Exhibit 99.2
| |
| Condensed Consolidated Financial Statements |
| (in United States Dollars, unless otherwise stated) |
June 30, 2014
 |
| CONDENSED CONSOLIDATED BALANCE SHEETS |
| (unaudited, in thousands of United States dollars) |
| | | June 30 | | | December 31 | |
| As at | | 2014 | | | 2013 | |
| | | | | | | |
ASSETS | | | | | | |
Current assets | | | | | | |
Cash and cash equivalents | $ | 140,574 | | $ | 142,652 | |
Restricted cash | | - | | | 2,204 | |
Receivables | | 16,418 | | | 29,254 | |
Current income tax receivable | | 5,318 | | | 27,936 | |
Inventories (Note 4) | | 92,396 | | | 84,643 | |
Prepaids and deposits | | 4,215 | | | 5,250 | |
| | 258,921 | | | 291,939 | |
| | | | | | |
Non-current assets | | | | | | |
Investments (Note 5) | | 267 | | | 15,551 | |
Long-term inventories (Note 4) | | 104,664 | | | 93,696 | |
Investment in jointly-controlled entity | | 17,839 | | | 17,930 | |
Other long-term assets | | 64,074 | | | 71,988 | |
Property, plant and equipment & mining interests (Note 6) | | 1,697,966 | | | 1,675,955 | |
Intangible assets (Note 7) | | 46,161 | | | 53,656 | |
Goodwill | | 241,693 | | | 241,693 | |
| $ | 2,431,585 | | $ | 2,462,408 | |
| | | | | | |
LIABILITIES | | | | | | |
Current liabilities | | | | | | |
Trade payables and accrued liabilities | $ | 58,128 | | $ | 76,923 | |
Dividend payable (Note 11(b)) | | - | | | 9,960 | |
Current income tax liability | | 3,690 | | | 3,966 | |
Current portion of debt and equipment financing obligations (Note 9) | | 6,869 | | | 7,355 | |
Current portion of provisions (Note 10) | | 2,452 | | | 15,955 | |
| | 71,139 | | | 114,159 | |
| | | | | | |
Non-current liabilities | | | | | | |
Debt and equipment financing obligations (Note 9) | | 307,253 | | | 244,194 | |
Option component of convertible senior notes | | - | | | 413 | |
Provisions | | 29,186 | | | 28,580 | |
Deferred income tax liability | | 275,000 | | | 287,180 | |
| | 682,578 | | | 674,526 | |
| | | | | | |
SHAREHOLDERS' EQUITY | | | | | | |
Capital stock (Note 11) | | 2,025,150 | | | 2,021,837 | |
Contributed surplus | | 59,390 | | | 55,945 | |
Deficit | | (335,368 | ) | | (284,632 | ) |
Accumulated other comprehensive loss | | (165 | ) | | (5,268 | ) |
| | | 1,749,007 | | | 1,787,882 | |
| | $ | 2,431,585 | | $ | 2,462,408 | |
| | | | | | | |
| | | | | | | |
| Events after the reporting period (Note 19) | | | | | | |
| See accompanying notes to the unaudited condensed consolidated financial statements | 1 |
|
| CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS |
| (unaudited, in thousands of United States dollars) |
| | | Three Months Ended | | | Six Months Ended | |
| | | June 30 | | | June 30 | | | June 30 | | | June 30 | |
| | | 2014 | | | 2013 | | | 2014 | | | 2013 | |
| | | | | | | | | | | | | |
Revenue from mining operations | $ | 75,530 | | $ | 57,660 | | $ | 146,483 | | $ | 122,545 | |
| | | | | | | | | | | | |
Cost of sales: | | | | | | | | | | | | |
Production costs (Note 4) | | 48,691 | | | 39,055 | | | 96,584 | | | 66,930 | |
Refining costs | | 155 | | | 125 | | | 295 | | | 250 | |
Amortization and depletion (Note 4) | | 34,785 | | | 14,455 | | | 63,378 | | | 25,923 | |
Reclamation, care and maintenance costs | | 2,270 | | | 985 | | | 3,205 | | | 2,242 | |
Total cost of sales | | 85,901 | | | 54,620 | | | 163,462 | | | 95,345 | |
| | | | | | | | | | | | |
General and administrative | | 5,663 | | | 7,743 | | | 14,919 | | | 14,122 | |
Exploration and business development | | 259 | | | 283 | | | 459 | | | 549 | |
Impairment charges (Note 8) | | - | | | 98,688 | | | - | | | 98,688 | |
Loss from operations (Note 12) | | (16,293 | ) | | (103,674 | ) | | (32,357 | ) | | (86,159 | ) |
| | | | | | | | | | | | |
Finance costs | | (5,901 | ) | | (565 | ) | | (7,918 | ) | | (1,136 | ) |
Foreign exchange (loss) / gain | | (6,984 | ) | | 8,418 | | | (1,460 | ) | | 8,566 | |
Other (loss) / income (Note 13) | | (3,878 | ) | | (642 | ) | | (15,360 | ) | | 6,124 | |
Equity in income / (loss) of jointly-controlled entity | | - | | | 960 | | | (92 | ) | | (56 | ) |
Loss before income taxes | | (33,056 | ) | | (95,503 | ) | | (57,187 | ) | | (72,661 | ) |
| | | | | | | | | | | | |
Deferred income tax (recovery) / expense | | (16,360 | ) | | 7,301 | | | (11,793 | ) | | 7,036 | |
Current income tax expense (Note 14) | | 80 | | | 687 | | | 273 | | | 5,520 | |
| | (16,280 | ) | | 7,988 | | | (11,520 | ) | | 12,556 | |
| | | | | | | | | | | | |
Net loss | $ | (16,776 | ) | $ | (103,491 | ) | $ | (45,667 | ) | $ | (85,217 | ) |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
Loss per share (Note 15) | | | | | | | | | | | | |
Basic loss per share | $ | (0.07 | ) | $ | (0.42 | ) | $ | (0.18 | ) | $ | (0.34 | ) |
Diluted loss per share | $ | (0.07 | ) | $ | (0.42 | ) | $ | (0.18 | ) | $ | (0.34 | ) |
Weighted average shares outstanding (Note 15) | | | | | | | | | | | | |
Basic | | 248,495,726 | | | 247,025,811 | | | 248,343,301 | | | 253,288,330 | |
Diluted | | 248,495,726 | | | 247,025,811 | | | 248,343,301 | | | 253,288,330 | |
| | | | | | | | | | | | | |
| See accompanying notes to the unaudited condensed consolidated financial statements | 2 |
|
| CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME |
| (unaudited, in thousands of United States dollars) |
| | | Three Months Ended | | | Six Months Ended | |
| | | June 30 | | | June 30 | | | June 30 | | | June 30 | |
| | | 2014 | | | 2013 | | | 2014 | | | 2013 | |
Net loss | $ | (16,776 | ) | $ | (103,491 | ) | $ | (45,667 | ) | $ | (85,217 | ) |
Items that may be reclassified subsequently to net loss: | | | | | | | | | | | | |
Unrealized gain / (loss) on investments | | 5 | | | (357 | ) | | 2,596 | | | (737 | ) |
Reclassification of accumulated (gains) / losses on investments to net loss | | (233 | ) | | - | | | 2,507 | | | 128 | |
Total other comprehensive (loss) / income | | (228 | ) | | (357 | ) | | 5,103 | | | (609 | ) |
Comprehensive loss | $ | (17,004 | ) | $ | (103,848 | ) | $ | (40,564 | ) | $ | (85,826 | ) |
| | | | | | | | | | | | | |
| See accompanying notes to the unaudited condensed consolidated financial statements | 3 |
|
| CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS |
| (unaudited, in thousands of United States dollars) |
| | | Three Months Ended | | | Six Months Ended | |
| | | June 30 | | | June 30 | | | June 30 | | | June 30 | |
| | | 2014 | | | 2013 | | | 2014 | | | 2013 | |
| | | | | | | | | | | | | |
OPERATING ACTIVITIES | | | | | | | | | | | | |
Net loss | $ | (16,776 | ) | $ | (103,491 | ) | $ | (45,667 | ) | $ | (85,217 | ) |
Proceeds from settlement of derivative assets | | - | | | (546 | ) | | - | | | (528 | ) |
Payments to settle other liabilities | | - | | | - | | | - | | | (2,750 | ) |
Payments to settle provisions | | (2,215 | ) | | (1,245 | ) | | (2,215 | ) | | (3,033 | ) |
Adjustments to reconcile net loss to operating cash flows (Note 16) | | 31,249 | | | 123,973 | | | 73,609 | | | 130,341 | |
