mineral exploration or evaluation incurred in respect of a property before the acquisition of a mineral interest are expensed, as incurred, to general mineral exploration. Once a license to explore an area has been secured, expenditures on exploration and evaluation activities are capitalized to exploration and evaluation assets and classified as a non-current asset.
Mineral property acquisition costs are included in exploration and evaluation and include any cash consideration and advance royalties paid, and the fair market value of shares issued, if any, on the acquisition of the mineral property interest. Properties acquired under option agreements, whereby payments are made at the sole discretion of the Company, are recorded in the accounts when the payments are made.
Once an economically viable deposit has been determined for an area and the decision to proceed with development has been approved by the Board of Directors, exploration and evaluation assets are reclassified to property, plant and equipment and once they are available for use are amortized on a unit of production basis.
i) | Impairment |
At each reporting period, management reviews property plant and equipment, and exploration and evaluation assets for indicators of impairment. If any such indicator exists, the recoverable amount of the asset is estimated to determine the extent of the impairment, if any. The recoverable amount is the higher of fair value less costs to sell and value in use. Fair value is determined as the amount that would be obtained from the sale of the asset in an arm’s length transaction between knowledgeable and willing parties. Fair value of mineral assets is generally determined as the present value of the estimated future cash flows expected to arise from the continued use of the asset, including any expansion prospects, using a post-tax discount rate. Value in use is determined as the present value of the estimated future cash flows expected to arise from the continued use of the asset in its present form and from its ultimate disposal, using a pre-tax discount rate.
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RUBICON MINERALS CORPORATION
Consolidated Statements of Cash Flows
(in Canadian Dollars, in thousands)
2. | SIGNIFICANT ACCOUNTING POLICIES (continued) |
If the recoverable amount of the asset is less than its carrying amount, the carrying amount of the asset is reduced to its recoverable amount and the impairment loss is recognized in the profit or loss for that period. Impairment is normally assessed at the level of cash-generating units (“CGUs”), which are identified as the smallest identifiable group of assets that generates cash inflows that are largely independent of the cash inflows from other assets.
Non-financial assets other than goodwill that have been impaired are tested for possible reversal of the impairment whenever events or changes in circumstances indicate that the impairment may have reversed. When a reversal of a previous impairment is recorded, the reversal amount is adjusted for depreciation that would have been recorded had the impairment not taken place.
The determination of fair value and value in use requires management to make estimates and assumptions about expected production and sales volumes, gold prices, mine plan estimates, operating costs, mine closure and restoration costs, future capital expenditures and appropriate discount rates for future cash flows. The estimates and assumptions are subject to risk
and uncertainty, and as such there is the possibility that changes in circumstances will alter these projections, which may impact the recoverable amount of the assets. In such circumstances, some or all of the carrying value of the assets may be further impaired or the impairment charge reduced with the impact recorded in the statement of income.
As at December 31, 2013, management of the Company determined that the volatile price of gold, escalating costs in the industry and the Company’s depressed share price that had resulted in a market capitalization below the carrying amount of the Company’s net assets, constituted impairment indicators, and we therefore completed an impairment assessment for the Phoenix Gold Project that included an estimate of the project’s value in use.
Key assumptions incorporated in the impairment model included the following:
Gold price: US$1,300/oz.
Life of Mine gold head grade: 8.06 grams/tonne
Life of Mine average operating costs: $154 /tonne ore milled
Canadian / US dollar exchange rate: 1.05
Production volume and recoveries as indicated in the Company’s Technical Report filed on SEDAR February 28, 2014
Discount rate: 5%
Management’s impairment evaluation did not result in the identification of an impairment loss as of December 31, 2013. Although management believes the estimates applied in these impairment assessments are reasonable, such estimates are subject to significant uncertainties and judgments. Sensitivities to changes in gold price, grade, and estimated operating costs, that differ from current projections, and increases to estimated capital costs might trigger an impairment that could be material.
j) | Reclamation deposits |
The Company maintains cash deposits, or letters of credit secured by cash deposits, as required by regulatory bodies as assurance for the funding of reclamation costs. These funds are restricted to that purpose and are not available to the Company until the reclamation obligations have been fulfilled or the related property is sold and the obligation is assumed by the buyer. Reclamation deposits are designated as loans and receivables, are recorded at amortized cost and are classified as non-current assets.
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RUBICON MINERALS CORPORATION
Consolidated Statements of Cash Flows
(in Canadian Dollars, in thousands)
2. SIGNIFICANT ACCOUNTING POLICIES (continued)
k) | Provision for closure and reclamation |
The Company recognizes a closure and reclamation provision for statutory, contractual, constructive or legal obligations to undertake reclamation and closure activities associated with property, plant, equipment and exploration and evaluation assets, generally at the time that an environmental or other site disturbance occurs or a constructive obligation for reclamation and closure activities is determined. When the extent of disturbance increases over the life of an operation, the provision is increased accordingly. Provisions are measured at the present value of the expected future expenditures required to settle the obligation, using a risk-free pre-tax discount rate reflecting the time value of money and risks specific to the liability. The liability is increased for the passage of time, and adjusted for changes to the current market-based risk-free discount rate as well as changes in the estimated amount or timing of the expected future expenditures. The associated restoration costs are capitalized as part of the carrying amount of the related asset and then depreciated accordingly.
l) | Income taxes |
Deferred tax is recognized, using the liability method, on temporary differences between the carrying value of assets and
liabilities in the consolidated statement of financial position and the corresponding tax bases used in the computation of
taxable profit. Deferred tax is determined using tax rates and tax laws that are enacted or substantively enacted at the date of the consolidated statement of financial position and are expected to apply when the related deferred tax asset is realized or the deferred tax liability is settled.