Change in non-cash operating working capital (Note 16) | | (7,609 | ) | | (4,816 | ) | | 3,413 | | | (11,839 | ) |
Operating cash flows | | 4,649 | | | 13,875 | | | 29,140 | | | 26,974 | |
INVESTING ACTIVITIES | | | | | | | | | | | | |
Expenditures on property, plant and equipment, mining interests and intangible assets | | (41,116 | ) | | (60,274 | ) | | (96,728 | ) | | (105,778 | ) |
Proceeds from retained interest royalty (Note 7) | | 2,463 | | | - | | | 2,463 | | | - | |
Decrease / (increase) in restricted cash (Note 9) | | 179,633 | | | (455 | ) | | 5,877 | | | (1,686 | ) |
Purchase of investments (Note 5) | | - | | | (916 | ) | | - | | | (2,288 | ) |
Sale of investments (Note 5) | | 9,298 | | | - | | | 23,284 | | | - | |
Investing cash flows | | 150,278 | | | (61,645 | ) | | (65,104 | ) | | (109,752 | ) |
FINANCING ACTIVITIES | | | | | | | | | | | | |
Repayment of debt and equipment financing obligations (Note 9) | | (174,491 | ) | | (1,217 | ) | | (250,892 | ) | | (2,416 | ) |
Proceeds from debt and equipment financing obligations (Note 9) | | - | | | - | | | 305,314 | | | - | |
Payment of financing fees on debt | | (1,620 | ) | | - | | | (7,535 | ) | | - | |
Payment of dividends | | (4,338 | ) | | (9,871 | ) | | (13,003 | ) | | (9,871 | ) |
Proceeds from exercise of stock options | | - | | | - | | | 2 | | | 3,094 | |
Shares repurchased and cancelled (Note 11(a)) | | - | | | - | | | - | | | (301,066 | ) |
Financing cash flows | | (180,449 | ) | | (11,088 | ) | | 33,886 | | | (310,259 | ) |
Impact of foreign exchange on cash | | 786 | | | (649 | ) | | - | | | (659 | ) |
| | | | | | | | | | | | |
Net decrease in cash | | (24,736 | ) | | (59,507 | ) | | (2,078 | ) | | (393,696 | ) |
Cash and cash equivalents, beginning of period | | 165,310 | | | 269,212 | | | 142,652 | | | 603,401 | |
Cash and cash equivalents, end of period | $ | 140,574 | | $ | 209,705 | | $ | 140,574 | | $ | 209,705 | |
| | | | | | | | | | | | | |
| See accompanying notes to the unaudited condensed consolidated financial statements | 4 |
|
| CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY |
| (unaudited, in thousands of United States dollars) |
| For the six months ended June 30 | | 2014 | | | 2013 | |
| | | | | | | |
Capital stock | | | | | | |
Balance, beginning of period | $ | 2,021,837 | | $ | 2,307,978 | |
Shares repurchased and cancelled (Note 11(a)) | | - | | | (295,536 | ) |
Shares issued through dividend reinvestment plan | | 1,871 | | | - | |
Shares issued through employee share purchase plan | | 1,077 | | | 1,009 | |
Shares issued on redemption of deferred share units | | 359 | | | 499 | |
Shares issued for cash pursuant to exercise of stock options | | 2 | | | 3,094 | |
Fair value of share-based compensation on stock options exercised | | 4 | | | 1,825 | |
Balance, end of period | $ | 2,025,150 | | $ | 2,018,869 | |
| | | | | | |
| | | | | | |
Contributed surplus | | | | | | |
Balance, beginning of period | $ | 55,945 | | $ | 50,881 | |
Fair value of deferred share units redeemed | | (359 | ) | | (499 | ) |
Fair value of share-based compensation on stock options exercised | | (4 | ) | | (1,825 | ) |
Share-based compensation | | 3,808 | | | 3,691 | |
Balance, end of period | $ | 59,390 | | $ | 52,248 | |
| | | | | | |
| | | | | | |
Deficit | | | | | | |
Balance, beginning of period | $ | (284,632 | ) | $ | (62,917 | ) |
Dividends declared (Note 11(b)) | | (5,069 | ) | | (19,723 | ) |
Premium on shares repurchased and cancelled (Note 11(a)) | | - | | | (5,530 | ) |
Net loss | | (45,667 | ) | | (85,217 | ) |
Balance, end of period | $ | (335,368 | ) | $ | (173,387 | ) |
| | | | | | |
| | | | | | |
Accumulated other comprehensive loss from available-for-sale investments | | | | | | |
Balance, beginning of period | $ | (5,268 | ) | $ | (105 | ) |
Other comprehensive income / (loss) | | 5,103 | | | (609 | ) |
Balance, end of period | $ | (165 | ) | $ | (714 | ) |
| | | | | | |
| | | | | | |
Total shareholders' equity | $ | 1,749,007 | | $ | 1,897,016 | |
| | | | | | | |
| See accompanying notes to the unaudited condensed consolidated financial statements | 5 |
|
| NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS |
| (unaudited, in thousands of United States dollars unless otherwise stated) |
AuRico Gold Inc. and its subsidiaries (collectively, the “Company” or “AuRico Gold”) are engaged in the mining, development and exploration of resource properties. AuRico Gold Inc. is a publicly traded company with common shares listed on the Toronto Stock Exchange (TSX: AUQ) and the New York Stock Exchange (NYSE: AUQ). The Company is incorporated and domiciled in Canada and its head office and registered office is located at 110 Yonge Street, Suite 1601, Toronto, Ontario, M5C 1T4.
The condensed consolidated financial statements of the Company and its subsidiaries were authorized for issue in accordance with a resolution of the Board of Directors dated August 7, 2014.
| | |
| 2. | Basis of preparation and statement of compliance |
These condensed consolidated interim financial statements are prepared in accordance with IAS 34,Interim Financial Reporting(“IAS 34”) as issued by the International Accounting Standards Board (“IASB”). These statements were prepared using the same accounting policies and methods of computation as the Company’s consolidated financial statements for the year ended December 31, 2013, except as disclosed below in note 3(a).
These condensed consolidated interim financial statements do not include all disclosures required by International Financial Reporting Standards (“IFRS”) for annual consolidated financial statements and accordingly should be read in conjunction with the Company’s audited consolidated financial statements for the year ended December 31, 2013 prepared in accordance with IFRS as issued by the IASB.
| | |
| 3. | Accounting changes and recent pronouncements |
| | |
| (a) | Adoption of new accounting standards |
The Company adopted the following accounting standards and amendments to accounting standards, effective January 1, 2014:
IFRIC 21,Levies, sets out criteria for the recognition of liabilities for levies imposed by governments. The IFRIC identifies the obligating event for the recognition of a liability as the activity triggers the payment of the levy in accordance with the relevant legislation. There was no impact on the Company’s condensed consolidated interim financial statements upon the adoption of this interpretation.
Amendments to IAS 32,Financial Instruments: Presentation,clarify situations in which an entity has a legally enforceable right to set-off a financial liability and financial asset. The amendments to IAS 32 also clarify when a settlement mechanism provides for net settlement or gross settlement that is equivalent to net settlement. There was no impact on the Company’s condensed consolidated interim financial statements upon the adoption of these amendments.
Amendments to IAS 36,Impairment of assets,were issued by the IASB in May 2013. These amendmentsaddress the circumstances in which the recoverable amount of assets or cash-generating units is required to be disclosed, clarify the disclosures required, and introduce a requirement to disclose the discount rate used in determining impairment (or reversals) where the recoverable amount (based on fair value less costs of disposal) is determined using a present value technique. There was no impact on the Company’s condensed consolidated interim financial statements upon the adoption of these amendments.
| (b) | Standards issued but not yet adopted |
For the purposes of preparing and presenting the Company’s condensed consolidated interim financial statements, the Company has adopted all standards and interpretations issued other than those discussed below. These standards have not been adopted because they are not effective for the Company until subsequent to December 31, 2014. Standards and interpretations issued, but not yet adopted include:
| | Effective for the Company |
| Amendments to IAS 19,Employee Benefits | January 1, 2015 |
| Amendments to IAS 16,Property, Plant and Equipment | January 1, 2016 |
| Amendments to IAS 38,Intangibles | January 1, 2016 |
| IFRS 15,Revenue from Contracts with Customers | January 1, 2017 |
| IFRS 9,Financial Instruments | January 1, 2018 |
6
|
| NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS |
| (unaudited, in thousands of United States dollars unless otherwise stated) |
The proposed amendments to IAS 19,Employee Benefits,clarify benefit and medical cost actuarial assumptions used in calculation of the present value of defined benefit obligations and current service cost. This amendment is not anticipated to impact the Company’s consolidated financial statements as there are no defined benefit obligations.
In May 2014, the IASB issued amendments to IAS 16,Property, Plant and Equipmentand IAS 38,Intangibles.These amendments prohibit the use of revenue-based depreciation methods for property, plant and equipment and limit the use of revenue-based amortization for intangible assets. These amendments are effective for annual periods beginning on or after January 1, 2016 and are to be applied prospectively. These amendments are not anticipated to impact the Company’s consolidated financial statements as it does not use revenue-based depreciation or revenue-based amortization.
In May 2014, the IASB issued IFRS 15,Revenue from Contracts with Customers. The standard replaces IAS 11,Construction Contracts;IAS 18,Revenue;IFRIC 13,Customer Loyalty Programmes;IFRIC 15,Agreements for the Construction of Real Estate;IFRIC 18,Transfer of Assets from Customers; andSIC 31,Revenue – Barter Transactions Involving Advertising Services. This standard establishes principles for reporting the nature, amount, timing, and uncertainty of revenue and cash flows arising from an entity’s contract with customers. This standard is effective for annual periods beginning on or after January 1, 2017, and permits early adoption. The Company is currently evaluating the impact of this standard on its consolidated financial statements.
In July 2014, the IASB issued IFRS 9,Financial Instruments,which will replace IAS 39,Financial Instruments: Recognition and Measurement. The replacement standard provides a new model for the classification and measurement of financial instruments. The IASB has determined the revised effective date for IFRS 9 will be for annual periods beginning on or after January 1, 2018.The Company will evaluate the impact of the change to the consolidated financial statements based on the characteristics of financial instruments outstanding at the time of adoption.
| | | June 30 | | | December 31 | |
| | | 2014 | | | 2013 | |
Supplies | $ | 19,083 | | $ | 17,391 | |
Ore stockpiles | | 36,936 | | | 35,122 | |
Ore in process | | 136,388 | | | 117,984 | |
Finished goods | | 4,653 | | | 7,842 | |
| | 197,060 | | | 178,339 | |
Less: Long-term inventories | | (104,664 | ) | | (93,696 | ) |
| $ | 92,396 | | $ | 84,643 | |
As at June 30, 2013, the carrying value of the El Chanate ore in process heap leach inventory and the Young-Davidson low grade long-term stockpile inventory exceeded their net realizable values. As a result, the Company recognized net realizable value adjustments, which impacted production costs and amortization and depletion by the amounts discussed below:
| | | Three months ended | | | Six months ended | |
| | | June 30 | | | June 30 | | | June 30 | | | June 30 | |
| | | 2014 | | | 2013 | | | 2014 | | | 2013 | |
Operating production costs | $ | 48,691 | | $ | 28,951 | | $ | 96,584 | | $ | 56,826 | |
Net realizable value adjustment | | | | | | | | | | | | |
El Chanate | | - | | | 6,521 | | | - | | | 6,521 | |
Young-Davidson | | - | | | 3,583 | | | - | | | 3,583 | |
Production costs | $ | 48,691 | | $ | 39,055 | | $ | 96,584 | | $ | 66,930 | |
| | | | | | | | | | | | |
Operating amortization and depletion | $ | 34,785 | | $ | 12,314 | | $ | 63,378 | | $ | 23,782 | |
Net realizable value adjustment | | | | | | | | | | | | |
El Chanate | | - | | | 572 | | | - | | | 572 | |
Young-Davidson | | - | | | 1,569 | | | - | | | 1,569 | |
Amortization and depletion | $ | 34,785 | | $ | 14,455 | | $ | 63,378 | | $ | 25,923 | |
Ore inventories carried at fair value less cost to sell totalled $56,361 at June 30, 2014 (December 31, 2013 - $74,074).
7
|
| NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS |
| (unaudited, in thousands of United States dollars unless otherwise stated) |
Ore in process inventory at June 30, 2014 included $5,605 (December 31, 2013 - $6,095) related to the excess of the fair value of El Chanate inventory over its carrying value at the acquisition date, which is being charged to earnings as the related inventory is sold.
| | | | | | | | | Three months ended | | | Six months ended | |
| | | | | | | | | June 30, 2014 | | | June 30, 2014 | |
| | | | | | | | | | | | Realized & | | | | | | Realized & | |
| | | | | | | | | Unrealized | | | unrealized | | | Unrealized | | | unrealized | |
| | | | | | | | | gains/(losses) | | | gains/(losses) | | | gains/(losses) | | | gains/(losses) | |
| | | June 30, 2014 | | | included in | | | included in | | | included in | | | included in | |
| | | Cost | | | Fair value | | | OCI | | | earnings | | | OCI | | | earnings | |
Securities(1) | $ | 1,964 | | $ | 267 | | $ | 5 | | $ | 804 | | $ | 2,596 | | $ | 6,631 | |
Reclassification to earnings | | - | | | - | | | (233 | ) | | 233 | | | 2,507 | | | (2,507 | ) |
Total securities(1) | $ | 1,964 | | $ | 267 | | $ | (228 | ) | $ | 1,037 | | $ | 5,103 | | $ | 4,124 | |
Securities(2) | | 235 | | | - | | | - | | | - | | | - | | | - | |
Warrants(2) | | 494 | | | - | | | - | | | (25 | ) | | - | | | (42 | ) |
| | $ | 2,693 | | $ | 267 | | $ | (228 | ) | $ | 1,012 | | $ | 5,103 | | $ | 4,082 | |
| | | | | | | | | Three months ended | | | Six months ended | |
| | | | | | | | | June 30, 2013 | | | June 30, 2013 | |
| | | | | | | | | | | | Realized & | | | | | | Realized & | |
| | | | | | | | | Unrealized | | | unrealized | | | Unrealized | | | unrealized | |
| | | | | | | | | gains/(losses) | | | gains/(losses) | | | gains/(losses) | | | gains/(losses) | |
| | | June 30, 2013 | | | included in | | | included in | | | included in | | | included in | |
| | | Cost | | | Fair value | | | OCI | | | earnings | | | OCI | | | earnings | |
Securities(1) | $ | 1,964 | | $ | 1,122 | | $ | (357 | ) | $ | - | | $ | (737 | ) | $ | - | |
Reclassification to earnings | | - | | | - | | | - | | | - | | | 128 | | | (128 | ) |
Total securities(1) | $ | 1,964 | | $ | 1,122 | | $ | (357 | ) | $ | - | | $ | (609 | ) | $ | (128 | ) |
Securities(2) | | 235 | | | 18 | | | - | | | (40 | ) | | - | | | (28 | ) |
Warrants(2) | | 494 | | | 203 | | | - | | | (164 | ) | | - | | | (288 | ) |
| | $ | 2,693 | | $ | 1,343 | | $ | (357 | ) | $ | (204 | ) | $ | (609 | ) | $ | (444 | ) |
| (1) | Classified as available-for-sale financial assets. |
| (2) | Classified as financial assets at fair value through profit or loss. |
Realized and unrealized gains on available-for-sale investments totalled $809 and $9,227 for the three and six months ended June 30, 2014 (three and six months ended June 30, 2013 - unrealized losses of $357 and $737). Realized and unrealized losses on securities and warrants classified at fair value through profit or loss for the three and six months ended June 30, 2014 totalled $25 and $42 (three and six months ended June 30, 2013 - unrealized losses of $204 and $316). Foreign exchange gains and losses on equity securities measured at fair value through profit or loss are included in foreign exchange (loss) / gain in the Condensed Consolidated Statements of Operations.