Deferred tax assets and liabilities are not recognized if the temporary difference arises on the initial recognition of assets
and liabilities in a transaction other than a business combination, that at the time of the transaction, affects neither the taxable nor the accounting profit or loss.
Deferred tax assets are recognized for all deductible temporary differences to the extent that it is probable that taxable profits will be available to be utilized against those deductible temporary differences. Deferred tax assets are reviewed at each reporting date and amended to the extent that it is no longer probable that the related tax benefit will be realized. Deferred tax assets and liabilities are offset when there is a legally enforceable right to set off the current tax assets against the current tax liabilities and when they relate to income taxes levied by the same taxation authority and the Company intends to settle its current tax assets and liabilities on a net basis.
m) | Share capital |
The Company records proceeds from share issuances net of issue costs. Common shares issued for consideration other than cash, are valued based on their market value at the date the shares are issued.
n) | Financial instruments |
Financial assets
The Company classifies its financial assets in the following categories: fair value through profit or loss, loans and receivables, and available-for-sale. The classification depends on the purpose for which the financial assets were acquired. Management determines the classification of financial assets at recognition.
i. | Financial assets at fair value through profit or loss |
Financial assets at fair value through profit or loss are initially recognized at fair value with changes in fair value recorded through income. The Company does not currently hold any of this type of financial asset.
- 13 -
RUBICON MINERALS CORPORATION
Consolidated Statements of Cash Flows
(in Canadian Dollars, in thousands)
2. SIGNIFICANT ACCOUNTING POLICIES (continued)
ii. | Loans and receivables |
Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. They are classified as current assets or non-current assets based on their maturity date. Loans and receivables are initially recognized at fair market value and subsequently carried at amortized cost less any impairment. Loans and receivables are comprised of cash in the bank, guaranteed investment certificates guaranteed by major Canadian banks and the BC government, provincial notes, temporary investments, reclamation deposits and trade and other receivables.
iii. | Available-for-sale financial assets |
Available-for-sale (“AFS”) financial assets are non-derivatives that are either designated as available-for-sale or not classified in any of the other financial asset categories. Available-for-sale assets are initially recorded at fair value plus transaction costs, and are subsequently carried at fair value. All unrealized gains and losses arising from changes in the fair value of assets classified as available-for-sale are recognized directly in other comprehensive income, except for unrealized foreign exchange gains or losses on monetary financial assets and impairment losses which are recognized in the statement of income. Any reversal of a previously recognized impairment loss on a non-monetary asset is recognized directly in other comprehensive income. Realized gains and losses from the derecognition of available-for-sale assets are recognized in the consolidated statement of income in the period derecognized with any unrealized gains or losses being recycled from other comprehensive income. AFS assets are comprised of marketable securities.
Financial liabilities
The Company’s financial liabilities are classified as other financial liabilities.
Other financial liabilities are non-derivatives and are recognized initially at fair value, net of transaction costs incurred and are subsequently stated at amortized cost. Any difference between the amounts originally received, net of transaction costs, and the redemption value is recognized in the income statement over the period to maturity using the effective interest method.
Other financial liabilities are classified as current or non-current based on their maturity date. Financial liabilities include accounts payable and accrued liabilities, and finance lease obligations.
o) | Share-based payments |
The Company’s Stock Option Plan allows employees and consultants to acquire shares of the Company. Share-based payments to employees are measured at the fair value of the instruments issued and amortized over the vesting periods. Share-based payments to non-employees are measured at the fair value of the goods or services received or the fair value of the equity instruments issued if the fair value of the goods or services received is not determinable. The fair value of the equity instrument is measured using the Black-Scholes option pricing model. The fair value of the share based payment is recognized as an expense or capitalized to exploration and evaluation asset with a corresponding increase in reserves. Consideration received on the exercise of stock options is recorded as share capital and the related reserves amount is transferred to share capital.
p) | Loss per share |
Basic loss per share is calculated by dividing the loss available to common shareholders by the weighted average number of common shares outstanding in the period. Diluted loss per share is calculated by the treasury stock method. Under the treasury stock method, the weighted average number of common shares outstanding for the calculation of diluted loss per share assumes that the proceeds to be received on the exercise of dilutive share options and warrants are used to repurchase
- 14 -
RUBICON MINERALS CORPORATION
Consolidated Statements of Cash Flows
(in Canadian Dollars, in thousands)
2. SIGNIFICANT ACCOUNTING POLICIES (continued)
common shares at the average market price during the period. Where the effects of including all outstanding options and warrants would be anti-dilutive, no dilution is calculated and the diluted loss per share is presented as the same as basic loss per share.
3. | ADOPTION OF NEW AND REVISED INTERNATIONAL FINANCIAL REPORTING STANDARDS |
The Company has adopted the following new and revised standards, along with any consequential amendments, effective January 1, 2013. These Changes were made in accordance with the applicable transitional provisions:
· | IFRS 10, “Consolidated Financial Statements”, replaces the guidance on control and consolidation in IAS 27, Consolidated and Separate Financial Statements, and SIC-12, Consolidation – Special Purpose Entities. IFRS 10 requires consolidation of an investee only if the investor possesses power over the investee, has exposure to variable returns from its involvement with the investee and has the ability to use its power over the investee to affect its returns. Detailed guidance is provided on applying the definition of control. The accounting requirements for consolidation have remained largely consistent with IAS 27. |
The Company assessed its consolidation conclusions on January 1, 2013 and determined that the adoption of IFRS 10 did not result in any change in the consolidation status of any of its subsidiaries and investees.