During the three and six months ended June 30, 2014, the Company sold shares in various publicly listed entities for total proceeds of $9,298 and $23,284. At June 30, 2014, the Company held $267 in long-term investments in companies with properties adjacent to its operations in Canada and Mexico.
During the three and six months ended June 30, 2013, the Company purchased investments with a total cost of $916 and $2,288. In these transactions, warrants were also acquired, with a total cost of $494. The cost of the shares and warrants were determined based on their fair value on the date of acquisition.
8
|
| NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS |
| (unaudited, in thousands of United States dollars unless otherwise stated) |
| 6. | Property, plant and equipment & mining interests |
| | | | | | Mining interests | | | | | | | |
| | | Plant | | | | | | | | | Exploration | | | | |
| | | and | | | | | | Non- | | | and | | | | |
| | | equipment | | | Depletable | | | depletable | | | evaluation | | | Total | |
Cost | | | | | | | | | | | | | | | |
At December 31, 2013 | $ | 661,166 | | $ | 1,113,092 | | $ | 23,855 | | $ | 72,647 | | $ | 1,870,760 | |
Additions | | 38,638 | | | 41,419 | | | 5,968 | | | 5,292 | | | 91,317 | |
Reclassifications | | - | | | 10,777 | | | (10,777 | ) | | - | | | - | |
Disposals | | (3,164 | ) | | - | | | - | | | - | | | (3,164 | ) |
At June 30, 2014 | $ | 696,640 | | $ | 1,165,288 | | $ | 19,046 | | $ | 77,939 | | $ | 1,958,913 | |
Accumulated amortization and depletion and impairment charges | |
At December 31, 2013 | $ | (56,330 | ) | $ | (133,901 | ) | $ | (4,574 | ) | $ | - | | $ | (194,805 | ) |
Amortization and depletion | | (16,023 | ) | | (51,682 | ) | | - | | | - | | | (67,705 | ) |
Disposals | | 1,563 | | | - | | | - | | | - | | | 1,563 | |
At June 30, 2014 | $ | (70,790 | ) | $ | (185,583 | ) | $ | (4,574 | ) | $ | - | | $ | (260,947 | ) |
Carrying value | | | | | | | | | | | | | | | |
At December 31, 2013 | $ | 604,836 | | $ | 979,191 | | $ | 19,281 | | $ | 72,647 | | $ | 1,675,955 | |
At June 30, 2014 | $ | 625,850 | | $ | 979,705 | | $ | 14,472 | | $ | 77,939 | | $ | 1,697,966 | |
The carrying values by mine are as follows:
| | | | | Mining interests | | | | | | | |
| | Plant | | | | | | | | | Exploration | | | | |
| | and | | | | | | Non- | | | and | | | | |
| | equipment | | | Depletable | | | depletable | | | evaluation | | | Total | |
El Chanate | $ | 34,037 | | $ | 97,147 | | $ | 1,525 | | $ | - | | $ | 132,709 | |
Young-Davidson | | 563,016 | | | 882,558 | | | 12,947 | | | - | | | 1,458,521 | |
Corporate and other | | 28,797 | | | - | | | - | | | 77,939 | | | 106,736 | |
At June 30, 2014 | $ | 625,850 | | $ | 979,705 | | $ | 14,472 | | $ | 77,939 | | $ | 1,697,966 | |
| | | | | | | | | | | | | | | |
El Chanate | $ | 35,307 | | $ | 84,975 | | $ | 10,945 | | $ | - | | $ | 131,227 | |
Young-Davidson | | 540,537 | | | 894,216 | | | 8,336 | | | - | | | 1,443,089 | |
Corporate and other | | 28,992 | | | - | | | - | | | 72,647 | | | 101,639 | |
At December 31, 2013 | $ | 604,836 | | $ | 979,191 | | $ | 19,281 | | $ | 72,647 | | $ | 1,675,955 | |
The carrying value of construction in progress at June 30, 2014 was $44,249 (December 31, 2013 - $70,025), including $43,904 (December 31, 2013 - $69,249) relating to projects at the Young-Davidson mine.
The Company has made non-cancellable commitments to acquire property, plant and equipment totaling $6,750 at June 30, 2014 (December 31, 2013 - $10,981).
Included in intangible assets is the retained interest royalty received as part of consideration from the sale of the Fosterville and Stawell mines (collectively, the “Australian Operations”) on May 4, 2012 to Crocodile Gold Corporation (“Crocodile Gold”). Per the agreement, once the cumulative free cash flow generated by the mines subsequent to closing reaches CAD $60 million, the Company will receive 100% of the next CAD $30 million of cumulative free cash flow in excess of CAD $60 million, and 50% of the next CAD $30 million of cumulative free cash flow in excess of CAD $90 million. In addition, the Company will receive 20% of any cumulative free cash flow in excess of CAD $120 million.
9
|
| NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS |
| (unaudited, in thousands of United States dollars unless otherwise stated) |
During the three months ended June 30, 2014, the Company was notified that the Australian Operations had generated in excess of CAD $60 million and, as a result, received proceeds of $2,463 from Crocodile Gold. Consistent with the Company’s accounting policy, amortization of the retained interest royalty commenced once the Company became entitled to receive cash flows under this arrangement. During Q2 2014, the Company recognized amortization expense of $7,278 on the retained interest royalty, which reduced the carrying value of this asset to $26,726.
At June 30, 2013, the Company reassessed its gold price assumptions due to weakness in spot gold prices, which was considered to be an indicator of impairment. As a result, the Company performed impairment tests on the El Chanate cash-generating unit (“CGU”) and the retained interest royalty held in the Australian Operations. The Company recognized impairment charges of $80,000 and $18,688 on the El Chanate CGU and retained interest royalty intangible asset, respectively. As a result of the impairment charge on the retained interest royalty, the Company also recorded a deferred tax recovery of $2,186.
| | |
| 9. | Debt and equipment financing obligations |
| | | | June 30 | | | December 31 | |
| | | | 2014 | | | 2013 | |
| (a) | Revolving credit facility | $ | - | | $ | 75,000 | |
| (b) | Senior secured notes | | 296,867 | | | - | |
| (c) | Convertible senior notes | | 616 | | | 157,133 | |
| (d) | Equipment financing obligations | | 15,779 | | | 17,522 | |
| (e) | Other | | 860 | | | 1,894 | |
| | | | 314,122 | | | 251,549 | |
| | Less: Current portion of debt and equipment financing obligations | | (6,869 | ) | | (7,355 | ) |
| | | $ | 307,253 | | $ | 244,194 | |
The estimated future minimum payments under debt and equipment financing obligations are as follows:
| 2014 | $ | 19,607 | |
| 2015 | $ | 29,161 | |
| 2016 | $ | 28,327 | |
| 2017 | $ | 26,000 | |
| 2018 | $ | 25,093 | |
| 2019 and thereafter | $ | 351,619 | |
| (a) | Revolving credit facility |
During the six months ended June 30, 2014, the Company made a repayment of $75,000 (six months ended June 30, 2013 - $nil).