· | IFRS 12, “Disclosure of Interests in Other Entities”, requires the disclosure of information that enables users of financial statements to evaluate the nature of, and risks associated with, its interests in other entities and the effects of those interests on its financial position, financial performance and cash flows. The disclosure requirements are applicable to all forms of interests in other entities, including subsidiaries, joint arrangements, associates and unconsolidated structured entities. The adoption of this standard, commencing January 1, 2013, did not result in additional disclosures in the consolidated financial statements. |
· | IFRS 13, “Fair value measurement”, provides a single framework for measuring fair value. The measurement of the fair value of an asset or liability is based on assumptions that market participants would use when pricing the asset or liability under current market conditions, including assumptions about risk. The Company adopted IFRS 13 on January 1, 2013 on a prospective basis. The adoption of IFRS 13 did not require any adjustments to the valuation techniques used by the Company to measure fair value and did not result in any measurement adjustments as at January 1, 2013. |
The Company has adopted the amendments to IAS 1 effective January 1, 2013. These amendments required the Company to group other comprehensive income items by those that will be reclassified subsequently to profit or loss and those that will not be reclassified. The Company has reclassified comprehensive income items of the comparative period. These changes did not result in any adjustments to other comprehensive income or comprehensive income.
The Company has not yet adopted certain new standards, amendments and interpretations to existing standards, which have been published but are only effective for accounting periods beginning on or after January 1, 2014 or later periods.
Effective for accounting periods beginning on or after January 1, 2014:
· | IFRS 9, “Financial instruments” (Revised), was issued by the IASB in October 2010. It incorporates revised requirements for the classification and measurement of financial liabilities, and carrying over the existing derecognition requirements from IAS 39 Financial Instruments: Recognition and Measurement. The revised financial liability provisions maintain the existing amortised cost measurement basis for most liabilities. New requirements apply where an entity chooses to measure a liability at fair value through profit or loss – in these cases, the portion of the change in fair value related to changes in the entity’s own credit risk is presented in other comprehensive income rather than within profit or loss. The Company is currently evaluating the impact this standard may have on its consolidated financial statements. |
- 15 -
RUBICON MINERALS CORPORATION
Consolidated Statements of Cash Flows
(in Canadian Dollars, in thousands)
3. | ADOPTION OF NEW AND REVISED INTERNATIONAL FINANCIAL REPORTING STANDARDS (continued) |
· | Amendment to IAS 32 “Financial Instruments: Presentation”, clarifies some of the requirement for offsetting financial assets and financial liabilities on the Balance Sheet. The Company is currently evaluating the impact this standard may have on its consolidated financial statements. |
· | Amendment to IAS 36 “Impairment of Assets”, addresses the disclosure of information about the recoverable amount of impaired assets if that amount is based on fair value less costs of disposal. The Company is currently evaluating the impact this standard may have on its consolidated financial statements. |
4. | CAPITAL MANAGEMENT |
The Company’s objectives for the management of capital are to safeguard the Company’s ability to continue as a going concern including the preservation of capital and to achieve reasonable returns on invested cash after satisfying the objective of preserving capital. The Company considers its cash, cash equivalents, and temporary investments to be its manageable capital. The Company’s policy is to raise sufficient cash, as needs arise, to cover operating, exploration and development costs over a reasonable future period. The Company may also acquire additional funds where advantageous circumstances arise.
Excess cash investment is invested in securities issued or guaranteed by major Canadian banks or the federal or provincial governments of Canada. The Company currently has no externally imposed capital requirements.
5. | FINANCIAL INSTRUMENTS |
Fair value hierarchy
Financial instruments recognized at fair value on the consolidated balance sheets must be classified into one of the three following fair value hierarchy levels:
Level 1 – measurement based on quoted prices (unadjusted) observed in active markets for identical assets or liabilities;
Level 2 – measurement based on inputs other than quoted prices included in Level 1, that are observable for the asset or liability;
Level 3 – measurement based on inputs that are not observable (supported by little or no market activity) for the asset or liability.
The Company’s financial instruments recognized at fair value consist of marketable securities having a fair value of $467 (2012 - $712) and were measured in accordance with Level 1 of the above hierarchy.
Financial instrument risks
The Company’s financial instruments are exposed to the following risks:
Credit Risk
The Company’s primary exposure to credit risk is the risk of non-payment of cash and cash equivalents amounting to approximately $67.8 million. These cash and cash equivalents are held on deposit with major Canadian banks or in bank guaranteed investment certificates which are guaranteed by a major Canadian bank or by a provincial government.
- 16 -
RUBICON MINERALS CORPORATION
Consolidated Statements of Cash Flows
(in Canadian Dollars, in thousands)
5. FINANCIAL INSTRUMENTS (continued)
The Company also has exposure on temporary investments amounting to approximately $10 million. These investments include a promissory note issued by the BC government and bank guaranteed investment certificates which are guaranteed by major Canadian banks or by a provincial government. As the Company’s policy is to limit excess cash investments to deposits or investments with or guaranteed by major Canadian banks or the federal or a provincial government, the credit risk is considered by management to be negligible.
The Company’s credit risk exposure from accounts receivable financial instruments, which excludes HST refunds, at December 31, 2013, amounted to $7 (2012 - $22).
Liquidity Risk
The Company’s liquidity risk from financial instruments is its need to meet operating accounts payable requirements, commitments and finance lease obligations. The Company currently maintains sufficient cash balances to meet these needs.
Foreign Exchange Risk
Foreign exchange risk relates only to US dollar cash balances and as these were minimal for most of the year, this risk is minimal.
Interest Rate Risk
The Company is exposed to interest rate risk on its cash and cash equivalent and temporary investments. The majority of these investments are in high interest savings accounts and guaranteed investment certificates with pre-determined fixed yields.
A difference in interest rates of 1.0%, on the December 31, 2013 balance of cash and cash equivalents and temporary investments, over a year, would result in a change to net income of approximately $779.
6. | TEMPORARY INVESTMENTS |
At year end, temporary investments had an aggregate carrying value and market value of $10,036 (2012 - $120,491). Temporary investments are carried at amortized cost which approximates fair value due to the short term nature of these instruments.
7. | MARKETABLE SECURITIES |
Marketable securities consist of investments in public company shares and have an aggregate carrying value and fair value of $467 (2012 - $712) at year end. Market values were based on quoted prices in an active market.
8. | RESTRICTED CASH AND DEPOSITS |
Restricted cash of $4,299 (2012 - $4,290) consists of GIC’s deposited during 2012 as security for a letter of credit relating to mill equipment purchases and other credit facilities. Restricted deposits consist of $3,108 (2012 - $3,108) on deposit with the Ontario Ministry of Northern Development and Mines as security for reclamation and closure of the Phoenix Gold Project.
- 17 -
RUBICON MINERALS CORPORATION
Consolidated Statements of Cash Flows
(in Canadian Dollars, in thousands)
9. | PROPERTY, PLANT AND EQUIPMENT |
The following is a summary of the changes in property, plant and equipment during the year:
Assets under Construction | Office Equipment | Mine-site Equipment | Mine-site Buildings | Total | ||||||||||||||||
$ | $ | $ | $ | $ | ||||||||||||||||
Cost | ||||||||||||||||||||
Balance, January 1, 2012 | 1,521 | 1,133 | 9,355 | 7,050 | 19,059 | |||||||||||||||
Additions | 23,680 | 257 | 1,138 | 3,231 | 28,306 | |||||||||||||||
Transfers | (3,241 | ) | - | 1,878 | 1,363 | - | ||||||||||||||
Disposals | - | (3 | ) | (138 | ) | - | (141 | ) | ||||||||||||
Balance, December 31, 2012 | 21,960 | 1,387 | 12,233 | 11,644 | 47,224 | |||||||||||||||
Additions | 42,656 | 210 | 1,278 | 733 | 44,877 | |||||||||||||||
Transfers | (720 | ) | 150 | 61 | 509 | - | ||||||||||||||
Disposals | - | (520 | ) | - | - | (520 | ) | |||||||||||||
Balance, December 31, 2013 | 63,896 | 1,227 | 13,572 | 12,886 | 91,581 | |||||||||||||||
Accumulated depreciation | ||||||||||||||||||||
Balance, January 1, 2012 | - | 593 | 528 | 90 | 1,211 | |||||||||||||||
Depreciation for the year | - | 263 | 824 | 476 | 1,563 | |||||||||||||||
Disposals | - | (1 | ) | (65 | ) | - | (66 | ) | ||||||||||||
Balance, December 31, 2012 | - | 855 | 1,287 | 566 | 2,708 | |||||||||||||||
Depreciation for the year | - | 289 | 939 | 607 | 1,835 | |||||||||||||||
Disposals | - | (448 | ) | - | - | (448 | ) | |||||||||||||
Balance, December 31, 2013 | - | 696 | 2,226 | 1,173 | 4,095 | |||||||||||||||
Carrying amounts | ||||||||||||||||||||
December 31, 2012 | 21,960 | 532 | 10,946 | 11,078 | 44,516 | |||||||||||||||
December 31, 2013 | 63,896 | 531 | 11,346 | 11,713 | 87,486 |
10. | EXPLORATION AND EVALUATION ASSETS |
The following is a summary of changes in exploration and evaluation assets during the year:
Phoenix Gold Project Red Lake Ontario | Other Red Lake Properties Ontario | Alaska Properties USA | Nevada-Utah Properties USA | Total | ||||||||||||||||
$ | $ | $ | $ | $ | ||||||||||||||||
Balance, January 1, 2012 | 172,720 | 8,754 | - | 7,117 | 188,591 | |||||||||||||||
Costs incurred in the year | 64,890 | 61 | - | - | 64,951 | |||||||||||||||
Balance, December 31, 2012 | 237,610 | 8,815 | - | 7,117 | 253,542 | |||||||||||||||
Costs incurred in the year | 50,982 | 178 | - | - | 51,160 | |||||||||||||||
Balance, December 31, 2013 | 288,592 | 8,993 | - | 7,117 | 304,702 |
- 18 -
RUBICON MINERALS CORPORATION
Consolidated Statements of Cash Flows
(in Canadian Dollars, in thousands)
10. EXPLORATION AND EVALUATION ASSETS (continued)
CANADA
ONTARIO
RED LAKE MINING DIVISION
Phoenix Gold Project
The Company holds a 100% interest in the Phoenix Gold Project consisting of 16 patented mining claims, 25 licences of occupation, 1 mineral lease and 1 unpatented mining claim.
(i) | Water Claims Agreement |
The Company holds a 100% interest in the “Water Claims” portion of the Phoenix Gold Project (25 licences of occupation and one mineral lease). These claims are subject to a net smelter returns royalty (“NSR”) of 2%, for which advance royalties of US$50,000 are due annually (to a maximum of US$1,000,000 prior to commercial production). To December 31, 2013 the Company has paid US $550,000 with respect to the Water Claims advance royalties. Advance royalties paid to date have been capitalized to exploration and evaluation assets.
The Company has the option to take back a 0.5% amount of the NSR royalty for US$675,000 at any time. Upon a positive production decision the Company would be required to make an additional advance royalty payment of US$675,000, which would be deductible from commercial production royalties as well as amounts paid pursuant to the maximum US$1,000,000 in advance royalty payments described above.
(ii) | Land Claims Agreement |
The Company holds a 100% interest in the “Land Claims” portion of the Phoenix Gold Project (16 patented mining claims). In October 2011, the Company acquired the Land Claims royalty for 1,216,071 of its common shares valued at $4,256,249. Advance royalties paid to date have been capitalized to exploration and evaluation assets.