On March 27, 2014, the Company completed an offering of $315,000 senior secured notes (the “secured notes”), secured by a second-ranking lien on all present and future assets, property and undertaking of the Company. These secured notes were sold at 96.524% of par, resulting in total proceeds of $304,051. The secured notes pay interest in semi-annual installments on April 1 and October 1 of each year, commencing on October 1, 2014, at a rate of 7.75% per annum, and mature on April 1, 2020. The Company incurred transaction costs of $7,838, which have been offset against the carrying amount of the secured notes and are amortized using the effective interest rate method.
| (c) | Convertible senior notes |
On March 6, 2014, the Company announced a cash tender offer to redeem all of the outstanding convertible notes. The consideration offered was $1.04 per $1.00 note plus accrued and unpaid interest to the payment date. The Company received tender offers for $166,354 of the $167,000 principal amount outstanding. This was considered a substantial modification of the existing arrangement with the holders of the Company’s convertible notes. As a result, the Company de-recognized the convertible notes on the date of substantial modification. The convertible notes were re-recognized at their fair value on the same date. This resulted in a loss on modification of $15,645, which has been included in other (loss) / income on the Condensed Consolidated Statement of Operations for the six months ended June 30, 2014 (refer to note 13). On April 3, 2014, the Company paid $173,041 including $32 of accrued interest, to complete the cash tender offer to redeem the outstanding convertible notes tendered.
10
|
| NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS |
| (unaudited, in thousands of United States dollars unless otherwise stated) |
At June 30, 2014, $646 (December 31, 2013 - $167,000) of the convertible notes remained outstanding at a carrying value of $616 (December 31, 2013 - $157,133) for the debt component and $nil (December 31, 2013 - $413) for the option component.
As required by conditions surrounding the completion of the senior secured notes offering, at June 30, 2014, the Company has restricted $691 of proceeds from the senior secured notes offering for repayment of all principal and interest relating to any convertible notes that were not tendered. These restricted proceeds are included within other long-term assets on the Condensed Consolidated Balance Sheets at June 30, 2014.
| (d) | Equipment financing obligations |
The Company has entered into financing obligations for equipment, which expire at various dates between 2015 and 2019 and are secured by the financed assets. Interest payable on the various obligations ranges from fixed rates of 2.71% to 5.77% . During the six months ended June 30, 2014, the Company received proceeds of $1,263 (six months ended June 30, 2013 - $nil) from equipment financing arrangements.
During 2013, the Company purchased land near the El Chanate mine and entered into loan agreements as part of the consideration. During the three and six months ended June 30, 2014, the Company made repayments of $392 and $1,034 on these loan agreements.
Provision for lawsuit
The Company was named as a defendant in a claim originally filed by Ed J. McKenna, which was certified as a class action lawsuit with damages sought ranging from $80 million to $160 million. On October 5, 2012, the Company reached an agreement to settle this class action lawsuit, subject to approval of the court and the right of the Company to terminate the agreement under certain circumstances. Following the completion of the claims administration process which was conducted pursuant to a court-approved settlement agreement, funds related to this lawsuit were distributed by an administrator to eligible class members in April 2014. At the settlement payment date, the Company reduced the current portion of provisions on the Condensed Consolidated Balance Sheets by $12,016, which was partially offset by a corresponding decrease in insurance receivable of $9,890 and restricted cash of $2,126, the latter of which represents the net settlement amount paid by the Company.
The remaining balance of the current portion of provisions relates to planned reclamation expenditures in the next twelve months at Kemess South, and the current portion of cash-settled compensation plans.
11
|
| NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS |
| (unaudited, in thousands of United States dollars unless otherwise stated) |
| 11. | Shareholders’ equity |
| | |
| (a) | Capital stock |
Authorized:
Unlimited number of common shares.
The Company’s shares have no par value.
Issued and outstanding:
| | June 30, 2014 | | | June 30, 2013 | |
| | Number of | | | | | | Number of | | | | |
| | common | | | Ascribed | | | common | | | Ascribed | |
| | shares | | | value | | | shares | | | value | |
Balance, beginning of period | | 247,569,811 | | $ | 2,021,837 | | | 282,326,547 | | $ | 2,307,978 | |
Shares repurchased and cancelled | | - | | | - | | | (36,144,578 | ) | | (295,536 | ) |
Shares issued through employee share purchase plan | | 276,144 | | | 1,077 | | | 143,528 | | | 1,009 | |
Shares issued through dividend reinvestment plan | | 474,832 | | | 1,871 | | | - | | | - | |
Shares issued on redemption of deferred share units | | 52,065 | | | 359 | | | 71,845 | | | 499 | |
Shares issued on exercise of stock options | | 548 | | | 2 | | | 458,168 | | | 3,094 | |
Fair value of share-based compensation on stock options exercised | | - | | | 4 | | | - | | | 1,825 | |
Balance, end of period | | 248,373,400 | | $ | 2,025,150 | | | 246,855,510 | | $ | 2,018,869 | |
During the six months ended June 30, 2013, the Company repurchased and cancelled 36,144,578 common shares under a “modified Dutch auction” substantial issuer bid, for a total purchase price of $301,066, including transaction costs. Of the $301,066 paid, $295,536 was recognized in capital stock to reduce the book value of the shares repurchased, transaction costs of $5,353 were recognized in deficit, and $177 was recognized as deferred tax expense.
Commencing in 2014, quarterly dividends representing 20% of operating cash flow generated in the preceding quarter will be declared and paid. On May 8, 2014, the Company’s Board of Directors approved a dividend of $0.02 per share, payable to shareholders of record on May 20, 2014, and paid on June 3, 2014.
The second quarter dividend was declared on August 7, 2014 (refer to note 19).
In 2013, the Company paid an annual dividend of $0.16 per share ($0.04 paid quarterly).
| (c) | Stock options (in Canadian dollars) |
The Company has a long-term incentive plan under which share-based compensation, including stock options, deferred share units, performance share units, and restricted share units may be granted to directors, officers, employees, and consultants of the Company. The maximum number of common shares that may be reserved and set aside for issuance under the plan is 6.5% of the common shares outstanding at the time of granting the award (on a non-diluted basis). Stock options are generally exercisable for a maximum period of five to seven years from the grant date, and have vesting periods of three to four years or as determined by the Company’s Board of Directors.
Stock option disclosures are in Canadian dollars as the Canadian dollar is the source currency of the Company’s stock option grants.
12
|
| NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS |
| (unaudited, in thousands of United States dollars unless otherwise stated) |
The fair value of the options granted during the six months ended June 30, 2014 and June 30, 2013 were calculated using the Black-Scholes option-pricing model with the following weighted average assumptions:
| | June 30 | | | June 30 | |
| | 2014 | | | 2013 | |
Dividend yield | | 2.30% | | | 2.19% | |
Expected volatility | | 56.79% | | | 54.03% | |
Risk free interest rate | | 1.22% | | | 1.28% | |
Expected life | | 2.5 years | | | 3.35 years | |
Exercise price | $ | 3.80 | | $ | 7.27 | |
Share price | $ | 4.09 | | $ | 7.35 | |
Grant date fair value | $ | 1.36 | | $ | 2.52 | |
Expected volatility was determined based on historical share price volatility over the expected life of the option granted.
| | June 30, 2014 | | | June 30, 2013 | |
| | | | | Weighted | | | | | | Weighted | |
| | Options | | | average price | | | Options | | | average price | |
Outstanding, beginning of period | | 11,313,300 | | $ | 7.29 | | | 10,239,564 | | $ | 8.24 | |
Granted | | 20,000 | | $ | 3.80 | | | 878,476 | | $ | 7.27 | |
Forfeited | | (65,000 | ) | $ | 5.26 | | | (167,500 | ) | $ | 9.87 | |
Expired | | (420,445 | ) | $ | 10.08 | | | (1,425,175 | ) | $ | 8.35 | |
Exercised | | (548 | ) | $ | 2.85 | | | (458,168 | ) | $ | 6.76 | |
Outstanding, end of period | | 10,847,307 | | $ | 7.18 | | | 9,067,197 | | $ | 8.17 | |
Options exercisable, end of period | | 5,764,841 | | $ | 8.03 | | | 4,220,345 | | $ | 8.20 | |
During the six months ended June 30, 2014, employees, consultants, officers and directors of the Company exercised 548 options (six months ended June 30, 2013 - 458,168) for total proceeds of $2 (six months ended June 30, 2013 - $3,091). The weighted average share price at the date of exercise for stock options exercised during the six months ended June 30, 2014 was $5.05 (six months ended June 30, 2013 - $7.39) .