(iii) | Unpatented Claim |
The Company controls a 100% interest in one staked claim (one unit).
Other Red Lake Properties
The Company’s Other Red Lake Properties as of December 31, 2013 are as follows:
Property | Interest | Description | Location in Ontario |
Adams Lake | 100% | 37 unpatented mining claims | Balmer and Bateman townships |
Advance | 100% | 13 patented mining claims | Todd township |
Brodie | 100% | 2 patented mining claims | Bateman township |
DMC | 100% | 130 unpatented mining claims | Dome, McDonough, Bateman and Fairlie townships |
East Bay | 100% | 43 unpatented mining claims | Bateman and Black Bear townships |
Humlin | 100% | 31 unpatented mining claims | Fairlie township |
McCuaig Joint Venture | 60% | 3 unpatented mining claims | Dome township |
Red Lake North | 100% | 57 unpatented mining claims | Bateman, Black Bear Lake, McDonough and Coli Lake townships |
Schlasinger | 100% | 4 patented mining claims | Bateman township |
Slate Bay | 100% | 30 unpatented mining claims | McDonough, Dome and Graves townships |
West End | 100% | 3 unpatented claims | Todd township |
Wolf Bay | 50-100% | 21 unpatented mining claims | Todd township |
- 19 -
RUBICON MINERALS CORPORATION
Consolidated Statements of Cash Flows
(in Canadian Dollars, in thousands)
10. EXPLORATION AND EVALUATION ASSETS (continued)
English Royalty Division (“ERD”)
The Company holds ownership or royalty interests in a number of properties designated as the English Royalty Division. These properties, included in the ERD, are not explored by the Company but are held for the purpose of earning option and possible royalty income.
During 2013, the Company recorded cash and share receipts from options of $587 (2012 - $1,217) less costs of $197 (2012 - $325) for a gain from ERD operations of $390 (2012 - $892). ERD properties are carried at $nil.
Nevada-Utah Properties, USA
The Company’s properties in the USA as of December 31, 2012 are as follows
Property | Interest | Description | Location |
Nevada – Utah | Majority 100% owned (see below) | Approximately 225,000 acres (91,054 hectares) | Elko County, Nevada and Box Elder County, Utah |
West Kirkland Option
During 2011, the Company entered into an agreement with West Kirkland Mining Inc. (“West Kirkland”) whereby West Kirkland can earn a majority interest in all the mineral rights held by Rubicon in Nevada - Utah, along the Long Canyon Trend of north eastern Nevada. West Kirkland can earn 51% of the Company’s interest in the Company’s 100% owned lands, 68% of the Company’s interest in the Company’s 75% owned lands and 60% of the Company’s interest in the Company’s less than 75% owned lands by expending US$15 million over a four year period. On the properties where Rubicon owns a 100% interest, West Kirkland can further increase its interest to 60% by completing a pre-feasibility study or spending an additional US$4 million on exploration and development work.
West Kirkland completed its first year commitment of US $2 million of exploration in 2012.
On January 23, 2013, to allow for effective completion of annual work programs, the effective date of the option agreement for the annual work commitment was extended from June 23rd to December 31st of each year. In consideration of the current market conditions, on October 16, 2013 Rubicon granted West Kirkland a one year deferral of the annual earn-in expenditure commitments in exchange for 1,000,000 shares of West Kirkland Mining. West Kirkland has advised that they have spent $US1.1 million of the $3 million year 2 earn-in expenditures which are to be completed by December 31, 2014 (revised second year commitment date).
Alaska - New Horizon Property
In November 2012, the Company abandoned all of its New Horizon claims. As these claims had been carried at $nil, no further write-off was required. The Company currently holds no interest in any Alaska mineral properties.
- 20 -
RUBICON MINERALS CORPORATION
Consolidated Statements of Cash Flows
(in Canadian Dollars, in thousands)
11. | TRADE AND OTHER PAYABLES |
December 31 2013 | December 31 2012 | |||||||
$ | $ | |||||||
Trade payables | 4,842 | 3,858 | ||||||
Construction holdbacks | 1,308 | 2,157 | ||||||
Payables to related party (note 16) | 65 | 100 | ||||||
Compensation payable | 547 | 1,923 | ||||||
Accrued liabilities | 15,246 | 8,630 | ||||||
Other | - | 5 | ||||||
Total | 22,008 | 16,673 |
12. | FINANCE LEASE OBLIGATION |
On September 5, 2012, the Company entered into a finance lease transaction with respect to several temporary buildings on the mine-site. The lease has a twenty-two month term, carries an incremental borrowing rate of 13%, and allows the Company to purchase the assets at the end of the term for $50,000.
Less than 1 year | More than 1 year | Total | ||||||||||
$ | $ | $ | ||||||||||
Total future minimum lease payments | 214 | - | 214 | |||||||||
Less amount representing interest | (11 | ) | - | (11 | ) | |||||||
Finance lease obligation | 203 | - | 203 |
13. | PROVISION FOR CLOSURE AND RECLAMATION |
The Company’s provision for closure and reclamation is for its Phoenix Gold Project which is currently at the advanced exploration stage. Closure and reclamation activities related to this project will include land rehabilitation, demolition of buildings and processing facilities, ongoing care and maintenance and other costs.
The current estimated value of the future liability is $2,794 (December 31, 2012 - $3,357).
The estimated closure costs of the Phoenix Gold project, based on the current condition of the site, were inflation adjusted to the estimated date of site remediation, which is 16 years from December 31, 2013, and then discounted back to the year-
end using an estimate of the risk free rate of 2.77% (2012 – 1.87%). Accretion of the discount during the year was recorded to interest expense. The revision to the value of the future liability, amounting to $(639) (2012 - $1,397), was recognized at year end with an offsetting amount deducted from exploration and evaluation assets. The decrease in the estimated closure and reclamation costs are mostly due to an increase in the discount rate.
Changes to this provision during the year are summarized as follows:
$ | ||||
Balance January 1, 2012 | 1,923 | |||
Accretion | 37 | |||
Revision of estimate | 1,397 | |||
Balance December, 31, 2012 | 3,357 | |||
Accretion | 76 | |||
Revision of estimate | (639 | ) | ||
Balance December 31, 2013 | 2,794 |
- 21 -
RUBICON MINERALS CORPORATION
Consolidated Statements of Cash Flows
(in Canadian Dollars, in thousands)
14. | SHARE CAPITAL |
(a) | Share capital |
Authorized share capital consists of unlimited common shares without par value
On February 29, 2012, the Company closed a public offering and issued 49,000,000 common shares of the Company at a price of $4.10 per common share for total gross proceeds of $200,900,000. Total share issue costs amounted to $9,027,017 which included an underwriter’s commission of 4%.
(b) | Stock Options |
The Company’s incentive stock option plan was approved by its shareholders on June 28, 2011. The plan authorizes the Company to issue up to 7.25% of the number of issued and outstanding shares as incentive stock options to directors, officers, employees and consultants of the Company. Pursuant to Toronto Stock Exchange rules, a stock option plan must be approved by the shareholders when adopted and thereafter any unallocated options under the plan must be approved by the shareholders every three years.
Under the plan, there are no required vesting terms for options. The term of each grant shall be no greater than 10 years from the date of grant. The option price shall be no less than the fair market value of the Company’s shares on the date of the grant.
The following is a summary of the changes in the Company’s outstanding stock options:
2013 | 2012 | |||||||||||||||
Number of Shares | Weighted Average Exercise Price | Number of Shares | Weighted Average Exercise Price | |||||||||||||
$ | $ | |||||||||||||||
Balance at beginning of year | 13,815,826 | 3.80 | 9,895,996 | 3.84 | ||||||||||||
Granted | 3,041,100 | 1.87 | 5,272,230 | 3.61 | ||||||||||||
Exercised(1) | (1,092,500 | ) | 1.08 | (572,500 | ) | 1.50 | ||||||||||
Forfeited/expired | (444,196 | ) | 4.52 | (779,900 | ) | 4.78 | ||||||||||
Outstanding at end of year | 15,320,230 | 3.59 | 13,815,826 | 3.80 | ||||||||||||
Exercisable at end of year | 11,839,130 | 4.05 | 9,725,211 | 3.87 |
1 The weighted average share price at the time of exercise was $2.23 (2012 - $3.33).
The following is a summary of outstanding stock options:
December 31, 2013 | ||||||||||||||
Option Price Range | Number Outstanding | Weighted Average Price | Weighted Average Life | |||||||||||
$ | Years | |||||||||||||
$ | 1.28 - $1.46 | 2,155,000 | 1.30 | 0.96 | ||||||||||
$ | 1.47 - $3.63 | 4,951,100 | 2.43 | 3.73 | ||||||||||
$ | 3.64 - $4.53 | 3,451,830 | 4.02 | 2.55 | ||||||||||
$ | 4.54 - $5.22 | 2,310,000 | 5.22 | 1.04 | ||||||||||
$ | 5.23 - $5.80 | 2,452,300 | 5.80 | 2.04 | ||||||||||
Total Stock Options | 15,320,230 | 3.59 | 2.40 |
- 22 -
RUBICON MINERALS CORPORATION
Consolidated Statements of Cash Flows
(in Canadian Dollars, in thousands)
14. SHARE CAPITAL (continued)
The fair value of stock options granted during the year, has been estimated using the Black-Scholes Option Pricing Model based on the following weighted average assumptions:
2013 | 2012 | |||||||
Weighted average share price | $ | 1.87 | $ | 3.61 | ||||
Weighted average exercise price | $ | 1.87 | $ | 3.61 | ||||
Risk-free interest rate | 1.3 | % | 1.08 | % | ||||
Expected life | 3.4 Years | 3.6 Years | ||||||
Expected volatility | 59 | % | 60 | % | ||||
Expected dividend yield | 0 | % | 0 | % |
The risk-free interest rate assumption is based on Canadian government bonds with terms matching the expected life of the stock options. The expected volatility assumption is based on the historical volatility of the Company’s share price on the Toronto Stock Exchange over the recent past period equal to the expected life of the stock options.
The weighted average fair value of options granted during 2013 was $0.80 (2012 - $1.58).
Option pricing models require the input of highly subjective assumptions, particularly as to the expected price volatility of the stock. Changes in these assumptions can materially affect the fair value estimate and therefore it is management’s view that the existing models do not necessarily provide a single reliable measure of the fair value of the Company’s stock option grants.
Performance Stock Options |
On June 6, 2012, the Company granted 1,400,000 stock options to an executive officer. Of the options granted, 400,000 options vested within 1 year of the grant date and the remaining 1,000,000 options (“the Performance Stock Options”) vest based on milestones related to certain of the Company’s objectives. During the year, 500,000 of these Performance Stock Options vested and 500,000 remain unvested. Subject to the vesting of these Performance Stock Options, the Performance Stock Options are exercisable at $2.94 per share for a period of five years from the date of grant. These stock options are included in all the above stock option tables.
The fair value of the Performance Stock Options granted during the period was estimated at the grant date using the Black Scholes option pricing model with the expense being recognized over the expected vesting term. The amount of expense recognized to subsequent period ends will be adjusted for any change in the estimated vesting period and any change to this expense will be recorded in the period of the change. The expense recorded relating to the Performance Stock Options during the year is $541,289 (2012 - $763,379).