Set forth below is a summary of the outstanding options to purchase common shares as at June 30, 2014:
| | | | | Options outstanding | | | Options exercisable | |
| | | | | Number | | | Weighted average | | | Average life | | | Number | | | Weighted average | |
| | Option Price | | | outstanding | | | exercise price | | | (yrs) | | | exercisable | | | exercise price | |
| $ | 2.51 - 4.00 | | | 325,136 | | $ | 3.01 | | | 1.98 | | | 275,136 | | $ | 2.84 | |
| $ | 4.01 - 6.00 | | | 2,369,878 | | $ | 4.05 | | | 4.39 | | | 49,675 | | $ | 5.37 | |
| $ | 6.01 - 7.00 | | | 1,600,500 | | $ | 6.71 | | | 3.37 | | | 1,188,750 | | $ | 6.71 | |
| $ | 7.01 - 7.50 | | | 888,226 | | $ | 7.15 | | | 3.52 | | | 488,966 | | $ | 7.20 | |
| $ | 7.51 - 9.00 | | | 3,327,174 | | $ | 8.11 | | | 3.50 | | | 2,053,755 | | $ | 8.10 | |
| $ | 9.01 - 9.50 | | | 742,500 | | $ | 9.29 | | | 4.35 | | | 396,250 | | $ | 9.29 | |
| $ | 9.51 - 10.00 | | | 919,143 | | $ | 9.72 | | | 2.88 | | | 811,309 | | $ | 9.74 | |
| $ | 10.01 - 10.50 | | | 175,000 | | $ | 10.09 | | | 3.80 | | | 131,250 | | $ | 10.09 | |
| $ | 10.51 - 11.00 | | | 250,000 | | $ | 10.95 | | | 4.38 | | | 125,000 | | $ | 10.95 | |
| $ | 11.01 - 12.50 | | | 249,750 | | $ | 11.61 | | | 2.93 | | | 244,750 | | $ | 11.61 | |
| | Total | | | 10,847,307 | | | | | | | | | 5,764,841 | | | | |
| (d) | Employee share purchase plan |
The Company has an Employee Share Purchase Plan which enables employees to purchase Company shares through payroll deduction. Employees can contribute up to 10% of their annual base salary, and the Company will match 75% of the employees’ contributions. The common shares are purchased based on the volume weighted average closing price of the last five days prior to the end of the quarter. During the three and six months ended June 30, 2014, the Company recognized $293 and $498 as an expense (three and six months ended June 30, 2013 - $201 and $384) related to this plan. At June 30, 2014, $299 of the expense was payable by the Company (December 31, 2013 - $217).
13
|
| NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS |
| (unaudited, in thousands of United States dollars unless otherwise stated) |
| (e) | Deferred share unit plan |
The Company awards Deferred Share Units (“DSUs”) as an alternative form of compensation for employees, officers, consultants, and members of the Company’s Board of Directors. Each unit entitles the participant to receive one common share of the Company from treasury upon redemption. DSUs are measured on the grant date using the Company’s closing price on that date.
A total of 45,495 DSUs were granted during the three and six months ended June 30, 2014 with a grant date fair value of $200 (three and six months ended June 30, 2013 - 61,683 DSUs with a grant date fair values of $337). In lieu of cash dividends on outstanding DSUs, 1,468 and 3,704 DSUs were granted during the three and six months ended June 30, 2014 with a grant date fair value of $10 and $26 (three and six months ended June 30, 2013 - 1,103 DSUs with a grant date fair value of $7). During the three and six months ended June 30, 2014, 52,066 DSUs were redeemed (three and six months ended June 30, 2013 - 71,845). At June 30, 2014, 245,730 DSUs were vested and outstanding (December 31, 2013 - 248,596).
| (f) | Performance share unit plan |
The Company awards Performance Share Units (“PSUs”) as an alternative form of compensation for employees, officers, consultants, and members of the Company’s Board of Directors. Each unit entitles the participant to receive a cash payment equal to the market price of one share as of the PSU vesting date, one share, or any combination of cash and shares equal to the market price of one share as of the PSU vesting date, assuming certain performance conditions are met. PSUs are measured using the volume weighted average closing share price of the last five days prior to granting of the units.
A total of 80,000 equity-settled PSUs were granted during the three and six months ended June 30, 2014 with a grant date fair value of $298 (three and six months ended June 30, 2013 - 115,114 PSUs with a grant date fair value of $559). In lieu of cash dividends on outstanding PSUs, 2,596 and 6,451 PSUs were granted during the three and six months ended June 30, 2014 with grant date fair values of $9 and $26, respectively (three and six months ended June 30, 2013 - 743 PSUs with a grant date fair value of $5). For the three and six months ended June 30, 2014, the Company recorded a recovery of $325 and $111 (three and six months ended June 30, 2013 - $nil) on total PSUs outstanding of 434,485 (December 31, 2013 - 348,040 PSUs). At June 30, 2014, no outstanding PSUs had vested (December 31, 2013 - nil).
| (g) | Restricted share unit plan |
The Company awards Restricted Share Units (“RSUs”) as an alternative form of compensation for employees, officers, consultants, and members of the Company’s Board of Directors. Each unit entitles the participant to receive a cash payment equal to the market price of one share as of the RSU vesting date, one share, or any combination of cash and shares equal to the market price of one share as of the RSU vesting date. The Company records RSUs that will be cash-settled in provisions and RSUs that will be share-settled within shareholders’ equity. RSUs are measured using the volume weighted average closing share price of the last five days prior to granting of the units.
A total of 97,189 equity-settled RSUs were granted during the three and six months ended June 30, 2014 with a grant date fair value of $428 (three and six months ended June 30, 2013 - 86,894 RSUs with a grant date fair value of $534). A total of 2,691 and 5,899 dividend equivalent RSUs were granted during the three and six months ended June 30, 2014 with grant date fair values of $12 and $26 (three and six months ended June 30, 2013 - 563 RSUs with a grant date fair value of $3). For the three and six months ended June 30, 2014, the Company recorded an expense of $367 and $583 (three and six months ended June 30, 2013 - $247) on total RSUs outstanding of 450,418 (December 31, 2013 - 356,155). At June 30, 2014, 99,115 of the outstanding RSUs had vested (December 31, 2013 - 35,843).
14
|
| NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS |
| (unaudited, in thousands of United States dollars unless otherwise stated) |
The Company’s loss from operations includes the following expenses presented by function:
| | | Three months ended | | | Six months ended | |
| | | June 30 | | | June 30 | | | June 30 | | | June 30 | |
| | | 2014 | | | 2013 | | | 2014 | | | 2013 | |
Cost of sales | $ | 85,901 | | $ | 153,308 | | $ | 163,462 | | $ | 194,033 | |
General and administrative | | 5,663 | | | 7,743 | | | 14,919 | | | 14,122 | |
Exploration and business development | | 259 | | | 283 | | | 459 | | | 549 | |
| | $ | 91,823 | | $ | 161,334 | | $ | 178,840 | | $ | 208,704 | |
Cost of sales for the three and six months ended June 30, 2013 includes impairment charges of $80,000 and $18,688 relating to the El Chanate mine and the retained interest royalty, respectively.