- 23 -
RUBICON MINERALS CORPORATION
Consolidated Statements of Cash Flows
(in Canadian Dollars, in thousands)
14. SHARE CAPITAL (continued)
(c) | Stock Appreciation Rights |
The following is a summary of the changes in the Company’s outstanding stock appreciation rights (“SARS”):
Year Ended December 31, 2013 | Year Ended December 31, 2012 | |||||||||||||||
Number of SARS | Weighted Average Exercise Price | Number of SARS | Weighted Average Exercise Price | |||||||||||||
$ | $ | |||||||||||||||
Balance at the beginning of the year | 400,000 | 3.71 | 290,000 | 4.09 | ||||||||||||
Granted | - | 3.23 | 200,000 | 3.23 | ||||||||||||
Exercised | - | 3.88 | (50,000 | ) | 3.88 | |||||||||||
Converted to stock options | - | 3.88 | (40,000 | ) | 3.88 | |||||||||||
Outstanding, end of the year | 400,000 | 3.71 | 400,000 | 3.71 | ||||||||||||
Exercisable, end of the year | 400,000 | 3.71 | 200,000 | 4.18 |
The amount of cash payable under these stock appreciation rights will be an amount that will achieve the same after tax receipt of funds as the exercise of an equivalent number of stock options, followed by an immediate sale of the stock. At December 31, 2013, the total liability outstanding for SARs calculated using the Black-Scholes formula was $34,667 (December 31, 2012 - $276,000)
On July 30, 2012, the Company also granted 200,000 stock options to a director of the Company, intended as a replacement for 200,000 SARS granted on the same day but only to be effective if approved by the shareholders of the Company on or before the 2013 annual general meeting of the Company. As no approval was received, these options are now void.
15. | INCOME TAXES |
The following is a reconciliation of income taxes at statutory rates:
2013 | 2012 | |||||||
$ | $ | |||||||
Net loss for the year, before taxes | (8,344 | ) | (10,320 | ) | ||||
Blended statutory tax rate | 26.5 | % | 26.5 | % | ||||
Expected income tax recovery | 2,211 | 2,735 | ||||||
Net adjustment for current, deductible and non-deductible amounts: | ||||||||
Non-deductible amounts | (566 | ) | (1,102 | ) | ||||
Adjustment to prior years | 2,272 | 813 | ||||||
Change in unrecognized tax assets | (3,756 | ) | (4,014 | ) | ||||
Share issue costs | 1 | 1,505 | ||||||
Other | (1 | ) | 16 | |||||
Income tax recovery (expense), net | 161 | (47 | ) |
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RUBICON MINERALS CORPORATION
Consolidated Statements of Cash Flows
(in Canadian Dollars, in thousands)
15. INCOME TAXES (continued)
The significant components of the Company’s deferred income tax assets (liabilities) are as follows:
2013 | 2012 | |||||||
$ | $ | |||||||
Deferred income tax assets recognized: | ||||||||
Tax loss Carry-forwards | - | 1,719 | ||||||
Equipment and intangible tax pools in excess of carrying value | 1,268 | 780 | ||||||
Share issue costs and other | 1,941 | 3,581 | ||||||
Deferred income tax assets recognized | 3,209 | 6,080 | ||||||
Deferred income tax liabilities recognized: | ||||||||
Net mineral property carrying amounts in excess of tax pools | (3,234 | ) | (6,266 | ) | ||||
Deferred income tax liabilities recognized | (3,234 | ) | (6,266 | ) | ||||
Net deferred income tax liability recognized | (25 | ) | (186 | ) | ||||
Deferred income tax assets not recognized: | ||||||||
Equipment and intangible tax pools in excess of carrying value | 703 | - | ||||||
Tax loss carry-forwards | 10,706 | 7,266 | ||||||
Total unrecognized deferred income tax asset | 11,409 | 7,266 |
The Company has Canadian non-capital losses of approximately $35 million (2012 - $28 million), and $896 of US non-capital losses which are available to reduce future taxable income and which expire between 2014 and 2034. Subject to certain restrictions the Company also has mineral property expenditures of approximately $275 million (2012 – $222 million) available to reduce taxable income in future years.
16. | RELATED PARTY TRANSACTIONS |
For the year ended December 31, 2013, the Company paid legal fees to a law firm, of which a partner is a director of the Company, aggregating to $1,282 (2012 - $1,857). The fees are recorded within professional expenses, mineral property acquisition costs, investments and share issue costs in these financial statements. As at December 31, 2013, this law firm is owed $65 (2012 - $100). All these transactions were recorded at their fair value amounts and were incurred in the normal course of business.
Key Management Personnel Compensation
Compensation | 2013 | 2012 | ||||||
$ | $ | |||||||
Short-term employee benefits | 3,000 | 3,643 | ||||||
Termination benefits | 2,025 | - | ||||||
Share-based payments | 1,793 | 4,406 | ||||||
6,818 | 8,049 |
A change in control of the Company could potentially result in the payment of approximately $2.7 million in termination benefits to the Company’s officers.
Key management personnel include the Company’s directors and officers.
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RUBICON MINERALS CORPORATION
Consolidated Statements of Cash Flows
(in Canadian Dollars, in thousands)
17. | GENERAL AND ADMINISTRATIVE |
2013 | 2012 | |||||||
$ | $ | |||||||
Insurance | 412 | 433 | ||||||
Office and rent | 537 | 368 | ||||||
Transfer agent and regulatory filing fees | 354 | 383 | ||||||
Travel and accommodation | 461 | 307 | ||||||
Other | 8 | 16 | ||||||
Total | 1,772 | 1,507 |
18. | INVESTOR RELATIONS |
2013 | 2012 | |||||||
$ | $ | |||||||
Salaries & benefits | 434 | 850 | ||||||
Travel & accommodation | 79 | 106 | ||||||
Shareholder communication | 156 | 130 | ||||||
Other | 48 | 124 | ||||||
Total | 717 | 1,210 |
19. | COMMITMENTS AND CONTINGENCY |
(a) | At December 31, 2013, the Company has the following lease, rental and contractual commitments, made for the Company’s office premises, staff accommodations and various contractual obligations made for the acquisition of equipment and to further develop the Company’s Phoenix Gold Project: |
December 31 2013 | December 31 2012 | |||||||
$ | $ | |||||||
Less than 1 year | 6,361 | 12,049 | ||||||
Between 1 and 2 years | 256 | 73 | ||||||
Total | 6,617 | 12,122 |
(b) | The Company is required to make certain cash payments, incur exploration costs and pay certain advance royalty amounts (note 10) to maintain its mineral properties in good standing. These payments and costs are at the Company’s discretion and are based upon available financial resources and the exploration merits of the mineral properties which are evaluated on a periodic basis. |
(c) | On December 12, 2012, the Company noted that it had been named in a petition brought by Wabauskang First Nation for judicial review focused on the Province of Ontario’s authority to approve a production closure plan and challenging the discharge of the duty to consult. A three way hearing has been scheduled with the Ontario Divisional Court to hear the application for judicial review in mid-April 2014. The Company intends to vigorously defend its consultation record and the petition which it believes to be without merit. |
20. | SEGMENTED INFORMATION |
The Company conducts its business as a single operating segment being the mining business in North America. All assets, liabilities and operating activities are based in Canada with the exception of the Company’s Nevada based mineral properties which are disclosed in note 10. Investment revenues were earned principally from Canadian sources.
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RUBICON MINERALS CORPORATION
Consolidated Statements of Cash Flows
(in Canadian Dollars, in thousands)
21. | SUPPLEMENTAL CASH FLOW AND NON-CASH ACTIVITIES |
Cash and cash equivalents are comprised of the following:
December 31 2013 | December 31 2012 | |||||||
$ | $ | |||||||
Cash | 7,501 | 6,806 | ||||||
Government of Canada treasury bills, provincial government promissory notes, bank guaranteed investment certificates and high interest savings accounts | 60,327 | 43,983 | ||||||
67,828 | 50,789 |
The Company has excluded from net cash from (used in) investing activities for the twelve months ended December 31, 2013, changes in accounts payable relating to exploration and evaluation expenditures of $14,654 (December 31, 2012 – $9,175) and property, plant and equipment expenditures of $5,843 (December 31, 2012 – $4,461). Other non-cash items excluded from net cash from (used in) investing activities for the twelve months ended December 31, 2013 include $219 (December 31, 2012 – $2,841) recorded in exploration and evaluation expenditures for stock-based compensation awarded to personnel working on mineral properties and $1,755 (December 31, 2012 – $1,496) recorded in exploration and evaluation expenditures for depreciation.
22. | SUBSEQUENT EVENTS |
(a) | Royal Gold Inc. Gold Stream Agreement |
On February 10, 2014, the Company signed a gold stream agreement with Royal Gold Inc. and its subsidiary (”Royal Gold”) pursuant to which the Company agreed to sell 6.30% of future gold production from the Phoenix Gold Project to Royal Gold to a maximum of 135,000 ounces of gold and then 3.15% thereafter. In consideration, Royal Gold will pay US$75.0 million to the Company as a deposit on the purchase price. The Company has received US$10.0 million upon the execution of the agreement and US$20.0 million on closing of the agreement. Rubicon will receive the balance of the deposit in three instalments of US$15 million at spaced intervals between March 15, 2014 and September 15, 2014. Payment of the final three instalments is contingent upon the Company securing sufficient financing to complete construction of the Phoenix Gold Project and meeting construction completion targets for the Phoenix Gold Project. The financing requirement was met on the closing of the public offering discussed at note 22(b) below.
Upon delivery of gold to Royal Gold, Royal Gold will pay the current market price on the first 135,000 ounces by way of allocation of the deposit to satisfy 75% of the payment. In addition the Company will receive a cash payment equal to 25% of the spot gold price. After the deposit has been drawn down to nil, Royal Gold will make a cash payment for all future gold deliveries equal to 25% of the spot gold price.
Repayment of the deposit is secured on the assets of the Phoenix Gold Project. Rubicon has the right to raise up to US$100 million of debt financing that will rank in priority to the gold stream deposit. In the event that Royal Gold’s interest is subordinated to more than US$50 million of debt, Royal Gold’s additional cash payments for gold deliveries will be reduced from 25% of market price by 5.4% multiplied by the amount of the senior debt outstanding and drawn in excess of US$50 million divided by US$50 million.
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RUBICON MINERALS CORPORATION
Consolidated Statements of Cash Flows
(in Canadian Dollars, in thousands)
22. | SUBSEQUENT EVENTS (continued) |
(b) | Public Offering |
On March 12, 2014, the Company closed a public offering and issued 74,290,000 units consisting of one common share of the Company (“Share”) and one half of one common share purchase warrant (“Warrant”) at a price of $1.55 per unit (“Unit”) for total gross proceeds of $115,149,500. Each whole Warrant gives the holder the right to purchase one Share in the Company for a price of $2.00 per Share, exercisable up to and including March 12, 2015. The proceeds are inclusive of an overallotment option which was fully exercised on closing.
Share issue costs are estimated to be approximately $7,400,000 including an underwriter’s commission of 5% of the gross proceeds.