Included in general and administrative expense for the three and six months ended June 30, 2014 is $1,446 and $3,808 of share-based compensation expense (three and six months ended June 30, 2013 - $2,054 and $3,691).
| | | Three months ended | | | Six months ended | |
| | | June 30 | | | June 30 | | | June 30 | | | June 30 | |
| | | 2014 | | | 2013 | | | 2014 | | | 2013 | |
Fair value adjustment on option component of convertible senior notes | $ | - | | $ | 4,106 | | $ | 413 | | $ | 10,975 | |
Income from retained interest royalty (Note 7) | | 2,463 | | | - | | | 2,463 | | | - | |
Amortization expense from retained interest royalty (Note 7) | | (7,278 | ) | | - | | | (7,278 | ) | | - | |
Unrealized loss on contingent consideration | | - | | | (4,060 | ) | | - | | | (6,849 | ) |
Unrealized and realized (loss) / gain on derivative assets and liabilities | | - | | | (793 | ) | | - | | | 1,882 | |
Interest income | | 180 | | | 410 | | | 769 | | | 603 | |
Unrealized and realized gains / (losses) on investments (Note 5) | | 779 | | | (204 | ) | | 6,589 | | | (316 | ) |
Reclassification of accumulated gains / (losses) on available-for-sale investments (Note 5) | | 233 | | | - | | | (2,507 | ) | | (128 | ) |
Loss on modification of convertible notes (Note 9(c)) | | - | | | - | | | (15,645 | ) | | - | |
Other | | (255 | ) | | (101 | ) | | (164 | ) | | (43 | ) |
| | | | | | | | | | | | | |
| | $ | (3,878 | ) | $ | (642 | ) | $ | (15,360 | ) | $ | 6,124 | |
The current income tax expense recognized during the three and six months ended June 30, 2014 is based on the Company’s best estimate of the average annual income tax rate expected for the full year, applied to the earnings before income taxes for the period. The Company determines the expected effective tax rate based on the estimated taxable profit or loss for the period, and thereby excludes non-tax deductible items from this determination.
Basic loss per share is calculated based on the weighted average number of common shares and common share equivalents outstanding during the three and six months ended June 30, 2014 of 248,495,726 and 248,343,301, respectively (three and six months ended June 30, 2013 - 247,025,811 and 253,288,330, respectively). Diluted loss per share is based on the assumption that all convertible debentures are converted, and that stock options and other share-based instruments issued that have an exercise price less than the average market price of the Company’s common shares during the period
15
|
| NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS |
| (unaudited, in thousands of United States dollars unless otherwise stated) |
have been exercised on the later of the beginning of the year and the date granted. For the three and six months ended June 30, 2014 and 2013, net loss and basic weighted average shares outstanding are equal to diluted loss and diluted weighted average shares outstanding, as all potential dilution adjustments were anti-dilutive.
The following items were excluded from the computation of diluted weighted average shares outstanding for the three and six months ended June 30, 2014 and 2013 because their effect would have been anti-dilutive:
| | | Three months ended | | | Six months ended | |
| | | June 30 | | | June 30 | | | June 30 | | | June 30 | |
| | | 2014 | | | 2013 | | | 2014 | | | 2013 | |
Stock options | | 10,847,307 | | | 9,067,197 | | | 10,847,307 | | | 9,067,197 | |
Warrants issued | | - | | | 835,000 | | | - | | | 835,000 | |
Convertible senior notes | | 60,974 | | | 15,249,853 | | | 60,974 | | | 15,249,853 | |
Restricted share units | | 351,304 | | | 58,305 | | | 351,304 | | | 58,305 | |
Performance share units | | 434,485 | | | 115,857 | | | 434,485 | | | 115,857 | |
| | |
| 16. | Supplemental cash flow information |
| | | Three months ended | | | Six months ended | |
| | | June 30 | | | June 30 | | | June 30 | | | June 30 | |
Adjustments to reconcile net loss to operating cash flows: | | 2014 | | | 2013 | | | 2014 | | | 2013 | |
Impairment charges | $ | - | | $ | 98,688 | | $ | - | | $ | 98,688 | |
Amortization and depletion | | 34,785 | | | 14,455 | | | 63,378 | | | 25,923 | |
Net realizable value adjustments | | - | | | 10,105 | | | - | | | 10,105 | |
Loss on modification of convertible notes | | - | | | - | | | 15,645 | | | - | |
Fair value adjustment on option component of convertible senior notes | | - | | | (4,106 | ) | | (413 | ) | | (10,975 | ) |
Unrealized foreign exchange loss / (gain) | | 7,583 | | | (8,741 | ) | | 1,635 | | | (9,677 | ) |
Unrealized loss on contingent consideration | | - | | | 4,060 | | | - | | | 6,849 | |
Share-based compensation, net of forfeitures | | 1,446 | | | 2,054 | | | 3,808 | | | 3,691 | |
Deferred income tax (recovery) / expense | | (16,360 | ) | | 7,301 | | | (11,793 | ) | | 7,036 | |
Equity in (income) / loss of jointly-controlled entity | | - | | | (960 | ) | | 92 | | | 56 | |
Unrealized and realized loss / (gain) on derivative assets and liabilities | | - | | | 793 | | | - | | | (1,882 | ) |
Unrealized and realized (gains) / losses on investments | | (779 | ) | | 204 | | | (6,589 | ) | | 316 | |
Reclassification of accumulated (gains) / losses on available-for-sale investments | | (233 | ) | | - | | | 2,507 | | | 128 | |
Income from retained interest royalty | | (2,463 | ) | | - | | | (2,463 | ) | | - | |
Amortization of retained interest royalty | | 7,278 | | | - | | | 7,278 | | | - | |
Other non-cash items | | (8 | ) | | 120 | | | 524 | | | 83 | |
| | $ | 31,249 | | $ | 123,973 | | $ | 73,609 | | $ | 130,341 | |
16
|
| NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS |
| (unaudited, in thousands of United States dollars unless otherwise stated) |
| | | Three months ended | | | Six months ended | |
| | | June 30 | | | June 30 | | | June 30 | | | June 30 | |
| | | 2014 | | | 2013 | | | 2014 | | | 2013 | |
Change in non-cash operating working capital: | | | | | | | | | | | | |
Receivables | $ | 4,708 | | $ | 2,927 | | $ | 1,634 | | $ | 1,947 | |
Current income tax receivable | | - | | | 220 | | | 21,733 | | | 2,824 | |
Prepaids and deposits | | 191 | | | 75 | | | 992 | | | (101 | ) |
Inventories | | (7,755 | ) | | (4,720 | ) | | (13,864 | ) | | (15,457 | ) |
Trade payables and accrued liabilities | | (4,738 | ) | | (1,621 | ) | | (6,812 | ) | | 624 | |
Current income tax liability | | (15 | ) | | (1,697 | ) | | (270 | ) | | (1,676 | ) |
| $ | (7,609 | ) | $ | (4,816 | ) | $ | 3,413 | | $ | (11,839 | ) |
| | | | | | | | | | | | |
Supplemental information: | | | | | | | | | | | | |
Interest paid | $ | 202 | | $ | 238 | | $ | 4,203 | | $ | 3,666 | |
Interest received | $ | 152 | | $ | 358 | | $ | 697 | | $ | 752 | |
Income taxes paid | $ | 60 | | $ | 350 | | $ | 1,112 | | $ | 2,595 | |
Non-cash transactions: | | | | | | | | | | | | |
Amortization of discount and financing fees on debt capitalized to mining interests | $ | 182 | | $ | 794 | | $ | 500 | | $ | 1,588 | |
Interest payable capitalized to mining interests | $ | 1,770 | | $ | 1,461 | | $ | 1,770 | | $ | 1,461 | |
| | |
| 17. | Financial instruments and risk management |
Fair values of financial instruments
The following table sets forth the Company’s financial assets and liabilities that are measured at fair value on a recurring basis by level within the fair value hierarchy. The Company does not have any non-recurring fair value measurements. Levels 1 to 3 are defined based on the degree to which fair value inputs are observable or unobservable, as follows:
| | — | Level 1 inputs are quoted prices (unadjusted) in active markets for identical assets or liabilities; |
| | — | Level 2 inputs are based on inputs which have a significant effect on fair value that are observable, either directly or indirectly from market data; and |
| | — | Level 3 inputs are unobservable (supported by little or no market activity). |
| | June 30, 2014 | | | December 31, 2013 | |
| | Level 1 | | | Level 2 | | | Level 1 | | | Level 2 | |
Cash | $ | 140,189 | | $ | - | | $ | 141,125 | | $ | - | |
Short term deposits | | 385 | | | - | | | 1,527 | | | - | |
Financial assets at fair value through profit or loss | | | | | | | | | | | | |
Warrants held | | - | | | - | | | - | | | 41 | |
Available-for-sale financial assets | | | | | | | | | | | | |
Equity investments (a) | | 267 | | | - | | | 15,510 | | | - | |
Financial liabilities at fair value through profit or loss | | | | | | | | | | | | |
Option component of convertible senior notes | | - | | | - | | | - | | | (413 | ) |
| | $ | 140,841 | | $ | - | | $ | 158,162 | | $ | (372 | ) |
The methods of measuring each of these financial assets and liabilities have not changed during 2014. The Company does not have any financial assets or liabilities measured at fair value based on unobservable inputs (Level 3).
The fair values of financial instruments measured at amortized cost, except for the senior secured notes, approximate their carrying amounts at June 30, 2014. The fair value of the senior secured notes was approximately $311,850 at June 30, 2014, compared to a carrying value of $296,867. This fair value was determined based on observable market information.
17
|
| NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS |
| (unaudited, in thousands of United States dollars unless otherwise stated) |
The Company’s equity investments, both available-for-sale and at fair value through profit or loss, are valued using quoted market prices in active markets and as such are classified within Level 1 of the fair value hierarchy. The fair value of investment securities is calculated as the closing market price of the investment equity security multiplied by the quantity of shares held by the Company.
The Company’s reportable segments are consistent with the Company’s operating segments and consist of the geographical regions in which the Company operates. In determining the Company’s segment structure, the Company considered the basis on which management, including the chief operating decision maker, reviews the financial and operational performance of the Company, and whether any of the Company’s mining operations share similar economic, operational and regulatory characteristics. The Company has two reportable segments, as follows:
| | — | Mexico: El Chanate mine |
| | — | Canada: Young-Davidson mine |
Corporate and other consists of the Company’s corporate offices and exploration properties. The following are the operating results by reportable segment:
| | | Three months ended June 30, 2014 | |
| | | | | | | | | Corporate | | | | |
| | | Mexico | | | Canada | | | and other | | | Total | |
| | | | | | | | | | | | | |
Revenue from mining operations | $ | 21,484 | | $ | 54,046 | | $ | - | | $ | 75,530 | |
| | | | | | | | | | | | |
Production costs | | 10,835 | | | 37,856 | | | - | | | 48,691 | |
Refining costs | | 107 | | | 48 | | | - | | | 155 | |
Amortization and depletion | | 4,163 | | | 30,524 | | | 98 | | | 34,785 | |
Reclamation, care and maintenance costs | | - | | | - | | | 2,270 | | | 2,270 | |
General and administrative | | 216 | | | - | | | 5,447 | | | 5,663 | |
Exploration and business development | | - | | | - | | | 259 | | | 259 | |
| | 15,321 | | | 68,428 | | | 8,074 | | | 91,823 | |
Earnings / (loss) from operations | $ | 6,163 | | $ | (14,382 | ) | $ | (8,074 | ) | $ | (16,293 | ) |
Expenditures on property, plant and equipment, mining interests & intangible assets | $ | 5,660 | | $ | 31,481 | | $ | 3,975 | | $ | 41,116 | |
| | | Three months ended June 30, 2013 | |
| | | | | | | | | Corporate | | | | |
| | | Mexico | | | Canada | | | and other | | | Total | |
| | | | | | | | | | | | | |
Revenue from mining operations | $ | 30,990 | | $ | 26,670 | | $ | - | | $ | 57,660 | |
| | | | | | | | | | | | |
Production costs | | 21,559 | | | 17,496 | | | - | | | 39,055 | |
Refining costs | | 103 | | | 22 | | | - | | | 125 | |
Amortization and depletion | | 5,033 | | | 9,339 | | | 83 | | | 14,455 | |
Reclamation, care and maintenance costs | | - | | | - | | | 985 | | | 985 | |
General and administrative | | 525 | | | - | | | 7,218 | | | 7,743 | |
Exploration and business development | | - | | | - | | | 283 | | | 283 | |
Impairment charges | | 80,000 | | | - | | | 18,688 | | | 98,688 | |
| | 107,220 | | | 26,857 | | | 27,257 | | | 161,334 | |
Loss from operations | $ | (76,230 | ) | $ | (187 | ) | $ | (27,257 | ) | $ | (103,674 | ) |
Expenditures on property, plant and equipment, mining interests & intangible assets | $ | 11,627 | | $ | 48,398 | | $ | 249 | | $ | 60,274 | |
18
|
| NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS |
| (unaudited, in thousands of United States dollars unless otherwise stated) |
| | | Six months ended June 30, 2014 | |
| | | | | | | | | Corporate | | | | |
| | | Mexico | | | Canada | | | and other | | | Total | |
| | | | | | | | | | | | | |
Revenue from mining operations | $ | 45,421 | | $ | 101,062 | | $ | - | | $ | 146,483 | |
| | | | | | | | | | | | |
Production costs | | 22,054 | | | 74,530 | | | - | | | 96,584 | |
Refining costs | | 214 | | | 81 | | | - | | | 295 | |
Amortization and depletion | | 8,648 | | | 54,496 | | | 234 | | | 63,378 | |
Reclamation, care and maintenance costs | | - | | | - | | | 3,205 | | | 3,205 | |
General and administrative | | 520 | | | - | | | 14,399 | | | 14,919 | |
Exploration and business development | | - | | | - | | | 459 | | | 459 | |
| | 31,436 | | | 129,107 | | | 18,297 | | | 178,840 | |
Earnings / (loss) from operations | $ | 13,985 | | $ | (28,045 | ) | $ | (18,297 | ) | $ | (32,357 | ) |
Expenditures on property, plant and equipment, mining interests & intangible assets | $ | 13,917 | | $ | 76,845 | | $ | 5,966 | | $ | 96,728 | |
| | | Six months ended June 30, 2013 | |
| | | | | | | | | Corporate | | | | |
| | | Mexico | | | Canada | | | and other | | | Total | |
| | | | | | | | | | | | | |
Revenue from mining operations | $ | 59,110 | | $ | 63,435 | | $ | - | | $ | 122,545 | |
| | | | | | | | | | | | |
Production costs | | 32,754 | | | 34,176 | | | - | | | 66,930 | |
Refining costs | | 181 | | | 69 | | | - | | | 250 | |
Amortization and depletion | | 8,446 | | | 17,310 | | | 167 | | | 25,923 | |
Reclamation, care and maintenance costs | | - | | | - | | | 2,242 | | | 2,242 | |
General and administrative | | 840 | | | - | | | 13,282 | | | 14,122 | |
Exploration and business development | | - | | | - | | | 549 | | | 549 | |
Impairment charges | | 80,000 | | | - | | | 18,688 | | | 98,688 | |
| | 122,221 | | | 51,555 | | | 34,928 | | | 208,704 | |
(Loss) / earnings from operations | $ | (63,111 | ) | $ | 11,880 | | $ | (34,928 | ) | $ | (86,159 | ) |
Expenditures on property, plant and equipment, mining interests & intangible assets | $ | 22,061 | | $ | 82,755 | | $ | 962 | | $ | 105,778 | |
The following are total assets by reportable segment:
| | | | | | | | | Corporate | | | | |
| | Mexico | | | Canada | | | and other | | | Total | |
Total assets at June 30, 2014 | $ | 282,569 | | $ | 1,838,472 | | $ | 310,544 | | $ | 2,431,585 | |
Total assets at December 31, 2013 | $ | 265,028 | | $ | 1,822,533 | | $ | 374,847 | | $ | 2,462,408 | |
The Company’s revenue is derived from the sale of gold and silver in Mexico and Canada, as disclosed in the tables above. The Company sells all gold and silver produced to two customers. The Company is not economically dependent on these customers for the sale of its product because gold and silver can be sold through numerous commodity market traders worldwide.
| | |
| 19. | Events after the reporting period |
Declaration of dividend
On August 7, 2014, the Company’s Board of Directors approved a dividend of $0.00375 per share, payable to shareholders of record on August 18, 2014.
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